Great-West Lifeco Inc.

Thank you for standing by. This is the conference operator. Welcome to the Great West LifeCo's second quarter 2023 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity for analysts to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Mr. Paul Mann, President and CEO of Great West Life Co. Please go ahead.

Thank you, Gaylene. Good morning, everyone, and welcome to Great West Life Co.' 's second quarter 2023 conference call. Joining me on today's call is Gary McNicholas, Executive Vice President and Chief Financial Officer. Together, we'll deliver today's formal presentation. Also joining us on the call and available to answer your questions are David Harney, President and COO of Europe, Arshil Jamal, President and Group Head of Strategy, Investments, Reinsurance, and Corporate Development, Jeff McCown, President and COO of Canada, Ed Murphy, President and CEO of Empower, and Bob Reynolds, President and CEO of Putnam Investments. Before we start, I'll draw your attention to our cautionary notes regarding forward-looking information and non-GAAP financial measures and ratios on slide two. These cautionary notes apply to the information we'll discuss during this call. Please turn to slide four. The company delivered strong results in the second quarter of 2023 with base earnings per share of $0.99, up 2% from last year, and up 11% from the prior quarter. This performance reflects disciplined execution of our strategy, which is driving momentum across our businesses. In each of our operating companies, we continue to make organic investments and take strategic actions that will help us deliver on our value creation objectives. During the quarter, we initiated several transactions to advance our workplace and wealth growth strategies. We announced the sale of Putnam Investments to Franklin Resources, unlocking shareholder value and reinforcing our focus on the highly attractive U.S. retirement and personal wealth markets through Empower. We announced the acquisitions of IPC and Value Partners in Canada, which will help advance our goal to be the leading Canadian full-service wealth and insurance platform for independent advisors and their clients. In the UK, we announced the sale of our individual protection business, where we did not see a clear path to sustainable scale and leadership. And at Irish Life, we announced our new joint venture with AIB, Ireland's leading bank, diversifying our wealth and insurance distribution reach in Ireland. In addition to these actions, we continue to successfully integrate acquisitions at Empower, including a faster realization of synergies from credential than originally forecast. Net earnings per share were 53 cents in the quarter, which included losses of 30 cents per share related to two categories of costs that will position LIFCO for continued growth and stability. First were 17 cents per share of transaction costs related to recent strategic transactions, including the announced sales of Putnam Investments and the UK individual protection business. Second was a 13 cent per share impact of realized OCI losses from surplus asset rebalancing in the UK. This action shortens the asset duration to capitalize on higher short-term rates, improves our LICAT ratio, and reduces future LICAT sensitivity. Excluding these items, net EPS would have been 83 cents per share, reflecting more typical non-based earnings items, such as market impacts and ongoing integration costs. And finally, our LICAP ratio remains strong at 126%. Please turn to slide five. In Canada, we delivered strong results in our workplace solutions business. In group life and health, we've grown premiums by $1 billion over the last year. And this does not include the federal health plan, which will be reported in the third quarter. On July 1, we went live providing benefits under this plan, known as the Public Service Health Care Plan. While we successfully enrolled over 85% of plan members before this date, we experienced some transition issues with paper-based enrollments for retirees. We've worked with the government to address these challenges and are seeing the situation improve. Overall, the implementation has been a success with hundreds of thousands of claims already paid. We were also recently awarded the public service dental care plan representing approximately $550 million of annual paid claims. This is a great win as we will be serving the same plan member base for benefits and dental, allowing for service enhancements and better plan economics. Our individual wealth business experience somewhat weaker flows. While not inconsistent with the overall market, we are taking action to reposition our Canadian wealth business for stronger growth and performance. More specifically, the Investment Planning Council and Value Partners acquisitions will enhance our offerings and position us as one of the largest non-bank wealth firms in Canada. Both acquisitions remain on track for regulatory approval by the end of this year. And finally, we saw our CSM in Canada decline year over year, largely due to actuarial basis changes reported last year. Given our focus in Canada on workplace and wealth, including participating insurance solutions, we approach non-participating insurance with a focus on customer value and pricing discipline, and we do not emphasize non-par CSM as a growth metric. Capital generation from our in-force business is an important consideration, and we're looking to further develop measures for this in coming quarters. Please turn to slide six. Our UK and European businesses continue to demonstrate resiliency despite the high impacts of inflation. Our workplace businesses experience strong sales and organic growth, driving a 12% increase in group life and health book premium. We also achieved steady growth across our retirement and wealth businesses, both of which experienced positive net flows in the quarter. This is in part driven by the successful execution of our wealth strategy in Ireland under the Unio brand. And as I mentioned earlier, we officially launched a new joint venture with AIB to diversify our wealth and insurance distribution capabilities in Ireland. With insurance and risk solutions, we continue to see increased demand for individual payout annuities in the UK given higher interest rates, and this is supporting a growing CSM in Europe. We also saw an active pipeline of bulk annuity opportunities, although we did not see significant sales in the quarter. Please turn to slide seven. At Empower, we saw another quarter of strong growth as we continue to execute on our strategies in workplace retirement and personal wealth. This includes the continued delivery of acquisition benefits through disciplined execution of integration programs. In workplace solutions, we achieved strong organic growth with DC plan participants up 4% year-over-year and DC assets under administration up 13%. Empower Personal Wealth continued to see strong momentum. AUA was up 30% over the prior year, with two-thirds of that growth coming from new sales. Rollover rates for Empower's DC business are increasing with improved sales effectiveness supported by enhanced hybrid digital advice. Finally, I would note that with the announced sale of Putnam Investments to Franklin Resources, the results of Putnam have been classified as discontinued operations. Please turn to slide 8. Our capital and risk solutions business, or CRS, continued to play an important role in diversifying our portfolio and supporting our continued growth. CRS had strong new business and margin growth this quarter, which is appearing in our shorter duration in fee-based businesses. Growth was largely in structured businesses with several transactions in core markets, as well as expansion into new markets, including Italy. Note this business is accounted for on a PAA basis, which does not involve CSM. Sales in other areas, such as longevity and asset-intensive reinsurance, were relatively softer this quarter, reflecting the nature of this business, which is largely bespoke transactions that don't have regular frequencies. The absence of these larger long-term transactions this quarter resulted in a small decline in our CSM balance from the prior quarter, although the balance was up from last year given longevity-related actuarial basis changes in 2022. With that, I'll now turn the call over to Gary to review the financial results. Gary? Thank you, Paul.

Please turn to slide 10. Q2 marks just our second quarter under IFRS 17. The teams have successfully continued our IFRS 17 implementation journey, with most processes being transitioned to a business-as-usual state. We appreciate there's a lot of change and adjustment to adapt to the new regime. Over time, though, we believe stakeholders will have greater visibility into the strengths, underlying economics, and diversification of LifeCoast portfolio. As part of that journey, we've introduced several enhancements to our disclosures this quarter, based on internal reviews and external feedback. These changes were made to provide a clearer articulation of our business performance and to better align with emerging industry practices. The drivers of earnings, or DOE, display has been enhanced in a couple of areas. First, on short-term insurance business, we have separated the expected earnings versus experience gains and losses. so that users can better understand the expected earnings growth versus period-to-period fluctuations in experience for those insurance businesses. As you'll see in year-over-year results, even in a diversified business such as ours, there can be noticeable swings in experience period-to-period. Another change to the DOE was combining the reporting of our fee and spread business with the associated expenses. This provides for a clearer articulation of the performance of this business, particularly for our Empower business, which is the dominant driver of this line item within the DOE. It also brings our presentation more in line with industry peers. The contractual service margin, or CSM, roll forwards have been improved to provide more granularity and differentiate what we call organic CSM movements, which are conceptually the CSM equivalent of base earnings. from other movements such as actuarial assumption changes. So organic movements would include regular items like new business, CSM interest accretion and amortization, and the insurance experience such as longevity that does not go through the P&L. And lastly, we restated the results for Putnam, and they're included in discontinued operations reflecting the announced sale of Putnam. We are continuing to evaluate improvements in our metrics around capital generation and expect to share something later this year. This will help provide additional insights into the underlying performance and overall contributions of certain businesses within our portfolio. The other important context for this quarter's results is in the excluded items, the difference between base and net earnings. Base earnings were strong this quarter and did not include many notable or unusual items either up or down. Net earnings, on the other hand, included a couple of notable items, And I would look at, as I look at it, I'd look at these excluded items in a couple of different categories. One category is items that you'd expect to see most quarters, such as the impact of market movements, ongoing integration costs, and the amortization of acquisition intangible. The other category is items that you wouldn't regularly see. As Paul noted earlier, there were two such items within the quarter. The first was transaction costs related to divestiture actions, including the sale of Putnam, the sale of the UK protection business, and a provision for indemnities on the sale of US individual markets business to protective a number of years ago. The second was the realization of other comprehensive income losses through net earnings as we shorten the duration of our UK surplus portfolio. This has no impact to book value as the OCI impacts are already recognized on the balance sheet, and it should lead to a modest pickup in future earnings as we capitalize on higher, shorter duration rates given the inverted yield curve. The shorter duration reduces our LICAT requirements, improving the ratio, and reduces LICAT ratio sensitivity to interest rates going forward. This action did change the geography of our losses. moving them from other comprehensive income into the reported net earnings. Within the market movement component, for non-fixed income, it's important to remember this is not an absolute gain or loss experience. It is an amount relative to long-term expectations that are included in base earnings. So within this quarter, we experienced approximately break-even UK real estate returns and positive returns in our Canadian public equity and real estate portfolio, but the returns were lower than expected. There are largely offsetting interest rate impacts as negative impacts in Canada from the further yield curve inversion were offset by gains from higher overall rates within the UK. As noted at our Q1 earnings call, we expected some increased net earnings volatility due to de-linking of asset liabilities under IFRS 17 and combined with our asset liability management accounting policy choices, although these impacts should oscillate around zero over time. Overall, we continue to maintain excellent financial strength and a stable balance sheet, despite the macroeconomic volatility that has been experienced. Turning to slide 11, base EPS of 99 cents was up 2% from Q2 2022, notwithstanding the strong comparative results in the prior year, which had been driven by favorable insurance experience gains. In the drivers of earnings, the change to differentiate between expected versus experience on short-term business allows this impact to be seen more clearly. And the DOE highlights that in Q2 2022, had very favorable experience gains of $91 million, which you'll see when we get to slide 13. Quarter over quarter, base earnings were up 11%, driven by strong business growth and improved insurance experience. Recall Q1 saw heavy mortality in a number of segments, and this did not repeat this quarter. The strong base earnings results were broad-based, with all four segments showing growth over the prior quarter, although the larger increases were in the U.S. and capital risk solution segments. Net EPS of 53 cents is down 40 percent from last year, as the higher base earnings were more than offset by the year-over-year change in items excluded from the from base that I described earlier. In Canada, looking at Canada specifically, base earnings were 283 million, down 17%, primarily due to very favorable insurance experience in Q2 2022, primarily lower health claims in group life and health, which returned to more normal levels this quarter. In the U.S., base earnings of 265 million were up 101 million, or 62%, primarily due to strong organic growth at Empower. This is the first quarter where the impact of Prudential is included in the prior year comparison, so the improvement reflects how the combined business is performing. While the DOE display shows the total, just the totals in net fee income and spread business, we've continued to show the breakdown of revenue sources and expenses for empowered defined contribution and empower personal wealth business in the supplemental information package. On the revenue side, we saw growth in asset-based fee income from higher markets, growth in spread income from higher interest rates, and increases in other participant and transaction-based fee income from growth in volume. Empower-based earnings also benefited from continued expense synergies, where we have fully realized expense synergies on the mass mutual business and delivered additional prudential synergies this quarter. We remain on track to deliver the targeted 180 million of annualized synergies on the prudential business on a run rate basis by the end of Q1 2024. In Europe, base earnings were down 14% from last year, and similar to Canada, this is primarily due to the non-recurrence of strong morbidity and health gains in Q2 2022, which you can again see in the updated DOE disclosures. The capital and risk solution segment, which is primarily the reinsurance business unit, recorded higher base earnings as well. Strong business growth, particularly in the structured reinsurance portfolio, can be seen in the growth in expected earnings on shorter-term insurance contracts. This was partly offset by higher mortality claims on U.S. traditional life business than in Q2 2022. However, the mortality experience has improved from Q1. Turning to slide 12. This table shows the reconciliation for base to net earnings, most of which I've already covered. Net earnings of $498 million, or $0.53 a share, were down $0.46 a share from base. The main difference from base earnings is $0.30 from the combination of those acquisition and terrestrial costs, given all the activity in Q2, and the realization of OCI losses described earlier. There was also the negative market experience relative to expectation, that over time we'd expect to average out around zero. The remaining items are predominantly related to integration costs, which will continue for a few more quarters, and the amortization of acquisition-related finite life intangibles, which will continue over a longer period. Turning to slide 13, drivers of earnings, and as noted earlier, our enhancements to the DOE view of earnings aligns us with our peers and provides a clearer description of our results. This is useful as we look at the insurance service result. In the top row of the table, expected insurance earnings of $739 million were up 6.5% year-over-year from a combination of business growth, particularly in the shorter-term insurance contracts, or PAA contracts as they're accounted for, and some currency tailwinds, whereas the overall result of $711 million was down 9% year-over-year. And the dominant drivers noted earlier, was a very favorable insurance gain of $91 million in Q2 2022 against the modest experience lost this period. The net investment result of $279 million was up 41% year-over-year. This is mainly due to higher earnings on surplus driven largely by increases in interest rates. Net fee and spread income related to our non-insurance businesses was up 56% year-over-year, and most of this result was driven by the growth at Empower. As noted earlier on the call, we benefited from improvements across all revenue streams from this business, while also recording lower expenses, mainly due to the realization of acquisition-related synergies. The effective tax rate this quarter was just under 16% on base shareholder earnings, and that reflected the jurisdictional mix of earnings, including a growing U.S. contribution and the absence of notable one-time items that we've often seen in the past. Overall, it was a very strong quarter with solid base earnings across the segments. Turning to slide 14, the book value, LICAT ratio, return on equity, and financial leverage numbers on this page are showing an eye for a 17 basis unless stated otherwise. Q2 2023 book value per share of $23.22 was up 5% year over year, driven by growth in retained earnings over the past four quarters plus currency translation gains and other comprehensive income. In quarter, in addition to the impact of the divestiture costs on the net earnings, there was a giveback of just over 1% from currency translation, which accounts for the modest book value decrease. The LICAT ratio of 126% was comparable to prior year and prior quarter results. The one-point decrease from Q1 2023 was partly driven by interest rate movements, but also by increased capital requirements from the strong new business activity in reinsurance, which has led to growth in our expected run rate earnings. This is a higher ROV business that tends to return capital quickly. The base return on equity figures shown in this slide are all on IFRS 17 basis, and so the result for Q4 2022 is shown rather than Q2 2022, since Q4 is the earliest date that we can show this metric on an IFRS 17 basis with four quarters of results. The base ROE has been stable at around 16% over this period. Financial leverage decreased by 2%, down to 31%, and that's due to the 500 million Euro repayment in April, which had been previously refinanced, and 150 million U.S. dollar repayment on the short-term debt that was used as part of the financial deal financing. These debt repayments are also what led to the reduction in LIFO cash from $1.3 billion last quarter to $0.5 billion at the end of the quarter.

And with that, I'll turn the call back to Paul. Thank you, Gary. We'll now open the line to questions from analysts.

Thank you. We'll now begin the analyst question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question is from Gabriel Duchesne with National Bank Financial. Please go ahead.

Good morning. The experience loss in the CRE portfolio, can you quantify that and how much of it was related to the UK?

Thanks, Gabe. I will turn that one to Gary.

Sure. So first thing I'd point out was that this was an amount relative to expectations. So in the UK, we actually had about broken even on the real estate. I think it was a couple of million total impact. Whereas in Canada, we actually made some money on the real estate portfolio. It just wasn't as much as built into the base earnings. So if I then look at, OK, the non-fixed income overall relative expectations, I think the market movements should have done most of this was the non-fixed income, about 75 million of that. And that would be about two thirds. So just over 50 million would be in the UK real estate. So short of expectations. And the other third was in Canada, combination of real estate and public equities.

Okay, so the 75 million NFI experience loss or 50 of that was in the UK CRE portfolio and the rest was mostly Canadian CRE, is that it?

Canadian combination of probably about half and half between real estate and equities.

Now, the Canadian group business, this back to pre-COVID health claim levels, That's not a long-term disability issue. That's just, you know, run-of-the-mill kind of benefits utilization, I guess. And I'm wondering, did you actually report an experience loss because of claims level, or is it just a matter of not as favorable as it was last year?

Yeah, I think you captured it perfectly, Gabe. We had very favorable results last year, and we sort of viewed that as a bit of a trail coming out of COVID-19. And now we're kind of back to what we call expected. Jeff, anything to add?

Yeah, I think Paul nailed it, gave it. We're very pleased with our disability results in quarter and certainly over the last many quarters. And as we outlined, the normalization of the health and dental was – that was really the big change between year over year.

And it's not a situation where you – you're anticipating having to go through a big round of repricing or anything like that?

No, not at all. You know, we're very, you know, it's one year renewable. We have a number of actions always in place, so not at all. We're very pleased on our position on where we're at.

Okay, and last question here on the U.S., very strong quarter. If I look at the one line item, though, it's the spread and the fee income that, you know, was up about 70% year over year. Can you break that down in terms of, you know, just to get a better, what product line, you know, are we talking about the, you know, spread income primarily and then, you know, some of the sensitivities there to get a better sense of how interest rates, you know, benefits that particular business? And I guess, you know, in the same vein or similar vein, I guess, the sustainability of that. How much of the spread, I guess, is sticky and tied to longer-term product lines? Or is it just inflows, temporary inflows that are coming out of bank deposits that are into money market funds or something like that? And if there's any competitive dynamics that could water down this tailwind?

Yeah, thanks, Dave. I'll start off at a high level and say that the line you're referring to is all of Empower's fee income. So that takes into account market-related fee income, interest-related fee income, and also transaction-related fee income. And the one thing I'd note is that Empower has a very diversified fee income base. And what you'll have seen if you go to the supplemental information is it's kind of diversified across all those categories where we've seen all of that growth. I think, you know, as we've outlined, Not only have we seen the benefit of scaling through acquisitions, you're getting kind of the step-up growth, but we're also seeing strong organic growth. We referenced the 4% growth in participants, 13% growth in, you know, in AUA. And all of that is driving, you know, growth on the revenue side. And then the other thing we noted was actually really good expense discipline in corners. expenses due to synergy capture but also just really good expense management so you're looking at a relative widening of the margin there as you have growth and revenues and good discipline on expenses gary do you want to provide a bit more color yeah i think that's uh the most important is right at the start is that uh that net fee and spread income is the combined result so it's all the revenue sources and then net of the associated expenses

So that's one of the changes we made to bring our reporting in line with the peers. So it's not just spread. It's really the Empower results. A good reference, and it's in our supplemental deck, pages 22 and 23 for the Empower defined contribution for personal wealth. So we do show there the revenue sources. The first one's called net investment results. That's the spread income. And then you've got your asset-based fee income and then the other fees. And as Paul mentioned, it's well-diversified. And then we show the operating expenses. And so there you could see, just look at the Empower defined contribution, the revenues were up and all three were up a bit. It was fairly balanced. They all increased asset-based, spread-based and fees and other fees. And the expenses were actually down because of the synergy. So it is that performance. So that's where I point for the And we've tried to get this disclosure so you can see that quite clearly on those pages. So that's where I point you.

Now, Gabe, the other point you made, you said, is how sustainable is this? So the reality is this is reflective of the relative strength in equity markets. So it's driven by that. It's driven by the current spread that's achievable with this interest rate environment. And it's also driven, though, by... really strong execution in the business. So, you know, assuming that markets continue to behave in the current manner, it's quite sustainable. But as we know, when businesses are sensitive to equity markets or, you know, the spread environment, you can see either some compression or expansion going forward. Ed, is there anything else you would add on that?

I get the point you're making. There's a lot of drivers here, and the net fee income has broken out. It's up, but not 70%, and expenses are down, but it seems to be more of a rate-driven revenue strength. I'm wondering if you can help me understand that.

I can make a comment. I can make a comment, Paul, if you want.

Thanks, Ed.

Go ahead. From Q1 to Q2, interest rates were higher. And we don't expect that again. So as we see us raising credits in Q3, we're likely to see volumes flat to down. So the spread income will probably moderate. So that's what I would say. You know, you saw interest rates were higher moving from Q1 to Q2, and we just don't expect that again.

And then crediting rates will move higher, so it'll be a bit of a catch-up. Is that it?

Yes. Yes.

Okay.

All right.

I'll let them do that. I would encourage you to go to the supplemental, because what you'll see is the diversification there of the fee income. So you've got your market-related fee income, you do have spread-related fee income. And as you know, we'll be managing that over time. As interest rates adjust and we'll adjust crediting rates, we're not going to see a dramatic drop in that. And then when you look at the other non-market-related fee income, it's a diversified book. So that's been part of our strategy. We don't want to be reliant purely on markets. We don't want to be reliant purely on interest rates. We want a good diversified revenue base. And that's really one of the Things we've seen this quarter, good, strong results in all categories.

Yeah, the spread part, I do want to make sure, if you look at those pages, you'll see that for the D.C. business, the revenue was up about $50 million year over year, and of that, 10 of it was the spread-based. So it was really well-balanced across the three revenue sources.

Yeah, so that's an important thing, Gabe, like unpack the $50 million, you'll see that 10 of it was that spread income. So we're not talking about a dramatic, that being a dramatic driver of growth. I'd say the primary driver you're seeing here is really strong growth in the business.

Okay. Thanks.

The next question is from Manny Groman with Scotiabank.

Please go ahead.

Hi, good morning. Just to start off following up on Gabe's question, line of questioning, just focusing on Empower Personal Wealth in particular. It's not the biggest contributor in the US segment, but I think one that we're all very focused on and obviously very good growth there, looking like it's coming from revenue and expenses. So same kind of question, but just more focused on Empower, just trying to understand where the strength is coming from in that particular business and how sustainable it is given your view of the market conditions here, is there some sort of inflection here that we should focus on? So just curious your thoughts on that business in particular.

So Manny, it's a very good question. I'm going to turn it to Ed, but let me just start out and say, we're in the early innings of a long game that we're playing here on the retail side. So I wouldn't refer to this as a short-term win. The bottom line is we're very much focused on 17 million plus participants and continuing to broaden our revenue base and what I call our advice base in servicing them. And this is early days. We've just recently launched more advanced hybrid personal wealth advice to the participant population. And we're seeing early signs of success and traction as we're capturing more of those relationships. But I'll let Ed provide a little bit of a little bit of insight to that because this is actually not about a big shift in markets. This is about an organic growth engine that we're very much focused on building in the U.S. So, Ed, do you want to provide some context on that?

Sure. Thanks, Paul. Yeah, I would just build off of Paul's comments. You know, it's still very early days for us in terms of building out all of our capabilities, but I'm very pleased with the progress we're seeing. I mean, if you look on the sales side, We were 7% higher than prior year. We're up 5% sequentially from Q1 to Q2. And we continue to see a very, very strong pipeline. I would also say that client and asset retention on a wealth business is exceeding our plan as well. So if you look at the quarter, you know, really strong favorability on Q1. the general account margin piece of the business. We also saw good flows into our empowered cash product that exceeded our expectations. And just overall volume growth is really strong. So we saw really strong net fee performance across the board. So we think the prospects in Q3, Q4, and beyond are very, very strong.

Thanks for that. And then... Shifting to Canada, Paul, in your opening remarks, you talked about actions you're taking to reposition the Canadian wealth business. And I just want to clarify if you're simply referring to the IPC and value partners deals or is there something more beyond that going on there?

Yeah, thanks, Manny. I was referring to those deals. The reality is, you know, we've announced those deals. We're in early, you know, early days relative to working towards regulatory approvals. But we're very bullish on the business from the standpoint of the scale and capabilities we have. Jeff, maybe you want to comment a little bit on, you know, success of the, you know, the early work we're doing to think about those businesses?

Yeah, perhaps to come back to a few principles on why we took this on. We We first of all really thought that it could protect and grow our established relationships, which are very large. But more importantly, we believe we can create a top destination for advisors to aspire to, particularly in the independent channel. And the feedback, as Paul touched on a wee bit, thus far for both IPC and value partners from advisors in the marketplace has been very, very strong. very much looking forward to the growth and the opportunities and creating the place to be for independent wealth advisors. So very bullish on the growth opportunities, Manny, in this space for us.

Yeah, and I think just to underline that, Jeff, it's about as much, we've got a large install base of assets and we believe we will protect them more strongly, a stronger, a growth engine will do two things for us. It'll protect existing revenues and it'll allow us to access more advisors and get more of them on the platform. So as we roll into 2024, we're really excited about, you know, the prospects we have going forward.

Thank you very much.

Thanks, Wendy.

The next question is from Tom McKinton with BMO Capital Markets.

Please go ahead.

Yeah, thanks very much. Good morning. I'll start off the question with respect to the LICAT down quarter over quarter. It's down four points since the start of the year if you look at it on a pro forma basis. I think, Gary, you mentioned increasing capital requirements in CRS. You've had two good quarters of growth in the structured portfolio in CRS. Is this having any kind of drag at all on the LICAT ratio?

What's driving this decrease since the start of the year? It does actually have an impact. The good news is, I mentioned earlier, it's a high-arrogate business, and the structure is certainly part of that. And so it does return the capital quite quickly, but that was certainly a big part of the one-point pullback this quarter. It would have also featured a bit in Q1 as well. I don't think we called it out specifically, but it would have featured in Q1 as well because we've had good success in Q1 and Q2 on new business. But as I say, as we look at our planning for it, it returns the capital quite quickly. And we have noted that we will provide more information on the capital generation as part of our disclosures going forward. So I think we'll be able to see that a little more clearly as well.

Okay, thanks. So some strain there. Why did the whole co-cash decline from 1.3 to half a million? Sorry, I missed that.

That was the two debt repayments I called out, the €500 million repayment in April that we'd already refinanced. So the cash was sitting there in Q1. And so when we actually paid that off in April, that's €500 million. And then we also further paid down some of the short-term funding for the Prudential transaction. That was €150 million. So that basically moves you probably a little more than €800 million. But that's the big move in cash.

Okay, and the surplus duration shortening, it says that it decreases the sensitivity in the LICAT, but your MDNA doesn't show any change in the sensitivity of the LICAT quarter over quarter. Am I missing something in there, or is that, or is there any, what is the impact on the LICAT as a result of that? Because I can't see it in the sensitivity decreased.

Gary? Yeah, sure. I think that's because the sensitivities are rounded. I think in the sensitivities, we're less than one point, and it's still less than one point. So it was probably maybe a further, somewhere in the order of a 10% reduction in our sensitivities. What I mean by, you know, if it used to be 0.8, it's probably 0.7 or something like that. Like it's, I'm Using as an example, I don't have the exact number in front of me, but it's on the sensitivities because obviously the movie score. So it's not noticeable in the disclosures, but it is an improvement. And it was probably close to half a point on the ratio that we would have picked up for the one time.

And what's the pickup? Is there a pickup in earnings as a result of this?

Yeah, there is. So as I say, it's... because of the inverted yield curve, just trading for the higher rates. It's not a huge number, but it's probably in that 20 million a year range on an annualized basis after tax. So it would be 5, 6 million a quarter, something in that range.

Great. And the last, you mentioned favorable trading activity in Europe. I know that you guys can still do some yield enhancements. Were there any yield enhancements in the quarter, and how much were they?

Yeah, that is what it is. It is just the way using a top-down own assets, you end up with something that looks like the old yield enhancements, and it was around $50 million for the quarter.

Okay, thanks very much. Thanks, Tom.

The next question is from Doug Young with Desjardins Capital Markets. Please go ahead.

Hi, good morning. I just wanted to pick up on the realized loss on OCI that's excluded from base because a few of your peers actually include realized losses on OCI in their core or underlying or whatnot. Can you kind of describe why you decided to exclude this? And I guess that it's kind of not something that you're going to do all the time, but you're excluding something from base, but you're going to capture the pickup and yield through core. And so just curious the thought process and was there any benefit from that in the quarter?

Gary? Yeah, a couple things. So we wouldn't have had – the trades were fairly late in the quarter, so we wouldn't have seen any earnings. And as I noted earlier, while there is a pickup, that was probably not our main driver. I mean, it does work well. A lot of it was around the capital edge, just shortening our duration in surplus, the number of benefits, even just liquidity for dividend ending out of the foreign operations. So there's lots of benefits to the shorter duration, and this would mirror the approach in – in Canada where we have a shorter duration in the fixed income portion of our surplus as well for the same reasons. Historically, we've had a little more hesitation because of Solvency II, but with the upcoming changes, it was the timing was right to move in the UK as well. And then in terms of the choice on, I mean, as we updated our definitions, you're right, we wouldn't expect to see this very often. I mean, there's often a couple million here and there, either positive or negative, as you might trade some of the surplus assets. But because the durations are quite short, you don't see a lot of noise there. And then for a one-time very unusual item like this, it does seem much more of an excluded rather than distorting your base earnings. So I think it is appropriately described.

Okay. I mean, Second question, just the indemnity provision related to the U.S. individual life and annuity business that was sold in 2019. Can you elaborate on what that was that happened in the quarter? Can you quantify what the impact was? Should we expect more adjustments for that block?

Yeah, I'll start off on that one, Doug. So the reality is This is a provision we've set up, and the reality is we've reached that point where, you know, there's no further debate. Now it'll just be for, you know, we'll have to have things play out. So this is the provision we've set up relative to an expectation, and I'll let Gary provide some context around its scale.

Yeah, you're right. I mean, as with these indemnities and these transactions, there's usually a time limit, and they've reported these by the end of the time limit. The particular issues were really around product tax admin and compliance, which is a very complex area, covers decades of rules and plan designs. This is very similar to exempt life insurance rules in Canada, testing that needs to be done regularly, and the rules and product designs are always changing over time. So it's not unusual to have these type of items. Protective raised a number of issues with us, and this was our estimated provision for the cost of the remedies provided. mostly involves just rebalancing the death benefits relative to the values in policy. So a little extra death benefits, you've got to set up reserves for that. So it's an estimate, but as I say, we've got the outstanding, I think the estimate in there was 50, just around 50 million, 53 million. And yeah, we think this should cover it. I mean, obviously it's an estimate, but it does cover all the outstanding items we're aware of and the time periods of the lapse. So That should be it.

Yeah. And Doug, these types of, you know, potential charges, you can be on either side of those. Sometimes we've been on the, you know, on the receiving end, on the claiming side. And to put it in context, 53 million, the transaction I think we valued at the time is about 1.6 billion. So we're talking two, 3%, what, I don't know, didn't do the math, but call it three-ish percent. So it's a modest amount and it's kind of normal course in these types of transactions, especially where we're talking about insurance-type capital-based businesses where there's long-term promises and guarantees.

So just to kind of paraphrase, this is basically experience went negative for your partner and therefore they have the ability to come back and get a true-up essentially on that negative experience.

It's not about experience. What it is is about the I'll let Gary provide a bit more.

Yeah, it's not the experience on the policies. This is just going back through all of the administration and tax compliance that you have to do on product-related tax through all the various rules. And going through that, there are just some areas where you've got to make adjustments to the plans going forward. And then, you know, generally say that the remedy is generally additional death benefits, and so you need to reserve for that. And to the extent any have been paid out in the past, it might need to adjust those with some interest. So that's all been factored in. So the $53 million is the total amount. It's not business experience.

We've gotten rid of the business. The counterparty of Protective took over the reserve basis, and they would have set up a certain amount of capital. They've gone through analysis and said, we think the reserves are a little bit light. And this is the amount that we're provisioning for to true that up.

And this was a specific indemnity on product tax. Okay.

Okay. And then just lastly, in Canada, I know that group insurance was still favorable, just less favorable versus last year. But you did have insurance experience losses in the P&L. I think it was $11 million. And then there was a hit to the CSM, which was, I think, negative $23 million. Can you just delve into what each of those was related to?

I'll let Gary cover both of those.

Gary, over to you. Actually, if you're looking at the insurance service result where we show that experience gain loss, that was actually primarily expenses. These are attributable expenses, so we had a number of higher expenses than we have expected. This is a lot in our service areas in Canada. So a lot of shoring up our service, really getting our service back on track. No doubt there's, you know, the extra training, bringing the extra people on board through the federal plan, although it's not specifically that, but just in general, the expenses. So that was the driver of the, I think it was 11 million that we saw there. And then your second question was on the CSM, and that was primarily pulse-holder behavior. that was driving the CSM, maybe a small amount of some expenses there, but I think the majority of it was, so, yeah, the majority of it would have been policyholder behavior a little bit on the expenses there.

I assume that's lapsed then.

Yeah, that's lapsed, and whether it's too many or too few depends on the product, but yeah. Okay, good. Thank you. Thanks, Doug.

The next question is from Paul Holden with CIBC. Please go ahead.

Thank you. Good morning. So, first question is related to your commercial real estate exposure and thanks for quantifying the impact in the quarter. Based on your current expectations and underlying characteristics of that exposure, would you expect similar charges in the near term or Do you believe the industry fundamentals are already improving to the extent that maybe there's less charges or shortfalls and returns in the near term? Just trying to get a sense of what your near term outlook is, really.

Yeah. So, Paul, I'll start off at the high level there and say that, you know, the economic, you know, the economy is going to play out as it will play out over the coming quarters. And, you know, don't have a crystal ball on that. Having said that, when I think about our overall real estate exposure at this point, if I was to compare it to following the financial crisis, we've done a lot to diversify and actually to reduce our overall commercial real estate exposure since that period in time. We've talked in the past about moving out of front street retail into distribution warehouses. We've tried to diversify and, you know, rebalance away from things like office and the like. So we're well positioned in what you might call is a bit more sensitive market environment right now. But I'd say we're very well positioned right now. Now, let Raman speak to some more specifically some of the actions and a bit of an outlook. Raman.

Yeah, thank you, Paul. And thank you to the other Paul for the question. So I think the Paul hit it. I think we've been actively repositioning the portfolio. I mean, the markets will do what the markets do. I think that's Gary noted this quarter, real estate in the UK was roughly break even. So a lot of the impacts were felt last year when rates spiked up. So, you know, rates spiked up again. You know, we'll see. But I think a few things help us out here at our starting point today. So one is, as Paul mentioned, we've been rotating away from office into multifamily, into industrial, So if you look at our LTVs, for example, on the mortgages, which is in the deck, I think it's on page 23, even after the declines, we're still at 55% LTV. So that helps to have the diversification there and the rotation away from office, which has been particularly hit. And then when we do have office exposure, it tends to be more urban, higher quality buildings. So, for example, if you look at our mortgage exposure in the U.K., Nearly all of it's on the office side, nearly all of it's in central London, in high-quality buildings. So that's a very different experience than having a secondary asset in a weaker location. And then maybe the last thing, just to put a bit more color on what Paul was saying on the risk reduction, we have been selling down our exposure. For example, in Alberta office over the years, we're down to, I think, about $200 million We've been actively reducing our UK real estate. I don't think we've actually purchased a UK real estate property at least five years and tactically selling. So we feel good about our current positioning. And, you know, it'll be a function of what rates do and the subsequent move in properties. But we feel good about where we're starting.

Okay. So from what I'm hearing, the property exposure is performing. There's no issues in terms of impaired. This is really just a move in property. in the cap rates that's impacted market values, and if those stabilize, then you should get back to expected returns.

Yeah. Assuming markets remain calm, that's what we'd expect. But having said that, we like the way we've diversified away from some of the more sensitive areas such that if we do see stormy seas, we don't have a broad exposure.

Got it. Okay. Quick one in terms of the repositioning of UK fixed income portfolio. Is any of that repositioning into floating rate that instruments or have you sort of locked in that 20 million annual benefit?

Robin, do you want to speak to that?

Yeah, it's primarily fixed, and so it's very little floating rate. So it'll roll over as the bonds mature, and then we'll reinvest at prevailing rates.

I think the duration's just under one. So a year from now, then there'll be reinvestments, but it's not floating.

Okay, helpful. Thank you. And then last question is kind of broadening out this discussion we've had on the sustainability of earnings and the questions so far have been really focused on the MPower results since they were extremely strong. But maybe we'll just holistically look at the earnings you generated in Q2. Is there anything you would identify there as sort of unusual that boosted the earnings in the quarter? Because when I look at the ROE, you're kind of just tracking towards plan and so I don't see anything in there that would say Q2 was abnormally strong versus what we should be expecting going forward, but I'll let you add your thoughts on that.

Paul, I think you captured it when you said nothing unusual. That's kind of the reality of the quarter, and actually some of the areas where, for example, in Canada, you note some of the lower insurance results, that's because there was some unusual you know, outsized experience gains a year ago, as opposed to we've moved more normal. You go to the UK, you know, an example in the UK would be we're seeing some, you know, some strong results on payout annuity sales. Why? Well, it's a higher interest rate environment. Those products have become more attractive. So is that unusual? No, that's sort of what happens in that sort of market environment. So there's really nowhere across the portfolio where we've had kind of something unusual. It's been kind of a Having said that, you know, some quarters will have mortality fall out of favor, as we saw last quarter. This quarter we saw mortality sort of at normal, a little bit off the mark on traditional life on the reinsurance side. But if you net all of the slight differences higher or lower than expected, it's kind of everything hit at expected this quarter. So when you think about it, you look at the result and you say, assuming continuing, you know, interest rates and market levels of this. It's not an unusual quarter relative to the kind of the horsepower in the business is the way I'd characterize it.

Great. Thank you.

The next question is from Nigel D'Souza with Veritas Investment Research.

Please go ahead.

Thank you. Good morning. I wanted to touch on expected investment earnings and earnings on surplus. You had a healthy rebound in investment earnings and it could pick up in earnings on surplus. So just some color there on what the drivers were this quarter and the outlook. And I think you also mentioned yield enhancements of $50 million this quarter. Wanted to confirm that that $50 million is captured in expected investment earnings.

Gary, do you want to answer that?

Yeah. So a couple of questions buried in there. When you look at year-over-year, one comment I will make is you always have to remember there's currency moves, so there is some currency there. But most of the move in expected investment earnings, a couple of areas. One is earnings on surplus. You'll see that was the one that went up the most, and that's really just much higher short-term rates than we would have had in the past because while rates went up around this time last year, the portfolio was still turning over. So now... even the shorter ones that are six months and a year have all rolled over. So we're getting the higher rates on all that. So you're seeing that number really benefit. That I call yield enhancement-like impact that we see is actually picked up in the expected investment earnings. That's an industry term, expected, and so it does include the actual yield enhancement. And that's, you know, it will move around a little bit, but that's, you know, there's usually some in each of the quarters. So it's not particularly unusual, but that is in there. So that was included. So I think it's really those items, the higher interest rates, the trading activity that was mentioned, and then a little bit in the year over year in the currency.

Just some more clarity here on earnings and surplus. I'm trying to get a sense of the cadence or the pickup going forward quarterly on reinvestment yields. How much of a benefit of pickup do you anticipate as your portfolio rolls over at a higher rate? Is it similar to what we saw quarter over quarter, Q1 to Q2 for earnings on surplus? And then, you know, a second question all up on yield enhancements. And my understanding is under IFRS 17, those enhancements are, you know, effectively lower because they're recognized over the duration of the assets. Just want to confirm that that is the case here. And does that imply that those yield enhancement pickups would have been even greater under IFRS 4?

Yeah, a couple of questions there. On the earnings on surplus, certainly some of that pickup would just be the rolling over. But a lot of those, because we would have picked up, there was the short end, especially in Canada, I recall the short end in Canada was up quite sharply in Q2, even over Q1. So there was that further inverting of the yield curve. So there would be some of that that was in there. And there are other small movements around C capital that are also in the earnings on surplus. So the wouldn't want to read it but um but again a lot of our portfolios now at these uh these higher rates so that's i think we're pretty much where where rates are at this is not really floating rate um and then uh you'd also uh trying to think there was another yield enhancement oh the yeah maybe i'll just clarify the question i think um nigel you're asking whether

yield enhancement actually featured under IFRS 17.

We would have had more of it in IFRS 4 than we have in IFRS 17. And that's because in IFRS 4, it would have occurred in our European and in our Canadian portfolios. Whereas given the accounting choice we made using illiquidity adjustment in Canada instead, because the portfolios are not as well matched, you do need an illiquidity adjustment. You don't see the way the mechanics work, you don't see that type of impact from trading activity in the Canadian portfolio now. We do still see it in the UK. It's just a byproduct of a top down on assets approach in the UK without illiquidity premiums. And so that's why you're seeing an amount to say 50 million, not unusual. I think last quarter was more in the mid 30s. So it's a It moves around a bit, but.

Yeah, and while we will continue to trade into higher yielding assets in Canada, but it will just flow through. It'll be recognized over time through the CSM and the risk adjustment. Okay, got it. That's really helpful. That clears it up. Thank you.

Thanks.

Next question is from Juho Kim with Credit Suisse. Please go ahead.

Hi, good morning and thanks for taking my questions. Just wondering what you're seeing in the CRS business in terms of pipeline. I know the last quarter you talked about some near term opportunities, perhaps in the larger sort of transactions. Maybe if you could give us an update on what you're seeing there or other areas in that business where you see opportunities.

Yes, for sure. I'm going to actually turn that one to Arshal Jamal, who can speak to just kind of the two categories of business in CRS and our outlook on those. Arshal?

So I think at the last quarterly call, we sort of indicated sort of an expectation of about sort of 5% growth in the overall portfolio across all of the lines, including structured, our longevity businesses and our asset-intensive businesses, with less growth in the traditional life reinsurance in the U.S., So that continues to be sort of our medium term expectation. But over the very short term, over the last six months, we've seen some exceptional growth on the structured side, not only in the U.S., but in certain European and Asian markets. So that's really what's been driving sort of that near term outperformance over the last six months. We still see lots of opportunity, both on the longevity side and on the asset intensive side. But we're being very, very cautious in this environment, very focused on price discipline. And those transactions tend to be a little bit lumpier. So the medium term expectation is unchanged. There's been some short term favorable outperformance in the structured lines, but lots of opportunities. But we want to maintain pricing discipline, particularly in the longevity area and in the asset intensive area. That's sort of the outlook. The other extra little bit of a tailwind that we've had is on the PNC catastrophe side. and some of the other things sort of non-life. This is a very, very hard reinsurance market in that segment or whatever, and our reinsurance company clients are looking for capital solution to support them as they expand their offerings there. So again, in the very, very short term, over the last quarter and in the next couple of quarters, we might see some add-ons in the P&C lines, but not in catastrophe, more in the structured side, helping some of our key reinsurance clients deal with the market opportunity and managing their capital in this kind of environment. So very well diversified book, performed very, very strongly the last two quarters and very well positioned for the rest of the year and the medium term.

Yeah, and I would just underline, Drew, that a lot of it is focused on discipline. So we use discipline in these, whether it's the structured solutions. It's actually discipline and expertise. We've got a very expert group who's providing – these capital and risk solutions on the structured side, and then we've got strong discipline on the pricing. And, you know, we look at the annuitant longevity side of the business, and there will be opportunity there, but we just want to be very disciplined as we think about our pricing.

Got it. Thank you. And just the last one for me, more broad sort of outlook question for Europe. I'm curious if you could give a sense on the outlook for the operating environment there. We are seeing a bit more sort of negative headlines on the overall sentiment from the region. So curious if you have any broad thoughts on how your businesses could perform in Europe in a potentially slower environment.

Thanks. Very good question. It's one that I will turn to David Harney, but I'll start out by saying, you know, we've said in the past, The products and services we provide in Europe are very needs-based. So when you think about it, we're helping people create retirement income solutions for themselves, retirement incomes. We're focused on pension savings. We're focused on benefits, whether that's life or disability or health benefits. And those tend to be things that are sort of needs-based, tend to be more stable markets, not as sensitive, say, to wealthy income, although we do have a growing wealth business, for instance, in Irish life. But having said that, we've seen real stability, notwithstanding the higher inflation environment and some of the instability. So while you see the headlines, the headlines are headlines, and then you see our relative performance. And we're very sensitive, obviously, to some of the challenges that you see in continental Europe and, you know, what's going on in the Ukraine. But having said that, our businesses are performing quite steadily and stably, quite resilient. David, you know, maybe you can make a couple of comments on outlook. David Harney?

Yeah.

Yeah.

I think that's .

Okay. We couldn't quite hear you there, David, sound-wise.

Can you hear me now? Yeah. So I think if you go to slide six, you'll just see some information there that will back up the points made by Paul. So despite the environment, we're pretty positive about our business in Europe. You can see the insurance and annuities there. That's growing quarter on quarter just from the CSM metrics, and that's a defensive business, as Paul called out. Workplace Solutions is largely that's the business in Ireland and the Irish economy is growing very strongly so that would be different to the other European economies at the moment. The Group Life and Health book then would be more employment related all right in Ireland and the UK but we're seeing strong salary inflation there which is driving growth in that book and the Wealth and Asset Management and some of the influence there will be more sentiment related. But even there, we're seeing growth in that about quarter on quarter. So we're pretty positive on the outlook for Europe at the moment.

Thanks, Lou. Got it. Thank you. Yeah, thank you.

The next question is from Darko Michalik with RBC Capital Markets.

Please go ahead.

Hi, thank you. I have a number of technical questions, Gary, if you have time later today just to chat on some of the things that we're seeing in the supplemental, that would be very useful, and I would appreciate that a lot. Yeah, I'd be happy to set that up.

Yeah, that's a good way to end that. Thanks, Darko.

Okay, I have one question, though, but I'd like to sneak in here, and thank you for taking the time. One of the things that I'm finding a little counterintuitive with your results is that the expected earnings on investments, and also the amount that you are excluding from base. And if I take one as a proportion of the other, again, I realize we've only got six observations in our IFRS 17, but what I'm noticing is yours is more volatile than peers. And it's a very counterintuitive result because when I look at your investment portfolio, I've seen less alternative assets and less stuff that should be moving around so significantly around what your expectation is. So my early conclusion, and I realize you can't comment on what other life goals are doing, and we'll see Manulife later, but my early conclusion is that your investment portfolio is swinging around more than peers, or maybe you're a little active and that's causing a big swing. Maybe you can just conceptually talk to me, Gary, about why we're seeing more volatility in your expected investment earnings versus – or what has been all of this volatility in your expected investment earnings?

Thank you. Sure. So I think – I mean, we can go through the numbers you're looking at, and I think that's a good idea to book that follow-up call. I would say when you're looking at both the expected investment earnings but also the items excluded from base, and I think you're focused there on what we call the market movements or the market impacts. And I think setting aside the NFI, which we've covered, I think a lot of what you're seeing there is related to interest rates. And you may or may not recall at Q1, so just conceptually, and I'm happy to follow up with more details there, but conceptually, We flagged at Q1, part of our combination of our policy choices and our lay-on strategies was to take more P&L volatility related to interest rates, but have a more stable LICAP result. And so that is what's driving some of what you're seeing, I think. If you look over the six quarters, you'll see that, you know, sure, some of its NFIs didn't perform as well as expected in some of those quarters. but a lot of it is the movement in interest rates. Quite positive last year, and a bit of headwinds this year, but a lot of that is intentional to balance out the impacts on LICAT. So we were really focused on, yeah, the interest rates are going to move around, but if we have some... And so some of it was... One of the examples I think we've quoted is we used amortized cost designation on our UK commercial mortgage portfolio, and so that... That will give us interest rate sensitivity because the liabilities aren't going to, the liability is going to move fair values, whereas the amortized cost assets won't. But that sensitivity was picked really to help us offset and drive down our sensitivity, LICAP sensitivity interest rates. And to use the example I may have quoted this last quarter, but we would have run, before doing all this, we probably would have run with about a 5%, 5 LICAP point sensitivity. to 100 basis point parallel change. And that's dropped down to a third of that or less. So it's a lot lower sensitivity. So that's why in the 50 bits of sensitivity in our published statements, you'll see it's less than a percent. So we've really focused on that. And that's what's creating... There is some P&L volatility that goes with it, but it was intentional. So I don't think it's anything... There's no great change in our philosophy and our investments or anything like that. It's more... getting the change. So we do look at the economics and the overall economics of our business. And we just take the P&L volatility against the ICAP volatility, just from the two measurement systems between accounting and ICAP. Okay, thank you.

Yeah, it does. And a follow-up would be really appreciated.

Thank you very much. Thanks, Dirk.

The next question is from Mario Mendonca with TD Securities. Please go ahead.

Good morning. I'll try to be quick. The $180 million in U.S. in synergies on the Peru transaction, it sounds like synergies are emerging faster than anticipated. Is there any update you might offer? Could you exceed the $180 million? Are you seeing opportunities to take that higher?

Mario, I would say, yeah, we saw a bit of – we were expecting to see the balance of synergies captured in Q1 2024, and we saw an amount – I don't recall the exact amount, Gary, in this quarter. I want to say $14 million. About $14 million this quarter. So it's sort of bringing them forward to this quarter. That's annualized, by the way. Yeah, $14 million annualized. So obviously you pick it up a bit at a time each quarter. But at this stage, we're not projecting outperformance because the reality is there's a fair bit of back end there. And that back end will be, you know, cleaning up final systems, you know, dealing with staffing levels, et cetera, et cetera. And we don't want to sort of get ahead of ourselves there. What we are, though, is we're very much on track, focused on client retention, very strong, achieving the expense synergies on track and maybe a little bit ahead of our expectation right now. And then thirdly, very much focused on revenue synergies where we were talking about, you know, growth in the retail side of the business. So all those things on track. And if we do outperform, that'll be something that we'd share in Q1 as it actually occurs. At this stage, we're not projecting that.

Yeah, I'd characterize it as increasing our confidence to get to at least 180 is how I'd put it.

Okay, I... I was expecting a little attrition in terms of participant count. We're not seeing anything of that nature. Is there a time period over which we might see the attrition play out? Or are you over that period and its growth from here?

I think, well, it's never over until it's over. But I'm going to turn that over to Ed to talk about his expectations of plant retention. And I think we're talking now about the proof book because the mask book is, frankly, bedded in for the most part. And so it's not all about the proof book. Ed, do you want to speak to that?

Sure. The client migrations are back and loaded towards the end of the year. So we expect to have all of the clients transition to our platform by the end of Q1 24. So several of the key migration waves are going to occur in the fourth quarter. That being said, just to build off of Paul's earlier comment, if you look at where we are in terms of asset retention, revenue retention, the commitments that we've received from clients at this point, we're running well ahead of our internal targets. And frankly, we're running ahead of where we were at the same time with MassMutual. So we're very confident in our ability to execute.

But, Ed, maybe you can provide a bit of context, though. We would have some expected client losses that would come in the latter part, or can you comment on that?

Yeah. Yeah, we definitely will. But it's going to occur later this year and into next year as we migrate clients over. But what I was saying is if you look at where we've established in terms of commitments at this point, what we're expecting, we're running ahead of our internal targets.

I'll just add one thing is that in the background, while there will be some you know, migration-related retention or people leaving. The flip side is we are growing organically underneath. And so, you know, part of what you're seeing when we said we have grown our participants 4% year-over-year, that's after any of the transition. Some of the transition on MassRetail, I mean, we made the announcement quite some time ago. So some of that shock loss has already been occurring. Some waits till later on, but some has actually already occurred. So you'll see there tends to be a bit back-ended because of the January 1 date. So you'll see some of that. But I think our organic growth will actually keep our participant counts relatively stable through this period because we are still seeing good organic growth.

I agree with that statement. And our pipeline right now exceeds $2 trillion. So we feel really good about the path forward across all the market segments, small market, middle to large, and mega market, real strong demand.

Thanks, Ed. Thanks.

That concludes the question and answer session.

I'd like to turn the conference back over to Mr. Mann for any closing remarks.

Thank you, Kayleigh. I'd like to thank all of you who listened in and participated in today's Q&A. To summarize, we're pleased with our strong momentum and assuming stable market and rate conditions. We expect to deliver strong future results supported by organic growth and the benefits of integrations and transactions recently announced. And we look forward to reconnecting for our third quarter call in November and wish everyone a pleasant rest of the summer. Take care.

This concludes today's conference call. You may disconnect your line. Thank you for participating and have a pleasant day.