Sun Life Financial Inc. Aktie

Good morning, and welcome to the Sun Life Financial Q1 2026 Conference Call. My name is Galeen, and I will be your conference operator today. [Operator Instructions] The conference is being recorded.

[Operator Instructions] The host of your call today is Natalie Brady, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Ms. Brady.

Thank you, and good morning, everyone. Welcome to Sun Life's Earnings Call for the First Quarter of 2026. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tom Murphy, President of Sun Life Asset Management, will provide an update on our asset management businesses. Following Tom, Tim Deacon, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter.

After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management are also available to answer your questions this morning. Turning to Slide 2. I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events.

And with that, I'll now turn things over to Kevin.

Thanks, Natalie, and good morning, everyone. Turning to Slide 5. We delivered solid first quarter top and bottom line results. Underlying net income was $1.05 billion with EPS growth of 4% over first quarter last year and underlying return on equity was 18.6% on path to achieve our MTO of 20%. Reported net income was impacted by market adjustments as well as a few onetime items that Tim will discuss in more detail. Strong protection income results were driven by growth in Canada, Asia and U.S. stop loss.

In Sun Life Asset Management, MFS had consistent earnings year-over-year, reflecting market conditions. SLC management results were below our expectations, reflecting the absence of catch-up fees and lower seed income this quarter, which were both strong last year. We expect SLC earnings to rebound solidly over the remainder of 2026. For top line, insurance sales saw significant growth, driven by sales momentum in Asia and continued solid sales in the U.S. Asset Management gross sales remained strong across MFS, SLC, Canada and Asia. MFS U.S. equity outflows increased in the quarter amid the broader industry-wide dynamics impacting the U.S. mutual fund market.

We ended the quarter with a strong LICAT ratio of 143% following the completion of the BGO and Crescent acquisitions. This quarter, we announced a 4% increase to our common share dividend to $0.96 per share, and we also announced a renewed normal course issuer bid to repurchase up to 10 million shares, reflecting strong cash flow and a focus on execution across our businesses.

Turning to Slide 6. We are making significant progress across our key strategic areas. At SLC, we achieved several significant milestones, including completing the acquisitions of BGO and Crescent, advancing leadership alignment through the launch of our management equity plan and announcing our intention to acquire Bell Partners. We are confident in SLC achieving their medium-term growth targets. Later in the call, Tom Murphy will share a few words on the Sun Life Asset Management platform and the growth opportunities ahead.

Staying on asset management, in Canada, growing our wealth businesses is a key focus. Sun Life Global Investments continues to build its ETF platform with the addition of 2 MFS-powered low-volatility equity strategies. Turning to Asia. We are seeing strong momentum with sales up 49% over last year, exceeding $1 billion in a quarter for the first time ever. Growth was led by Hong Kong, where sales grew 75%, driven by double-digit sales growth across all channels. Indonesia also delivered strong performance on the ongoing strength of our expanded CIMB Niaga partnership. Our relationship with CIMB Niaga goes back 20 years. Together, we continue to innovate and partner to deliver exceptional solutions for our clients in the market.

We also saw good sales momentum in high net worth, India, China and Malaysia. CSM in Asia reached $7 billion, up 12% year-over-year, reflecting the quality of our sales growth. In the U.S., we delivered strong sales results. The rebuild and refocus of our U.S. Dental business is progressing well. We are focused on executing against a targeted strategy to increase our share of the commercial dental market to deliver stronger margins and improve profitability over time. Helping members access care and improve health outcomes sits at the core of our U.S. strategy. Guided by this focus, we expanded Sun Life expert cancer review. This service supports members facing a cancer diagnosis with access to objective second opinions, helping them attain the treatment plan best suited for their needs.

We continue to advance our digital capabilities across the organization with a focus on delivering improvements in both client experience and business efficiency globally. In Asia, our Hong Kong business expanded their data-driven underwriting, increasing straight-through processing and enabling faster client onboarding. In Malaysia, we deployed an AI-assisted Talkbot, expanding servicing capacity and creating more timely and consistent engagement with clients. In Canada, we are continuing to scale AI across the business with advisers using AI-enabled tools to support client conversations. Our operations employees are leveraging AI to access information more quickly and more than 90% of our developers are using AI to improve efficiency and the speed of delivery.

Building on this broader adoption, straight-through underwriting increased to 40% for eligible individual life insurance applications, up more than 50% year-over-year. This reduced average issuance time from 25 days to 11, enables faster policy delivery and improved operational efficiency. These examples demonstrate how digital investments are enhancing client outcomes while enabling more efficient, scalable growth across the businesses.

Turning to Slide 7. We delivered solid first quarter results progressing against our medium-term objectives. Underlying earnings per share growth of 4% reflects our solid businesses. Our underlying ROE of 18.6% and dividend payout ratio of 49% are aligned with our medium-term objectives. Our 4 pillars are well positioned to deliver our medium-term objectives. Canada continues to anchor Sun Life's performance and reinforces our role as a trusted partner to millions of Canadians. Asia is performing strongly, driven by growth in the high net worth and middle class markets and solid execution. The U.S. is focused on scaled capital-light group benefits businesses in a growing and increasingly complex health care market.

At Sun Life Asset Management, our scale and broad capabilities enable our resilience to manage across cycles and leverage synergies from our protection businesses. Our purpose continues to guide how we serve our clients, while the strength of our diversified business mix and global capabilities positions us to navigate the current market conditions and geopolitical uncertainties with confidence. Across our businesses, we are making clear progress against our strategic priorities, supported by strong fundamentals and disciplined execution.

Looking ahead, we are confident in our ability to continue creating value by executing on our strategy with focus and consistency.

With that, I'll turn the call over to Tom, who will walk you through Sun Life Asset Management, what the platform looks like today and where we see opportunities to grow.

Thank you, Kevin. I'm excited to share some updates on the Sun Life Asset Management pillar. As Kevin mentioned, this quarter, we took 2 major steps forward with SLC. First, we completed the buyouts of BGO and Crescent Capital. Second, we launched our management equity plan with over 300 of our most senior people investing their personal wealth in the future of the business. We see this as a strong statement of intent as it creates alignment between our employees, clients and shareholders.

During 2026, SLC will move from a group of related affiliates to a $400 billion singular global asset management platform. As such, this will be a moderate growth year for SLC and there is significant room for growth in the years ahead. We remain committed to our previously communicated medium-term targets. Sun Life Asset Management was established to accelerate the growth of our asset management businesses and specifically to unlock opportunities between our asset management, insurance and wealth businesses. We are starting from a position of real strength with $1.4 trillion in assets across equities, fixed income, real estate, infrastructure and alternative credit.

Let me share a few areas that we are working on. For SLC, we are focused on enhancing access to seed capital, the lifeblood of any alternative asset manager. Seed capital is critical as we incubate and launch new funds. We are also pursuing sources of permanent capital, which will create scale benefits for SLC and boost future revenue and earnings. Bringing our pension risk transfer business into Sun Life Asset Management was a deliberate move to source strategic capital for SLC. In return, this allows our pension risk transfer business to better leverage SLC's investment capabilities to enhance their client value proposition and to grow their market share.

Turning to MFS. We see significant opportunity to grow alongside Sun Life's wealth businesses. We have room to grow our AUM alongside SLGI and Group Wealth here in Canada, and there are further opportunities to help MFS grow in Asia through our Hong Kong MPF business. Many of the opportunities within our insurance and asset management flywheel can be fueled by both internal and external capital.

With this in mind, we are proactively engaging with insurers, reinsurers, pension funds and sovereign wealth funds to create sources of seed and permanent capital and with wealth providers for enhanced distribution opportunities. We also continue to add new investment capabilities. During the quarter, we announced our intention to acquire Bell Partners, which will boost our U.S. multifamily capabilities.

While at Crescent, we are investing in new adjacent credit capabilities, which we believe will bring value to clients and boost future earnings. Finally, we are proud of our joint venture with Aditya Birla in India. Today, Aditya Birla Sun Life AMC has $60 billion in AUM. It's growing quickly and has strong margins. We believe the alternatives market in India is at an early stage of development and is primed for future growth.

Our combination of global and local resources positions us very well to capture this opportunity. Our $1.4 trillion asset management pillar covers an enviable range of asset classes and is truly global in nature. We are well positioned and excited by the journey that lies ahead.

With that, I'll turn the call over to Tim, who will walk us through the first quarter financial results.

Thanks, Tom, and good morning, everyone. Turning to Slide 12. We reported solid underlying net income of $1.05 billion in Q1, consistent with the prior year. Reported net income before notable items this quarter was $775 million, reflecting $220 million of market impacts, primarily related to yield curve movements in equity market and real estate performance below long-term expectations. Total reported net income was $465 million, which includes 2 previously disclosed items, a $165 million charge related to the completion of the BGO and Crescent acquisitions and $145 million provision for a previously disclosed proposed legal settlement.

Turning to Slide 13. Total insurance sales increased 17% over the prior year to $1.7 billion. Individual insurance sales were very strong, reaching a record $1.2 billion in the quarter, up 32%, with growth largely driven by Asia across multiple markets, led by Hong Kong and Indonesia. Group Insurance sales were $552 million, reflecting continued progress in the U.S. with higher sales across all business segments led by medical stop-loss, commercial dental and the timing of large case sales in Canada. New business CSM grew by 6%, driven by the strong sales growth in Asia. Gross flows were up modestly, driven by higher fundraising from SLC, higher MPF sales in Hong Kong and higher group fund sales in India, tempered by lower volumes in Canada.

In Asset Management and Wealth, net flows reflected outflows in the U.S. equity products by retail investors and institutional portfolio rebalancing at MFS.

Turning to Slide 14. Sun Life Asset Management underlying net income of $265 million declined 3% year-over-year, largely reflecting the impact of catch-up fees and seed mark-to-market gains at SLC in the prior year, partially offset by higher fee income at MFS and net investment income in the Solutions and Other segment. Reported net income includes the final costs associated with completing the BGO and Crescent acquisitions at the end of March. Fundraising and deployment activity across the platform remained solid. Gross inflows were led by Crescent's flagship private credit strategies and BGO's European debt platform alongside continued institutional engagement in MFS, where gross flows were consistent with last quarter and included 12 new institutional mandates over $100 million.

Net outflows were driven primarily by elevated U.S. equity redemptions at MFS. At the same time, ETFs, fixed income and SMA products continued to see growth with $2 billion in net inflows in the quarter. Sun Life Asset Management managed assets increased 7% over the prior year, reflecting strong fundraising and deployment at SLC, demonstrating the continued scale of the platform and growth in AUM from positive public equity market performance at MFS despite outflows.

Turning to Slide 15. Canada underlying net income of $370 million increased 7% from prior year, reflecting higher fee income from higher AUMA and strong net investment results in the Asset Management and Wealth businesses, alongside solid performance in Sun Life Health and Individual Insurance.

Reported net income of $87 million reflects the charge from the proposed legal settlement and market impacts from a flattening yield curve and lower equity and real estate performance. Canada's Wealth platform reached $261 billion in AUMA, up 12% from last year with strong retail adviser activity and market appreciation. Insurance sales declined year-over-year from a record in Q1 '25, which included a significant large case sale in Sun Life Health. Q1 '26 Sun Life Health sales remain above our historical quarterly average. In Individual Insurance, sales declined, reflecting lower participating life sales as we continue to focus on optimizing our product mix.

Turning to Slide 16. Our businesses in the U.S. continue to build momentum. Underlying net income is up 6% from growth in medical stop-loss from strong premiums and cost discipline as well as solid contributions from in-force management supported by favorable investment results and insurance experience. Sales were solid across all businesses. Medical stop-loss sales increased 43% year-over-year, building from strong fourth quarter momentum and continued success in winning high-quality business in a hardening market. This reflects our disciplined approach to pricing and risk selection.

In Dental, we continue to execute on our strategy to improve business mix, and we're seeing solid growth in commercial sales. The decline in premiums this quarter reflects the impact of our deliberate actions to reprice and, in some cases, exit underperforming Medicaid business. As expected, this is resulting in lower membership but an improving loss ratio. As part of this repositioning, the U.S. team remains focused on aligning expenses to the lower revenue base to improve profitability in the near term.

Turning to Slide 17. Asia had another excellent quarter with underlying net income increasing by 23% over the prior year, driven by robust sales growth, lower expenses and higher investment earnings. Insurance sales exceeded $1 billion in the quarter with growth across most markets. Hong Kong individual insurance sales increased 75% with double-digit growth across all distribution channels and a 25% increase in agent count. Indonesia delivered 40% sales growth with higher margins generated by the strong momentum from the CIMB Bancassurance partnership.

New business CSM grew by 23%, driven by the strong sales growth we've seen across Asia. CSM margins reflect increasing competition and the impact of regulatory changes.

Turning to our capital position on Slide 18. We ended the quarter with a LICAT ratio of 143%, which decreased 14 percentage points over the prior quarter with 10% of the decrease driven by the BGO and Crescent acquisitions and the remainder from the impact of markets and lower reported net income. We delivered book value per share growth of 2% to $41.10 and maintained a financial leverage ratio of 23.2%. Total CSM of $14.7 billion increased 8% over Q1 '25, driven by strong insurance sales through 2025, which continued this quarter. These metrics underscore our continued financial strength and provide resilience in more volatile periods.

Turning to Slide 19. In the quarter, we returned $0.5 billion to shareholders through common shareholder dividends, delivering a dividend yield of 4.2%. We also announced our intention to renew our NCIB, subject to regulatory and TSX approvals, enabling the repurchases of up to 10 million common shares, returning capital as market conditions permit. In addition, our Board approved a $0.04 increase to the quarterly common shareholder dividend.

In closing, our first quarter results reflect the resilience of our diversified business model and the discipline we apply in the execution of our strategy and capital management. We delivered solid underlying earnings, continued progress against key businesses and maintained strong capital and balance sheet strength while returning $500 million to shareholders and preserving flexibility to invest for growth. These fundamentals provide a strong foundation for navigating ongoing market volatility, supporting our strategic priorities and delivering consistent progress towards our medium-term objectives.

With that, I will now turn the call back to Natalie to begin the Q&A.

Thank you, Tim. To help ensure that all participants have an opportunity to ask questions this morning, please limit yourselves to 1 or 2 questions and then requeue with any additional questions. I will now ask the operator to pull the participants.

[Operator Instructions] Our first question is from Doug Young with Desjardins.

Just wanted to kind of go through the decline in the LICAT from 157% to 143% because it was a bit of a surprise to me. And maybe you can just walk through, Tim, just the moving pieces because I thought the SLC buy-in was about 7 points, maybe it's now 10%. I don't know what the difference. Maybe you can talk a bit about that. And I get the markets had about 1 point impact, legal provision probably 1% impact, and I get that there wasn't much organic capital generation. But I'm just trying to bridge between the 157% and 143%. Maybe we can kind of start there.

Doug, this is Tim. Happy to touch on that. So as you noted, the LICAT ratio did reduce by 14% this quarter. We did finish the quarter with a very strong LICAT ratio overall at 143%. But 10% of that was really coming from the SLC acquisitions. That was $2.4 billion in deployment. And just as a reminder, about every $250 million in capital deployment equals about 1% on the LICAT ratio. And for the last 2 quarters, our LICAT was obviously high as we had prefunded the acquisitions through the debt.

So that accounts for the bulk of the change. The remainder really is coming from markets, as you noted, that it was actually a 2% impact, about 1% was coming from the MetLife legal settlement and the remaining 1% effectively from dividends and other items. And so overall, that accounts for the 14-point decline. And as I said, finished strong at 143%. And I think we're quite pleased with that being a leading LICAT ratio.

And maybe just a follow-up, okay. So I appreciate that. Can you quantify -- because I'm increasingly becoming challenged in doing this, but can you maybe quantify what you view as excess capital and walk through the buckets between like what's in the holdco, excess of what you would want to hold there, what's in the opco? And maybe on the opco side, like what do you think is the minimum LICAT and the binding constraint on that side?

Yes, sure. So again, very, very strong capital position. This quarter, we finished at 143. We have a low leverage ratio of 23.2% and the holdco cash of $1.3 billion. And when you look at the composition of capital, the move to IFRS 17 really changed the overall composition for the industry. And so in our case, 60% of the LICAT ratio is comprised of the contractual service margin and the risk adjustment and which LICAT refers to that as a surplus allowance. And both of these are really high-quality capital items and as they represent future earnings for us, they also act as a shock absorber for market volatility and economic downturns. And this quarter, we finished with a CSM balance of $14.7 billion, and that has grown 8% year-over-year.

And it's not currently liquid, but it converts to earnings over time at about 8% to 10%. So on your comment, to get a sense of our deployable capital, really, I think you should think about that as our holdco cash balance as well as our surplus balances, and that broadly reflects our deployable capital. The remaining part of our capital has been deployed in our business, and that's generating a great return as you can see in our results. This quarter, we had an ROE of 18.7%, and we're making solid and consistent progress towards our medium-term objective of 20%. So hopefully, that gives you a good flavor of how to think about our capital and also the proportion that's deployable.

Yes. If I may just follow up for the sake of time on that. But just -- and lastly, you put -- you're planning to put an NCIB in for 1 point, I think it's 1.7% of shares outstanding. And Kevin, I guess my question is, if you go through this, let's say, by midyear, would you reload on this? Because you didn't reload last time, and I get it because you had the SLC buy-in come in. But I'm just curious, like it doesn't -- it seems like you generate a lot of excess capital, 1.7% of the shares outstanding doesn't seem high. I don't think you're interested in big acquisitions. So if you do get through that faster than you expect, would you reload?

I think Tim described it well, right? If you look at the cash at the holdco, that's what we're looking at as being deployable capital and cash. And that's what's formulating the amount of the buyback we're doing. We continue to optimize inside of SLA and moving capital up, and you've seen us do that quite effectively. And so -- and we continue to require cash flow out of the businesses and out of the acquisitions we do.

So tracking what we've got at the holdco would give you a good indication of what's deployable. And our priorities remain the same, and Tim talked about this, funding our organic growth, funding the dividend. And then we look at M&A where we need scale and where we're looking for capabilities, and we've deployed capital into that. At this point in time, the pipeline in M&A is quite small. And the execution that we're focused on across the business is quite important to us. So I think you are seeing that deployment of cash and excess cash into the buybacks, but we always keep the flexibility to do different things. Does that help, Doug?

I was just going to step back and say, really, if you look at it, the last 10 years, we've deployed a lot of cash and capital into M&A. We've taken SLC from 0 in third-party assets to $260 billion. And we think we've built great capabilities across the Alternative Asset Management platform that we didn't have. We've deployed capital into scale and distribution capabilities in Asia, which are serving us really well, and you saw the results in Manjit's business.

And we've deployed capital into the U.S. And we think that long term, that's going to be important deployment of capital to us. And we've built out into the dental business, which is one of the core benefits in the United States, and David is working hard on executing on that.

So we've had good results from the deployment of our capital. And at this time, the focus for the businesses is on executing on that. And so when you look at the cash at the holdco, you get a sense of us using that to buy back shares. And I keep monitoring that. And we keep pushing on getting more and more cash up to the holdco, and we intend to deploy it back to shareholders when we can.

The next question is from Gabriel Dechaine with National Bank.

Just a numbers one, if you'll indulge me here. The morbidity experience in the stop-loss business was improved. Can we get a more specific number around that? Because I want to get a sense of how much of that stop-loss repricing and other actions you've been taking has actually had an impact because it was offset by the employee benefits, LTD morbidity, which went the other direction.

Gabriel, this is David. Thanks for the question. Yes, the stop-loss business continues to perform very well, reflecting the quality of the business and the franchise we have. We continue to have a disciplined approach to pricing and risk selection. And our Q1 experience reinforces really the quality of our business and the confidence we have in our current pricing. So we did see material improvements in that business. It was offset somewhat by more unfavorable disability experience in Employee Benefits business compared to Q1 of last year.

Disability in Q4 was actually worse than Q1, but it did improve. But year-over-year, it was down and less favorable. And that's partially because we had a very favorable quarter in Q1 of '25. So consistent with what we're seeing in broader in the rest of the industry, the disability business is sort of -- is moving back to more normalized levels, and we expect it to be similar to this in the future.

Yes, that's very descriptive. You're not sharing any numbers, though. I think the issue in that particular business line over the past year was the negative experience, and we saw that in the first 3 quarters. You took some actions and to get confidence in the effectiveness of those actions, it would be helpful to get some numbers. Could you give me that, please?

Gabe, it's Brennan Kennedy. So the experience in the quarter for that business was -- the morbidity experience was CAD 8 million. So that's the specific number.

That's the stop loss.

That's right. That's correct.

Okay. And -- okay. Well, I could take more of that offline. I guess the dental business, the strategy makes sense. You're exiting some relationships, I guess, more intermediated ones as opposed to direct ones in the Medicaid business. I just want to get a better understanding of how much of that business could be affected so that does this quarter's Medicaid revenue represent a new run rate, you've done your pruning? Or could we see it dip further? What sort of offset could there be from -- you alluded to cost containment and to the improved benefits ratio of the business you're retaining. So I just want to get a sense of if we hit a bottom here or what?

Yes. It's David again. Thanks for the question. As Tim and Kevin noted, we continue to execute on our strategy and are very much focused on improving the mix of our business. We have been taking pricing actions. And you can see some of that in the change in revenue that we've seen this quarter and also, of course, growing our commercial business.

Over time, we expect to continue to improve this. Of course, we have a path forward on improving the business, and we remain focused on that path. We do expect the business mix to change as we continue to improve our sales and momentum in our commercial business. And of course, we're staying very focused on maintaining relationships where we can have a line of sight to more reasonable margins over the long term for that business. So we remain very focused on that path, and we're working with our partners to do that. So I expect -- certainly, in the second half of the year, we'll see continued improvement in this business.

In the second half. So I just want a sense of timing here. I get the strategy. We see this from the banks from time to time. They optimize their balance sheet, and that means shrinking the loan book for a certain amount of time, but you get a sense of, okay, we'll be done by then. Is that something you can -- is that what you're telling me like the second half is when you'll be kind of through most of this selective pruning of the customer base?

Like I said, we continue to execute on that. The external environment is something we're staying very much focused on. So you can see some of the improvement in the loss ratio coming through this quarter as a result of terminations. That's somewhat offset by experience, which continues to change quarter-to-quarter and something that we'll continue to pay attention to. And then the membership, of course, of existing plans is something that we'll still adjust as well. So all of that is happening while we are focused on expenses and working our way through our plan. So it will be a continued pressured environment in 2026. We know that, but we're focused on the actions to improve.

The next question is from Mike Ward with UBS.

I was just wondering if we could run through the drivers of some of the Asia strength and I guess, the sustainability of the earnings strength, but also the growth in sales, I think, was a little bit better than expected. And it's good to see. But I guess we just kind of thought that markets like Hong Kong might slow down a little bit. So just wondering if you could just help us understand what's driving that on the ground?

It's Manjit. So as you mentioned, we had a great start to the year in Asia in 2026, and that builds on the really strong performance we've had over the last 2 years. And we've seen strength across all of our financial metrics, not only sales, but also CSM, net income and ROE. And in terms of what some of the key factors are that are driving some of the performance, I think it's a number of things. So one is really the investments that we've made in distribution are paying off. So we've seen growth across all of our distribution channels. Our agency force is stronger, not just in numbers, but also more productive.

We've invested in new bancassurance arrangements over the last 2 years, both in Hong Kong and in Indonesia. And we're deepening our broker relationships as well. We're also making investments in brand and our brand strength is at record levels, and that's a really important competitive factor in Asia. We're also really focused on meeting the needs of our clients, put a sharper focus on that, and our client CSAT scores are also at record highs. And then really looking at our end-to-end business processes and making sure that we're strengthening those and delivering really strong client experiences.

And of course, all of that's underpinned by our team. And we've made some investments in our team and really brought in strong talent. So I think all of those things are driving the performance you see.

Okay. And then I had kind of a strategic one just on the U.S. for you guys. Where do you see the kind of business mix? Or where would you like to see your business mix trend over many years? And what I'm wondering is -- you mentioned not really seeing a whole lot of potential M&A targets. Just wondering if there's areas where you might consider inorganic growth in the U.S.

I can start and then David can jump in. Our focus in the U.S. protection side and the insurance side in the employee benefit space, which is a capital-light business is really important to us. And we see that as being aligned to our purpose and aligned to what we're trying to achieve. And we've had that focus since the end of the global financial crisis, and it served us well. So I think continuing to build out on the benefits side and building scale there, which is why we did the dental acquisition and why we did the Assurant acquisition was building scale in that employee benefit space.

We have scale now in stop-loss or now we've had scale. We're a leader in the stop-loss side, and we're pretty happy with how that performs and the capabilities we have. We've added certain capabilities around it to make that business stickier like the PinnacleCare, and we've talked about that in the past. But that focus on the benefit space and building that out because it is capital-light and has been one of our key focuses. So I don't know, David, if you want to add some color to that.

Yes. Thanks, Kevin. The only thing I would add is, obviously, we really have a strong portfolio of businesses in the U.S. that we're very focused on and how we execute on. As Kevin noted, we are the largest independent writer in the stop-loss business and the additional capabilities we've added over the last number of years around cost containment, around health care navigation are really very important to clients in the space, especially in a very disruptive health care environment. And then our Employee Benefits franchise is really strong, and it's now bolstered by the strength of our dental business which brings a new element to that business.

So we see opportunities to both cross-sell with existing clients and also get into new segments of the market that we haven't been in historically on the strength of the platform and the scale of our business now. So it's something we're very focused on. And of course, improving the quality of our business in dental is a key part of that as well.

The next question is from Paul Holden with CIBC.

I want to ask a question related to the U.S. business. And what we should be expecting in sort of Q1 and Q2 in terms of that improved profitability and stop loss? Because typically, those aren't big experience quarters. So I think when you're talking about the experience in Q1 '26, that would probably be the improvement in 2025 cohort over 2024. And correct me if I'm wrong on that. But really where I would have expected to see improved profitability is in an expected PAA or short-term insurance earnings, and we didn't see any growth there.

So just curious on those 2 points, particularly the last one, like with 21% premium growth and I guess, an anticipated better margin, why isn't expected short-term insurance earnings growth more than 0.

Paul, it's Brennan Kennedy. So we do review that expected level at the beginning of each year for each of the group PAA businesses. So for the group business in Canada and the Stop Loss Employee Benefits and Dental business in the U.S. So we reviewed that this quarter. Specifically to the U.S., we did see increases in the expected -- or the earnings on short-term business in the stop-loss business, driven by the higher volumes. We saw increases driven by higher margins in the Employee Benefits business and decreases in the dental business from both volume and lower margins. So implicit or in the current numbers, there is an increase for the stop-loss business.

And Paul, it's David. Just to add to that, you're right on in terms of our Q1 performance is largely reflecting experience from the 1/1/25 cohort that has been playing out. So this was the fifth quarter of that. That cohort is now 92% complete. And the experience was very much consistent with our experience in Q4 and gives us quite a lot of confidence in our current pricing and the trajectory for that business.

Okay. That's helpful. So the key message there is stop loss expected insurance earnings is up, but it's being offset by Dental, right? So I think that was the message.

That's correct.

Okay. And then second question for me. Maybe get a better understanding, sticking with the U.S., maybe getting a better understanding of what drove the growth in earnings and surplus there. It was up $6 million year-over-year, but then also up $5 million Q-over-Q. So it seems like a step function improvement this quarter. So what drove that? And really, what I'm getting to is, is it a sustainable step function improvement?

Paul, it's Brennan Kennedy again. That's primarily trading gains. So I wouldn't call that recurring, but it is -- periodically, we do see trading gains. In this quarter, we experienced some. So that's driving the majority of the variance that you highlighted.

Your next question is from Tom MacKinnon with BMO Capital.

Kevin, you mentioned in your prepared remarks, you expect SLC to rebound solidly over the remainder of 2026. If we look at SLC, we kind of see there's -- we see flat fee-related expenses and for some time now and down year-over-year, but we don't see much growth in fee-related revenue. So can you elaborate on how much this solid rebound is going to be and what's going to drive it for the remainder of 2026? And then perhaps what to expect for 2027?

Yes. Thanks, Tom. I'm going to turn it over to Steve. But you will have heard us say last year that we expected the SLC to outperform what it did last year, and we still expect that to happen over the next 3 quarters. But Steve can provide some more color on how the business is doing and how it's all come together.

Yes. Thanks, Kevin. Tom, thanks for the question. Let me comment on a couple of things because there are a number of aspects to your question. The first is, let me comment on the quarter. You mentioned fee-related revenue. Well, there are a couple of things, both on the revenue line and the fee-related earnings and underlying net income were weaker than they have been for the quarter. So let me comment on that. And there were a few things that kind of conspired for the -- that led to that this quarter.

First, in terms of revenue, we had a couple of items that I would put under the headline of timing, where revenues came down in the quarter, but we'll be giving them in subsequent quarters as we invest money, and I can give you some examples of that, but that really hit the management fee line for the quarter. And that was at the same time that we had some seasonality factors. Our property management fees are almost always down in the first quarter versus the fourth quarter because they're based on leasing activity, which is back-end loaded.

And on the expense side, we see higher expenses in the first quarter related to employment items tied to bonus payments. And then the third thing is we often have some other items moving the other way, like catch-up fees and performance fees, and we really didn't have any of those this quarter. So when you put all that together, it led to a weaker quarter.

One of the things you referred to is that if you look in the supplement, you look at the management fee line item, it looks flat over the last number of quarters. It's a bit misleading because in that line item, there are catch-up fees and catch-up fee move around. So if -- and you can't see this, but if you went back to, say, Q2 of '24 and went through, say, Q3 of this year, management fees, excluding catch-up fees, are up about 10%. And you're seeing that grow with fee-related AUM, and you'll continue to see that.

So I would -- if you look at it quarter-to-quarter, we raised another USD 4.4 billion this quarter, net flows for both fee-earning AUM and AUM were positive $4 billion. We basically had a decade of uninterrupted quarterly positive net flows, and we expect that to continue. And I actually think it depends on some timing of closes, I think you'll see an acceleration of fundraising in the next quarter. And we would expect to see management fees on a quarterly basis start to increase over the course of this year as well.

I think if you think long term, where the acceleration in growth is going to come from in this platform, and this is a point that may be underappreciated. To date, we've reported SLC as a business. It's actually been 4 or 5 distinct separate businesses. And that's been very intentional because as we bought BGO, when we bought Crescent, we intentionally wanted to leave them alone to manage their businesses. We provided seed capital. But we really did little to try to coordinate that given the structure of the deals.

With the put calls behind us, really starting at the end of March, we can now manage this business as a consolidated holistic business. That means 2 things. First of all, we can present ourselves to the market more as a platform. That's really important as we try to face off with the biggest institutions out there in the marketplace. They want to deal with fewer managers. And then internally, we can take advantage of efficiencies and synergies that we've never pursued. And I can give you examples of that. So that's really where you're going to see the acceleration of growth over the coming years.

It's Kevin again. I'm just going to say -- sorry, Tom, I'm just going to say we put together a really strong collection of businesses. And as we bring them together, and Steve mentioned about management buying in and there's good alignment to us growing the earnings. So I would take the 30% as being an outlier in terms of the quarter, and you're going to see some volatility in that business because there's seed capital and catch-up fees and those types of things. But that -- we expect that earnings per quarter to grow over the next 3 quarters and into the future. We've talked about a 20% CAGR for SLC, and that's still what we see being the target there.

It would be a mistake to look at this quarter and think that, that has, in some ways, changed the momentum of the business. It's just not the right.

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

I have so many that I'll probably take some of these offline, including the ones on private credit. So I just wanted to focus real quick on the Canadian business, recognizing that your sales mix isn't quite where you want it to be. So 2 parts to my question. When you -- first of all, what is your appropriate mix? Like what do you want to be selling more of? And more to the point for my model, I'm just interested in CSM growth and noticing that last 2 quarters, CSM is actually down. It's not a big deal. I get it. But I want to understand better where you can take this to and what I should be thinking about for CSM growth in the Canada business?

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Darko, this is Jessica. I think you're probably referring to our mix of business for individual insurance, which then would be the par and the non-par mix. And I think as we said last year, it was a deliberate kind of balanced portfolio so that we are much more in tune both par and nonpar. I think where we want to get to is that I think for the non-par, as you see from last year, we invested a lot both in underwriting, in the way we do our product, distribution. So it has a 10% growth, and we intend to continue a 10% non-par growth for the medium-term objectives. So you see a natural rebalancing there.

I think for the CSM growth, you will see that you don't see the split between the total and the shareholder. But total, I think you should expect a positive number. I think if you look at our insurance kind of earnings from the release of the CSM and the risk adjustment, it should be around 5%, 6%, in line with our MTO. And hopefully, that's helpful.

Sorry, the 5% and 6%, do you mean the growth of that in the income statement or the actual CSM growth?

The growth in the income statement, which you can infer a bit because we do have, for example, CSM depreciation is about 8%, 9% every year and stuff. So that should be roughly translating to the growth of the pool of the CSM. And then the other thing that maybe I'll note while we're on this because I hardly get a question is then on the other parts of the business, I think we've been really growing our wealth asset management business, as Kevin and Tim were saying.

And you can see the other fee income had a huge increase, I think, from $55 million to $88 million, which is a 60% increase. It's become now 25% of our earnings, which is, I think, due to, I think, both, one, AUMA of $261 billion going up by 12%. So it's a much larger size. And then I think we're also getting some synergies because now our wealth business actually has scale. So actually it's much more efficient. So I think that will continue to be another strong business earnings growth engine.

Darko, it's Kevin. I was running individual when we reintroduced par into the individual business, and we never expected it to be such a big component of our sales. We knew it was a good component for clients, but the profitability is 2.6% of the dividend versus the profitability in the non-par sales. So I think Jessica is bringing that sort of back in line where we're getting a better balance between par and non-par sales and more in line with what our expectations would have been a long time ago when we did the strategy.

Okay. Understood. I appreciate that. And just a quick question on the U.S. We can see in this quarter the step function in the premiums for medical stop-loss, which is great. Is there a lag? Or is that more or less now the run rate we should think about for this year? And at some point, I'd love to talk about the return on your premiums, but I think you're still maybe for the whole business targeting 7? Or should we think about that as maybe modestly being higher now that the stop loss has repriced in a hard market and your net premiums are higher.

Yes. So Darko, it's David. Thanks for the question. We obviously continue to see good strong momentum with that business, and we have had an external target of 7% after-tax margin for the combined Group Benefits businesses. And obviously, as this becomes a larger component, that's something that we'll stay focused on and making sure we're above that target over time. At the same time, it is a business that we continue to see a lot of progress with. And I expect that this is what you should expect going forward.

We have no further questions at this time, and I will turn the call back over to Ms. Brady for closing remarks.

Thanks, operator. That will be the end of the call.

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

Mr. Kevin Strain, welcome to the stage. For those of you who don't know or can't read, Kevin is the President and CEO of Sun Life Financial. Welcome back.

Thanks, Gabe. Gabe and I have known each other for a long, long time.

Too long, maybe. Let's start with the year-end review type of question. And 2025 ended on a strong note. Q4 was a very good quarter, in particular because of some of the improvement in that U.S. stop-loss business. But if we look back on the year, what did you learn about the business? And was there anything you felt could have been done differently?

Yes. I don't even think it was just a good close to the year. It was a good year in total. If you step back and look at our earnings per share growth was 12%, and we have a target of 10%. The ROE was just over 18%, which is tracking well to our 20% ROE target.

We've got some significant new leadership positions in P&L roles. Manjit's running -- Manjit Singh's running Asia now, and Asia had a really, really strong year last year, and I think he's making a big difference there. Jessica Tan, we brought in to run Canada, and Canada had a fantastic, fantastic year. Ted Maloney at MFS, and we announced Sunny coming in at SLC, and we announced Tom Murphy in his new role in over Asset Management and then David Healey in the United States.

So I feel like we took a big step getting the leadership team set. And then we saw Canada, Asia do really well. SLC for the year hit its Investor Day target, we have put forward 5 years ago, which was 235, we were just over 240. MFS had a tough year for flows, but a decent year for income, and of course, cash flow back to us. And then the U.S. was a bit more volatile. And clearly, the structural change to the U.S. health care system had impacts and -- impacts in different quarters. The stop-loss business was pretty good for the full year. And I'm pleased with the bounce back it had from 2024, in particular, 2024, where it had a bad quarter.

And then on the dental business, we also saw some volatility there. And I think David is doing the right things to build that out. So you had -- and this is life, right? And it's part of having a broad-based resilient business that's half asset management, roughly in a little less than half, but a goal of half asset management, half insurance, global in nature, some of the businesses overformed and some of them didn't.

And we did see some quarters where we had some volatility. And in particular, I think last year, we started to see the shaping up of how the U.S. health care system, and in particular, Medicare and Medicaid, we're going to perform. And we've reset our goal. You would have heard us talk on an investor call, and we sort of pulled that back of hitting $5 billion in premium 5% margin. So a goal of $250 million for the dental business. And when we had set that goal, we were thinking that state business might be 75% of that goal and commercial might be 25%. You know, the state business, I think, is going to have persistent challenges. I think the U.S. health care system in many ways, probably had to go through some adjustment. So as we step back and think about our goal for that business, we still have a goal of $5 billion in premium. It may take a little bit longer than what we were expecting.

But I would like to see the state business, Medicare Medicaid business be more like half of that. And I think that, that half, I mean one of the learnings is, that half isn't going to reach 5% margins. The pressure that's there is going to hold that margin down below 5%. And we need to take steps to build out the commercial business to grow that. And to grow that -- because we know the commercial business and it's a very competitive business as well, but it will make more than 5%. And if we can get the $5 billion combined. And today, we sit at just under $3 billion in premium, almost $ 2.5 billion is State and $500 million is commercial.

And I've really given David the ability to say, David Healy in the U.S. to say, listen, that $2.5 million don't worry about growing it, leave it about half of the 5% we need, but optimize it, try to find the states who want to partner, the states who want to recognize the good role we're doing the states where we can create the most efficiency and can get us close to the 5% and concentrate your other efforts on building out the commercial. So I think we learned a lot about where the Medicaid -- Medicaid business was going and how to optimize that. But we also learned the importance of this diversified business to deliver that 12% growth in that 18.3% ROE. And so I think overall, it was a strong year. It had some volatility quarter-to-quarter. We know what that volatility was driven by, and we're taking steps to fix that.

I should have prefaced that question with, it was a tough year, but you still had...

Good result?

A pushing 20% ROE. But...

You put in a report.

The dental business, let's -- let's talk a bit about the nature of that. I'll admit learning as we go a little bit about this business, but you talk about giving David the mandate to focus on the state businesses that make more sense, where there's -- One element of that is some of your business with the states is intermediated, some of it's direct.

Yes.

Is it doing more of that direct business or what else? Probably that, but some other stuff?

I think when you think about the state business, it's going to be a combination of things. If the intermediary, again, wants to recognize the job we're doing and have margins that we think are sustainable and proper, then we'll work with the intermediary. That is hard for them right now because you can see the pressure that the health care companies are under. So it would lead you to more conversations that are direct to the states.

But the beauty is, we know there's growth opportunities out there, and we know that there are states that want to work the way we want to work. And David doesn't have to be overly aggressive to get those, right, because he's already at 2.5%. We're not saying grow that. We're saying optimize it. And I think that, that's a powerful tool. If you're running a business and your boss says optimized versus grow, you do different things. And so I think it's a powerful tool. It's -- there's a -- David is a perfect guy to run this. He ran the employee benefits business. So he knows the commercial side. He ran Operations and IT. IT and Operations.

I mean it's $32 million Medicaid, Medicare members. It's a massive operations business, and he ran the dental business for a year, 1.5 years. So I really like the way he's stepping into this. It's really about making the right strategic and operational choices. We've given them a big powerful tool on the state side. It's got a lot to do to build out the commercial side, but because of his background and his success, he had an employee benefits and the -- and the knowledge he has from running dental. I think he's well positioned to create that success. And we're going to give him time to do it on a sustainable basis.

So it's going to take a number of years. I mean, like I said, it sits at $500 million. So in essence, it's got to grow significantly. But that is a big space. But we also got to recognize that there's -- there's big competitors there that also want to keep their market share. So we do -- we know all the brokers, we know many of the sponsors, we do other benefits for them. And to be fair, the DentaQuest business, it's brought a lot of tools we can use to sell. It's about dental networks, it's brought a lot of dental knowledge that we can use to sell to the commercial side.

And just the last one on dental because we got a few to go through. But when you say optimize, one of the things I think of when it's a group product is claims management...

Claims management...

Is that a thing that -- in dental?

That's exactly right. Claims management and how we interact with the states. And then eventually, how we interact with more and more plant sponsors, but that's exactly right. It's part of a digital transformation for that business.

Okay. So moving to the other part of the U.S. business, the stop-loss. Things have gotten better. Now you've got another round of repricing that kicked in on 2/3 of the book, I guess, on Jan 1. So is growth sort of locked in this year for stop-loss?

I think stop-loss -- so we've gone through two consecutive years of very significant price increases, 14% and 17%. We continue to run roughly mid-70s claims, and we continue to run at profit margins that are in excess of what we've given for the total employee benefits, which was 7%. And we had the issue in 2024, which came through in the fourth quarter, even after that issue in 2024. For the full year, the stop-loss business ran in the mid-70s.

So we've consistently performed there. We have scale. We have data. We've added capabilities on top of it to help manage it like Pinnacle Care. So we've added this capability for people are going through a significant health event to manage and navigate the U.S. health care system. So I feel pretty confident. And then we sold a record number January 1 this year, a business that we just gone through 31% pricing and claims adjustment increase, significant increase.

In fact, we were getting so much volume that we were able to even be choosing at the end because we thought, you know what, this is maybe even bigger than we want to. So we were more selective at the end even so we thought we were getting it. We added some -- so all things being equal, you would expect this to be a pretty good year based on that. And historically, it created a lot of noise for us for two reasons.

One, the fourth quarter of 2024 looked really bad. But you had first quarter that was hitting our margin. So I said slightly north of 7%. Second quarter, we were hitting our margin. Third quarter, we were hitting our margin. And then fourth quarter, right at the end of the year, we had a lot of severity that dropped us below our margin, but still close to the margin for the full year, but it basically wiped it all the profit in the fourth quarter. So the year looked fine, but the fourth quarter did it. At the same time, some of our competitors were having issues. So it's become a bit -- it's not quite even resonating me sometimes when I hear the amount of issues that people have and the amount of time it takes on the call.

Like we've done this business for 40 years. We've seen price increases for health care running up for as long as I've been in the executive team, which is close to 15 years, and we are able to reprice for that. So I think that, that business. I know that competitors are having issues, but when you have expertise when you have scale, and we've shown. We've demonstrated for many years, the ability to run this in a proper way. In fact, we took some heat off sales in 2024 when we saw that Q1 2025 was a lower sales year because we saw what was happening. So I think we're well positioned this year, and things can -- the world changes fast these days, so things can change fast, but we feel like we're well positioned.

So you said that you've got a lot -- I don't know if you say record, but lots of volume and stop-loss...

Lots of volume.

What was driving that? Because it seems like...

I think competitors were having to price up more than we were. So if you were a competitor in your -- some of our competitors were mid-90s, we're mid-70s. So if we're increasing by 17%, then they should be increasing by probably 37%, right? So I think that brokers knew us, they've seen us. Sponsors knew us, they've seen us.

We were able to sort of manage that price increase a little divot differently probably than some competitors of that broad scale. We've even heard there was a reinsurance company that was looking to come in and they decided not to. Like if you don't have scale and the expertise, you probably shouldn't be in the business.

High level for the U.S. and if we group all the group businesses together, if I look over the past few years, there have been a lot of fluctuations, the post-COVID phase, where claims disappeared, not exactly, but claims were quite low and ROEs went into the mid-teens. And then last year or so, we've been in the low teens. What's a sustainable ROE for that business?

I think driving towards that business and the growth in the earnings should grow the ROE, and it should be an important part of us getting closer to our 20%. I would see ROE in that business being -- because it's a light capital user. It should grow alongside the earnings into the higher teens sort of thing. It should be part of that getting to the 20% is seeing that grow.

Got it. Asset management business. There's a lot of stories in there. So MFS is the mature ones. It's been in outflows for a long time, but it's all very cash generative. I've always looked at MFS as having this secular challenge, but you've planted a bunch of seeds that are sapplings now on the SLC side. Is the vision to have a on my words, but slowly declines, whatever, and SLC will offset that. We don't see MFS declines, whatever in SLC will offset that?

I think MFS is going to grow. If you step back, we are an asset management and an insurance company. You had Nick up here from Brookfield right before this. We compete with Brookfield on the asset management side. We're an asset management and insurance company. And we think that being a full-service asset management company across public equities and public fixed income, which is primarily MFS for us. And through the alternative asset management classes creates the strongest asset management business. We sit at CAD 1.6 trillion in assets under management and different cycles are going to hit at different times.

So I think public equity and public fixed income isn't always going to be in a down cycle. It's been a long down cycle for flows, but things will change over time. They also have been on a high. I think having both is really good. Today, the bulk of our income comes from MFS, but SLC is going to grow at 20% CAGR. We've talked about that, and that's over time, we're going to see that become a bigger and bigger piece.

I can see us deploying some capital into bolt-ons as well in SLC. I don't think we need to do big capabilities, but there's bolt-on capabilities we could add. MFS, we're not going to be doing M&A. They're not interested in doing M&A. We're not interested in having them do M&A. So we're perfectly aligned. But I do think you'll see MFS grow. And when cycles are different, you're going to see that happen.

They're good money managers. They know how to manage money, their clients understand what they're doing. There's been a trend in the last 10 years for sure, 5 years. But these trends change, and I think having an asset management business that crosses all of those things, is really important. We also sometimes forget that we're a massive wealth management business. In Canada, our DC GRS business has $175 billion in assets under management.

We're one of the larger players in MPF players in Hong Kong. We have -- most of our business we write in Asia is wealth business. So we have opportunities to use our wealth management even more to align with our asset management business. And that's part of Tom's role is to find ways to unlock more of that. But I see MFS as being a critical piece of our overall asset management strategy. And sometimes people say, well, they're only doing public equities and public fixed income. And I say, yes, that's their job. Our job is to diversify that, and that's what we've done with SLC. And I think that the two balance off together and I think having Tom at the top really unlocks that for us.

You touched upon Canada and Asia. I want to get into that, but before doing so, SLC, just to wrap it up, the buyouts of BGO and Crescent are taking place soon. Is there anything -- it's a matter, of course, type of thing.

It's -- well, it was -- the deals have been structured since we did the deal. So we always knew that we would buy a certain percentage there'd be earn-outs, the earn-out ratios were set. They were based on performance. Of course, there's always little negotiations. When you get to EBITDA performance with an asset manager, should this expense be included or should this one not. So that's what they've been working through, but that's all at the edges. So we're close. It will roughly align with what we talked about this, what we had in the put-call.

The put-call will be paid for by the debt that we already issued. So the accounting now is, I'm going to say, a little bit strange because it all happens at the time of when we did the transaction. That's when all the goodwill set up and set up for the full amount, you set up the put-call. So I think that's all pretty straightforward. We've also been -- we also really believe that in asset management, particularly in alts, that management needs to own a significant percentage of the company. So we talked about that on the call last time.

Part of what we're doing is getting ready to structure that to set the leadership team because if you're buying alternative asset management, we have $260 billion in third-party money. If you're buying that money, you don't have the right leadership team, it can be very painful. So setting up the management equity plan and we expect management to own 20% to 25%, setting that up, establishing it, getting buy-in from management. And there's three ways they're getting that management equity plan.

The founders are rolling some of their share ownership into the SLC, which we think is great. It's an indication that the founders are saying, we still think this is going to grow and you're taking the right steps we did staking grants for critical people. And then we've created an equity program that management could buy into. It's a leverage program, but the management can buy into it, and that's how we're going to get to the 20% to 25%. And we think that, that's really important that if we have the right -- having the right team there, having the right investment capabilities but having the right leadership capabilities will drive that business forward.

Now the Canadian component of the questions. Group. And I think about, it's more of a macro sensitive business that we have a stalled job growth in Canada. I don't know if you have much in the way of -- I shouldn't say that publicly, public employee plans. But are these challenges going to stall growth in that business? Or how do you grow in that type of environment, I guess, is another way of asking?

We used to have a very big public health services plan that you might have seen in the newspaper that one of our competitors took. It's -- of course, we're going to get impact. If there's a slowdown in the economy that means that there's less people working, anybody in the employee benefit space is going to get hit by that. And if you look at the employee benefit space in Canada, we're just under 25%, but that's about the same place at Manulife and Great-West Life are.

And when it comes to GRS, we're closer to 40%. So we are going to get -- if there is -- now the GRS business and a little bit on the Employee Benefits business, we do keep a significant amount of rollovers. So when people leave those plans and their assets, and that's actually a really good business for us. So there's a bit of an inherent offset there. But if there's less people working you're going to have less revenue, and it's going to be aligned to what everybody else has.

Now over the long term, will there be less people working through AI probably? Will there be new jobs that come up? Yes. And I think aligning to some of those new industries and thinking about where those opportunities are going to be is actually really good. And we've been talking about where those are coming, national defense or the Arctic or whatever it might be. Like how do you line up to some of those that are coming.

But we -- I think -- actually, I think the Canadian industry in general, runs a very good employee benefits in GRS business. And we have good technology. We have a good ability to take rollovers. And I do think the Canadian economy will be resilient. I think there'll be hits, but there will also be opportunities.

Then Asia, we can spend more time on that, but we have to be cognizant of time. The Asia business, if I go back to, I don't know, 15 years or so ago, it was kind of a business we thought of too much as it relates to Sun Life because it was 5% of earnings, then they brought on some whipper snapper, who up to 10%, 15% of the company's earnings, and we start caring about it. And then in the past year, we've seen the ROE increased a couple of hundred basis points. Are we at an inflection point for Asia? By the way, he was running it. Now managers does, of course.

Yes. Manager's doing a great job. We've -- well, I'll tell you a quick story. But we're going to run out of time, but I'll try to tell this quickly. When I moved to Asia, we were $100 million in income. We're close to $900 million today, and I met with all of the key competitors. And one of the big competitors said to me listen, there's only going to be five regional players. Prudential, AIA -- so you know which one he came from. Prudential, AIA, Manulife are going to be three. They're big players. I don't know about you guys, I don't know about anybody else. Kevin, you need to decide whether you're going to be a big player or not. And I remember thinking that's very direct, but he's not wrong. There's not enough there for -- there's 30 companies in Hong Kong.

I could walk around the block and bump into every insurance company in the world, but there's only 4 or 5 that are doing really well. And we made that commitment, and Dean made it with me to make that leap. And making that leap was really important to us to create scale. And we're doing fantastically in Hong Kong, in India. We have scale in the Philippines. We have scale in our high net worth. And we've built out this ability to build scale in all of our other markets by having bancassurance, agency, brokerage and some digital in every market. So we have the ability to get scale.

So Manjit called some four scaling markets, which are the other four markets. We have scale in these four, and we're in the right places, right? So I think we have that ability to really drive that forward. It should be an important part of our overall company ROE growth by growing the earnings alongside of it.

Yes. So the -- like what we saw in 2025, the...

Step in that direction.

Yes. So what about the M&A question. You've been pretty public about, well, there's not much in Canada to buy, not much -- well, maybe many opportunities in Asia. And then in the U.S., you want to get the DentaQuest sorted out before doing anything big. However, something in Asia might become available or might it be available. I'm wondering what...

Yes. I think our focus is really on -- the businesses we already -- we think are in the right places. We have a good mix of businesses. We have a chance for organic growth. I want to see the team take those steps forward on our organic growth. We know our shareholders value the buyback. And I think a strong, sustainable buyback program that contributes to earnings growth each year. We can get 1.5%, 2% earnings growth from the buyback, and I think that's important for us to do, which then starts to limit the M&A opportunity to more bolt-ons.

And honestly, we could -- I could see some places, some bolt-ons in Asia and bolt-on for me would be under $500 million, some bolt-ons in Asia that might make sense, there's some bolt-ons in SLC that might make sense. But we'd also be careful for that because I do think sustaining that -- creating that sustainable buyback picture, which we've done the last few years and which we intend to continue to do, is actually valuable for our shareholders based on it's valuable for the way we run the business, and it's a valuable discipline for the business. The same way we look at the dividend growth, right? So I think that's increasingly how we look at it.

All right. Kevin, we're slightly into over time, but don't regret to think.

Thank you.

Great -- great update and I look forward to the next time.

Good morning, and welcome to the Sun Life Financial Q4 2025 Conference Call. My name is Rocco, and I'll be your operator today. [Operator Instructions]

The host of the call today is Ms. Natalie Brady, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Ms. Brady.

Thank you, and good morning, everyone. Welcome to Sun Life's Earnings Call for the Fourth Quarter of 2025. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management are also available to answer your questions this morning.

Turning to Slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events.

And with that, I'll now turn things over to Kevin.

Thanks, Natalie, and good morning, everyone. Turning to Slide 4. We delivered strong fourth quarter results, driven by our disciplined execution, diversified business model and our continued focus on our clients and our purpose.

Underlying net income reached $1.1 billion contributing to underlying earnings per share growth of 17% over Q4 last year and underlying return on equity of 19.1%. Our diversified strategy continues to prove its strength with strong performances across all business groups. Notably, we saw robust protection growth in Asia, solid wealth sales in Canada, and meaningful progress at SLC Management, which exceeded its Investor Day earnings target. We're also pleased with the earnings and sales growth in our U.S. stop-loss business. We ended the quarter with a LICAT ratio of 157%, demonstrating our strong capital position.

Turning to Slide 5. We saw continued strength across our asset management and wealth platforms. At SLC Management, we achieved $242 million in underlying net income in 2025, which exceeds our Investor Day target of $235 million. We also saw solid growth in fee-related earnings. We remain on track for the BGO and Crescent buy-ups taking place in the first half of 2026. We're also introducing a management equity plan for SLC. The management team at SLC will own up to 25% of the company, which is the best practice to motivate, retain and attract talent in the alternative space. We're pleased with the response we've had to the management equity plan. The vast majority of eligible employees are choosing to participate in the share offering.

In Canada, we delivered strong performance in our wealth businesses. Gross sales were up 46% year-over-year, driven by strong results in Group Retirement Services and individual mutual funds. Group Retirement Services sales doubled year-over-year, reflecting strong large case defined benefit solutions and defined contribution sales. Additionally, individual wealth sales were up 10%, driven by adviser productivity improvements and industry-wide momentum.

And while there were net outflows at MFS, this is consistent with industry results, and MFS continues to play a strategic role in our overall business mix, consistently delivering strong margins and cash flow to Sun Life, and supporting the growth of our asset management platform. In Q4, we saw net inflows in MFS ETF products and in fixed income. In 2025 institutional gross flows were up 59% over 2024 from continued large mandate wins.

Last quarter, we announced the formation of Sun Life Asset Management, which took effect on January 1 of this year. Work is currently underway to formalize our asset management capabilities under one pillar.

In Asia, we maintained strong momentum driven by sustained distribution excellence. We delivered 50% year-over-year protection sales growth, including double-digit growth across all channels. Two standout markets for the year are Hong Kong and Indonesia. In Hong Kong, sales more than doubled year-over-year with strong growth in all channels. In Indonesia, sales grew 43% year-over-year, reflecting strong execution of our expanded bancassurance partnership with CIMB Niaga that took effect at the start of 2025.

We continue to capture growth and scale advantages in our core health businesses in both Canada and the U.S. In Canada, Sun Life Health showed solid sales growth, and we launched a virtual health offering that helps 10,000 low income Canadians access the care they need. Our U.S. medical stop-loss business had a strong quarter with robust sales growth of 58%. This quarter's results reflect our underwriting discipline and scale advantages, which allowed us to capitalize on a hardening market.

This quarter, Dental made a profit. We see this as a step in the right direction, recognizing this as a multiyear journey. Some of the steps include continuing to work with states to reprice and align the business to the higher claims environment, building out our commercial business, investing in straight-through processing and actively managing our expenses. These steps, together with our confidence in David's team position us well to deliver on our priorities.

We continue deploying digital solutions to drive meaningful client and business outcomes globally. In Canada, we launched Sun Life Essentials, a fully digital group retirement solution that positions us to gain share in the attractive small to medium business market. This solution leverages automation to seamlessly onboard and serve clients.

We are also pleased with the impact and results of our recently [ reimagined ] mobile app. We launched new engagement capabilities for wealth in the quarter, which drove 62% more traffic and 81% greater enrollments. We are also digitally transforming our claims and underwriting processes in the U.S. and in Asia to improve client experiences and drive efficiencies, leading to broad-based improvement in processing time for underwriting, onboarding and claims processing, notably improving client satisfaction across both business groups. Overall, our digital initiatives will help us deliver on our purpose, support growth and reduce expenses. All of these factors will play an important role in delivering strong earnings growth aligned to our medium-term objectives.

Underpinning our performance is a continued commitment to people and culture. We continue to believe our culture is a differentiator, led by our desire to deliver on our purpose and have impact on our clients' lives. We achieved Great Place to Work recertification in 9 countries. And for the sixth consecutive year, SLC Management was named one of the Best Places to Work in Money Management by Pensions & Investments.

Turning to Page 6, we have a full year view. In 2025, Sun Life's balanced and diversified growth strategy, prudent risk management capabilities and strong capital position allowed us to advance on all of our medium-term objectives with underlying EPS growth at 12%, underlying ROE at 18.2% and a dividend payout ratio of 47%.

We closed 2025 with 9% full year underlying earnings growth, strong sales in asset management, wealth, Health & Protection, and a 17% increase in new business contractual service margin. We concluded the year with more than $1.6 trillion in overall assets under management. In addition, our asset management platform ended the year with $1.2 trillion of third-party assets under management and administration. We are living during a truly transformative time. This past year pushed us to aim higher, act with intention, highlighting the ambition and perseverance that define who we are. For a company like Sun Life, this environment calls for purpose, clarity and conviction. And it's our purpose helping clients achieve lifetime financial security and live healthier lives that guides us through uncertainty with confidence and focus.

Across our 28 markets around the world, we continue to bring a global mindset while delivering deep local understanding and impact. This approach allows us to remain agile, responsive and attuned to the unique needs of each community we serve. As the world continues to grow more complex, we remain confident in the strength of our business mix, our disciplined execution of long-term business strategy and our commitment to deliver on our purpose.

With that, I'll turn the call over to Tim, who will walk us through the fourth quarter financial results in more detail.

Thank you, Kevin, and good morning, everyone. Turning to Slide 8. We finished 2025 with double-digit earnings growth across all of our business types and strong sales growth in Asia, Canada and the U.S. Our results this quarter underscore the strength of our balanced and diversified businesses.

We reported Q4 underlying net income of $1.1 billion, up 13% year-over-year with underlying earnings per share of $1.96, up 17% over last year, and 12% for the full year, and ahead of our medium-term objective of 10%. Underlying ROE for the quarter reached 19.1%. Asset Management and Wealth underlying earnings of $534 million was up 10% over the prior year. These results were driven by lower credit losses and higher fee income in Canada, and higher fee income from average net asset growth in MFS.

Group - Health & Protection underlying earnings of $308 million increased 16% year-over-year, as claims experienced in our U.S. medical stop-loss business stabilized, and we delivered continued growth in our Canadian health businesses. Individual - Protection underlying net income of $362 million was up 17%, driven by business growth and favorable mortality experience in Asia and in the U.S. Corporate underlying net loss increased by $13 million to $110 million, reflecting higher financing costs to support the upcoming buy-ups of BGO and Crescent Capital. Going forward, we expect the corporate segment to generate a loss of approximately $110 million to $120 million a quarter. This will have no impact on our overall medium-term objectives.

Total company reported net income of $722 million was 34% lower than underlying net income, driven primarily by market-related impacts, including the impact of risk-free rates, swap and credit spreads, and other timing-related mark-to-market items from rate movements during the quarter. Real estate returns were flat this quarter compared to our expected long-term return assumption of approximately 2% per quarter.

Other differences to underlying net income included intangible amortization, acquisition-related expenses, the impact of lower-than-expected tax exempt investment income and an ACMA charge. We had an excellent sales quarter in Group - Health & Protection, with sales up 42% over the prior year, driven by the U.S. business with strong medical stop-loss sales, solid large case employee benefit sales and higher dental sales.

Individual - Protection sales were up 38%, driven by continued growth in Hong Kong. Overall, new business CSM of $440 million for the quarter increased 44% compared to last year. The SLF LICAT ratio is now at 157%, up 3 percentage points from Q3, driven by debt issuance and strong organic capital generation, partially offset by shareholder dividends and $400 million of share buybacks executed in the quarter.

Turning to our business group performance, starting on Page 10. MFS underlying net income of USD 224 million was up 4% from higher fee income from higher average net assets, partially offset by higher expenses. Assets under management of USD 651 billion were up 8% year-over-year, but down slightly quarter-over-quarter as market appreciation was offset by net outflows of approximately USD 18.2 billion. The net outflows included retail outflows of $9.8 billion and institutional outflows of $8.5 billion.

Retail investor preference for passive index strategies and risk-free reinvestments continue to impact the MFS retail flows in the quarter in line with industry. Institutional net outflows were driven by several large mandate redemptions mostly due to rebalancing. MFS had positive net flows of USD 1.9 billion in fixed income during the quarter and continued to experience net inflows in its ETF products with an additional USD 500 million during Q4. On a full year basis, MFS had over USD 121 billion in gross flows, up $21 billion, or 21% over 2024. Delivered underlying and reported net income of over CAD 1.1 billion, and contributed CAD 1 billion in cash dividends and remittances for the organization.

SLC Management's underlying net income was $58 million in Q4, in line with the prior year, as higher fee-related earnings were offset by lower seed investment income. Full year earnings of $242 million exceeded SLC's underlying earnings target of $235 million for 2025 set back in 2021. Fee-related earnings were $99 million in Q4, an increase of 25% compared to the prior year, driven by capital raising and higher property management fees. Pretax fee-related earnings margin was 27.5%, an increase of 450 basis points year-over-year, driven by growth and scale benefits at BGO and SLC fixed income.

Reported net income of $16 million was lower than underlying net income due to market-related movements and acquisition-related charges. Capital raising of $6.4 billion in the quarter remains solid, with BGO, Crescent and SLC fixed income, continuing to see resilient fundraising driven by key fixed income mandate wins and strong sales in Crescent's flagship direct lending funds and BGO's debt and equity real estate funds. Deployments of $10.6 billion in the quarter were strong, driven by continued momentum in Crescent and BGO and fixed income.

Fee earning AUM of $200 billion was up 4% year-over-year driven by net inflows, partially offset by distributions and asset value changes. We expect to complete the BGO and Crescent Capital buy-ups in the first half of 2026, further deepening our ownership in these high-performing businesses, and strengthening our alternative asset management platform. The final amounts to be paid along with the impact of the new management equity plan and minority interest will be reflected in our Q1 results.

In Q4, Canada delivered underlying net income of $417 million, up 14% over the prior year, driven by lower credit losses, higher fee income, favorable insurance experience and strong business growth. Underlying ROE this quarter was a record 30.1%. Reported net income was $307 million, an increase of 21% year-over-year, but lower than underlying net income due to market-related impacts. Asset Management and Wealth underlying earnings were up 41% year-over-year on lower credit losses and higher fee income from AUM growth. Gross flows and wealth sales were up 46% year-over-year, driven by strong sales in DBS annuities, DC sponsor sales, rollover and higher mutual fund sales.

Group - Health & Protection earnings were broadly in line with the prior year as business growth and favorable mortality experience from smaller claims and lower claims volumes was offset by less favorable morbidity experience. Individual - Protection earnings were up 7% compared to the prior year, driven by favorable insurance experience. Group sales were up 8% year-over-year, reflecting higher health product sales, while Individual - Protection sales were down 6%, driven by lower participating life sales, partially offset by strong non-par life sales.

Sun Life U.S. underlying net income increased 30% over the prior year. In Group - Health & Protection, underlying earnings were up 33%, driven by improved experience in medical stop-loss, partially offset by higher distribution costs from strong fourth quarter sales results, as well as higher operating costs in Dental. Medical stop-loss earnings increased compared to both the prior year and prior quarter, driven by a lower loss ratio on 2025 business.

Individual - Protection underlying earnings increased by 24% year-over-year, driven by favorable mortality experienced from lower average claim size. U.S. Group - Health & Protection sales of USD 1.2 billion were up 45% year-over-year, primarily driven by record medical stop-loss sales, large case employee benefit sales and group benefits, and higher Medicaid sales in Dental. In stop-loss, we achieved record sales growth of 58% year-over-year, meeting our overall pricing objectives with record persistency.

In Dental, the Medicaid loss ratio of 88.8%, down from 94.2% in Q3 demonstrated the benefit of our repricing actions in 2025, which helped offset elevated claims. Operational expenses were up compared to the prior year due to higher claims volumes with actions underway to mitigate in 2026. Reported net income of USD 93 million was up from a loss of USD 1 million in the prior year, mainly driven by a prior year provision in Dental.

Asia's Q4 underlying net income of $207 million increased 19% over the prior year on a constant currency basis. Individual - Protection earnings were up 24%, mainly driven by continued sales momentum and in-force business growth, and favorable mortality experience in our high net worth business, partially offset by lower contributions from joint ventures. Asset Management and Wealth earnings were down $3 million from reduced fee income from the transition to the centralized EMPF platform in Hong Kong during the quarter. Reported net income of $131 million was higher year-over-year, driven by the increase in underlying net income and an impairment charge in the prior year, partially offset by unfavorable market-related and ACMA impacts.

Asia continues to see strong sales in Individual - Protection, up 50% year-over-year, driven by sales growth across most of our markets and channels, including sales growth of 111% in Hong Kong, with strong sales increases across all channels. Asia's total CSM of $6.7 billion grew 18% year-over-year on a constant currency basis, driven by strong organic CSM growth. New business CSM of $300 million increased 49% year-over-year from higher sales primarily in Hong Kong.

In summary, we are pleased with our strong Q4 results. In 2025, we demonstrated solid progress towards our medium-term objectives with 12% year-over-year underlying EPS growth, underlying ROE of 18.2%, and a dividend payout ratio of 47%. We generated $4.2 billion in organic capital and returned $3.7 billion to shareholders through dividends and share buybacks. With our attractive mix of diversified businesses, strong organic capital generation and an industry-leading LICAT ratio of 157%, we are well positioned to capture growth and opportunities that lie ahead in 2026.

With that, I will pass it back to Natalie to begin the Q&A portion of the call.

Thank you, Tim. To ensure that all participants have an opportunity to ask questions this morning, please limit yourselves to 1 or 2 questions, and then requeue with any additional questions. I will now ask the operator to pull the participants.

[Operator Instructions] Our first question today comes from John Aiken at Jefferies.

In terms of the stop-loss experience, I think the word that you used was stabilized. But with the pricing and other actions that are undertaken, are we hoping to see improvements in 2026 again?

Yes, John, it's David. Thanks for the question. Yes, we're pleased with our improved results and also our strong sales at the end of the year. So in terms of experience, we did see a modest improvement in the loss ratio, the ultimate loss ratio for the 1/1/25 cohort that we had shared in Q3, that was offset a little, but overall, it was neutral, and we're in good shape heading into 2026.

And just a bit of a follow-on in terms of the improvement that we've seen in stop loss as well as the improvement on Dental. We did see an uptick in the sales in Q4. I know there's seasonality in there, but we are up year-over-year. Are we actually now opening the taps for sales along these -- on these products?

So we maintained our pricing discipline. Let me start with stop-loss first. While we're pleased with our results, we've maintained our discipline. And as Kevin noted at the top of the call, we're benefiting from a hardening market. We achieved the rate increases we were seeking. And ultimately, we'll remain disciplined in our pricing approach as we head into '26.

In terms of the Dental business, we did see a modest improvement in sales as well year-over-year that reflects seasonality a little bit because the 1/1 business, particularly for commercial is when we write a lot of our business. And then we also saw one large Medicaid contract that returned to us in -- for 2026.

John, it's Kevin. I wanted to reemphasize a few things on the stop-loss business. We've managed an industry-leading stop-loss business for many years now. And in that business, we have the scale, the data and underwriting advantages that have helped us create like a sustainable earnings business there, and we've built out our service model over the past few years to better help members who have serious illness to manage those illnesses. For example, we bought Pinnacle Care, and that's helping them. And we think that gives us a strategic advantage when it comes to pricing and also to managing the risk here.

This is an area that we've had long-term margins that have been ahead of our employee benefits target margin that we've talked about, and we expect that to return over the next little while. And David mentioned this, but it has been a challenging environment where both severity of the claims and the price of the claims has been going up. But in 2025, we achieved a 14% increase in price. And we talked about that should have been maybe 2% higher at 16%, but this year, we achieved a 17% increase in price. And we think that, that positions us really well. So the sales that we won in the fourth quarter we see them as being priced appropriately. And given our scale and some of the advantages we have, we think that we're well positioned in that business.

And our next question comes from Gabriel Dechaine with National Bank.

Yes. Just a follow-up on that stop loss. Did I hear you correctly, you increased pricing by 17% in -- on the Jan 1 block? And that should get you back to target margins fairly soon, I would imagine?

Yes. So Kevin's referring 17%, that's the price increase -- average price increase we received on our renewal business. And yes, that was at our target margins.

Okay. No, excess capital. You have 157% LICAT ratio, which is very comfortable, but oddly enough to say with that excess capital for a company giving us a 19% ROE, it is suppressing your returns, right? M&A came up a lot on a previous call. I suspect your M&A appetite might be a bit more limited while you're focused on getting that DentaQuest business back on track. So if we look ahead to Q2, and I believe last year, you did an early renewal of the program, didn't necessarily upsize it, but I'd like to know what you're thinking about capital deployment broadly and then the buyback, more specifically, what your thought process there with regards to the renewal, which is, I guess, in May, right? Program expiry rather in May.

Gabe, this is Tim. Thanks for the question. We continue to take a disciplined approach in our capital deployment. And overall, our priorities have not changed. You referenced our LICAT ratio, where we finished the year with a very strong LICAT ratio and industry-leading, in fact, at 157%. And that's up over the last 2 quarters because of 2 debt issuances that we did to complete the purchases of the remaining interest that we have in our private asset affiliates that we plan to do in the first half of this year. On a pro forma basis, if you were to reflect those buy-ups, our LICAT ratio would be around 150%...

Still high.

We took advantage of the excess leverage capacity that we saw, and we had an opportunity to take advantage of attractive rates and spreads in the market when we did those debt issuances. So then on your second part of your question in terms of the priorities and the uses of capital, our priorities haven't changed. Our first priority is organic. We continue to make investments in our business, scaling Asia and our asset management businesses in particular, and continued growth in our investments in digital and AI.

On the organic side, which is our second priority, as I mentioned, our priority for the first half of the year is to complete the purchase of our private asset affiliates. So this is BGO and Crescent. And then beyond that, we wouldn't be looking to make any transformative acquisitions. Rather, we'd look at bolt-on type acquisitions where we could acquire adjacent capabilities to augment our existing platforms, for example, in Asia or in asset management or in wealth. And then finally, pending market conditions, we would expect to resume share buybacks later in the year. And so in light of the deployment priorities I spoke about, we typically don't buy back shares at a rate that is higher than our organic capital generation. And as I said in my prepared remarks, this year, we generated $4.2 billion of organic capital generation.

So that's well in excess of our guidance of 30% to 40% of underlying net income. We've returned $3.7 billion of that back to shareholders through share buybacks and common shareholder dividends. And we also did $500 million of M&A in the first quarter of 2025 with the extension of our bancassurance agreement in Indonesia. And all that still maintained a dividend payout ratio at 47%, which is well within our medium-term objectives. So you can see our discipline, and we'll continue to be disciplined going forward.

All right.

Gable, it's Kevin. I just want to add, you mentioned that it might be suppressing our returns. A big chunk of our capital position is the CSM. And we're actually quite proud of how quickly we've been growing the CSM and it's an important part of our capital. And of course, that's not in the book value, and it is supporting our -- so it's not part of that ROE calculation. So that's an important part of capital. It's also an important part of future income. And the growth in that reflects our growth in Asia and Canada as we're growing the business. And so you have to look at those pieces, but it's not -- that additional capital position is not really impacting the ROE.

Right. I acknowledge it's a weird wave -- weird sort of question when you're generating a 19% ROE and -- but it's mathematical, regardless anyway.

And our next question today comes from Mike Ward at UBS.

I guess I'm just trying to interpret the strategy at stop-loss. And I guess it certainly seems like a hard market across that space. But some of your peers are either getting out of the business, or shrinking the business, and '25 was another challenging claim year for them, based on what they see. So I'm just trying to sort of compare that to what you guys are seeing where it's a little bit more optimistic and you're potentially growing, which is another strategy, right, to grow into a hard market when there's less capacity, the employers still need that coverage. So you're there to be able to provide that to them.

But is it possible that, that growth is a longer-term focus of yours? And maybe we'll see elevated margin volatility as we move through this medical inflation environment with higher severity?

Mike, it's David. Thanks for the question. As Kevin noted, we have a long track record of success in this business, and we have historically, our loss ratios are among the lowest in the industry, and they have been. We are a leading independent writer. We have a talented team. And as Kevin noted, also many capabilities, including our risk selection approach, our ability to price through many different cycles, our clinical programs and our cost containment program. So we feel really good about this business and the path that we're on. It's something that we have a strong reputation in the market for. And certainly, we've taken into consideration medical trend and leverage trend. And of course, the historical claims experience that we've seen to date.

Mike, it's Kevin, can I add to that? If you don't have scale in this business, the individual claims amounts can be punishing to you as well. And so I think it's really important that we have had that scale and that history of the positive experience. So I just wanted to put out that some of those players that you're hearing about don't have the same scale that we have.

Got it. Okay. No, that's helpful. And then just on the Dental side. On the corporate side, of the dental market, it seems like that's an area of focus even for the U.S. incumbent. So I'm just wondering if you can comment on your strategy for distribution to really enter that market because it's so competitive?

Yes. Thanks for that question. So you're really referring to what we call our commercial dental segment within our Dental business. So that's an important part of our focus for growth of the Dental business. We actually grew 7% in premium volume versus 2024. And that segment overall has grown 20% since we acquired the DentaQuest business.

We're already in the market actively. We have a strong distribution footprint that is part of our employee benefits business and these products, the dental products specifically are very often bundled with our other employee benefits products. So it's an area of strength for us in terms of our distribution footprint. And over time, we expect to continue to grow it out.

And our next question today comes from Alex Scott of Barclays.

First, I wanted to just ask on the 17% rate you mentioned on stop-loss. Is that sort of what some peers are calling an effective rate? Like does that include the benefit of changes in terms and conditions like attachment points and so forth that you might be doing? Yes, that's my first question.

Yes. So the 17% rate increase on our in-force renewed business really reflects both the expected medical cost trend increases and our claims experience to date. Obviously, as you know, medical trend has been in the U.S. in the high single digits last year, and we expect it to stay there in 2026. But leverage trend is -- can be quite a bit larger than that because that really reflects how our increases flow through plan designs. It includes things like you mentioned, deductibles, attachment points and coverage layer.

So as I said, we have really strong and disciplined pricing approach. We have really good risk selection, and it is reflected in our 17% renewal rate increase.

Got it. Okay. That's helpful. And then two premium growth questions. One, if you could opine on like how much the stop-loss sales growth will contribute to premium growth? I assume just retention side, too. So I wanted to get a feel there.

And then also if you could maybe touch on Asia growth and just kind of coming up on some of these tough comps in Hong Kong, what we should expect?

So it's David, I'll just start with the U.S. growth. So as you do see the headline numbers in terms of our sales growth in the stop-loss business and we're pleased with those results. We did also see strong and record persistency in our in-force book as a result of this hardening market that we're experiencing. So when you put the two together, we feel good about our premium flows going into 2026.

It's Manjit. On the Asia side, you're right. I think we had a phenomenal year in Hong Kong in 2025. We expect some moderation in the growth rate, but we still expect to continue to deliver good performance in Hong Kong. And then, of course, we have other markets that are coming up too notably as Kevin had in his remarks, Indonesia. So overall, we're still feeling good about the diversified nature of our business in Asia and continuing to deliver good growth.

And our next question today comes from Doug Young at Desjardins Capital Market.

I just want to go back to one comment Tim or Kevin made, just about on the buybacks. You buy back essentially the organic capital generation in any particular year. And maybe I'll challenge it, like why not buy back more? By my math, you're sitting on $6 billion of excess capital? And I get the argument about the book value in CSM, but you've got a lot of capital flexibility. You're not looking to do anything transformative acquisition-wise. You're moving to capital-light businesses. Why not be more active than in the buyback side?

Thanks, Doug. This is Tim. Yes, as I spoke about earlier, this really comes down to our disciplined approach. Any time that we have been active in the buyback program, we fully utilized it. So you saw that we were very active in the fourth quarter. We repurchased about 4.7 million of shares. That was nearly $400 million -- on a year-to-date basis, it was $1.7 billion or almost 20.8 million shares. So we've demonstrated the capacity and willingness, and ability to use a share buyback program.

But I also spoke about our priorities in the near term, and that's really getting through the final purchases of those private asset affiliates. We have a liability on our books of about $2.2 billion. As I said, we're still going through the buyout process there. We expect there will be final adjustments. We think that could be at least under $150 million more. I talked about where we might see opportunities beyond that. And so we still will continue to be active in the program, but we just wanted to get through those priorities first. And I would say, historically, our approach really has been to not get ahead of our organic capital generation and that discipline helped us along. And as I said, pending market conditions, we'd expect to resume share buybacks later in the year.

And maybe I'll kind of say this, but -- so you're not seeing any impediment to holding this excess capital or the leverage ratio to getting to your 20% underlying ROE target. Because if you do take the excess capital down like -- that are 20% underlying ROE target starts to look kind of very conservative? Like what's -- maybe any thoughts on that?

Yes. Our capital deployment is, as I outlined, our medium-term objectives aren't dependent on M&A or features like that, that would be all upside and incremental. The flexibility that we have has served us well, and I think that gives us a lot of dry powder and optionality as the opportunities present themselves in '26.

Okay. Maybe I'll move over to just -- maybe 2-part question on the asset management side. I mean maybe, Tim, you doing the buy ups for SLC minority interest, like what impact should we think about having on the underlying earnings for SLC? And then you're putting all these businesses under one roof, under the asset management group? Just what's the hope -- what you hope to get from this? Is this something where you're hoping that SLC and MFS are going to work a little bit more closer together? Maybe you can flesh that out.

It's Steve Peacher. Let me make a couple of comments. In terms of -- as we get through the call, there are a number of puts and takes. No unintended, I suppose, as it relates to the impact on income. We'll be buying up the minority interest. We're also implementing a management equity plan that we've had -- I think it was mentioned in Kevin's remarks, we've had -- we're offering to certain employees the opportunity to buy equity, which we think is really important to be competitive in the alternative asset management world. We think employee ownership will be over 20%. We've had an extraordinary response to that.

So that will go the other way because we'll have employees participating. We think that, that will drive culture and enhance the growth rate. And so -- so those forces will work to then combine what the impact is on underlying net income. It really doesn't -- we -- at the Sun Life Investor Day in 2024, we put medium-term targets out of 20% growth. And fee-related earnings in UNI, and we stand behind those. We think we'll achieve that.

And Tom may want to comment. I think that I'm really excited about having the Sun Life Asset Management overlay across the various asset management operations of Sun Life. I think it's going to open doors to growth that at least at SLC, we couldn't necessarily open ourselves. And so I think it's going to help us enhance our growth rate as we connect dots across relationships that Sun Life has and capabilities that Sun Life has with investment capabilities that SLC has.

But Tom, you may want to make some comments.

Yes. Thanks, Steve, and good morning. So our focus on growing AUM opportunities is right across the enterprise, and we're specifically focused on the intersection between our global insurance company, our wealth businesses and our asset management businesses, the so-called flywheel effect. And maybe it's useful to give you some examples.

So touching on SLC. SLC and any alternative asset management business really a big part of our future growth trajectory is based on access to seed capital and permanent capital. And we believe, if we look internally into our insurance company balance sheet, we think that there's more room for us to leverage the balance sheet to help Steve grow his alternative asset management business. Specifically, we believe that there's a significant opportunity to collaborate between SLC and our pension risk transfer business. And that was why you saw us move our pension risk transfer business into our asset management pillar, so we get better collaboration and quite frankly, grow both businesses at the same time.

And then external partnerships. We've been talking to a number of external or potential external partners who we think can be a good long-term source of seed and permanent capital. If I flip quickly to MFS. MFS already works very closely with our wealth businesses, SLGI, GRS and our MPF business in Hong Kong. We think that MFS can grow on the back of the growth of those wealth businesses. We also think MFS can grow by further penetrating those wealth businesses and managing a greater share of wallet.

And then I'll touch on Asia and then I'll pause. But from an Asia perspective, I think we're a #3 player in the MPF market in Hong Kong. We think there's room to grow. We think there's room to grow in Asia in the high net worth market. And India, the most populous market on the planet. India has a very interesting stage in the alternative asset management sector, which is emerging and growing really, really quickly. I think we're the only provider globally who has a really, really strong local partner with Aditya Birla and a really, really strong global alternative franchise with SLC, and the combination of those two can help us grow in that marketplace.

So I'm not sure that was too much, but I wanted to give you some tangible examples. It's early days, and we'll share more as we progress through the year.

And Doug, it's Kevin. I just want to add just a quick comment that Steve couldn't add for himself. I mean Steve has worked extremely hard over the past 12 years, building out these incredible capabilities we have across the alternatives business from the real estate of Bentall Kennedy merging with GreenOak and BGO, and Crescent and InfraRed and then taking our PFI capabilities to third party. And we've been consistently in positive flows at SLC.

And now as we transition into the new world where we're going to own more, we're going through the put calls. We've aligned the management team there with the shareholders with -- as you referred to, the 20% equity interest that they're going to have. We've kept the top talent there, and we're really looking forward to that new stage of SLC and Steve has done a great job of preparing us to get there.

2026 is going to be a transition year, but we do see ourselves getting to that 20% growth in earnings that we talked about earlier. And Steve mentioned they hit their Investor Day targets. So I have full confidence that they'll continue to deliver on that. And when we created [ SLIM ], part of that was to help create more opportunities for all of our asset management and to think about asset management in a more strategic way. And under Tom's leadership, I think that, that's going to add even additional capabilities to SLC.

So we're feeling quite good about the positioning of our overall asset management pillar and in fact, MFS' role in that. So this is a big step forward for us this year, and I think it really positions us well.

And our next question comes from Tom Gallagher with Evercore.

A couple of other questions on stop-loss. I guess whenever I see 50% plus growth in an insurance business, the presumption is usually you may have either mispriced the business, or maybe the market is just getting really disrupted by either peers withdrawing, or maybe there's increased demand.

Can you provide a little more color on what you saw on January renewals? Because this is -- obviously, it's getting a lot of attention and I think, questions in terms of like what were the terms and conditions that led to this outcome?

Yes. Sure, Tom. Thanks for the question. It's David again. Yes. So first of all, it is a hardening market. We are seeing some changes and disruption in the U.S. health care system more broadly. That is affecting, as Kevin noted, in particular, some of our competitors who don't have as much scale, and maybe the same capabilities that we see in our business. So that's certainly the case.

I talked about the 17% renewal rate increase. That is the gross amount, but obviously, there's risk selection involved. There are other factors as well. And we have historically had very strong capabilities and a long track record of success managing through this various cycles that we see in this business. This is not the first time we've seen this. But certainly, as I've mentioned before, we do have historically low loss ratios among the lowest in the industry consistently. And we do -- we recognize this market emerging. And in fact, we started to take pricing action well before that of our competitors.

So what you're seeing a little bit is the changes that we had to make in '26 are less than what our competitors had to make because the gap that we had to make up was not nearly what it might have been for others.

Got you. And then my follow-up is, can you just remind us, I think you were running 2 to 3 points behind of your target margin. Is that what you priced for? Or just given the uncertainty, increased volatility, did you look to restore more than 2 to 3 points in the way you repriced?

Yes. So our pricing, we were seeking rate increases that included expected medical cost trend increases and of course, the claims experience that we've had today. And so those are reflected in the pricing approaches that we took. Obviously, we'll pay attention to emerging claims costs in '26 as we always do, but they are fully reflected -- those things are fully reflected in our pricing.

Tom, I think -- I just want to just point out that inherent in David's question was because of our scale and our consistency, we're able to be somewhat selective in our selection of risk that we took on as well. And I think that, that's really an important component that our deep understanding and our capabilities allowed us to be selective in how we approach the client base. And that's something we we've done historically, for example, in the pension risk transfer business in Canada as well. So if you have that scale and that deep knowledge, it gives you an advantage.

And our next question comes from Mario Mendonca with TD Cowen.

Kevin, in response to your question, the questions around SLC and the moving parts, and where earnings could fall out in 2026, you used the word transition. It's a transition year, which in this industry is an euphemism for shrinking. Can you be clear with us? Is that what you're telling us that in 2026, that business will generate lower earnings than it did in 2025? Is that a...

No, we're not suggesting that it's going to shrink next year, Mario. I'm just saying that it's the year that we're transitioning into the new ownership percentages, and it will -- the medium-term objective is the 20%. But Steve may want to add a little bit more detail.

Yes. No, Mario, this is Steve Peacher. We've shown good growth in AUM and earnings this year. We expect that to see a case next year. We do -- we will have a mix in terms of the percentage of ownership as we go from the current minority interest that are outstanding, buying those up and then allowing employees to buy back in. So there's kind of a financial transition there.

I think the -- more importantly, when I think of transition, we're -- the opportunity we have is to date, because of how we built this through acquisition, this has been kind of a siloed entity. You've had BGO and Crescent and InfraRed and our fixed income business. And while there's been some connections between those, it's really operated as a bunch of businesses kind of moving forward side by side. And that's been necessary because they've -- we've had -- they haven't been fully owned.

Now all equity interests are at SLC and you've got everybody aligned around how do you harness the power of this platform to increase margin and to grow faster. And getting ourselves lined up to do that, which we really can't take full action on until after the buy ups is really a big focus for us this year. So when I think about transition, I think it's about transitioning the business to harness the power of the platform in a way that we haven't been able to do before.

Okay. Another question perhaps for David in stop-loss. I appreciate Sun Life's scale and expertise in the business, and it's certainly been helpful in the past, but that didn't prevent Sun Life from having some sloppy quarters over the last couple of years, like the experienced losses in Q4, Q2, Q3 this year.

So where, I guess, I'm going with this first, David, if you could help us understand what's in that $17 million experience loss this quarter? Maybe break that down between Dental and stop-loss or in-force? And then as a follow-up to that, what would be a reasonable level of experience, either gain or loss going forward?

So obviously, the majority of the miss is in the stop-loss business because we were off our original plan. Part of it, we went into the year with -- we know we had a pricing gap that continued throughout the year. Q3 that you mentioned was really -- we've had a couple of quarters where we've had to restate our loss ratios for the prior periods because of emerging experience, and that did happen in Q3 and was reflected -- and it was 3 quarters reflected in that quarter. But of course, we saw that loss ratio stabilize in Q4 and really remain the same.

So we stay focused on understanding the underlying risk that we have. And certainly, we're confident in where we are now because the 2025, 1/1/25 cohort is now 65% complete, and it's much more credible, and like the loss ratio has been stable. So that gives us a lot of confidence in where we're headed.

For obvious reasons, it's -- I guess the point I'm taking from your answer is that it's not really possible to give us an outlook on experience going forward because it's experience. We don't know yet. That point is you're not prepared to discuss that just yet?

That's right. I mean, obviously, we have our own view of it, and we have a great projection for experience, but we don't comment on future experience at this point.

Okay. Then finally, Kevin, let's go back to MFS for a moment. Your comments about MFS producing a lot of cash flow. Those are the -- that's an important comment for me. I paid a lot of attention as you described that. And I can see that as an immense positive for Sun Life.

On the flip side, you've got a business that is a meaningful part of Sun Life's overall earnings that isn't growing. I think looking at underlying earnings at MFS in U.S. dollars, it was down 1% in '25 relative to '24. And again, this is in a year when markets were super strong. So how do you balance those two? On the one hand, it's a cash machine. On the other hand, it's not growing anymore. Is that some -- is that a dynamic you can live with?

Yes. Well, thanks for the question, Mario. And if you step back and you look at where Sun Life is today, we're a top 25 asset manager globally by assets under management. And we believe strongly in being both in public and private markets, and we talked about the build-out of SLC and MFS is our vehicle in the public markets. And we think that being in both is an important success factor to the long-term success of an asset manager.

I talked earlier about how we built these capabilities out in SLC over the past 10 years, and we've now created Tom's role, and I think that's important. But having MFS as part of our strategy and asset management is a strategic choice, and we believe it's the right choice. Market cycles will change over time, and this has been indeed a more challenging time for active asset management. But long term, we believe that active asset managers add value to their clients. And I think this is critically important.

And for MFS, we see MFS as being a leading global player in active asset management. In fact, they invented the mutual fund, and they continue to have leading investment capabilities and distribution capabilities. The issues that the industry are experiencing over the past few years, have allowed them to also pick up talent. And Ted and I were talking about this the other day. And that additional talent is critical to the long-term success of MFS. Their outflows at MFS are in line with the market, and so we continue to have confidence in their ability to deliver. And I fully support Ted and the MFS team in this. We spend a lot of time with them. They're doing the right thing for their clients and they're doing the right thing for the business.

As Tom mentioned, we think the build-out of our wealth businesses in both Canada and Asia will help support MFS and SLC. We have -- in Canada, we have over $200 billion in wealth assets and wealth businesses, and Jessica is looking at growing that. And in Asia, we have a rapidly growing business as well. So if you step back and look at MFS, in addition to the contribution to earnings and contribution to ROE and the cash flow, they're an important part of our asset management business, and we think they have the right capabilities to be successful. And so that support from us, we think is critical to the ongoing support and success of our asset management pillar.

And our next question comes from Paul Holden at CIBC.

So lots of questions on stop-loss, Let's instead ask about U.S. Dental. Maybe give us a sense of the outlook for 2026 just in terms of, if there's any kind of positive movement at all in terms of -- and pricing cost actions you might be taking to help bring operating expenses down in line with the revenue outlook?

And should we be expecting any acceleration in commercial premium growth here? You're at 7%. But is that enough to really change the mix favorably over time? Or should we want to see something higher?

Paul, it's David. Thanks for the question. Well, we expect to make modest progress in 2026 in the Dental business. Obviously, if you look back at 2025, higher claim utilization did offset much of the pricing increases that we had achieved coming into the year. But we continue to stay focused on the business, and we expect to make gradual progress as we move forward. We are seeing states that are beginning to reflect the higher utilization in their forward pricing. But at the same time, the Medicaid headwinds will persist.

We do have a number of actions underway. Certainly, we continue to focus on repricing and working with states and health plans to do that. We're also looking at changing some of our risk agreements and [indiscernible] to ASO depending on what the clients might be looking for. And also just overall, working with states and health plans around our cost containment capabilities and as you mentioned, managing expenses. So we are very focused on continuing to improve this business, but it will be something that we will improve gradually over time.

Okay. And then just again, in terms of a reasonable expectation for growth in the commercial business, is 7% the right bogey? Or would you like to accelerate that to something higher?

Yes. Sorry. Thanks for that follow-up. We continue to focus on opportunities in the commercial space in terms of both extending our reach into new segments of the market and also adding more products when we sell Dental through our employee benefits distribution as well. So we're not just looking at it as a stand-alone Dental opportunity, but also how can we accelerate the overall growth of our employee benefits business.

So ultimately, yes, we have a strong aspiration, but we have to be careful about the pace in which we build this out as well because it's a competitive market, and we have to do that carefully, which we'll do.

Okay. Okay. Got it. And then my second question is for Ted. And just, I guess, again, it's probably a 2-part question. So trying to look to see if there's any early evidence of potential change or improvement in flows here? Obviously, they've been challenged -- well known to be challenged again in Q4. But if you think about a couple of potential inflections for the business.

One is it's no longer so much about the dominance of U.S. public equity markets, there's actually demand for other things now in MFS. I think historically has done a very good job running [ EF ] mandates. So wondering if you're seeing any signs of demand there?

And then the second thing, and I know you really don't like to focus on short term, but we've talked about performance versus Mag 7, and sort of same thing. It's no longer so much the dominance of Mag 7 versus other parts of the market. So wondering if you're seeing early indications of better relative performance of some of your U.S. equity mandates on that basis?

Thanks for the question. This is Ted. So on the [ EF ] strategies, yes, that has been for the trailing period where we've, in general, been in outflows, that has been a net inflow driver in the fourth quarter, it wasn't, but -- but through time, it has been, we do have a strong franchise there. And as you said, there's been increased interest in that precisely because of the dominance of U.S. companies in global markets, a number of our global clients are looking to shift exposures and our international strategies are a nice way to do that.

As it relates to the Mag 7 impact on the shorter term, you correctly predicted we don't like to make short-term predictions and we won't. However, yes, as that has been a dominant factor, we would expect that if it ceases to be a dominant factor, it will cease to be a headwind. We don't want to say that the -- that we're a one factor investment shop that has one headwind that can turn to a tailwind. There's multiple tailwinds. There are multiple headwinds at any given period of time. So it's not as simple as which way the Mag 7 goes and hopefully, that's clear for everyone. But certainly, the concentration of global and U.S. markets has been both a performance and a flow headwind for us over the last number of years.

And our next question comes from Tom MacKinnon with BMO Capital Markets.

Yes. With respect to SLC, as you end up buying in the minorities here at the BGO and Crescent. Just wondering how we should be looking at NCI going forward then? And how that will be handled when we have that management equity plan in there as well? Will that kind of just replace this NCI? Just curious as to how we should be thinking about that? And I have a follow-up.

Tom, it's Tim. Maybe I'll take that one. The buyout process that we're going through is to buy out the remaining equity interest that we don't own. And as Steve was outlining, that will be happening in the first part of next -- of this year in '26. But that will be replaced with the management equity plan. So where the employees and key participants will own shares in SLC. So you can think of that as a substitution of existing noncontrolling interest with a new noncontrolling interest of the employee base. And we think that's going to be up to about 25% of ownership that will be in minority interest after the buy-ups. So we'll continue to have the reported net income reflect that difference. But our underlying income, we would expect to be showing at 100%. And I think as we get through the movements of the buy-ups that we will have an opportunity to share through enhanced disclosures, both the Sun Life Asset Management pillar, as well as the impacts of this buyout process.

So you can pay them $2.5 billion, and then they're going to put $2.5 billion back into the business? But is that the way we should be thinking of just the cash?

Well, I think there'll be -- the employees will be -- it's a combination of things that -- but if you think about employees buying in, they'll be putting in cash. They'll be -- that will be supplemented with some what we're calling preferred equity from Sun Life to enhance that from their standpoint.

But we will have -- not to the -- maybe to the extent that the numbers you just threw out, but we will have employees putting up cash to the tunes of hundreds of millions of dollars as they buy into the equity of SLC.

But the NCI now is worth $2.5 billion, and then they're going to get 25% ownership at just hundreds of millions of dollars? What am I missing there?

So Tom, this is Tim again. That's the net impact in terms of the cash flow exchange. So there's -- you can think about it, there's the agreed purchase price, it's a formulaic amount that's based on the trailing -- average of the trailing 12 months EBITDA for both 2025 and 2024. So that's the amount of the purchase. And then that creates a new valuation for going forward. So it's the net of the two that Steve was talking about.

And as I said, I think, we'll have a chance to walk through the mechanics of this and lay that out so it's clear so that everyone can understand what the current treatment is, and how that's showing up in our financials today, and then post the buy-ups and the management equity plan. I think that will help make it a lot clearer. That's all taking place. That's effective Q1. So that's not obviously in our Q4 results just yet. But we'll have a chance to update our disclosures.

Yes. And then the only thing, if I could add, and everyone want to understand exactly how the numbers work and we'll walk our way through it. I just want to also make sure it's a -- from my standpoint, and I think from the employee -- standpoint of the employees, as we've been going through the process of getting people's interest, it's incredibly impactful to have employees now putting up their own money to be holders at SLC. Not within the business that they're used to, but to say we buy into the platform, I can see it impacting behavior as people are saying, how do we now work together to enhance the growth rate of this platform. So I think it's going to be a really important part of this business going forward.

It also is important in terms of attracting people because if you look at the businesses that we compete with, they have this kind of structure, and we work with a lot of comp consultants to make sure we were designing something that was very competitive. So I think when you step back for this, this is an important part of our future success.

Yes. And as you look at sort of a more holistic approach here in terms of kind of revenue sharing between Sun Life and MFS and SLC, is there any opportunity between maybe MFS and SLC for -- or operating expense synergies, maybe procurement or what have you. Is that being analyzed? And what can we see there?

It's Tom Murphy here. Hopefully, I did a reasonable job giving you a sense of the growth opportunities in front of us, and that's -- that's really where we're focused. We're not focused at all on expense synergies. Traditional asset managers and alternative asset managers, they have very, very different operating models. They also have completely different buying centers. And so we're looking forward to growing the business, and that's where 100% of our focus will be.

Okay. And then one final quick one is on in the Asia division, maybe for Manjit joint ventures and other, this thing jumps all over the place. I assume these are your shares from your JV in India and in China. It was elevated last quarter, certainly the lowest we've seen in about 8 quarters this quarter. How should we be thinking about that going forward?

Tom, thanks for your questions, Manjit. As you noted, the joint ventures line includes -- largely includes the joint ventures that we have in India, China, but also in Malaysia and the Philippines. And one of the elements of the joint venture income and security gains that our joint ventures incur from balance sheet management and other activities, particularly in China and in India.

And I noted on the call last quarter that these can bump around quarter-on-quarter. And in Q3, we had elevated gains in this quarter. We had some moderate losses. So you're seeing a variance that's reflected in the quarter-over-quarter change. For the full year, earnings were up just over 10%. And so we think going forward, that's a decent rate to look at, and we're optimistic that our joint ventures will continue to deliver good growth over the medium term.

And our next question today comes from Darko Mihelic with RBC Capital Markets.

Just two questions. My first one is a bit of a clarification question on stop-loss. I just want to be 100% sure that I understand this. Last quarter, you assumed a higher loss ratio and you built a reserve. And you'd mentioned at the time it was for 3 quarters. This quarter, it sounds stable. So did that result in a reserve build this quarter or no? Or was there a release? And maybe just ultimately, like what was the loss ratio on the '25? Was it 74%, 73%? Just those clarifications that help me understand. And I have a follow-up.

Yes. So as you recall, in Q3 -- thanks for the question, it's David here. That we did make an update to the ultimate loss ratio in that 1/1/25 cohort in Q3, and it then reflected back for the first 2 quarters as well in Q3. Essentially, in Q4, the loss ratio held, it was marginally improved actually, but almost identical to what we had projected in Q3. So that was the experience that is reflected in our Q4 results.

And what was the final loss ratio for the '25?

Yes. So our loss ratios historically have been in the mid-70s, and we've continued to operate, like I said, at that range and those are our targets going forward.

Okay. And maybe just my final question on this, just so I understand this a bit better. There's -- one of your competitors in the U.S. had a fairly extensive call with respect to stop-loss. And one of the things that they mentioned that caught my ear was that they're talking about a wider range of outcomes now. And just given the environment and cost trend. And so my question is, do you concur, is there potentially a wider range of possible outcomes as you look forward? And are you reserved for that? And could we expect, perhaps, more volatility as a result of a wider range of possibilities here in stop-loss.

Yes. So thanks for that follow-up question. So first of all, in terms of experience, medical costs include inflation, utilization, advances in technology, the aging population, new treatments, new medications, things like drug, cell and gene therapies. So there are quite a number of different things that drive costs.

Kevin mentioned earlier, but we have a lot of scale in our business. And some of the maybe -- I can't comment on competitors, but perhaps you're referring to those that maybe not -- do not have as much scale and therefore, the volatility might feel greater in light of -- there are large claims involved in this business and scale really matters. And so obviously, with the amount of book we have, with the experience we have, and with our risk selection and pricing approaches, we feel good about our approach to the business and how we're managing through this cycle, and we're certainly seeing a hardening market that is benefiting us right now.

Darko, it's Kevin. Just really quickly that the rising cost trend in the U.S. health care space has been many, many, many years. I think it's -- so it's something that we're quite used to. The severity increased a little probably coming out of COVID, but we think we've adjusted for that. So it's an area that I think -- I just want to reinforce David's comment that, that scale really matters and it allows you to absorb some of those higher claims.

Okay. And so no change to reserving methodologies either for a wider outcome either. That's what I'm sensing from you. Is that the fair assessment?

That's correct. It's Brennan Kennedy. That's correct at this point, no reserving changes to highlight.

We have no further questions at this time. I'll now turn things back over to Mr. Strain for closing remarks.

I wanted to end the call with a few thoughts on Tumbler Ridge, BC. We were all heartbroken to hear about the tragedy a few days ago. The first responders and health care workers are the true heroes there. And I've personally been touched by how the community has pulled together and supported each other. Our thoughts and prayers are with everyone affected. Thank you.

This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Next up, we have Tim Deacon, EVP and CFO of Sun Life. And thank you very much for participating.

It's a pleasure. Likewise.

Great to see you and hoping to have a pretty good fruitful discussion because your stock is a hot topic these days.

So -- but maybe we can start out big picture, talk about 3 strategic or 4 strategic priorities that you and the management team are spending more time on and talk a bit about why.

Yes, happy to. So first off, great to be here. And it sort of feels like this time of the year, it's a reflective period, right, to reflect on all that was accomplished in the year and what's ahead. So thinking about priorities, there's no shortage of them for us.

The first really is the excitement and momentum that we have around our asset management business. So being Canada's largest asset manager by assets under management, we just surpassed $1.6 trillion of assets under management. And in some ways, I feel like we're just getting started. And what I mean by that is we just recently announced that we formalized our asset management pillar under common leadership, and that's bringing together all of our capabilities, public and private under common leadership. And what that will do for us is really help us unlock the synergies that we see across our insurance part of our business as well as our asset management.

So making sure that we're maximizing all of our capabilities across all our wealth distribution channels in Canada and in Asia. It's about helping find strategic partnerships like ones that we have with Scotiabank as an example, we're distributing our products on the private asset side. And then more broadly around finding sources of permanent capital that will help bring asset management mandates to both public and private. And that will give us the energy and focus that was required to really help drive that next stage of growth.

And related to asset management, in the first quarter of next year, we'll be completing the remaining purchase of the equity stakes in our private asset managers in BGO and Crescent. So that's our real estate arm and our private credit business. And that's really exciting for us, too, because for the first time, that we will be bringing together our private asset managers together as a common platform. So there's been a lot of work underway to make sure that that's been a smooth transition.

So outside of asset management, we're focused on enhancing the performance of our Dental business in the U.S. There's been pretty significant structural changes across the U.S. health care sector that's really impacted the entire of the industry. And for us, that's meant a focus on repricing our Medicaid business around managing expenses and really leveraging the scale that we have as being the largest dental benefits provider in the U.S. And then thirdly, which I find the most exciting part of that is really growing and scaling our commercial Dental business, which is the main reason why we went into that business in the U.S. to help bring the scale so that we can be a formidable top 5 player in that market.

So moving on beyond there, we were focusing a lot and have been for quite some time around digitizing our business and deploying artificial intelligence to really accelerate the client propositions that we have and create capacity and efficiencies within our operations. Very early on, we deployed AI across our organization and equipped our employees with the tools to create capacity in their day. We've had a lot of success with that. And now we've expanded that to help enhance the productivity of our advisers. So helping give our advisers tools to be able to identify leads and to be able to summarize their calls and focus areas for their clients. That's created a lot of capacity for them. We see future revenue opportunities and really excited about deploying that at larger scale.

And then finally, rounding all things out is to really continue to support our Asia and our Canadian businesses who have been performing exceptionally well. The third quarter had record earnings for both those parts of our business, and we're really excited about the future potential for those businesses as well.

Perfect. Well, I'm going to double-click on a bunch of stuff, but I want to start with capital because you guys, with the adoption of IFRS 17 came out with some specific organic capital generation guidance. And it was 30% to 40% of underlying earnings, net of dividends, I think, if I recall. Year-to-date, you're at 52%, so you're above target. And you have net of what you need to buy in the SLC subs, you have about $6 billion of excess capital and debt capacity. So you're generating a lot of cash and you have a lot of capital, which we'll come back to on the ROE impact. But what -- can you talk a bit about what's the focus for that? Because it's more capital than any other life that we cover. Like what's the M&A -- maybe we'll start with this. Maybe what are the M&A aspirations? And the other one would be like why not buy back more stock?

Sure. So one of the features of being a capital-light business, over 70% of our business is in capital light, meaning it doesn't require a lot of capital to drive the earnings. So if you think about our asset management, that's a little over 40% of our earnings base other than the capital that we've deployed to acquire those capabilities, which has been over a long period of time, that's generally capital light. And then if we think about the next category, 30% of our earnings comes from group businesses, which reprice annually. They don't require a lot of capital as well. That has really helped us be a pretty differentiated cash generator as a large global financial institution. And so the metric that you referenced is net of dividends.

So beyond that, we've been running ahead of our guidance, as you've noted. And that's really on the back of really strong sales in Asia and in Canada. I take Asia as an example, I'll focus on Hong Kong. They've had considerable growth in the past while it's just been highly profitable for us. We've had over $1.5 billion of sales in the first year-to-date for Hong Kong alone. That's generated a 32% increase in the contractual service margin. That's something that helps contribute to that organic capital. So that's really helped generate that -- really outperformance. We still think 30% to 40% is the right guidance after dividends on the long term. But for the time being, the growth that we've seen in Asia, in particular, has helped to make -- at higher level.

And then in terms of deployments, you mentioned M&A. So we've been very active on the M&A front. Over the last decade, we've deployed over $11 billion in M&A, and that's acquiring private asset management capabilities that I spoke about. It's also been acquiring distribution arrangements in Asia, which have been performing exceptionally well for us. We now have over 25 relationships across Asia in terms of distribution.

And then we've been acquiring in the health space, both in Canada and in the U.S. We do have the upcoming purchases of those remaining equity stakes. So that's about $2.2 billion. So that's what's been earmarked as an immediate priority for that capital deployment. And as you've noted, we've been very active in our share buyback program. And so year-to-date, we've deployed almost $1.5 billion. We have about a little over $300 million left on our existing NCIB, which we plan to fully utilize. And I think you can expect that we would be continue to be active on that after we get through the buy-ups on the private asset management affiliates.

Maybe to put a finer point on it because I think when I did the math on this, the organic capital generation that you're getting was more than the amount of stock you were buying back. So therefore, you're generating excess capital. That goes into that buffer, that $6 billion net of the $2.2 billion of excess capital. Is that right? Or is there a plan to be more active on the buyback such that you would utilize all your organic capital generation?

So when we think about capital deployment priorities, they've been pretty consistent all along. The first is actually to reinvest back into the business. So we do that through our AI and our digitization that I spoke about, but also gives us flexibility. A lot of the organic capital generation also comes from par products and par are great -- they've been great value proposition for clients. They are very capital light because of the participating nature of that, but they're not as rich on the earnings base.

So I think over time, that allows us flexibility to temper that mix. So that would be one way that we would also be organically reinvesting back into our business in terms of the overall product mix to make sure that it's fully diversified and gives us broad base, including the earnings uplift.

And then the second priority was around the M&A. that we spoke about. And I think those priorities are we really want to make sure that we get through those buy-ups. And then to your last comment, that does give us our third priority around share buyback. And as I said, you expect us to be continue active in the buyback program, especially in the current environment. I think that's been great opportunities for us and hence, why we've been so active to date.

Yes. And then one last one just on this and we can move on. But is there aspirations to do more M&A? Or is it -- are you in a holding pattern as you sit back and watch the divisions kind of execute on past? Like which side are you leaning on?

Well, I would say that we have all the capabilities that we need to deliver our medium-term objectives. So our strategy is not dependent on future M&A. We've been serially acquiring all those capabilities that I spoke about in our M&A deployment. But that being said, we continue to be in the market and always opportunistically looking for opportunities that would add to our existing capabilities. And so they need to be on strategy. They need to be able to contribute to our medium-term financial objectives, and we have to have the capacity and track record to be able to execute.

So if I thought about where would we deploy future M&A, it would be probably in more niche capabilities. It'd be smaller tuck-in, roll-up type acquisitions. It might be to enhance or augment our existing asset management capabilities to supplement those niche areas. It might be in further distribution opportunities in Asia if they came up with the right partner. And then where relevant and where we have capacity and track record to execute in the health and wealth space in Canada and over time in the U.S.

So smaller tuck-ins...

Smaller tuck-in extension of what we do. And again, they would have to meet all those criteria, and we'd be very disciplined about how we would deploy that.

So then just looking to the ROE and talking about one of the main targets that we focus on is underlying ROE or core ROE for the group. I mean, you're about 18% or on track to be maybe just slightly below 18% for 2025. You have a 20% target over the next several years. There was no change to that target even though Dental is not hitting stride, and you've had a little bit of bumps in medical stop loss. And SLC, while hitting on target is still not fully up to its earnings capacity.

So what I'm trying to kind of gauge like you're still putting up a good ROE. You've got a lot of excess capital. What takes you from 18% to 20%? Is it deployment of the capital? Is it fixing these underperforming or businesses that just haven't hit full stride yet? Just talk about the pathway from 18% to 20% plus, because I can get well over 20% in my simplified model. So I'm just curious to hear your pathway.

Yes. So a year ago, we had an Investor Day. And at that Investor Day, having achieved our 18% ROE, it felt necessary to update that guidance having already achieved it. And we did that on the basis of our 5-year strategic plan, which we perform every year, we do a 5-year projection. And when we set the 20% objective, it wasn't a stretch or an ambition. It was a mathematical outcome of the trajectory that we're on and your math seems to reaffirm that. And again, it comes back to the capital-light nature of the businesses.

And the path from 18% to 20% is predominantly growing the return, growing the earnings base on the existing capital that we've deployed. So the asset management, the 40% of the earnings that's coming from there, the SLC that you referenced, we'll start to -- that earnings target for that business is 20% annually. Next year will be a transition year as we go through the buy-ups, but starting in '27 thereafter, that's going to be growing at 20%, both on a fee-related earnings as well as an underlying net income basis. So there's a big trajectory in there. And then the formalization of the asset management that I spoke about will also further support that.

On the group businesses, we will be focused on the enhancing the profitability of the Dental business. It's -- albeit starting from a lower base, but that will actually help in terms of a higher growth over time. That will take time to deliver, but hence, why these are medium-term objectives, but we do expect to have continued growth there. And then not to forget the Individual - Protection part of the business, it's almost 30% of our earnings, and that's still growing quite healthy. I spoke about Asia and Hong Kong in particular, but we see growth across the Asian markets. And so the path that we described was 70 basis points coming from asset management, 60 basis points of that improvement coming from the U.S., 40 from Canada and 30 basis points from Asia. So that gets you your trajectory, and we feel very confident about it.

And that hasn't changed?

That has not.

So you brought up an interesting point. So 40 from Canada. Canadian underlying ROE is close to 30%. If you asked me 20-plus years ago whether a Canadian insurance company would put up a 30% ROE, I would have chuckled. But here we are. So what's driving that? And is that sustainable? or is there a structural reason why is there? Like can you maybe unpack that a little bit.

We've been very pleased with the performance of our Canadian business. To your point, Canada characterized as a mature market. We have leading market share in many of the businesses that we operate. We serve over 14 million Canadians. That's 1 in 3 Canadians. It's a really exciting and pretty critical market for us and being our home base has been great. And to your point, at 29% ROE, that was unheard. I remember around the Global Financial Crisis. The ambition was 13% over the longest term, and here we are at 29%. That was really bolstered.

The third quarter I spoke about, we had record earnings. And we had the record earnings for a couple of reasons. One, we had favorable insurance experience, particularly in long-term disability. We've been spending a lot of time with our clients helping to make sure -- when they go on leave that they get back to recovery and back to work, that's had favorable experience for us. We expect that will continue on for a little bit, but not in perpetuity.

And then we also had the higher fee income because of the growth that we've had on our asset management and wealth side of the business. We're the largest retirement recordkeeping platform in Canada. We have $180 billion of AUM there. That will persist as long as assets continue to grow and markets continue to perform. But I would say that 29% is high. We don't set a Canadian ROE target, but it's a mix of the capital-light nature of the business and the fact that these have been over many decades in terms of the investments that have been made there. But we're quite pleased with the performance of Canada. If you adjusted for the higher insurance experience in those fee income, we would have been 7% instead of 13% year-over-year, 7% still ahead of our earnings guidance of 6%.

In terms of growth.

In terms of growth, yes, 6% plus. So we still think there's really strong healthy fundamentals and still more room to grow in the Canadian market.

And just finishing off on Canada, like I've seen instances where some divisions in the insurance side on because of experience or credit or whatnot. And then they surprise years after when things normalize. Is that the situation for Canada, but it doesn't seem like it is because you do actually anticipate ROE expansion as part of your overall target. So I'm just trying to kind of get a finer sense of that.

We do. So again, back to the 29%, I think that is higher for the reasons that I stated. And when you normalize for that, we're at 7% growth. And so that gets you back to something normal. I also spoke earlier about the mix shift. Par has been a very popular product in Canada. We've had a great success in the non-par space that's more capital intensive but yet higher return in terms of shareholder earnings. So I think you'll start to see that mix. And over the full cycle, you can normalize across in terms of looking at our insurance experience historically.

So bear with me on some math. So SLC, it's on track to achieve underlying earnings of $235 million, which was your target for 2005 (sic) [ 2025 ]. And to achieve a 20% levered ROE, which is our math, it should be probably $600 million at some point in time. And then I kind of layer in your earnings growth rate target of 20% as per the Investor Day and you triangulate and you get to that $600 million in 5 to 6 years, like is that a reasonable expectation? Because it seems like it's quite rapid growth. And can you talk a bit about the J-curve earnings growth that comes with SLC as -- because you didn't buy the carried interest when you bought these underlying items. And so can you talk -- like is the math reasonable? Maybe I'll start there and then maybe we can talk about the J-curve earnings growth.

I think you're headed in the right direction. I mean stepping back big picture, 5 years ago, Sun Life had an Investor Day. It was right off the heels of announcing its decision to acquire a minority interest in BGO, the real estate arm that we have. That's now over $80 billion of assets. And they set a 5-year target of $235 million 5 years out. And here we are 5 years later, on track to hit $235 million. So it is absolutely performing as expected. But as I said earlier, this is really the exciting part and a big part of the excitement that I've had since joining Sun Life is we're just getting started. And the reason I say we're just getting started is we've acquired these businesses. They've been great. They've been phenomenal. They're at scale. They have great performance. And we haven't really maximized the full earnings potential that come with these.

And one example of that is each one of our private asset affiliates has their own distribution, their own client list their own institutional clients. There's been no sharing of names or distribution across those affiliates until this point. And so bringing these businesses together under common platform, under common leadership allows us to better leverage the relationships that we have. There's opportunities for multi-asset products, which have been high demand, particularly for small and medium-sized insurance companies and pension plans who want to consolidate their asset managers. So that's really what's giving us the confidence around that 20% earnings growth.

And so you should expect that to grow in that way. Other channels, for example, retail and high net worth channels have had insatiable demand and interest for privates. We are really at the cusp of really exploiting that. We acquired a distribution firm called Advisors Asset Management that brought that capability. So there's many different ingredients that we've been building along the way that will help us underpin and give us the support to grow those businesses. So if you take the $235 million, as I said, next year will be a transition year, I wouldn't expect to hit 20% next year, probably low double digits. So you'll see growth. But once we get through that, then you can extrapolate from there.

And that transition is just bringing in Crescent and BGO and...

Yes, it's bringing them in. Part of the incentives that we have to bring those businesses together is to implement a management equity plan that will have some start-up costs to that. That's been an effective technique that we've had with MFS that allows our employees to participate and be engaged. with the performance of the business, but yet -- and allow them to have skin the game, which has been historically how all of these private asset affiliates have operated. And we think that's been a very powerful effective retention tool, but there is a cost for that program.

So I know this is going to be your favorite topic, but U.S. medical stop-loss. And I've gone through various cycles as I'm sure some investors that are around here that have covered it for a long time have gone through various cycles. And I'm not going to go through why you like it because I understand it's yearly renewable. You guys are the #2 player, independent player. I think it's...

It's #1.

#1 independent player. And you've done some good, interesting transactions with Pinnacle that give you kind of competitive advantage. I think all that is somewhat understood. Where the questions that I'm getting, it seems to be more around questioning whether you can accurately forecast medical cost inflation through a cycle, which is can be tough and in this environment when we're reading in the paper every day about medical cost inflation and the challenges with Medicaid and Medicare and all of that.

Like what's your response to that? Like what -- and I know there's a transition from going on in terms of management down there. But -- and is this one of those businesses that just over earned through a period of time and that earnings is probably coming back down to more realistic levels? Maybe I'll pause there. I threw a few things at you there, but...

Maybe I might start actually at the background. We like this business a lot. And the reason we like this a lot, and we touched on a few of them, the fact that it is annually repriceable, the experience that we have over 4 decades. And that's not to be underestimated. This business follows a very predictable pattern of hardening markets followed by exuberant markets. And typically, that's been a 3-year sine wave type pattern. Now COVID distorted that because there was a period -- the entire industry was collecting premiums and not having claims. So there was a higher earnings level unquestionably through that period.

What no one knew exactly is when that cycle would fully end, and that caught the entire industry by surprise in the fourth quarter of last year. The fact that it occurred itself wasn't a surprise, but just the timing and how it emerged. And for us, it wasn't as difficult to adjust to because of our historical experience around pricing. And so for us, we disclosed that we were about short 200 basis points of where we wanted to be from a pricing. And we were still able to maintain 70s -- mid-70s to high 70s loss ratio, so the claims divided by the premiums, which is unprecedented when you compared to all the other players that disclose publicly, and that comes back to our 4 decades of history and experience.

You touched on medical cost inflation. That's been perpetual and consistent. And it's difficult for Americans because that kind of cost inflation, if you think of long-term inflation in the U.S., if it's 2% and your medical cost, we had pegged that at 8.5% for this year. That's holding true, and we're anticipating to be another 8.5% next year. That's more than 2x what overall inflation is. So that puts more -- even more need for medical stop-loss as a product. Over half Americans receive their medical benefits through employers, 66% of those employers self-fund. With that kind of cost inflation, there's no way employers can actually afford that. So it puts even more demand and need for the product.

So we're able to work through that. We've been able to accurately predict and price for medical cost inflation. That's never been the issue for us. The challenge for the industry was that surprise in the fourth quarter, and we're watching that very closely for the business that we wrote in January 1 of this year. We had a modest reserve strengthening in the third quarter just to anticipate in the event that, that persisted and thus far, it seems to be holding true.

But at the same time, the accumulation nature of that product, it's really to the fourth and the fifth quarter that you really start to see that experience. And for us, that will be the fourth quarter. So we're watching that very closely. We'll see how that experience translates. We're in the market pricing for business next year. We're capturing all of that medical cost inflation in our pricing and our discipline and analytics and then the PinnacleCare and other things that you referenced have allowed us to maintain that leading independent position.

I think from time wise, we're going to have to use -- leave U.S., I'm sure you're going to be sad. U.S. Dental to another time, but I'll put a shameless plug out for the report that we wrote on the subject. But maybe what I can do because we have less than a minute, I'll pass it over to you for just some key messages, -- anything you think we missed in the discussion that's important for investors and potential investors.

Sure. So I spoke about our capital-light nature of our businesses. That is quite differentiating. If you think about 70% of our earnings coming from more capital-light and the cash generation that, that gives and then the leading capital position, 154% LICAT ratio, a low debt-to-equity ratio, 21.6%. That gives us ample dry powder to opportunistically pursue the M&A that we spoke about and the share buybacks is not burning a hole in our pocket. We want to be disciplined about the deployment of that, and that's been a hallmark of Sun Life historically and consistently.

And then more broadly, when you think about the diversification of our businesses, both by geography and business line, that's really helped enable us whether through the softness that we're experiencing in the U.S. The outperformance in Asia and Canada overall has allowed us to still achieve the earnings growth that we've been targeting.

And then if I step back, having an earnings per share growth of 10%, a common share dividend payout ratio of 40% to 50% and our ROE of 20%, all of that culminates to give us the confidence in being able to deliver against those objectives. And we think that's a pretty compelling value proposition. And then also when you think about where we're trading at today that it's a really compelling opportunity. And so it's a privilege being part of the management team, and we have a world-class management team who really know those markets well and execute well. And the best is yet to come.

Yes. Well, I appreciate you participating in our event, and thank you very much for the conversation, and have a great rest of the day.

Yes. Likewise.

Thank you very much.

Thanks for having me.

Good morning, and welcome to the Sun Life Financial Q3 2025 Conference Call. My name is Galeen, and I will be your conference operator today. [Operator Instructions] The conference is being recorded. [Operator Instructions] The host of the call is Natalie Brady, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Ms. Brady.

Thank you, and good morning, everyone. Welcome to Sun Life's earnings call for the third quarter of 2025. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management are also available to answer your questions this morning.

Turning to Slide 2. I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I'll now turn things over to Kevin.

Thanks, Natalie, and good morning, everyone. Turning to Slide 4. We had a good Q3 for top line and for bottom line, demonstrating the benefits and strength of our diversified business model. Our underlying EPS was $1.86, up 6% year-over-year. Underlying ROE was 18.3%, progressing well towards our medium-term objectives, and our book value per share grew 3% quarter-over-quarter. Individual - Protection sales grew 35%, Group - Health & Protection sales grew 12%, and we had almost $3 billion of positive net flows in Asset Management and Wealth.

We achieved strong underlying earnings in Asia and Canada with solid underlying earnings in Asset Management. We continue to navigate the industry challenges in our U.S. business, which performed below our expectations this quarter. Results in our U.S. business were challenged by unfavorable insurance experience across group and dental, reflecting the structural changes occurring in the U.S. healthcare system, which are driving higher claims frequency and cost. It is important to remember that our U.S. Group Benefits and dental businesses are repriceable over a 1- to 3-year time frame, and our experience is largely in line with or better than industry trends.

Our Employee Benefits business saw higher disability claims in July, but this started to normalize in August and September, and we see this as normal volatility. In our medical stop-loss business, we saw a higher frequency of claims over $1 million in the quarter, and we increased our stop-loss ratio assumptions to reflect this accordingly. We are industry leaders in the stop-loss business with scale and strong capabilities, and we continue to have industry-leading claims ratios. We have seen cycles like this in the past where the claims run ahead of pricing, and we continue to be confident in our ability to pick the best risk and manage the pricing.

In Dental, we continue to navigate industry-wide headwinds from the slower pace of Medicaid contract repricing. We remain focused on improving our U.S. dental business performance through repricing, expense actions, and growth of our commercial business. In Asia, we achieved double-digit growth -- double-digit protection sales growth in six markets, with new business CSM growing 20% year-over-year and overall CSM has more than doubled over the past 3 years, reflecting sustained momentum across Asia.

In Canada, we continued with strong individual protection sales driven by solid demand for our participating life policies sold through both third-party and proprietary channels. We are also continuing to see steady growth in our asset management net flows, including strong capital raising and deployments at SLC Management and institutional net inflows at MFS. We ended the quarter with a LICAT ratio of 154%, demonstrating our strong capital position, announced a $0.04 increase to our dividend to $0.92 per share, and we repurchased approximately $400 million of shares in the quarter.

Turning to Slide 5. We've invested significantly in our asset management business over the past decade and have industry-leading capabilities, which span across public equities and public fixed income at MFS to alternative asset management at SLC. With $1.6 trillion in assets under management, we are Canada's largest asset manager and are one of the largest asset managers in the world. We also have significant wealth management capabilities in Canada and Asia that we can leverage. $1.4 trillion of our AUM is managed by our asset management businesses, of which $1.2 trillion is on behalf of third-party investors.

Our asset management pillar today includes both MFS and SLC. And a few weeks ago, we announced Tom Murphy as President, Sun Life Asset Management. Tom has a deep asset management background. He previously led investment businesses in Europe and the U.S. before joining SLC Management in 2018, where he was the President of SLC Fixed Income. Over the past 3 years, Tom has been Sun Life's Chief Risk Officer. He will assume his new role on January 1, 2026. It is important to note there will be no change in how MFS or SLC are managed under this structure.

MFS is a global leader in public equities and public fixed income with a strong management team and a focus on the client. We support the MFS strategies, including growing public fixed income and active ETFs, and we saw good progress in both this quarter. SLC has equally strong management capabilities and is equally focused on clients. We are seeing significant interest in partnering with SLC from banks, insurers, reinsurers, and others and are focused on unlocking these opportunities. We see long-term growth potential in Asia asset management. We currently manage over $140 billion in assets through our general account and wealth businesses. In addition, our asset management JV in India sits at $65 billion in assets under management.

Adding further capabilities in Asia will support growth in asset management and investment returns in our insurance and wealth businesses. Unlocking the synergies between our asset management business and our insurance and wealth businesses will be an important part of Tom's mandate. I'm excited by the opportunity to accelerate the growth of our asset management businesses globally. We have an excellent mix of capabilities across asset management, insurance, and wealth. Sun Life Asset Management will be an important growth engine for Sun Life going forward.

Turning to Slide 6 and staying on Asset Management and Wealth, we saw good momentum across our platform this quarter. At SLC, fee-earning assets under management grew 9% year-over-year, driven by strong capital raising and deployments across all platforms. We are on track to achieve our full year underlying earnings target of $235 million. At MFS, net outflows of USD 0.9 billion were the lowest since 2021. Strong institutional gross sales of USD 12.9 billion included large mandate wins in separately managed accounts and collective investment trusts. We also had solid net inflows in public fixed income and active ETFs. MFS continues to deliver industry-leading pretax net operating margins with a 39.2% margin this quarter.

In Canada, Sun Life Global Investment marked its 15th anniversary of helping Canadians grow and protect their wealth. Since launching in 2010, SLGI has grown to over $44 billion in AUM and has become the largest Canadian-based provider of target-date funds for group retirement plans. This quarter, SLGI launched its first ETF series in Canada, leveraging the power of our asset management platform, we are providing investors and advisors with more ways to access the deep expertise of MFS, SLC, SLC Fixed Income and Crescent Capital.

Moving to Asia. We saw robust individual protection sales. Agency sales were up 25%, bank insurance sales were up 36% and broker sales were up 47% year-over-year, highlighting the strength of our distribution in Asia across channels. Asia Asset Management gross flows and sales of $2.2 billion were up 17%, driven by higher fixed income fund sales in India and MPF sales in Hong Kong. We are poised for growth in Canada, Asia, and Asset Management and are focused on aligning our U.S. business for growth in the new realities we face in the U.S. health space. We have strong capabilities in the U.S. health space and scale in these businesses. They are capital-light and they are repriceable by design.

I have strong confidence in the U.S. management team and will work closely with David Healy to manage through the repricing and repositioning that needs to be done for growth. Overall, we are committed to our medium-term objective of 10% underlying earnings growth, 20% ROE and dividend payouts in the range of 40% to 50% of underlying earnings.

With that, I'll turn the call over to Tim, who will walk us through the Q3 financial results in more detail.

Thank you, Kevin, and good morning, everyone. Turning to Slide 8. Overall, our third quarter results reflect the benefits and strengths of our diversified businesses as strong growth in Asia and Canada, and solid results in Asset Management were partially offset by lower earnings in the U.S. In Q3, we reported underlying net income of $1.047 billion, up 3% year-over-year. Underlying earnings per share of $1.86 were up 6% over the same period.

Asset Management and Wealth underlying earnings were up 5% over the prior year on improved credit, higher fee income in Canada and higher net seed investment income at SLC Management. Group - Health & Protection underlying earnings were down 18% year-over-year, driven by unfavorable insurance experience across the U.S., partially offset by business growth and favorable insurance experience in Canada. Individual Protection underlying net income was up 25% over the prior year on business growth, favorable mortality experience in Asia, joint venture earnings in India, and higher investment earnings in Canada.

Underlying return on equity was 18.3%, up from the prior year on higher earnings and the impact of share buybacks. Reported net income was $1.1 billion or 6% above underlying net income, driven by a gain from our increased ownership in Bowtie, partially offset by amortization of intangibles, acquisition-related expenses, market-related impacts and the impact of our third quarter review of actuarial assumptions or ACMA. Market-related impacts reflect unfavorable real estate experience as modestly positive returns in the quarter were below our long-term expectations.

We completed the annual review of actuarial assumptions, which resulted in a modest net loss of $13 million and $139 million benefit to total CSM. Total CSM, which reflects future profits, increased 12% year-over-year to $14.4 billion, driven by strong organic CSM growth. New business CSM of $446 million increased 16% on strong sales compared to the same period last year. Organic capital generation, net of dividends, was strong at $624 million or 60% of underlying net income, well above our target range of 30% to 40%.

Our capital position remains strong with an SLF LICAT ratio of 154%, up 3 points from the prior quarter, driven by a $1 billion debt issuance executed in the quarter and organic capital generation, partially offset by share buybacks. Holdco cash was $2.1 billion, and our leverage ratio remains low at 21.6%. Our book value per share increased 2% over the prior year, demonstrating our ability to generate strong growth while returning value to our shareholders with over 19 million shares repurchased in the last 12 months and 4.8 million shares repurchased this quarter. Finally, we announced a 4.5% increase to our common shareholder dividend.

Turning to our business group performance on Slide 10. MFS is underlying net income of USD 215 million was down 1% over the year, primarily reflecting a decrease in net interest income, mostly offset by higher fee income on average net asset growth. Our pretax operating margin of 39.2% decreased 1.3 percentage points from the prior year, primarily from lower interest income. Assets under management of USD 659 billion were up 2% over the prior year and up 4% over the prior quarter. The sequential movement in AUM was driven by market appreciation, partially offset by net outflows.

Overall net outflows of USD 871 million were at the lowest level since 2021 and included retail outflows of $4.7 billion and institutional inflows of $3.8 billion. Retail outflows reflected continued investor preference for risk-free investments and were in line with industry. Institutional gross and net flows were the highest they've been in 10 years and were driven by several large mandate wins over $1 billion in separately managed accounts and new target-date product offerings in the defined contribution retirement channel, a key growth segment for MFS. MFS also had positive net flows in public fixed income and active ETFs this quarter.

Turning to Slide 11. SLC Management generated underlying net income of $54 million, up 15% year-over-year, which reflected the impact of higher net seed investment income and higher fee-related earnings. With year-to-date underlying net income of $184 million, SLC is well-positioned to achieve its underlying earnings target of $235 million for 2025. Fee-related earnings of $78 million were up 8% compared to the prior year, primarily from strong capital raising.

Reported net income was $23 million, down from the prior year due to a revaluation gain on acquisition-related liabilities in the third quarter of 2024. SLC Management continues to demonstrate strong momentum across the platform with capital raising of $5.6 billion, primarily in Crescent, BGO, and SLC fixed income and deployments of $7.4 billion across all asset classes. SLC's fee-earning AUM of $199 billion was up 9% year-over-year, driven by net flows, partially offset by realizations.

Turning to Slide 12. Canada reported net income of $422 million was up 13% over the prior year on strong business growth, favorable insurance experience, and higher fee income. Reported net income of $414 million was up 8% over the prior year, driven by underlying net income growth and favorable ACMA, partially offset by market-related impacts. Asset Management and Wealth underlying earnings were up 19% year-on-year on improved credit experience and higher fee income from AUM growth. Asset Management and Wealth AUM of $213 billion was up 11% with the prior year on market appreciation.

Group - Health & Protection earnings were up 15% year-over-year, reflecting business growth, favorable mortality and morbidity experience from lower claims volumes and shorter durations and improved credit. Group sales were down 21% from last year due to the timing of large case sales. Individual Protection earnings were up 3% compared to the prior year on higher investment earnings. Individual Protection sales were up 16% year-over-year, driven by solid demand of nonparticipating life products across both third-party and proprietary sales channels.

Turning to Slide 13. Sun Life U.S.'s underlying net income was USD 107 million, down 34% from the prior year. In Group - Health & Protection underlying earnings were down 50% from the prior year, reflecting unfavorable insurance experience in medical stop-loss, higher claims frequency in Dental and unfavorable disability experience in Employee Benefits. U.S. Group - Health & Protection sales of USD 273 million were up 25% year-over-year, driven by higher large case sales in Employee Benefits and higher government sales in Dental.

In Employee Benefits, we experienced moderately elevated long-term disability claims in July, which improved over the remainder of the quarter. In Medical stop-loss, the unfavorable insurance experience this quarter is comprised of residual claims from the pre-2025 business and the impact of existing pricing shortfalls and moderately elevated claims volumes on January 1, 2025, business. As a result, in Q3, we increased our loss ratio assumption on the January 1, 2025, block for the impact of 3 quarters of expected experience to date, reflecting our disciplined approach.

In Dental, we continue to experience pricing shortfalls and higher claims frequency in our Medicaid business. In addition, we're seeing seasonally higher utilization in Q3 as the majority of our Medicaid membership base is comprised of children who typically receive dental services prior to the start of the school year. Individual Protection underlying earnings were up 29% year-over-year on other experience gains, improved credit experience and higher investment contributions. Reported net income of USD 72 million was down 71% compared to Q3 of 2024, reflecting unfavorable ACMA and lower underlying net income.

Turning to Slide 14. Asia posted record underlying net income of $226 million, up 32% year-over-year. Individual Protection earnings were up 38% over the prior year on strong continued sales momentum and in-force growth, favorable mortality experience and higher earnings in India. Asset Management and Wealth earnings were in line with the prior year. Reported net income of $373 million was higher year-over-year, driven by the gain from our increased ownership in Bowtie, favorable ACMA and higher underlying net income. We continue to see strong sales in Individual Protection, up 38% year-over-year, driven by double-digit sales growth across most of our markets and channels. Asia's total CSM of $6.5 billion grew 17% over the same period last year, driven by strong organic CSM growth. New business CSM of $322 million was up 20% over the prior year from strong sales.

Overall, our results were underpinned by the growth in Asia and Canada and solid results across Asset Management. We remain focused on executing the actions to position our U.S. health businesses for growth in the current environment. We are confident that our strong fundamentals, diversified business mix in geographies, and a robust capital position will enable us to continue to deliver on our medium-term objectives.

With that, I will pass it back to Natalie for Q&A.

Thank you, Tim. To help ensure that all of our participants have an opportunity to ask questions this morning, please limit yourselves to one or two questions and then requeue with any additional questions. I will now ask the operator to pull the participants.

[Operator Instructions] Our first question is from Paul Holden with CIBC.

Two questions, both related to U.S. Dental. I guess the first would be what kind of expectations do you have for Medicaid repricing to start 2026, i.e., what are you hearing from the states? And what should we expect? And then the second one is maybe talking about growth in U.S. commercial premiums up roughly 6.5% year-over-year. So it's growing. But should we expect sort of reinvigorated efforts to accelerate that growth so to diversify away from the Medicaid business?

Yes. So thanks for the question, Paul. This is David. So yes, we're very much focused on pricing in the U.S. business. The way to think about it is we have states and direct relationships with them, which is the majority of our business, but we also have a significant relationship with health plans where we're the delegated provider of dental services. And then we also have ASO business, which is a mix of both states and health plans.

Generally, we're making reasonably good progress with states around '26 with the exception of one large space. Health plans is going slower. We're making less progress. And how we're thinking about it is we continue to focus with them on pricing and repricing appropriately. In some cases, we're making structural changes to plans, including as appropriate, maybe moving from risk to ASO with some health plans and also including maybe terminating contracts if we can't get the price we need. So we're very much committed to it. We're making progress. I would expect it to be gradual in '26, but we're continuing to stay focused on it. Also on the ASO front, we continue to enhance the value of our services to make sure we're getting paid appropriately for the work we're doing in support of those contracts, but it is slow progress.

With respect to commercial, your second question, yes, we're making progress. Since the acquisition, premiums have grown more than 30%. Membership has grown more than 20%. This is an important opportunity for growth for us into the future. As you know, in the U.S. market outside of healthcare, commercial dental is the #1 sought-after benefit after healthcare, and it's a great opportunity for us to package commercial dental with the rest of our group benefits products, and we have a really strong employee benefits offering and a great distribution system in which to bring that through. So we're very much focused on that. It will take time, of course, it's a competitive landscape, but we expect to continue to make progress over time with commercial dental sales.

The next question is from Alex Scott with Barclays.

I wanted to see if you could talk about the asset management flows. And can you give us a feel for the institutional progress that's been made there? And to what extent should we view that as more lumpiness and something driven by more of a single mandate as opposed to the things that you're doing to improve the more medium- to long-term trajectory of the flows in the business?

Sure. This is Ted Maloney. I think lumpiness, the word you use is a really important one to use, and it is a reminder that we do have lumpiness in both directions. And so in the quarter, we got a couple of large inflows that Tim mentioned that we think are indicative of themselves longer-term trend. But the broad trends, both institutionally and retail remained with more headwinds than tailwinds. Some of those headwinds may be lessening on the margin, but the headwinds persist. Within that, we'll continue to have big wins as well as continued losses. And in this quarter, we had those couple of big wins.

I can give you a little bit more color on them, which might be helpful to think about longer term, which is -- one was a separately managed account within the -- what we would characterize as institutional that is in our -- one of our international strategies, so the world minus the U.S., which is one of the many areas where we have a really dominant set of franchises and are seeing as market leaders. And so that's been a nice growth tailwind for us for a period of time and should continue to be, but that was obviously a very big chunk of a tailwind.

The other is actually smaller, but perhaps more exciting. Tim mentioned this as well, the collective investment trust vehicle is the most important vehicle in the retirement space. And there's a unique feature to it, which is that you can't see it yourself, you need a client to be an initial investor. So getting that first investment in a target-date CIT was a huge win on its own, but also allows us to fund CITs across all the components of the target date. So we think that's another one that will provide long-term tailwinds.

But again, I do want to reiterate the headwinds across the industry that we've been talking about for a long period of time persist. We are executing well. We believe within those headwinds, they may be abating slightly on the margin, but we are not declaring a change to that. Our long-term strategy very much includes long-term net flow positive growth over time. We think we've got a very clear strategy to execute on that, and we'll continue to do that. We'll need some help from those industry headwinds abating.

Got it. That's helpful. Second one I had is on stop loss. I wanted to see if you could provide a little more detail around how much of it this quarter was unfavorable development from earlier or loss picks that were made earlier in the year. And maybe further to help us think through how much of the cash claims do you still have to come in? And are we getting late enough in the year that it's potentially becoming a little too late to reflect what you're learning in the 1/1/26 renewals? Or do you feel like you are fully getting that? I'm just trying to get a better sense for what to expect going into next year.

Okay. Thanks for the question. It's David again. Yes, let me just break down the unfavorable insurance experience for medical stop loss in the quarter. There was really three factors involved. About 20% of it was related to the pricing shortfall that we've previously discussed on this call that we knew this year. 35% of it was related to late emergence of claims from cohorts prior to 1/1/25, including one large claim that came through in the quarter. And the rest, just under half was related to the 1/1/25 cohort itself. So we did see a higher number of greater than $1 million claims late in the quarter. So we did update our loss ratio pick for the year. It's important to know that as a result of doing that, it reflects really 3 quarters of updates to reserves, as Tim had mentioned, for Q1, Q2, and Q3 premiums that came in.

You'd also asked about pricing and I think how we're looking at it for 2026. Well, obviously, U.S. healthcare costs are elevated. Medical trend has been rising to 8.5% this year, and we expect that to continue into 2026. And our pricing reflects our view of leverage trend. And it's also considering recent experience. So we continue to stay focused and disciplined in our pricing approach. You asked about how much of it has come through. In terms of what we see at this point in the year, obviously, Q3, we had enough credible claims to be able to update our loss ratio pick for the year. We typically see about 30% of our claims by Q3 and then a further 30% come through in the fourth quarter. So it's still early in the cohort of 1/1/25, but we're certainly updating our view on experience as we see it.

Alex, it's Kevin. I just wanted to maybe sort of reiterate some of what David was saying. We expected significant increase in price when we went into this year, and we increased prices by 14%. And as we saw the year-end experience, we added another 200 basis points to that. So we continue to see that trend. And then this quarter, we added another 1% approximately, which was for the 3 quarters sort of experience we were seeing. This business is repriceable.

But when costs are rising so rapidly, it's hard to keep up with that repricing. But over time, we will be able to do that. We have confidence in our ability to do that because we do have scale and we do have good risk selection there. But when costs and claims are rising so rapidly, we can lag a little bit, and we've seen that in the past. So I think that we're taking the right actions. A chunk of what you saw this quarter was for the year-to-date, but it all reflects that increasing claims experience that we're seeing at the higher end, which I referenced in my speaking comments.

The next question is from Gabriel Dechaine with National Bank Financial.

Yes. So if I understand correctly, your 17% of the total repricing target, and that's the number you'll try to have fully embedded in the book by Jan 1, '26. And I guess aside from pricing actions, what other -- and the timing of the effectiveness, what other considerations are there? It's one thing to just increase pricing, but market share impact. There are some known unknowns, I guess, because we saw that with dental, where there's a dynamic with the counterparties that wasn't anticipated. And I'm wondering if there's a similar kind of dynamic that we should be aware of when repricing or seeking repricing when it comes to this stop-loss business, which is a commercial one, not state.

Gabe, it's Kevin. Let me just -- since I mentioned the [ 14 and the 2 and the 1 ], that's for this year, right? That's what we thought we would have priced at if we had all the full information of how claims were coming through. So that's related to this year, and we're going through the repricing for next year right now. So I'm not signaling what we're doing for next year, but maybe David can go into some more detail.

Yes. Just to add to that, as Kevin noted, we do have a typical underwriting cycle in this business, and there are times when claims can come out ahead of pricing updates, and we've seen this before. Historically, we've had amongst the lowest loss ratios in the industry, and we continue to do that. There are other things, of course, we're doing. We have a very talented team. We're not just only focused on pricing, although it's a specific focus for us. We continue to build out our cost containment programs, which are really important. We have expert clinical capabilities.

Our clients are really seeking out more cost containment support in light of the rising healthcare costs. And then we have care navigation capabilities as well, which we're building that help support employers and their employees as they deal with the escalating costs in the U.S. healthcare system. So we're confident that we can work through this. We have an industry-leading position, and we're certainly continuing to stay focused on it.

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

Maybe you can share with us sort of an outlook for the Medicaid dental loss ratio going forward? How much is that going to be improved as a result of any pricing benefits? And as we move into 2026, would you reset your expected -- your earnings on PAA business in the U.S. as a result of perhaps a different expected loss ratio for U.S. Medicaid Dental?

Yes. So I noted that we're very focused on pricing and working through them on a state-by-state and contract-by-contract basis. What we're seeing at the same time is we're seeing rising utilization in the U.S. and that has eaten up some of the pricing gains that we even saw coming through this year. We're still seeing a pretty conservative view on forward-looking trend in utilization. And so we're certainly trying to influence that in what we're doing and the work we're doing with states and health plans. But it is a gradual progress that we're seeing and that we're expecting to make.

So if you were to maintain your best estimate here in terms of your Medicaid dental loss ratio, is the outlook for continued negative insurance experience with respect to this line at the kind of the same level that you had in the quarter? Or should it improve?

So it's important to note that this quarter is a seasonally high quarter. As Tim noted, we do typically see this in the third quarter. We ensure a lot of children, they go back to school. They use the dentist a lot in this quarter. It's traditionally the highest quarter in the year. Q4, by contrast is the most favorable quarter. And so we do expect things to improve in the next quarter. And like I said, going into 2026, we do expect gradual improvement in the loss ratio as we move forward, and we're continuing to work through that.

Tom, it's Brennan Kennedy. Just on your question about the reset, the earnings on short-term insurance. So we do reset that at the beginning of the year, looking at the premiums in force and the pricing assumptions that are in effect.

Tom, it's Kevin. I would say that there's a variety of reasons, but I've been following the benefits business a long time. And when people think their benefits are going to end because they're going to retire or something is going to happen to it, they tend to use them more. And I think that's what we're seeing in the U.S. Medicaid Dental space. There's concern that they'll be losing those benefits, and so they're utilizing them. There's other factors, but that's the big one. We do continue to believe that over time, the states will reflect -- this is an important benefit. David talked about it. This is an important benefit for people. And the states will reflect that cost and that need. It just will take some time to come through.

So we still believe that this is going to turn. But as I was saying earlier, when you're in a rapid change in terms of utilization, it can take a little bit of time to get that reflected in the price. So it's not -- it's more of a shorter-term issue, 1 to 2 years. And over the longer term, we expect that to come back to more of our pricing levels when we did the deal.

Great. And then as a follow-up, I mean, if I look at the organic capital you generated and you add the dividend here, it's over 100% of your underlying earnings. And that's been a trend -- that's been -- we've seen over the last several quarters here. So why not step up on the share buyback? I realize you've got some money here to be earmarked for SLC buy-ins. But if you're generating capital at this kind of rate, why shouldn't you step up the share buyback here to offset any kind of pain you might see from some of the dental?

Well, Tom, as you know, we have the remaining purchase for SLC early next year for the BGO and the Crescent transactions. And so our current capital position does reflect that, and we're preparing for that transaction, which will be around $2 billion. Historically, we've also run the buyback at roughly what we're generating for capital, and we're committed to seeing the current buyback through, and we're committed to buybacks on a longer-term basis as one of our tools to manage capital levels.

So I think you're going to see us be active on the buyback that we have in place, and you're going to see us be committed to the capital priorities that we've had, one of those being the buyback. And I think that consistent approach to the buyback is something that we think is important and valued by our shareholders.

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

Just maybe -- I apologize, back to the U.S. medical stop-loss business. I just want to make sure I understand this. So based on your description, it seems like you've had a 2% shortfall that's been running through and you had 3% shortfall coming through this quarter, but you had to kind of make up for the last 2 quarters. So when we look forward to Q4 and we think about the experience that should flow through in Q4, it should be about a 3% loss ratio shortfall. Do I have that correct? Any way you can quantify that? And then second part of the question, are there ways you can temper the volatility such as being a little bit more conservative on the reserve pick early in the year in these times of uncertainty and higher medical cost inflation? I just thought I'd throw that out there.

Yes. So in terms of the -- quantifying it for Q4, I would say, like I said, the 1/1/25 cohort, we did update our ultimate loss ratio pick for the year because we did that, it reflected reserve updates for the first 3 quarters. So in Q4, you would expect it to be 1/3 of that. So it would be a smaller amount in the single digits. And so that's how you should think about it. It was updated by just over 1 point from where we had in Q4.

Sorry. And then just -- so single-digit U.S. dollar millions is the negative impact for Q4 and the experience. Is that what you suggested?

That's what our current projection is based on our cohort and how it has evolved so far. Obviously, it could get a little better than that or it could deteriorate further. And we've seen about 30% of the claim volume that we expect on that cohort. We'll see another 30% in Q4 that will be a more meaningful view of what the ultimate loss ratio will be for this cohort of business from 1/1/24.

And then I don't know for David or for Kevin, just in terms of just mitigating the volatility in terms of is there ways you can be a little more conservative than the reserve picks early in the year? And similar to like property and casualty insurance and reserve development is the way I think of it. And just like I think I've asked this before, but has there been any conversations around that?

Doug, it's Brennan Kennedy. So using our current method, this is the volatility we see. We continuously look at ways to refine things that we're doing to maintain best practice, and this is something that we've had discussions on and we will take away.

Okay. And then just second, maybe for Manjit, Asia underlying earnings, 16.2%. I think you've hit your target already. Is there anything unusual this quarter? Is this kind of like the new sustainable run rate? And can you talk a little bit about where you think you can take that underlying ROE in Asia?

Doug, it's Manjit. So as you noted, we've had some pretty strong performance in Asia over the last little while. I'm pleased with what we've been able to deliver. We delivered 17% earnings growth last year. And year-to-date, we've delivered 20% growth. I think there are a number of factors that's driving that growth, Doug. So first of all, I feel we have very good fundamentals. We're in attractive markets with high growth potential. We have good partnerships across the region. We've got strong distribution across banca, agency and broker, and we've got a talented team.

We've also made some pretty good investments over the last little while. We've invested in digital to increase our straight-through processing. We've invested in delivering better client experiences, which has resulted in record high client satisfaction scores and also in our agent experience. We've also invested in our brand, and that's also resulted in record high brand awareness. And the third thing I'd point out is that we've also increased our focus and capabilities to drive strong execution. So I think all those things are contributing to the strong results that you're seeing.

In this current quarter, the results did reflect some favorability that we had in high net worth mortality as well as some strong security gains. So those will bump around quarter-to-quarter. You won't necessarily see them in every quarter. Some quarters, it might go a little bit the other way. So I think fundamentally, we've got a very strong business and expect to see strong performance in Asia going forward.

Doug, it's Kevin. Sorry, I was just going to say it's been a long time since we've seen 6 of our 8 markets growing in double digits. And I think Manjit is doing a good job creating momentum across the Asia platform, and I think that's really important. And it's all the -- it's a whole bunch of factors, but leadership matters, and I think he's doing a great job driving that change in the Asia outlook.

The next question is from Mario Mendonca with TD Securities.

I want to look beyond 2025 and the medical stop loss and think about '26 and help me sort of gain this out. But assuming the company is sufficiently conservative in building the reserves throughout the year and again, perhaps in Q4, and you've got it right, assuming everything works out right, would it then be appropriate to assume that the experience gains and losses that we see in the U.S. would relate solely to dental and solely to experience on the 2026 cohort. Is that the right way to think about it?

Mario, it's David. Yes, that's a fair assumption.

And then -- so help me then go to the next level. So if you get that right, then growth in this business, then, of course, there would be a change in the level of experience gains relative to last year, that certainly helps. But what's the other big driver? Would it simply be the net premiums in the business and the extent to which that grows or perhaps shrinks as you push through some significant pricing increases? Is that the way to think about it that the base from which the short-term insurance earnings emerge could potentially decline during the renewal period?

That's the way to think about it is the base of premiums does drive ultimately the earnings over time.

And is it your expectation?

Sorry, Mario, it's Kevin. I mean we've I think exactly like you're discussing. We've got the ability to price for the cost because the employers want this coverage. We've got the experience to underwrite this well. And it's that the costs have been rising rapidly with some of the structural changes that are happening in the U.S. And so that will eventually level itself out, and we will be able to price for the costs that we're seeing there. So I think you've got that exactly right. And our expectation is we'll be able to price right now for the 2026 experience that we expect to see. So that's our expectation. But we're watching closely what's going on with those structural changes in the U.S., which are driving that higher cost.

Where I was going with this is, is there a potential other sort of shoe to drop in the form of a much smaller business in 2026 relative to 2025, like that base, that install of business simply declines as your customers go to other providers or decide to self-insure. Is there some reason why that base could shrink materially in '26?

So no, we have -- we're very confident in our plans and how we're approaching the market. We have a great platform. We have a great distribution network, and we have strong customer relationships. We have historically had some of the most low loss ratios in the business, and we expect that to continue. We are going through this period of adjustment for sure, but we feel very well-positioned competitively, and we continue to expect to grow the business over time.

I would add to that, Mario, that others are seeing the same higher cost. And so it's not like we're negatively positioned for that. In fact, given our scale, we're positively positioned. So I think our strategic positioning would support growth in that sort of environment versus declines. We do have pricing discipline, which is serving us well because our loss ratios remain less than the industry, but the industry is experiencing the same higher costs, and it's going to have to reflect that in pricing as well.

So that's your real -- that's the real takeaway. I'm taking from what you're suggesting that strategically, competitively, Sun Life is not disadvantaged. It's just a matter of the entire industry repricing going into 2026.

Yes. I'd even say we're advantaged.

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

Just a follow-up on that line of questioning there. I just want to ensure one thing. Are we still talking about your targeted return of 7% in the stop loss? As you hit...

So if you look at our quarter results, our group benefits after-tax margin was at 6.9%, so slightly below our long-term target of 7% plus. We do price for a margin in the medical stop-loss business higher than what we're currently experiencing. And so we certainly expect that to move up over time. As Kevin noted, our loss ratios are 10 to 15 points better than others that disclose their loss ratios in the industry. So we're in a good position here, and we continue to work through the cycle.

Okay. So it's a hardening market and your expectation would be that with the entire market hardening that you should actually gain share in '26. Is that how I should at your targeted profit margin. Is that -- I just want to be very clear on that.

Dark, I'd say it a little bit differently. We're holding our pricing discipline, and that will -- it will a little bit depend on what others are doing, but others are seeing high loss ratios as well. So we expect them would -- they would also be reflecting that. So we'll see how that turns out, but we will hold our pricing discipline. But we are very good risk selectors as well, and we've added additional capabilities, which support us being -- getting the types of margins that we have been getting. So we still see this as a really good business for us. We see -- we have a great management team there.

And I think that over time, that we'll get back to being in a very strong competitive position. We'll see what others do when it comes to pricing. as we go through the process for next year. But we are not giving up on our pricing discipline, and we certainly think that even given that, we'll keep our scale.

Okay. Okay. That's helpful. And just a follow-up on the -- for the fourth quarter in terms of the expectation. I just wanted to make sure that I understood something. You had mentioned that the -- reserving this quarter for the stop-loss was based on 30% claims experience. Is that different from the 50% reports that you get by this time of year?

Yes. So this is David again. So this is an accumulation product, and we hold reserves for 26 months. And so how we [Audio Gap] to assess our ultimate loss ratio pick. We'll see another 30% of claims come through in Q4 and typically another 30% in what would essentially be [Audio Gap] how it will play out.

The next question is from Gabriel Dechaine with National Bank Financial.

I guess, I got cut off. My line dropped there last time around. My second question, on the dental business and the repricing outlook there, there's a couple -- it's not so straightforward in that if you need 10%, 15%, 20%, whatever the number is, percentage pricing increases for your counterparties to accept those, they have to also accept an accelerated recognition of loss experience. So I understand it's a 3-year look back, maybe 1- or 2-year good years in the look back in there. So you want to have them emphasize the most recent experience, which hasn't been as favorable. I'm wondering how those discussions are progressing, if you can shed some light on how difficult of a challenge that is, if it is.

Yes. So it's David again. Thanks for the question. So we continue to work through it. As Kevin noted, this is a repriceable business, and we ultimately expect repricing to catch up with the experience. In Medicaid, the rates are reset annually and by the state. And they typically look back, as you said, through a period of time, can be more or less than 1 year, either directly with us, where we have those direct relationships or through health plans where we're subcontracting to those states. We can influence the rates. We provide a lot of data and insight and our opinion.

And as you noted, it does include historical experience, but it also has to take into consideration a forward look for what utilization is going to be in the future And that's where we're seeing some conservatism in the rate setting process. Some of it is related to the dampening effect of really the broader government pullback on spending in healthcare. And so people are taking a more conservative view of what that utilization might be. But what we're actually experiencing is a higher rate of utilization in the claims experience from what they're projecting and actually what we were seeing even pre-pandemic when rates were more normalized. So we do expect it to catch up and return, but it is taking time, and we continue to influence the rate setting process as we educate on what we're seeing through experience coming through.

So there's a disconnect. Yes. Sorry, go ahead.

I was just going to say -- sorry, I thought as your last question, and I'm going to just add to it a little bit.

What is my last question? It's not unrelated. So stick with the dental, I guess.

Yes. Well, I was just going to say, Gabe, that it's -- I'm glad you asked the question again about the dental business, and we've had a lot of questions about stop-loss. And they are going through a structural change to some of these things in the U.S. This is a repriceable business. We will -- we've got a strong management team and capabilities and scale there. David comes from an IT and operations background, and he's been in the group business his whole career. He's ran our employee benefits and also our -- he's ran our dental business. He's ran IT there. I have a lot of confidence that we're going to work our way through these issues. And I think you heard that on the call.

If you look at the quarter, the diversified nature of our business model and the growth that we saw in Asia, in Canada and the strong asset management results we're in line with our medium-term objectives, right? We -- so I think that I have a lot of confidence that Asia will -- or Asia and Canada will continue to do well, but the U.S. will turn this around, and that's going to be part of our growth story as we go forward. But it's going to be -- it's a difficult time, but they'll work their way through it, and they're doing all the right things to do that. But as a company, if you look at the diversified nature of our business, I still am committed even with the U.S. being a little slower to achieving our medium-term objectives, and you saw that in the quarter.

So I think it's a very strong quarter in Asia and Canada under Manjit and Jess's leadership. I think we're poised for growth in the asset management space. And we're going to work through these issues in the U.S., and we're going to work through it together, and we're going to work through it with the same type of discipline that we provide. But we have good people there, and we have good scale, and we have good business capabilities. So it's -- when I step back, I see us really positioned quite well through the quarter and that it was a strong quarter.

No, I'm not disputing that. I think even in -- with this challenge, you have an 18% plus ROE or something like that. So it's just -- we're learning as we go a little bit and trying to get a sense of the moving pieces and what could -- what sort of timing and we should expect for stuff to stabilize, I suppose. But that brings me -- just to clarify Tim's comment about the Q4 stop-loss outlook, I believe you -- just to dumb it down, you've adjusted your reserves to accelerate recognition of these -- the trends in that 30% of the claims volume you've seen on the Jan 1 cohort such that if you have the same experience in Q4 as you did in Q1, same claims or whatever, you would have a lower experience loss, but then you would probably have some other item -- line item elsewhere that would be lower, I assume. I don't know. Maybe we can take that offline.

Yes. So it's David. I'll just quickly comment that, yes, we have updated our best estimate loss ratio pick for the entire 1/1/25 cohort, and that reflects what we currently expect in Q4, but it can change based on the claims that show up in the quarter. And -- but at the moment, that is how we are viewing it.

The next question is a follow-up from Paul Holden with CIBC.

I guess the question that we're all trying to get at on U.S. dental is that USD 100 million profit target. Are you confident that, that can be achieved in 2026 or too early to know because of the uncertainty in terms of these utilization rates and uncertainty in pricing?

Yes. So I think we've signaled that we are continuing to focus on pricing, and we're making progress. We're taking a very careful approach to it and working closely with the states and the health plans we work with. But it's going to be slow progress over the course of 2026, and we do need to see some of the more recent utilization trends being better reflected in our pricing as we move forward, and that's something that we're working through.

Okay. So $100 million in '26 might be too much to ask at this point. That's what I'm going to take away.

We have a follow-up from Tom MacKinnon with BMO Capital Markets.

Yes. A question just with respect to other fee income, especially in Canada, up nicely year-over-year and quarter-over-quarter, probably up better than the asset growth rate. Is there anything else in that number that could be driving that? And how sustainable is it going forward?

Tom, this is Jessica. Yes. No, I think there are two pieces. I think one is that indeed, our asset management and wealth is quite strong. If you look at our core, it was up 13%. If you look at the underlying growth, both in insurance investment, other fee income is underlying 7% growth. So our AUMA grew up by 11%. So that definitely helps a lot. And then I think our group business on the fee side has also increased. So you see our group premiums actually increased by 6%. So as Kevin was saying, I think both -- in Canada, there's strong underlying growth, and we continue to do well.

So that kind of trend is continue -- should continue assuming asset -- assuming the markets behave. But I guess how much of that is really driven by ASO fees, which are probably just more a function of net premium growth in group?

Yes. I think the wealth part, we expect to continue to do the momentum. You see that actually, if you take out DBS, which is more lumpy and is a softer market this year, we had net inflows in Canada of $1.5 billion, which is almost twice the net inflows from last year. So I think you'll continue to see strong growth in our asset management and wealth AUM. And if you look at year-to-date, our underlying net income in Canada is at 8%, up, which is, I think, well above our medium-term target of 6%. So we feel very confident of our 6% growth.

This concludes the question-and-answer session. I'd like to turn the call back over to Natalie Brady for closing remarks.

Thank you, operator. This concludes today's call. A replay of the call will be available on the Investor Relations section of our website. Thank you, and have a good day.

This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

All right. So we're going to go ahead and get started. First, I want to welcome and thank Tim Deacon for being here, CFO of Sun Life. So very much appreciate it and looking forward to the conversation.

Wanted to start off with more of a broad question. You guys hosted an Investor Day. I think it was around a year ago, give or take. I wanted to see if you could talk about what are the things that you feel like you're beginning to execute on versus some of the things that you're going to be really focused on in the next couple of years kind of portion of the more medium-term plan?

Sure. Well, good morning, Alex, and a pleasure to be here. Thanks for having me. Maybe I'll take us back just a quick sec. Almost a decade ago, we made a strategic decision to pivot ourselves towards capital-light businesses and to really accentuate our asset management capabilities. And over the past decade, that strategy has really paid off for us.

At this point, we have a really well-diversified business mix of 40% of our earnings coming from asset management globally, about 1/3 of our earnings coming from Group - Health & Protection type businesses, and that leaves about 1/4 of our earnings coming now from individual life insurance. So really, really well-balanced mix and have executed very successfully against that.

And last November, when we had our Investor Day, having achieved all of our financial objectives that we set out, we decided to update our medium-term financial objectives and went out with an industry-leading 20% return on equity objective as well as a 10% earnings per share growth and maintaining our common share dividend payout ratio between 40% to 50% of our earnings. And those were really the mathematical outcomes of our projections.

So those weren't set to be stretch or overly ambitious targets. Those are the ones that we felt that we had the confidence based on the trajectory and the business mix that I described. So if I unpack that further, we're looking to grow our private asset management businesses earnings by 20% plus over the medium term. Our Asia business, 15% plus, our U.S. business, 12% plus; Canada, 6%; and then MFS to grow in line with equity markets.

And thinking about the work that we have ahead to help continue to deliver on that. In SLC, we have upcoming buy-ups of the remaining minority stakes of the private asset affiliates that we've acquired over the last number of years. So our real estate subsidiary, BentallGreenOak as well as Crescent, we'll be completing those in the first half of next year. And with the completion of that, we'll have really built out a world-class leading private asset firm. So we have deep expertise across real estate, private credit, infrastructure and retail distribution.

In Asia, we operate in 8 markets. We split those sort of between developing and mature markets. And so in our developing or scaling businesses, these are areas like Indonesia, Malaysia, Vietnam and China. And then on our mature businesses, Hong Kong, Singapore, Philippines, where we're the largest insurance company in that market and our international business overall, including India. So we're really looking to continue to scale in those businesses.

In the U.S., we're committed to our 12.5% earnings target, notwithstanding some of the short-term headwinds that we've been experiencing across the industry, particularly in our dental business. So we'll be looking to reprice our Medicaid businesses and in the near term and then over the medium term, really continue to grow and scale the rest of our commercial business in that business line and as well as leverage our leading position in stop-loss.

We're the largest independent underwriter of medical stop-loss, and we have an at-scale business in employee benefits. And in Canada, we serve 1 in 3 Canadians, so really looking to grow that business across health, wealth and protection businesses. And then finally, MFS really helping to drive to return that business overall to positive net flows.

Great. That's helpful as an overview. I guess if we dig into Asia a bit, that's a place where I think the last couple of quarters, in particular, you've had very strong growth in some of the regions, Hong Kong, Indonesia, in particular. As we think about that segment and some of the things you're doing to fuel that growth, what are the underlying drivers? And what are you focused on over the next year or 2? I mean, are you looking more like bancassurance, like are there things that will continue to fuel that?

Sure. We've been very pleased with our strong consistent performance across Asia, as you noted. We've had double-digit growth over that market for a while now. In the first half of this year, we're up 13% over last year. Last quarter, we're up 15%. And some of the key metrics that we really look closely in the Asian markets and -- in Canada, we use the IFRS accounting regime as other parts outside of the U.S., and there's a contractual service margin as being a key measure for the future profits of that business.

And we've grown our CSM 23% over last year and our new business CSM 27%. And that's really been anchored off our Hong Kong business. That's been a core part of our market there. We've had huge success from the investments that we've been making in distribution there. So we've had record sales last quarter. We've had double-digit growth across all of our channels. So on the bancassurance side that you referenced, we did a partnership with Dah Sing Bank. That's been ahead of our expectations over the last couple of years.

We've been building out our agency force. We're the fastest-growing agency force in the Hong Kong market. And then we've been continuing to grow and diversify our broker channel, and that's been a huge part of the success in that market. So when I look across the region, we have over 25 banking relationships. And so I wouldn't say that we're looking actively for the next banking relationship. We're just continuing to focus on making those work. We're obviously always interested where there's partnership, but we've developed a really good playbook now in terms of leveraging our expertise.

I might touch on Indonesia as a market for a moment as well because I talked about our scaling businesses. We entered that market 30 years ago and have had huge success. Earlier this year, we announced an extension of our existing bancassurance relationship with CIMB in Niaga. They're one of the largest private wealth banks in the region. And that relationship has been off to a phenomenal start since that extension. We're up 57% year-on-year in sales.

The reason we like Indonesia as a market, it's -- first of all, it's the most populous ASEAN country. So it's got a great population base. It's got a very low insurance penetration. So about 0.8% of the eligible population has insurance coverage. So there's a huge upside there. It's a growing market, GDP growth over 5%. So that's quite healthy relative to more established markets. And they're also one of the most digital economies. So that really bodes well with our digital capabilities that we've been building out. So those are just a few examples of where we're seeing great strong momentum in Asia.

So next, I wanted to see if you'd talk a bit about the ways in which you can leverage Sun Life's broad capabilities in Asia. I think you've talked some about this on recent earnings calls already. But what are the ways you can do that to accelerate even further maybe some of the distribution things that were mentioned there? And I guess, in particular, the asset management products I'd be interested in.

Sure. So Asia is such an exciting market. And as I said, we're in a number of different markets across the region. And because of that low insurance penetration, it today is very much a high savings and wealth market as well as a health insurance. So we're well positioned there. So maybe I'll start with product for a second and then we can pivot to distribution.

On the product side, we are the third largest provider of mandatory provident fund in the Hong Kong market. That market just recently moved to have all the administration done centrally by the government. And I think that will help open up even more opportunities and reduce the cost for participants, which we think is a good thing. So that really leaves great opportunities on the asset management side. And we have a very low percentage of our own proprietary products in our MPF platform currently, certainly relative to the larger players in the market. So that shows a great opportunity for us to add more of our own internal asset management capabilities where we have really strong performance, allows us to offer attractive fee. So it's a better proposition overall for the client.

We're the largest -- one of the largest high net worth insurance providers globally, in fact, and Hong Kong is a key market for that as well as well as other parts of the market. And so bringing our asset management capabilities to the high net worth market has been a key strategic focus. So our products across Sun Life Capital, our private asset arm as well as MFS on the public side is a huge opportunity.

And then we also see an opportunity to leverage the 25 banking relationships that we have across the region to also offer SLC product as well. So really good opportunities to deploy our capabilities based on the footprint that we have on the insurance side.

So before we move off of Asia, I wanted to ask you what about the competitive environment and just what you're seeing in new business trends with the value of new business.

Sure. So I spoke a little bit about the CSM growth. I think Asia is obviously a very competitive market. It's high growth. Where we see the most competition is in our core market in Hong Kong and particularly that broker channel that I referenced that we've been growing and doing quite well at.

The industry has become quite competitive from a pricing perspective, from a distribution in terms of broker compensation and so much so the regulators in that market are actually seeking to help provide some guidance in terms of limits on the broker distribution compensation as well as on some of the pricing.

We've always been very disciplined on our pricing. In fact, that's a hallmark of Sun Life across all of our markets. And so we haven't seen too much impact of that coming through just yet. We've been able to maintain our margins and our pricing. And if you look at CSM over sales, that's at 41% for us. So that means the future profit of the sales that we're writing is at 41%, and that's been up from 38%. So you can see that we're growing our sales and doing that profitably. And so those are key performance indicators that I think are helpful for people to look at in that market.

All right. So next, if we pivot over to SLC management, can you talk a bit about some of the success you've had attracting new capital, what's driving that and what the pipeline looks like looking in the back half of the year?

Sure. We've had such great success with our private asset capabilities. Last year was a record fundraising year for us. We raised over $13 billion of new capital into our products and funds. Year-to-date, we're already at $10 billion. So we're well on track to be able to exceed last year's record target. We did $6 billion last quarter alone. We've had great traction across all of our asset classes and markets.

So just to give you a couple of examples, we closed our fourth value-add fund in real estate. It was an Asia fund that we had in that market, had huge success. We had large catch-up fees as a result that came through in our first quarter results.

Our private capital -- private credit business, Crescent, has done exceptionally well in fundraising. Obviously, there's been an insatiable demand for private assets across all markets. They've had great traction with their flagship funds, nontraded BDCs. They have a credit solution offering. Some of those funds are still in market, and so we see a very, very strong pipeline ahead.

And I would also mention that's on the capital raising, but also deployments are very important. One thing to attract the capital, but then putting that money to work in attractive opportunities that actually meet the return and investment strategies is another thing. And we've seen great opportunities, again, given our global footprint.

We had $6 billion of deployments last quarter alone as well, too. So we're really seeing really nice opportunities from all the relationships and the scale that we've built in these markets.

Can you talk about some of the JVs that you have there? I know there's opportunity to buy in further in certain places and expand through sort of just furthering some of the M&A you've done already. So maybe you could remind us of what that looks like and just maybe also broader interest in M&A to build on what you have there in SLC.

Sure. Yes. I had mentioned earlier that a key priority for us in our SLC, our private asset business is completing the remaining buy-ups of the private asset affiliates that we don't own. So for BentallGreenOak, that's our real estate arm, that's about $80 billion of assets under management. We own 56% of that business. We'll be completing the remaining buy-up in the first half of next year.

And on Crescent, we own 51%, so we'll be completing the remaining buy-up there. In total, that's about CAD 2.1 billion for that -- those completion. And the nice way that we set up these businesses, these were acquired over -- with an earn-out over 5 to 7 years at a fixed multiple. So the incentive was to grow EBITDA over that period, which has grown exceptionally well and so created a lot of value. But those multiples are 10 to 12x as an example. And you contrast that to some of the private credit deals we're seeing in the market that are north of 20x multiples.

There's significant value appreciation that we've built in those businesses from those teams. So that would be near impossible to replicate today in terms of the franchise and the capabilities that we've built out. So that's the main priority. We wouldn't see -- after that, we have all the broad capabilities that we need to be able to deliver on our plan and the medium-term objectives that I've said out before. It's not conditional or dependent on further M&A. We may be interested in other bolt-on tuck-in acquisitions that might complement the existing capabilities that we have, but that would be opportunistic. And if the return criteria met our thresholds and our discipline, and we have the confidence to be able to execute.

Got it. Okay. If we move into MFS, a year ago, I think you talked more extensively about building out defined contribution pensions, active ETFs, the SMA business, et cetera. Can you give us an update on how some of those things are going?

Sure. I think you hit the key highlights in terms of our growth areas. I mean MFS is about a $600 billion asset manager, really known for its strong equity capabilities as well as fixed income. Obviously, the whole U.S. active equity industry has been outflows for a long period of time. MFS has not been immune to that, but similar along with the industry. We've seen a lot of growth, I would just say, outside of the U.S. and in terms of non-U.S. assets, so international, so global ex U.S. as an example.

And then on some of the product lines that you touched about, fixed income has been a huge focus area for MFS. They have about $80 billion of that $600 billion is in fixed income. MFS has invested heavily around the capabilities and infrastructure and at scale to be able to really be at an inflection point in the growth of that business. They've had phenomenal performance. 98% of the funds -- the fixed income funds that MFS manages are in the top half of their Morningstar quartiles over their 3-, 5-, 10-year performance. So it's very, very strong.

We've actually just won an award at MFS this past year for having the best performing fixed income manager over the 3-year period as well. It has been an area of positive net flows for us. Last quarter, we had $1 billion of net flows. We brought in $6 billion of gross. So that's really starting to get momentum and traction as our brand and name gets out there from a fixed income capability perspective as it's been so well known on the equity side.

You referenced ETFs. MFS launched a suite of active ETFs last fall. Those have been off to a phenomenal start. They're now over $0.5 billion in assets. We're one of the fastest-growing active ETF providers. ETF.com awarded them the best new fund launch as a result. We see that as an attractive vehicle. Obviously, it has less tax consequences for many investors, and we're on track to be able to launch the next suite of funds in the second part of this year.

And then you talked about the fund contribution channel. That's actually a really important growth area for MFS as well. They're a top 15 provider in the DCIO space and are starting to see a lot of traction and interest from their strong distribution network. And then finally, retail SMAs, that's $30 billion of assets for MFS and again, very positive. So these are the green shoots of opportunity and growth as the equity markets, particularly in the U.S., we expect to over time stabilize.

Got it. So next, maybe you could talk about distribution. And are there things you can push forward on that side that maybe in combination with all the initiatives that you just ran through can lead to positive net flows. Any help you can give us on thinking through the trajectory of that also welcome.

Yes, sure. So distribution has been a core feature of MFS' success. And they're an over 100-year company, right? And so a lot of long history in building out these capabilities. So on the institutional side, has really strong franchise globally in terms of the channels with the largest sovereign wealth funds, pension funds, family offices globally.

While we've seen some outflows on the U.S. equity side, we've seen rebalancing into other MFS products. That's been a great opportunity for the institutional distribution team. They're a powerhouse in the retail side. They're a top 10 distributor of mutual funds and products in the U.S. market. That's been a crown jewel for MFS. They have over 150 internal and external wholesalers that have been really squarely focused on driving that growth.

For all the talk that we have around net flows, which is obviously important because that drives earnings, MFS is on track to exceed well over $100 billion of gross flows coming in from that distribution arm and muscle.

We're also seeing new growth opportunities outside of the U.S., so in Europe, in particular, markets like Spain and Italy, you wouldn't necessarily have thought of those as being high-growth areas, but they are for an MFS product offering in line because those are very highly adviser-networked countries, which bodes well for MFS' investing style and that long-term orientation. And so some great traction that we've had on the distribution outside of the U.S. as well.

That's all helpful. Let's flip over to Canada. I wanted to see if you could discuss the wealth and asset management opportunity there.

Sure. So asset management is a key growth focus for Canada as it is in our other markets as well. We brought on a new head for our Canadian business, Jessica Tan. She joined us from Ping An, where she was a co-CEO. She is just coming up a year mark and very early on in her tenure, identified a great wealth and asset management opportunity for us in Canada. We're currently at CAD 200 billion, these are of AUM and have plans to double that over the next 5 years.

And how we're seeking to do that is from our leading position in group retirement services. So we're the largest provider of pension assets and recordkeeping in the Canadian market, a little over $160 billion of assets. Our key growth area of focus there is obviously attracting new clients into that program, but obviously, also in converting them into retail clients as well through rollovers when they leave the plan, or they leave their employer and then being able to offer our private asset capabilities that I just spoke about as well as MFS.

There's a great opportunity to have our own proprietary product that are well-performing assets and that will also help attract new clients into those spaces as well. We have a business we call Sun Life Global Investors. It's about $40 billion of assets as well. There's great growth opportunities from that.

And then, as I said, just leveraging our private capabilities more broadly. We also have a partnership with Scotiabank, which we partner with them to distribute our private assets, in particular, our real estate and our private credit, and we've had great growth to date on that platform as well.

Great. So if we move into the U.S., I wanted to dig into dental a little bit. Maybe first, we could talk about some of the opportunities that you see in the commercial space, and then we'll come back to some of the repricing efforts.

Sure. So we acquired a firm called DentaQuest in '22, and it was announced in '21. And so right in the middle of COVID. And so that was an interesting time where people weren't getting to the dentist, but obviously, Medicaid roles and other things were still in place. So we've now worked our way through that part of the post public health emergency, but DentaQuest is -- a majority of the business is in Medicaid. So about almost 80% of the business coming from Medicaid.

So the commercial opportunity was what we're really most excited about that business and what mostly attracted us to that platform. And that's because of the great technology and operational infrastructure that came with that business. As a result of that business, we have grown from a very small, tiny player in the commercial space to now in total, including the Medicaid, the largest provider of dental benefits in the U.S. market, serving over 35 million Americans.

That technology platform allows us to be able to go after large plans. So we were small and focused on small case market. But if you think about Medicaid, having the ability to onboard millions of members for a particular state gives us the flexibility, scale and capability to be able to onboard any of the largest companies in the U.S. So we'd be in just at the bottom end of the top 10 dental benefits providers in the commercial space. This will allow us to catapult ourselves into the top 5, and we have big ambitions to continue to grow in that area.

Got it. That's very helpful. So you mentioned on your last earnings call, you're looking to optimize the Medicaid dental business. Can you walk us through what are the different components of that? Is it all pure price? Or are there other initiatives that need to kind of go into that to get it where you see it going?

Sure. Well, repricing is a pretty important component to that. We -- I mentioned the public health emergency. What's happened since then is we've seen a spike in claims in particular last quarter, we're trending quite favorably for a period of time. But now we've seen people are going to the dentists more frequently. They're using their benefits more. They're having more services done, the cost of those services have gone up. So the repricing becomes really important.

One of the nice features of this business being capital light is that it does reprice annually. But in the case of Medicaid, that takes time. And many of the states look over a 3-year cycle. And so they have 2 years of favorable experience where people aren't claiming now with a huge spike up. And so that -- we're laser-focused on making sure that we continue to put the momentum behind that. They're contractually obliged by statute to reprice. So we expect this to come through time. It's just taken slower than expected.

So in the meantime, our main focus has been growing commercial, as I just spoke about, and then also looking at our costs as well as to do further automation and deploy tools like AI to help with our claims evaluation process. AI is becoming quite proficient at reading dental X-rays as an example. So that can help accelerate our ability to process claims.

I mentioned about onboarding clients. There's still a fair degree of manual work that's involved to bring on new clients. A lot of that work can be automated. So we'll be investing heavily in that in the near term, and that should drive scale and cost efficiency benefits as well.

Okay. That's all helpful. And I do want to come back to the tech and AI initiatives that you have. But before we go there, on the U.S. stop-loss business, this is another business where I think we all sort of look at the health insurers and even some of the U.S. lifecos that have stop-loss, and they've had some pain, medical cost inflation rising a bit. What are you seeing in your business?

What have you done to reprice? And maybe remind us of what you're planning on doing in the next year? And if there's anything you can tell us about some of the cash payment trends you're seeing on the 1/1/25 block. I think that's what everybody is sort of sitting on the edge of their chair trying to figure out is, was there enough done for this year's book of business?

Yes, sure. So medical stop-loss is a really important business for us in the U.S. and one where we've enjoyed great scale and market leadership. We're the largest independent underwriter of stop-loss. We've been doing it for decades. We know that business very, very well. Last year, when we saw the utilization increasing as well as the medical trend, the cost that you referenced, for the pricing for our '25 business, we put through a 14% price increase to really capture those trends. And they've been long trends happening for a long period of time, particularly cost inflation.

Medical costs in the U.S. have been going up high single digits for a long period of time now. And the specialty area, which often gets covered by the stop losses has been in double digits, in the high teens or higher. And so that's -- there's been really nothing too new in that regard. What was new was the severity that the entire industry experienced very surprisingly late in the fourth quarter. And so we had talked about that internally.

And then externally around our pricing. And we felt that we were about 200 basis points shy of where our pricing needs to be to cover that increased severity. So we raised prices 14%. We felt we needed 16% to be able to preserve our target margins. This business is still profitable for us. It's still a great business, but we're shy of that 200 -- 100 basis points. And our pricing discipline has really served us well there. Those are big increases, but there's also flexibility for plan sponsors who can look at their deductible levels, et cetera, and figure out how much they want to self-fund versus leveraging us because there's obviously still a huge need for stop-loss coverage.

And to your comment about the January 1 book of business, that is performing in line with our expectations thus far. So we don't see any trends or signs currently of any spike up in further severity or pricing that we had spoken about. Now a word of caution, we're about 25% complete on that block. So those of you are familiar with that business, typically, the claims start to come in, in the fourth and fifth quarter after you've written that business. So for us, that will be the fourth quarter of this year and the Q1 into next year. So obviously, we have to wait until we see then.

The surprise last year came from -- a large part from hospital billing practices. We're dumped. It was almost binge bulk billing practices at the tail end. So we tried to leverage our market position to get more insights around billing practices, work with our largest health plan networks to have earlier insights. There's this term called 50% reports that looks at reports of claims that are at 50% of the deductible levels, and that allows us to look at those insights to figure out and extrapolate whether or not those will actually hit the detachment points and become stop-loss claims. So thus far, we don't see any signs, but it's obviously an area that we're watching closely.

That's really helpful. Before we move away from the U.S., I did want to ask a growth-oriented question. Can you talk about the platform capabilities, some of the advantages you feel you have, whether it's connectivity APIs and some of these cloud administrators? Or what are the ways that you're leveraging what I think has been an above-average sort of investment in the tech platform when I look across the industry? What are the ways you're leveraging that to grow?

Sure. So I think the best example for that in our business is our employee benefits business in the U.S. We were a very small player over a decade ago. We acquired a firm called Assurant and over the last 10 years, really built out capabilities and scale there. We also acquired a small firm called Maxwell Health that brought a lot of tech capabilities with that.

And today, we're a top 10 employee benefits provider. We serve 9 million Americans. We have over almost $2.5 billion of premiums. And so we now are at the scale where we can really compete. But it's a crowded and highly competitive market. And so where we found differentiation is in the tech. And that's obviously core to employee benefits offering. That's the platform in which we make payments and help administer employee health plans.

And the APIs that you referenced has been a key differentiator because when we think about how we win business and compete against some of the larger players, is about being easy to work with and deal with. And being easy to work and deal with, given how fragmented the health market is in the U.S. where sometimes very often people have different dental benefits provider than they will from health and employee assistance programs is creating APIs to connect, whether it's the payroll systems or the HR administrative platforms.

We've invested heavily over the last number of years into those APIs to connect with firms like ADP or Workday. And so that the experience becomes very, very seamless. The employees get a seamless experience so that they can get their benefits claims made on time and get paid in a very timely basis. And the employee plan sponsors love those because it makes less headaches for them and their HR departments and pressure on that. So we've been seeing huge take-up that's giving a great name for us, and it's allowing us to move upmarket.

Got it. Just to mention to the audience, as we get to the final stage here, I may ask -- open it up if somebody has a question. So I just want to give you heads up in case you're thinking through wanting to ask something. But before we do that, I want to come back to AI, just sort of on the same kind of line of questioning.

What are the ways you're implementing that more broadly? What kind of efficiencies do you think you can get out of it? Will -- do you foresee it being transformational over the next few years for you?

Sure. So we, like many organizations, see the huge benefits and opportunities that AI will bring. We've had great success to date in our own application. Just to give you a few examples. Last quarter, we announced notes assistance in our Canadian market. That's allowed our adviser network to summarize key client meetings that helps free up their capacity on focusing on helping our clients meet their financial and health needs, saves time from administration.

It helps them with complex inquiries in terms of being able to understand product details or nuances. And we rolled that out on our own independent private distribution network, and that's one of the key differentiators we have in our Canadian market is that we have a captive distribution agency. So that's allowed us to roll that out quickly, take the success of that and then now offer that more broadly.

In Hong Kong, we launched Adviser Buddy, and that's a chatbot. I mentioned the strong recruitment that we've been doing in building out agency and the fastest growing in the market. Part of the way we can do that and onboard agents is because we offer tools like this that helps them get up to speed on our products and be able to make inquiries. So that's a great efficiency play, saving time and capacity.

And then I would also say on our contact centers is probably where we've had the most efficiency there. So call summarization, being able to access sentiment in terms of how the client responding and behaving and there's also an opportunity for them at the contact centers to have access to all of our information real time.

We also see efficiency opportunities internally in our technology teams. We have developed Agentic AI uses for high volume inquiries within technology. So password resets as well as ordering new equipment. These are some of the highest volume intakes that we get within our own technology firm.

And I would say even in finance as a function, we've had success. We have a tax chatbot that allows people across the organization to input queries around tax reforms and tax changes, and there's certainly been quite a few globally over the past little while. So that was a huge volume of information and requests that we're getting within our own tax team. This tool allows anyone to be able to query and diagnose. And we also see great benefits in finance to summarize controls, process documentation, things of that nature.

You talked about efficiencies. Initially, these are about freeing up capacity within our teams so they can focus on higher-value work. But over time, we expect to see material cost efficiencies as well. The investments in AI as well as the benefits that we see from those are embedded in our medium-term objectives. So it's a portion of contributing to our overall earnings growth, but we see even further upside beyond that as the AI matures, and we roll that out more broadly.

Great. Do we have any questions from the audience? All right. I will keep firing away here. Capital management, one of the things you highlighted at your Investor Day was the strength of your capital generation and goes along with being capital efficient. What are the ways that you'll look to redeploy that? You touched on one with some of the JVs where you'll buy in more. But what are the other priorities you have?

Sure. So I touched on being capital light and being capital light means we can generate very strong capital and also cash generation. So you touched on our Investor Day. Last year, we started disclosing a concept of what we call organic capital generation, and that's net of shareholder dividends. And we have a target to generate about 30% to 40% of our underlying net income as organic capital generation.

And in the first half of this year, we've generated over $1 billion of excess capital generation over paying our shareholder dividends on that metric and would expect to finish the year in a similar space, so about $2 billion by the end of this year. And so that's been a great hallmark for us. I mentioned MFS earlier. That generates 90% of its income is in cash generation. So that's been a really exciting feature of our company, and it's helped fuel a lot of our growth.

In terms of priorities, our first priority really continues to be organic investment back into our business. So those AI investments that I spoke about, growing our distribution internally and building out the agency forces, et cetera, that I spoke about across Asia.

And then after that, the inorganic deployments, as I said, we're not dependent on M&A to be able to achieve any of our strategic objectives or medium-term objectives. As I said, we could be interested in bolt-on acquisitions that are of a smaller size just to complement existing capabilities, but we would remain very disciplined on that. They need to meet our medium-term objectives in terms of financial return. We have to have the capacity and ability to be able to execute. And I would say in many of our markets and businesses, we are -- our priorities are already set.

So that leaves share buybacks as a return to capital, and we've been very active in that program. We have an active normal course issuer bid. Last quarter, we bought back $5 million of our shares. We launched a new program to purchase another 10 million of our shares. We're about 40% complete of that by the end of this quarter. So I would expect that we would continue to be very active on that front and complete that program.

Great. I'll give one more shot if anybody in the audience has a question. Yes, we have one up here.

On the asset management side...

Well, just wait 1 second for the webcast, we'll get the microphone.

On the asset management side of things, how are you guys kind of thinking about integration risk as you kind of think like you've had all these different entities, I guess you're going to kind of consolidate them into like one asset manager. How are you thinking about keeping your platforms together and making sure there's no kind of breakage as you integrate and become one larger enterprise?

Yes, great question. Thanks for that. The private asset affiliate companies that I spoke about, completing the remaining acquisitions in the first half of next year has been a key focus for us. And you used the word integrate.

We're bringing these together as a single platform in terms of its overall offering. But Sun Life has a great track record of building asset management capabilities. I mentioned MFS. We run that as a stand-alone business. It's got its own management team, its own governance. Similarly, on the SLC and the private side, we continue to operate that way as well, too. And that's really important for our clients that they maintain that independence.

From a corporate office perspective, we're not going to tell those businesses on how to invest or which assets to invest in specifically. And so we've got a great strong track record of doing that effectively.

A big part of our buy-ups is being able to allow our employees in those businesses to maintain equity in the business. We think that's very important from an alignment of interest perspective. It's sort of the environment that they've been used to prior to us and our partnership with those entities. So part of the new platform that we have, we will be offering to employees the opportunity to participate in equity of that platform. And again, that's a great way to ensure that there's alignment of interest in growing that business.

We see a lot of synergies, though in bringing together those businesses that allow us to be able to more readily distribute those products across our wealth distribution channels that I spoke about earlier. And it will also give us a chance to look at broader strategic partnerships, externally look at vehicles like side cars or we have a large pension risk transfer business in Canada as an example.

So the advantages of leaving them alone, letting them be stand-alone and autonomous, but then leveraging the scale and breadth of what Sun Life offers has been our playbook, and it's proven very successful for us to date, and we're very excited of what this next chapter will bring as well.

Do we have any more -- we could do one more? All right. Well, we'll cap it there. We're just about of time. So thank you very much for joining us. Really appreciate it. Thank you, everybody, for being here.

Pleasure. Thanks, Alex. Thanks, everyone.

Good morning, everyone, and welcome to day 2 of Scotiabank's 26th Annual Financial Summit. And I'd like to introduce our first guest for today, Kevin Strain, President and Chief Executive Officer of Sun Life Financial. Welcome, Kevin. Nice to see you.

Which one?

We can probably sit here. Okay.

How is everybody this morning? Good.

Maybe too early. But yes, I thought maybe the best place to start is -- just high level on your very high ROE target, very impressive. And to the extent that you can manage to get there would put you in a very elite category of financial services companies globally for that matter, not just in Canada. Any thoughts on -- may just remind investors the pathway of getting there and then where you might have bit of work to do to sort of...

I wouldn't define it as a high ROE target actually. I think for us, it's -- you have to remember, if you look -- stand back and look at Sun Life, we've been constructed with low capital businesses, and half of our business is, well, just over 40%, but trending towards half will be asset management. So between MFS, SLC, we have asset management in Canada. We have asset management in Asia. We see a chance to really grow the asset management. Nobody would say 20% was a higher ROE for MFS, right? So you have to remember that we've got this.

And then on the insurance side, we've really geared to low capital repriceable businesses, group benefits. So the combination of those, and again, 20% is a very reasonable ROE in that space. And the other lift we have is that as we build scale in Asia, that's going to lift our ROE in Asia. So the combination of asset management growing and we have big expectations for SLC, DentaQuest, which I know we'll get to, returning to more normal sort of margins and profitability levels.

And then also Asia growing gets us to the 20%. So I don't view it as -- I view it as a very reasonable target for the mix of business we have.

Okay. I do think it's impressive in the context of who you get compared to other Canadian LCOs, Canadian banks, other large financial services companies that are diversified as Sun Life is.

It's hard for me not to say thank you for a compliment. And I do think it's a -- we think it's a good ROE, but it really comes out of that mix of business that we've built over a long period of time. And that shift that we started right after the global financial crisis to focus on the group businesses and the focus on asset management. And the work and I'll see features here over the next -- today as well.

The shifting from -- in 2014, we were an insurance company and we owned MFS. Today, we view ourselves very much as an asset management and an insurance company. And so that shift in ROE comes out of that mix of business that we've very purposely developed and very purposely taken actions towards which we think will work much better through multiple different economic scenarios than others. That low capital, low guarantees, even when you think about Asia, Asia is a much shorter duration life insurance business than some of the business in the U.S. and some of the business in Canada. So us stopping our U.S. life business, us exiting variable annuities, us not being in long-term care in the U.S. were all really important pieces of delivering the type of ROE we're delivering today.

Got it. Thanks for the insight and very humble as always, Kevin. Maybe to touch on the different business lines and probably best to start with the U.S. Obviously, a few questions on the U.S. across your businesses. Starting with the dental business, obviously, it's been a little bit of noisy for investors lately with the target coming off for 2025 and just some of the headwinds that you've seen in that business. Just maybe as a quick reminder, what went wrong? And how do you sort of regulate.

Yes. And I know this is on everybody's mind. And if you think about the U.S., I just mentioned that we pivoted towards group in the U.S. because it's low capital, it's repriceable, but you needed to be at scale. So we did the Assurant acquisition. I think that was back in 2000 and -- about 10 years ago. So we did the Assurant acquisition. We integrated that with our employee benefits business. And we looked -- we still weren't where we wanted to be from a scale perspective in the broader group benefits business. And we looked at a lot of acquisitions, and that would be even bigger than the DentaQuest acquisition. They were across the disability of the employee benefit space. And we couldn't make any of the financials work. So those acquisitions went to other companies.

When we saw DentaQuest coming to market, we were undersized in the dental business in the U.S. We saw it adding scale to our overall group benefits business. We saw it adding new capabilities. We were not doing any Medicare, Medicaid. And we saw that being a big player in the dental, second most sought-after benefit in the employee benefit space would help us with voluntary, would help us get new employee benefits on the disability side and life side and health side. And would also help us grow the dental and tangentially the vision business. So we saw this acquisition as creating new capabilities and giving us that scale.

Now we're in that position of scaling the Group benefits place. We always knew that the public health emergency would give dental higher profits because people weren't using the benefits on the dental side. The public health emergency went longer than we would have expected, that created this bigger backlog of people who weren't exiting Medicaid in particular.

And what happened when the public health emergency ended, states started to exit people -- were allowed to exit people off of the Medicaid program. As that started to happen, I think -- if you think about it, it's just logically, right? Like if you are a member in Medicaid, you don't know whether you'll be exited or not or you know you're coming up to your exit, you use your benefit. We see that all the time. Like people aren't going to leave a dental benefit sort of sitting there. And dental is different than a health benefit. You can choose when you do your teeth, you can choose even a bunch of procedures around your teeth. So we saw the claims shooting up.

What happened at the same time though -- and we knew that, that would happen. But what happened at the same time -- this extended. But at the same time, we've now hit a place where the federal government is going through changes, and they're putting pressure on Medicaid, and we've all seen that pressure coming on Medicaid. And so states that would typically be repricing more quickly to the changes in claims experience are sitting back and going, wow, we don't know what our funding is going to look like yet. We think it's going to be fine for this group, but they're resisting a little bit some of the changes that we would expect to see. And that's causing this added sort of negative claims experience on the dental side.

We still believe that over time that one -- this is -- the Medicaid space in the U.S. is massive, and it's massive in terms of vote and those types of things. It's going to settle itself in a place that is going to be quite acceptable to us from a business perspective. But until it does sort of settle, we think it's going to take a little bit of time to get through the repricing. And that's why we changed our guidance. So we still think long term, that this meets all the objectives we set out when we did the acquisition.

But we're going through this combination of longer public health emergency and now this uncertainty at the federal level of funding. And again, members are seeing that uncertainty. They're going I'm not sure if I'm still going to be in the Medicaid program, so you go get your teeth cleaned, you go get that cavity filled, you go do some of those procedures that maybe you would have waited a little bit to do. And so we're seeing that abnormally high level of claims experience.

And again, we think we'll work through this over time. This is -- the public space in the U.S. system is a massive part of how the U.S. health care system works, and we still think it's going to be a good space for us, especially the dental side, it's still a big, big benefit. You see we're big players on the dental in Canada. And I think over time, you're going to see this correct itself, but it is going to take a little while.

Okay. Okay. Fair enough. And maybe switching over to U.S. stop-loss. It looks like it's picked up a little bit, maybe talk about some of the drivers where you are seeing improvement? And how do you see it playing out in the near term to medium term?

Yes. We're a big player in the U.S. stop-loss. I talked to other CEOs in the U.S. space, and they're envious of our stop-loss business. We have more data. We have more capabilities. We've wrapped stop loss with, for example, we purchased a company called Pinnacle Care and Pinnacle Care to help. They were designed to help some of the wealthiest people in the U.S., manage the U.S. health care space.

And what we use them for is if we see a large claim coming, we assign a Pinnacle Care person to them, and they help them manage that benefit. And it's great for the member because they're getting benefits that the very wealthy people would get. It's great for the sponsor because a lot of times, the -- they don't know the right hospital to go to, they don't know the right treatment to get. They're not getting a second opinion of the treatment.

With Pinnacle Care, we actually -- it actually helps control the cost and give a better experience. So we've created a model where we have a lot of data. We understand the business very well. We do not price aggressively, so we can be patient because we have scale and data, and we've created a better member experience. And so we talked about we had -- but we are seeing inflation there. We're seeing more claims. Part of that is coming out of COVID, where people weren't going in to do regular things and now cancers and different things are becoming a more difficult treatment and to a more expensive treatment. So that we reprice on an annual basis for that. We talked about a pricing increase of 14% last year.

As we saw the experience in December, we added 2%. We thought we should have probably had a 16% price increase. We added 2% into the reserves. And what we're seeing so far, it's early, but what we're seeing so far is largely our claims experience was largely consistent with that. So there's nothing that we're seeing that's worrying us in terms of this year. There is inflation in health care costs. There has been roughly single digits, middle single digits to high single digits in the U.S. for years now. And we expect that to continue, and that's why you see price increases like 14%, 16% because the cost of health care in the U.S. has been increasing significantly over time. And so I think that we know how to run that business. We've had great experience. We have a great members' experience. And over time, you're going to see that continue. It's really, really good ROE and has been a great supporter of our profitability, and we expect that to continue. There is -- I would say that last year was indicative of coming out of COVID at higher medical costs, and we're well prepared for that.

So as medical costs rise, like you get that in...

Yes, pricing rises.

So pricing has got to rise double because the actual amount you cover is about 2x that .

Well, the 14% is a combination of higher experience, which is coming out of -- part of that is out of COVID and then the higher medical costs. So it's a combination of both. That's how you get to the 14%. And we've been very good at repricing for that. And you've seen that our volume was down a little because we've played disciplined of pricing. And if you look at some of our competitors' quarterly calls, they're seeing much worse claims experience, not aligned with the pricing that they had done.

So they won some business from us, but they're going to regret winning that business. And over time, we'll see that pricing sort of come back. So it's an important business for us. It adds earnings, ROE, and we're very good at it. And I hear that from other CEOs. They wish they had the capabilities that we have in the stop-loss.

Got it. And how does it connect with other parts of your business in the U.S.? It's obviously a big part of...

Well, our whole U.S. business is really a benefits business, right? So it's -- so we have employee benefits, which is disability, life, health, voluntary. The stop-loss plays the other part of the benefits where we don't play, which is in the medical side, which is where you're seeing even more noise if you're actually in the medical business.

And then of course, the dental is part, I would say, it's just a big section of the employee benefit side. And that's where we've geared our entire U.S. business is to group benefits that's repriceable, 1-year to 3-year basis. It's low capital, no guarantees, right, repriceable. So that's where we've geared our U.S. business. We're really excited about -- Dan has done a great job of managing that business. Of course, he's a medical doctor by background. But David Healy has been with us for 20-plus years, and he had at different times, run operations and IT. He ran the employee benefits business. He took that Employee Benefits through the Assurant acquisition, through a place where we were breaking even roughly to a place that it's significantly profitable.

And I think he can do the same thing bringing more technology and more operations experience. He's been running dental, and that's an important piece of that. So we feel pretty good about being in the space we're in, in the U.S. We think that's the right space, no long-term care, no variable annuity, not running new life business, repriceable. It's been a more difficult time through COVID and some of the things we talked about on the dental side, but we're going to work through that.

Okay. Thanks for that color. Can you talk a bit about the technology side and how that benefits those 2 businesses in the U.S. in particular?

I think technology is becoming everything, right? Like if you think about how you help a member understand their benefits, how they help a member process claims, bringing additional services to clients. So we will help clients manage their diabetes, we'll help clients with other medical conditions that they can do on our applications. We have a Health 360 app that helps them understand what they're going through.

So the technology side -- in terms of benefiting the client is huge. I also think there's a lot of efficiencies to be driven through the technology side. And we've seen that with employee benefits. And when you get to RFP processes where you're going through a competitive bid process, having the strongest technology is a big part of winning business without having to be the most price competitive because the sponsors value that technology support. So it's huge for us. And I think the transition to David is significant for that.

Okay. Maybe jumping over to Asset Management. Obviously, you talked about how important that is for SLF and it distinguishes you from some of your peers. And sticking with the U.S., starting with MFS. I think some investors have been more lately concerned about the margin coming down a little bit. Has it really been expanding. You've got a massive AUM base, $860-some-odd billion, I believe.

Yes. In Canadian, that would be USD 600 million to USD 650 million.

Pretty substantial. And then the dynamic of 70-ish percent of your costs are variable. I guess that interplay between moving the needle and continue to grow your asset base should give you the benefits of scale over time. How do you sort of see that developing, like can the margin go meaningfully higher over, say, a 2- to 3-year period, if you really...

A couple of things. One, clearly, you guys are all in that business. Asset managers that are in the public equity, in the public fixed income space, public equity, in particular, when equity markets are up, they -- we tend to do better because the AUM is higher and the fees are higher. And so you've seen that great tailwind for probably since the end of the global financial crisis where equity markets have been in a long, long bull run. We think that -- it's set back, right? We didn't want to be an insurance company that MFS. We want to be an asset management and insurance company. We think MFS is a key part of that in the public equity and the public fixed income space.

I think they're doing good things. Active ETFs in the U.S., there's tax advantages for the client until they've been building out their active ETFs, and we think that's a really good thing and they're starting to get recognized on that side. They've been building out their public fixed income. They've had great performance in public fixed income. The issue of public fixed income is the difference between grade and not so great is relatively small. So we're expecting over time that we'll start to get more flows there. They've been -- they're very close to the clients and their clients understand how they manage money, but they're subject to all those trends that happened in public equities and public fixed income where you've seen changes going more passive, institutional investors having different priorities, some going into the alt space. But they continue to perform well for their clients against their objectives and how they define their asset management approach and their clients understand that and buy into that. That's how they've stayed strong in the U.S. retail space and in the global institutional space.

And so while they've been in outflows, those outflows are roughly consistent with what you would see in the broader industry. And in fact, over time, they've been better. And we think that having a strong public equity, public fixed income asset management business that's global is important to us. We can find ways to position MFS through our wealth businesses. We're doing that in Asia and in Canada and help MFS grow. But they are that piece of our asset management platform.

Alongside of that, we saw many years ago, and Steve will talk about this more probably that there was a switch coming into the alt space and that clients were becoming very interested in the alt space. And we systematically built over time, one of the strongest alternative businesses in Canada, and our goal is to compete with the strongest alternative businesses in the world. And so we've built a platform that has $250 billion of third-party assets in the asset management, growing across real estate, infrastructure, private credit and we took our private fixed income space business out. And that gives us a balance across public equity, public fixed income into the alternatives. And we think that, that's really good to manage through different cycles, different interest rate environments, different equity market environments, different economic environments, and it's important for us as an asset manager to see across those.

And everybody understands what their role is, and how they add value to the firm. We won't -- we'll see different cycles in each of those and being across the asset management platform is important to us. We are increasingly looking to ways to add value as a major player in the retirement space in Canada. Our GRS business is looking for ways to bring more of alts to our client base. Our wealth business are looking at ways to bring more alts to our client base, but also to bring more of MFS. So we have about $25 billion of MFS globally that we run through our wealth businesses, and we think we can increase that quite significantly. We think we can increase in the alt space, what we do through our wealth businesses. And creating that we're called a bit of a flywheel from our wealth businesses and our asset management businesses. We're unique. We have $1.5 trillion in assets under management and only $200 billion of that is our general account, $1.3 trillion of our assets are with third parties or through our wealth business.

And so we get this incredible opportunity to think about ourselves as an asset manager with the capabilities we have on the insurance side to provide some flows into the asset management space. And when we step back and look at other alts businesses, they're buying insurance. We don't need to buy insurance. We have insurance that we like. Again, it's low capital, low guarantees. We're not worried about the insurance, things that could happen from buying those books. And that insurance business helps to fund how we think about the alts business.

Okay. You sort of dovetailed into my next question on SLC. But just going back to MFS. So it sounds like it's more of a margin stability story that .

Sorry, yes. When you look at the margins, as you said, 2/3, 70% of their costs are variable. And so you get some of that. They actually have -- their fixed cost for the size of AUM they have is actually relatively low by industry standards. It has to do with how they manage and how they manage globally. I think that you're seeing some natural sort of changes in the margin as things change, but a lot of it is going to relate to the size of the AUM.

And if you think about MFS, we get a $1 billion plus earnings from MFS, 90% of that comes to us as cash. So people are assessing MFS, they should also look at what we earn on that 90% that comes back to us in cash. If you want to do an easy way, just you could assume that, that was buybacks, right, because we're -- but it also provides potential for M&A and those types of things. So that cash flow to us. I've said this before, that cash flow to us from MFS has funded, the growth that we've had over the last 10 years in M&A but also in buybacks. Like it's a very important source of cash for the company.

Okay. Can you maybe talk a bit more about that flywheel, like that connectivity, SLC, obviously, MFS. It seems like it should have a very good story on that interlink clients.

I think there's huge potential here, right? And if you look at us as a global business. We have connections on the wealth side in Asia and in Canada in particular. And I think the opportunity in Asia long term is really significant. We need to find -- we've run a little bit too siloed, and we need to find some ways to look at bringing some value back into these businesses, particularly today, where we know a lot of investors want to increase their ownership of alt, right? And we've got these great alts capabilities. We've seen this with you guys. We have a partnership with you where we're bringing alts to your client base, and that's working phenomenally well.

We can do more with our own wealth businesses to bring some of those capabilities back to our clients. So the interest in the alts from investors is, as you would know, is significant today. And I think we have some opportunities to really help with that. We can help with that in other ways, right, helping to introduce Steve's business. We deal with 25 banks in Asia, helping introduce Steve's business to those 25 banks and finding ways that we can bring some capabilities to those. So I think thinking more about growth and using our capabilities, whether they be in the wealth businesses or whether they be in partnerships we have to drive more flows will be an important part of creating this flywheel.

And is the space getting a bit more competitive? I imagine it seems like everyone seems to want to go into that alternative space. It's...

I think it almost couldn't be more competitive. It's very competitive because you've got some really massive players globally. I mean, Blackstone, Apollo, KKR.

But it's not impacting your ability to...

We think we -- well, one, we think there's room for us because we were very good at it. I think it would be hard today to rebuild this. There's not many insurance. If we look globally at insurance companies, and you mentioned this earlier, we have, we think, arguably the best asset management platform of any insurance company around the world. And we want to make sure we're taking our insurance and wealth capabilities to that asset management to help drive it.

So as an insurance company, we think there's a lot of opportunity that way. If you look at it like an asset management company, you said you're 50% asset management and you're also an insurance company. I would say we have the best insurance business of all the asset managers around the world. So our job now is to leverage the 2, is to create value between those 2. And we are doing a lot of that, but I think we can do even more.

Okay. That's helpful. We have a few more minutes. Definitely 2 areas I'd love to touch based on definitely Asia, obviously, you're excited about Asia, the high net worth story, the megatrends in Asia, insurance demand, all that good stuff, maybe just high level, like what excites you about Asia other than the obvious?

Yes. I think there's tons of growth. I mean, Asia, there's 4 billion people. There's -- we're primarily in developing economies. We see long-term growth across Asia. Manjit is doing a great job. He's reenergized that business there, and we're starting to see good growth come out of a number of our businesses.

If you saw our Investor Day, Manjit, talked about at-scale businesses and to achieve scale businesses. He's got this great balance of driving value and growth through our at-scale businesses and investing and growing our not at-scale businesses. He's -- many of you probably know Manjit, he's a disciplined guy, we're very aligned in terms of what that growth pattern is. And we've now built out distribution strength across all of our markets.

So in every market, we're an agency, in every market we're in bancassurance, in markets where brokerage is significant, we have brokerage business. And we have something digital in all of the markets. So we have the right distribution platform. You're seeing us grow fast in Hong Kong, in high net worth in India.

And I think there's opportunities to see -- Philippines has done quite well and start to see the not yet at-scale markets start to deliver towards adding value there. So China, Indonesia, Vietnam. So we've got the right -- we're in the right countries. I think there's significant opportunity. We talked about 15% growth, and we're committed to seeing that growth of 15%, which is part of that ROE story where you're going to see that growth.

So in Asia, as you know, I spent 5 years there, we went from $100 million in income when I was there to -- with Manjit now today, if you're looking, we've been running around $200 a quarter. So figure that as $800 million from $100 million a year to $800 million a year between 2012 and now. We're hitting that 15% and we think we can continue to do that.

I know one of my competitors is up, who might be here now talking about Asia later. We're as passionate as Phil is about Asia. And they do a great job there. We think we do a great job there as well. And I think there's. If you look at the top 5 companies in Asia, we're with them one of the top 5. And I think we see tons of opportunity to continue to grow and be stronger in Asia, and it's a good market. And there's also a developing high net worth business there. So it's -- we're very committed to that 15% growth and that will grow the ROE alongside of it.

Okay. Great. And then on capital, I definitely want to cover capital. You're sitting on a very, very strong LICAT ratio, a lot of cash at the holdco level. So it obviously lends the question to M&A. What do you -- are you seeing that the market is conducive to M&A right now? And then maybe compare that to the buyback option. I think you're at an NCIB, which obviously, you could do more if you wanted to. Maybe just talk about your priorities between...

Yes. Yes. I don't want to take away too much time, so I'll try to go fast. We do M&A where we see a need for scale or capabilities where we see we can hit our financial objectives and where we believe we can execute. And that's when we do M&A. We're at a place right now that you'll hear Steve talk about it, but he's going through the buyout of BGO and Crescent, our 2 biggest alts asset managers. We may do some bolt-ons there, but we think we have the right set of capabilities, and he is quite involved in that transition for BGO and Crescent.

So I don't -- I'm not seeing M&A there. Asia, Manjit, is going through a bunch of bancassurance deals, and we think we can grow without significant deployment of M&A there. Canada, there's not much happening. And in the U.S., Dan -- Dan and David are heavily in the dental sort of fixed. So I don't -- we're in a great capital position. I'm not saying we wouldn't do any M&A, but if we did M&A, I see smaller sort of bolt-on things because we need to know that we can execute on the integration. That's going to be the most important thing. And so having conviction on that is going to be important before we do something.

So that means that our buyback becomes more important because we do have a lot of capital and sitting at the top of the house with too much capital is not what we want to do either. And at 151% and a 20.4% leverage ratio. So I would say that -- I'm not saying we would never do an M&A, but it has to meet those 3 criteria and -- it's -- at this point in time, the business group would have to prove to me that they could execute on the integration. I think it's a tall order to prove that when there's so much going on. So this gives us the flexibility. We do think, in these times, having a strong capital position, not a bad thing. But at 151%, I think, were on the high side.

Okay. Fair enough. And then any final key messages to investors?

It's -- we're feeling good about our medium-term objectives, and we're feeling good about achieving our medium-term objectives. And there's a lot of resiliency in our business. We've got a great executive team, and we're committed to delivering on those objectives. And so I think we're in a good position to do that. It's a more difficult environment. We all know that today is more challenging than it was in 2012 for sure, when I first went to Asia. If I think about that environment, we had a great run for a number of years in terms of the economy and now things are more challenging.

But we think we're built to grow through that. And I think the diversity of our business across geographies, 28 countries and the diversity of our business where we've got this asset management and wealth platform getting close to equal size to our protection business gives us a lot of resiliency in our ability to be low capital is really important to that. So thanks, Mike. Thanks for...

Thank you very you much for joining us today. Thanks for the insights as always.

Always a great conference, right? It kicks the year off in a good way. So thanks. Back to school for all of us.

Pleasure to have you. Thank you, Ken.

Thanks, Mike.

Good morning, and welcome to Sun Life Financial Q2 2025 Conference Call. My name is Gaylene, and I will be your conference operator today. [Operator Instructions] The conference is being recorded. [Operator Instructions] The host of the call today is Natalie Brady, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Ms. Brady.

Thank you, and good morning, everyone. Welcome to Sun Life's earnings call for the second quarter of 2025. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter.

After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management are also available to answer your questions this morning. Turning to Slide 2. I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I'll now turn things over to Kevin.

Well, thanks, Natalie, and good morning to everybody on the call this morning. Turning to Slide 4. Our results this quarter once again highlight the strength and the resilience of our balanced and diversified business model. Our underlying EPS was $1.79, up 4% year-over-year. Underlying net income was strong at just over $1 billion. Underlying ROE was 17.6%.

These results were solid across all of our businesses with Asia, Canada and SLC Management having strong quarters. The U.S. Employee Benefits business hit record earnings this quarter, and our stop-loss business in the U.S. performed well at a time when the industry is seeing challenges.

This reflects our leadership position in the stop-loss market. We continue to take a long-term view on our U.S. Dental business, which has recently been affected by impacts to the U.S. health care environment. Tim will go through this in more detail. MFS continues to have solid earnings. While we experienced outflows this quarter, we continue to see strong signals of clients' confidence and interest in our offerings, evidenced by our strong total gross sales.

Reported earnings were up over last year. The difference between underlying and reported earnings was primarily driven by real estate and market-related impacts. These impacts were timing-based, not structural and are expected to be neutral over the medium term. There was also a write-down of an intangible asset related to the U.S. Dental contract. Our capital position continues to remain strong, reflecting our focus on financial discipline and capital-light businesses. Our LICAT ratio at SLF was 151%, and we bought back close to $400 million of Sun Life shares through our share buyback program this quarter.

Turning to Slide 5. We highlight our progress against our strategic imperatives, asset management, Asia, health, digital and people. We saw good momentum and resilience across our asset management and wealth platforms this quarter. At SLC Management, our performance continues to track well for the year. We had a strong quarter for capital raising with $6 billion of assets being raised, doubling over last year.

Some notable highlights include the continued strength in Crescent U.S. Direct Lending and Crescent Solutions funds. MFS continues to experience outflows this quarter, reflecting the volatility in equity markets. Despite this, we're encouraged by MFS' total gross sales, which are up year-over-year and demonstrate client commitment to MFS. Our active ETF business continues to build momentum, and our fixed income business saw good net inflows this quarter at MFS. This quarter, MFS was named Best New ETF Issuer at the 2025 ETF.com Awards.

MFS continues to play a strategic role in Sun Life's overall financial strength, delivering solid margins and cash flow to the organization. We continue to manage this business with a focus to achieve strong performance over the long term. In Canada, our Asset Management and Wealth businesses, driven by GRS saw continued strength with assets exceeding $200 billion this quarter. In Asia, our Asset Management and Wealth businesses delivered a record quarter.

In our India Asset Management joint venture, strong inflows to newly launched equity funds contributed to a nearly doubling of net wealth sales this quarter, while favorable markets helped drive wealth assets up 21% year-over-year. Individual Protection also contributed significantly to Asia this quarter with sales up 22% year-over-year. Our bancassurance distribution is delivering good results overall with sales up 14% year-over-year.

We are pleased with the sustained growth in Asia CSM, which was up 23% since last year, ending the quarter at $6.2 billion. In Hong Kong, our diversified channel strategy continues to yield strong results. We achieved protection sales growth of 35%, supported by robust performance across our agency, bancassurance and broker channels. We also launched an index universal life insurance product for professional investors, becoming the first insurer in the market to bring this innovative solution to clients.

This product addresses the growing market demand for high-end wealth management solutions and shows our ongoing dedication to supporting our clients' evolving needs. Shortly after the close of the quarter, we announced a further investment in Bowtie. We've been on the ground with Bowtie since the beginning of their journey, and it's incredible to see their growth. They were recently recognized as the fastest-growing company in Hong Kong by the Financial Times in the rankings of high-growth companies in the Asia Pacific.

We're excited to continue our partnership with them and to advance our shared goals of making health insurance simple, accessible and affordable for clients. In Canada, we saw a strong sales performance for Sun Life Health, up 41% year-over-year, primarily driven by large case wins. In the U.S., our Employee Benefits business achieved record earnings and margins this quarter. In stop-loss, our industry-leading capabilities, expertise and scale have served us well in this competitive market, and stop-loss continues to be a foundational part of our U.S. business and strategy.

We made substantial progress this quarter in advancing our digital leadership, including the deployment of new generative AI capabilities, making it easier for clients and advisers to do business with us as well as helping us enhance our productivity and our operations. In Canada, we're excited about the launch of our reimagined mobile application. This new app features an enhanced health, wealth and protection experience, facilitating easier access to health services and simplifying key tasks. We also launched Adviser Notes Assistant in Canada, a generative AI tool designed to enhance client experience and streamline workflows.

In Malaysia, we enhanced operations with real-time underwriting capabilities to speed up the sales cycle. And in Hong Kong, we piloted Adviser Buddy, an AI chatbot to support advisers across the entire sales journey. In the U.S., we implemented straight-through processing for our supplemental health accident insurance to improve productivity and client experience.

These are just a few examples of the work we are doing to drive digital leadership across our businesses. Sun Life people and culture remain central to our success. This quarter, we were named one of the best workplaces in financial services and insurance in Canada as well as one of the best workplaces for health and well-being in Ireland. Before I pass the call over to Tim, I want to acknowledge some leadership changes.

Last night, we announced that Dan Fishbein, President of Sun Life U.S., plans to retire in March 2026. Over the past 11 years, under Dan's leadership, our U.S. business has transformed into a leader in health-related benefits and services, connecting the broader health care ecosystem and helping people access the care and coverage they need. Dan brought Sun Life further into the health space with services like care navigation, digital health programs and clinical innovation interventions that complement core health coverage.

I've been a teammate of Dan's on the executive team since he joined in 2014. I've been impressed by the impact he has had and how he has helped Sun Life evolve into a leader in the group benefit space in the U.S. He has truly made a difference. And I want to congratulate David Healy. David will become President of Sun Life U.S. on September 1, at time which Dan will assume the role of Executive Chair of Sun Life U.S. until his retirement to ensure a smooth leadership transition.

David is a seasoned executive at Sun Life with over 20 years of experience and is currently the President of Sun Life U.S. Dental business. Throughout his tenure, he has led and grown the Employee Benefits business, headed operations and technology teams and managed the integration of key acquisitions, including Assurant Employee Benefits and Maxwell Health. His experience and leadership have contributed significantly to Sun Life's growth and success in the U.S. market.

David's combination of technology and operations experience and his employee benefits background are perfectly aligned to our ambitions for the U.S. business. You will get to meet David and know him more in the coming months. I also want to recognize Kevin Morrissey, our Chief Actuary, whose voice has been a familiar presence on these earnings calls for nearly a decade. This will be Kevin's last earnings call as he prepares to retire this fall after an impactful 37-year career with Sun Life.

Kevin and I have worked closely together throughout my entire 28 years at Sun Life, and I personally have watched him develop into a strong leader for us. His remarkable journey with Sun Life's companies has left an indelible mark on our organization, and he has helped train and develop many of our actuaries and has been an important voice in the industry. I'd also like to take this opportunity to welcome our incoming Chief Actuary, Brennan Kennedy. Brennan is currently our Senior Vice President of Global Asset Liability Management and brings over 25 years of experience with Sun Life to this new role.

Both Kevin Morrissey and I have worked closely with Brennan over his entire career at Sun Life, and we are really pleased to see him take this next step. His deep expertise spans actuarial risk management, finance and of course, ALM. Brennan will be a valuable addition to our global leadership team. I want to congratulate both David and Brennan on joining the global leadership team.

Dan and Kevin, on behalf of all Sun Life employees, thank you for your leadership and all of your many contributions over the years. We wish you both the very best in the future as you begin the next well-deserved phases of your lives.

And with that, I'll turn the call over to Tim, who will walk us through the second quarter financial results in more detail.

Thank you, Kevin. Good morning, everyone. Turning to Slide 7. Overall, we are pleased with our second quarter 2025 results, which demonstrated the resilience of our business in the current environment. We reported underlying net income of $1.015 billion, up 2% year-over-year, while underlying earnings per share of $1.79 was up 4% over the same period. Asset Management and Wealth underlying earnings were flat compared to the prior year on higher fee income at SLC Management in Asia, offset by lower fee income at MFS and lower investment spread income in Canada.

Group Health and Protection underlying earnings were up 7% year-over-year from higher U.S. Dental results and favorable mortality experience in Canada. Individual Protection underlying net income was down 10% over the prior year from unfavorable mortality experience in Canada and the U.S. Underlying return on equity was 17.6%, down from the prior year from higher average equity from earnings growth and changes to other comprehensive income from foreign exchange and interest rates.

Reported net income for the quarter was $716 million. The variance between reported and underlying net income was driven by market-related impacts and an impairment charge on a customer relationship intangible related to the early termination of a U.S. group Dental contract. Market-related impacts reflected unfavorable interest rate impacts and real estate experience. Interest expense includes the impact of risk-free rates, swap and credit spreads and other timing-related items arising from the market volatility experienced during the quarter.

Real estate returns were flat for the quarter, below our long-term expected returns. Total contractual service margin, or CSM, which reflects future profits, increased 9% year-over-year to $13.7 billion, driven by strong organic CSM growth. New business CSM of $435 million was flat compared to the prior year. Organic capital generation, net of dividends, was strong at $673 million, above our target range of 30% to 40% of underlying net income.

Our balance sheet and capital positions remain robust with an SLF LICAT ratio of 151%, up 2 points from the prior quarter as organic capital generation more than offset the impact of dividends, share buybacks and markets.

Holdco cash remains solid at $1.1 billion after returning almost $1 billion to shareholders during the quarter, and our leverage ratio remains low at 20.4%. Finally, book value per share increased 5% over the prior year, demonstrating our ability to generate strong growth while returning value to our shareholders with 4.8 million shares repurchased this quarter under our share buyback program.

Turning to our business group performance on Slide 9. MFS' underlying net income of USD 184 million was down 5% year-over-year, primarily reflecting lower fee income from lower average net assets. Pretax operating net margin of 35.1% decreased by 1.4 percentage points from the prior year on lower fee income from a decline in average net assets and interest income. Assets under management of USD 635 billion were up 3% over the prior year and up 5% over the prior quarter. The sequential movement in AUM was driven by market appreciation, particularly in the latter half of the quarter, partially offset by net outflows.

Outflows of USD 14.3 billion included retail outflows of $5.9 billion and institutional outflows of $8.4 billion. Retail outflows continued from market uncertainty and institutional outflows reflected primarily client rebalancing activity. Overall long-term investment performance for MFS remains strong with 90% of fund assets ranked in the top half of their respective Morningstar categories for 10-year performance. Fixed income performance was also strong with 98% of fund assets ranked in the top half of Morningstar on a 10-year basis.

Turning to Slide 10. SLC Management generated underlying net income of $45 million, up 7% year-over-year, but down from a record result last quarter. The sequential decline is attributable to catch-up fees and seed investment gains recorded in the prior quarter. This quarter's results included a modest seed investment loss, which contributed to the below-trend result. Fee-related earnings of $89 million were up 37% year-over-year, driven by strong capital raising and lower expenses.

Reported net income was 0 this quarter, driven by acquisition expenses and market-related impacts. SLC Management continues to demonstrate strength across the platform with capital raising of $6 billion this quarter, reflecting strong activity in SLC Fixed Income, Crescent and BGO. Deployments remained strong also at $6 billion for the quarter, reflecting continued attractive investment opportunities for private assets. SLC's fee-earning AUM of $194 billion was up 9% year-over-year, driven by deployments and market appreciation. Sequentially, fee-earning AUM was down 4%, driven mostly by currency impacts.

Turning to Slide 11. Canada's underlying net income of $379 million was down 6% year-over-year as strong business growth was more than offset by lower investment results and less favorable insurance experience. Reported net income of $330 million was up 13% year-over-year on more favorable market-related impacts. Asset Management and Wealth underlying earnings were down 4% year-over-year from lower investment spread income driven by lower yields on investment contracts.

Wealth AUM of $203 billion was up 12% year-over-year on market appreciation and net inflows. Group Health and Protection underlying earnings were up 1% year-over-year, reflecting more favorable mortality experience and business growth, partially offset by less favorable morbidity experience due to higher cost disability claims in the quarter. Group sales were up 41% year-over-year, driven by large case sales.

Individual Protection earnings were down 16% year-over-year due to unfavorable mortality experience, which mostly offset a corresponding gain in the CSM. Individual Protection sales were down 19% year-over-year, driven by third-party sales.

Turning to Slide 12. Sun Life U.S. underlying net income was USD 143 million, down 4% from the prior year. In Group Health and Protection, underlying earnings were higher by 10% year-over-year, driven by business growth in Employee Benefits and Dental, partially offset by unfavorable experience. U.S. Group Health and Protection sales of USD 226 million were down 7% year-over-year, reflecting the impact of pricing discipline in a competitive market for medical stop-loss, partially offset by higher government and commercial Dental sales.

In medical stop-loss, results this quarter were in line with recent expectations. Morbidity results reflected the expected reserve accumulation on January 1, 2025, business, including the previously indicated 2% pricing shortfall. In Dental, this quarter's results reflected higher Medicaid claims from higher per-member utilization and severity. In addition, the uncertainty around Medicaid funding in the U.S. has slowed repricing actions with both states and health insurers and is contributing to elevated Dental loss ratios in the near term.

As a result, we no longer expect the business to achieve USD 100 million in earnings this year. Given the near-term challenges, we are reforecasting our expected earnings trajectory for the business. We are confident in the long-term outlook for Dental and remain committed to the 12% plus medium-term underlying earnings growth objective we set out for the overall U.S. business segment. Going forward, we expect Dental to contribute at least 1/3 of the overall U.S. earnings growth.

Individual Protection underlying earnings were down 46% year-over-year, driven by unfavorable mortality experience and credit impairments. Reported net income of USD 74 million was down 19% year-over-year and included an impairment charge, which more than offset improved market experience.

Turning to Slide 13. Asia posted a record underlying net income of $206 million, up 13% year-over-year. Individual Protection earnings were up 7% year-over-year on business growth and higher investment contributions, partially offset by higher expenses from investments in the business. Asset Management and Wealth earnings grew 67% over the prior year on higher fee income from strong AUM growth.

Reported net income of $98 million was lower year-over-year from unfavorable market-related impacts. We continue to see strong sales in Individual Protection, up 22% year-over-year, driven primarily by momentum in Hong Kong across all channels, solid contributions from our bancassurance deal in Indonesia and sales growth in India.

Asia's total CSM of $6.2 billion grew 23% year-over-year, driven by strong organic CSM growth. New business CSM of $299 million was up 34% from strong sales and margins in Hong Kong. We're pleased with the overall results we've delivered this quarter despite the challenges in the macroeconomic and geopolitical environment. We remain confident that our strong fundamentals, diversified business mix and geographies and robust capital levels will continue to support our ability to achieve our medium-term objectives and deliver on our purpose.

In closing, my executive team colleagues and I would like to extend our congratulations to Kevin Strain, who has been named the 2025 International Business Leader of the Year by the Canadian Chamber of Commerce. This award celebrates Kevin's leadership and strategic pursuit of global opportunities, which have significantly elevated Canada's international presence. On behalf of all Sun Life's employees, Kevin, congratulations on this outstanding achievement. With that, I will pass it back to Natalie for the questions and answers.

Thank you, Tim. To help ensure that all participants have an opportunity to ask questions this morning, please limit yourselves to 1 or 2 questions and then requeue with any additional questions. I will now ask the operator to poll the participants.

[Operator Instructions] Our first question is from Doug Young with Desjardins Capital Markets.

Just maybe starting out on the U.S. group and the Dental side. You no longer think you can hit USD 100 million of earnings in 2025. I don't think that will be a shock to most people. But you also put out a target of $250 million by 2029, no mention of that. Just wondering how we should think of the evolution of the U.S. Dental business over, call it, the next 5 years? And if you can weave in, I think you said you think 1/3 of U.S. earnings growth is going to come from the Dental business.

Maybe if you can kind of wrap that all together. And then there's obviously a lot of goodwill and intangibles related to the business. You spent $3.1 billion on it. And the questions I'm getting is that does that need to get written off? At what point in time do you look at that as a potential write-off? And can you talk about the size of the goodwill and the intangibles related to DentaQuest?

Doug, this is Tim. Maybe I'll kick this off. So in light of the near-term uncertainties that I referenced in my opening remarks, particularly around Medicaid and the repricing, we're having to reforecast our earnings outlook for the business. And rather than provide a single point estimate on earnings numbers for a number of years out, I would really refer you back to our medium-term earnings growth objective for the U.S. segment overall.

As I said, we're committed to the 12% plus objective that we shared at Investor Day. And as mentioned, expect that Dental will be at least 1/3 of that overall earnings growth for the segment. And then looking ahead, we're confident in the long-term outlook for the business. We're the largest Dental benefits provider in the U.S. by membership and have a strong brand presence in the market. And we see a lot of growth opportunities in the commercial space, which has higher margins, the opportunity for synergies with our employee benefits business, the opportunities we have to reduce expenses and invest in the business to make it more efficient.

And then ultimately, the repricing actions to get back to the pricing target levels over time is really what's giving us confidence in the business in the long term. And then on your second part of the question related to intangibles. At the time of the acquisition, we set up customer relationships and system intangibles of about $1.2 billion, and we had goodwill on the books of about $2 billion.

And when I look ahead for the business, the customer relationship intangibles, those are tied to specific contracts. And so in the case of this quarter, there was one contract that terminated early. But overall, because of the outlook that I referenced over the long term, we still remain confident in our goodwill. We test that for impairment regularly. We have ample cushion of fair value above that at this point. So nothing further to indicate at this time.

And then just maybe a follow up on this. Just like why did the -- there was an ASO group Dental contract that terminated. Can you talk a bit about why that happened? And then on the repricing side, I think a lot of this hinges on repricing. It seems like it's going slower. Can you talk a bit about what you're seeing on that front?

Yes. It's Dan Fishbein. Just on both of those items, first of all, the client that terminated was a commercial ASO arrangement that was a related party to the seller. So we had established a separate intangible for that reason for that contract. There is a natural ebb and flow of existing business. There will always be some clients that will leave and, of course, new clients that come on.

Without going into all the details on this particular client, our assessment is they were -- they're a nonprofit client and they felt more comfortable working in the future with another related party from their nonprofit world. And perhaps we're not completely comfortable being with a public company relationship.

Overall, the relationship has been good with that client, and they will remain with us until August 2026. And we're currently working closely with them on transition. So this is a rather unique situation. We don't think it's necessarily indicative of broader issues. And then -- I'm sorry, remind me your second question?

Repricing.

The repricing, thank you. There's no question that the reconciliation bill that moved through Congress and was signed recently by the President has created a chilling effect on negotiations for appropriate pricing with states and also with the health plans that we work with.

Now long term, we don't expect a significant impact on the business we serve from the bill because we -- 80% of our Medicaid membership is kids and the changes in the bill largely affect adult coverage.

However, it is -- the uncertainty around future Medicaid funding has caused states and health plans to slow down on bringing rates back to where they need to be, correcting them after the mix shift that we've talked about before that resulted from the end of the public health emergency. We are continuing to make progress on pricing, but unfortunately, it will take longer than we had anticipated.

Doug, it's Kevin. I just wanted to reinforce a couple of messages around the Dental business because it is an important part of the U.S. group space, and it is a part that is repriceable and has low capital usage. And the acquisition of DentaQuest, we weren't really a player in the Dental business. It added scale and new capabilities for us.

We weren't in the Medicare, Medicaid business at all, and that's an important part of the U.S. health care system. It's definitely going through a lot of impacts right now, not that different than what we're seeing our competitors go through. And those impacts are higher usage by members, higher usage by providers, which you tend to see when people think their benefits may be going away. So that's not unusual to see, and that's partially a public health emergency, but also the funding that Dan discussed.

And you're seeing a rational approach by the states, just saying we're uncertain about funding, so they're not changing pricing as aggressively as we would have sort of anticipated. But longer term, we see the opportunity, Tim mentioned this, to go more into the commercial space and to optimize the Medicaid, Medicare space, which are going to be important parts of the U.S. health care system and Dental is an important part of the group benefit system.

So it's a difficult challenging time, not just for us, for everybody who's in that space, and we're going to work our way through it, and we're doing the right things to do that. So I think that, that's -- it's important to keep that context.

No, I do appreciate that. And just one follow-up, Manjit. EMPF, I know you're a big player, Manulife obviously kind of quantifies what the impact that has on underlying earnings. Can you quantify what the impact is for your MPF business?

Doug, it's Manjit. Yes, so you're right. As you heard yesterday, the Monetary Provident Fund Scheme Authority will take on the administrative capabilities for responsibilities for this -- for the MPF assets. So the fee that we earn on administering those will no longer be there. The impact for us will be around CAD 10 million a quarter. Overall, this is a very good business for us. We've seen good growth in this business over the years. It generates a good ROE, and we expect that to continue.

I might also mention that we are pivoting to do more asset management in that space, and Manjit and the team have been working on that. And that will be an important part of that -- the EMPF business model going forward.

Our next question is from Paul Holden with CIBC.

I want to ask a question on the -- particularly on the U.S. medical stop-loss business. So just trying to -- looking at the Group Benefits underlying earnings of $121 million for the quarter versus $124 million a year ago in the same quarter. So trying to get a sense of what proportion of that might be stop-loss versus employee plans and then also sort of any need to accelerate repricing actions in stop-loss, given claims loss trends across the industry?

Thanks. We were actually pleased with the stop-loss results in the second quarter. As you may recall, in the fourth quarter, we and everyone else saw a significant spike in medical expenses in our stop-loss business. We headed into this year, obviously, with some concern about where that would go. But the experience has largely stabilized and has been in line with the expectations that we set at that time.

Our earnings in -- for stop-loss in the quarter, we don't break it down between stop-loss and employee benefits. It was down a little bit compared to last year, but very much in line with the expectations that we laid out. We've actually also seen some improvement in the loss ratio for the January 1, 2024 cohort, which is now almost entirely complete, certainly not back to where it was prior to the fourth quarter, but there has been improvement since then, which is quite reassuring.

We also are now starting to get some experience on the January 1, 2025, cohort, but we're still very early in that process with only about 12% of the claims in. But what we've seen so far is similarly reassuring about the experience.

As we mentioned at that time, we thought that our pricing for 2025 was about 2% less than it probably needed to be. We have certainly put through those price increases. We put them through during the first quarter, largely for effective and beyond, and we have been able to get those increases. So we feel that the business going forward is properly priced to reflect the experience that we're seeing.

Okay. That's a good update. Second question then would be with respect to SLC. So fairly big difference between the year-over-year growth in earnings up 37% and then the underlying up 7%. And I get there's some accounting differences and don't need an explanation for that viewpoint. But just more like which one do you think is more of an indication of true run rate earnings growth in that business? Or maybe the answer is somewhere in between, but just trying to get a better understanding of what really is indicative of how this business is growing from an earnings perspective.

Yes. Thanks. It's Steve. I think the things to look at, and you can see -- you can track this in the supplement are to look at the things that -- our core business is actually very stable and will track with AUM over time. So if you look at management fees, fundamental management fees, if you look at distribution fees, property management fees, those are going to tie very directly with AUM.

One variable component of management fees are catch-up fees, which can vary a lot quarter-to-quarter because they're all dependent upon when funds flow -- when funds close. And certain funds when they close, result in catch-up fees, they're never negative. They're only positive, but they're very lumpy. And I think fee-related earnings is really the best view of kind of the core earnings power of the business because that is before any marks on seed investments.

And so while fee-related earnings will be impacted by quarterly fluctuations in things like catch-up fees, it's a pretty stable number, and we'll track with AUM. Below that line between there and underlying net income, you get some noise around marks on seed assets. We had some noise this quarter that I think will probably reverse at some point on our investment in a very strong industrial portfolio that was ceded to be potentially sold in the wealth channel.

That is under -- that is below the fee-related earnings line, but does impact underlying net income. So I would track management fees and fee-related earnings. And also, of course, what is our fundraising experience and what are our net flows? And those are clearly trending up. Our fundraising for the quarter was $6 billion. up double over last year, up from $4.4 billion from last quarter, and we had positive net flows again of about between $4 billion and $5 billion this quarter.

Paul, it's Kevin. I'm just going to add, we're on track to achieve the $235 million that we gave at Investor Day. So if you're looking at the next 2 quarters, that $235 million gives you a sense that what we're expecting. As Steve mentioned, we had higher seed gains and catch-up fees in the first quarter.

And the catch-up fees this quarter were actually 0 and the seed investment was a loss. And so you're seeing a little bit of volatility, but I would think of it as targeting the $235 million. And then on our Investor Day, we gave you numbers around 20% growth in underlying earnings and 20% FRE growth over the medium term. And that's the way to think about that.

We feel like we're on track on SLC, and we're seeing flows that are consistent with that. And the big piece we needed to do, and we talked about this last quarter, was getting ready for the buy-ups and the leadership team, and we've made some really significant announcements there, which we think are really positive under Steve's leadership.

If I could just inject one other quick comment. The underlying net income this quarter of $45 million, I would say, was -- is below the run rate that I've mentioned and -- but marginally below. It was a fairly normal quarter. We had kind of 2 negatives. One was a markdown on our [indiscernible] portfolio, which I think was kind of noise.

And the other was that we had 0 catch-up fees this quarter. Usually, we have some, and that was partially offset by some adjustments to some expenses. And so I would say that impacted us. The net impact of that on UNI was probably, I don't know, mid- to high single digits versus what I would consider our normal run rate at this point.

Okay. I'll respect the 2-question limit and let someone else fire away.

Question is from John Aiken with Jefferies.

Manjit, in terms of the growth that you've been experiencing in Asia, obviously quite positive. But moving forward, as we're expecting to continue to grow the business, do you think that margins are defensible? And what are you seeing as a competitive response?

John, it's Manjit. Obviously, as you know, we're in 8 different markets. There's different dynamics in different markets. But overall, we feel good about the growth that we've seen over the last little while. We feel we're in the right markets. We're making investments into our business. We're focusing on the client, and we're doubling down on execution. And I expect that to continue and for the foreseeable future to kind of continue to deliver good results.

And Manjit, would you mind giving us a little more detail in terms of the investment in Bowtie? What does it bring to Manulife -- sorry, Sun Life, my apologies. And what does Sun Life bring to Bowtie other than capital?

As Kevin mentioned, we've been in partnership with Bowtie for quite a number of years. They are a digital company that helps with insurance for our clients in Hong Kong. And they're a direct-to-consumer model that complements our distribution force. So I think it's a good partnership has been, and we expect that to continue.

The next question is from Gabriel Dechaine with National Bank Financial.

Just the driver of that severity and frequency trend, I think Kevin touched upon one factor there. People are worried about losing their coverage. I guess, is there more of that to come because it sounds like it, but could get worse even because Q3 is the seasonal uptick in Dental claims, back-to-school stuff. And then beyond that, I'm just trying to get a sense of what the pipeline for these claim activities looks like.

Yes. Thanks. You're absolutely right that the third quarter is the most adverse in terms of seasonality. We fully expect that. So that's something to look ahead to. And of course, that's because we mostly cover kids and back-to-school toward the end of the summer, parents take their kids to the dentist. So the third quarter usually has the least favorable experience of the year.

Conversely, the fourth quarter has the best. During the holidays, et cetera, there's less utilization. So we would expect that pattern this year to see some challenge in the third quarter and then very good results comparatively in the fourth quarter. In terms of what's driving the increase in utilization and severity, first, in the second quarter for us, there were some unique aspects there in that we did have some claim backlog that we were working down.

We also had one plan asked us to go back and reprocess some claims that they had submitted incorrectly up to a year ago. So there is some onetime effect in our experience. Some of that led to some increased severity, and we would not expect that to recur. But as far as the longer-term trend, we are seeing and of course, all of the health insurers are seeing as well. It's not just in Dental, a meaningful increase in severity as well as in some in utilization.

We do think that billing practices by providers aided by AI is driving some of the change in severity. So we're certainly both upping our game on how we handle that, but also we're going to need to make sure that, that's fully reflected in pricing going forward because that does seem to be a dynamic that's happening across segments and across the entire landscape.

Okay. Great. And then the pricing issue, I mean, that's a lever that has frequently been identified to help address margin issues. What's -- in normal course, what kind of -- what's the current situation compared to your normal timing? And then I guess a more silly question, what's your pricing power? If you say, oh, we need to raise the prices by 5% can't the state just say now, suck it up. I mean I don't know how -- what the mechanisms are.

Sure. Let me go through that a little bit and particularly with the focus on Medicaid, which I think is your question. In Medicaid, the rates are reset annually. So that's good. That's a very good aspect of this. But they are reset by the state Medicaid authorities, either directly to us in where we have those direct relationships or through health plans where we're subcontracting with those health plans.

So we can have influence over the rate, and we've dramatically increased our actuarial staff and our capabilities in that area over the past couple of years. And we provide a lot of data insight and opinion to the states, which they do take into account. But to your point, ultimately, they set the rate. Now they are required under the law to set actuarially sound rates, which typically means they look at the last 3 years of experience and then set the rate based on that experience plus whatever trend in Dental expense they apply to that.

Part of the challenge here, of course, has been that in the wake of the public health emergency ending, the business mix shifted rather suddenly and is not completely yet reflected in the past 3 years of experience that emerges over a 3-year time frame. Obviously, all our work with the states had been to get them to accelerate recognition of that effect. And in some cases, that was effective and in some cases, that's been less effective.

And now with the overhang of uncertainty about funding in Medicaid, that has certainly slowed that process down. We do believe that the rates will get to the right place once we get through that full 3-year cycle. That's what the law requires and certainly has been the history, but it is taking longer than we had originally hoped for sure.

That was part of my question, like how much longer what was your expectation and now given these dynamics with the new expectation?

Yes, I can give you a little bit of perspective on that. Last year, we were able to achieve about $140 million in rate increases. We expect to achieve additional rate increases this year, but not as much as last year. And we anticipate that it likely will take through 2026 to get the rates back to full expected margins.

Okay. All right. I appreciate that. And congrats on the retirement. If you're not on the next call, that's it.

The next question is from Alex Scott with Barclays.

First one I had, I wanted to touch on stop loss. I think it was mentioned in some of the remarks that there was a little bit of favorable development on 2024. I just wanted to see if you could size that for us only because small percentage changes on like full year '24 can have a pretty magnified impact on the current quarter. I just want to make sure I was understanding the impact of that correctly embedded in the segment reporting you guys gave.

Yes, Alex, as you know, there's multiple cohorts that overlap in each quarter. So it does get very complicated, right? Because in the quarter, we had experience from the 1/1/25 from the post -- sorry, from the 1/1/24 from the non-1/1/24 cohort and the 1/1/25 and even some experience final emergence of experience from 2023, actually.

And those, of course, naturally would go -- don't always all go in the same direction. We did have -- what I can share is, as you know, we had a significant spike in experience in the 1/1/24 cohort in the fourth quarter. And during the first and second quarters, about 1/3 of that has reversed. 2/3 of that adverse experience very much still there, but about 1/3 of it has reversed. The other cohort that's obviously very important right now is 1/1/25.

And as I mentioned earlier, we only have about 12% of the claims that have come in. So that's mostly a reserve pick. So we're still making the assumption that, that we were off by about 200 basis points on pricing, and that's currently what's in our results. But what we can see from that first 12% is consistent with or maybe even slightly better than that. I don't know if that answers your question, but I hope it's helpful.

Yes. That is really helpful. Second one I had is on MFS. And just wanted to see if you could talk a little bit about what you see in the back half for flows. I mean it sounded like you're optimistic on the inflow piece of things. Do you have any visibility on the outflows and just what it all may mean going into the back half of the year?

This is Ted. It's always very difficult to predict flows on a quarter-to-quarter basis. We think the trends that have been in place are likely to see to remain in place until they're not. So we've got institutional rebalancing from equity to fixed income, where our current balance leads to outflows there.

We also have the retail market at an elevated redemption rate, which again, we would not expect to be sustainable for the long term, but see no near-term abatement. So I think we wouldn't predict the back half of the year, but the trends in the near term will probably stay in place and long term, remain optimistic about returning to net flows in the future.

The next question is from Tom Gallagher with Evercore ISI.

Just a couple of questions on the U.S. I guess, Dan, the commentary on Dental, I just want to understand, would you expect to shrink Medicaid Dental for a while and grow commercial while you're going through this transition? Or would you still expect to be growing your -- the Medicaid business while you go through this transition? It sounds like it's really just a 1-year through the end of 2026 issue, not longer than that. That's my first question.

Okay. Yes. The Medicaid business, obviously, since the end of the public health emergency from the period early '23 to mid-'24, certainly did shrink. A reminder, if you go back to when the PHE ended, we lost 19.5% of the membership that we had at that point. And that represented about $400 million in premium and fees.

Yet the overall business -- the overall Dental business has grown by $200 million since we acquired DentaQuest. So what's happening there? Obviously, we're making a lot of sales at the same time. Now that 19.5% losses, obviously, in the past, that's already happened. And we actually have quite a bit of new business coming on board. Between June 1 of this year and January 1, 2026, we have 6 million new members, most of it Medicaid, but also some Medicare Advantage and also commercial business that is in various stages of being implemented into our business.

So the sales pipeline is still very robust. And in fact, following up on what Kevin said earlier, Medicare, Medicaid, government programs now represents more than half of the U.S. health care market. So it's very important that we be in that space. And we are continuing to grow in that space. It's a very important space for us. And as the market leader, we are continuing to grow. And we expect the business to continue to grow at a very healthy pace, not just over the long term, but even during this next 1- to 2-year period.

Tom, sorry, it's Kevin. And I just may add that you started with the commercial side, and that isn't side that we are emphasizing. Dan and I talk about that a lot. And David and I, as we were going through the process have been -- and he's leading Dental have been talking about the commercial space and how do we leverage the capabilities that we've bought with DentaQuest and they were small in the commercial space or almost non-existent, and we were small in the commercial space.

So we think there's a lot of opportunity over the medium term to continue to build that out as a strength for us. And we like the fact that we could have a more aligned mix of business in terms of the U.S. So having Medicare and Medicaid is important, as Dan said, but growing the commercial alongside of it is really important to us strategically.

And I think it's worth noting that the commercial has grown at a significantly faster pace over the past 3 years than even the Medicare and the Medicaid. And we would expect that faster pace to continue. Commercial right now represents less than 20% of the total business mix. We'd like to see that be a significantly higher proportion in the future, and that's what we expect.

My quick follow-up is, Dan, you mentioned that there was also some one-timer-ish type charges in the quarter. In Dental, can you quantify that relative to the breakeven earnings in the quarter, what would it have been if we stripped out that charge?

Yes. I think just to give it a little bit of perspective, particularly looking at the first quarter compared to the second quarter, because I know those 2 numbers are -- create a big contrast. You may recall in the first quarter that we had a retroactive premium payment from one of our largest state partners that was in the high single digits. We also had some nonrecurring favorable investment income.

And in this quarter, we did have -- I mentioned there was one client that asked us to reprocess claims they had submitted incorrectly going back about a year. If you just take those 3 items, that accounts for the entire difference between the first quarter and the second quarter. So if you took the first 2 quarters and the first half and divided it in half, that's probably a better picture of what the results would have been in the first 2 quarters.

The next question is from Tom MacKinnon with BMO.

If we look really at the Dental with only $2 million in the quarter, you still actually did better than consensus. And it seemed to be in part due to better other fee income and some better other expense control. So I want to delve into those 2 things. If I look at other fee income, it was up over $20 million year-over-year and sort of better than expected in each one of your -- in Asia and Canada and in the U.S.

So if you can maybe flesh out what is in that other fee income there, maybe dialogue, some of these other things that you have in Sun Life Health, maybe ASO fees, maybe other things like that? And how we should be thinking about the outlook with respect to this number that came in better than anticipated? And I have a follow-up as well.

Tom, it's Tim. I'll kick that off and if Dan wants to supplement on the U.S. You're right. The other fee income line includes a number of items. So we have our health group businesses in Canada and the U.S. That's our administrative services-only businesses. That's what earns fees. It also includes our wealth businesses across Canada and Asia.

And so we had a very favorable quarter this quarter was up year-on-year, about $18 million in total, up quarter-over-quarter, about $22 million. And a large part of that was the growth in Asset and Wealth Management that we saw, in particular, in Asia as well as in Canada. And so those businesses have performed very well with higher markets, and that's driving the bulk of the change.

In the U.S., it does include care delivery services that we provide. Those are fee income services that was up moderately in the quarter as well. I wouldn't expect that necessarily that trend line to repeat, but it was favorable for this particular quarter. And then in Canada, we have our CDCP program, our Dialogue business, et cetera, and that's performing very well. So that's where you're seeing the growth in the fee income.

Is this a -- should we be thinking about this as a run rate here? Or sorry, I'll let you go again. And then maybe the 2, you can let me know if you think this is more of a run rate what we see in this quarter for this line.

It's elevated. There was a couple of onetimes that I alluded to. But as long as funds continue to perform in the wealth businesses, you'd expect continued growth in that line item.

And I was going to make a different but related point because part of your question was the results were -- even despite the Dental results, the results were still pretty close to first quarter. The biggest positive there and one that I think is worth highlighting was really exceptional performance from our Employee Benefits business. That's the business with group life, disability and voluntary products. That business had the best results it's ever had. That was driven both by growth and by margins.

Okay. And then Also, if we look at other expenses, that number is down $50 million quarter-over-quarter, kind of down $10 million from the second quarter of 2024 at $440 million. Is this the trend that we should be thinking about with respect to this? Were there any one-timers there? Or is it lower incentive comp, better expense control? How should we be thinking about that number and how it should go going forward?

Tom, it's Tim again. So as you're right, we did have favorable results in our other expenses. The numbers you referenced, quarter-over-quarter and year-over-year, are correct. Most of that's coming from our corporate segment. And you can see the favorable result we had there. This is driven mostly by timing of initiative spend that we have and as well as incentive compensation, as you highlighted.

We do expect that initiative spend will ramp up a bit in the second half of the year. So we will give back some of this favorability, but we haven't revised our overall expectation of roughly $100 million a quarter for the corporate segment, so you can use that as a better indicator. We are seeing great traction from our overall expense efficiency program.

We had $25 million of savings in the quarter. We're still well on track for the $200 million in total cost efficiencies by the end of 2026. We have delivered about 66% of that to date. So we are taking action and have been very disciplined on expenses, but there was some timing of favorability in that, particularly in the corporate segment.

In the Corporate segment, it was $110 million. And are you saying that it should be $100 million going forward per quarter? So it was actually a little bit higher.

Yes. We get some volatility in that line. As I said, there's a number of things that go through that. We have the incentive comp, as I referenced earlier. We also had lower interest income on debt. We had a repayment of the loan that we had that was financing the bancassurance agreement we had in Indonesia. So I think the $100 million is a more realistic number. We haven't tipped over that actually in recent quarters. And so that's generally the range that we expect to be in going forward.

The next question is from Lemar Persaud with Cormark Securities.

I want to just turn back to the Dental business here and a comment that was made earlier. So just to be clear, you have $1.2 billion of these customer-related intangibles on the balance sheet in this quarter, $61 million write-off was one client. So presumably, if other clients continue to leave Sun Life here that are attached to these intangibles, there could be further write-downs of these intangibles. Is that correct?

Go ahead, Tim. Go ahead.

I was just going to say the intangible that we had for this quarter related to a very specific customer. So that was set up as a stand-alone contract. It was unique in -- for the reasons that Dan mentioned earlier. It was with the seller. So that's pretty unique and just given the size of that contract.

All the other contracts are bundled together, and we look at that in aggregate as part of the administrative services clients or in the case of the risk-type clients. So those are aggregated. So we can expect some volatility in customer relationships, but there's also a growth opportunity there. So we're comfortable with the carrying values that we have on those intangibles.

Okay. Okay. And then just moving on to MFS. And then the question is on margins. I wonder if you could talk about the outlook for margins on this business. I know there's seasonality here, it's quite well understood. So I'm talking about the 1.4% year-over-year drop in margins here.

It's a bit steeper than I had expected. And if I have it right, there's been year-over-year drops in 3 of the past 4 quarters. So I'm just wondering, is there an emerging trend here where margins are starting to move structurally lower at MFS? Or am I just kind of reading too much into it?

Sure. This is Tim. I'll start and see if Ted wants to supplement. So the decline year-on-year that we saw in margin was really driven by lower average net assets. We had average net assets last year in the second quarter of $620 billion. And for Q2 this year, it was $608 billion.

Now we saw a large spike in the AUM at the end of the quarter. The funds really rallied, but it was lower during the period given all the market uncertainty. So that is the single biggest driver to the margin change is the average net asset. And so the 140 basis points that you referenced year-on-year is driven by that.

The other dynamic is MFS earns interest income on cash and short-term balances and not dissimilar to Sun Life overall, those balances have come down. In the case of MFS, it's because some of those short-term investments have been used to seed funds like the ETF launches and other products. So those balances are down, and that coupled with lower short-term rates has declined that.

But the biggest driver is going to be that average net assets. And as you said, there is seasonality. So the first 2 quarters, we have incentive comp that goes through. That's when the awards mature. And then in the third and fourth quarter, we typically get much stronger results. So you'll see that margin improvement. When you look back, it was hit 40% in Q3 and Q4 in the past. And so as average net assets improve, you'll see that margin come back.

So this is Ted. So just to be clear, to summarize, no change to how we think about margins structurally through a cycle and over time, as Tim just outlined, nothing that Tim outlined talked about the fundamental cost structure items.

We manage costs extremely tightly through all points of the cycle so that at times when net assets are down, we've got the other items that Tim talked about, we don't need to think about cutting into things that will harm long-term results. So again, to wrap up, no change to long-term views on margins.

The next question is from Mario Mendonca with TD Securities.

I have sort of a related question about MFS margins. Clearly, the flows as well as what happened intra-quarter, hurt the AUM. But one could sort of easily come up with a period where markets are not accommodating, markets are down 10%. That's certainly something we've all seen and outflows remain at this level. We could clearly see a day or an environment where AUM is down somewhat materially. The question is, what is your capacity to manage expenses down abruptly in a period where AUM is under pressure?

So the vast majority of our expenses are actually completely variable with assets. So passively, our expenses come down as assets and revenues come down. The remainder that is not completely variable, as I mentioned before, we manage pretty tightly and we probably wouldn't pull those levers.

So in a strong market correction downward, you would see some hit to margins, but very much buffered by the variable nature of our cost structure. Also, while we're not a bear market shop per se, it would be more likely than not that our performance relative to benchmarks would be strong in a down equity market environment, a sharp down equity market environment, which would obviously be a good setup for future flows.

Did you see that...

Sorry, Mario, could I just add a piece too is that we look at MFS long term as a strategic important part of the company. And in a downturn, we would be seeing, as Ted said, likely you'd be seeing inflows because we believe in their active management investment performance and how they do that. And so we'd be careful not to damage the business in a downturn.

That's going to be really important to us that we think about this as long-term important to us. Markets will go up and down. And whatever we did on the expense side, we would make sure we did not do anything to damage MFS. I know that Ted's 100% behind that comment, but he's also got Sun Life 100% behind that comment.

Did you see that sort of -- those sort of inflows early in the quarter when things got messy or during 2002 sorry, 2022 when markets were soft. Did you see that sort of recovery in your net flows then?

You wouldn't see flows be that shortly following performance. So we did see the performance that would have led to, we believe, longer-term flow tailwind. But in an experience where the market is down sharply and we're outperforming, that doesn't translate on one to flows.

And in fact, what it tends to translate to on the retail side, in particular, is redemptions broadly, not specific to MFS, but redemptions broadly as retail clients sell into weakness that perhaps they should be buying.

Okay. Second question then is if we go back, Tim, you made -- you expressed some confidence that there was no need for a write-down of goodwill on DentaQuest. And you suggested that the fair value still provided a lot of room. But my question is this, how do you get there? What sort of fair value approaches are you using? Is it a -- I presume it's a discounted cash flow approach or P or some kind of terminal value, but how do you get to that value, considering where the profitability is currently?

Yes. Thanks, Mario. So the goodwill testing is a long-term test, right? And so the challenges that we've been describing on this call are the near-term headwinds. But through the fullness of time with the repricing actions that Dan spoke about, we expect that to recover.

So I think that's the first main principle. This is a multiyear approach. It is typically a present value. of cash flows approach. We use external appraisals to help support that. And we combined that business with our commercial business in the U.S. already. So we did have some extra business that was combined with that because we've integrated that now within our overall business.

So there is other cash flows that help support that. But it's really the long-term outlook that we take on goodwill, and that's what's given the cushion. Now we'll have that short-term pressure, but when you -- the impact of that won't be as significant versus the long-term expectations.

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

My question is for Kevin Strain. And I just wanted to touch on how you view the quarter and year-to-date results from a slightly different angle. I mean now that we've seen all Lifeco's report, investors and analysts sort of live in a relative world. And when I look at things like business drivers, I see some areas that seem to suggest that we won't get stronger EPS growth in the future.

I'm talking about things like CSM growth, where yours is the lowest. New business CSM, there was no growth. Your AUM is kind of going in the wrong direction and certainly not as strong as peers. So Kevin, should we think about like if we stand back and look at these really important high-level drivers, Am I correct in thinking that it's signaling slower growth? And does this sort of require much more buyback activity?

Well, thanks for the question, Darko. That's not how I would view the quarter. And if I stand back and look at the medium-term objectives that we have for the organization, we're talking about an overall growth rate of 10%. Halfway through the year, we're around 10%, a little bit higher actually, on an EPS basis.

If you look at -- I talked about what we expect from the U.S., which is 12% plus, and we're not changing that medium-term objective for the U.S. We're not changing it for Canada or Asia either. Asia is a fast-growing region for us and 15% plus and Canada at 6% plus, where we're a big brand, a big player in the Canadian market. We have scale across all the businesses.

We're leaders across all the businesses. And you saw the results that Manjit is doing. I talked about SLC driving towards the $235 million that we set at Investor Day and our commitment to the growth targets we put out at Investor Day -- last Investor Day for SLC and the momentum we've got in flows and the momentum we have there.

And we like the balance across asset management from the public equity and public fixed income space under MFS into the alt space under SLC and the combination of those things. So if I look at our medium-term objectives, I feel like we're right on plan for ROE and for earnings. I think about the goal of 20% for earnings and the 17.6% in the quarter, and we're exactly where we would expect to be. And for cash flow, we continue to see really good cash flow and the dividend support, which is the other measure that we do.

So I step back and look at it, Darko, and say, we're seeing momentum, strong momentum in Asia. Canada, the U.S. We do have a different mix of business from MFS. And so some of that comes through where the CSM isn't as important to some of the group businesses, and we're a large group player in the U.S. and in Canada. And I think it's important to keep that perspective.

And when I look at the asset side, we're performing strongly against competitors in the active asset management space, MFS is and in the alt space. So I step back and look at it and go, we're fully committed to our medium-term objectives. We're fully committed to our plan. We like our mix of business. I talked about that at the start that the model for our mix of business is strong. So I have a different takeaway and I have a deep understanding of all the businesses, and I think that we're driving towards the achievement of those medium-term objectives.

And I appreciate that. But I guess I'm coming at it from the angle at the margin top line. Do you see that -- I mean that's where I see on a relative basis, a bit of a slowdown. And I guess your ability to manage towards your objectives may not necessarily depend on top line, at least not in the shorter term? Or do you feel the top line is really not having any challenges here?

Well, if you look at the top line, our gross flows for wealth sales and asset management is up 23% year-to-date over last year. Group health and protection sales were up 9% from last year. Individual protection sales were up 15% from last year. New business CSM is up 7%. So I'm looking at that's halfway through the year, that's year-to-date numbers.

And we continue with a really strong capital position that gives us flexibility, as you mentioned, in terms of buybacks, and we are committed to our buybacks, and we have an active buyback program, and we'll be active in that program, but also gives us flexibility for organic growth. and also inorganic growth. And I think that we've got all the levers to continue to meet those medium-term objectives.

This concludes the question-and-answer session. I'll turn the call back over to Natalie Brady for closing remarks.

Thank you, operator. This concludes today's call. A replay of the call will be available on the Investor Relations section of our website. Thank you and have a good day.

This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.