Thank you for standing by. This is the conference operator. Welcome to the Great-West Lifeco fourth quarter 2021 results conference call. I would now like to turn the conference over to Mr. Paul Mahon, President and CEO of Great-West Lifeco. Please go ahead.
Thank you, Ariel. Good afternoon, and welcome to Great-West Lifeco's fourth quarter 2021 conference call. We hope you and your families are safe and healthy. Joining me on today's call is Garry MacNicholas, Executive Vice President and Chief Financial Officer, and together, we will deliver today's formal presentation.
Also joining us on the call and available to answer your questions are David Harney, President and Chief Operating Officer, Europe; Arshil Jamal, President and Group Head, Strategy, Investment, Reinsurance, and Corporate Development; Jeff Macoun, President and Chief Operating Officer, Canada; Ed Murphy, President and Chief Executive Officer, Empower; and Bob Reynolds, President and Chief Executive Officer, Putnam Investments. Before we start, I'll draw your attention to our cautionary notes regarding forward-looking information and non-IFRS financial measures on slide two. These apply to today's discussion and presentation materials. Please turn to slide four.
Great-West Lifeco continued its positive momentum in 2021 and delivered strong results during a year when we made significant advances on our value creation priorities. Full-year 2021 base earnings of CAD 3.3 billion and base EPS of CAD 3.51 increased 22% over 2020. In a rapidly changing world, Great-West Lifeco once again demonstrated its strength and ability to adapt.
I thank my colleagues across the organization for their contributions and dedication to our customers amid continuing pandemic challenges. The 2021 results reflect strong organic growth, the benefits of recent acquisitions, and disciplined capital deployment. Guided by our value creation priorities, we made great progress across our businesses. In the U.S., Empower reached an agreement to acquire the retirement services business of Prudential Financial, which we expect to close early in the second quarter of 2022.
Like the MassMutual transaction, Prudential will add greater scale, synergies, and capabilities, further reinforcing Empower's leadership position in the U.S. retirement market and growth opportunities in the broader U.S. wealth management market. The integrations of MassMutual and Personal Capital have been an important focus over the past year. Empower's expertise as an integrator is proving out as we deliver on expense synergies, maintain high client retention, and see healthy asset growth in Empower's DC and retail wealth management businesses.
We also extended Personal Capital's digital advice capabilities with the launch of a new personalized digital experience. This experience is being rolled out across the Empower platform and now available to over 2 million plan participants. The new online tool illustrates a person's unique financial picture and offers users financial wellness guidance and advice.
It is one step in our longer-term strategy to be a primary provider of lifetime financial wellness support and services to the millions of Americans who have retirement plans with Empower. In Canada, we saw strong top line growth in 2021 and expanded our group customer business with the acquisition of ClaimSecure, adding 1.25 million plan members and increasing access to the TPA and TPP services market.
Canada Life finished the year strong when it was awarded the federal government healthcare benefits plan, the single largest group plan in Canada. When implemented in 2023, we'll be supporting the well-being of an additional 1.5 million Canadians. I congratulate Jeff Macoun and his team for this historic win. In Europe, Irish Life continued to expand its footprint in Ireland with acquisitions like Ark Life and our joint venture investment with Allied Irish Bank.
We also continued to leverage our recent smaller acquisitions of brokers and advisors to expand in wealth management. In Germany, where we have a strong position in retail pensions sold through brokers, our recently launched digital servicing platform gives us the ability to grow our stake in the developing group pensions market in Germany.
Our travel and risk solutions business entered into new reinsurance markets in Japan and Israel this year, while continuing to partner and provide bespoke solutions to existing clients in North America and Europe. Across the company, we employed our ESG investment expertise to develop and launch new ESG product portfolios at Putnam, PanAgora, and Canada Life. We also continued to expand our access to alternative investment capabilities through Northleaf and the recently established strategic partnership with Sagard Holdings.
Together, our focused value creation priorities and disciplined execution against those priorities have led us to meet or exceed medium-term financial objectives in 2021. Please turn to slide five. This slide outlines our three medium-term financial objectives and tracks our performance on a one-year and three-year basis. I'm pleased with our strong performance against all three measures.
Base EPS growth of 22% in 2021 and 13% compounded growth over the last three years exceeded our 8%-10% objective, reflecting solid organic growth, a healthy rebound from COVID impacts in 2020, and a strong contribution from the MassMutual acquisition. Base ROE of 14.6% reflects a shift in our mix towards more capital-light group and wealth management businesses in recent years. Our dividend payout ratio of 51.4% in 2021 was within our target range of 45%-55%.
Please turn to slide six. Our fourth quarter saw strong overall results. Base earnings were CAD 825 million, and net earnings were CAD 765 million. Base EPS of CAD 0.89 was up 11% year-over-year. The year-over-year growth reflects strong organic growth, the achievement of synergies, and solid performance in acquired businesses, along with the benefits of higher market values.
Net earnings of CAD 0.82 per share were down 16% year-over-year. Your results Q4 2020 included two large positives, the revaluation of U.S. deferred tax asset and the net gain on the sale of GLC. This quarter, we recognized additional contingent considerations given the strong performance of the Personal Capital acquisition and a number of smaller wealth acquisitions in Ireland. While it impacts net earnings in period, it represents significant additional value being created for the future from these acquisitions.
Please turn to slide seven. Canada saw strong sales momentum in all business segments and product types in the fourth quarter. Total sales were up 31% year-over-year, with enhanced digital sales capabilities and insights from artificial intelligence supporting these strong results. In addition, the significant federal government plan win that I noted earlier, which is actually not reflected in these numbers.
Canada led the market in the group life and health sales both in quarter and for the full year. Momentum in the business has returned to pre-pandemic levels. We also introduced product enhancements, including ESG seg funds and expanded age and amount limits for Simple Protect, our online insurance application. Over 4,000 financial advisors in our Advisor Solutions networks now have access to a new digital financial planning platform, improving advisor and customer experience. Please turn to slide eight.
Empower saw continued strong momentum with assets under administration, excluding Personal Capital, up 21% to more than $28 billion. Large plans, coupled with strong growth in retail wealth management, drove the year-over-year increase in sales. Empower IRA assets were up 49% to $24 billion, while Personal Capital assets were up 41% to $23 billion. As noted earlier, our MassMutual and Personal Capital integration programs are progressing well and on schedule.
We've achieved $80 million in annual pre-tax run rate cost synergies to date for MassMutual. We remain on track to achieve our target of $160 million by the end of 2022 and are pleased with Empower's performance on all key metrics, including AUA and participant growth, retail asset growth, and our underlying earnings momentum. Please turn to slide nine.
Putnam's AUM was up $11 billion year-over-year to $202 billion. Sales increased 7%, reflecting strong institutional sales growth. Net flows were flat, with outflows in lower fee fixed income products offset by improved flows in higher fee equity products. Both trends are consistent with the broader market and resulted in a modest increase in Putnam's average fee rate.
Putnam's continued strong investment performance is demonstrated by four- and five-star Morningstar ratings on 25 funds, and over 80% of fund assets performing at levels above the Lipper median on both a three- and five-year basis. Please turn to slide 10. In Europe, we saw continued strong growth in equity release mortgages in the quarter and closed three U.K. bulk annuity deals totaling CAD 320 million.
Wealth sales were up 28% year-over-year, driven by international bond sales in the U.K. and retail pension sales in Europe. Assets under administration across Europe continued to increase, with positive net flows in both wealth and investment-only mandates. Please turn to slide 11. In our Capital and Risk Solutions segment, expected profit rose 2% year-over-year, with growth in structured life and longevity portfolios.
Results were muted by the negative impact of a stronger U.S. dollar, as noted on the slide. We're pleased that our structured solutions and longevity pipelines are both strong as we move forward into 2022. Like the industry, we continue to see COVID-related adverse experience in U.S. traditional life, though it has improved from the prior quarter. With that, I'll turn the call over to Garry to review the financial highlights. Garry?
Thank you, Paul. Please turn to slide 13. Overall, as Paul noted, we were very pleased with the financial results this quarter. In addition to highlighting the strong momentum we see across the business, the results also reflect the strategic deployment of capital in the past year. Compared to the prior year, base EPS of CAD 0.89 was up 11% and 14% in constant currency, given the strengthening of the Canadian dollar.
The increase was due to several factors, including broad-based business growth, higher stock market levels, and the significant acquisitions in the last year. Notwithstanding continued adverse U.S. life claims experience in the Capital and Risk Solutions reinsurance business unit, the strength in base earnings was evident across the segments, reflecting very solid fundamentals and a diversified group business.
Starting with Canada, base earnings were CAD 317 million, down 9% from exceptionally strong Q4 last year. Business performance was lifted with expected profits up 4% and insurance experience, particularly health and disability, producing a solid gain. Canada also saw a strong contribution from yield enhancement activity in the quarter. In the U.S., base earnings were up significantly year-over-year with strong organic growth in Empower and the inclusion of the MassMutual business this year.
The acquired MassMutual business continues to perform well, although down from the last two quarters due to one-time reporting true-ups. The business added CAD 55 million or $44 million in U.S. dollars base earnings, including expense synergies and strong fee income. Note this includes financing costs and amortization of intangibles.
On an annualized run rate basis, $80 million of the targeted $160 million pre-tax expense synergies have been achieved thus far. Customer retention to date has also been strong and integration activity is on track to complete later this year. Personal Capital continues to invest in new customer acquisition to fuel growth and profitability, and recorded a base cost of $6 million in line with expectations. The retirement business continues to generate profits and net asset growth has exceeded initial expectations.
This welcome growth in turn produced the additional contingent purchase consideration recorded this quarter. On the integration front, as Paul noted, rollout of the Personal Capital digital capabilities to the broader Empower client base is successfully underway, with over 2 million clients now having access to the enhanced user experience.
Looking at Empower, excluding MassMutual and Personal Capital, base earnings were up smartly year-over-year as a result of strong organic growth, higher markets, and the continued expansion of the Empower IRA rollover business. On a sequential basis, Empower base earnings declined $117 million from $145 million, driven by seasonal expenses and several one-time items, which combined totaled approximately $22 million after tax.
Allowing for this, Empower base earnings were broadly in line with the past couple of quarters, closer to a more normalized earnings run rate. Sun Life's results increased year-over-year, with higher fee revenues from higher average AUM and a one-time tax benefit, partly offset by lower net investment income on C cap mark-to-market losses and reduced performance fees this period.
A small number of products drove the year-over-year decline in both performance fees and net investment income, with stronger calendar year performance in 2020 compared to 2021. In Europe, base earnings increased 9% year-over-year, 14% in constant currency. U.K.-based earnings benefited from business gains on the large bulk annuity sale reported in Q3, strong yield enhancement, and a favorable tax impact. Ireland-based earnings increased 8% year-over-year, with higher fee income and positive health and stability experience more than offsetting adverse life claims. Base earnings in Germany were steady. In Capital and Risk Solutions, the reinsurance business continues to grow, including the expansion into newer markets during the year, notably Japan and Israel. U.S. life claims were again elevated in line with the industry, and we continue to hold a provision for additional excess claims in the near term.
In contrast with the U.S. experience, mortality rates have been less impacted recently by COVID in the U.K. and Netherlands. As a result, we did not see the offsets in the longevity business this quarter. At the Lifeco level, notwithstanding the growth in base earnings, net EPS of CAD 0.82 fell 16% from Q4 2020, primarily due to the two large non-recurring gains last year, as Paul noted earlier.
Whereas this quarter we recognized additional contingent consideration resulting from the success of recent acquisitions. Turning to slide 14, you can see the impact of various excluded items which net to -CAD 15 million overall. These are predominantly acquisition-related, covered earlier, and actuarial liability-related, which I'll describe in further in the upcoming slides. Turning to slide 15 and 16. These next two slides highlight the source of earnings.
First from a base earnings perspective and then a net earnings perspective. I'll focus the comments on slide 15, the net earnings sources source for SOE display. With a reminder that the amounts above the line are pre-tax. First, the expected profit was up 16% year-over-year, notwithstanding some currency pressure with the euro down 7% year-over-year and U.S. dollar down 2%. Now, MassMutual was not in Q4 2020. It added CAD 33 million this quarter. Even before that addition, expected profit was up 7% or 10% on a constant currency basis. We are seeing a 39% increase at Empower coming from strong organic business growth and fee income benefits from higher market levels. Canada was up 4% and the Europe and Capital and Risk Solutions segments grew more modestly in currency headwinds.
Moving to new business index, I'll call out a couple of points. In the U.S., we saw an increase in the non-repeatable acquisition costs as a result of strong sales and adding MassMutual new business this year. In the U.K., building on the large bulk annuity sale last quarter and smaller ones this quarter, the investment team was able to secure a tax-impacting asset, producing a pre-tax gain of CAD 26 million, which offsets non-deferrable acquisition costs on the wealth business in Ireland, too, the U.K. Capital and Risk Solutions reverted to more modest new business impacts this quarter compared to an outsized gain last quarter and an outsized gain a year ago. Single large reinsurance transactions can cause new business impacts to fluctuate from period to period in this segment.
Experience gains contributed positively in the quarter, and I'll cover these in more detail in the next slide, along with the actuarial basis changes. Certain U.K. property-related experience gains are reflected in the actuarial liabilities and as such are excluded from base earnings. This accounts for the difference between the experience gain lines between base and base equity and net equity on these two slides. Earnings on surplus of -CAD 36 million is down from +CAD 6 million last year, primarily due to seed capital losses in this quarter compared to strong seed capital gains in Q4 2020, plus increased financing costs with respect to the advanced funding of the planned Prudential Retirement business acquisition. Note CAD 14 million of the 36 relates to loss recognition accounting, which is reversed below the line in non-controlling interests and has no bottom line impact.
The effective tax rate this quarter was 9% on base shareholder earnings and 10% on net earnings, primarily reflecting the jurisdictional mix of earnings and tax-exempt investment income and the release of certain tax provisions. By way of comparison, the effective tax rate on base earnings in Q4 2020 was 13%. Turning to slide 17. These tables expand on the experience results as well as management actions and changed assumptions to highlight various items in the quarter, some of which we've touched on already. As shown in the chart on the left, yield enhancements continued to contribute positively, particularly in Canada this quarter. We continued to originate a steady volume of equity release mortgages in the U.K. on a solid residential property backdrop.
The net impact of mortality and severity and morbidity was modestly negative this period due to the combination of COVID-related claims in U.S. life reinsurance and U.K. and Irish group life, offset by positive experience in disability and health, again reflecting the benefits of a diversified book of business. Credit-related expenses were positive this quarter as our high-quality investment portfolio continues to perform well, with minor ratings changes and recovery in previously impaired assets contributing to an experience gain.
The expense variance as shown here reflects strategic project costs and some seasonal and one-time expense items. We'll review expenses in more detail in the next slide. The chart on the right details the major basis changes. The positive impact from changes in the economic assumptions used in liability modeling, primarily interest risk and benefit inflation provisions in the European business and modest adjustments in other areas.
Moving to slide 18. This slide highlights operating expenses by segment. Expenses are up year-over-year, as expected, given the increase in business, both organic and through M&A. We also saw a bump in expenses sequentially, largely related to normal seasonality and some one-time items. In Canada, expenses were up 2% year-over-year, reflecting increased sales activity and advisory expenses related to the GLC Mackenzie transaction.
On a sequential basis, Canada's expenses were higher, in part due to seasonality as well as technology investments supporting growth. In the U.S., the MassMutual acquisition added $105 million to expenses in the quarter. Excluding MassMutual, U.S. expenses were up 6% year-over-year. The sequential increase in U.S. expenses was partly due to one-time expenses in Q4 and the normal seasonality in certain expense items that Empower.
These items equates to more than half the increase, while the rest was related to strong sales and business growth. In Europe, expenses increased 13% year-over-year, mainly due to acquisition-related costs in Ireland and strategic investments in U.K. and Germany.
The increase in Europe's expenses on a sequential basis was amplified by the one-time pension curtailment gain of CAD 55 million that we called out for Ireland last quarter. In Capital and Risk Solutions, expense growth is aligned with growth in the business and expansion into newer markets. Please turn to slide 19. The Q4 book value per share of CAD 24.71 was up 8% year-over-year, primarily due to increased retained earnings, given the solid results in each of the past four quarters.
Currency translation in OCI has been a headwind this year with the strengthening Canadian dollar, but this has been offset by the positive OCI given the increase in interest rates. The LICAT ratio at Canada Life remains strong at 124%, up one point compared to last quarter, giving continued solid earnings net of dividends. In addition, Canada Life moved to a new most adverse LICAT scenario in Q4. This nullifies the downward impact of the prior scenario and is expected to lead to an increase of one point per quarter for the next five quarters as this change is smoothed in over time. Lastly, adjusted LICAT, which is not included in the LICAT ratio, ended the quarter at CAD 0.6 billion, unchanged from last quarter. Back to you, Paul.
Thank you, Garry. Please turn to slide 20. I'll close our formal comments by saying that we're pleased with our top line and bottom line momentum across Lifeco as we leverage our investments in organic and M&A-enabled growth. Looking ahead, we remain confident in our ability to deliver on our medium-term financial objectives as we work to successfully integrate acquired businesses and execute against our value creation priorities. We believe that to create this sustainable value for shareholders, we must also be committed to responding to the needs of all stakeholders. It's with this mindset that we're developing and implementing strategies in support of the environment, diversity, equity, inclusion, and sustainability across our organization. This work enabled us to make a commitment to achieve net zero greenhouse gas emissions by 2050.
We look forward to sharing more on this initiative and announcing interim targets later this year. That concludes my formal remarks. Ariel, please open the line for questions.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. Our first question comes from Meny Grauman of Scotiabank. Please go ahead.
Hi, good afternoon. Garry, you referenced good retention at MassMutual, and I'm wondering if you have any more numbers for us related to retention. Maybe you could provide.
Meny, it's Paul. I'll jump in on that. I'm gonna turn that over to Ed Murphy to talk about where we're at from a retention perspective. The reality is we look at retention across a range of different segments, but we're performing actually at or better across those segments. I'll let Ed provide a little bit more color. Ed?
Sure. Thanks, Paul. Yep, thank you. Yeah, to Paul's point, we feel really good about where we are. We've transitioned three waves of clients over to our platform. The fourth wave will transition over next weekend. There's a total of eight waves, so we expect to complete the transition in the early fourth quarter of 2022. We're running at or ahead of plan in terms of both asset retention, client retention, and revenue retention.
Just a follow-up. In terms of the waves that you mentioned, I would assume that you're kind of halfway there. Is that right? Just given your comments before.
No, I would say. Yeah, Meny, I would say we're not halfway there. We're halfway there in terms of the number of waves. As you would probably expect, we tend to start off with the smaller, less complex waves and build up towards the larger, more complex waves in the latter part of the transition program.
Got it. Makes sense. Just switching gears, there was some discussion in terms of the shift in mix at Putnam away from fixed income into higher earning equity products. I'm just wondering, as you kind of look at what's happening early in Q1, do you still see that trend? What do you expect going forward, and what are the implications for performance at Putnam given that shift that you're seeing?
Yeah. I'll start off with that one, Meny, and then I'm gonna turn it to Bob. As I outlined in my opening comments, we're really pleased with Putnam's fund performance for its clients. You know, you see that in the Morningstar ratings, you see that in the Barron's Lipper results. That manifests itself obviously in attractive funds to clients. What we've seen is you know, strength in equity flows, and I think that's an industry phenomenon. But in particular, I think Putnam is experiencing that. I'll let Bob speak to his outlook. Bob?
Yeah. I think when you look at 2021, it had positive equity flows in all channels. As Paul said, it was due to performance. We have 25-26 foreign five-star funds, and the majority of the five-star funds are on the equity side. Thus far this year, again, in all channels, even though we're in early February, we do have positive flows in all asset classes. That has continued.
Okay. Thank you very much.
Thanks, Meny.
Our next question comes from Gabriel Dechaine of National Bank Financial. Please go ahead.
Good afternoon. I'm gonna ask this in a you know layman's way, but I know the yield enhancement numbers, well yield enhancement, that was the term for layman. CAD 100 and some odd million, that's you know a simple figure for you. What would that number look like under IFRS 17?
That, Gabriel, is one that I will definitely pass on to Garry. I think it's a bit more complex. A lot of it will depend on the geography and nature, but I'll let Garry provide you with some context.
Yeah. Thanks, Paul. The short answer is, yes, don't know exactly what it will look like. The reason I say that, Gabriel, is that depending on the type of approach you use to discounting your liabilities is, you know what, IFRS 17 keeps it top down or bottom up.
You'll get a different treatment, and we'll have different approaches across our various portfolios. I think at a high level, we'll see it reduce, that we would expect to see. We wouldn't expect to see the impact. It won't be called yield enhancement, but the same type of, you know, impact would happen just by the way the, you know, any asset trading will flow through this. You'll see a number. It will be somewhere in between these type of typical numbers. You're right. This is in our sort of typical range. You'd likely see something in between the two. It won't go away completely, but it will certainly diminish in some portfolios just the way we've made adjustments to liabilities. Hopefully that helps.
Well, in between the two what? Is it something like now and in between what?
No, I'm just saying between zero and where we are today.
Okay.
It doesn't go away completely, but it will reduce.
Got it.
Can I, Gabriel?
Yes.
The other point I'd make is if you look at the trajectory of our business and sort of where our growth is right now, you're seeing very strong growth in our, obviously, our group retirement and a lot of our wealth management businesses. We're seeing a shift in our mix to businesses where yield enhancement hasn't historically featured. Obviously there's sort of no quote-unquote "change on change" there that would be impacted. You know, as business shifts into, as we're seeing the high growth in Empower and in our wealth management businesses, that construct of yield enhancement would typically not be as featured as strongly.
Yeah. We've known each other long enough. You can call me Gabe, by the way. The other question.
I will.
The group business come up a lot today as in the past. I mean, there's a lot of stuff, you know, happening in that business or in society or, you know, more broadly that affect the outlook of that business. I'm just wondering how you view the lay of the land in terms of actions you've taken to reprice the book, which may have predated COVID, and, you know, businesses that are probably looking to extend coverage or buy more coverage as a competitive action for talent.
Then the incidence rates and duration of claim issues and medical care on the headwind side, like those three in particular, medical care and cost of claim and duration of claim and incidence rates. Are there any that are kind of percolating that we should be aware of as we look towards the full year outlook here?
Gabriel, you see, I said it right there.
There you go.
I would say there's. You sort of asked two questions there.
Yeah.
What is the upside? You know, why do we like the business? Then I think you're asking about downside, you know, sort of more technically as we think about claims incidence and claims termination rates and the like. Let me talk at a high level about our views on the group business. I think it actually extends beyond group benefits and into group retirement, especially when you talk about the competition for talent and the importance of having high quality benefits for people's, you know, financial security or health security. Fundamentally, that is why we think it is a critically important part of why this is a very attractive business for us.
I'd say, if you think about the fundamentals, the fundamentals of people saving for retirement, the fundamentals of people wanting to have benefits. We look at those businesses through a broader lens, and we say, these are businesses actually where we have millions of client relationships. A lot of the things that were traditionally delivered via, you know, face-to-face advice or over the phone or in employee meetings and the like, are moving to digital. When you take the power of a Personal Capital type platform, or you take the power of our plan member as customer digital solutions in Canada, those relationships, the value of those relationships, can go a lot farther in terms of actually building an actual retail client base through digital means. I think it's very powerful.
We look at that business and we do think people will be raising the bar for benefits from the standpoint of, you know, competing for talent. I think that goes to us making sure that we're focused there. I think that's really important for us. The second part in terms of, you know, our views on claims management, I mean, our performance has been very strong through the period, and I think that goes back to our discipline in pricing, our discipline in underwriting, and actually our discipline in claims management, making sure that we're really taking care of the claimant and taking care of the company. I think, you know, it's really been a strength of ours.
This applies not just to the Canadian book of business, it's the U.K., you know, life and income benefit business. It's the Irish Life business on the group side. I'll let Jeff Macoun provide a bit of context to it on his perspective on the business and in particular his perspective on, you know, our performance right now and outlook for things like, you know, claims incidents and the like. Jeff.
Thanks, Paul. I'm gonna go with Gabe. Hey, Gabriel.
Hey.
Maybe just to build on Paul's point, if I could, Gabe.
You know, as Paul talked about our expansion with members across Canada. The ClaimSecure addition brings 1 million-1.2 million Canadians for us to tell our story to. In addition to why we're quite bullish on this market is it opens up the third-party admin market or the third-party payer market that we would have a relatively lower share in the Canadian market, and there's lots of growth there for us. That tells us that we expect to have large growth in that. I can already say, you know, since ClaimSecure has come on board, that we've been successful in a number of cross-sale opportunities, and there's many more. This is opening a lot of room. We touched on the government of Canada.
That brings us 1.5 million Canadians. That was important for us to tell our story. The other thing is why we're quite bullish on this business is that, the relationship between the group retirement market and the group life and health market as one Canada Life, we've moved very aggressively to a single sort of entry point. The opportunity between those businesses is really significant. That's one of the reasons we had record sales in 2021 in that business. Quickly, I'll just conclude. Paul's comments on discipline management. I mean, this has been a hallmark of Canada Life for years. From a disability perspective, we know this business well. We manage it well. We placed adjustments in pricing well before COVID came through.
We continue to monitor that aggressively. You know, we really know this business and have been putting through the appropriate rate adjustments to get the appropriate margins as we go through.
Just to you know simplify it with the you know the morbidity trend, and I think Todd mostly has been you know a bit positive or neutral over the past few quarters. Do you think that's sustainable for the rest of the year or the 2022 that we have ahead of us?
Well, I would say you're right, Gabe, that we at Canada Life have enjoyed very good morbidity and mortality, I might add. We enjoyed a good year in 2021. This business takes about a year to get through the pricing. We put pricing adjustments through in 2021. We're fully loaded as we enter into 2022. That should provide us a good safety as we move through 2022.
Gabe, are you okay on that one? Because I wanted to come back .
Yes.
Yield enhancement point. Just one of the points and Garry just sent me a note. I wanted to put a fine point on it. When you think about yield enhancements, there's no change in the economics of the business. What we're talking about is the incidence of when earnings occur. Rather than the front-ending or some front-ending that you would have in terms of yield enhancement, what you're going to see that is spread out, you know, over the broader life of the contract. As we think about value creation and taking steps to enhance yield to drive either, you know, stronger pricing or drive stronger returns, it's all there. It's just a question of the incidence.
I don't want you to go away thinking that there is a diminution of value creation. The value is there.
It's just part of the learning curve. Appreciate all the answers. Thanks.
Our next question comes from Tom MacKinnon of BMO Capital Markets. Please go ahead.
Yeah, thanks very much. Good afternoon. Garry, maybe if we go to slide 13, there's a few kind of table of tax items mentioned in there. If you can maybe highlight what each one of those are. You know, with Putnam and then Europe and then Capital and Risk Solutions, and how much they were. I have follow-up.
You know, Tom, let me just start off and we'll certainly go to that detail and Garry can probably take you through some of it, but you know, it might be worthwhile to get into a one-on-one if you want to get into a lot of detail. Suffice it to say, this quarter, a tax rate, as Garry outlined in that 9% range compared to 13% a year ago. There's a number of one-time items, and we continue to view that low teens rate is kind of what the normalized rate is. We actually do see that normalized rate likely growing over time because a lot of our growth, as you'll have noted, is in the U.S. jurisdiction where there's a slightly higher tax rate.
Right now we still are quite confident that, you know, our view of a low-teens tax rate is sort of where we're at right now, probably a little bit of lift as we look forward. Garry can provide a little bit of context around the details. Garry?
Sure. Yeah, I think, Tom, and as Paul said, we can go into further details offline if you need. At a high level, you know, there's a lot of moving parts to the year-end tax for us, as you can imagine. In terms of the ones we were calling out earlier for, ballparking for, say, Europe and Capital and Risk Solutions is probably in the CAD 20 million range for each of those. Actually, the overall for Lifeco is probably in that sort of, probably call it around CAD 40 million ballpark for the overall amount at Lifeco level.
What you saw in the US, Putnam picked up I think just over CAD 20 million, which was an offset to the, you know, negative items in the corporate section there. I think the net in the US was actually very small. In Canada, I think it was a small going slightly the other way. They had a higher tax rate this year than last year. Probably CAD 40 million overall. I'd call out the CAD 20 million bits in Europe and three in terms, but
There's a big geography in the U.S. and then Canada is changing in order to put a pressure on the tax rate. That gives you a high level.
Oh, that's very helpful. Now the Empower, you know, you look quarter-over-quarter, assets went up 5%. I think that's just been throughout. Yet the earnings, the base earnings were down 20% quarter-over-quarter. You mentioned something about seasonality and expenses. I'm not sure what some of the other things were contributing to that, but I'm not sure how we should be looking at a run rate. Should it be related more to the third quarter or the fourth quarter? Help us understand that.
Tom, I'll start off there, and then I'll let Garry provide a little bit of context around the seasonality and one-time items. You know, we launched into this, you know, obviously Empower's been in strong organic growth mode. We've seen the benefits of MassMutual coming on stream early in the year. There's a bit of lumpiness, you know, as the benefits come on stream. But also, the fourth quarter typically has, you know, some seasonality in it, things like customer mailings and the likes that are quite different. The reality is, as we look at the trajectory of the business, those sort of second and third quarter results are more indicative of the way we think about the results.
I'll let Garry provide a little more color there. Garry?
Sure. Thanks. I'm actually, Bob, you went where I was. If you look at the second and third quarter, they're pretty consistent results. They're probably not close to what you see in the run rate. You mentioned, Tom, the expenses and some of the one-time items, that there is a seasonality to it, and that's you've got 13 million people. You've got a lot of year-end packages, a lot of printing postage. That adds up when you've got such a large participant base. There were some one-time costs in our P&L's right here, our major technology contract change. There were some true ups on the MassMutual accounting for certain fees and commissions. And then frankly, of course, we do true ups for variable comp year-end.
As you've seen all year, Empower's had a fantastic year, so we've accrued something for that as well. You do have those expenses. I think you can see it in the appendix. If you look at how the expenses grew quarter-over-quarter, year-over-year compared to how it was running the rest of the year. That gives you some idea of this.
Okay. It sounds like it's more of a real number. It's just, the seasonality of your expenses, are just higher in the fourth quarter. Is that right? Is that fair to say?
Yeah, that is. The one time that we wouldn't have necessarily major software, you know, costs on contract changes or these MassMutual accounting true ups. That's a function between the first years of transaction. Those are. That was less the seasonality.
Okay. The last one is, I think you mentioned CAD 28 million in the other experience gain. I don't remember what it was, but maybe is it more of a one time? I think it's on page 17 of your slides. Is it more of a one-timer? How should we be thinking about those things going forward?
Yeah, I'll jump on, Paul, just to take that one. Those are typically just a collection, and they would typically be one-time. Some of them are regular. You might have all sort of behavior that fluctuates around a bit. These ones are a net positive, but that really is just a collection of odds and ends that aren't notable enough or of wide enough interest. I'd tend to think of those as one time. In each individual one, there could be a variety, but the actual number could be plus or minus just typically a smaller number.
Sorry, just to squeeze one last quick one. The government plan picked up. Is that an ASO plan? Like, is there any capital really needed for that, or is that just strictly fee income?
Oh, that was to Jeff. Jeff, do you want to describe the nature of that plan?
It's a 12-year contract with approximately I think it's something close to CAD 26 billion-CAD 80 billion on a fee basis, ASO fees. We cut fees on that and go out in 2023.
Is there any way you can tell us what you think the additional fees would be associated with this?
Tom, I think it would be early days for us to do that. I mean, we're working through. You know, we obviously, when you add a piece of business like this, you do it to make sure that it's going to be economically attractive over the long term and the early going, we got to bring it on stream. You know, we're going to be working hard through this period with increased automation, digitization. At the end of the day, we view that as something that will have potential within growing potential the more we automate.
Yeah. Any day is a win. Yeah, that would be careful.
How did you win that? Was that competitive bid?
Yeah. Jeff, why don't you describe that? Tom, there's sort of two key measures that we cannot go into. Clearly, we can't tell you about, you know, others that would have participated in the competition. We can tell you about, you know, what are the things that are important to a large client like that and the way we thought about it. We really shouldn't get into the details of that. Suffice it to say, at the end of the day, service is going to be critical, right? You know, Jeff, is there anything that you could disclose on that?
Yeah. I think we wouldn't want to go too far. Of course, it was a public bid, and w e were successful. I don't think I would feel comfortable getting into some of the details at this point, but it was just very much a public bid. Delighted to win the plan. It's gonna give us lots of horsepower, lots of brand recognition, and allow us to employ our strategies more broadly, whether picking up new accounts or just brand recognition and technology enhancements in the marketplace.
Well, congrats on winning that plan, and thanks for taking my time.
Thank you, Tom.
Our next question comes from Doug Young of Desjardins Capital Markets. Please go ahead.
Hi. Good afternoon. Just a few probably follow-up questions here. On the MassMutual, the sequential decline in earnings contribution, Garry, is that the CAD 22 million that you talked about in your prepared remarks? That was the one-time impact. Did I catch that right, or was I wrong?
Garry, you could go to that one.
Yeah, that's. I was just calling out the seasonal and one-time items were worth about $20 million of, and that's most of the sequential decline.
That's seasonal. That's what you described. Like, is that the breaking of the tech fees or?
That's what I say, seasonal and one time. It's sort of two categories.
Oh, okay.
You get some seasonality in Q4, and then there were some just one-time items that.
What's the one-time item?
In the same quarter.
What's the one time item? Can you quantify that?
The seasonal is things that would be typical that would repeat in another, in future quarters, and the business will continue to evolve. One time is things like break fees on a contract or truing up on our, on our incentive compensation because we had very strong growth and success in Empower this year. Then a third factor I think Garry outlined is that we're in the initial, you know, phases of working with MassMutual on that. We had some true ups, on sort of the annual, overall annual results on some fees that are back and forth between MassMutual. All of those things are one time in nature.
Yeah, I get that. I'm just wondering what the dollar, how much of that CAD 20 million was one time, so if I can kind of triangulate back to what the contribution was excluding that.
Garry, do you have that?
I think broadly it's probably half and half of those amounts. Yeah, I'd probably have to read up a little more on the one time. No, it's probably about half now.
Yeah. It doesn't have to be exactly precise. I'm just wondering, can you quantify, maybe you have and maybe I haven't seen it, quantify what the impact from COVID was this quarter. I know it probably is more related to Arshil's business in the reinsurance side. Just curious if you quantify that.
Yeah. So, Doug, at a high level, if you think about COVID, it's, you know, there's positive and negative impacts. We've seen a real recovery from COVID as the economy's grown, and we talked about sales results. But the two broad areas where you'd be thinking about would be mortality and morbidity and life mortality. Maybe I'll let Garry start off at a high level because it's sort of when you think about this, it's not all in Arshil's mandate. That also exists in some of our commercial businesses. Then perhaps he'll pass that over to Arshil for better context on the Capital and Risk Solutions business. Garry?
Sure. Thanks. Well, I think at the highest level, I mean, we do call out on our slides, I think it's the slide 17, where we have traditional retail and experience gains. We show in there the mortality, longevity, the morbidity like health and dental disability, all of that rolled in together. My comment there would be some of those is basically, they're all offsetting. I mean, there's very small net negative. The reason I call out is it is very difficult to say exactly what's COVID related, what's not, you know, what's a regular fluctuation. We've attributed the vast majority of these fluctuations to COVID. You can see some extra mortality in the U.S. life reinsurance.
You can see it on some of the favorable morbidity we might see from less utilization of certain health care services in various segments. Obviously some of it comes down to our claims management. It's tough to know exactly which is COVID and not, but when we look at it all together, our sense is that we're basically balancing out across them all. It was higher in the life side. I think to give a ballpark, it was probably CAD 40 million-CAD 45 million of impact on the life mortality side, and offsetting impacts in the other areas. That gives you a bit of an idea.
Okay. Just lastly, you know, the expected profit growth in European CRS was just lower than what I would have expected, and it sounds like FX was a bit of a contributor. Now, the growth has been fairly strong in terms of sales. Is there something else that I'm just technically, methodically not thinking of in terms of why we wouldn't be seeing better expected profit growth in Europe and CRS?
Garry, I'll let you take that one.
No, I think we went through a very good period of growth. A number of those large transactions were on the longevity side.
They were in euros. As I mentioned during the opening comments, the euro was down 7% year-over-year. So that those expected profits, as they come off those contracts, are certainly down. Then we didn't have a lot of longevity new business in 2021. There weren't as many transactions. I mean, so if you comment more on this, the pipeline is strong coming into 2022. Less deals done. So we weren't the bulk annuity business, the longevity business does run off. That's because it runs off every year. We didn't really replenish much in 2021, so you now have a bit of a dampening impact on your expected profits. It went up notwithstanding the FX.
I think it is good steady growth in reinsurance.
Have you given Europe and CRS expected profit growth on a constant currency basis? If you did, I apologize if I missed it. If you have it handy, that would be helpful.
I don't actually have it handy, but we can do a follow-up, if that helps.
Okay. Yep. Thank you very much. I appreciate it. Thank you.
Thanks, Doug Young.
Our next question comes from Paul Holden of CIBC. Please go ahead.
Thanks. Good afternoon. A few questions for you. First, related to Empower and the competitive pricing environment in that market. We know that over the years it's been a fairly competitive market. Just wondering, with all the consolidation that's taking place, including Empower as a consolidator, has that settled down at all as prices become more stable and put another way?
Good question, Paul. That's one that Ed can definitely speak to. Ed?
Yeah. Thank you, Paul. Yeah, I'd say the market remains very price competitive. However, you have firms like us and others that have invested a lot in the infrastructure and in our value proposition. As such, you know, we can and have been able to command a premium in the market and, you know. Obviously, we're continuing to grow the business organically at 2x-3x the rate of the market, as measured by net participant growth. I don't know if it's a leveling off yet per se, but there's definitely less choice in the market. I think for a premier provider like us, it puts us in a very good position to capture the economics and the value for the service that we're providing.
Thank you for that. Second question is related to Canada individual insurance sales. They're up 3% year-over-year. As I look at the two competitors that also reported results, their growth rates were much higher. Just wondering if you have any color there, if you think the growth differential is related to maybe differences in product mix or if there's anything going on in the distribution side that might explain some of the difference as well.
Yeah. Paul, I'm gonna pass that one to Jeff, but suffice it to say, we're always very much focused on balancing, you know, trying to achieve strong sales growth, broadening the customer base, but also really good discipline about making sure that we're participating in the parts of the market and in the product areas where it's going to be, quote-unquote, "win, win." Win for us, you know, because it's good economic outcomes. It's good for the customer because we've got strong products. Good for the sales force because we're, you know, giving them products that we're fully committed to. You know, as we look at the year, we actually executed on our plan as we were happy with the results of our plan.
Jeff can provide a little bit more color relative to, you know, what was behind that growth rate. Jeff?
Yeah. Thanks, Paul. So it is a good call out. I mean, we did 2021 annual quarter overall was an exceptional sales year for us at Canada Life on life insurance, and specifically as you called out the 3%. You know, we look upon this business on the long term. We really want to strike a nice balance between the price discipline, risk selection, you know, market share, sales volume. In year and in quarter, I mean, we had a strong year in our flagship product in participating life insurance. You know, we did take action in some of our other products on a pricing basis to look at this on a longer term basis.
You know, our reach into distribution is strong. We had strong growth year-over-year in all of our channels. You know, I would say that on the term side and UL side, we took some pricing actions I think on the long term. We were pleased with our PAR sales, which were higher than 3%. We're looking for growth in 2022 in this line.
Great. One last question for me, related to capital and the interest rate scenario switch. As you've disclosed, you're gonna add roughly 1 point to LICAT each of the next 5 quarters. My estimates would suggest you're gonna add close to another 1 point from regular organic capital generation. Let's call it 10 points being added to LICAT over the next year and a half. How do you think about that additional capital flexibility you've gained now? Sort of what are the priorities, as you think about that? I mean, do you have to keep a cushion just in case interest rates and risks go the other direction again?
Do you get more aggressive with de-levering any acquisitions you've done? Just again, broad thoughts on how you're thinking about that capital flexibility.
Yeah. I'll start off with that one, Paul. You're correct. Those would be the, you know, we'll call them the capital strengthening. I'd say as a first and foremost, I'd say as we, you know, build up, more firepower, I think de-leveraging is for sure a priority for us. I think de-leveraging gives us a lot of flexibility and freedom as we think about, next steps on growth. You know, that's kind of number one. That's number one on our mind. You know, would we get more aggressive, or less aggressive? We're not actually that concerned about a scenario switch. You know, the steps we've taken, we think are pretty solid.
We'll look at that capital as a source of strength, ultimately to be, you know, used in an effective way. As I said, first and foremost, de-leveraging, but after that it's about opportunity. That's the mindset we've got.
Thank you. That's helpful. That's it for me.
Our next question comes from Nigel D'Souza of Veritas Investment Research. Please go ahead.
Thank you. Good afternoon. I actually had a follow-up question on the interest rate scenario impact of LICAT. Can you give us some color on what would actually just even hypothetically drive an interest rate scenario switch? If it isn't likely, should we interpret it as, you know, the sensitivity of LICAT from higher rates, which I think is 2 percentage points for a 50 basis points parallel increase. Should we just interpret it as a capital benefit offsetting what could be rising long-term yields over the coming months?
I'll let Garry answer that one. Just to make sure that, you know, we've got the geography of the numbers there right. Garry?
Yeah. You are actually reading that correctly. If you do indeed see a rising interest environment, I think you see the sensitivity in our materials. That's where you've got the three points from the 50 basis point rise. Yeah, you see that. In terms of scenario switch, it would take a combination of a fairly sharp decline in rates and changes to our ALM approach. You know, obviously we're sensitive to rates, so they don't seem to be going down that route for the moment, but obviously the world can change. Certainly our ALM approach, we're not planning on changing that through our schedule.
Scenario switch seems very likely, and that, picking up a point every quarter, in addition to our regular retained earnings growth, will certainly give us some protection there. I think just like us, the whole industry has a natural bit of a headwind when interest rates are rising.
Just sort of based on the IFRS 17 impact, is this the dynamic at all?
Garry, to you.
Sorry. In terms of, well obviously the first thing I'd say is on IFRS 17, the industry and ourselves that are obviously the financial side of this, the industry are working with OSFI just to make sure there's no unintended consequences on the move to IFRS 17. OSFI have indicated they are looking to keep the capital regime neutral. As and that in terms of both the level of transition and also looking at potential volatility as well. I think there's nothing directly tied to IFRS 17. It's really, you know, obviously the impact will be depending on where OSFI finalize it, but certainly OSFI are looking to keep IFRS 17 as a neutral transition.
I wouldn't foresee that changing the earlier narrative.
Okay. That's helpful. You know, apologies if I missed this, but was any color on the specific actions you took to pick up or enhance yield in Canada? Any color there on how you achieved it?
Garry, over to you.
Yeah. We, you know, we have a certain, I'll call modest, you know, reinvestment assumptions in our and yield in our actual liabilities. What we've used in the number, I mean, there's a variety of investments we would've gone into, but one of the ones I called out in the safety notes or Paul might have, is if we do use on a swap basis, the equity release mortgages are a good source of alternative assets. They have good long duration, so they're very effective at packing longer duration liabilities. And they come with attractive spreads as an alternative asset class. And when we swap them from sterling into Canadian, they're backed Canadian liabilities, there's benefits there as well.
Those have been. That's probably the one I'd call out. It's been a very effective trade for us where we've picked up some value. That's what's one of the key contributors to Canadian yield enhancement.
Okay, that makes sense. That's it for me. Thank you.
Thanks, Nigel.
Our next question comes from Darko Mihelic of RBC Capital Markets. Please go ahead.
Hi. Thank you. I just want to take you back to earnings and surplus for a moment. Just wanna make sure I understand the impact that hit this quarter. You know, ultimately what I'm looking for is a better way to think of what a more normalized level would be. I think you said there was a CAD 14 million impact. I think you called it a. Shuffling my notes. So sometimes I scribble a loss.
Loss consolidation.
Right. Okay. And what else? There was seed capital losses. Is there anything you can sort of walk me through the math behind how we got to -36? Or maybe you can just talk generally about what a more normal run rate would be for earnings and surplus. Either way, I'm just looking for, like, the breakdown of what causes it to go worse than last quarter.
Garry, I'll let you take that. Obviously you'll start out with the talking about the offset to some of that in the last consolidation. Over to you, Garry.
I would kindly call it a courtship, the accounting regime, which is not of our own making. This is where, depending on in certain of the funds where we have seed capital, depending on our percentage of the fund, we have to consolidate the entire fund and then we back it out again. We had some seed capital losses. Our share we keep, and then the CAD 14 million represented other losses, all the other people in the various funds that were involved. It's just a mark-to-market, obviously, rather than a realized gain or loss, converted mark-to-market. But as it comes with a non-controlling interest. That CAD 14 million, you're right, you remembered the number.
Otherwise it would have been -22. Really what goes into surplus capital, Chris, you know, in addition to the seed capital mark-to-market, but what was in there are the largest things overall are financing costs. That would have risen since last year because obviously we've pre-funded some of the Prudential acquisition financing. You've got acquisition costs and then you've just got the, you know, other invested assets in surplus. We would have had also going through here from time to time are when you crystallize gains in other comprehensive income, so that you crystallize some unrealized gains by trading assets and surplus. We've talked about that in the past. We had very little this year. We've had higher amounts of that in the past.
Certainly if you look at the full year, we would have had more of that in 2020. That typically occurs when interest rates are falling. You end up getting mark-to-market gains on fixed income. As you trade those assets, you can basically harvest or realize those gains, and they come through to P&L. That wasn't much of a feature in 2021 compared to the rising rates, but it was in 2020. Really it's the run rate income on your various surplus assets. You know, a number of them don't have a yield there. It's the run rate income and then the financing costs. They're pre-tax financing costs there.
You know, those overall are often larger than the other surplus income. It's just not unusual to have them larger than the other surplus income. You know, having them in very low numbers or even negative is not that unusual.
Okay. I think that helps. I just wanted to follow up on Gabe's question with respect to the yield enhancement. I just wanted to make sure that I heard you correctly, in that you were not talking about the entire net investment results being lower than the yield enhancement. In fact, what you were referencing was if you do something like an equity release mortgage, and that impact on the net investment result would be milder than the current yield enhancement. Did I hear that? Is that the way I should interpret what you said?
That is an excellent way. We get the same value over time, but right now a portion of it would be more recognized upfront and less later on. Then the new regime will recognize the spread more evenly over the life of the asset. It is, you've interpreted it correctly.
Okay, great. Thank you for that. Just as a follow on to that, I know you're running a parallel system. What is your planned kind of release of information around some of these things like, you know, like the investment result, earnings power transition? I'm not thinking that it's just gonna be all held until Q3 and then there's gonna be some massive big reveal. I'm anticipating that you'll sort of release some information as you get it to us or. Have you guys thought about that at all? Or what's on your mind with respect to releasing or, informing us of some of the major things with respect to IFRS 17?
Garry, do you want to start there?
Sure. Yeah. I think I mean we've had quite a number of conversations internally about you know as we get closer. I mean we haven't you know in terms of the actual parallel runs obviously we will be running comparative quarters during 2022. That hasn't kicked off yet. As we get closer and start finalizing the policies and feel we can give better at least directional information and areas to look at whether it's a broader I think people have greater education on it but I think we can clarify exactly how it might apply to us. We don't see a big bang approach on that.
We do see having some dialogues, some one-on-one dialogues, some disclosures on our calls that will give directional information. That will roll out through the year rather than all at once. You're right, we aren't planning an all at once big bang. Although, obviously, the final published results will be quite a different matter. At least to give, so we're not looking to surprise anyone here.
Okay. All right. I'll just group into just sort of three buckets of concern, right? The first bucket is transition impact on balance sheet. The second impact is anything on LICAT. The third is earnings power. Which of those three do you think you're better prepared to talk about earlier? What do you think will have to wait until far later in the process?
You know what, I would say, the reality is they're all interwoven. You know, they're interwoven for sure. We're still continuing as an industry to work with OSFI on how this will play out with LICAT relative to volatility. It's hard to sort of describe one of those as being locked down before the others because of that. But Garry, you may have, you know, you might want to provide a different perspective.
No, no, I think you're right, Bob. There's certainly a definite connection between them. I mean, you know, the example that I think most people use is the contractual service margin coming out of retained earnings on transition and some aspects of that, and that will also feed into the income as it gets, you know, reamortized back in earnings. They're definitely connected. You're right. It's, you know, ourselves and the industry not only working with OSFI, which I mentioned earlier, but also working with the rating agencies just to make sure it's well handled. If we stand back from this, the economics of the business aren't changing. It's an accounting transition.
We need to make sure that it lands appropriately and we think that by the right education, we can keep all the various pieces within that.
Okay, great. Thank you. Appreciate that.
This concludes the question and answer session. I'd like to turn the conference back over to Mr. Mahon for any closing remarks.
Thank you, Ariel. Well, again, as always, we appreciate your time and your questions and your interest, and we actually really look forward to connecting with you all, in early May for our Q1 reporting and our annual meeting. From there, we wish you a healthy and a great first quarter.
This concludes today's conference call. You may disconnect your lines. Thanks for participating and have a pleasant day.