Great-West Lifeco Inc.

Thank you for standing by. This is the conference operator. Welcome to the Great West Life Co. second quarter 2025 results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions. To join the question queue, you may press star then one 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. Shubha Khan, Senior Vice President and Head of Investor Relations at Great West Lesko. Please go ahead.

Thank you, Gaylene. Hello, everyone, and thank you for joining the call to discuss our second quarter financial results. Before we start, Please note that a link to our live webcast and materials for this call have been posted on our website at greatwestlifeco.com under the investor relations tab. Turning to slide two, I'd like to draw your attention to the cautionary language regarding the use of forward-looking statements, which form part of today's remarks. And please refer to the appendix for a note on the use of non-IFRS financial measures and important notes on adjustment terms and definitions used in this presentation. And turning to slide three, I'd like to introduce today's call participants. Joining us today are David Harney, our President and CEO, John Nielsen, our Group CFO, Fabrice Morin, President and COO, Canada, Ed Murphy, President and CEO, Empower, Lindsay Redsbrough, CEO, Europe, Jeff Poulin, CEO, Reinsurance, and Linda Kerrigan, Senior Vice President and appointed actuary. We will begin with prepared remarks followed by Q&A. With that, I'll turn the call over to David.

Thank you, Bill. Please turn to slide five. As I step into the role of CEO, I want to begin by reaffirming our direction. Our strategy is clear, consistent, and it's working. Over the past several years, we've built leading market positions, delivered solid earnings growth, and shifted towards a more capital-efficient business mix. We remain focused on executing the strategies outlined at our recent investor day to drive growth and deliver lasting value for our stakeholders. Our teams remain central to our success. I'd like to highlight a few recent leadership updates. John Nielsen has assumed responsibilities as interim chief investment officer in addition to his role as chief financial officer. This will ensure continuity as we continue to drive value from our global investments capability. Lindsay Riggs-Broom, formerly CEO of Canada Life UK, has joined our global leadership team as CEO of Europe. Emma Watkins will join LifeCo in September, succeeding Lindsay as CEO of Canada Life UK. We're making strong progress against our medium-term objectives. Our businesses are well on track to meet or exceed those ambitions. We delivered another record quarter of base earnings, supported by broad-based organic growth and healthy capital and cash generation. The U.S. has been a key growth engine and Empower continues to perform strongly. We've taken further steps to enhance Empower's value proposition, expanding their product lineup to better meet evolving participant needs and sharpen our competitive edge in the market. Ed will share more on this shortly. Our balance sheet remains a core strength. Despite ongoing macroeconomic and trade-related uncertainty, we're in a strong financial position. This has enabled us to return capital to shareholders through our normal course issuer bid and raise our full-year buyback target to $1 billion, all while preserving the flexibility to invest in future growth. Please turn to slide 6. Looking ahead, we have the strategy priorities and positioning to win by offering our clients simple, technology-enabled experiences. Our strategy continues to be guided by the playbook we introduced at Investor Days. It builds on our market leadership, expands into adjacent growth areas, and emphasizes disciplined, capital efficient investment in our branding capabilities. Where it makes sense, we'll continue to use M&A to accelerate progress and strengthen our competitive position. To bring this strategy to life, I'm focused on four execution priorities. Number one, our customers are at the heart of everything we do. We're deepening our understanding of their needs and continuing to deliver solutions that build trust and affinity. Secondly, we will leverage technologies to transform how we serve clients, make decisions and operate. AI and digital innovation will help enable more personalized and intuitive experiences, making us a more human financial services company. Thirdly, as we mentioned at Investor Day, we're investing significantly over the medium term to strengthen our operating leverage and execution. We're doing this by driving efficiency, agility, and discipline, simplify processes, reduce friction, and deliver consistent, scalable quality outcomes. And finally, we continue to invest in leadership culture and capabilities to ensure teams are empowered to lead, innovate, and deliver. We have an exceptional team with deep experience, and we are an attractive destination for market talent. We turn to slide eight. As outlined at investor day, there are strong tailwinds supporting growth in our markets. These demographic, economic, and social trends combined with our strategic playbook and our four execution priorities give us confidence in delivering on our medium-term financial objectives of 8% to 10% EPS growth, 80% close capital generation, return in equity of over 19% and a dividend payout ratio of 45 to 55%. Now turning to our results on slide nine. We are pleased to report a strong second quarter driven by solid execution across our business. We delivered double digit base earnings growth with base EPS of 12% year over year and a strong base ROI. Our financial position remains healthy supported by our robust balance sheet as well as strong regulatory capital and leverage ratios. We continue to take a disciplined approach to capital allocation. So far this year, we've repurchased $432 million in common shares, and we're raising our full-year buyback target to $1 billion, reflecting confidence in our growth outlook and commitment to long-term shareholder value. Please turn to slide 10. We delivered solid performance across our retirement businesses this quarter, excluding credit-related impacts and a one-time fee income adjustment in 2024. Base earnings grew by 12% year over year. Empower was a key driver supported by a growing asset base and number of participants, along with enhancements to its value proposition for sponsors and participants, which, as I said, Ed will speak to shortly. Our wealth businesses remained strong, with day-sardines up 15% year-over-year, driven by fee growth, and power delivered exceptional net flows and sustained momentum in personal wealth, reinforcing that our strategy to capture money in motion through rollovers and crossovers is working. In Europe, we saw healthy retail flows, while partially offset by one-time institutional withdrawal, our focus on serving the mass-to-mass affluent market continues to gain traction. In Canada, our wealth platform continues to advance, and we have enhanced our offering to better meet client needs, including a new partnership with Clear Estate to support estate planning. Please turn to slide 11. The quality results from our insurance businesses this quarter highlight the strength of our diversified portfolio. In group benefits, base earnings rose 17% over the prior year. We continue to lead the Canadian market with steady growth across the business. Our disability offering remains a key differentiator, delivering results and reinforcing our leadership position. We've maintained a disciplined approach to pricing in this business, ensuring long-term value for both clients and stakeholders. Capital and risk solutions continue to grow organically, supported by deep expertise and market demand. We also made a strategic decision to exit U.S. traditional life mortality reinsurance market reflecting our strategy of focusing on areas, including capital solutions business, where we see clear paths to leadership. In the UK, we continue to expect to see healthy growth in both individual and bulk annuities, and our focus remains on optimizing and growing this portfolio in a disciplined and sustainable way. I'll now pass it to Ed to cover the performance at Empower in a bit more detail.

Thank you, David, and good morning, everyone. Please turn to slide 13. I'll begin highlighting the strong performance of Empower this quarter, followed by a deeper dive into a few of our recent product launches that differentiate Empower from the competition. Empower delivered another quarter of strong base earnings growth despite elevated market volatility. Base earnings increased 13% year-over-year, excluding the credit-related impacts in Q2 of this year and last. as well as a favorable one-time fee adjustment in the prior year quarter. The core operations continue to perform in line with our expectations of sustained double-digit growth over the medium term. Despite a large plan D conversion in the quarter, workplace client assets grew 10% to 1.7 trillion U.S., while the number of participants we served increased by 500,000 to 18.5 million. Empower has a track record of winning market share, and despite the impacts of the deconversion in the second quarter, we expect to generate at least U.S. $25 billion in net plan inflows through the remainder of 2025, supporting continued growth in client assets. Empower Wealth continued its solid track record of inflows, which increased 83% to $2.9 billion. This was driven by continued strength in rollover and crossover sales, as well as strong customer retention. Please turn to slide 14. As Empower has continued to deliver strong base earnings growth, we've been working hard to keep strengthening the value proposition for plan sponsors and participants alike. I want to take this opportunity to highlight some of Empower's recent initiatives. In April, Empower announced the first ever zero fee S&P 500 index fund for our workplace customers. This product is a significant win for clients with zero management fees, trading fees, and no hidden account fees. We are setting up clients for their best chance to maximize their investment returns. At the same time, it allows plan sponsors to better fulfill their fiduciary responsibilities. In addition to its public markets offering, Empower is now at the forefront of democratizing access to private market investments for Americans. In May, we announced the launch, of a new program to offer private market investments to the nearly 19 million defined contribution plan participants that we serve, enabling access to an asset class previously reserved exclusively for institutional and high net worth investors. We believe strongly that the attractive risk-adjusted returns these strategies have generated historically offer significant upside to client retirement portfolios. We are committed to providing responsible access to these solutions, which means they will only be offered when approved by plan sponsors after a thorough due diligence process and only when selected through an advisory relationship with clients and within appropriate exposure limits. We have partnered with seven top-tier global investment managers to bring compelling investment strategies at attractive price points to our growing client base. The zero-fee index fund and private market announcement build on other in-flight initiatives, including the administration of health savings accounts and equity compensation plans. With almost 19 million participants on our platform, we have a tremendous opportunity to increase product penetration with our industry-leading partner. We believe health savings accounts represent a significant growth opportunity as we move forward. With the acquisition of option tracks in September last year, we have also added a leading digital stock plan administration platform to our suite of services. In aggregate, we have significantly enhanced Empower's appeal to plan sponsors as a one-stop shop for workplace financial solutions that allow them to better fulfill their fiduciary obligations. And our expanded product offering serves to enhance the client experience for participants. making us more likely destination for rollover assets. This gives us a significant confidence in the double-digit growth outlook for the business over the median term. With that, I'll turn it to John Nielsen to discuss LifeGo results for the quarter. John?

Thanks, Ed, and good morning. Please turn to slide 16. Following a sharp pullback in early April, global equity markets quickly reversed course over the remainder of the quarter, with many major indices ending near all-time highs. This recovery provided support for solid year-over-year asset growth, and more importantly, positions us well for the second half of 2025. Turning to slide 17, LifeCo once again delivered double-digit base earnings growth, driven by underlying strength in our capitalized businesses, especially wealth and group benefits. While base earnings included a benefit from a change in tax estimates, it was principally offset by credit-related impacts in the quarter. Base ROE improved year-over-year to 17.4% on higher base earnings and significant share buybacks this quarter. Net earnings were adversely impacted by market experience. Additionally, this quarter we recorded $121 million of business transformation costs that I'll provide additional context in an upcoming slide. Please turn to slide 18. Credit-related impacts during the quarter were related to bonds issued by water utilities in the United Kingdom. The government has just completed a review of the sector, which we expect to result in a positive impact in the future for our remaining holdings. However, we continue to monitor and work with other senior bondholders on the restructuring of one of the larger water utilities. We'll continue to monitor this situation closely. During the quarter, there were no credit-related impacts in our commercial real estate portfolio in the United States. It is important to put our credit experience in context over the longer term. credit experience has averaged only three basis points of our fixed income investment. This experience is well ahead of industry benchmarks, demonstrating our conservative and disciplined investment approach. There will continue to be idiosyncratic events from time to time that these are expected to be infrequent and have a modest impact. We expect credit-related impacts for the remainder of the year to be more in line with what we've seen in recent years. Further, our full year experience is expected to be well below our long run through the cycle actuarial assumptions. Turning now to our results by segment, starting with slide 17. In Canada, base earnings were up 4% year over year due to solid performance across our businesses, especially group benefits. Base earnings growth was up 17% over the first quarter of 2025. Turning to slide 20. In Europe, base earnings increased 11% year-over-year, driven by higher fee income and wealth and the appreciation of the pound in euro. Including the impact of lower earnings on surplus due to higher remittances last year, base earnings in constant currency was also up double digits. Most top-line drivers continue to perform well with net flows in our retirement business doubling, retail net flows in our wealth business tripling, and group benefit sales up 29% year-over-year. Bulk annuity sales have moderated in recent quarters, even though the longer-term outlook for the industry remains very robust. Lower bulk annuity sales this year primarily reflect deferred demand in anticipation of regulatory changes. Turning to slide 21, within capital and risk solutions, base earnings were up 15% year-over-year on strong new business volumes in capital solutions and improved risk solutions experience. Turning to slide 22, LIFECO's efficiency ratio improved 80 basis points year-over-year to 56.7%. We aim to reduce this ratio to below 50% over time through both business growth and expense discipline. As we announced at our investor day in April, we've embarked on a number of transformation initiatives designed to improve productivity over time. We expect to incur $250 million to $300 million post-tax of charges related to these initiatives as I disclosed at the investor day. with these associated benefits to be recognized over the medium term. As I mentioned, this quarter, we reported 121 million of those transformation costs, the majority of which related to Canada. Turning to slide 23, our base capital generation continues to exceed 80% of base earnings during the quarter. This quarter, remittances were below our trailing 12-month average of $1 billion, mainly as we retain cash in the United States to repay a bond maturing in the third quarter. Turning to slide 24, FICO's strong balance sheet results in significant financial flexibility. Our LICAP ratio increased two percentage points from the prior quarter to 132% due to strong capital generation outpacing remittances. Our LICAT ratio has a degree of seasonality, which by the fourth quarter will reduce our LICAT by around one to two points. Our leverage ratio remains steady quarter over quarter at 28%, but it's 27% on a pro forma basis, net of the repayment of an upcoming bond maturity of $500 million. FICO's cash balance of $2.1 billion remained strong despite significant share repurchases completed in the second quarter. Through June, we had repurchased $432 million of the previously announced $500 million of shares. Our strong financial position and highly cash-generative business supports our announcement today of our plan to repurchase an additional $500 million of shares in the second half of 2025. With that, I'll turn it back to David for concluding remarks.

Thanks, John. Please turn to slide 26. As we enter the second half of the year, we're focused on driving continued growth through a consistent strategy and clear priorities backed by favorable long-term trends. With strong in-market leadership and a deep bench of talent across the organization, we have the right team in place to deliver. Our performance this quarter, including record-based earnings, demonstrates the impact of our strategy and strength of our business. We're on track to meet or even exceed our medium-term financial objectives, all while continuing to deliver lasting value for our stakeholders. We're focused on the right businesses in the right markets and are well positioned to help clients build lasting financial security at a time when it's more important than ever. Empower continues to lead the way, investing in its brand, capabilities, and product offerings to meet evolving client needs and make the financial journey simpler and more accessible. Our continued financial strength and flexibility are key neighbors of this success, allowing us to navigate changing market conditions with confidence while continuing to invest in the future. Thank you for your continued trust and partnership, and I look forward to reconnecting with you all in the fall. Thank you, and with that, I'll turn it over to Shu to start the Q&A portion of the call.

Thank you, David. In order to give everyone a chance to participate in the Q&A, we would ask that you limit yourselves to two questions per person. You can certainly re-queue for follow-ups, and we'll do our best to accommodate if there's time at the end. Gaylene, we are ready to take questions now.

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 Paul Holden with CIBC. Please go ahead.

Thank you. Good morning. A couple questions for you with respect to capital allocation. So, obviously indicated you intend to buy back another 500 million of stock through the end of this year. And then also it looks like you're going through some continued delivering. I think both good, but just wondering if that has anything to do with what you're seeing on the M&A environment, i.e. lack of opportunity, or is this really just a matter of your strong cash flow generation?

Well, I think it's primarily a reflection of our strong capital position and financial position at the moment. I think we've been very clear on our capital allocation priority. So number one is maintenance of a very strong balance sheet, which we have at the moment. Number two is to give us the flexibility in organic growth, and we've ample resources for that. And then it's to pay dividends. We remain open on M&A and keen on M&A, but I think it's important to say our medium term financial objectives are not in any way dependent on M&A, and M&A done properly and well will add to those. Our recent track record, I think, on M&A points to where we continue to look. Obviously, we've had very successful large-scale acquisitions and integrations in the workplace. We've had a number of very successful wealth acquisitions in the U.S. and smaller ones in Canada and Europe, and all of those continue to be areas as well. Our priority target area probably continues to be workplace in the U.S., we remain sort of focused and open to opportunities there. And I suppose the last thing I would say, maybe just on the size of the share back, just to put that in context of our financial position, you know, we've 2.1 billion in cash at the moment. Our ratio is 132. That will decline slightly in the second half, but at 130, we'll be well above our operating target. And we expect our leverage to reduce further with some payback on death maturities at age two. So, one billion in the overall context of our financial strength is not that much at the moment and gives us plenty of financial resources should the right opportunity arise.

All right. Got it. Okay. Second question will be for just looking at that. large plan withdrawal in the retirement business. So I would say retention is obviously an important part of the objective of growing 2x industry growth. So maybe you can quickly maybe summarize what happened in this situation. Give us kind of a history of withdrawals or retention rates. And if you feel there's any actions Empower needs to take to minimize future large plan withdrawals. Thanks.

Sure.

Yeah. Thank you. And I'll go to that in a moment. Maybe just to introduce, I'd like to just say that it has been a very strong quarter for Empower again. And I think that the year-over-year performance, I think, is a great indication of why we continue to expect double-digit growth for Empower. Net plan performance over the full year is going to be very strong. That goes a long way to offset the participant outflows. We're seeing good growth, continued growth in the retirement and the wealth. So if you look at the fee income growth, asset base revenue has grown 1%. Participant fee income, though, has grown by over 10%. We're continuing to increase the rollover rate in the wealth business, and you'll see wealth income has grown by over 20%. So all of those add up to the 13% growth that we see year over year for Empower. And, you know, I think the shape of that performance is a good map of what we expect to see from Empower going forward. So Ed can talk more specifically just on the net plan performance this year and what's driving that.

Yeah, thanks, David. Thanks for the question, Paul. Look, I feel incredibly confident about our workplace business. Again, if you net everything out, we continue to grow at two times the rate of the market. Our pipeline is at the highest level it's ever been, $260 billion in pipeline. And when you think about that in the context of our win rates, in our large mega market, not-for-profit, we win 42% of the opportunities. In the government market, we win 60% of the opportunities. And in the Taft-Hartley union market, we have a 65% win rate. So if you look at our retention rate, and you look at it over the last five years, let's just say, it's consistently been somewhere between 97.5% and 98%, between 97% and 98% retention, which is very, very strong. And our net promoter scores are exceedingly high, too. I think the one thing to keep in mind is that, particularly in that large mega corporate market, they are typically going out to bid every three to five years. And despite that, you know, our retention rates remain very, very high. And as I've shared with you in the past and we highlighted a bit further today, we've really expanded our product capabilities, Paul, and effectively built a multidimensional capability that if we deliver for the client, it really becomes more difficult for them to leave in the sense that we have you know, more hooks and more tentacles into the client because we're providing a diverse set of services. And as we outlined earlier, we fully expect net plan sales for the year to be north of $20 billion in terms of net plan sales. So as we've shared historically, we will have some ups and downs. You will have some defections from time to time. But if you look at the overall business and you look at the health of the business, and you look at the pipeline and the win rates and the fact that we're growing at two times the rate of the market, I feel really good about our position.

That's great. That's it for me. Thank you. Thank you.

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

Hi. Good morning. I guess the question is for Jeff on CRS. You know, it was announced that you're no longer going to be writing U.S. traditional life reinsurance business. Can you talk a little bit about why, what you're seeing? Does this at all impact the targets that you set out in Investor Day? And, you know, maybe kind of wind in, is there any impact on what you're seeing for the rest of Great West Life's businesses?

Straight over to you, Jeff.

Yeah, thanks, Doug. Good question. Yeah, obviously, this was not an easy decision for us. We've thought long and hard about it. But to be honest, the last five or six years, we hadn't been very active in the market. We've stayed very disciplined and just couldn't get the return that we're looking for in that type of business. In our plans right now is just the runoff of the business. It's been like that for a few years, so I don't expect it's going to affect our results going forward. It won't affect our results going forward. Our plan is to focus on more capital solution and other risk solutions where we've been able to achieve better return. It's a very competitive market in the U.S., and it's been difficult to achieve the returns we want. And because of that, I think we've had to make this decision. We feel pretty good about it. We intend to run off and continue to provide the same great service that we have to our clients. I think the block business will take 20 to 30 years to run off. So we're very much still in the mortality business for a while, but not from a new business perspective. As far as how it's going to affect the rest of Great West business, it's hard for me to say. I think that I think maybe Fabrice is better to handle that, but we're not in the mortality business in the U.S. elsewhere. And I don't believe that's going to have a big effect on us anywhere else. And we're still a provider of capital relief on the group side, and we do a lot of group mortality business, and that's been a good business for us. So I don't expect any effect from this decision, really. We'll have minimum impact on expenses, but we intend to redeploy most of our employees into – into other businesses. So hopefully that answers your question.

No, it doesn't. It's just a follow-up. Go ahead, David.

Yeah, no, I think this is the right decision. The U.S. market is just not attractive for us. Mortality in other markets is very good, and we're doing very well on that. And, you know, the growth outlook for CRS absent this mortality is very strong. So this is just a very good example of discipline as we look at different markets.

And then just a follow-up on the CRS, I know the insurance experience has been, I mean, it's not huge negative, but it has been negative for two quarters in a row. Is this related to the U.S. traditional reinsurance business, or is there anything to be concerned with in terms of what you're seeing from an experience perspective in the CRS business?

Yeah, I thought our experience was on target this quarter, or if it is negative, it's only slightly negative. I think last quarter, because of the reserve on the California fire and then our mortality was off, but this quarter, we don't have any event that has affected. It's a really good quarter. I think it's a clean quarter from our perspective, and it's, you know, 15% growth year over year. So we're pretty satisfied with the quarter. I'm not sure I see what you're saying. I think our mortality was 101% of expected. So right on target, really.

Okay, so that's fine. And then just lastly, Ed, You talked about net plan sales being over $20 billion U.S. I think that's for this year. I just want to confirm when I look at that, this is for the U.S. retirement business, U.S. dollar basis. Does that include, you know, both participant close and plan ongoing? Because I believe the $25 billion you're talking about is just plan ongoing, but maybe it's net and including plan ongoing and the participant side. I just want to make sure I understand $25 and $20 billion.

That's just the plan number. That's not the participant number.

Okay. And so on the participant side, you know, you have had gradual, you know, or not gradual, you've had decent net outflows. And I get that, you know, where that's coming from, that people retiring, pulling their money out. Do you have line of sight? Like, it seems like you've lined aside what you've won, obviously, on the plan side. You must model it on the participant side. Like, when do you start to see that net outflow, that natural net outflow on the participant side abating to a greater degree?

Well, I mean, if you look at the long-term demographics, I think the guidance that we've given is we expect it to be somewhere between 0.5% and 1% a year. just due to the changing demographics and the fact that you have 10,000 baby boomers turning 65 every day in the U.S. But keep in mind, you know, we shared with you the results for the quarter. If you look at the success rate and the capture rate that we have, and it continues to improve and increase, we captured $2.9 billion in net flows in our wealth business, and most of that is coming from participant flows that are coming off the workplace platform. So There's money that is leaving the complex, but there's also a fair amount of money that's staying within the complex, particularly as our 19 million customers begin to realize the capabilities that we have from an empower personal wealth perspective. So that's the way I would think about it. I think we've, you know, our goal is customers for life, right? So they may change jobs, they may retire, but we believe we have a compelling solution for them despite the fact that they're no longer actively employed.

I just want a quick follow-up. The U.S. wealth side, what was the capture rate, the rollover rate this quarter? Just trying to get a trend idea, like what was it this quarter relative to last year and where do you think you can take it again?

What I would say is that our efficiency and our effectiveness – and the strength of our value proposition continues to increase. And as such, the capture rate this past quarter was the highest we've experienced. Now, that too can ebb and flow. There are events that oftentimes drive those rates higher. But if you just look at, you know, the momentum that we have there, I think it underscores, again, the strength of the value proposition as we continue to build out our capabilities on the personal wealth side of the business and build out the product set. And if you look at it on a four-year basis, as I look into the balance of 2025, I think you'll see a dramatic increase in net new assets on our platform. And the only other point I would make, if you look at our performance vis-a-vis the assets that we have under administration, and you look at that net new asset calculation, it's very, very high relative to our competitors. I mean, we would be top decile of RIAs in the country in terms of net new assets as a percentage of AUA, and I suspect that's going to continue and improve over time.

Appreciate the comment. Thank you.

You bet.

Yeah, and maybe just to add to that, I think the last 12 months are just a great example of the performance of the entire business. At an industry level, there's about 2% participant outflow, and that's to do with baby boomers retiring, and we expect that to last for maybe the next five to six years. Our net plan inflows then mean we reduce that 2% to less than 1% on our own book, and no one else's experience is as good as that. And then what we're also doing is improving the rollover rate. So, you'll see our wealth to income is up over 20% year over year. So, like all of those factors are just, they show the performance of the business and why we expect double-digit growth going forward. Okay, next question.

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

Good morning. Maybe a question, going back to Ed for a moment here. These initiatives that you outline on page 14, they seem that they're not, this is not a cheap thing to do. This is going to take some spending. The question is, have these initiatives already been, have the expenses already been incurred, or are these still on the way?

So, I can take them one by one. With respect to offering private asset investments, there's not a material investment associated with that. Obviously, there's distribution support. There's working with our partners. So I would say, for all intents and purposes, the investment there, which is de minimis, is reflected. In terms of the opportunity of the health savings account, which I think is significant, in fact, with the With the big, beautiful tax bill here in the United States, we expect the penetration to increase by over 20%. So you're going to see a significant amount of Americans adopting health savings accounts as we continue to see this shift to consumer-directed health care and high-deductible health plans. We think that's a tremendous opportunity for us. And I would say, for all intents and purposes, the expense there is largely reflected as well. It's not an incremental expense. We're working through a partnership there. And then with regard to the equity plan admin platform, we built that platform. We are investing in that business, but largely it's a function of the integration investment that we set aside. to create that seamless solution for clients. So I would submit that the expenses are largely reflected in the current year plan and what we expect next year. Okay, quick follow-up then.

It appears that the fees generated in U.S. retirement, and I'm just talking about a rudimentary calculation of your fee income to average assets. It seems like it did take a bit of a step down. Is this more of a seasonality issue? Is it mix? Is it competition? Or maybe let me start by saying, do you agree with the notion that the fee income relative to the assets is moderating some of it?

Yeah, it's a good question. I mean, it's primarily driven by mix and the diversification of our revenue stream. So If you think about the growth in the business that we're experiencing, a lot of it is fixed fee, per participant fee, particularly in that large mega market. It's not asset-based fees. And so that's where you're seeing mixed play out, and you're not seeing the correlation, as you're indicating. Okay. And then, as we've said over time, we continue to diversify the revenue stream. So, if you go back several years ago, we were probably 60% asset base. Now, we're sub-50% asset base. So, that's really, you know, what you're seeing play out there in terms of that differential.

All right. Thank you.

You bet.

The next question is from Tom McKinnon with BMO Capital. Please go ahead.

Yeah, thanks. Good morning. Just a question with respect to the credit hit. If I look in the U.S. and Empire, you got an $80 billion in kind of spread-based account balances, largely, I guess, related to stable value product. And on that, you took Canadian 63 pre-tax credit from this U.K. water utility. But in Europe, you got nearly $50 billion. billion in balance sheet assets probably mostly UK spread based again from UK bulk and payout annuity business yet you don't have any well correct me if I'm wrong you don't have any exposure to this UK water utility and you've actually had positive credit experience so please help me understand the bit of the disconnect between these two spread based businesses and And is there any accounting differences with respect to how you're accounting for credit hits at MPower versus credit in Europe? And just confirm that there's no exposure to the UK water utility in your Europe book. Thanks.

Thanks, Tom.

I'll hand over to John. Tom, thanks for pointing that out. So, just to start with, in terms of our exposure to that particular utility, it's around, after the credit hits that we've taken, it's around 180 million Canadian, so less than 1% or 1.1% of the overall portfolio. So, it's a fairly small holding. As we mentioned, you know, the whole sector has undergone a review by the government. We think that review is overall net positive for the sector. And, you know, in terms of the outlook outside of that name, it's fairly positive. We do hold a number of exposures within our UK portfolio for other water utilities. This one was held across portfolios. Obviously, financial markets are becoming global, and we're becoming a more global investor. as they globalize. So these issuers are issuing in different currency, and we're originating these assets and putting them against liabilities across our balance sheet. So it's not unusual that we hold securities across portfolios where it meets our, you know, our ALM standards. But in principle, principally, you know, our balance sheets will be local issuers, but it's not unusual to have them across the portfolios. There is an accounting nuance, you know, between our European and U.S. balance sheets. From a European standpoint, you would have seen us take credit experience on these holdings over the prior quarters as we mark to market those securities. Whereas in the U.S., it's more of a judgment call as to collection of principal and interest. And as a result of the unwind of the private solution this quarter, We made the judgment in our U.S. portfolio that the security was not going to be fully collected in terms of principal and interest, and we wrote it down this quarter. As we look at this situation, we're monitoring it closely. We're sitting with other senior bondholders. You know, there is a level of binary outcome, you know, in terms of how that works out, either, you know, a senior creditor solution. which we think could provide some upside. And you've seen the security trade upwards since June 30th in anticipation of that probability. Or, you know, the downside scenario is a special administration government workout. Now, we think it's the probability, you know, of a private solution more likely. So we anticipate some resolution of this in the third quarter is that you know, that solution and the government makes a call in terms of private solutions. So, you know, down to 0.1%, and you're right to point out a slightly different accounting nuance between the segments.

Yeah, okay. And just a quick follow-up on that. So, can you confirm there's no exposure to this UK water utility that you took a hit on at NPower? There's no exposure in your Europe book to that?

No, as I mentioned, there was exposure. We had taken the credit experience as the credit spread had changed in our European book in prior quarters. So we're now fully marked to market at the estimated market value. We've taken all of the experience today through June.

And how come you don't use that? That's IFRS 17 methodology. How come you don't use that methodology for your U.S. business then? Why isn't it marked a market with a liability that has a credit spread impact on it?

It is, you know, those are investment contracts, so our particular methodology, you know, looks at when is the principal and interest recoverable, and it was a judgment of the team. Okay. And maybe just with the restructuring that occurred this quarter.

All right. And maybe just one thing on Canada wealth. We have assets kind of up, but we've got base earnings before tax down, both year over year and year to date. What are you seeing there with respect to fees or margin? You seem to be down a little bit. Is there any outlook you can give us for Canada wealth? Thanks.

Thanks for the question. We're very pleased with the performance of our wealth business in Canada. As I mentioned on our Q1 call, there was a one-time expense reallocation at the beginning of this year between our wealth business and our other businesses. It's not an increase in expense. It's just as we've acquired businesses and wealth, these businesses are attracting more of our group overhead. So we need to correct for that. You also see in our supplemental that are spreading comments down a little bit in wealth math. And the sum of these two things would account for about 14 million pre-tax, I believe, and would more than offset the decline that you see year over year. So if you adjust for these one-time items, we actually see growth year over year. Again, we're pleased with the performance of our wealth business. Our SEC fund net flows are improving marketly on the back of investments that we've made and experience on the back of new programs that we have with advisors, on the back of partnerships like the one we have with Primerica that I've talked about in prior accounts. So we see the fundamentals of our wealth business being very positive.

Okay, thanks for that.

The next question is from Gabrielle Duchesne with National Bank Financial. Please go ahead.

Good morning. Can I ask you to repeat or maybe get a bit more detail on a comment you made earlier? I believe you were talking about all the whole money leaving the retirement business in the U.S., but the retention. Did you quantify any retention rates that are getting reflected in your U.S. wealth business inflows, which have been pretty consistent and moving higher?

No. I was just saying that generally we haven't given specific statistics on retention other than to say that the capture rates continue to increase and we expect that to continue and I think what I said was that the key metric that we focus on in our personal wealth business is net new assets. So that's gross sales minus redemptions and terminations, excluding market performance. And on a four-year basis, we expect that to be up significantly year over year.

Okay, great. Now, as far as... Like Canadian business goes, if I look at the group benefits in particular, you know, look pretty solid this quarter, earnings up 19% year over year. I recall seeing some mention of morbidity gains. Are you able to quantify those, if at all?

Yeah, like we're very pleased with performance this quarter in the Canada group benefits business. So, Fabrice, do you want to add a little bit of colour on the experience? I think that's absolutely right.

The performance of our group business is driven by strong morbidity performance this period. As we've seen in past periods, this performance tends to persist over time. This is not necessarily one time, one quarter. We are very disciplined in the way we price this business. We're very disciplined in the way we underwrite this business. I think our track record over a long period of time would show this, and we remain focused through cycle on providing a very good client and member experience. And also, I mean, this is in the way we approach the business.

Yeah, no, I get that. And I'd agree, but I'm just wondering if there's any, you know, if this was a particularly strong quarter or there's some seasonality that you might want to flag.

It's been stronger than other quarters. I wouldn't point to any specific seasonalities that relate to morbidity experience. And the experience, the positive experience factor is more than the small-term disability morbidity.

Okay. Then on the other hand, so the outlook for the business, and correct me if I'm wrong, but your market focus historically has been mid to smaller case sizes. So on one hand, for driving profit growth, it is your underwriting capabilities, which you demonstrate over time are quite strong. But then on the other hand, the top line is maybe facing a bit more of a challenging outlook because of slower employment and growth in Canada. Is that something that you're factoring into your outlook as you look at the 2026 budgeting or anything along those lines? That would be, I think, interesting to hear about.

We are ensuring many Canadian employees, so we're exposed to the Canadian economy. We're not seeing right now a significant headwind, at least in our current block. Our current block continues to grow with the economy, but we continue to watch the economic trends in Canada. We would be exposed to that. You may see in our expected profit growth. We're also disciplined in the way we reflect experience and to expect a profit. We tend to be very cautious and conservative in the way we do this. We're cautious and conservative on our pricing as well. So, you will see a slightly slower expected profit growth that would reflect these two factors. But we're not seeing or at least in our current results, and we continue to watch the outlook for employment and economic growth in Canada.

Yeah.

And more broadly, as we plan for next year and budget for next year, like we're firmly committed to the financial objectives we set out. So, for Greece and Canada, you know, our expectation is mid-single-digit growth to do slightly better than that in Europe and see a double-digit growth in the U.S. So, no change in expectations from any of this.

All right. Well, thank you.

The next question is from Alex Scott with Barclays. Please go ahead.

Thanks for taking the question. I had one for you on Empower and just wanted to see what your thoughts are on, you know, in-plan annuities as an offering in 401ks. You know, do you see that as something that ends up building as an allocation? Is that a product that you'd potentially partner with somebody on or manufacture yourself? I'd just be interested in your views.

I think that's an area where – that's an area we're excited about like obviously it's an area we have a lot of expertise in our different segments and i think as people transfer into retirement we're going to see increasing demand for that uh project in the us others are experimenting with with different offerings so i think that's something we have the expertise that you know i think we're probably likely to partner with somebody in the short term as a route and see what sort of demand is there for the product and then if there is strong demand we could potentially move into manufacture ourselves

Yeah, I would just add we have a partnership today with TIA. I would say the demand has been somewhat tepid at this point, but clearly it is an emerging need. A lot of the surveys indicate that people want guaranteed income solutions. They want longevity insurance. And to David's point, we are looking at it with an empower. You know, we'll take the same approach, open architecture, but we'll likely have our own solution. We'll underwrite the offering.

Got it. Okay. The other question I had is on Empower as well. The average AUM will be up a fair amount going into the back half of the year just because of what the market's done, and I appreciate that a little over half is fee-based, so not all of it indexes to that, but you've got a pretty solid tailwind for top line going into the back half of the year. I'm just interested in know how you do that extra flexibility from an expense standpoint is that you know something you take advantage of to invest more back into the business or you know would it flow through more in the margin yeah i think it will give us some flexibility um you know i think

You know, we want to continue to invest so we can improve the efficiency of the business. And I think there's AI digital innovation that can both improve the member experience and improve our own efficiency and continue to drive down participant costs. So that's a win-win and an obvious invest area for us. And then I think the other thing we're learning about the business, the key to improving the rollover rate of retirement is to maximise the member experience through their journey in saving for retirement. you see the things we're doing on the product expansion that say to that continued investment in the brand says to that. So, you know, as we look to plan for next year, we want to try and create room for both of those investments in the impact business and the top line growth will give us some flexibility to do that.

Got it. Okay. Thank you.

We have a follow-up question from Mario Mandonca with TD Securities. Please go ahead.

Thank you for taking this other question. It might be best for John. It could be. Over the years, I don't recall a time when Great West Life was as focused on reducing leverage and buying back stock. Often when I think about it, I think about the holding company just not being a regulated insurance company and differences between Great West Life and some of the other life goals. So it appears to me that something's changed. So perhaps you could talk a little bit about What you're trying to solve for in taking the leverage ratio down is the goal to get it down to 25% and the buyback. So what's changed that's sort of changed Great Real Estate's strategy around capital?

Yeah, well, thanks for the question, Mario. I think we're going to be active in our management of capital going forward. I think it was underappreciated when I joined just how capital efficient this company is. you know, we've put out a lot more disclosures about, you know, the sources of those cash flows and the uses of those cash flows, and also complemented that with, you know, an outlook on capital generation being more than 80% of earnings. We think this is top tier in terms of the sector, and we're continuing to push our businesses to become more capital efficient, whether it's strategic decisions around, like what you saw this quarter, around a exiting the life market and CRS, or whether it's being disciplined in terms of our product underwriting and generating just every dollar of cash we can get and making the velocity of that cash as quick as possible. So we're excited about that outlook, and we're doing a lot of work to make sure that we, you know, continue to improve just how much we generate. Then in terms of uses, as I mentioned, being more active, You know, we're just kind of, you know, ensuring that we have a strong balance sheet for M&A. There's nothing imminent in terms of M&A, so you've seen us take action as we roll forward quarter by quarter with buybacks. This quarter, we announced another 500. You should expect us to continue to be active quarter by quarter in looking at what's the M&A outlook, and if there isn't something imminent or if there's not something you know, within a reasonable period of time. We'll look to buy back shares on an ongoing basis. So I think it's just becoming more clear about just how strong our position is and using that as a leverage to grow the business over time. So, you know, that's what I'd say about that. And you should consider this just to be BAU now for Great West in terms of how we operate.

Nothing's changed. It's just that you, John, and David and the folks there at Great West Life have decided this is a more urgent priority or this is now a priority of the company and perhaps, you know, previous management teams have focused on something else. Is that fair?

I wouldn't call it a change in management philosophy. I would say if you look at the evolution of the company, you know, the strategic positioning of our U.S. business has changed materially. You know, we made disciplined capital allocations to get out of asset management and life insurance and reallocate into a growth business or retirement segment. That business is now generating substantial cash flow. If you look back to the previous position, I wouldn't say it was a strong cash contributor. You know, we had nice businesses, but not great businesses from a cash generation. At the same time, our other businesses have now grown to scale. Mario, if you think back 10 years where our CRS business was, our European business was, they weren't of anywhere near the scale they are now. So I would say it was a benefit of the decisions that the management that came before us made strategically that puts us in this position now that we can harness it and really take it forward in a really positive way. And, you know, We're still, I don't want to give the position that, you know, that we're changing our leverage ratio over time. You know, we have a maturity. We're going to pay it down. We would still actively look to be around the 30% leverage ratio over time in the event that there was inorganic opportunities. And given that we have excess cash, there's no need to issue in the debt markets right now. So it's just active management of the position that the prior generations of management endowed us to, and we're going to be active in managing that very hard.

Yeah, I think that's it exactly. It's a natural maturing of the business. Like we've repositioned to capitalized. That's over 60% of our earnings forecast to grow to over 70% over the planning period. So, you know, this sort of capital deployment priorities just fit perfectly with that.

That's clear. Thank you.

This concludes the question and answer session. I'd like to turn the conference back over to Mr. Khan.

Thanks, everyone, for joining us today. Following the call, a telephone replay will be available for one month, and the webcast will be archived on our website for one year. Our 2025 third quarter results are scheduled to be released after market close on Wednesday, November 5th, with the earnings call starting at 9 a.m. Eastern. Thank you again, and this concludes our call for today.

This concludes the conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.