Sun Life Financial Inc. Stock

Good morning, and welcome to the Sun Life Financial Q3 2026 Conference Call. My name is Gayleen, and I will be your conference operator today. [Operator Instructions] The conference is being recorded. The host of the call is Darko Mihelic, SVP, Head of Investor Relations. Please go ahead, Mr. Mihelic.

Thank you, and good morning, everyone. Welcome to Sun Life's earnings call for the third 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, 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. Please turn 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, Darko, and welcome to Sun Life and to your new role, and good morning, everyone. Turning to Slide 5. We delivered solid third quarter results with double-digit underlying EPS growth, a strong ROE and LICAT position and solid insurance growth. Canada, Asia, U.S. Stop Loss and GreenOak were all drivers of growth. We're executing well on our strategy, and that's showing up in our results with higher underlying earnings across all business groups. This growth is driven by our diversified business mix, which is performing well in an increasingly complex business environment.

Underlying net income was $1.15 billion, up from $1.05 billion last year. Underlying EPS was $2.05, up 10% over the prior year, and underlying return on equity was 19%. Reported net income was $785 million compared to $1.1 billion a year ago, reflecting market-related impacts and acquisition and integration costs as well as some restructuring costs related to the GreenOak platform optimization. Tim will share more on this later. In Asset Management, underlying earnings increased 6% year-over-year. GreenOak delivered strong underlying earnings growth, reflecting growing fee-earning assets, cost discipline and the contribution from Bell Partners, our new U.S. multifamily residential real estate business.

MFS delivered consistent earnings despite elevated outflows as market growth offset the outflows. U.S. retail investors continue to favor passive strategies, driven by their concentration in the small number of technology stocks driving equity market growth. Our insurance and wealth businesses also delivered solid growth. Canada underlying earnings increased 6%, in line with our medium-term objective. Strong business growth, particularly across our wealth businesses, helped to offset lower insurance experience.

Asia continues to perform well. Underlying earnings were up 8% against a strong prior year comparison. Asia growth is broad-based across multiple businesses. In the U.S., Health and Risk Solutions continued to perform well, while Employee Benefits experienced elevated incidence and severity, reflecting elevated LTD experience consistent with what was seen across the industry. We delivered strong top line results in Insurance and Wealth and at GreenOak. Insurance sales increased 12%, driven by continued growth in Asia and strong group benefit sales in Canada and the U.S.

In Canada, wealth sales increased 21%. In Asset Management, GreenOak gross flows were up 8%. This partially offset lower gross sales at MFS. GreenOak also saw positive net flows of $4 billion. Overall, this was a solid quarter, reflecting our disciplined execution and our diversified global business model. Now turning to Slide 6. Let me touch on some areas where we made progress this quarter. In Asset Management, we launched GreenOak, our new brand for SLC and began to bring together the businesses under one platform, building a stronger foundation for growth.

We also made progress in building scale, announcing our strategic partnership with Wilton Re, where GreenOak will serve as the lead asset manager for a new reinsurance vehicle, which is expected to grow to USD 10 billion over time. For GreenOak, that means strategic access to permanent capital and significant long-term growth potential. Innovative partnerships like this are just one of the ways we're driving performance and fully realizing the value of the broad asset management capabilities we have built. Our fundraising capabilities in real estate continue to demonstrate the scale and strength of the platform, ranking in the top 5 globally for private real estate capital raised over the last 5 years in the PERE 100.

We completed the acquisition of Bell Partners, an established U.S. multifamily real estate platform with specialized expertise that expands the solutions we can offer institutional clients. Finally, we committed $5 billion over 5 years to Canadian infrastructure. The commitment includes $1.5 billion for equity investments. This initiative speaks to our role as a source of long-term capital, which supports economic growth while delivering attractive long-term returns.

Together, these developments show how we're leveraging the breadth of Sun Life to scale up, unlock synergies between our capabilities and create new sources of growth across asset management. Turning to Insurance and Wealth. We introduced our refreshed Sun Life brand and new tagline, Making life brighter, reflecting our continued focus on helping clients live healthier lives and achieve lifetime financial security. We are building on strong market positions across Canada, the U.S. and Asia and bringing more capabilities together to serve more client needs. In Asia, individual insurance sales increased 9% to $937 million. Malaysia, India and Indonesia led the growth, and Hong Kong showed continued strength.

In July, we launched Sun Life Private Wealth, bringing together our global insurance, wealth and advisory capabilities to meet the complex needs and rising demand from high net worth clients. In Canada, wealth AUMA increased 11% to $284 billion, supported by strong rollover activity and mutual fund sales. On the health side, we launched online counseling by Dialogue, bringing mental health care to clients when and where they need it. In the U.S., medical stop-loss sales increased 62% as we continue to have success winning high-quality business.

Across our employee benefits and stop-loss businesses, we helped Americans get the care they need through initiatives like personalized care navigation and providing specialized second opinions through expert cancer review. These capabilities also benefit employers by improving both health and cost outcomes. Across our markets, we're combining the scale and reach of our leading businesses, differentiated solutions and create more value. We're using AI to help us serve clients better while keeping humans at the center. With an AI and digital forward mindset, we're freeing up time by reducing repetitive tasks so our people can spend more time with clients when it matters the most.

In the U.S., we're using machine learning on medical claims data to identify when employees qualify for supplemental health benefits. We've also used AI to accelerate reimbursements of claims. In Indonesia, we enhanced claims automation to increase straight-through processing by 20%. Across the Asia region, we continue to launch new AI tools for advisers, including our latest solution, which takes on routine tasks and streamlines client interactions. And in Canada, we've received two 2026 Global Insurance Innovation Awards, one for our enhanced mobile app with improved integration of online health capabilities and the second for our digital insurance experience.

These recognitions reflect our progress building a faster, more seamless client experience. Additionally, our continued focus on the digital client experience is delivering results, including a 25% increase in group wealth lump sum contributions and a 30% increase in health solutions. These examples are just a few of the ways we're making it easier for clients to choose Sun Life and to deepen their relationships with us. Our AI-forward mindset is strengthening the value of our advice and enabling more efficient and scalable growth.

Turning to Slide 7. Our mix of business has built resilience despite headwinds for active asset management and for U.S. benefits and state dental. Canada, Asia, GreenOak and our U.S. Stop Loss business continue to deliver strong earnings, ROE and growth. MFS' commitment to build active asset management in the right way is something we support despite the industry dynamics and MFS continues to deliver solid earnings and cash flow to Sun Life, supporting our buyback program.

U.S. benefits and Medicare and Medicaid are experiencing significant change. We are focused on improving the disability experience in U.S. employee benefits through pricing actions and cost measures where appropriate. Depending on ongoing experience, these measures will take hold over a few quarters aligned to the pricing cycles. State Medicare and Medicaid are seeing some signs of improvement, and we are focusing on states that see the value in partnering with a high-quality trusted provider. David and his team are taking the right steps and we have the scale and capabilities to reposition this business for growth over time. As we tackle these challenges, we continue to make meaningful progress against our medium-term objectives. Underlying EPS growth this quarter is in line with our objective of 10%.

Our underlying return on equity of 19% is within reach of our 20% target. Our dividend payout ratio of 47% remains within our target 40% to 50% range. And our balance sheet and capital fundamentals remain strong. Our LICAT ratio is industry-leading. Our strong capital position gives us the flexibility to invest in our businesses while returning capital to shareholders. On that note, I'm pleased to share that our Board has approved a $0.04 increase to our quarterly dividend to $1 per common share. We remain well positioned to continue delivering sustainable broad-based earnings. I'll now turn it over to Tim.

Thanks, Kevin, and good morning, everyone. Turning to Slide 9. We delivered solid results in the third quarter with underlying net income of $1.146 billion, up 9% from the prior year. Underlying earnings per share were $2.05, reflecting higher earnings across all 4 business groups. Reported net income was $785 million. The difference from underlying net income primarily reflects unfavorable market-related impacts, largely from the rise in interest rates and flattening of the yield curve during the quarter and costs related to bringing the GreenOak businesses together and the completion of the Bell Partners acquisition.

During the quarter, we completed our annual assumption review, which led to a onetime reduction in reported earnings of $33 million, primarily from policyholder behavior assumption updates in Asia. This year's assumption changes also included a $1.2 billion balance sheet reclassification between CSM and risk adjustment for the Canada Par Block -- in aggregate, we expect these changes to have a slightly positive impact on go-forward shareholder underlying net income. Turning to Slide 10. Sun Life Asset Management underlying net income increased 6% to USD 297 million, driven by higher earnings at GreenOak, including the contributions from Bell Partners and higher fee-related margins driven primarily by expense management actions,

while MFS earnings were broadly consistent with the prior year. Reported net income reflects ongoing integration and restructuring costs related to bringing our private asset affiliates in GreenOak under one platform, which we expect to continue in 2027 and acquisition and integration costs associated with the closing of the Bell Partners transaction. At MFS, gross flows were USD 25.5 billion and net outflows were USD 26.9 billion, primarily in U.S. retail equity mutual funds, where returns continue to be impacted by an underweighting to technology stocks and investors' preference for passive strategies. We expect these conditions to persist in the near term. Last year's comparative included the highest institutional gross and net flows since 2022, driven by several large mandate wins. While U.S. retail flows remain challenged, the business continues to build momentum in key growth areas, including ETFs and fixed income. ETF net flows of over USD 650 million included 2 new ETF fund launches this quarter and fixed income net inflows were USD 300 million. Fundraising at GreenOak was USD 3.5 billion in the quarter, led by private credit and real estate following the record close of our largest private credit fund to date in Q2.

Gross deployments of USD 7.1 billion were up over last year and last quarter, supported by higher activity in real estate across Europe, the U.S. and Asia, while private credit continued to see solid deployment in the U.S. lower mid-market lending. Turning to Slide 11. Canada underlying net income increased 6% to $422 million. Growth was driven by higher fee income in our wealth platform, business growth in Sun Life Health, favorable investment earnings and continued expense discipline. Morbidity experience remained positive but lower in the quarter and within our normal range of expectations.

Reported net income was $418 million, reflecting favorable assumption changes in management actions, offset by unfavorable market-related impacts. In Canada's wealth businesses, assets under management and administration increased 11% to $284 billion as a result of continued strong rollover in individual mutual fund sales, combined with strong equity market performance. Total insurance sales were consistent with the prior year, reflecting higher large case sales in Sun Life Health and lower participating life sales in individual insurance as we seek a balanced insurance portfolio.

Turning to Slide 12. U.S. underlying net income increased 32% to USD 141 million, driven by strong medical stop-loss performance, reflecting a lower loss ratio compared with the prior year. The January 1, 2026, block is now 30% complete and is performing in line with expectations. In-force management earnings also contributed to growth, supported by favorable mortality and credit experience. In Employee Benefits, results reflected elevated long-term disability incidence and severity during the quarter, reflecting a broader industry trend.

Disability claims were concentrated in specific industries and medical conditions, which we expect to persist in the near term. We are taking pricing and expense actions that should help moderate loss ratios over time. Dental results improved from the prior year, reflecting stabilized loss ratios and a more favorable mix of direct state contracts. Expense actions are progressing, yet lagged the pace of Medicaid membership declines from terminated contracts and industry trends. Given these dynamics, we expect U.S. dental underlying net income to remain muted as we continue repositioning the business.

Reported net income was USD 77 million, reflecting unfavorable market-related impacts, acquisition, integration and restructuring costs, intangible amortization in dental and unfavorable assumption changes and management actions. Medical stop-loss sales increased 62%, demonstrating our ability to deliver strong growth while maintaining disciplined risk selection in a hardening market. Growth continues to be supported by our differentiated health and risk solutions and advanced analytics capabilities.

Commercial dental sales more than doubled this quarter, reflecting our strategic focus on this higher-margin segment of the dental market. Turning to Slide 13. Asia underlying net income increased 8% on a constant currency basis to $227 million despite lower mortality experience gains and lower morbidity. Reported net income was $124 million, reflecting the impacts of assumption changes in management actions and restructuring costs. Asia individual insurance sales increased 9% to $937 million with growth across most markets. In Hong Kong, sales increased 6% across all channels amid an increasingly competitive environment, supported by the expansion of our adviser force to more than 4,100 advisers.

Malaysia, India and Indonesia delivered sales growth of 60%, 33% and 26%, respectively, supported by strong bancassurance performance. New business CSM declined year-over-year, primarily reflecting the competitive environment in Hong Kong. Although margins are lower, they remain healthy and are expected to remain stable going forward. Turning to our capital position on Slide 14. We ended the quarter with a LICAT ratio of 142%, down 3 percentage points from the second quarter, primarily reflecting the impact of interest rates.

We continue to maintain an industry-leading capital position, providing significant flexibility to support our growth priorities. We delivered book value per share growth of 5% to $42.79 and finished the quarter with a financial leverage ratio of 24.1%. Total CSM of $14.1 billion declined 2% from the prior year with the impact of assumption changes in management actions, CSM amortization and markets, partially offset by new business CSM. Turning to Slide 15. In the quarter, we returned $780 million to shareholders through common shareholder dividends and share repurchases, delivering a dividend yield of 3.4%. We purchased $246 million of shares under our normal course issuer bid, partially offsetting the impact of the share issuance for the Bell Partners acquisition.

In closing, our third quarter results reflect the benefits of our diversified business mix. Our strong balance sheet and capital position give us the flexibility to invest in growth, digital and AI, support our clients and return capital to shareholders. We're making consistent progress on our medium-term objectives, finishing the quarter with a return on equity of 19%, delivering 10% underlying EPS growth and operating within the target range for our dividend payout ratio.

Looking ahead, we remain laser-focused on executing our strategy and delivering continued sustainable long-term value for shareholders. With that, I'll turn the call over to Darko to begin the Q&A portion of the call.

Thank you, Kevin and Tim. [Operator Instructions] I will now ask the operator to poll the participants.

[Operator Instructions]

The first question is from Doug Young with Desjardins Capital.

Just maybe on the U.S. medical stop results, obviously, encouraging trends. Just wondering if you can kind of maybe parse out how much of the improvement year-over-year was from pricing actions or morbidity or favorable prior year development? And if you can kind of tail that into how should we think about the sustainability of this as we look into 2027 and some of the actions that you're taking?

Hi, Doug, good morning. It's David. Thanks for the question. Yes. So we're very pleased with our results overall in Health and Risk Solutions. We continue to benefit from a hard market, and they're clearly benefiting from our differentiated capabilities as well. In terms of how you should think about it, our earnings are up actually 45% year-over-year after adjusting for the Q3 '25 reserve change. So there -- certainly, our results are in line with our expectations, and we feel good about where we sit based on claim development to date. And we're watching carefully for the rest of the year. But overall, we see good opportunities looking forward as we look at the pipeline for Q4 and 1/1 sales, and we're continuing to benefit, like I said, from our differentiated capabilities, and we expect to continue to build on the success we've had recently.

And so maybe just to kind of follow up on that.

Sorry, was someone else speaking or...

Okay. No, I just want to follow up on the medical on this. Like can you -- like obviously, 45% up is quite significant. I'm just trying to understand like where that -- like primarily where that came from? Like what was the main driver? Was it the pricing, prior development, morbidity, just a little bit more detail on that.

Yes. So it's really related to our pricing actions coming into the year and how we positioned ourselves for the 1/1 cycle. So if you look at our performance year-to-date, it really reflects the fact that our claims are in line with where we expected them to be. And so our loss ratio assumption is the same. But most of it is driven by volume and the year-over-year increase that we saw in both sales and persistency as a result of our position in the market.

Okay. I mean I'll leave it for that. And then just on dental, I guess two-pronged question. Obviously, there's a political change in the U.S. and the prior administration or not really prior administration, but a lot of the change in Medicaid Medicare was driven by one side, and you have a bit of a change in the political landscape in the U.S. How does that change your outlook for Medicaid Medicare dental business, if at all? And then as you're going through and repricing the U.S. dental Medicaid Medicare contracts and going through that, how do you think about like still the further risks of further intangible asset write-downs?

Yes. So let me take the first half of that question. So in terms of the outlook at dental, it's certainly possible that there could be some favorable changes as a result of the recent administration or the result of the election. I would say it's a little too early to tell. What I can tell you is what we're watching, obviously, is what policy is going to emerge from the administration going forward and from Democrats in particular. But we'll be watching overall support for government programs and the financing and whether there'll be any changes there.

We're also going to pay close attention to eligibility and work requirements and whether or not those will be adjusted at all. And then I think we're also paying attention to the local politics at the state level. Obviously, we have a broad-based business. We operate in 33 states. There were 36 governor races with a few changes and -- so a lot of funding priorities are also set at the state level when it comes to how they'll approach their benefits. But overall, we're staying focused on serving members in the states and making sure that we're advocating on behalf of those members for the right level of funding and support for access to dental benefits overall. And then maybe I'll turn it to Tim for the second question.

Thanks, Doug. On the intangibles question, there's 2 parts to that. There's goodwill associated with this business, and there's also the customer relationship intangibles. And typically, we look at goodwill and intangible impairment testing in the fourth quarter. But where we sit right now, we're feeling good about the overall business and the repositioning that David spoke about overall and so that as it relates to goodwill. And on the customer relationships, that's probably more a function of what are the contract mix that we have going forward, as we discussed on the prepared remarks and David's comments, work continues on repositioning the businesses.

We're looking to exit contracts that are not profitable going forward. And to the extent that any of those have an associated customer relationship intangible, there would be exposure there, but nothing material to report at this time.

The next question is from Alex Scott with Barclays.

Just wanted to see if you could opine on disability and just give us a little more detail around the types of claims you're seeing, frequency, severity, what you expect in terms of looking into 4Q and into '27 on some of those trends?

David again. Yes, sure. Thanks for the question. So as Tim noted in his remarks, we have seen elevated LTD claims in the quarter. They were both -- we saw them in terms of incidence, but also higher severity of those claims as well. And it was consistent with what we're seeing being reported from other industry competitors in the market. While the disability loss ratio has been trending up over the last year or so more broadly across the industry, it was very -- it was more acute this quarter, not just for us, but for others.

In terms of the types of claims we're seeing, certainly, elevated mental health claims across the board, but it was somewhat broad-based. Maybe a little more pronounced in some industries versus others, but we did see it more broad-based, consistent with what we've heard from others in the industry as well. In terms of our approach and what we're going to do about it, really, our focus is around first of all, just helping people return to work and our claims and clinical management to help people get through their disability event and return to work. But also, obviously, pricing, given the broader dynamic here, we will be continuing our pricing actions and make sure that we're working to get paid appropriately for the risk that we're taking.

And then as Tim also noted, there'll be a little bit of focus as there always is on just prudent expense management as well. So that's our focus going forward and really reflecting -- our experience is reflecting what we're hearing from the rest of the industry as well.

Okay. That's all helpful. And then maybe if you could dig into MFS and I hear some of the industry-level flow headwinds that have been out there. But is there anything you can tell us about the outlook for flows in MFS specifically? And just how that will dovetail with the expense management that you seem to be executing on there. I'm just trying to get a better understanding of what to expect out of the trajectory of earnings, just considering sort of closer to 15% to 20% annualized outflow at this point.

This is Ted. I'll take the first part of that question, at least. Thank you. The industry dynamics really are the driver of the outflows. So every truly active manager is experiencing the same headwinds that we are in the space. And as was mentioned in the prepared remarks, in this environment, equity indices have become dangerously concentrated, which created a high level of risk for equity investors. And we're positioned to protect our clients better than the indices and the peers when markets broaden. But in the current environment, indices have become more concentrated as that's happened, we've underperformed along with pretty much all of our active equity peers.

We're concentrated in the active equity space. We have a number of strategic initiatives to make sure that we're growing in a number of other active public spaces. But for the moment, those industry headwinds led by shifts to passive as passive outperformed active pretty much across the board is what's driving the flow experience, and we would expect those trends to persist.

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

My first question is about the Canadian group business. You're a bit of an outlier there. Your -- it sounds like your group disability experience is still positive. I'm wondering if you can explain why that might be relative to the industry and what your outlook is? Is there still a need to reprice given that you're doing relatively well?

Gabriel, this is Jessica. Yes, I think last quarter, I explained that I think our group business, we've been very focused on one disciplined pricing, a lot of management actions on both, I think, our operations front, using technology also to help us that and investing in our people. We continue to do that. And I think this quarter, there's fluctuations every quarter, but it still remains within the kind of variation that we see across. So I think we haven't seen any kind of out of the ordinary pieces yet.

Okay. And then in the U.S., a bit of a different story. The $81 million of negative experience or experience losses, how much of that was this group LTD? Then bigger picture, you talked about some specific industries where you're seeing these incidence rates. Is this AI fallout, some industries where job losses or attrition, whatever you want to call it, is accelerating. So that's having an impact on the incidence rates. And if it's possible to quantify the exposure to these industries, how -- what percentage of your overall book?

Yes, Gabriel, it's David. Thanks for the question. In terms of the morbidity experience, it was predominantly driven by LTD. And so both -- as I said, in both incidence and severity, that was really the driver. In terms of industries, we have a broad book. We certainly saw it show up in health care and manufacturing. But I wouldn't say at this point that we can point to AI as a specific driver here. What we do know is that the economy and broader concern about jobs typically can lead to a spike like this. Although we haven't seen that for quite some time. I think the industry has had very favorable disability experience for many years now, but that certainly has been disrupted very recently. So I think we're just focused on the actions that I mentioned before. And certainly, because of the nature of our book, we have a broad base across many industries. It's not particularly overly concentrated in one in one segment or in one industry or with one type of occupation.

The next question is from Tom MacKinnon with BMO Capital.

Tim, I think in your remarks, you mentioned the expense discipline. If I look at the expense other line in your DOE, consolidated DOE, I see that at $459 million. That's down 5% year-over-year and even down more quarter-over-quarter. Is that like -- is there anything unusual in that number? Or do you just kind of see that as being maintaining flat to down going forward with respect to that? And I have a follow-up.

Thanks, Tom. It's Tim. You're right. The expenses are down year-on-year and quarter-over-quarter, and it really is primarily a reflection of the continued focus on expense discipline. And it's broad-based. It's across most of our businesses. You see that in Canada, in our investments part of our businesses and in the U.S. as well. And a good chunk of that is going to be sustainable. As you know, we ran a restructuring program that really started in 2024.

We took a restructuring charge at that time. That program was largely completed in the first quarter of this year, and now you're seeing some of the effects come through. But I would also say that there is always going to be quarter-to-quarter fluctuations as we look at incentive compensation accruals and other variability. So I would take the average that you would be seeing through 2026 as a good solid base. And we continue to remain disciplined, and that's a key area of focus for us in '27 and beyond.

Okay. And then I have a question with respect to Canada. There's an other fee income line there that is -- kind of had a nice sharp jump up in the quarter. And that -- I'm just wondering the sustainability of that number. It's $126 million and it's been running like in the 80s and 90s. As I understand, you've got GRS business in there, ASO, you've got probably some wealth. So what's contributed to that -- the lift in that number? And how sustainable is that?

Tom, this is Jessica. Yes, we -- the -- actually 80% of the line is from our wealth assessment. So what's driving it is really our wealth asset management business that -- that Tim alluded to, whereby we say that our $284 billion is growing at 11%. So that income grows at least with 11%, which I think drives higher fees. We also benefit actually from your previous remark about the efficiency from a lot of scale benefits as we increase. So we actually have a 25% increase in the margin of the wealth business. So I think that will continue to grow with the market and also scale efficiency.

Okay. So that line is kind of net of expenses associated with that. So operating leverage is going to be all reflected in that other fee income line. Is that correct then?

It reflects the operating leverage for the wealth business. So 80% of that line is wealth net fee income, which reflects the operating efficiencies there. If you want to see Canada overall efficiency, there is one page at the back that has the total Canada expenses. And if you look at it, we are also getting total efficiencies. I think if you add year-to-date, our total expenses is only growing 2%, whereas our earnings have grown 12%. So we're also getting efficiencies actually across the board, as Tim alluded to.

Yes, that's great. So this level now that's been running $126 million, is there anything unusual on that? Or do you think that, that number is kind of sustainable at this level?

Yes. That line is going to be hard to model because it's basically all the other expenses. It reflects only about 20-plus percent of expenses every other fee income that's not...

Referring to the other fee income line. The other fee income line that 126...

Yes, that's right. So the other fee income line Yes. The other fee income line, 80% of that will continue to be driven by our wealth business. And so we've tracked very closely to our AUMA and then you will get some benefits again from scale benefit. But at least it will grow with the AUMA line.

The next question is from Mario Mendonca with TD Securities.

I want to go to MFS, but not the flows. That's been well discussed. What I want to focus on instead is the capacity of the business to manage expenses lower. And to be fair, it's extremely well done. Now when I look at average assets, there really hasn't been much of a degradation. So any kind of impact on fees has been modest, and the company has done a good job of managing expenses lower. But barring a pretty healthy equity market recovery in this quarter, average assets will start to decline high single digits as early as next quarter and certainly throughout 2027 unless we get some pretty aggressive move in markets. So what I'm going at -- what I'm getting at here is -- if assets start to decline year-over-year in the high single-digit range, can expenses be managed down at a high single-digit range? We certainly see your capacity to do it at a lower level, but can you do that? Can you manage the expenses lower when average assets start to decline more abruptly?

Mario, this is Ted again. We'd agree with your analysis there. So we have managed -- I think it would be helpful to go back and look at the long-term history of the firm to answer this question. So we've managed expenses, particularly fixed expenses extremely carefully for decades. And as a result, we run very lean, very efficiently. Everything we invest in is designed to deliver excellent outcomes for our clients. As our assets and profits were growing at a reasonably high level, our expenses grew at a much, much lower level. That's because we don't think that investing more in those periods is going to help our clients. But at the same token, investing less in our business as assets are down with either markets or flows is also not going to help our clients. So we have a very variable cost structure, roughly speaking, 2/3 of our costs are directly variable.

But that fixed part is pretty fixed because of how prudently we've allocated it. So in an asset decline environment, there will be operating leverage commensurate with that. And we think that it's the right thing to do for our clients. It's worth, therefore, getting into what we are doing, what we are spending on, what we can control and importantly, our extreme conviction that we will grow organically over the long-term. So while we have an unwavering conviction in active management in public markets, we're also constantly evolving, innovating and making adjustments on the margin within that strategic focus. So we're growing in fixed income with continuous inflows, almost $100 billion in AUM.

We're seeing consistent growth in equity retail SMAs. Given the challenges to mutual fund wrapper, we've launched 13 active ETFs in the past 2 years and are seeing growth every quarter. And blended research, where lower tracking error strategies are gaining traction. AUM is up over -- sorry, over $30 billion with consistent inflows. So then also in selected areas where we have outsized underperformance, we're taking clear action, including appropriate people and process changes where necessary. All that's designed to deliver successful outcomes for our clients. So the key is that when we deliver for our clients, we will grow and that will drive the business.

To answer your question, within that, we prudently managed cost to date. We'll continue to do so. But we won't be able to nor would we desire to take meaningful additional action because we're going to be investing on behalf of our clients so that we can grow and deliver the excellent outcomes for our clients and therefore, our company over the long-term.

So short term, we could see some negative operating leverage in this business, but you think it's worth that sacrifice for the long-term. I think that's where you're going with that.

Everything that we do is to drive value for our clients over the long-term for many reasons, but very much including it because it will drive the most long-term value for our business and therefore, Sun Life shareholders.

I got it. Let's -- we go to U.S. health care now and maybe Kevin and David, philosophical question here. Having watched this business over the last few years and certainly under a Republican administration, -- the commitment to public health care is not strong under Republican administration. Now you could argue that in 2 years, Democrats went in the White House and we're back to normal. But it's also clear that U.S. health care is not viewed in the U.S. the way we view it here in Canada. What is your impression on this business long-term? Is it -- does it make sense inside Sun Life when health care can be so polarizing in the U.S. relative to what we see in Canada? Is this a business that you still have long-term confidence in as being a meaningful part of Sun Life? And when you think about answering that question, let me know how big a contribution U.S. health care generally makes to that, say, CAD 200 million quarterly earnings you get out of the U.S. Is that something like 80% of that CAD 200 million quarterly? Is that businesses that are leveraged to U.S. health care?

Mario, it's Kevin. Let me start. And back in 2012, we made the U.S. Employee Benefits and Stop Loss business, one of our 4 pillars. It was a conscious decision to make that a pillar because it was low capital business, repriceable, and we had the skills to grow it. And you've seen that with Employee Benefits and Stop Loss over that period of time. As you've heard me talk about before, we've performed very well in the Stop Loss business. The earnings growth in Stop Loss has been aligned to the growth in premiums. And Doug had asked the question earlier on. If you -- just looking at the premium growth in the supp pack this quarter, Q3 2026, we had $879 million. Q3 2025, it was $679 million in premiums. That's a 30% volume increase where we've consistently hit above our margin other than 1 year in one particular quarter, which is Q4 2024. That hit in Q4 2024 is what's allowed us to grow at our margins in 2025 and 2026. In fact, most of that happened in 2026 because 2025 was almost too early to get it. And on the employee benefits side, we bought Assurant.

We've added capabilities. We're seen as a strong player here. I can tell you, when I talk to U.S. CEOs or the CEOs, they all love the employee benefits business in the U.S. It offers diversification, and it's been a consistent performer. So the employee benefits business and the stop-loss business have been core to us, one of our pillars, and they've performed really well. This quarter, it's been less than we would like on the disability side. The whole industry is experiencing that, and we will be able to price through that and build our capabilities. And David ran that business, and we feel pretty confident in that. The state business is a different sort of thing. The state business is going through a structural change, and we're positioning ourselves to do that, and you've heard us talk about it, and you heard David talk about it and was asked earlier about how we view the changes. So the state business, dental has been much tougher. And I do see David and his team taking all the right steps there.

So if you step back and you go, we're -- the employee benefit stop-loss is an important piece of our operation. We are the largest player in Canada on the same, if you include the dental business. And so we have the skills to operate that. It's been a good performer for us. You are seeing a cycle in disability that's challenging. But at the same time, you're seeing stop-loss perform really well, and we think we have the right team and the right capabilities. I don't know, David, if you'd add to that or.

No, I think that's right on. Certainly, we feel very confident about the capabilities that we have in play in Stop Loss and how it's also going to accelerate our employee benefits business. But to your point just on dental specifically, we are taking the actions, and that's where I'm focused for sure. Pricing continues to -- and we've been repositioning the book this year heading into '27, the share of direct contracts we have with state plans is now 70% of our government premium revenue as opposed to 55%. We have been repositioning the book.

You can see that progress in the Medicaid loss ratio. We're somewhat exiting that phase of the work now and focusing more about expense discipline and then continuing to grow commercial dental, which is a big opportunity for us and certainly works well with our employee benefits business and value proposition more broadly. So I'm focused there, and we're making solid progress, but there's still ways to go to make further progress in dental.

I mean not to pile on, but I might add to it that the disability and life insurance benefits side of the business is not as tied to the U.S. health care and some of the changes that's happening as other parts of that business are. And I would say even on the stop-loss business, it's -- we're of a size and scale and capabilities that we are able to work with that. And you're getting into -- we see the claims when they're at a really high level. So it also experiences the U.S. health care space differently. So those are 2 businesses we really do like.

So just to be clear, though, is U.S. health care, when I think of employee benefits, stop-loss, Dental, anything U.S. health care related. Am I right in suggesting that, that's about 80% of U.S. earnings?

Well, the employee benefits and the stop-loss business are basically the U.S. earnings other than IFM, which we've in the materials.

So it's greater than 80% then because like I'm assuming the international business makes some contribution.

Sorry, I think the international business is part of the IFM, right? That's the closed block out of the U.K.

Right. So do you disclose earnings in that segment?

Yes. We do. That's segmented out in the supplement.

The next question is from Paul Holden with CIBC.

So first one is with respect to Asia. So I saw a bit of a slowdown in year-over-year earnings growth this quarter. If I look at expected insurance earnings, I see it's up 6% year-over-year. If I look at pretax underlying earnings down 2% over year-over-year, so some noise of experience, et cetera. Is this now at least in the near term, is this sort of a mid-single-digit growth business? Or maybe more importantly, how do you get it back to double-digit growth, which is, I think, where you want it to be?

Paul, it's Manjit. As you know, every quarter is going to have some items that can impact sort of the year-over-year growth trend. So the story is really about last Q3 '25. As you will recall, we had an elevated level of security gains in our joint venture line. So that's skewing the trends a little bit. So I think you want to look more at the year-to-date growth rate and year-to-date earnings are up 14% on a year-over-year basis, and we continue to feel very comfortable in generating double-digit earnings growth going forward.

Second question is with respect to higher interest rates. I remember the last time we went through a rate hiking cycle. Sun Life was opportunistic and shifted some securities into floating rate notes to capture that move quickly. Just wondering if you've taken any such actions or if there's any plan to kind of shift duration to accelerate the ability to capture higher rates?

Paul, it's Randy Brown. Thank you for the question. We pretty closely match ALM out through 30 years. We're not really taking interest rate bets. The place you're referring to in surplus, we built up some cash and floating rate positions a while ago. And some of those continue and some of those as we have new cash you'll see has stayed short in surplus as we built up cash to prefund a debt paydown.

Okay. So no shift. And as you said, it's more the liabilities backing surplus, I think, is where you captured it previously, but no plans to sort of try to manage that an interest rate bet, if you will. Correct?

The next question is from Mike Rizvanovic from Scotiabank.

I wanted to go back to David on LTD in the U.S. Can you talk a bit about the repricing dynamic? I'm sure those contracts are staggered throughout the year, but what is a reasonable time line? How does the repricing time line work for that business?

Yes, Mike, thanks for the question. So in terms of repricing, so the majority of the business, first of all, is effective for 1/1. It's generally at least half of the business overall for the year, but there is some off cycle. And then these contracts are typically 2 to 3 years in duration depending on the size and the commitment made. So you would see typically affecting about 1/3 of the premium volume each year as you work your way through any repricing work on renewals. Obviously, immediately, your new business gets impacted right away, but for renewals themselves, which is where the majority of the premium is, that takes some time. So you're typically looking at a 2- to 3-year time frame.

Okay. That's helpful. And then just in terms of your comment about this quarter being the experience loss being acute -- just wondering, it sounds like you're not expecting anywhere near this level of noise in the quarters ahead, but what's the risk that there could be similar sized losses in the quarters ahead? I'm not sure if there's something this is maybe out of your control, but like just how unique is this level of loss for the business versus like historical precedent?

Yes. So I would say, like I mentioned earlier, there's really been quite a tailwind over the past really 20 years with the exception of COVID around disability in general, and there's many contributing factors to that. The most recent has probably been just virtual work where people can return to work in certain occupations without necessarily having to physically return to the office. So there's been quite a bit of tailwind. So this is quite an anomaly we're seeing across the industry. In terms of the outlook, I would say, first of all, we do expect it to remain elevated in the near term, but I think it's too early to say how long this will persist because it is so different than what we've seen in the past. Our focus is really, like I said, just on helping the individuals that are coming through so that we can get them the right case management and clinical support, get them back to work and off claim, it's good for them and it's good for us. And that's where our focus is along with the repricing work that I mentioned.

And then just on the expense -- partial mitigation that you alluded to, is that in the numbers this quarter? Is that something more so for the quarters ahead? Like how far into that expense mitigation for the U.S. business are you in?

Yes. So I would say, first of all, just expense discipline in general is really a priority across our businesses. Tim talked about that. It is also the same in the U.S. We've been able to demonstrate that in the last number of quarters and certainly within our dental business and more broadly in the U.S., it's something we're going to continue to focus on. So that's just a part of really how we think about operating the business as a core fundamental principle and something we'll keep doing.

It's Kevin, Mike. I just want to add a couple of quick things. One, like this is -- we started to see in the industry last quarter a little bit. We're seeing the entire industry see the pricing impacts this quarter. I've been in this business a long time. You start to see this when you see people worried about their jobs and job loss, and that could persist for a bit of time. And it's that the fact that the whole industry is seeing it gives me more confidence in the ability to reprice, right?

But that repricing will take some time, as David had talked about. At the same time, we're seeing -- we continue to be -- see good sales results in the stop-loss business at a way we can earn our margin. And that's coming from other competitors that are having a more challenging time there. And so the combination of those 2, it's important to look at them in combination. And I would also say that there is synergies between the 2 because David is using the same distribution channel to tap into those.

And so having the combination of stop-loss and benefits together, we think, is powerful, and it will help us to manage through this higher disability that we're seeing this quarter that we'll be watching closely as we head through the rest of the year.

The next question is from Bart Dziarski with RBC Capital Markets.

I wanted to ask around GreenOak and the FRE margin. So I look at a business that's got about $200 billion of AUM, high 20s FRE margin, seems low for that asset base. So is there an expense opportunity there as well? And should we think about margin expansion over time? Or is high 20s the right margin for this business?

Bart, thanks for the question. It's Sonny Kalsi from GreenOak. No, I don't believe that high 20s is the right ending margin for the business. We have a target out there to get to 35% plus and we remain very confident in our ability to get there. What I might do is just take a step back. I think we have said before that we view 2026 as a bit of a transition year, kind of taking 5 independent businesses and integrating them into one business. And if I think about the year, we -- in March of this year, we finished the put calls for BGO and Crescent, which are the 2 biggest businesses, and Sun Life was able to increase its ownership of those platforms.

And as a result of that, since April, we've been operating as one kind of integrated business. That's allowed us to do a couple of things. Brand is the first thing. So we're now GreenOak, no longer SLC.

We've launched a management equity plan. We have 300-plus employee shareholders. We created 2 operating divisions instead of 5 individual businesses, we've got a global credit arm and a real assets arm. And I think that will bring a lot of both revenue and expense synergies. We've centralized institutional distribution. We've consolidated corporate functions. Kind of I think about it more of an integration than a restructuring, but we've been able to kind of bring basically 5 different middle and back offices together into one, and that will create a significant amount of synergy refocused on wealth.

We've launched a number of new strategies. So I think that, look, the results to date this quarter have been strong year-over-year. I actually think we're just getting going. And so I feel very confident that we're going to be able to kind of unlock a lot of these synergies, both from a revenue standpoint in terms of integrating -- running as one firm top down, but also from an expense standpoint. So that's required a bit of investment as that's come through in the restructuring charge, but we really believe the ROI on that investment will be very accretive. So look, I -- we've got the 35% plus target out there. I'm very confident we'll hit that.

That will be a combination of top line AUM growth, and we have some good momentum there and then being smart on the expense side.

Okay. Great. That's helpful. And then I just want to step back and ask a question on ROE. So on the Investor Day, the 2 biggest drivers of the 20% target were asset management in U.S. And just hearing the comments this morning on the call, you're running at 19% today. Like how should we think about that 20%? Is that now a stretch goal, if you will? Or you still think you'll get there? And if so, what are the drivers of the confidence to hit that?

Thanks, Bart. It's Tim. I'll start and see if anyone wants to supplement. But we, as you know, we are making great progress towards our medium-term objective of 20%. We ended the quarter at 19%. We were over 19% last quarter as well. The world has evolved since we set out those targets in the fall of '24. So the mix of businesses that were contributing to that in the bridge that I had laid out have shifted slightly. As you noted, the U.S. was the largest contributor at that time based on the projections that we had. We're still confident in the growth and the outlook for the U.S., as David talked about. But in the medium term, it's really been Canada and Asia. And now with GreenOak coming along that are contributing outsized relative to the contributions that were originally laid out. So we still have strong conviction in our medium-term objective. The mix shift has altered slightly since 2024, but that really shows the power and diversification of our business mixes that allows for that because you do get volatility, obviously, from time to time.

And we did express that as a medium-term objective, which for us means 3 to 5 years when we first set that out on the earlier side, what would have been 3 years, but we're midway through that time period, and we're on a good trajectory.

The next question is from Tom Gallagher with Evercore ISI.

One disability question, one stop-loss question. The disability question, are there any differences in the type of disability risks you take in Canada versus the U.S. that would limit this behavioral health impact for the Canadian business? Or is it possible you start to see the same impacts there? I guess I'm just trying to compare what happened to the U.S. to why Canada is holding up better? And also, do you have any at least thing to offer in terms of why your business is holding up better versus the Canadian peers related to that? Is it -- do you think it might be differences in reserving? Or do you have any kind of underwriting structural differences that we should consider?

Tom, it's David. I'll start on that question. First of all, there are quite a number of differences between really the benefit offering and the contract requirements that are associated with them within the U.S. business versus -- U.S. market, I should say, versus the Canadian market. So one example of that is mental health. So there are 2-year limitations typically in the U.S. industry around mental health claims, whereas that is not the case in Canada. So I would say it is important not to just compare because the industries work quite differently and the competitive environment is different, too. But maybe I'll turn it over to Jessica to talk about the Canadian business.

Yes. As David was saying, the nature of the market is very different. What's in scope is quite different. So if you look at the Canadian disability market, actually, the bulk is long-term duration, which are 5 years and beyond. And then the whole market also about 40% is mental related, illness related. So the mix, what you pay, et cetera, is very different. So I think that -- we do compare trends, for example, the impact of economy or unemployment, et cetera. But by and large, I think because the nature of the business is different, we don't often see the same thing.

Got you. And any sense why your results are holding up better than Canadian peers? Do you have any underwriting differences, the structure of the contracts?

It is very good. Yes. As I said, I think because this is long-term disability, where it's 5 years and then there's also a long duration block. Traditionally, we've just been very disciplined across all dimensions, and we care a lot about the sustainability as opposed to short-term pieces. So that is something that I think we've learned in the past, and we continue to try and do so, yes.

It's hard to point exactly at this, but we've invested a lot into health and into client experience and working closely with our clients, and we work with Dialogue and we've invested in Pillway and doing pharmaceuticals there and building these deep, deep relationships with our clients and understanding them. And a little bit then also comes down to mix of business and where you're seeing it. And we have been investing, as Jessica said, into the disability process. But I think the work we do to stay close to our clients is really important.

It's also a difference between Canada and the U.S. In Canada, you typically have the entire benefits program. In the U.S., you may have one piece of it or a slice of it. And in fact, in no case, we have all of it. But in Canada, we typically have all of it. And so you build those deeper relationships at the customer client level.

One last point for me. I just want to mention that also just you have to look at disability in the broader context of the U.S. business. So it is a smaller part of our business overall. We have a very diversified portfolio, and we're certainly benefiting from our medical stop-loss business, as Kevin and Tim noted, and we feel good about where we sit today and as we enter into '27. And so we're really well positioned in that business. And disability, of course, is an important part of our business, and we pay a lot of attention to it. But we have a broader portfolio here, and we're certainly looking to the full portfolio to contribute over time.

Tom, I may say one other thing. If you lose your job in Canada, you don't lose your health care.

Got you. Yes, that's an important difference. Just a quick follow-up on U.S. stop-loss. The -- David, just curious how you're feeling into January '27 renewals. I was just hearing on the Cigna call this morning, they're the industry leader in stop-loss. They sounded more positive on the trends and the outlook for that business. Voya said the same thing a couple of days ago. So it sounds like it's getting more competitive there after there was a lot more caution last year. How are you thinking about growth? How are you thinking about pricing into Jan renewals?

We feel very good about our position right now, like I mentioned, and we're paying a lot of attention, of course, to 1/1/27. There is quite a large pipeline, which we're encouraged about. And we certainly see us continuing to build on our position and the growth that we've been seeing as we enter into 2027. We feel good about our pricing position and our differentiated capabilities. And so we're really well positioned coming into the close of the year as we look into '27. So it is -- remains a hard market, and we expect that to continue through the 1/1 cycle.

We have no further questions at this time. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Okay, awesome. My pleasure to introduce Kevin Strain, the Chief Executive Officer of Sun Life Financial. Kevin, welcome. Thanks for joining us today, and love to maybe start on, just dive right in here if you don't mind, but -- and a nice little sort of segue to talk about Lifeco because I'm kind of sick about talking about banks all morning...

Can I say something quick too? I mean it's -- I love this conference because it kind of kicks off almost to me, it's like school year, like [kicks] off September, we're all back to school, and we're ready to go. So it's one of my favorite ones, and you get great attendance and great meeting. So thanks for pulling it together again this year.

Super happy to be part of this, and thank you for joining us. Really appreciate you attending. Maybe starting with the medium-term targets. Obviously, the ROE coming in north of, just north of 19%, very impressive number. And it's already within striking distance of your 20% target. And then I'm just wondering, as you look ahead, what areas of your business lines are you most excited about to drive that sort of next leg...

It's -- we've had our medium-term objectives out for a number of years now. And of course, 10% earnings growth, the 20-plus ROE, which you're referencing, and 40% to 50% of our earnings going out as dividend, which roughly gives us -- if we're growing earnings 10%, we're going to be roughly growing our dividends at 10%. So it gives a nice yield to the stock as well. On the ROE side, as you said, we hit 19.1%. We have a great mix of business. Our asset management business is -- now 35% of the company is very low capital. Our business in the U.S. is very low capital. Canada, we have a fantastic ROE, and we have a great mix of businesses foundational for us. And Asia is growing fast. And Asia has lagged our ROE for a time as we've been building scale. But now as we build scale, and we're seeing Hong Kong and high net worth in India, Philippines get bigger and larger. We're seeing that ROE drive up.

So that 19.1%, we're pretty confident of it hitting our medium-term objective of 20% and that Asia will drive growth. Asset management will drive growth, getting the U.S. business right will drive growth. So there's a bunch of elements of our business -- the mix of our business, the 10% earnings growth and where it's coming from should all drive that ROE growth. So it's -- I think 20% ROE is a good ROE for us. It's a good indication of the value.

Good for any large cap...

Yes, so we're -- we continue to drive towards that, and we have conviction to achieving that.

Okay. Thanks for that. I would love to talk about the different business lines, maybe starting with the U.S. and the stop-loss business. Just because you did have some headwinds there in most of 2025 and then you've had some pretty decent traction on progress on the repricing. Just wondering if you can maybe talk about the long-term sort of trajectory here because it is a business that you're scalable in, you're a big player in the U.S. market. How excited are you about stop-loss in terms of, say, the next 3 to 5 years?

I've been on the Sun Life executive team now for almost 15 years. And for a good chunk of that, 4 years as CFO and now over 5 years as CEO. That business has performed well for us consistently and sustainably. We have scale. We know what we're doing. We've built good pieces around it. It had 1 quarter that wasn't very good, and it was the Q4 of 2024. It wasn't even 2025. It's really created a lot of noise for -- I'm surprised by how often I answer a stop-loss question. We've guided to a 7% margin for our U.S. Group Benefits business. Stop-loss is at the higher end of that. So you can imagine a world where the stop-loss business is not exactly this, but is earning 8% a year. So it's 2% a quarter.

In 2024, we earned 2% in the first quarter, 2% in the second quarter, 2% in the third quarter. We had a small loss in the fourth quarter, which was really -- was claims that we didn't see coming, which we probably could have and it was hangover a little bit from COVID and those types of things. It did hurt the earnings in the fourth quarter. But if you looked at it for the year, we were still, say, 6%, right, because we were like 75% of the earnings. Tim and I read the team the riot act. We said, do not surprise us with claims again. We need to be more on top of this. There were some fundamental reasons why that happened, but we put new processes in to make sure we were seeing them. If you looked at 2025, it was like 2%.

In the third quarter, we -- Tim and I scared the team so much. It looked like the claims are going to be a little higher. And we took a little bit of conservatism and increased the reserve a little by about half of that. And then by the fourth quarter, it had sort of corrected itself. So if you look at this -- and I'm thinking back, if I went back into 2020, 2021, 2022, 2023, you would have seen this very consistent business. So we had one quarter where the claims impacted us that we probably should have seen coming. We've added new capabilities around that. We're one of the largest players, we have scale. We've put different pieces of business. It's got a really good ROE. It's got good earnings growth.

I do recognize that the industry was going through a lot of change, right? You're seeing medical costs grow quickly in the U.S. You're seeing incidence grow in the U.S. But we're able to price for that. We've talked about this. We had close to 16%, around 16% price increase, '24 to '25 and around the same '25 to '26. We see this as being a very good, sustainable driver of our insurance business in the U.S. And so I'm always surprised by just so many questions we get asked. If you're -- the industry is struggling, but sometimes it's players that don't have scale or don't have the background. We've been doing this for 40 years, right? So that consistency of our approach is really good for plan sponsors and really good for brokers. That consistency really in our earnings other than the one quarter, give me a lot of confidence.

We do watch it. I mean it is a business where you have a lot of medical inflation and you have a lot of incidence going up. But as long as we can price for it, and we're annually repricing a lot of this, I think that's okay. And if you look at it just logically, one bad quarter out of 10 years doesn't seem to paint a bad business to me when the full year was also still okay. So we continue to manage it. We continue to look at pricing. We continue to be confident in hitting earnings growth and ROE targets. I think it gets way more attention from our perspective than it deserves in terms of being bad. I think the attention, honestly, that we should get is how are you outperforming the industry in this space. And it's basically data and knowledge and history and structure and client interactions. So it's a good business for us, and I think you're going to continue to see that.

Okay. At the risk of annoying you, I know you probably -- you don't want to hear more questions about the U.S. dental. Is it that thing that investors still bring up from time to time when I have my conversations -- and just in terms of -- like obviously, last quarter, I think it was roughly breakeven.

Breakeven, yes.

And you do want to move that in a better place. You're focusing more on the commercial. You're transitioning it over time.

The U.S. dental business is a little bit different than stop-loss, a lot different than stop-loss. It is a business we have an issue, right? And we need to fix it. And the issue is a systemic issue in that -- in the current environment, the states aren't covering the cost of the claims. And we've given David the flexibility to only take business when we think that the state understands the value that they're getting and that we -- the margins there are already razor thin. So we didn't have huge margin expectations, but we've given David the capability to say, let's build a profitable business that's in the Medicare, Medicaid state space, where we're partnering with states over the long term. So that business, not like the stop-loss business is under challenge, and its pricing challenge from the states.

We -- part of our thesis in buying the DentaQuest business was we were a relatively small player in the commercial dental. The commercial dental is the second most popular benefit in the U.S. benefit space. And we were a very small player in dental and a small player in vision. And this gave us provider networks and it gave us technology to become bigger in that. We've shifted our attention over the past 6, 12 months to sort of say to David, focus on building profitable commercial business. The relationship with companies is about providing benefits that employees want with good services where they can trust the organization. That's a focus we can align to.

The focus at the state level is something different, right? And so we're emphasizing the commercial business, which you would have seen, Mike. And we're trying to make sure that we find the right niche, the right piece of the Medicare or Medicaid business where we can work with states or we can work with health care providers that work with states because sometimes we're a sub-provider to the health care companies, where we can make at least a margin that's acceptable over a sustainable period of time. And that's the journey we're under is finding that right spot. I feel pretty good about the commercial side. We have some -- we're doing the right work internally on the state side. It's not clear that, that pricing is going to follow. And it's clear to me that running a business with 0 margin is not what I want to do.

I'm just curious, Kevin, you mentioned working closely with states that seem willing to...

To understand the value and add value to...

Yes, and if you sort of look at the footprint like X number of states, like what proportion is along that line of thinking? Is it like 1/3, 1/2? Is it...

Not enough of them right now. It's -- I think the team is actively working with each of the states and trying to show the value we create and the value we create for their citizens because it is substantial, but it's a tough environment. I'm not going to -- it's a tough environment when you get into Medicare, Medicaid at the state levels, and we're not the only ones that are experiencing it. The -- I have a lot of confidence on the commercial side. And I have confidence in David and the team on doing the right things on the state side. But whether the states are going to reflect that in the pricing is still to be seen.

Okay. Fair enough.

And we'll have to adapt our strategies to what that looks like.

Okay. Thanks for that. Maybe switching gears to, I guess, SLAM, Sun Life Asset Management. Just curious if you could maybe talk a bit about just the cohesiveness that you get with BGO and Crescent post buy-ins, you've got the management equity plan and how that platform now will work differently than it might have been in the past as a sort of siloed dynamic. Because I think that's where investors maybe want to hear more about like what...

Yes, yes, it's a great question, Mike. We've been on over a 10-year journey now to build out an alternative asset management business that will sit beside MFS, which is its public fixed income. And so we've been building out -- we bought now 3 real estate companies, Bentall Kennedy, GreenOak and Bell. We bought a private credit company that's working with our private fixed income capabilities. We bought Crescent. We bought infrastructure company InfraRed. We bought 2 LDI companies in Prime and Ryan Labs. And we bought AAM, which is helping us bring the alternatives capabilities to U.S. wirehouses. So we've built a lot of capabilities there. For the first time, starting this year, we're starting to bring those all together under the leadership of Sonny Kalsi. Sonny was one of the founders of GreenOak.

Sonny is -- can see the value we're creating, can see the sort of organization and how they all come together. That's what's attracted him to be the CEO. In fact, he rolled a big chunk of his ownership in BGO into the new organization. And we're working with Sonny to do 2 things. One, there's about 1,500 clients that those organizations service, but there's not a lot of overlap in the clients. So we're bringing one sort of distribution platform together where Crescent may be meeting with an institutional investor in some part of the world and that institutional investor needs some real estate, he can bring up GreenOak. So there's some top line synergies you can imagine happening.

There's also synergies on the expense side. Each of those organizations had their own platform. And we're going to need one platform because we're bringing it into one organization. So Sonny is focused on growth on the top line side and also reducing expenses on the bottom line side. I think those are both going to be very good for us, and that's his primary focus over the next 12 months is unlocking those.

At the same time, we created Sun Life Asset Management under Tom Murphy. And Tom Murphy is looking for ways to create a flywheel between our insurance business and the asset management business in support of SLC, but also in support of MFS. And so that's where things like our Wilton Re transaction came from. So we started that process with Wilton Re probably a year ago and figuring out a way that we could be the asset manager alongside of their sidecar business they were creating. That's an example where we brought insurance expertise, we brought relationships, and know-how to the table to help SLC build a bigger business.

We expect that's going to give about $10 billion in assets and a good chunk of those assets will be in the alternative space. So SLC will manage that whole $10 billion and a good chunk of them will be in the longer duration space. We're also looking for ways to leverage our wealth business, where we can drive flows into there. We've built a relationship with Scotia. So with Jacqui's team, we've created a distribution relationship for SLC based on our relationship. That's sort of part of the idea of this flywheel.

So in addition to Sonny looking for top line and expense synergies, Tom is out there looking for solutions that can help drive more assets to SLC. So ultimately, it's really about creating that bigger alternatives business. There's about USD 200 billion in AUM today. We've got a commitment to grow that business earnings at 20%. We want to see increasingly flows coming in there and then improving the margin a little bit on the expense side.

And then this year is still a transitional year...

This year is a transitional year -- they literally just came together. And partly, you asked another question, which was the management equity plan. We probably identified about 1.5 years or 2 years ago that if we were going to be successful in the alternative space, we had to find a way to have more of the ownership in the hands of the asset management team there, the investments team there. And we looked at what other alternative asset management companies were doing, and they were -- roughly 20% to 25% of the firm was owned by management. And we went through a process through staking grants through the management equity plan, through leveraging, through helping founders roll over to get to 22% ownership. And we think that alignment is going to be really good.

That's more than we thought we would do when we first did the transactions, but we think that's going to be really important for the long term growth. So there's a lot of alignment for Sonny and his team to find those revenue synergies and to find those expense synergies and to continue growing that business. So that management equity plan I think was fundamental to us structuring the asset management business to be successful.

Thanks for that very thoughtful response. I wanted to ask about MFS. Yes, obviously, there's been some industry headwinds around active versus passive, some clients bringing money in-house, which has impacted your flows. And then you've got a big part of your cost base being variable, which doesn't maybe allow the same amount of cost cutting that otherwise might be there as an opportunity to sort of move the needle. But just in terms of MFS, like how do you sort of think about that franchise longer term? And how do you create value just given some of those dynamics that seem to be pretty consistent for a while now.

If I went back to 2014, Sun Life was an insurance company that owned MFS. We were not an asset management and an insurance company. We've been on a journey the past 12 years, the years to become an asset management and an insurance company. And that growth was about investing in the alternatives business that we just talked about. But it's also about thinking about MFS differently. MFS is part of our asset management business, it's part of SLAM. Its role is public equities and public fixed income. If I had the -- a magic wand. Our business today is about 35% asset management and it's 65% insurance. The perfect mix for Sun Life, which is what we're driving towards the goal and we've set this for the Board would be 50% asset management and 50% insurance. And that 50% asset management, I would like to see it be about 50% public equities and public fixed income and 50% alternatives.

That -- we're on a path to that with the 20% growth in the alternatives. It's not to downplay MFS' role, but it's to say that we need a balance across all of our asset management businesses to drive that. So that is the mix we're driving towards. That's why we're putting this emphasis on the alternatives. Sometimes people say, we're not doing enough with MFS. Well, the first thing we did, we're building out a full asset management complex. So we've been -- we've fundamentally invested in it and built a very good alternatives business. That's why we won the Wilton Re contract because they saw our investment capabilities.

In the case of MFS, I've spent a lot of time with Ted and the team there. They're -- they've been building out their public fixed income. They've got great performance in public fixed income. We've been helping them with seed capital, so they're focused on that. They've been building out their active ETF business. They've been building out their SMA business. There's no doubt that the public equity active asset management, you guys are all in that business. It's a tough business right now. But we still think it's important. We think it's important through different cycles. We think it's still an important part of the market. We think it's still important to how organizations and economies work. I was jokingly saying earlier that we wouldn't come here and speak to active asset managers for a day if we didn't think what you did was important. So we think it's important.

We do recognize that it's been a challenging cycle, and that cycle has kind of worked its way through the institutional business now into the retail business. We know what's driving it. But we also know that MFS knows how to manage money. They know how to work through cycles. We know that this is a difficult cycle. We think they're doing the right things with public fixed income. They're doing the right things on their equity side. They're not going to disappoint their clients. Their clients know what they're doing and why they're doing it. They've told the clients the story.

The worst thing they could do now is change their investment style. And the clients would have gone through 5 years of performance, which we keep calling a bad performance, bad relative performance. Their performance probably last year was 20% increase versus 25%. So it's still pretty good, right? But what you don't want to do is see them change their performance just as a cycle changes. So we're very confident in the MFS management team. We're very confident in what they're doing to extend their business into other areas. We recognize that it's a challenging time, but it's -- overall, I think that support that they get from us is actually important.

And we're trying to support them in other ways. I talked about Tom and the flywheel. We're trying to make sure that inside of our wealth businesses that MFS is getting the right allocation. And we're working with them closely. They get -- about $25 billion of their AUM is from our wealth businesses in Canada. Our wealth business in Canada is $280 billion. So maybe $25 billion is not enough, like maybe there's more opportunity there, and we're working with them on things like the blended funds and blended research funds and those types of things.

So we're finding ways that we can help drive flows. We're finding ways to seed investment. We're finding ways for them to build out their strategies, SMAs and active ETFs and fixed income. And we're also trying to recognize that it's a cycle and some patience is important. I hope all of your owners also have that patience in what you guys do because it's hard. It's not easy.

So I wanted to ask about the Asia business. I know Manjit has long-term ambitions, wants to grow it in different aspects of the existing footprint. You've obviously had a lot of success in Hong Kong, India, you name it. Maybe talk about that business as a growth engine for Sun. Obviously, your focus on that 50-50 split, but Asia seems to be a pretty good opportunity, but maybe even potentially on the -- you can sort of dovetail into the M&A angle with Asia...

I think, the 50-50, Mike, is a good point. I mean the 50% that's insurance, Canada is obviously foundational for us. And Canada helps us with the wealth business. I just talked about that, both on the -- in SLC and in MFS and it's foundational for us providing talent and thoughts and all that kind of stuff. Asia is the fastest-growing part of that insurance 50%. And it will become an increasing piece of that. It's about 20% of the whole company. So the 65% that's insurance, it's 30% or a little bit over 30%. That's going to keep growing as a percentage of that insurance side.

I think it's really important for us. It's -- we have scale now. We're good at it. We're in the right 8, 9 markets. We have four businesses now that are at scale and are performing really well, Hong Kong, high net worth, Philippines and India. And we're building good durable businesses in Indonesia, Malaysia, in China and in Vietnam. And the varying degrees of challenge and there's never enough challenge. But it's been a big part of our growth engine. I took over Asia in 2012. It was making $100 million a year in income, and now we're making $200 million a quarter or more probably $225 million a quarter. So it is something -- and the ROE is improving. Manjit is doing a great job of setting the right tone there, and it's our responsibility to keep supporting him to make it get bigger.

He actually doesn't need M&A to do it, right? We have -- we have agency, bancassurance, brokerage in pretty much every market. We have digital distribution in a lot of the markets. We feel like we're partnered with the right banks. We feel like we're in the right market. Yes, it's really about focusing on execution and getting that done. I'm not saying, we've added a lot of capabilities with bancassurance over the years, but it's really about building that momentum and growing alongside of those markets as they grow. And Hong Kong, India and high net worth in particular, have done phenomenally well over the last couple of years. And I think that there's momentum that's going to come over time in the ASEAN markets.

Okay. And then maybe going over to the Canadian business. Whether you refer to it as foundational or all. I mean, despite that dynamic, like the growth has been pretty good. Very good.

Pretty impressive.

I'm wondering in what's normally seen as a mature market with a few dominant players, including Sun Life, obviously, -- what are the opportunities -- the greatest opportunities to grow the Canadian business from here? Is it like a cost story? I know you're investing a lot in the digital side and making it more efficient. Is it that? Or is it -- I guess if I ask an insurance executive, Canadians are always underinsured to some extent.

Yes. I think it's about -- it's a lot of things. But I think Jessica has brought a real new energy to that team. And she comes in, she's an engineer -- software engineer from MIT, who worked for Ping An as they were developing a lot of their digital stuff. She is bringing a real digital mindset to that business. So she sees these opportunities, in particular, in the benefit space and in the GRS space to bring digital capabilities to lock into that. I think we've undervalued our $280 billion in AUM in GRS, and we think there's opportunities to leverage that and leverage our wealth background and wealth experience and relationship we have with investment teams and investment managers. So -- and then that dedication to health.

So I see opportunities in the wealth side. I see opportunities on the health side. And in terms of individual and our advisers individually, so I'm actually going to an event with them in a couple of weeks. They are bringing integrated life insurance, health insurance, wealth and estate planning to clients, and that is very much needed. So I actually feel like if we can get this holistic planning concept right for our adviser base, grow our wealth business and grow our benefits business, we're well structured to hit the 6% growth that we're expecting out of Canada. And Jessica has been way outside of that. And I think our commitment to digital should also help that to grow both top and bottom line. So I think Canada is a pretty interesting place and it's got a good, strong dynamic leadership team.

That's super helpful color. And then on capital, you probably get annoyed being asked this question often, but just on buybacks and the whole dynamic, maybe you can touch on the whole dynamic of capital preferences. Obviously, organic is number one. M&A maybe tuck-ins here and there. It doesn't sound like you're looking for anything transformational. But on the buybacks specifically, I'd love to get your thoughts on maybe a more aggressive buyback potentially? Or is that something that's just not in the cards for now? Because it seems like your LICAT being as high as it is, you could easily absorb that.

So we're looking at -- you're absolutely right. We start with organic growth to the business and the dividend. And then we look at M&A where we think we can add capabilities but meet our financial returns and execute, and that's an important piece. And then the buybacks. The buybacks, we've been, in essence, buying back shares at the rate that we've been creating capital, right? So we see that as being a very sustainable buyback program where we can consistently -- it helps our EPS. It helps our ROE, where we can consistently deliver that capital back to our investors. And that's important to us. And that part we are committed to.

We will do and we have done M&A. But if I look at it today, MFS really isn't interested in doing M&A. And if you think about 50-50, we don't have to add to public equity, public fixed income. The alternatives business in the next 12 months is going through its integration. I think that's really important to get that part right, and we support them with like the Wilton Re deal and the wealth into there. Canada, there's not much to be done. The U.S. isn't -- I told this today when I said in the call, they're not getting capital until they get through the fixing of the DentaQuest business.

And then if you look at Asia, I said it earlier, I think we're in the right markets. We've got the right distribution. It's really about organic growth. So there may be some smaller things. We've got this -- we're buying up in Malaysia from 49% to 70% to a few hundred million. It's disclosed in the notes. That we're waiting for regulatory approval. But I don't see M&A being a significant piece of what we're doing over the next little while. I think our buybacks will then form part of generating the capital back.

We are looking for ways of growing organically and organic income. And there's things we can use that capital for organically as well. So I'll give you an example. We have -- and it's with Scotia, we have a line of credit that we've given to the SLC management team of about $1 billion when they need to create seed capital. We're looking at bringing capital up from our subsidiaries back into the holdco and rather than paying it out, we're looking at ways that we may invest that more into seed capital at SLC, if we can get 2 things: one, good sustainable returns. But two, if I give $100 million of seed, I want them to be able to generate $1 billion of other assets in.

And so we're going to look at ways that we can do some of that as well. So there's ways that we can use our capital strength to do buybacks, drive earnings, drive organic earnings, drive strength in those businesses we want to grow and position ourselves well. So I think the large M&A is hard, and I think you have to be ready for it. And I think at this point in time, we have a lot of other things to do that will drive the MTOs that we started talking about earlier.

Okay. Awesome. And just in the interest of time, I guess we'll stop it here. But Kevin, thank you so much for the insights and always super, super nice to have you on the call.

Great to be the first insurance guy...

Thank you very much, Kevin.

Good morning, and welcome to the Sun Life Financial Q2 2026 Conference Call. My name is Gayleen, and I will be your conference operator today. [Operator Instructions] And 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 second 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, 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 strong second quarter results with double-digit underlying EPS growth, reflecting higher earnings across our businesses and continued progress against our strategic priorities. Strength in Canada, Asia and U.S. all contributed to growth, while Asset Management continues to build momentum. Underlying net income was $1.12 billion, up from $1.02 billion last year. Underlying EPS was $2.02, up 13% over the prior year, and underlying return on equity was 19.1%. Reported net income was $1.01 billion compared with $716 million a year ago.

Strong protection earnings were driven by growth in all insurance business groups. Canada delivered record results, reflecting strong business growth and favorable experience. In Asia, earnings increased from continued business growth. In the U.S., Health and Risk Solutions continued to perform well, while In-force Management delivered strong earnings driven by favorable investments and insurance results. In Sun Life Asset Management, SLC Management earnings increased year-over-year, supported by improved fundraising and deployment momentum while MFS delivered consistent earnings.

We also delivered strong top line performance across the organization. Insurance sales increased 20%, driven by growth in Asia and continued strength in the U.S. Asset Management net flows and net wealth sales improved by $16.3 billion, supported by strong private credit fundraising and a large mandate win in our Aditya Birla Sun Life Asset Management business. The scale and brand recognition from this mandate amplifies our growth strategy for Asset Management in India. At MFS, outflows remained elevated, reflecting continued industry-wide pressure on active U.S. equity managers.

Our capital position remains strong. We ended the quarter with a LICAT ratio of 145% and holding company cash of $2.3 billion, reflecting the strength and resilience of our business. During the quarter, we renewed our normal course issuer bid to repurchase up to 10 million common shares and began purchasing shares under the program. Our strong capital position and cash generation continue to provide flexibility to invest in our business while returning capital to shareholders.

Overall, this was a strong quarter that reflected the strength of our purpose, our disciplined execution, our business growth across key markets and the resilience of our diversified model.

Turning to Slide 6. Let me touch on a few areas where we're seeing notable momentum. First, our digital transformation journey. We made significant progress this quarter. At an enterprise level, we recently announced our founding membership in an AI consortium alongside Scotiabank, TELUS and Lightworks. The AI consortium is a collaborative effort to build the infrastructure, governance and controls needed to deploy AI responsibly at scale in regulated industries. It is helping us accelerate AI adoption in a way that's consistent with the governance standards clients and regulators expect while sharing costs with other major regulated Canadian institutions.

In addition, to help technology architecture teams make informed decisions faster, we launched a new proprietary agentic AI platform. It has already freed up time by replacing the manual process of trade-off analysis with structured, data-driven and scalable decision-making.

Beyond these enterprise initiatives, we're deploying AI solutions that deliver tangible benefits for clients and advisers. In Indonesia, we launched AI in our contact centers to enhance the client experience service through using advanced routing, analytics and monitoring capabilities to improve responsiveness and first-call resolution. More broadly, across Asia, we also launched tools in our agency channel that accelerate adviser onboarding and support higher quality service through real-time coaching, strengthening client interactions and enhancing the onboarding experience.

In Canada, we enhanced My Sun Life app with integrated health capabilities, creating a more connected digital experience and bringing health benefits, services and support together in one place. We also launched an AI-powered concierge for SLFD advisers, enabling faster access to information and the ability to address complex inquiries, helping advisers spend more time focused on advice and client relationships. Our responsible approach to AI is helping us improve client experiences, operate more efficiently and scale our businesses while keeping clients at the center.

Turning to Asset and Wealth Management. We've now completed our first full quarter of Sun Life Asset Management operating as a unified platform. We've retained strong talent, continue to deliver strong results to our clients and remain focused on realizing the full potential of our combined capabilities. Our strength in alternatives and our local expertise in new markets continue to be a driver of growth for Sun Life Asset Management.

Crescent closed the largest direct lending in its history with USD 10.8 billion of investable capital, reflecting the strength of its platform and investor relationships. Crescent and Pantheon also closed a USD 3.2 billion private credit continuation vehicle in the first half of the year, marking the largest transactions in the private credit secondaries market. In India, Aditya Birla Sun Life Asset Management won a large fixed income mandate for a government sponsor, doubling their assets under management to USD 113 billion.

At MFS, while we continue to experience outflows, our active ETFs continue to gain traction, generating inflows more than triple the prior year with AUM having now doubled since the start of 2026 to USD 3 billion.

In our Canadian business, wealth sales increased 60%, supported by record defined contribution sales, strong rollover activity and higher mutual fund sales. These examples show the scale and momentum we're building in Asset Management and the breadth of solutions we're able to provide to a range of clients.

Looking to Asia, momentum accelerated across the region. Sales increased 20% to $875 million, reflecting broad-based growth across the region. Hong Kong continued to perform well with sales increasing 20%, driven by growth across all distribution channels and a 28% increase in advisers to nearly 4,000. Indonesia was another standout this quarter. Sales increased 69%, demonstrating the ongoing success of our expanded CIMB partnership. We also saw strong growth in India and Malaysia, reflecting attractive market conditions and solid execution by our local teams.

What stands out to me is the breadth of growth. It's coming from multiple markets and multiple channels. That's important because it creates a more resilient, higher-quality growth profile over time. As a result, total CSM now exceeds $7 billion, up over 90% since the adoption of IFRS 17 and providing a strong foundation for future earnings growth.

In the U.S., we delivered strong sales results and continue to expand services offered to our members. Medical stop-loss sales increased 86% over last year, reflecting disciplined pricing, strong underwriting and continued success in winning attractive business. We continue to benefit from our scale and capabilities in this market while maintaining our focus on risk-adjusted returns. This quarter, we expanded our suite of health solutions to provide differentiated support for employers and members. Through a new partnership, we're providing access to clinical trials for people facing complex health conditions. Enhancing the solutions available to support access to care, improve health outcomes and help people through serious health challenges remains a core part of our strategy.

In Dental, we continue to focus on improving profitability through ongoing portfolio management activities across our government business, growth in our commercial business, disciplined expense management and continued execution. While there is still work to do, we continue to make progress.

Turning to Slide 7. We're continuing to perform well against our medium-term objectives. Underlying EPS growth was 13%, above our target of 10%. Underlying ROE was 19.1%, approaching our target of 20%. And our dividend ratio was 48%, within our target range of 40% to 50%. Supported by these strong fundamentals, our diversified business strategy, strength in both asset management and insurance and our industry-leading LICAT ratio, we remain well positioned to continue delivering sustainable broad-based earnings growth over the medium term.

I'll now turn it over to Tim to go through the financials for the quarter.

Thanks, Kevin, and good morning, everyone. Turning to Slide 9. We delivered strong second quarter results with underlying net income of $1.12 billion and underlying earnings per share of $2.02. Results were driven by strong contributions from Canada, Asia and the U.S. and continued momentum in Asset Management.

Reported net income was $1.01 billion. The difference between underlying and reported net income was primarily driven by acquisition and integration-related costs in SLC in the U.S., intangible asset amortization and modestly unfavorable net market impacts. Market impacts reflected yield curve movements during the quarter, real estate returns that were positive but below long-term expectations and strong public equity market performance in the quarter.

Turning to Slide 10. Sun Life Asset Management underlying net income of USD 262 million increased 4% year-over-year, mainly driven by earnings growth at SLC. Favorable seed investment performance and disciplined expense management improved fee-related earnings margins in the quarter. At MFS, higher average net assets supported earnings growth and profit margins improved by 0.6% despite continued fee rate pressure.

Reported net income increased 14% from market experience at SLC and also reflects the offsetting impacts of accelerated amortization of certain compensation expenses for retirement-eligible employees at MFS and a gain on the sale of a $1.3 billion block of closed-end funds. The compensation item reflects the timing and recognition of expenses rather than the change in total compensation costs. Capital raising of USD 4.7 billion and deployment activity of USD 6.2 billion remained strong across the platform, up 8% and 42%, respectively, particularly within our private credit and fixed income strategies.

MFS continued to experience net outflows during Q2 from increased industry-wide pressure on active equity managers from the increasing popularity of lower-tracking error strategies. In parallel, the business continues to see momentum in its ETF businesses with $0.6 billion of retail inflows and 2 new ETF launches this quarter, alongside continued growth in fixed income and retail SMA products.

Turning to Slide 11. Canada underlying net income of $427 million, a new record, increased 23% from the prior year. Favorable insurance experience was a significant contributor to earnings in the quarter, reflecting both seasonality and sustainable benefits from the investments we've made over time in our people, processes and capabilities.

Canada's wealth businesses increased underlying earnings by over 19%, driven by growth in AUM. Reported net income of $443 million reflects favorable market-related impacts. Canada's wealth platform reached $286 billion in assets under management and administration, up 18% from last year as a result of record sales in the defined contribution business, increased volumes in the rollover business and strong equity market performance. Insurance sales were broadly consistent with the prior year in both Sun Life Health and Individual Insurance, reflecting timing of large deals and sales campaigns.

Turning to Slide 12. We're demonstrating solid progress and growth in our U.S. business. Underlying net income increased 15%, driven by business growth in medical stop-loss earnings and favorable investment results and insurance experience in In-Force Management. Reported net income increased 69% from the prior year, driven by a prior-year intangible impairment charge in Dental and the increase in underlying net income. In stop-loss, sales increased 86% year-over-year, reflecting strong close ratios and pricing discipline, supported by our risk selection approach. Growth continues to be supported by our differentiated Health and Risk Solutions, advanced analytics capabilities and continued focus on risk selection.

In Dental, we continue to reposition the business by improving pricing, exiting unprofitable contracts, optimizing our expense base and growing our commercial dental business. These actions contributed to improved loss ratios this quarter. Medicaid membership declined 9%, reflecting our deliberate actions to terminate unprofitable contracts as well as ongoing industry-wide dynamics. Commercial dental sales increased 10% in the quarter, reflecting progress in building a stronger business mix. As we continue to execute against these priorities, we expect gradual improvement in earnings over time.

Turning to Slide 13. Asia had another outstanding quarter with underlying net income increasing 21% over the prior year, driven by robust organic CSM growth, lower expenses and improved credit experience. Reported net income increased 158% from the prior year, driven by market-related impacts and the increase in underlying net income.

Asia individual insurance sales of $875 million were up 20%, primarily from strong growth across Hong Kong and our bancassurance channels in India, Malaysia and Indonesia. Hong Kong delivered insurance sales growth of 20% year-over-year across all channels, supported by expansion of the adviser force by 28% to nearly 4,000 advisers. Indonesia achieved 69% sales growth, reflecting the continued momentum from our bancassurance partnership with CIMB Niaga. New business CSM declined year-over-year, primarily reflecting the competitive environment in Hong Kong. Although margins were lower than a year ago, they remain strong.

Turning to our capital position on Slide 14. We ended the quarter with a LICAT ratio of 145%, which increased 2 percentage points over the prior quarter, mainly driven by a $750 million sub debt issuance at the lowest spread for a 7-year issuance in the Canadian financial sector in the last 25 years. This is a testament to the quality of Sun Life in the debt markets.

We delivered book value per share growth of 3% to $42.49 and finished the quarter with a financial leverage ratio of 23.8%. Organic capital generation was 41%, which exceeds our 30% to 40% range of guidance. Total CSM of $15.3 billion increased 12% over Q2 last year, driven by strong insurance sales. Together, these metrics reinforce our financial strength and provide resilience in more volatile periods.

Turning to Slide 15. In the quarter, we returned $0.5 billion to shareholders through common shareholder dividends, delivering a dividend yield of 3.8%. We also renewed our normal course issuer bid to repurchase up to 10 million shares in June, and we purchased 0.8 million shares to date under the program.

In closing, we are very pleased with our second quarter results, which demonstrate the earnings power of our business. Our strong balance sheet and capital position provides flexibility to invest in growth, support our clients and return capital to shareholders. Looking ahead, we remain focused on executing our client impact strategy and delivering sustainable long-term value for shareholders.

With that, I'll turn it back to Kevin for some closing remarks.

Thanks, Tim. As I mark 5 years as CEO, I see this quarter as another proof point of our work to build a more diversified global and growth-oriented Sun Life. The company delivered strong earnings growth in line with medium-term objectives. Our diversified global business, strong capital position and disciplined execution continue to enable progress in areas that matter most for long-term value creation.

Across our organization, we remain anchored by our purpose, helping clients achieve lifetime financial security and live healthier lives. Broad-based growth across Canada, Asia and U.S. Health and Risk Solutions, combined with accelerating Asset Management momentum is showing up clearly in earnings growth. We remain confident in our ability to continue creating sustainable value for clients and shareholders.

With that, I'll turn it over to Natalie for the Q&A portion of the call.

Thank you, Kevin. [Operator Instructions] I will now ask the operator to poll the participants.

[Operator Instructions] The first question comes from Gabriel Dechaine with National Bank.

My question is on the U.S. business, both the stop-loss and the Dental. On stop-loss, I forget what page in the slides, it says an unfavorable experience due to seasonal reserve build. Kind of the phrasing of that seems like odd. If it's seasonal, wouldn't you have kind of anticipated that? Or is there actually a variance here versus what you normally do because everybody is focused on the stop-loss stuff?

Yes, Gabriel, thanks for the question. It's David. Yes, so the Q2 results do include known seasonality from the buildup of IBNR reserves. That is what is in that unfavorable [ morbidity ] line. It is -- you could consider it unfavorable but expected. The experience is still in line with our expectations despite this. And so morbidity in the quarter was impacted by -- sorry, was -- it was mostly because of the IBNR build.

While we maintained our target loss ratios, the morbidity experience overall is a little bit higher in that unexpected line than a year ago, just reflecting the larger book due to the stronger growth year-over-year over the past several quarters. But loss ratios remained stable, within our target range in the mid-70s and which is a very strong result. And overall, the stop-loss business continues to perform very well and in line with our expectations.

So I guess you said it, but I don't quite get that, unfavorable but expected. If it's expected, why is it unfavorable? You said like a lower short-term insurance profit number in the quarter, something like that. Don't know how it works...

So the IBNR reserves do build over the course of the year just because claims don't pay out at the same time the premiums come in. So it's just a matter of...

No, I get that. It's just that you would have -- and we can move on. The Dental business, I understand the strategy there. You've been -- you've clearly articulated it. I just want to get a sense for how much more business is there to shed? And what's the time line for that, like the intermediated or brokered Medicaid business?

Yes. So as was noted, Dental results were pressured in the quarter, predominantly driven by lower membership, which was down 9% year-over-year. We are making progress in Dental, and our pricing discipline on new business and decisions to exit unprofitable existing business are driving improvements in the loss ratio. But as you noted, there are ongoing significant volume headwinds in our Medicaid dental business, and that's consistent with the broader market, which will suppress Dental earnings this year.

We remain focused on shifting towards a more profitable mix as we reshape that government book of business and continue to grow our commercial dental. And then our broader plans, of course, include optimizing our expense base and continuing to stay focused on disciplined expense management. So we expect these actions to start to shift our business mix over -- to a more stable, higher-quality earnings base, but -- over the next 1 to 2 years.

Yes. No, I understand the strategy and you're articulating. And I just -- if next quarter, the Medicaid premiums drop $150 million or -- I'm just making up a number, but people have to kind of get a sense of the glide path here so we can avoid negative surprises. I don't know if you can give a sense of that direction or the timing of it, in 1 or 2 years, sure, but how much of this business is going to be shifted away?

Yes, it's a good question. I mean, the activities that we are taking are unlikely to fully offset the Medicaid volume-related pressures we're seeing over the near term. And as a reminder, Q3 is seasonally the highest quarter for utilization of the year prior to the start of the school year. And then Q4 is relatively lower utilization quarter. So we do expect the membership to remain lower this year. And then we're looking ahead to the broader market dynamics that are in '27.

It's Kevin. I want to maybe just add a quick thing on this. I watch David and his team, and they're fixing the fundamentals of the state business, but it is going to be a fundamentally smaller part of what we do on the dental side and building out the commercial, which is going to take a number of years to build the commercial, but there is more and more focus on that, building out the commercial side of the Dental business.

And I'd also say on the overall U.S. results were really strong in the quarter, and it reflects what David and the team are doing to build that out. And exactly what we said would happen on stop-loss. We were seeing the pricing hardening, and we were winning more of that, and it's coming in at roughly the ratios we would have thought.

So I'm actually quite pleased with how the stop-loss and benefits business is doing, and I'm pleased with the progress they're making on the Dental side. The state business is going to be a struggle. It's going to be a struggle for a number of years, and the focus is shifting over to the commercial side. And that's very clear and it's very deliberate, and I see them making progress there. And that's where you should be measuring the progress. I wouldn't have high expectations of the state business for a number of years because it's a number of years building it out.

The next question is from Mike Ward with UBS.

I was just wondering if you could discuss the stop-loss sales result. I just thought that was super strong. And I just -- I've got to imagine you guys are pretty confident on the margins on new and renewal business. So I'm just wondering if you could kind of characterize the competitive environment? And is it easy -- is it easier to win new business given the hard market and some people are pulling back? Or are you being more aggressive in growth?

Yes, Mike, it's David again. Thanks for the question. Yes. So we, first of all, remain diligent and disciplined in our pricing and underwriting approach, which has led to our scale and leading market position. And we certainly are benefiting from all the work we're doing in underwriting and advanced analytics around our risk selection and our decision-making.

Our differentiated health capabilities are also notable because that focus on cost containment is increasingly resonating in the market as employers are more focused than ever on ways to manage overall medical cost increases. We are benefiting from a continued hard market and our approach to pricing and underwriting, along with those capabilities, they really position us well over the longer term. But in terms of margins, we remain focused on our margins, and we have that disciplined approach.

If you look at our performance over the last little while, the 1/1/25 cohort is now largely complete. It's 97% complete and in line with our expectations, and we continue to get the pricing on our '26 business. It's probably worth noting that sales in the first half of '25 were a little lower than our typical growth rate due to what were competitive pressures at the time. And now, as I said, the market has been hardening later in the year and into '26.

That's helpful. And then I was wondering in Asia, could you discuss the sustainability of the strength there? And maybe any thoughts on the kind of focus on the MCV business in Hong Kong by China?

Okay. Mike, it's Manjit. So maybe I'll start with your second question. So in terms of the -- our Hong Kong business, let me just start with a bit of context on that business. As you've seen, the business has delivered exceptional performance over the last few years. In fact, we've outperformed our peers, and we've gained market share over that period. And that's been supported by deliberate investments we've made in distribution, brand, talent and IT, as well as strong execution.

So the fundamentals of the business are very strong. And we have a very diversified business across all dimensions. In distribution, we sell through bank, broker and agency. We provide client solutions to meet protection, savings and retirement needs, and our clients include local Hong Kong, clients from Southeast Asia as well as MCI.

In terms of the MCI client base, that makes up roughly about 30% of our overall client base in Hong Kong. And obviously, that will change a little bit quarter-to-quarter, depending on the mix. And in terms of how we serve that client base, I mean, we really focus on providing specific needs for them, and that includes higher rates of return, diversification of investments, as well as access to products to help them with legacy planning and wealth preservation needs.

So I know there's some focus on the tax element of this, but that hasn't really been the key focus of what they're looking for when they come and talk to us. So fundamentally, I think the business is in very good shape, and I feel that we have good momentum and that will continue.

The next question is from Doug Young with Desjardins.

Maybe just going to Canada. Can you, Jessica, like talk a little bit about the experience this quarter, which was favorable. It's not as favorable as it has been in the past, but it's noticeably improved, the PAA growth.

And then, I mean, in general, Canada is generating, I think, year-to-date about a 34% ROE. Like is this division punching above its weight? Or just trying to get a sense of the sustainability of this because it's a big part of the Sun Life story here.

Doug, this is Jessica. Thank you. So maybe let me talk about the insurance experience for this particular quarter, and then I'll talk a bit about more sustainability if you zoom out and look across.

So I think for this quarter, you see a significant experience gains. About 1/3 of that is from mortality and then 2/3 of that is morbidity. And I think from the morbidity standpoint, we benefit from actually sustained and very purposeful investments in people, processes and capabilities such that not only we have actually lower claims volume, shorter claims duration, but also while maintaining actually pricing discipline to be competitive as well.

So some of the things that we have taken to kind of get the sustained results would be things, for example, it's not just individual case managers, but it's actually an integrated case management team supported by actually health practitioners. We made actually lots of significant investments in different tailored processes between different cases and that you have different nudges and digitized experience so that for the members, as they navigate through this very difficult journey, that they are able to do it seamlessly. So things like digital forms with the help of practitioners, we actually made a lot of investments and reduce that. We have tailored nudges helping actually help practitioners to nudge so that they will be better in the recovery journey.

So these are things that we've been purposefully doing for the past few years, which is why you see this. And then zooming out about sustainability, if you look at the past 8 quarters, we've had a positive insurance experience, on average about $57 million every quarter, pretax. And I think that is something that is quite sustainable. It is as reflected because we've been very disciplined, what we write in our CSM and risk adjustments are solid. And then I think while there are variations quarter-to-quarter, we do expect to continue every quarter to have a positive experience in the insurance side.

And then I think maybe one more point. While if you zoom out beyond the insurance experience, you hear from Tim's opening remarks that actually -- if you look at this half of the year, overall Canada has actually improved its earnings by 15%, only 5% of that is actually from the insurance experience and the remaining 10% came from actually strong growth across all 3 parts of our businesses.

Insurance grew at 6%. You see our CSM, continued strong growth. Health, if you look at the other short-term insurance line, actually grew by 11%. And then most importantly, I think our Wealth Asset Management business that Tim alluded to is now $286 billion of AUMA. The earnings actually in this half of the year went up by 26%, 18% of which is credited to both favorable market, but also positive inflows. This quarter, we had $1.4 billion of net inflows.

And then the other kind of remaining 7% growth is due to efficiencies and economies of scale, which you would expect as you build a wealth asset management that would benefit from the scale that we get. So I think sustainability-wise, we're very confident that Canada is punching above the 6-plus, and I emphasize the plus, percentage medium-term objective.

Very fulsome. I appreciate that. Just one quick one, Tim. The USD 350 million price for Bell, I think 80% of that is being settled in stock in Q3. I assume that's at a fixed stock price, given your share price has gone up a lot just because that will lower the amount of shares you have to issue. Just kind of curious as to -- I assume that's fixed stock price that, that was set at, but just thought I'd clarify.

Doug, this is Tim. Yes, you're correct. The Bell acquisition, we completed that at the beginning of July and almost 80% of that purchase price was made in shares. And it was based on the 20 days leading up to the closing price. It was on the average share price during that period. And that was just shy of $400 million overall for the total purchase, and it was about 3.6 million shares. So that's already been issued and it's completed and the amount is fixed. Yes.

And that's in Q3 then?

Yes, it will show up in Q3. It's a subsequent event in our financials, but because it closed in July, we'll start to pick up the earnings from that business in the third quarter.

The next question is from David Andrich with Jefferies.

Just wanted to follow up on Doug's question around the experience gains in Canada. And just based upon the response, it sounds like you're kind of expecting the positive trend to continue and to see that come through.

And then the second part to that was some of your peers have experienced some headwinds from long-term disability experience and just doesn't seem to be anything coming through in your results. So just wondering if you could comment on that -- on your experience specifically.

Yes. Yes. No, we do expect that I think the insurance experience line to continue to be positive. I mean, there will be fluctuations quarter-to-quarter due to season and other factors. But I think, as I mentioned, if you look at the past 8 quarters, the past -- it doesn't matter which period you look at, average is about $57 million pretax, $41 million post-tax. So I think there will be fluctuations within every quarter, but I think that we expect to continue to have that positive number.

And then I think in terms of the long-term disability trends, I think there's -- some of the trends in the market has been there for quite some time. For example, I think since COVID, we've already had 40% of the claims due to mental wellness and stuff. So that's not something new. And I think this is one that all of us in the industries have been diligently working on.

And I think the long-term kind of results, I think one is about pricing discipline, while remaining competitive, and that's one that we try to do. And then two, as I mentioned, because of the short- and the long-term disability, we're talking about multiyear journey. These are purposeful and sustained investments. It's not one single thing, but it's really all the things I described about the people, the processes and the capabilities that we've made investments across.

So for example, one of the things that I think continue to help improve the outcomes for our members is this year -- last year, we had a pilot for all of Ontario on disability management for 20% of our business. There were some of the technical platform and processes and nudges that I mentioned. And this year, we started to roll out to the whole country, right? So I think we'll continue to be diligent in helping our members get to better outcomes.

The next question is from Nick Lu with Evercore.

My first one was a quick follow-up on Asia. Should I read the earlier comment as in the MCV business represent about 30% of total sales out of Hong Kong? And how have the local bancassurance partners been reacting to the updates, whether on taxes or the broader cross-border capital flow?

Nick, it's Manjit. Yes, you're correct. It's -- the figure I quoted was 30% of the total Hong Kong sales. I think in terms of the bancassurance partners, we have a very strong bancassurance agreement with Dah Sing. I think, obviously, with some of the new requirements put in place, there's sort of even more diligence that all banks are putting on in terms of account openings, and we're seeing that across the industry.

And my follow-up is on the stop-loss business in the U.S. Are we at a stage where you think you have an early view into what kind of rate increases going in -- that you're thinking about going to 1/1/27? Some of your large U.S. peers also noted some favorable experience on '26 book relative to '24 and '25. And I was wondering if you are seeing something directionally similar as well?

Nick, it's David. Thanks for the question. Yes. So obviously, we're monitoring very carefully the emergence of experience on the 1/1/26 cohort. It's still early in that process. It's about 15% complete. Our underlying technical analysis and our underlying emerging actual experience are certainly giving us a lot of confidence in terms of our pricing approach and how we're approaching that. But we'll continue to monitor that as the dynamic can change over the course of the year. And we remain very focused and very confident based on our proprietary advanced analytics models and our risk evaluation that we'll continue to focus on that as we -- as the year progresses.

The next question is from Paul Holden with CIBC.

I want to continue with the line of questioning on stop-loss. So premiums are up 25% year-over-year. You say that margins or loss ratio is in line with your expectation. I would have expected based on the top line growth and then with, I don't know if it's stable to improving margins, that you would have seen more of an earnings lift, right? Like that's the way the basic math should work. So unless you're getting more conservative on IBNR, I'm not really sure why we're not seeing more earnings growth out of stop-loss. Maybe you can help address that for us.

Sure. Certainly, we're benefiting from the momentum we have both in sales and persistency, and we're seeing that in our solid earnings result. Obviously, in our Benefits business overall, we also have our Employee Benefits business. When you look at that portion of the business, it is down from what was a record quarter in Q2 of 2025, where we saw really very favorable disability experience and consistent with broader industry trends that sort of reverted back towards more what we would expect to be normal trends for the foreseeable future, and we're paying close attention to that. But those are all in our Health and Benefits results overall. But we're very confident in our position, and we remain very diligent in our approach with stop-loss, and we continue to monitor how the year is progressing.

Okay. So what you're suggesting is you are seeing good earnings growth in stop-loss, it's just masked by lower earnings in the Employee Benefits business.

Yes. Again, we did have really a record quarter in the Employee Benefits business in Q2 of '25, and that was partially on the back of really great experience, and there were some also one-time items in there that didn't recur this year.

Okay. Okay. Got it. I wanted to ask a question on Asia, so I guess, for Manjit. So another quarter of very strong APE sales, I think, 19% overall. But then when I looked at the new business CSM, I think it was actually down year-over-year and down 7%. So maybe you can help us understand the disconnect there.

Paul, it's Manjit. So maybe just again, I'll zoom out a bit and then go to your question. So if you look at over the last 2 years, we've delivered very -- Asia has delivered very strong new business CSM growth. In fact, over that 2-year period, we've delivered over $2 billion in new business CSM. And we've had exceptional performance last year.

And you'll recall, some of that was due to some tailwinds we were experiencing with some of the proposed regulation changes that pulled in the volumes. And that -- with the higher volumes, you saw an increase in new business margins. And with that behind us, those margins have evened out, which is why you're seeing a relative evening out of the new business CSM margins. At an overall nominal level, we still generated $277 million in new business CSM. I'm very pleased with those levels, and those levels will support ongoing earnings growth for Asia.

Okay. So I try to unpack that then as kind of a little bit of expenses maybe catching up to volumes because volumes again still higher. So I don't know if it's just expenses growing or mix changing.

Yes. Yes. I think it's a bit of mix, but it's also -- for the level of -- we're growing our expenses as well, but we got higher volumes last year relative to the expense base that we had.

The next question is from Tom MacKinnon with BMO Capital.

Two questions. First on Asia. Just with respect to your high net worth business there. I mean, underlying earnings and sales were up nicely in the second quarter. Maybe you can -- what proportion of these high net worth clients, just maybe in terms of the dollar amount of sales would be from China? And would there be any impact as a result of some of the offshore trust implications that we're seeing out of China and offshore investments? Would that have any impact on the continued momentum we're seeing here in high net worth sales and earnings in...

Tom, it's Manjit. For that business, it's actually a lower proportion than I referenced earlier for Hong Kong. For our high net worth business, it's an international business and including clients from Southeast Asia, the Middle East, other parts of Asia. MCI is really only about 10% of that business. So overall, I don't expect that to have a material impact on the contributions in the high net worth business.

Okay. And then just with respect to SLC, a transition year. I think you've talked about 20% medium-term outlook for underlying earnings growth in that business. And -- but if I look in the quarter here, flows are better, but the fee-related revenue, fee-related earnings are kind of flat year-over-year. What would you point to, to give you confidence that the setup here is good and that we should be able to, by 2027, start to get closer to this 20% growth that you're talking about? What would you tell investors to look for with respect to SLC?

Tom, it's Steve Peacher. Thanks for the question. Well, at the end of the day, I think this business is driven by -- and this is not surprising, but first and foremost, driven by having strong performance in strategies that the market wants goes without saying. And then that manifests itself in growing positive net flows, growing AUM. And if you do that and you do a good job managing your expense base, you're going to have growing profits.

And I think if you think about the underlying drivers, if you think about the core categories where we have strategies across real estate, real estate debt, private credit in different forms in different geographies and infrastructure, all those have tailwinds. All those are growing categories in the institutional space. And of course, we haven't raised significant money in the wealth space, but it's a big priority of ours. And we think it's going to be a huge driver of flows over the coming years in the wealth space, and we've got the products and we've put the distribution in place, and we think we're going to benefit from that.

The other thing that -- so we've got underlying tailwinds. We feel like we've got the right products, and we feel like wealth is going to kick in over the coming years. The other thing is internally, until we got to the put-call in March, this SLC was really a collection of businesses side by side, operating independently, and that was very intentional because as we bought BGO, as we bought Crescent, as we invested in InfraRed, it was very important in my view, and I think in Sun Life's view that we demonstrate to the employees and to their clients that we are going to let those teams manage their businesses, exactly the way Sun Life has led MFS manage its business for the last 40 years.

Now that those put-calls are done, all the employee incentives are aligned at the SLC level right next to Sun Life, we can now operate this as a platform, as an enterprise. And we think on the -- internally, that's going to allow us to pursue expense efficiencies that we haven't spent any time pursuing until now.

Also, I think as we present ourselves in the market and we present ourselves as a platform like a Blackstone or like an Apollo or like an Ares, we think that's going to be an accelerant to growth as well. We've got institutional clients who've invested with BGO and who've invested with Crescent. And I'm not even sure they know that those 2 companies are connected because we haven't approached it that way. And now we can. We're 4 months into that. We're moving as quickly as possible, thinking about how we combine distribution, systems. We're thinking about branding, et cetera. So I think that's going to be an accelerant to growth as well.

So to paraphrase, it seems asset growth and that would be flows. So would you expect the second half of 2026 to be better than the $8 billion in flows -- net inflows you saw in the second half of 2025? And then with respect to efficiencies, should we be looking for the pretax net operating margin to start picking up? It's been kind of flat here over the last 4 quarters.

Yes. Well, I would say on the quarterly flows, we would expect -- I think you've got to look at this over a multiyear basis because our business is largely institutional, which means our quarterly flows fluctuate significantly based on when you have fund closes. For example, in this quarter, I think as Kevin mentioned, we had a big close in what we call CDL IV, Crescent CDL, Crescent Direct Lending IV. That was a big factor in this quarter. And those can be lumpy. So your flows and your fundraising change a lot quarter-to-quarter by asset class and can be lumpy.

So -- but I think if you follow us over the next -- throughout this year, but also in '27, '28, I would strongly expect that you're going to see a tick up in those flows quarter-to-quarter as we grow the business and we grow AUM. We also fully expect that margin should expand significantly. Partly as we grow AUM, we should get the benefits of scale, but also now that we can operate as an enterprise, we think we can become more efficient from an expense standpoint. So we -- I think we put in our midterm targets that we would expect margins to expand significantly over the coming years.

Is there any margin target that you had given? Just if you could remind us that?

We expect operating margin to be over 30% over the coming years. I don't -- if you look over the next 5 years, I would expect that to be in the mid-30% range or higher.

The next question is from Mario Mendonca with TD Securities.

Manjit, if we could just go back to -- I got a little distracted when you were answering one of the questions. Did you lay out the proportion of Hong Kong sales that relate to MCV?

Yes, Mario. It was 30%.

30%. Okay. And then in response to Paul's question, I think I understand your answer, but I want to just follow up with something. When you see the decline in CSM generated in the quarter relative to the sales, it immediately makes me think that the pricing environment -- the pricing was different this quarter from the previous year. So where I'm going with this is, were there any pricing concessions or specials on particular products in the quarter? And if there were, why did you feel the need to do that this particular quarter?

Yes. I think it's a year-over-year thing. So it wasn't necessarily particular to this quarter. I think our products evolve over time, Mario, over the last year, and we've introduced different products over that period and different products are selling with different features. And those have an impact on margins. I think if you pull back and you look at the overall margins we're generating, we're still generating mid-30% margins, which are delivering the lift in ROE you're seeing. And so we're very pleased with the product lineup that we have.

I might -- sorry, it's Kevin. I just might add, like Hong Kong is a very competitive market. You've got the world-leading insurers that Manjit and team are competing with. And we've made up a lot of room in terms of our size in the Hong Kong market over the last few years, which means that we are -- sometimes we're even a target now of competitors that are looking at us.

So if -- we have to do what it takes to continue to grow profitably there, and I think Manjit has done that, and the profitability is still really good. It was even better probably 12 months ago and -- but it's still very strong, and we're still very pleased with the growth. And remember, too, that our growth there is quite diversified. We continue to grow our agency. We continue to grow in the bancassurance channel, and we continue to grow with brokers.

And I think that diversification of Hong Kong nationals, Mainland Chinese visitors, but also people from other parts of Asia that are looking for a Hong Kong dollar or U.S. dollar product. And our reputation continues to grow there. I think we've upset a few of our competitors because in different quarters, we've been bigger than them, some names that you'll know here on -- that you're probably talking to. And I think that we have to continue to be competitive. And part of that in Hong Kong is going to be pricing. And that's okay as long as we're still continuing to make a margin that's acceptable to us, that's a good return on capital, and we believe we're doing that.

And the reason why this is so relevant to me is if it was a particular quarter, if there was something special about the quarter, then my -- I'll be inclined to assume that these CSM margins return to what they have been in the past, which, of course, then drives your CSM and drives the earnings. So it does matter if this quarter was special in some way from a pricing perspective. And what I can gather from what you've just said, Kevin, is you did what you needed to do this quarter, but we shouldn't assume that you have to go to this extent every quarter. Is that right?

It's not a quarter thing. I think Manjit talked about it. It's reacting to the markets as they evolve. So it wasn't specific to this quarter. And we're actually in a really good -- I think we're in a really good place, actually.

No. So I interpret that to mean that the CSM margin could remain low or lower than it has been in the past because the environment has changed. I mean, that's the only way I can interpret that response. But perhaps I can go to something else.

Yes. I think the levels you're seeing right now are kind of appropriate, Mario, in the current competitive environment. Obviously, that could change going forward. But I think if you were to look out for the next quarter, I think these kind of levels are appropriate.

That makes -- that's precisely the point then. That feeds into how you grow this company's earnings. That's why I'm asking the question.

So moving on to stop-loss for a moment. You're growing stop-loss at a really nice pace here. Is this the kind of business that benefits from consolidation? Or is it -- are you better off watching your competitors deemphasize the business than taking share at margins you prefer? Is this an organic story? Or does it lend itself to deals?

Mario, it's David. Thanks for the question. So we are, obviously, very proud of our differentiated capabilities in the marketplace, and we're very focused on our organic growth. We think that, that is the path forward. And the proprietary advanced analytics models, the underwriting discipline we have, the risk evaluation that is germane to us is really unique in the marketplace and is helping to differentiate us. It is a short-duration business. So we feel like we can write this business to continue to grow and find opportunities to take share as the market continues to evolve.

So it just sounds to me that there's no point in doing deals in the space. You can just take it on your own because you're repricing it every year anyway. That's, again, the only way...

It's not a priority. It's not a priority of ours. Yes.

Mario, this is Kevin again. That's exactly how I look at it. I think we're a big player. It's annually repriceable. We have great capabilities, and we're able to win business over time, and that's the focus there.

And finally, government or Medicaid sales in Dental were 0 this quarter. Is that the new number to focus on? Like this business is no longer for Sun Life. Is that right?

Well, as I said earlier, Mario, we just continue to focus on selling and retaining profitable business that meet our long-term earnings margin targets. Government sales have been and will continue to be lumpy. And so we do have a pipeline, of course, and -- but we'll take a disciplined approach to make sure that anything that we do right is going to be helpful to us as we build back earnings over time.

We have no further questions at this time. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

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.