Operator: And that will come from the line of Thomas MacKinnon with BMO Capital.
Tom MacKinnon: Yes, thanks very much. I guess the first question maybe is for Kevin. This is Manjit’s last call. And I think within five weeks, he’s going to be in Asia. So just if you can update us as to how the search for his replacement is coming along? And I have a follow-up.
Kevin Strain: Sure. Thanks, Tom. And I want to say again that I want to thank Manjit for his leadership as the CFO over the past three years. He guided us through the IFRS 17 project which was one of the biggest projects the company has ever done in the end of COVID. And he’s built a really strong followship at Sun Life, including in Asia. So I think you’ll still going to do a great job in Asia, and I’m looking forward to working with them as the President of Asia business. As you know, Manjit will be the CFO until mid-March when he takes over as the Head of Asia. We’ve already begun interviewing both internal and external candidates. We’re seeing some really great people. And once we finished our search, we’ll have an announcement on the new CFO.
Tom MacKinnon: Okay. And I guess a follow-up would be with respect to the capital generation, I think, Manjit, you said it was over $1 billion before payment of dividends, and that’s about 100% of your underlying earnings seems to be stronger than what you’ve kind of outlined as your medium-term guidance. What was driving that to be better in this quarter? And if you can comment about maybe utilization of the buyback, you’ve been quiet with respect to that. I guess, maybe you had some of the material non-public info and a CFO change, and maybe that’s what stopped you from buying back in the quarter, but what are your thoughts on that just given the good capital generation. Thanks.
Manjit Singh: Tom, so I’ll take the first part of your question and then hand it over to Kevin for the buyback question. So as you noted, we have a very strong capital position at 149%. And again, that represents our strong mix of capital-light businesses. Over the medium term, we expect to generate capital between 75% and 85% of unit, and that’s before dividends and after funding organic investments and what that translates to is roughly 1 to 2 points per quarter on average. And as you noted, every quarter, that might bump around a little bit, this quarter was a little bit higher than that. And the main reason for that was in addition to strong business capital generation, we also saw some favorable capital impacts on market movements, primarily driven by the lower rate environment. So I’ll turn it over to Kevin on the buyback.
Kevin Strain: Thanks, Manjit. And Tom, you — as you know, our decision on buybacks has a lot of factors, including where we are on M&A and also looking at things like non-material public information, as you mentioned, like a change in the CFO. We expect to execute on our buyback, and we intend to start purchasing once the blackout period ends. So I think it’s intention on buyback hasn’t changed and it just gets reflected in terms of what’s happening in tool around the company.
Operator: And that will come from the line of Gabriel Dechaine with National Bank Financial.
Gabriel Dechaine: Hi, good morning. I do want to revisit the CRE thing, just a different angle, though. One, and I think Randy confirmed that, none of your properties are levered, so you’re full. There’s no mortgages on these properties. And then the other aspect of the commercial real estate exposure, the mortgage book itself, where you’re the lender. I just want to confirm there were no losses and if there were, would we see that in dispose distinctly? Or would it just go through investment experience?
Randolph Brown: Thank you, Gabriel. Randy again. In terms of the real estate equity portfolio, you are correct. We don’t lever. We do have one exposure to a fund in Asia because in Asia, they can’t own U.S. property directly. So it’s in the form of a REIT and the REIT has moderate leverage lower than the industry, but moderate leverage. That’s really the only place. With respect to CML, we had one small loss came through rounding error. And other than that, we have no errors.
Gabriel Dechaine: Okay. And from a — yes, sorry, Manjit, I guess you can answer the other part of that?
Manjit Singh: Yes. So Gabe, on your second part of the question, if we did have any kind of impairments that would come through our credit experience line in the DOE.
Gabriel Dechaine: Okay. Got it. And then — well, Asia is your new home soon, a big region, obviously. Sales growth looked really good this quarter, but 6% earnings growth, not really what people expect from that business. I know your management team spent a fair bit of time traveling the region over the past quarter. And I just want to get a sense for what your perspective is on the business today? What fixes need to be made, where you need to reinvigorate which, franchises need to be reinvigorated? Are there any particular problem areas, maybe Vietnam, I hear some labs issues that are going on there. Just maybe some broad strokes and what — where you think the division is headed and how are you going to push it in that direction?
Manjit Singh: Thanks for your question, Gabe. So overall, I think if I step back and we have a tremendous franchise in Asia. One of the great things about Sun Life is we’ve been in Asia a very long time, and we’ve built strong routes there. We’ve got an amazing group of people that work there, and we have excellent partners that we have in each one of our jurisdictions. In terms of individual businesses, I mean, those things will ebb and flow over time. They’re our Hong Kong business, our international high net worth business, as you heard on the call, are doing extremely well. And there are a few places like Vietnam that are going through a downturn right now, but we have a strong franchise. We have good people, and we have a good plan, and I expect that to turn around.
Gabriel Dechaine: Okay.
Kevin Strain: Gabe, it’s Kevin. I might just add, you had mentioned the quarter. And I just want to point out that overall, I view Asia’s having a good quarter. It was a little bit behind our average of $150 million per year or per quarter for the year. But we also saw good growth in this. We saw good growth in the CSM and we saw strong sales. So I think that those two things have to be looked at together. And if you actually — if you look at the business growth for the quarter was $47 million, which was quite significant. And one of the things that I look at is the expected insurance earnings which grew quite nicely over the year to $150 million in the quarter. So while the quarter may be a little bit behind our sort of $150 million that we’ve run rate per quarter this year, I would say that overall, it’s still good results.
Gabriel Dechaine: Okay. And as — like longer term, is you just got to build scale, sell more product, build up the in force, that’s really the name of the game?
Kevin Strain: We’ve been building out our distribution strength in each of the markets. We’ve entered into a number of new bancassurance deals. We’ve been focused on building out agency broker relationships. I mentioned earlier the Hong Kong sales and the work we’ve been doing with Mainland Chinese individuals and driving flows there. So it’s about focusing on the client, getting the right product and distribution and focusing on the quality of the distribution, and we’ve been building out those capabilities. And yes, it’s — our thesis continues. We’ve talked about 15% growth from Asia, and that’s kind of what we look to and expecting over the medium term.
Operator: That will come from the line of Doug Young with Desjardins Capital Markets.
Doug Young: Hi, good morning. Maybe I’ll stick with Asia. I guess two-part question. It looked like one of the drivers of the underlying earnings not really expanding the way people thought was expense experience, I think, was part of — there’s a bit of lapse in there. But just maybe you can talk a bit about the negative experience this quarter? What were the drivers? Is this more temporary? And then obviously, what we’re seeing so far this year is a fairly material pullback in equity markets in China and Hong Kong and there’s an element of your Asia business that is exposed to equity markets? Just trying to get a sense or maybe you can map out a little bit how to think about that equity market movement and the implications for your business in Asia.
Kevin Strain: Doug, it’s Kevin. So I would start by saying that I noted the strong business growth of $47 million, and you’re right to point out that, that was offset by experience losses and those experience losses were roughly one third from policyholder behavior, one third from expenses and one third from other items. The expenses were a mix of things, including AIP, some project spend, some investment we made in brand, which we think are all good things. So that’s part of it. On the policyholder behavior, it was a mixture of things happening in Hong Kong where we were seeing conversion of our term products into more permanent products. And on that conversion, we experienced a lapse loss in essence. But to offset that, we see growth in the CSM when they’re going into the new product.
And we did see a little bit of lapse in other parts of the ASEAN. But it was a mixture of things. And I think that overall, I still come back to what I said to Gabe, that if you look at where we’re at and the mixture of the business growth, being offset by some of these experienced things that were kind of a mixture of multiple pieces. If I step back and look at your question around equity performance, we have a fairly small exposure to China. I mean our business in China is a joint venture with Everbright Group that we own 25% of it’s not a major piece of the income or how we look at Asia. We think long term, it’s got great potential, and we like the relationship with Everbright, but it’s a smaller piece of our business in Asia. And in Hong Kong, you saw the growth we’ve had during the year.
