Thank you for standing by. This is the conference operator. Welcome to the Great-West Lifeco first 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.
Thanks, Ariel. Good afternoon and welcome to Great-West Lifeco's first quarter 2021 conference call. I hope you and your families are safe and healthy. Before we move on to our prepared remarks for the quarter, I'm going to take a few moments to touch on the ongoing impacts of COVID-19 on our communities and world. To start, I want to acknowledge and thank all of our healthcare and essential workers. It's been a long road for you. Your tireless work has ensured our health and safety and kept our communities running. To those of you who've lost a loved one due to COVID, my heartfelt condolences go out to you. Our appreciation also goes out to our dedicated advisors and employees for their ongoing efforts.
You continue to serve our clients and deliver on our commitments as you balance family and other responsibilities well, most of you working from home. While there's real hope as vaccination efforts advance, the world's also coping with new waves and variants of COVID-19. We see healthcare systems in many countries remaining truly stretched. We've seen the heart-wrenching impacts to people and families in India, where we actually have an Empower Retirement team. As a demonstration of care for our over 1,000 Empower associates living there, Empower Retirement, along with our Canadian operations and together with Power Corporation and IGM, are donating over CAD 250,000 to Red Cross disaster relief efforts. In other countries, like the U.S., vaccination rates are helping to stem the surge of additional COVID infections.
What we see is that's allowing countries to increasingly open for business, travel, and things like connecting with family and friends. I would say that's things that we all yearn for. In my mind, it's clear that vaccinations will be critical to achieving both health safety and a vibrant economy, and that's why we're really encouraging vaccination for all those who are eligible, including our staff and advisors. I'll share that I personally had my first AstraZeneca vaccination, and I look forward to my second shot. Getting on to business, joining me on the call today is Garry MacNicholas, Executive Vice-President and Chief Financial Officer, and together we'll 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 of Empower Retirement, and Bob Reynolds, President and Chief Executive Officer of 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 cautionary notes apply to today's discussion and the presentation materials. Moving to slide four, you'll see a high-level summary of the key themes that we're going to cover today. We reported a solid first quarter with continuation of the momentum we saw in Q4 and strong and consistent operating performances across all segments. Our recently acquired businesses, MassMutual and Personal Capital, are performing well.
The integrations are on track. MassMutual contributed solidly to the first quarter results. Our capital position remains strong. Our LICAT ratio was at 123% at the end of the quarter. While down six points from Q4 due to rising interest rates in the quarter, we are comfortable with our LICAT ratio, which remains above our internal target range of 110%-120%. While rising rates have a dampening effect on LICAT, the higher interest rate environment is positive for our overall business and the value we can deliver to our customers through our products and services. From a business perspective, we have experienced modest financial and business impacts from COVID-19 in the quarter, which are outlined on the next slide. Please turn to slide five. From a revenue perspective, sales and quote activity are trending upward and in most cases, nearing pre-pandemic levels.
While activity remains impacted by lockdowns in some jurisdictions, overall trends are favorable, and we've seen good persistency in asset retention across our group businesses. While the impact of credit was modest across bonds and mortgages, COVID-19 related pressures still exist in some sectors. We're maintaining a cautious outlook for segments of the office and retail subsectors. We continue to monitor our invested assets portfolio closely and believe in its high quality, diversified nature, which will help to mitigate potential future pressures. In summary, business momentum and our sales pipelines are strong, and we remain confident in the resiliency of our business. Turning to slide six, we provide an overview of earnings. Base earnings were CAD 739 million, and net earnings were CAD 707 million in the first quarter. Base EPS of CAD 0.80 was up 36% year-over-year and steady with last quarter.
Expected profit increased 21%, reflecting solid business growth and an ongoing recovery from the effects of the pandemic, and a strong contribution from the MassMutual business acquired last year. Net earnings of CAD 0.76 per share posted a strong rebound from COVID impacted CAD 0.37 a year ago. Net earnings included modest U.K. property related impacts and U.S. integration costs. Please turn to slide seven. You'll note we've taken a different approach to operating results slides this quarter. We've changed the format to focus on segment operating performance, including top line and net growth, to facilitate greater insights into growth drivers and market trends. Turning now to Canada, we saw solid operating performance in Q1. Group insurance sales were strong due to large cases and overall persistency. For the second consecutive quarter, Canada Life led the market in group life and health sales.
We also saw strong asset retention in group wealth as plan members switching jobs or retiring opted to keep their assets with Canada Life through the NextStep program. This is the same dynamic that we refer to at Empower with our retail IRA rollover business. While individual insurance sales were slightly lower due to fewer large cases, quote activity is trending upward, and we continue to add new products and services. As an example, we launched the Canada Life My Term Flexible Life Insurance product. This new customizable product allows customers to pick the exact term length they want between five and 50 years. We're seeing the benefits of our past investments really playing out with over 80% of individual insurance applications now being done digitally. This reflects continuing strong adoption of our SimpleProtect digital life insurance app.
Individual wealth saw record sales across segregated and mutual funds and positive net flows. These strong results reflect excellent progress in building out our wealth business in Canada, which was advanced through the combination of GLC Asset Management Group with Mackenzie Investments and the new product launches we made last year. Strategic advancements continue, including the introduction of an advisor solutions, which provides enhanced support for advisors who are doing business directly with Canada Life. The technology-enabled offering is adapted to each advisor's unique needs, including product support, practice management, and succession planning. Please turn to slide eight. Empower continued its strong growth trajectory after leading the defined contribution recordkeeping market in growth by participants and assets in 2020.
Sales of CAD 64 billion reflected strong results across market segments and included a mega plan sale with approximately 316,000 participants and $49 billion in assets under administration. As noted in the past, Empower sales can be lumpy and will be elevated in quarters when we onboard large or mega plan sales. While Empower is the second largest player in the U.S. DC record keeping market, extending the business to meet the retail wealth management needs of its over 12 million participants is a key part of our strategy. We're pleased to have reached a new milestone of CAD 19 billion in retail IRA assets under administration as of quarter end, with strong growth in roll-in and rollover assets, IRA customers, and managed account sales.
While integration is proceeding, Personal Capital continues to make strong progress as a standalone business with positive growth in new client assets to end the quarter with AUM of CAD 18 billion. On a combined basis, Empower and Personal Capital standalone retail assets reached CAD 37 billion. This is an increase of 14% from Q4 2020. On a year-over-year basis, including Personal Capital assets pre-acquisition, combined retail assets are up 68% from Q1 2020. Staying on this retail wealth management theme, in April, Empower announced it will launch a new digital experience later this year. The new offering will bring together the combined experience, technology, and capabilities of Empower and Personal Capital. This represents the first stage in a more robust integration of Personal Capital's technology and client engagement capabilities into Empower's DC and retail platforms.
Finally, the acquired MassMutual business contributed strongly to Empower base earnings in quarter, and integration is progressing well. We've achieved $40 million in annual pre-tax run rate synergies to date and are on track to reach our $160 million target in 2022. Please turn to slide nine. Putnam sales of $13 billion were down 14% from last year, but steady with last quarter as sales of short duration income products slowed due to lower yields while equity sales improved. Net outflows of CAD 2 billion were mainly institutional and fixed income products. Behind this result was offsetting net inflows in equity products driven by continuing strong performance with seven of 10 U.S. equity funds having four or five-star Morningstar ratings. Putnam is driving organic growth with new fund launches.
In February, it announced the launch of active ETFs, with the first of these products expected to be available this quarter. Please turn to slide 10. Europe had a very solid commercial performance in the first quarter, with sales and profitability in many product lines in our three markets returning to pre-COVID levels. In addition to the new presentation on this slide, we've included additional details on European sales on slide 28 in the appendix. Wealth sales have continued to recover with strong growth in individual pension sales in Ireland and Germany. German sales were up 20% year-over-year, and we're excited to have completed our first quarter where all in quarter sales were processed on our new, more digitally enabled administration platform. Wealth client retention in all markets remained solid, supporting another quarter of positive net flows and AUA growth in local currency.
Europe AUA is up 16% over the last 12 months, adjusting for the sale of Irish Progressive Services in Q2 2020. Group wealth is mostly workplace pension sales in Ireland and will vary a lot from quarter- to- quarter based on when we win large new mandates. Similarly, annuity sales will spike in quarters with bulk annuities. While there were no bulk annuities in the first quarter, activity has returned to the market with many pension schemes looking to transfer their liabilities, and we are actively engaged in assessing these opportunities. Individual annuity sales were solid in Q1, and our equity release mortgage business continues to perform well. We're very pleased with this business, branded Canada Life Home Finance, and the financial flexibility equity release mortgages offer our customers in retirement.
We also maintained our group insurance market leading position in the U.K., helped by new services such as WeCare, which provides digital and virtual services to support physical, mental, and financial wellbeing of employees. Please turn to slide 11. Capital and Risk Solutions had another good quarter following a record year in 2020, and has demonstrated strong growth by offering tailored reinsurance products to our clients in the U.S. and Europe. Because these transactions can take different forms and structures, expected profit is the best way to see how the segment is performing. While CRS relies on its established markets and products to sustain strong earnings, it also focuses on developing new markets and new products for growth. Examples of this are a large asset-based transaction in Japan and a transaction covering lapse risk in Israel.
Both were closed in the first quarter and show that we can extend our expertise and creativity beyond North America and Europe. I'll now turn the call over to Garry to review financial highlights. Garry?
Thank you, Paul. Please turn to slide 13. Base EPS of CAD 0.80 was up 36% compared to the prior year. While there were some COVID related headwinds in base EPS last year, the improvement is more a reflection of underlying business growth, both organic and through M&A. We've had strong base earnings results across the segments, and I'll touch on highlights momentarily. Net EPS of CAD 0.76 was up over 100%. In addition to growth in base earnings, a large part of the year-over-year swing comes from the COVID driven market related impacts in 2020, with only a modest headwind from excluded items this quarter. On a segment basis, starting with Canada, base earnings were CAD 298 million, up 9% from last year. Continuing favorable results in health and LTD claims and solid yield enhancement contributed to strong experience gains this quarter.
New business also contributed positively as a result of repricing actions earlier in 2020 and higher interest rates. In the U.S., base earnings were up significantly from Q1 2020. The MassMutual business performed well in its first quarter, adding CAD 48 million to base, including early expense synergy gains and strong fee income. We see an opportunity for further yield and spread pickup as we position investments to our target asset mix in the general account. Personal Capital was in line with our expectations, profitable on in-force, but recording a base loss of CAD 14 million as we continue to invest in new customer acquisition to fuel growth and future profitability. Excluding MassMutual and Personal Capital, Empower's base earnings increased by 30% as a result of higher market levels and strong organic growth. Putnam's results improved sharply year-over-year.
While Seed Capital showed a small loss this quarter, it was much improved from the large mark-to-market losses in Q1 2020. I would also note that institutional performance fees, which were a CAD 30 million benefit last quarter, are seasonal and concentrated in Q4 each year, so did not contribute in Q1. In Europe, base earnings increased 52% over a softer Q1 2020, with improvements in each of the three geographies. Base earnings benefited from solid yield enhancement and favorable longevity and morbidity experience, partly offsetting higher life claims. Capital and Risk Solutions saw another quarter of strong base earnings growth, up 22% over Q1 2020, reflecting the expected profit contribution on business written in the past year. COVID continued to impact mortality rates, with higher claims in the U.S. traditional life reinsurance business being partly offset by favorable longevity experience. Turning to slide 14.
This table shows the segment and total Lifeco source of earnings from a base earnings perspective, which excludes the lines for management actions and changes in assumptions and other, and also excludes certain market related items from experience gains and losses. We introduced this view last quarter, given the number of adjustments at the time, and have maintained the additional disclosure. Expected profit was up 21% year-over-year. Of the 21% increase, about half was due to the additions of MassMutual and Personal Capital, with the other half, about 11%, coming from business growth across the other segments, most notably in Capital and Risk Solutions, which was also up 21% from last year. Regarding new business impacts, notable changes include the improvement in Canada mentioned earlier, and an increase in new business strain in the U.S., which now includes Personal Capital and MassMutual.
This is a direct result of strong growth. As a reminder, the U.S. strain is on investment contracts and represents business acquisition costs that cannot be deferred under IFRS. On the flip side, the benefit of future margins, including margins to recoup those acquisition costs, will come through the expected profit line in future periods. Experience gains contributed positively in the quarter, and I'll cover these on a separate slide later. Earnings on surplus of minus CAD 31 million is down from the prior year. This is partly due to higher ongoing financing charges as a result of debt raises last year to support the recent acquisitions, as well as lower realized gains on available sale assets in light of rising interest rates.
The effective tax rate on base shareholder earnings was 10%, primarily reflecting the jurisdictional mix of earnings with a contribution from getting close to settling certain outstanding CRA matters. Turning to slide 15. The table on this slide is a reconciliation of base to net earnings, highlighting the key items that are not included in base earnings. Just two items to call out, the first being market-related impacts. This primarily represents an adjustment to U.K. property values used in paired annuity liability calculations. The second is integration costs associated with MassMutual and Personal Capital. We'll be noting these each quarter along with the progress towards achieving expense synergy targets. As noted earlier, MassMutual has hit a run rate of CAD 40 million so far en route to our CAD 160 million target overall. Those are annualized pre-tax.
There are no further material impacts from assumption changes in the period. Please turn to slide 16. This table shows the segment and total Lifeco net earnings results from a source variance perspective. It essentially combines the information from the base earnings SOE with adjustment through the excluded items on the prior slide. The other line is where we record the integration cost mentioned earlier. Recall these are all pre-tax numbers. Please turn to slide 17. These tables expand on the experience results as well as the management actions and changes assumptions to highlight various items in the quarter, most of which we've touched on earlier. As shown in the chart on the left, yield enhancement continues to contribute positively, particularly in Canada and the U.K. The market-related impact was discussed earlier.
I'd also call out that there was, again, a positive combined net impact of mortality, longevity, and morbidity as we continue to benefit from a diversified book of business. Credit related impacts were negligible this quarter, which is a good outcome that reflects the quality of the portfolio, but we do continue to watch that closely. Moving to slide 18. This slide highlights operating expenses by segment. While expenses are up notably year-over-year, this is to be expected given the growth in business and expected profit, both organically and through M&A activity. Canada and Europe expenses are pretty steady year-over-year. CRS expenses are up 13%, which compares favorably to the 21% increase in expected profit.
In the U.S., expenses are up largely due to MassMutual and Personal Capital acquisitions, but also due to business growth at Empower. Please turn to slide 19. The Q4 book value per share of CAD 23.36 was up 5% year-over-year and up 2% sequentially, driven largely by increased retained earnings, partly offset by currency movements. The LICAT ratio at Canada Life remains strong, although down six points from year end. The primary impact came from the sharp rise in risk-free rates, which accounted for a 3.5 points decrease in the ratio. In addition, as noted last quarter, this also includes the continued phase in of the new most adverse LICAT scenario, which impacted the ratio by one point. Assuming we stay in this LICAT interest scenario, the full impact will continue to be smoothed in over the next three quarters at just under one point per quarter.
We've also seen growth in asset related requirements from increased non-fixed income investments and the new reinsurance transactions. Lifeco cash of CAD 1 billion is not included in the LICAT ratio and would be worth about four points. That concludes my formal remarks. Back to you, Paul.
Thank you, Garry. Please turn to slide 20. Looking ahead, we'll continue to maintain a high level of vigilance around COVID-19 and closely monitor ongoing risks in the markets where we operate. We'll also continue to do all we can to support our employees and communities as the pandemic continues to put so much strain on the health and livelihoods of so many. In Canada, we remain focused on elevating our wealth management strategies through the combination of GLC Asset Management with Mackenzie Investments. We saw benefits in the first quarter with strong individual wealth sales and positive inflows. We will continue to leverage digital capabilities and product innovations to drive further revenue growth and serve our customers.
In Europe, our focus remains on unlocking value from the investments we've made in our wealth tuck-ins and retirement platforms, including wealth tuck-ins in Ireland and our extension into the German corporate pension space. In Capital and Risk Solutions, we will continue to leverage our expertise and experience in longevity and life capital solutions to grow this business and extend into new markets within our risk appetite. At Putnam, we continue to deliver strong performance for our clients, and the positive flows we see into higher fee equity funds illustrates positive momentum. Finally, at Empower, we're focused on building out our retail wealth strategy as we integrate Personal Capital and expand our offering to over 12 million+ plan participants. We made solid progress in the first quarter with strong growth in retail assets and plans to roll out the new digital experience to plan participants later this year.
We're also on track to realize the synergies and accretion targets we set for the MassMutual transaction. On that note, please turn to slide 21, where we're pleased to announce that we will host an Empower Retirement Investor Day on June 8th. We will post event details in the coming days and look forward to sharing more with you about the Empower business and our plans to grow and win in the U.S. retirement services and retail wealth management markets. That concludes my formal remarks. Ariel, please open the line for questions.
Thank you. We will 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 were using a speaker phone please pick up your headset before pressing any keys. To withdraw your question please press star then two. To join the question queue please press star then one now. Our first question comes from Meny Grauman of Scotiabank. Please go ahead.
Hi, good afternoon. Garry, when you talked about the tax rate this past quarter, you mentioned something about getting close to resolving certain outstanding CRA items. Just wondering if you can elaborate on that. What was the impact from that? Thank you.
Garry, just take that one straight away.
Yep, okay. Thanks, Paul. A couple things to note there. The thing I called out there, that was we reduced our uncertain tax provisions, they're called, by about CAD 30 million as we get close to finalizing a settlement. That was split between, I think it was CAD 20 million Canada and CAD 10 million Europe. On the other hand, we had other areas where our tax provisions increased slightly. The net impact from lower tax provisions was about CAD 15 million overall. The specific item I was calling out was about CAD 30 million.
Okay, thanks for that. If I could just ask about the Capital and Risk Solutions business. It sounds like there's lots of momentum there, expected profit up 21% year-over-year. I'm just wondering, as you look ahead, do you expect that pace to continue? Is there anything in that you would exclude on a run rate basis? How do you look at that expected profit growth going forward?
Yeah. Meny, if I refer back to Garry's comments, the expected profit growth you see now is reflective of transactions that we would've done in past quarters, and they're now flowing through. As Garry, or as I outlined, there was a couple of transactions in quarter where we'll see the lift in future quarters. Having said that, we've used discipline in terms of our aspiration for growth with this business, where we want to keep it within our risk appetite, and we want to make sure that we've got really good discipline around return characteristics, profitability and risk. That would sort of be a general comment. I'll let Arshil comment a little bit more on the way we think about growth going forward. Arshil?
Thank you, Paul. In terms of the transactions and the growth we've seen over the last couple of years, we've really seen some outsized growth on the longevity side, particularly in the swap area, both in GBP and in EUR, and the market conditions there are tightening up a little bit. I think the highest level of growth has already happened, but there are still opportunities for us even in that market. We also continue to see reasonable opportunities for us across our structured portfolio in the U.S., particularly on the health side in Europe around Solvency II relief, and we highlighted a mass lapse transaction in Israel. Again, we've seen reasonable growth in that structured financial solutions area, and we'd expect that to continue. Finally, on the traditional side, we've seen some tightening extra competitive pressures in the U.S.
We announced that transaction in Japan on an older age block, which was very interesting for us because we got all of the premium upfront. We have very little reinvestment risk there, and we can fully hedge out the interest rate exposure and then over time try to add some spread. Again, we're not promising the 20% type growth that we've seen in the very recent past. There's still lots of opportunity for us to continue to grow reinsurance in pace with the growth of the rest of the company.
Thanks for that. Just as a follow-up, I know you're emphasizing that you're increasingly looking outside of North America and Europe. What's the competitive landscape once you go outside of those jurisdictions? Does it become less competitive? If you could just give some color on that.
Arshil, why don't you go straight to that?
Thank you. I think we're really picking our spots when we're sort of extending beyond our core markets of the U.S. and Europe. Israel is quite attractive for us. It is not an overly competitive market, but there are others who are there. Really in that market, we're benefiting from our Solvency II structuring capabilities. In Japan, we're really leveraging the strength of our global investment organization, including our investment shop in London, that's part of the U.K. operation, because we got that large upfront premium from the Japanese client, so we can immediately hedge all of the interest rate risk. The markets outside the U.S. and Europe are very large, potentially in Asia and in other markets as well. We're only scratching the surface there.
I think the near term constraint there is less the competitive dynamic, but much more finding ways for us to leverage our capabilities and doing that in a way that's consistent with our risk appetite and the growth that we're seeing in the other areas. I don't want to neglect at all growth opportunities in the U.S. and Europe, and I view that geographic expansion as very complementary for us.
Thank you.
Our next question comes from Mario Mendonca of TD Securities. Please go ahead.
Good afternoon. Paul, in your opening remarks, you offered something that was very similar to what we heard from a few of the other life companies this quarter, specifically that higher interest rates could sort of enhance the product offering for customers going forward. Now, when I hear an insurance executive offer that, I immediately think of better pricing illustrations on universal life. Is there more to it than just that? Are there other products, or is it as simple as just saying long-term life insurance illustrates better with a higher rate?
I think you captured probably a core issue, which is the reality is that a number of these interest-sensitive products do not provide a strong consumer value until you can actually get some real throughput in terms of returns. I would say that's one driver. I think the other dynamic, though, I think about is diversification of offerings and opportunities for customers. Because if you kind of think over the last number of years, PAR has taken up a lot of the sales share, for example, in Canada, and universal life has really sort of struggled to offer competitive returns. As we see those rates rise, I think it allows for those stronger returns. I think the other reality is those stronger returns, number one, can offer in part, better pricing for clients and in part, better margins for us.
Overall, I think it just sort of takes away a dampening effect and opens up the opportunity for a more diverse and competitive product offering.
Would you point us to other potential positives from the higher rates, like earnings on surplus or new business? I mean, is there more than just margins on sales?
No.
What else could you point to?
The other things I would point to would be things like there's products with guaranteed rates or match rates. As we have higher rates, you're in a better position that way. More attractive annuities would be a critically important one. If you think about people who are looking to secure certainty of lifetime income, it's hard to take that on when you're in a really low interest rate environment. Things like annuity products become far more attractive as rates start to widen. I think the other reality is even if you think about Long-Term Disability products, those disabled life reserves are also invested in assets, and they have to be fairly secure, steady assets. Again, LTV rates can become more competitive. Overall, it has a really broad impact on our business. To me, there's lots of potential positive lift.
Give me a sort of a different type of question, Paul Mahon. About the tax rate. The tax rate does bounce around a lot. I think it does for a lot of companies. What's sort of really noticeable for Great-West Life is that over the last, say seven quarters, the base tax rate's been around 8% or 9%. What are we seeing there? Is it just that in these last seven quarters, there's just been a lot of opportunities to lower the tax rate through finishing up an audit or just special provisions that were released? What are we seeing over the last seven quarters that would lead to single-digit tax rates for Great-West Life?
Yeah. I'm going to defer to Garry in a moment, but I'll just touch on three things. Number one, we're going to get our relative jurisdictional mix of business, which will drive that. To the extent that we're having higher growth in business in lower tax jurisdictions, you're going to see that dampening effect. You will see us obviously working through tax matters with the various authorities and resolving those. I think the other thing is thinking about how we structure our business in terms of taking advantage of restructuring, leveraging various aspects of the business that way. I think if you look at it overall, to a large extent, there's lots of those opportunities. Our continuing view would be that we really think that the underlying tax rate really is in that low to middle double-digit rate. I'll let Garry speak to that.
Garry, you probably have some stats on sort of where the help has been from a tax perspective.
Sure, Paul. I think you've actually summed it up well. A lot of the benefit or the lower tax rate just comes from a couple of things, and one is certain of our investment income isn't subject to tax or this tax advantage investment income. A lot of it really is the mix of jurisdictions of where the earnings are rising, the different jurisdictions. Canada is the highest. I think the small amount that's taxed in Germany, because most of our German business run out of Ireland as well, which as you know, would be a lower tax rate. It really is that jurisdictional mix. I think a typical tax rate in that low double digits is not unusual. If you take a longer average, I think it is lumpy.
You're right, Mario. We've had a number of larger older tax matters wrapped up, typically we have provisioned for them. When we do finally wrap them up, we always hope there's a little leftover that falls to the bottom line as we resolve those matters. On average, I think that does or has at least in the past, tend to lower the tax rate. The combination of two, I haven't done the average, I'm not surprised it would be like this quarter 10% or maybe a little less because we have wrapped a few up lately.
Okay. Thank you.
Thanks, Mario.
Our next question comes from Paul Holden of CIBC. Please go ahead.
Thank you. Good afternoon. I have two questions for you. The first is on LICAT and the interest rate sensitivity. You do disclose a sensitivity number in your MD&A, and it used an example of a 50 basis point rate increase. If I was to think about that type of scenario, is that enough to result in the scenario switch whereby you get out of this more punitive scenario, or would you need to see something even higher than that?
Paul, I'm going to refer that question on to Garry. Garry?
No, at this point, we do put the disclosures in. The 50 basis points, and you will see per our disclosure, it still would be hit. We do not cross scenarios at this point with 50. It would be higher than that. It would likely be over 100 basis points up before we crossed. I just want to caution, though, that does change as our business changes, whether we update our actuarial liabilities, and our investments as they change. I think if you think of it as more than 100 bps, that is probably a good spot right now before we switch back.
Got it. Okay. That's helpful. Thank you. My second question is around the expected profit growth in Canada. It was up 5% year-over-year, and you also sold GLC Asset Management at the same time. That seems to me like a pretty good result. Maybe you can talk about some of the drivers and sustainability of that type of growth and absent now GLC.
I might start with Garry, just trying to provide a bit of context around the 5%, I think, Garry, why don't you pass it over to Jeff Macoun because, Paul, the core underlying issue there is you heard us reference the growth in our wealth management business at a record level, and we're seeing some net sales there. Notwithstanding a bit of a softer life quarter, we're seeing pretty solid growth there. Underlying that, it's growth in the business. Garry, maybe you can provide a little context around the 5% in relation to GLC, and then maybe Jeff can speak to sort of the drivers of growth that are going to support that.
I'd note a couple of things. First of all, the impact of the loss of income, I guess, following the sale of GLC, as we called out at the time, was really single digits for the year. It didn't have much of an impact. It was a very small impact on the expected profit, a slight headwind there, but CAD 1 million or CAD 2 million. No, the benefits have really come from just some of the repricings we had done in the past in our group business. Just getting the rate increases there, the execution of renewals and good margins in our group business and somewhat lower expenses. Those have been sort of the net ones that come through to the expected profit. We're seeing some improvement in our margins. That's really what drove the 5%.
Paul, if I could add, just to come behind Gary there, I would add that, as Gary pointed out, Paul, we started in, I'll call it late 2019 and certainly through 2020. Gary referenced the group block. We took pricing action twice, and we're now seeing that margin and the renewals coming through in a nice way. Our persistency was up in quarter in group, so that's positive. On the individual side, Gary and Paul touched on that a little bit. We also took action on UL term, our CI/DI, starting in late 2019 and into 2020. What you're starting to see is the flow throughs of those actions we took in 2020.
Okay. Those sound like sustainable factors. That's great. Thank you. That's all the questions I had.
Thanks, Paul.
Our next question comes from Gabriel Dechaine of National Bank Financial. Please go ahead.
Good afternoon. Just a question on MassMutual, the U.S. $38 million of earnings contribution. Depending on how I treat the synergies and the financing costs, it looks like it may have exceeded the run rate that you're kind of guiding us to for accretion in 2022 based on the accounting acquisition presentation. Is that just my math that might be off, or did something special happen this quarter?
I'll start with Garry on that just to make sure that's consistent with our view, and then maybe Ed can just speak to our early progress, which is separate from the numbers underlying, it's going very well right out of the gate. We're really pleased with the MassMutual integration. Garry, why don't you speak to the CAD 38 million, and then maybe I can talk a little bit about just progress and how that might be maybe a bit stronger than we might have expected.
Yeah, I think that's a good way to sum it up, Paul. I haven't gone through the exact math you've gone through, Gabriel, and we're happy to line those up after. I would say that we're off to a good start, so we'd be cautiously optimistic. One thing I'd note is that in our original, we'd have had a certain view on potential shock loss lapses. Ed can speak to this, I think we're very pleased with the retention of clients, that might be a help. Asset levels would have been, obviously markets have continued to perform, those higher asset levels as in Q1 than we might have anticipated when we originally describing the transaction. Obviously, the markets go up or down, those have also been a positive. I'm not surprised you're seeing it a little better. There's a few positive factors there, maybe Ed can talk about the business.
Sure. Thanks, Garry.
Yeah.
No.
There. Go ahead.
I was just going to add that we're seeing strong revenue per part there, and we expect that to continue. Obviously, as Garry mentioned, the market's helped. It's still early days, obviously, but in terms of the client retention effort, we're running ahead of plan there. I think that is a contributing factor. The program in general is on track budget, and as Paul mentioned in his opening remarks, we're on track on the synergies for the year too.
Okay, great. Nothing like what Garry was talking about in terms of reinvesting some of the general accounts. That's for revenue synergies, that's part of the original plan, it's not anything new that you've discovered?
No.
No.
What I was going to call out in my notes is that we haven't quite reached our target asset mix there. There is a potential to add some yield and spread as we reach our target asset mix. Just obviously the assets are just transferred right at close at year-end, we've got some potential there.
Potential, I think it was CAD 30 million in terms of revenue synergies above and beyond that, possibly?
I think Ed can talk to those. I think those were a different type of revenue synergies.
Okay. All right.
Yeah. The revenue synergies really won't begin to kick in until the relationship, for the most part, won't really kick in until the relationships come onto our platform.
All right.
A lot of it will. Yep.
Okay.
Gabriel, I think what Garry's referring to is that if we looked at the overall investment gains and yield we were expecting on the invested assets once they're brought over and kind of invested with the target portfolio, we'd expect a certain level of yield. We've not fully transitioned it. We've got some lower yielding assets. We'll get them to the target. It's not part of that. It's just where we're maybe a bit ahead in some areas, we're a little bit behind on that. All of these things are going to come into the frame in the subsequent quarters.
Okay, great. Thanks for that, and sorry for cutting people off. It's hard to tell when someone starts, someone stops on these things.
No problem.
No problem at all. Good questions.
Once again, if you have a question, please press star then one. Our next question comes from Tom MacKinnon of BMO Capital. Please go ahead.
Yeah, thanks very much. Good afternoon. Curious on your comments about the bulk annuity market, saying that activity has returned, but there haven't been any kind of sales. Maybe you can describe what's been driving that activity? Do rising interest rates help? What differentiates you from your competitors in the bulk annuity marketplace in Europe? Have you ever thought about transporting those capabilities into North America? To what extent does an increase in bulk annuity business lead to better yield enhancements, assuming that you source assets through bulk? Does that have any bearing on your ability to have any kind of uptick in yield enhancements? Sorry about a bit of a mouthful there, but if you can try to tackle that would be great. Thanks.
Okay. Thanks, Tom. Tom, I'll start off, then I'm going to turn it to David Harney to provide a bit more color. There's kind of three questions there. I'm going to let David speak to what unlocks the market, why is the market opening up now versus maybe not over the last few months. I do think interest rates play into that. The question about would we consider participating in this market, for example, in Canada, we'd call it the single premium group annuity market. Every market has to have their own name for a business opportunity. Absolutely, as we think about longevity and taking on that as part of within our risk appetite, we do look to opportunities in Canada. I would say that that's an area that Arshil Jamal and the Capital and Risk Solutions Group are thinking about.
I would also note that as we think about playing in the longevity market, we do it both through the bulk annuity, quote unquote, business, but also through our Capital and Risk Solutions Group. For sure, to the extent that we're doing transactions that come along with assets, yield enhancement is obviously one of the opportunities that comes with that. I'll turn it over maybe to David, though, to provide a little bit more color. To the extent, Arshil, that if you have anything to add, feel free to jump in after that. David?
Just our comment on that was it's partly COVID-19 related and partly interest rates. Obviously, bulk annuities, they're big transactions for pension schemes to sort of undertake and execute and to take a little bit of time. We just saw a slowdown in schemes entering the pipeline last year, mostly because of COVID-19. We're sort of out of that now, and the pipeline of schemes that are out in the market looking to execute at the moment is back to normal levels. We won't write bulk annuity scheme every quarter. I suppose we're just calling out that we are active and we would expect to win some schemes again this year, and we're finding that our pricing is pretty competitive. I suppose our competitive advantage comes from a number of sources.
I've been able to work with the Capital and Risk Solutions team is a big help to us in the U.K. and then the various investment management companies that we have, and particularly the company in the U.K. they work very hard to earn good yields on the assets that come with these deals, and that helps us be competitive in the U.K. market.
David, I think it's also fair to say that we've been in this business for a long time, in the payout annuity business. I think we actually do have pretty deep expertise on the liability selection side. The whole managing the liability side, understanding those, is key. Obviously the asset management side is the other part that comes into play. When we look at those businesses, we think about the combined benefits of do we have the underwriting risk selection expertise? Can we source assets either directly through the in-market investment management shop we have or across our group? We look to those things. The final one is how can we use Capital and Risk Solutions, as a reinsurance entity to use some internal reinsurance structures where we may be able to get some additional advantage there.
Those are kind of the three parts of the recipe that have allowed us to participate. Again, that means that we're not blind to opportunities, but we want to make sure that if we consider things in Canada or elsewhere, that it has the same overall risk and return profile that we could get in the U.K. market, or if you consider some of the longevity transactions we've done in Capital and Risk Solutions in continental Europe as well. Arshil, anything else you'd add to that?
I would add a couple of points. We certainly did see through sort of 2019 and 2020 that the way that swap spreads were working, it was better for us to assets in North America to support our European bulk annuity efforts as opposed to originating assets in other places to support liabilities in Canada. The swap spreads were one of the factors that sort of made the margins that were available to us in Europe more attractive. Our U.K. origination of equity release mortgages, some of that has been support yielding asset activities in Canada. The real constraint for us in Canada in being more active in the SPGA market is really the competitive landscape.
The returns have been historically a little bit lower, and we're working hard to see if we can find different investment strategies using some of the capabilities that exist for us outside Canada, bring those to bear to support customers in Canada on SPGA. I feel cautiously optimistic that in due course that our offering in Canada will become more competitive as we find ways to tap in our asset origination capabilities in the U.S. and in Europe, and if the swap spreads are going in the right direction to support our offering in Canada.
As Paul indicated, there are a lot of ways that we can get those asset-heavy type of transactions, bulk annuities, reinsurance, SPGAs, and we're very conscious of all of the markets, all of the opportunities that are available and thinking deeply about making sure that we get the best return for our shareholders.
Okay, thanks for the detail. If I could just ask really one more one on Putnam. Margins are down to like 2%, the 2% range. The core earnings were back down to low single digits into outflows again. What's the thinking on Putnam? I mean, we had some cost cuts, margins came back up, but we're back to where we were before.
Tom, I'll start with that one. To start with, to kind of unpack the quarter, there's I guess three dynamics at play. Number one, we saw performance fees were high in Q4, and I think we disclosed that that was kind of a not a regular repeatable event. They tend to be backended into the year. That was part of what drove the higher margin in Q4. The other issue we had was that Gary referenced in his speaking notes was on seed capital. There was some hedge funds that are more tech-based where seed capital has been a very strong, consistent contributor and what happened with this location on some of the tech funds in Q1 is we saw a bit of a fall away there where we've actually seen a recovery already happening in Q2. There was sort of that dynamic going on.
I guess the third one would be that a lot of the positive flows we've had has tended to be in fixed income and some shorter duration fixed income. One of the dynamics and trends we've seen has been a bit of a turn in terms of equity flows into equity funds, which we actually think is really pointing to health of the business. It really aligns well with our wholesaling strategies and the like. We like where our performance is at. Our customers are doing very well, and I'm going to let Bob speak to that. Maybe I'll just have Garry provide a little bit more context in terms of our view of this particular quarter's margins, because I think where last quarter was elevated, I think this quarter was kind of temporarily dampened.
I do think we actually feel pretty good about Putnam's performance, so I'll let Garry speak to that. Then maybe Bob wants to comment a little bit on performance and our views on how the overall franchise is delivering for customers and where there's real potential for flows from our perspective. Garry?
Sure. I think I'd just call out a couple of things. I think we've noted the performance fees, which the institutional performance fees are basically a Q4 item. That is a seasonality in Putnam. A couple things to note. The seed capital, I think we tend to just report it quarter by quarter, but if I look back, it was just over CAD 30 million, this would be Canadian dollars, just over CAD 30 million in 2019. Even notwithstanding some of the volatility last year, ended up the year, I think around CAD 45 million, CAD 47 million. It has typically been a positive contributor, that 8- 10 a quarter type of contribution, and it was -6 this quarter. Again, that was some specific mandates, and maybe Bob can touch on those.
I think they've bounced back in April, but the mark-to-market was not good at the end of Q1. Just lastly, on the seasonality point, again, these are not large numbers, but the overall income isn't that large, so they can have an impact. Some of the expenses are front-ended at Putnam in Q1. There's payroll taxes that are a bit higher in Q1. There's the stock-based compensation tends to be higher in Q1 as well. There's a couple of seasonality items. I think Paul, you summed it up well. I think underlying that, the revenues and expenses are trending the right way. There is some noise.
Yeah. Bob, maybe you can just speak to our view on performance and flows, because actually we come into this quarter feeling pretty good about the strength of the franchise. Bob?
We feel very good about what's going on. From a performance standpoint, Barron's magazine comes out with an annual survey. In the last 10 years, Putnam was the third top-performing money manager in the U.S. If you look at versus Lipper, we're in the top third in performance over the last three and five years respectively, when you look at total fund assets. Paul, you touched upon having 24 funds and four or five stars and Morningstar. That's been reflected in the business. We touched upon equity flows were positive in all channels, which is the switch. That means management fees up. If you look at the pipeline institutionally, if you look what's going on in the retail space, being placed on platforms and in model portfolios, all the momentum is there for Putnam to have a good year.
Thanks, Bob.
You're welcome.
Thank you.
Our next question comes from Doug Young of Desjardins Capital Markets. Please go ahead.
Good afternoon. I'll keep this real quick. The CAD 38 million from MassMutual, is that after financing costs?
Garry, I'll let you comment on that one.
I think the financing costs, I don't think we've attributed them directly to MassMutual. That would include the amortization of intangibles, but the debt's not specifically attributed.
Can you break that out? What was the amortization of intangibles, and what would the financing costs be? I don't know if you can net of that.
Yeah. On the amortization of intangibles, I think you'll find it in the financial statements. They're doing this, remember, I believe it was the CAD 19 million. It's in the note three of the financials. You'll see we've set up the intangibles, and we call out the amortization in Q1. The financing, again, I don't have the specific for MassMutual. I have the year-over-year change in financing overall, which is really mostly MassMutual, a little bit of Personal Capital. The year-over-year change was about CAD 12 million in our financing costs.
Is that Canadian dollars or is that U.S. dollars?
That's Canadian. That's for the quarter.
Garry, you know what? I think we should probably get back to that CAD 38 million, because I know the CAD 38 million definitely has the cost of the intangibles, which, $15 million. I do think there is some debt cost attributed to that CAD 38 million.
So we should, Andra Bolotin, who I think is on to take questions. Andra, do you have more detail on that?
Yes, Paul. No, the CAD 38 million does include the amortization of the intangibles and the financing costs related to the acquisition. I'm just looking for the breakout of the financing right now.
It includes both of them. That's what I was hoping for. Yeah.
Yes. Yes, it does.
Okay. Just on the Canadian group side, you had a positive group experience in Canada, I believe. Just hoping you can flesh that out. I understand you did some pricing, so that obviously benefited. Are you seeing some positive outcomes from terminations, incidence rates? Just hoping to get a little more color.
I will pass that one right over to Jeff Macoun. Jeff, do you want to speak to our group results? I think you're mainly speaking to group disability, but we tend to look at group morbidity overall. Jeff, why don't you jump in?
Thanks, Paul, and thank you, Doug. Yes, we were very pleased with how we performed in quarter, in line with our expectations. Our incidents and terminations are certainly in line as well with our expectations. We have not seen a lift on those. We performed much stronger this Q1 2020, as was called out in the exhibit. In part, we manage this business very closely. I mentioned in an earlier comment on renewals and execution of the business, our persistency has gone up, and at the same time, we've been able to manage it well, the margin. The other thing, too, is that I think we're providing very good value on the mental health side. We did see mental health claims rise just a little bit, and we've added a number of value adds over the last year on the mental health side.
We're very pleased where we're at on the group disability side.
Perfect. Thank you.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Mahon for any closing remarks.
Thank you very much, Ariel. Well, I want to thank everyone for participating in today's call. I know this has been a long day with lots of reporting going on today. We appreciate you staying with us till the later hour. We actually really look forward to having you join us on June 8th when we can talk more about the Empower business. The Empower business having taken on MassMutual and Personal Capital. You'll have an opportunity to meet and spend some time with Ed and a number of his management team. Gary and I will join in as well. In the meantime, I just encourage everyone to stay healthy, and if you're not yet vaccinated and you get the opportunity, please take advantage of it for all of us. Thank you very much, and see you soon. Take care.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.