Great-West Lifeco Inc.

Thank you for standing by. Welcome to the Great West Life Co. Third Quarter 2025 Results Conference Call. As a reminder, all participants are in a 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 the number 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 like to turn the conference over to Mr. Shubha Khan, Senior Vice President and Head of Investor Relations at Great West Life Co. Please go ahead.

Thank you, Morgan. Hello, everyone, and thank you for joining the call to discuss our third 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 adjustments, 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, Don Nielsen, our group CFO, Jeff Poulin, CEO, Reinsurance, Ed Murphy, president and CEO, Empower, Fabrice Morin, president and CEO, Canada, Lindsay Ricks-Broom, CEO, Europe, Linda Kerrigan, our appointed actuary, and John Melvin, our new chief investment officer. We'll begin with prepared remarks, followed by Q&A. With that, I'll turn the call over to David.

Thanks, Hubert. Please turn to slide five. We had a great third quarter, delivering very strong results and executing effectively on our strategic priorities. Base earnings reached a new record high, but more importantly, I am very pleased that we saw good earnings growth in all our four segments, including double-digit base earnings growth in the US, Europe and capital and risk solutions. and mid-single-digit base earnings growth in our Canadian business. This performance underscores the strength of our market positions and the ability of our teams to meet evolving customer needs.

This meeting is being recorded.

We continue to return capital to shareholders through our normal course issuer bid. Giving our robust cash flows and balance sheet flexibility, we are announcing a further increase to our target repurchases for 2025. Today, in addition to remarks from myself and John Nielsen, Jeff Poulin will provide more insights on our capital and risk solutions business, a strongly performing business and a key contributor to Great West's ongoing success. Please turn to slide six. As I said, we are pleased to report a strong third quarter driven by solid execution across our businesses. We achieved record base earnings of 15% year over year and a base return on equity of 17.7%, also at new high for Great West. Our financial position remains very strong with solid capital and leverage ratios, giving us significant financial flexibility to enable future growth. As at November 5, we had repurchased just under $1 billion in common shares, And given the strength of our business, we are raising our total 2025 target buyback by $500 million to $1.5 billion. John Nielsen will elaborate on this shortly. Please turn to slide 7. Our results reflect successful execution of growth strategies in wealth, retirement, group benefits and insurance. We are proud to serve over 40 million customers globally and we work hard to deepen these relationships. In the US, our retirement business had a fantastic quarter with net plan inflows of $30 billion US, which I'm sure we'll discuss later in the Q&A. Empower's wealth business also achieved a very significant milestone, crossing $100 billion US in client assets, reflecting the continued momentum of the business since its launch in January 2023. In Canada, continued investments in technology and digital capabilities are enhancing customer and advisor experiences, improving operational efficiency and positioning us for further growth in group benefits, wealth and retirement. In Europe, we consolidated asset management operations, increasing its scale and competitiveness, which is an important enabler to our strongly growing wealth and retirement businesses in Europe. And our CRS business continues to capitalize on global opportunities, delivering tailored solutions and attractive returns. Jeff Poulin will discuss further in a moment. And finally, I'd like to welcome John Melvin, who joined us on 1st of October as our new Chief Investment Officer. John's experience and expertise will help shape our global investment operation, and we're delighted to have him on board the Great West team. Please turn to slide eight. I am particularly pleased that the results this quarter reflect the strong market positions in each of our four segments. We are delivering on our medium-term growth ambitions through organic growth. Our teams are working hard to meet the retirement, wealth and insurance needs of customers and our market-leading positions continue to be well-placed to benefit from favourable demographic, socio-economic, commercial and public policy tailwinds. I'll pass it now to Geoff to speak to our capital and risk solutions business in a bit more detail.

Thank you, David, and good morning, everyone. Please turn to slide 10. The capital and risk solutions experience a very strong quarter with base earnings up 20% year over year. This was primarily fueled by our capital solutions business, where we closed several deals in the quarter. The capital we invested to underwrite these transactions drove a 36% increase in the run rate insurance results for a capital solutions business. The pipeline in that business remains strong and we continue to expect new deals in the coming quarters. Favorable mortality experience in our U.S. traditional life portfolio also supported strong earnings growth in the quarter. Turning to slide 11. In recent years, our business mix has increasingly shifted to capital solutions or structured reinsurance, as it's often called in the industry. This business helps clients to more closely align their capital to the inherent risk of the underlying business and at a more reasonable cost relative to alternative solutions. Demand for capital solutions has increased significantly over time. In the last 30 years, the reinsurance market has evolved from one purely focused on risk sharing to one where primary insurance carriers are increasingly looking for help with capital management. More recently, insurance markets around the world have experienced increased inflationary pressures with premiums rising to offset the increase in claims. As required capital is sometimes directly proportional to premiums, These pressures have further spurred demand for capital solutions, and CRS has been able to capitalize on this opportunity. By contrast, our risk solutions business, which involves more traditional reinsurance transactions, has grown at a more measured pace of late. Margins on certain types of business have become less attractive due to increased supply of traditional risk transfer solutions. We have, therefore, pivoted to capital solutions in recent years where market conditions are significantly more favorable. Turning to slide 12, I want to take this opportunity to demonstrate how we create value through capital solutions given the particularly strong growth in that business this quarter. Each transaction is unique, and we look to help clients with their capital needs by identifying opportunities to more closely match their capital with the inherent risk of the underlying business. Traditional financing solutions, such as raising debt or equity capital, are less efficient. They improve available capital at a potentially higher cost of financing than solutions that more closely align capital to risk. By contrast, capital solutions involve optimizing required capital, which has a more favorable impact on capital ratios and returns on a per-dollar basis. Since insurers hold a multiple of their required capital, it is more efficient to reduce the required capital than to add to available capital. Overall, this makes our products more attractive to clients than traditional forms of financing. CRS is a very experienced team that tailors each transaction to the client's needs. We spend time with clients and use a variety of treaty mechanisms to transfer risk in a managed way that provide capital relief at an attractive price. The goal is to have structures that transfer the risk to CRS but allow the client to retain more of the underwriting economics of the business reinsured. Turning to slide 13, CRS is well-positioned to capture a meaningful share of the growing demand for capital solutions thanks to several competitive advantages. These include support from LIFCO and a strong credit rating, both of which make us a reliable counterparty. deep and enduring customers' relationships, having helped clients manage through insurance cycles and changing regulatory environments for more than three decades, and an opportunistic and selective approach to new business, reflecting a strong risk management culture. Combined with the favorable market outlook for Capital Solutions, our competitive strengths give me confidence that CRS will continue to deliver earnings growth in the mid single-digit range or better over the medium term and continue to be significantly accretive to the ROE of LIFCO overall. With that, I will turn it to John to discuss LIFCO's results for the quarter.

Thanks, Jeff. Please turn to slide 15. LifeCo again delivered record base earnings in the third quarter, supported by constructive global equity markets, strong new business volume, insurance experience gains, and modest credit experience. Base earnings grew 15% year-over-year, with all lines of business growing double digits. This helped drive base ROE to 17.7%, up 40 basis points year-over-year. Earnings quality continues to be high, as net earnings were within 5% of base earnings, largely on account of modest impacts from assumption changes and management actions, as well as favorable market experience. Please turn to slide 16. Exceptionally strong insurance experience and modest credit experience bolstered results this quarter. Insurance experience gains were 112 million, nearly twice the four-quarter average of 58 million. This was primarily driven by mortality gains across all operating segments. As you recall, in the first quarter, we experienced exceptionally weak mortality experience, and we would expect this volatility to continue. Additionally, credit experience was minimal this quarter and well below our 10-year average of three basis points. Going forward, we expect credit experience as a percentage of non-par fixed income assets to be in the range of four to six basis points post-tax on an annual basis based upon long-term industry-wide loss experience. In normal conditions, we'd expect credit experience to be at the low end of this range. However, we would expect volatility period to period as a result of idiosyncratic events. Turning now to our results by segment, starting with slide 17. Empower saw double-digit growth with base earnings up 10% year-over-year in constant currency. This reflected strong organic growth in both the retirement and the wealth business. The retirement business capitalized on strong markets, as well as $30 billion in plan inflows this quarter, which more than offset participant activity. We continue to expect plan flows for the second half of 2025 to be largely in line with the $25 billion that we shared on the second quarter earnings call. Empowered Well, delivered base earnings growth of 39% year over year. This was driven by record net inflows of 3.4 billion U.S. dollars, up 43% over last year, reflecting continued strength and rollover sales. We remain well on track to improve our rollover rate by 30% over the medium term. Both the retirement and wealth businesses achieved record operating margins in the quarter, highlighting the scalability of our platforms and reinforcing the double-digit growth outlook for Empower. Turning to slide 18, base earnings in our Canadian operations increased 4% year over year due to continued momentum in group benefits and retirement. Group benefits saw strong organic growth and insurance experience gains, while equity markets and improved segregated fund flows supported retirement and wealth results. Underlying growth in our Canadian operations was strong, with base earnings up 9% year over year, excluding earnings on surplus, which have been impacted by lower yields over the last 12 months. And turning to slide 19, base earnings in our Europe segment increased 12% year-over-year on a constant currency basis. As in Canada, this was driven by robust growth of the group benefits in Forcebook, as well as strong insurance experience and higher fee income and wealth in retirement due to strong global equity markets. Turning to slide 20, as we have said in the past, The organic capital generation of our businesses is significant, but underappreciated. For the last 12 months, base capital generation exceeded 80% of base earnings and would have been higher if not for the very strong new business growth in CRS this quarter. We continue to have a high degree of fungibility in the capital we generate, In fact, the cash remitted by the segments to LIFCO exceeded 100% of base earnings for the trailing 12-month period. We expect remittances in the fourth quarter to be in line with our four-quarter average. This is the result of our business mix, as well as the contributions from initiatives to optimize our balance sheet that we highlighted at our recent investor day. Turning to slide 21. LifeCo's strong free cash flow gives us tremendous flexibility for continued capital deployment. As of today, we have largely completed the previously announced $1 billion of share buybacks and have announced our intention to repurchase an additional $500 million before the end of the year. Turning to slide 22. Despite strong new business volume in our reinsurance business, ongoing dividend payments, and substantial share repurchases this year, Lifeco's financial position has continued to strengthen and remain robust against a backdrop of elevated market and economic volatility. Our LICAT ratio remains strong at 131%, only decreasing one percentage point from the prior quarter, primarily due to the increased organic reinvestment in CRS. Given the seasonality of the reinsurance business in the fourth quarter, we expect the ratio to decline by one to two percentage points through the end of the year. Our leverage ratio decreased by one percentage point quarter over quarter to 27%, reflecting the maturity of a bond. LifeCo's financial position, including the cash balance of $2.5 billion, positions us for continued financial flexibility, including for any compelling M&A opportunities that emerge. With that, I'll turn it back over to David for concluding remarks.

Thank you, John. Please turn to slide 24. As we close out the third quarter and look to finish the year strong, we have high-performing teams that are delivering against focused strategies in their markets. Our performance in Q3, including record-based earnings, reflects strong execution against our strategic priorities. All four of our business segments are delivering base earnings growth in line with or ahead of our stated ambitions. Our continued financial strength and flexibility are key enablers of our success, allowing us to navigate changing market conditions with confidence while continuing to invest in future growth. Together, we're on track to meet or even exceed our medium-term financial objectives, all while continuing to deliver lasting value for our stakeholders. And finally, I know many from our teams are listening to the call today, and I want to thank you all for your continued commitment to Great West.

And with that, I'll turn it over to Shuba 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, and you can certainly re-queue for follow-ups, and we'll do our best to accommodate if there's time at the end. Morgan, we are ready to take questions now.

We will now begin the analyst question and answer session. To join the question queue, you may press star then the number one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, press star then the number one again. Your first question comes from John Aiken with Jefferies. Your line is open.

Mr. Aiken, your line is open.

Good morning. Sorry about that. I wanted to take a look at the U.S. operations, both the protection as well as wealth, sorry, the power business as well as the wealth management. We saw a strong top-line growth driven by the growth in the assets, but what I was particularly interested in was the improvement in the margins that we saw. Now, obviously, I believe this is talking about the scale that you're generating in the businesses. But moving forward, are we going to need to see incremental investments in technology? Can you remind me in terms of what we should expect in terms of expense growth moving forward?

Okay. Maybe I'll pass over to Ed.

Sure. Thanks for the question, John. You know, I would say on the investment side in technology, we're continuing to invest in efficiency. We have a transformation effort that's underway that's driven very low unit cost over the last several years. And if we look out over the next four to five years, we continue to see lower unit cost in the business. Much of this is being funded by the tech budget that we have as we continue to redirect more dollars into AI and automate more of our processes. As you know, we have a pretty substantial presence from a global standpoint in terms of application development, operations, and the like. So as I look forward, I think we're going to continue to see similar margins. I think that they'll definitely be sustainable on an annual basis. Obviously, there's some seasonality variances. It's more acute in the wealth business where we tend to upweight the marketing spend in Q1. But I think if markets hold and we don't experience further impairments, we should see continuous improvements in our margins annually based on the investments that we're making to improve the customer experience and drive unit costs lower.

Thanks, Ed. I appreciate the call. I'll recoup. Thank you.

Your next question comes from Alex Scott with Barclays. Your line is open.

Hey, thanks for taking the question. The first one I have for you is to just see if you could extrapolate on some of the things you're doing from a technology standpoint. I mean, you know, defined contribution in particular seems like a good, you know, area where maybe you could, you know, really drive even more operational efficiency with some of the new tools that are out there. So I'd just be interested in, you know, what are some of the things you're working on there?

Yeah, like just – sorry, maybe I'll cover on just –

I presume your question, Alex, is just on the business overall rather than any particular segment?

Yeah, I'd be interested in business overall, but particularly interested in power and how you can maybe leverage your ability to consolidate the market, but maybe supercharge that with some of the technology investments that you're making.

Yeah, maybe I'll start overall and then, Ed, if you want to add some colour on Empower. There's big technology opportunity across all of the business. We're investing a lot in... just the foundational capabilities in each of the business. I think workflow systems and capturing all of our efforts within that are very important foundational tools. And as we continue to invest in that, then AI is going to be a big opportunity in driving efficiency in each of the businesses. We're already deploying AI a lot within our call centers. It's operating behind the scenes to help agents and improve their And then in each of the operational areas, all of the operation engines behind are starting to use AI capabilities to automate and improve productivity there. And that's going to be a continued journey over the next, I would say, three to five years. And it's going to drive down unit costs. So I don't know if there's anything you want to call out on the defined contribution business.

Yeah, just in general, not just defined contribution, but in general, Alex, I would say that we've been an early adopter of AI, and we have several tangible use cases that are in production right now where we're seeing meaningful benefit. I'll give you an example. If you look at our application development efforts, we've taken advantage of the global capability for a while now. We have 2,700 people in Bangalore. across all of our functions, including operations and application development, but all of the functions. But if you look at what we've done deploying AI with our app dev team, we're seeing anywhere between 25% to 30% lift in productivity, which is meaningful. We've been driving a lot more throughput as it relates to a very aggressive investment agenda that we have for both the wealth business and the workplace business. So we think we'll continue to see further lift there. We're also deploying it in terms of customer interactions. So whether it's through our client service managers, automating a lot of what they previously did, which was either by phone or by paper, all those tasks are being automated using AI. And to David's point, we've taken our interactive voice response capabilities to a whole new level and leveraging AI there as well. So rep-assisted calls are down dramatically and it's a much better experience for the customer. So we stood up an innovation lab at Empower about three years ago and we're driving a lot of these efforts forward. And I think to the earlier question that John asked, I think this is very core to our long-term goal of continuing to drive our unit cost lower And I agree with your hypothesis that as we look out over the next few years, I'm confident we can drive those costs lower than we currently have in our multi-year plan.

Got it. Very helpful. Thanks for humoring the ask for more detail there. I guess the second one I have for you is on the capital risk solutions business. Seems like you're getting a lot of growth. Could you maybe take us into that? some of the things that you see as good opportunity out there and just how you're viewing the competitive environment for those type of products. And maybe also this quarter, too, if you could talk at all about, you know, whether P&C and catastrophes being lower had any impact.

Okay. I'll hand over to Jeff.

Thanks, Alex. Good question, obviously. We, on the capital solution side, we see a lot of opportunities, both in the United States, in Europe, and even in Asia, for that matter. The changing requirement or changing regulatory requirements there are going to generate more opportunities for us. We've been very, very good at looking at where we think capital is tight, where people are finding or needing what we're offering for them. And so it's been very good because we've been marketing to the right places and we're seeing the fruit of that this quarter. I think we've added 80 million of annualized earnings in the quarter in terms of new business and capital solutions. So it's been a good quarter. We see that trend continuing. There is a lot of growth. There's a lot of change in regulations. There's a lot of demand for these products. Premiums in a lot of the markets have gone up quite a bit, as I said earlier, and that's generating more required capital. So if you have a book of any business, your premiums grown 20% because it didn't perform very well and you need to make it up the next year. you need required typically in most countries, 20% more capital to do that. So we've been, um, we've been helping these companies. We help companies grow and that's what we're focused on. So, um, I feel pretty positive about, uh, the outlook for, for our business. Um, I think your second, um, part was about the current, uh, the PNC catastrophe, um, that, uh, We feel sorry for the poor people in Jamaica. Our heart goes to them. It was a big hurricane, a big loss. It's early for us to tell whether we're going to be impacted or not, but the early estimate of the insured loss are such that we don't think we're going to have an effect on it. I think over the last few years, we've been telling you we've been de-risking or getting further away from the risk. So we have been doing that. And the result of that is we see less claims as a result.

I hope that I didn't miss anything here. Very helpful. Thank you.

Your next question comes from Paul Holden with CIBC. Your line is open.

Thank you. Good morning. So again, thanks for all the additional color and commentary on the CRS business. And I do have a follow-up question then for Jeff. You just mentioned that you added $80 million of annual, I think, expected earnings for the business. But And then you talked about all the opportunities and why Great West is well-positioned to capture those opportunities, which is clear in the results. So my question really is then, why the mid-single-digit annualized earnings growth rate? Why not something higher? And I get it's mid-single-digits plus, but why not put it something higher, at least in the medium term?

Thanks for the question, Paul. We obviously want to do better than mid-single digit. I mean, I think that if anybody knows me, that's the goal here. But at the same time, you could look at our historical run rate on the business and you'll see that we've overachieved that. But the reality is our strength comes from the fact that we don't have the pressure to write the business. We want to be very disciplined and very... very choosy, if you will, in terms of making sure that we only write business that is above our target ROEs. And only when we see those opportunities will we bring them to the group. If we had much higher targets, I think we would feel compelled sometimes to write business that we may not like as much. And so I think that's been the strength of our business and the reason why we haven't had very many hiccups over the years. And we've created a very big diversified portfolio that's running really well, and that's what we want to continue to do.

Okay. I have another way to frame the question is, you know, is the growth in capital solutions, is it being offset sufficiently by, you know, the reintroduction the P&C reinsurance and the exit of life mortality such that will bring the growth rate down to mid-single digits. Is it fair to look at it that way? I don't think shrinking those other businesses versus the capital solutions will bring me down to mid-single digits, but that's another thing, another angle I just wanted to explore.

No, that's not how we look at it. I think that our mortality business has been pretty flat for a long time. So we've grown despite that. And I think that the PNC business is the same way. I think the earnings have been relatively flat on that. So as a result, I'm not sure. I think we're still looking for risk solutions products and capital solutions products that are affordable. are going to help us grow. And we're just very opportunistic in the way we look at it right now on the risk solution side, we don't see anything attractive. And so we're staying away, uh, but that could change over time. So it's a matter of, uh, being ready when the opportunities come.

Got it. Okay. Uh, and then second question, hopefully it's a quick, quick one. It's just going back and looking at the, uh, the Putnam transaction and, and, and noted that, um, there was a contingent payment of up to $375 million tied to revenue growth target. So, wondering if anyone has an update on where that stands given market performance is clearly being quite strong since then. And I imagine the revenue associated with Putnam likely has been strong.

Yeah, John can give an update on that.

Thanks, Paul. I'm really happy with the relationship. As you know, it's a strategic relationship, a partnership where We're working with Franklin to benefit both parties. We're tremendously happy with that relationship. It continues to grow. During the current quarter, our capital generation doesn't include any benefit from contingent capital being reflected from that relationship. And we still see that relationship generating a level of contingent capital over the medium term, but it's not in our numbers this quarter.

When could we expect it to flow through? Is this something that could be reoccurring for a period of time, or is it kind of on a set end date?

I'd call it over the next two to three years, we should start to see some fruits of that relationship.

Okay.

All right. That's good for me. Thank you. Your next question comes from Doug Young with Desjardins Capital Markets. Your line is open.

Good morning. I guess a question for Jeff or maybe for David. Are you, maybe back to the CRS, are you willing to let CRS become a bigger part of Great West? And I know there's been some parameters you've thought about on that front. Has your view changed on that? And I guess the limitation on that is how fast all your other businesses grow in terms of how much base earnings from CRS can grow to keep it kind of in line. But I just wondering, like, top level, are you willing to let CRS become a bigger part of the overall business?

I think we like the share that it has at the moment. So it's around 20% of earnings. And I think that's a good share to give us a diversified portfolio. Obviously, our capitalized businesses, particularly in the US, are growing stronger overall than our insurance businesses. And we expect that to be the continued direction of the group over the planning period. There will be times when CRS, as Jeff explained, does better than the medium-term ambitions that we've set out and we're going through one of those periods at the moment where there's just attractive opportunities for us in the market and we expect that to continue into next year as well. But there will be times just over our planning period where opportunities may not be attractive. And we like to give the business room to stand back and not be under pressure to grow when we enter into those time periods. And we expect cycles like that over the next five years.

And I just wanted to add one more thing. I know you and I talked about this before, but I think one of the big advantage we have in the market is we're part of this big diversified group here. but a really strong rating. And you can't undermine that. That's a really big advantage we have in the market. If you compare us to other reinsurers that are very, very dependent on the next catastrophe or very, like their earnings and their solvabilities dependent on the next catastrophe or the next pandemic, we're diversified. We don't have that. And a lot of our clients like that. So I think that we like it where we are. We are a big diversified group and it's good to be part of that.

Yes. I just wanted to confirm, like the philosophy hasn't changed and that's what my question is. Okay. Yeah. Perfect. And then slide 16, I just want to go back to that. Maybe this is for Linda. Like it looks like you're guiding to, you know, high $50 million pot, like on average positive insurance experience quarterly. That's kind of like your historical trend and, And I get that you've done well historically on reserving and positive insurance experience, but why should we expect positive insurance experience and why should we not expect you to adjust your actuarial assumptions to bring this back closer to zero? Is it just a philosophy or am I missing something? Just wanted to kind of explore that.

Sure, yes, thank you. So first of all, yes, we would definitely be looking at the four-quarter average. As John said earlier, we are seeing volatility in the mortality results this year between Q3 and Q1. And then when you're looking at that four-quarter average, really what we're seeing there is a continuing strong contribution from our group morbidity line in Canada. And their experience gains have some interest rate sensitivity and they are impacted by the cycle of morbidity That said, cycles can be long. So over the near term, we're not really seeing any factors that could have a material impact on the group benefits experience relative to the level for seeing this here.

Okay. So it really is hinging on the group side in Canada and what you're seeing in terms of outlook on that business that's giving you confidence in it, going back to normal, but still remaining somewhat positive. That's correct. That's fair. Okay. just one quick last one on credit. I just, everyone seems to do something different and I just kind of want to understand on the credit side, the guidance that you're giving John, is that net of your unwind and the investment line, or is that gross of that?

That's gross of it, Doug. And, you know, we, we think, you know, we think that the industry has had some volatility in its results, you know, due to idiosyncratic events. We wanted to give some perspective on what you would have seen over the longer term, not reflective of our own underwriting, which has been positive, but you just look at the industry-wide losses over a 50-year period and then look at in normal kind of conditions what you might expect. And what we indicated was that's about four to six basis points post-tax annually. And we would expect kind of in most of those years in normal conditions, it to be at the lower end of the range. But quarter to quarter, what you've seen in our results is it has some variability.

Yeah. And then net of the unwind, like that would be basically your best estimates. And net of the unwind, net net, it would be zero.

It would be – well, the unwind would be – More significant than the four to six points because it has inherent accounting prudence or conservatism. So it would be much higher than that. And you can see that in our expected investment earnings. Yeah. Perfect.

Appreciate the color. Thanks.

Your next question comes from Tom McKinnon with BMO Capital Markets. Your line is open.

Yeah, thanks. John, just continuing on this credit thing, it looks to be maybe about this 4 to 6 might be somewhere in the area of maybe $80 to $120 million annually. Do I have that kind of right? Does that seem to be your 4 to 6 basis point after tax? No.

Very close. Around 70 to 100, Tom, would be we wanted to get basis points because over time the portfolio would change so that you can continue to think of it.

And where does this kind of lie? Because in what segments? Is it largely in Empower? Because there's no unwind going on in Empower. It's a different accounting construct there. So you don't get offset from unwind there. So if you can tell us where this 70 to 100 kind of lies.

Yeah. I mean, it's proportionate to the portfolio and, you know, how much credit is in each of the segments, you know, empowers the largest of the segments in terms of credit, credit assets. You know, we hold some sovereign type risks in some of our other portfolios for duration purposes. So if you think of the number, you can think of it as around 60%. reflective of Empower and the other 40% in the other portfolios, most of that being evenly split between Canada and Europe.

Okay, that's good. And obviously the 60% that's in Empower has no unwind offset, right?

Well, inherently there is in the spread that we manage to. As you're aware, we earn an interest and we credit a spread. So as we price those products, develop those products, inherently in the spread we manage to an expectation credit experience.

Inherit in your pricing spread. Is that right? Okay, got it. Yeah, but there's no discount or anything like IFRS 17 stuff would be on that.

Yeah, because those are IFRS 9. Yeah.

Okay, now then just a question just with respect to rollover recapture. I think is the rollover recapture rate somewhere around 15%? Do I have that right? Is that what it would be in the quarter or where you're kind of running?

We don't disclose rollover capture rates. They are improving and shares are above 15%. The better metric to track just the performance of the wealth business is the net inflows. They've performed very strongly year over year and quarter over quarter. And I think what that's a better measure is it obviously captures the businesses coming out of the retirement business. It captures business that we're winning elsewhere, it captures crossover sales, and it also reflects the retention within the wealth business. So I think the key metric to look at in assessing the wealth business is those net inflows, and we're performing very strongly on that.

And is the money in motion? I think you've kind of out of Empower that you'd be able to recapture, is that somewhere around 8% of Empower's total assets? Would that be a correct gauge of looking at that?

We don't disclose that, but for a mature sort of DC business, and I think what all of the players would see in the US, like the sourcements typically are about 10%.

Okay. And would all of those be potential rollovers or would some of it not be?

Ed can add on this. I suppose one of the things we're very proud of in the US is we have an open platform. Sponsors, participants are free to make choice while they're saving for retirement. And then they have a full range of options once they come to retirement or when they're moving jobs. So we have to work very hard and have a very good offering to capture our share of that. That's what we're doing at the moment. So Ed, you might want to add some more colour?

The only thing I would say is no, that's not the numerator. It would be less than that due to cash outs and de minimis type accounts. So that's not the numerator. It would be less than that.

Would it be more like 6% to 8%, Ed?

I think that's a good marker, somewhere in that range, yeah.

Okay, appreciate that.

You have people that just take cash, right? They're just going to take cash. They're they've got bills to pay or if they're under 59, they have to pay a penalty. They pay a 10% penalty and then they pay ordinary income taxes on it. So you will get some cash outs for sure.

And the plan participant outflows are pretty heavy in the quarter. Do you think it's just because the amounts were high or were people like just saying, okay, maybe I'm feeling pressure taking money out?

No, it's pretty rate driven. The market's had a good run, as you know, Tom. And so if we look at the outflows, 90% of it's rate driven, only 10% volume driven. So we haven't seen a marked increase in volume. It's been more rate. We also had a couple of large institutions in the quarter that had what I would characterize as sort of de minimis small account cash out type efforts that contributed to the flows in the quarter, which were 12.8 billion, so up from Q3. So there was sort of a one-time event there. But if you look in general, it's largely driven by the fact that the account balances are much higher due to the increases in the market. Okay, I appreciate this.

Thank you.

Yes. Your next question comes from Mario Mendonca with TD Securities. Your line is open.

Good morning. Can we go back to capital risk solutions? The business... But what I'm asking about now is the duration of the business, because I can appreciate that the new business you've written is driving some pretty strong growth, but it really depends on how long this business is on the books for. I appreciate you can always generate new business, and I think that's the message you're offering us. But the existing business, the business that's put on more recently, what is that duration of that business before you'd have to sort of generate even more new business to keep that trend going?

Thanks for the question. It's a good one. So when I explain internally all the time, so it is, it is shorter term business. We, we typically look at it like we lose 10 to 20% of it every year. And so we have to replace it every year before we started growing. That's why you need a big diversified block business. And obviously the risk solution business is better from a long-term perspective and the capital solutions bring much higher returns. But I would say if you use 10 to 15%, it's been really the run rate that we've seen on how much we lose every year. So that gives you an idea of what we need to replace to start growing every year. That's a long duration.

It does, but it's just longer than I would have expected. So you're saying that some of these capital solutions could run out for... you know, five to 10 years then?

Well, it's probably, the duration would be shorter. Like I said, it's maybe four or five years might be typical, but then, you know, certain cases will, will renew and just continue on. And then you'll have a percentage that will.

Yeah. One year deals, they renew there's, there's, you know, um, on average, I would say they're four or five years deals as Dave said. And, but, but, uh, we have clients coming back and renew them. So that, uh, So some of them tend to last 15, 20 years.

I see. So you were quoting more of like an effective duration, including the sort of expected renewals when you offered that outlook.

That's right.

Yeah. Okay. If we could go to the U.S. now, clearly the Empower business is delivering as you described at your investor day and in previous discussions. I'm looking back, though, a few years to Q222. when a large deal, and I've forgotten which one it was, whether it was mess or whether it was, I've forgotten, back in Q2 22, $310 billion of new assets brought on. And I kind of thought that was going to be one of the important themes of this business that you'd continue to add. So what I'm getting at is given this more aggressive pace of buybacks, are you signaling that it's organic growth from here in this business? Or is there still opportunities to add two, $300 billion of assets to this business through acquisitions?

Yeah, so like on our investor day ambitions, they can all be achieved through organic growth. And like we continue to invest in the business to position ourselves very strongly. And that's just a great position for us to be in. So we're very confident about it. the organic growth in the US and the Empower business, but clearly there's opportunities for further add-ons and we will continue to look at that. Yes, we're doing share buybacks at the moment, but we have a lot of financial flexibility and strength and if opportunities come up and we like them, we're ready to move on them. We're very disciplined when it comes to M&A. We have our internal return targets and the need to be earnings agreed up within a very short period of time and we continue to measure and look at opportunities you know against against those targets but certainly we're in a great position I think to further add on so if we can get opportunities at the right price.

But do you believe David that there are still opportunities in that two to three hundred billion dollar range in this business or those been consolidated away?

There's still a number of large opportunities, I would say, and lots then of smaller opportunities that you could add up. It's still a very spread market with, I think, further consolidation to come.

Thank you.

Your next question comes from Gabriel Deschain with National Bank. Your line is open.

Good morning. Similar line of questioning, but maybe from a different angle here. You've got $2.5 billion of cash at the holdco. In the U.S. sub, you're paying down a $690 million debt instrument. Can you give me a sense of what cash resources you have, including excess cash in the U.S., and then whatever appropriate figure would be from that holdco cash that you would want to retain, I guess?

Yeah, thanks, Gabe. As you might expect, when it gets to the hold code, it's very fungible, you know, from a shareholder capital allocation perspective. Historically, we've usually kept about $500 million for liquidity purposes. That's varied a little bit over time. So, the remainder at the hold code is clearly available and, you know, flexible from a capital allocation. I'd also call out that we have reduced our leverage First, we've repaid all of the acquisition leverage that we took on and committed to repay, and now we started to bite into the ongoing leverage of the group. And our equity has grown over time, so there's a reasonable amount of flexibility we have from a capital instrument perspective. And then you rightly point out we do manage to generate all this cash while retaining good, healthy regulatory capital positions, both in our, you know, LICAT-based regulated entities as well as our U.S. regulated entities. In terms of the U.S., we like to stay around or just north of 400%, you know, in terms of an RBC ratio. And what we're really pleased with, and I shared this on the last call, is, you know, if you look back five years, we had three really nice businesses in the U.S. They were contributing a level of capital, but nowhere near the business that we have now. The U.S. has sent back cash this year or will send back, you know, nearly in line with its base earnings. And that's driving, you know, as we shared earlier, more than 80% of our, our, our earnings turns into cash. Um, and as, as we also shared this quarter, we will, uh, remit, um, over a hundred percent of our earnings in, in cashflow to life code this year. So that puts us in a very advantaged position.

Okay. Um, all right. And then, uh, just, uh, the budget that came out, the Canadian budget that came out this week, there was some, uh, a section there on, I forget what they call it, tax fairness or something like that. There was a component aimed at reinsurance transactions, I guess. My question is not for CRS, but what are your early thoughts on how the feds are looking at Canadian risks being reinsured offshore and the earnings that those generate in those offshore entities. I don't know if there's anything to note there with regards to your business.

It's an excellent question. And we continue to evaluate the federal budget. It's obviously new. We haven't been able to get through the thing in deep detail. So we're evaluating any financial impacts from that. But we would note the budget does propose to tax any investment income on assets that are held by foreign affiliates and back Canadian insurance risk. If you assume, you know, and this is early stages, that that proposal's past is written, we'd expect the impact on our base earnings to be immaterial, but, you know, roughly around 1% or 3 cents per share with an increase in about a half a percentage point in our effective tax rate on our base earnings, and that would be related to our Canadian operations. So, That's what we know so far as we evaluate all the provisions of the budget. And, you know, that's an early estimate, so we have to go through further work on it. But appreciate that you asked the question.

Okay, great. It doesn't sound like too big of a deal, but appreciate that it's still early.

Thanks. This concludes the question and answer session. I would like to turn the conference back over to Mr. Kahn.

Thanks, everyone, for joining us today. Following the call, a telephone replay will be available for one week, and the webcast will be archived on our website for one year. Our 2025 fourth quarter and full year results are scheduled to be released after market close on Wednesday, February 11th, with the earnings call starting at 9.30 a.m. Eastern the following day. Thank you again, and this concludes our call for today.

This concludes today's call. Thank you for attending. You may now disconnect and have a wonderful rest of your day.