Thank you for standing by. This is the conference operator. Welcome to the Great West Lifeco First Quarter twenty twenty one Results Conference Call. I would now like to turn the conference over to Mr. Paul Mann, President and CEO of Great West Lifeco.
Please go ahead.
Thanks, Ariel, and good afternoon, and welcome to Great West Lifeco's first quarter twenty twenty one conference call. I hope you and your families are safe and healthy. Before I 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-nineteen on our communities and world. To start, I want to acknowledge and thank all of our health care and essential workers. It's been a long road for you, and your tireless work has ensured our health and safety and kept our communities running.
And 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 advisers and employees for their ongoing efforts. You continue to serve our clients and deliver on our commitments as you balance family and other responsibilities as well, most of you working from home. While there's real hope as vaccination efforts advance, the world is also coping with new waves and variants of COVID-nineteen, and we see health care systems in many countries remaining truly stretched. We've seen the heart branching impacts to people and families in India, where we actually have an Empower Retirement team.
And 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 $250,000 to Red Cross disaster relief efforts. And in other countries like The U. S, vaccination rates are helping to stem the surge of additional COVID infections. And what we see is that's allowing countries to increasingly open for business, travel, and things like connecting with family and friends. And I would say that's things that we all yearn for.
So 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 advisers. I'll share that I personally had my first AstraZeneca vaccination, and I look forward to my second shot. So getting on to business. Joining me on the call today is Gary McNicholas, 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 in Europe Arshal Jamal, President and Group Head Strategy, Investment, Reinsurance and Corporate Development Jeff McCallan, 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, and MassMutual contributed solidly to the first quarter results. Our capital position remains strong, and 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're comfortable with our LICAT ratio, which remains above our internal target range of 110% to 120%. And 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've experienced modest financial and business impacts from COVID in the quarter, which are outlined on the next slide. So 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 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. So 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 $739,000,000 and net earnings were $7.00 $7,000,000 in the first quarter.
Base EPS of $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 $0.76 per share posted a strong rebound from COVID impacted $0.37 a year ago. Net earnings included modest UK 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 Next Step 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. And 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 fifty years. And 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 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 $64,000,000,000 reflected strong results across market segments and included a mega plan sale with approximately 316,000 participants and US49 billion dollars 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 recordkeeping market, extending the business to meet the retail wealth management needs of its over 12,000,000 participants is a key part of our strategy. We're pleased to have reached a new milestone of $19,000,000,000 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 stand alone business with positive growth in new client assets to end the quarter with AUM of $18,000,000,000 On a combined basis, Empower and Personal Capital's stand alone retail assets reached $37,000,000,000 This is an increase of 14% from Q4 twenty twenty. On a year over year basis, including Personal Capital assets pre acquisition, combined retail assets were up 68% from Q1 twenty twenty. 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 US40 million dollars in annual pretax run rate synergies to date and are on track to reach our US160 million dollars target in 2022. Please turn to Slide nine.
Putnam sales of US13 billion dollars 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 $2,000,000,000 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 twelve months, adjusting for the sale of Irish Progressive Services in Q2 twenty twenty. 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 We Care, which provides digital and virtual services to support physical, mental and financial well-being 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 Gary to review financial highlights.
Gary?
Thank you, Paul. Please turn to Slide 13. Base EPS of $0.8 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 and A. We've had strong base earnings results across the segments, and I'll touch on highlights momentarily.
Net EPS of $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 $298,000,000 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 twenty twenty. The MassMutual business performed well in its first quarter, adding $48,000,000 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 $14,000,000 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. Puntum'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 twenty twenty. I would also note that institutional performance fees, which were $30,000,000 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 twenty twenty, 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, over 20 up 22% over Q1 twenty twenty, 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 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 MassMutual, and 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 $31,000,000 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 payout annuity liability calculations. And the second is integration costs associated with MassMutual and Personal Capital, and we'll be noting these each quarter along with the progress towards achieving expense synergy targets. And as noted earlier, MassMutual has hit a run rate of $40,000,000 so far on route to our $160,000,000 target overall, and those are annualized pretax. 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 of earnings perspective, and it essentially combines the information from the base earnings SOE with adjustments for the excluded items on the prior slide. The other line is where we record the integration costs mentioned earlier, and recall these are all pretax 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 UK, and 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. Expense variances reflect strategic project spend mostly in Europe, and 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 and A activity.
Canada and Europe expenses are pretty steady year over year. CRS expenses were up 13%, which compares favorably to the 21% increase in expected profit. And in The U. S, expenses were 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 $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 CAD Life remained strong, although down six points from year end. The primary impact came from the sharp rise in risk free rates, which accounted for a three point five percent three point five 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 $1,000,000,000 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, Gary. Please turn to Slide 20. Looking ahead, we'll continue to maintain a high level of vigilance around COVID-nineteen 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 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.
And finally, at Empower, we're focused on building out our retail wealth strategy as we integrate Personal Capital and expand our offering to over 12,000,000 plus 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. And 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 8. 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. Our first question comes from Meny Grauman of Scotiabank. Please go ahead.
Hi, good afternoon. Gary, 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?
Gary, just take that one straight away.
Yep. Okay. Thanks, Paul.
Yeah.
The so a couple of things to note there. The the thing I called out there, that was we reduced our uncertain tax provisions, they're called, by about 30,000,000 as we get close to finalizing a settlement. So that was the and that was split between, I think it was 20 Canada and 10 Europe. On the other hand, we had other areas where our tax provisions increased slightly. So the the net impact from lower tax provisions was about 15,000,000 overall, but the specific item I was calling out was, was about 30.
Okay. Thanks for that. And then 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 you would exclude on a run rate basis?
How do you look at that expected profit growth going forward?
May, it's if I refer back to Gary's comments, the expected profit growth you see now is reflective of transactions that we would have done in past quarters, and they're now flowing through. And as Gary or as I outlined, there's a couple of transactions in quarter where we'll see the lift in future quarters. Having said that, we use discipline in terms of our aspiration for growth with this business where we want to keep it within our risk appetite. We want to make sure that we've got really good discipline around return characteristics, profitability and risk. So 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. So 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, in sterling and in euros. And the market conditions there are tightening up a little bit. So 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 along 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. So again, we've seen reasonable growth in that structured financial solutions area, and we'd expect that to continue. And then finally, on the traditional side, we've seen some tightening extra competitive pressures in The U. S, but 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. So 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.
So again, you know, we're not promising the 20% type growth that we've seen in the very recent past, but there's still lots of opportunity for us to continue to grow reinsurance in in in pace with how the growth of the rest of the company.
Thanks for that. And 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 those jurisdictions, does it become less competitive? Or if you could just give some color on that.
Arshul, why don't you go straight to that?
So thank you. I think we're really picking our spots when we're sort of extending beyond our core markets of The US and Europe. So, you know, Israel is quite attractive for us. It is not an overly competitive market, but there are others who are there. But but really in that market, we're benefiting from our Solvency II structuring capabilities.
And in Japan, we're really leveraging the strength of our global investment organization, including our investment shop in London. That's part of The UK operation, because we got that large upfront premium from the Japanese client, we can immediately hedge all of the interest rate risk. So, you know, the the the markets outside The US and Europe are very large potentially in Asia and in other markets as well, and we're we're only scratching the surface there. So 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. So I don't want to neglect at all growth opportunities in The US and Europe, I and 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 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 you when when I hear an insurance,
executive offer that, I immediately think of, you know, better pricing illustrations on universal life.
Is there more to
it than just that? Is there is there are there other products? Or is it as simple as just saying long term life insurance illustrates better with a higher rate?
Well, I think you captured probably a core issue, which is the reality is that a number of these intrasensitive products do not provide a strong consumer value until you can actually get some real throughput in terms of returns. So 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 tended to be has taken up a lot of the sales share, for example, in Canada, and Universal Life has really sort of struggled to offer sort of competitive returns. And 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. So 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.
And would you point us to other potential positives in the higher rates like earnings on surplus or new business? I mean, are there is there more than just margins on sales? What Yes. Else could you point
The other things I would point to would be things like there's a number of there's guaranteed there's products with guaranteed rates or match rates. 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. But things like annuity products become far more attractive as rates start to widen.
And 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. So again, LTV rates can become more competitive. So overall, it has a really broad impact on our business. To me, it's a there's lots of potential positive lift.
Sort of a different type of question, Paul, about the tax rate. The tax rate does bounce around a lot. I think it does for a lot of companies. But what's what's sort of really noticeable for Great West Life is that over over the last, say, seven quarters, the base tax rate's been around eight 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 audits or just special provisions that were released? What are we seeing over the last seven quarters that would lead to such single digit tax rates for Great Westlake?
Yes, I'm going to defer to Gary 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. So to the extent that we're having higher growth in business and 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. And 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.
But I think if you look at it overall, to a large extent, there's lots of those opportunities. But our continuing view would be that we really think that the underlying tax rate really is in that low to middle double digit rate. And I'll let Gary speak to that. Gary, you probably have some stats on sort of where the health has been from a tax perspective.
Sure, Paul. I I I think you've you've actually summed it up. Well, a lot of the benefit or the lower tax rate just comes from a a couple of things. And one is certain of our investment income isn't you know, it's subject to taxes, tax advantage investment income. But a lot of it, really is the mix of, jurisdictions of our the the where the earnings are rising, the different jurisdictions.
Because Canada is the highest of all the I think the small amount that's taxed in Germany because most of our German business run out of Ireland, as well, which is, as you know, would be a lower tax rate. So it really is that jurisdictional mix. So our I think a typical tax rate in that low double digits is not not unusual. And, yeah, if you take a longer average, I think, you know, it is it is lumpy. You're right, Mario, that, but we've had a number of larger, you know, older older tax matters wrapped up.
And, typically, you know, we have provision for them. So when we do finally wrap them up, we, we always hope there's a little leftover that falls to the bottom line, as we resolve those matters. So on average, I think that does or has at least in the past tend to lower the tax rate. So the combination of two, I'm not surprised. I haven't done the average, but 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. So you do disclose a sensitivity number in your MD and 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 Gary. Gary?
Sure. No. At this point, I mean, it does, when we do the, those we do put the disclosures in. So the 50 basis points, and you'll see prior disclosure, it's, it still would be hit. We don't cross scenarios at this point, with 50.
It would be higher than that. It would it would likely be over a 100 basis points up before we cross. And I I just wanna caution, though, that that does change as our business changes, whether it's you know, we we update our actuarial liabilities just as the as the overall and our investments just to our our investments as they change. But it's I think if you think of it as more than more than a 100 bps, that's probably a good spot right now before we switch back.
Got it. Okay. That's helpful. Thank you. And then my second question is around the expected profit growth in Canada.
If I think about the it was up 5% year over year, and you also sold GLC Asset Management at the same time. I mean that seems to me like a pretty good result. So maybe you can talk about some of the drivers and sustainability of that type of growth and absent now GLC?
Well, I might start with Gary, just trying to provide a bit of context around the 5%. But then I think, Gary, why don't you pass it over to Jeff McCown 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. So underlying that, it's kind of growth in the business. But Gary, 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.
Yes. I'd note a couple of things. First of all, 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. So it didn't have much of an impact. It was a very small impact on the expected profit, a slight headwind there, but 1,000,000 or $2,000,000 No, the benefits really come from just our the some of the repricings we had done in the past in our group business.
So just a, getting the, the rate increases there, the the execution of renewals and the 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. So we're seeing some improvement in our margins. That's really what drove the 5%.
Paul, if I could ask just to come behind Gary there. I would add that as Gary pointed out, Paul, we started in, I'll call it, late twenty nineteen and certainly through 2020. Gary referenced the group block. We took pricing action twice and we're now seeing that margin and those that the renewals coming through in a nice way. And 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 CIDI starting in late twenty nineteen and into 2020. And so what you're starting to see this is the flow throughs of those actions we took in 2020.
Okay. So 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. Just
a question on MassMutual, the $38,000,000 of earnings contribution. And, I mean, depending on how I treat the synergies and the, you know, financing costs, like, it's you know, it looks like it may have exceeded the, you know, the run rate that you're kind of guiding us to for accretion in 2022 based on the accounting acquisition presentation. That just my math that might be off or did something special happen this quarter?
I'll start with Gary on that, just to make sure that that's consistent with our view. And then maybe Ed can just speak to the early our early progress, which is underlying separate from the numbers underlying, it's going very well right out of the gate. We're really pleased with the MassMutual integration. But Gary, why don't you speak to the $38,000,000 and then maybe Ed can talk a little bit about this progress and how that might be maybe a bit stronger than we might have expected.
Yeah. I I think that's a a good way to sum it up, Bud. I mean, I I haven't gone through the exact math you've gone through, Gabe, and we're happy to to to line those up after. But I would say that we're off to a good start to where we'd be cautiously optimistic. One thing I'd note is that in our, in our original, we'd have had a we'd have had a certain view on potential shock, shock loss lapses.
I think we've and Ed can speak to this. I think we've we've been very pleased with the retention of clients, and so that might that might be a help. Asset levels would have been, obviously, markets have continued to perform. So those higher asset levels as in q one than we might have anticipated when we originally described in the transaction. Those are also obviously, the market has go up and down, but those have also been a positive.
So I I'm not surprised you're seeing it a little better. There's a few a few positive factors there, but maybe Ed can talk about the business.
Sure. Well, that's Thanks, Gary.
Yeah. Yeah. No. I was
just I was I was
Go
ahead.
No. Was just gonna add that that we're seeing strong revenue per part there, and we expect that to continue. Obviously, as Gary mentioned, the markets help. It's still early days, obviously, but in terms of the client retention effort, we're running ahead of plan there. So I think that is a contributing factor.
The program in general is on track budget. And as Paul mentioned in his opening remarks, you know, we're we're on track on the on on the synergies for the year too.
Okay. Great. And and nothing like what Gary was talking about in terms of, you know, reinvesting some of the general accounts. That's for revenue synergies, that's part of the original plan. It's not nothing not anything new that you've discovered?
No. I'm no. What I was follow-up in my notes is that we we hadn't we haven't quite reached our our target asset mix there. So there's a, you know, there is a potential to add some yield and spread as we reach our target asset mix. Just, obviously, the the assets are just transferred right at close at year end.
So it's we've got some some potential there.
Potential, but, like, the I think it was $30,000,000 in terms of revenue synergies above and beyond that possibly?
I think Ed can talk to those. I think those who are different type of revenue synergies.
Alright.
Yeah. The revenue synergies really won't begin to kick in until the relationship for the most part, won't be won't really kick in until the relationships come onto our platform. We'll see strength, Yes. But a lot of it will
Gabriel, I just I clarify. I think what Gary is referring to is that if we looked at the overall investment gains and yields yield we were expecting on the invested assets once they're brought over and kind of invested with the target portfolio, we 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. And 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 started someone's thoughts on these things.
No problem. No problem at all. Good questions.
Our next question comes from Tom MacKinnon of BMO Capital. Please go ahead.
Yes. 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. Is it a do rising interest rates help? And what is really your what differentiates you from your competitors in the bulk annuity marketplace in Europe? And then have you ever thought about transporting those capabilities into North America?
And 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? So, sir, about a bit of a mouthful there, but if you can try to tackle that, that would be great. Thanks.
Okay. Thanks, Tom. Tom, I'll start off and then I'm going to turn it to David Harney to provide a bit more color. There's kind of three questions. I'm going let David speak to what unlocks the market, why is the market opening up now versus maybe not over the last few months.
And I do think interest rates play into that. The question about when we consider participating in this market, for example, in Canada, we call it the single premium group annuity market. Every market has to have their own name for a business opportunity. And absolutely, as we think about longevity and taking on that as part of our within our risk appetite, we do look to opportunities in Canada. And 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 business, but also through our Capital and Risk Solutions Group. And 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. So I'll turn it over maybe to David, though, to provide a little bit more color. And to the extent, Arshil, that if you have anything to add, feel free to jump in after that. David?
Yes. Just our comment on that was it's partly COVID related and partly interest rates. Like, obviously, bulk annuities, they're big transactions for pension schemes to sort of undertake and execute and to take a little bit of time. So we just saw a slowdown in schemes entering the pipeline last year, mostly because of COVID. So we're sort of out of that now.
And pipeline of schemes that are out in the market are looking to execute at the moment is back to normal levels. We won't write bulk annuity scheme every quarter, but 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 UK. And then, you know, the the the various investment management companies that we have and particularly the company in The UK, you know, they they work very hard to 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. And I think we actually do have pretty deep expertise on the liability selection side. So the whole managing the liability side, understanding those is key. And then obviously, the asset management side is the other part that comes into play. And 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, because we look to those things? And then 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. So those are kind of the three parts of the recipe that have allowed us to participate. And again, that means that we're not blind 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 UK 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 the swap spreads were working, it was better for us assets in North America to support our European bulk annuity efforts as opposed to originating assets in other places to support liabilities in Canada. So the swap spreads were one one of the factors that sort of made the the margins that were available to us in Europe more attractive. And then our UK origination of equity release mortgages, some of that has been in Canada. The real constraint for us in Canada and being more active in the SPGA market is really that 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 in Canada on SPGA. So I'm 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 US and in Europe and if the swap spreads are going in the right direction to support our offering in Canada. But as Paul indicated, you know, there there are a lot of ways that we can get those asset heavy type of transactions, bulk annuities, reinsurance, STGAs, and we're very cautious, conscious of all of the markets that we 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 on one on Putnam. You know, margins are down to, like, two, you know, the two percentage range. The, you know, the core earnings were not you know, it's back down to low single digits in the outflows again. So, you know, what what what's the thinking on Putnam? I mean, we had a bit of 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 regular repeatable event. They tend to be back ended into the year.
So 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 dislocation 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. So there was sort of that dynamic going on.
And 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. And 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. And so we like where our performance is at. Our customers are doing very well.
I'm going let Bob speak to that. But maybe I'll just have Gary 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. And I do think we actually feel pretty good about Putnam's performance. So I'll let Gary speak to that.
And then maybe Bob wants to comment a little bit on performance and our views on how the overall franchise is delivering for customers and how that where there's real potential for flows from our perspective. Gary?
Sure. I think I'd just call out a couple of things. Think we've noted the performance fees, which the institutional performance fees are basically a Q4 item. So that is a seasonality in Putnam. A couple of 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 $30,000,000 This would be Canadian dollars, just over $30,000,000 in 2019. And even notwithstanding some of the volatility last year ended up the year, I think, around $45,000,000 $47,000,000 So it has typically been a positive contributor, that 8,000,000 to 10,000,000 a quarter type of contribution, and it was minus 6,000,000 this quarter. Again, was some specific mandates, maybe Bob could touch on those that I think they bounced back in April, but the mark to market was not good at the end of Q1. And then just lastly on the seasonality point, again, are not large numbers, but the overall income isn't that large so they can have an impact. And that's some of the expenses are tend to be front ended.
Some of the expenses are front ended at Putnam in Q1, just around those payroll taxes that are a bit higher in Q1, I think. And then there's the stock based compensation tends to be higher in Q1 as well. So there's a couple of seasonality items. So I think Paul summed it up well. I think underlying that, the revenues and expenses are trending the right way.
There is some noise.
And Bob, maybe you can just talk 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?
Yes, we feel very, very good about what's going on. From a performance standpoint, Barron's Magazine comes out with an annual survey. And for the last ten years, Putnam was the third top performing money manager in The US. And 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. And, Paul, you touched upon having 24 funds and four or five stars and Morningstar.
So that's that's been reflected in the business. We we touched upon equity flows for positive in all channels, which the switch. It that means management fees up. And 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.
Hi, good afternoon. I'll keep this real quick. The $38,000,000 from MassMutual, is that yeah. Is is that after financing costs?
Gary, I'll let you comment on that one.
The no. I think the the financing cost, I don't think we've attributed them directly to to MassMutual. So that that would include the amortization the amortization of intangibles, but not the the death's not specifically attributed.
Hey. Can you break that out? Like, what was the amortization of intangibles, and what would the financing costs be? Or I don't know
you Net of that.
Or
Yeah. I can I can two on the the amortization of intangibles, I think you'll find it in the financial statements? I do just remember. I believe it was the 19,000,000. It's it's in the note three of the financials.
You'll you'll see we set up the intangibles, and we call out the amortization in q one. And then the financing, again, don't have the specific for, MassMutual. I have the year over year change in financing overall, which is really a company mostly MassMutual, a little bit of personal capital. And the year over year change was about $12,000,000 in our financing costs.
And that's and is that
Canadian dollars, or is that US dollars?
That's Canadian. That's for the quarter.
Gary, you know what? I think we should probably get back to that 38,000,000 because I know the 38,000,000 definitely has the cost of the intangibles, which US15 million dollars But I do think there is some debt cost attributed to that 38,000,000 So we should Andra Bulletin, who I think is on to take questions. Andra, do you have more detail on that?
Yes, Paul. No, the 38,000,000 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.
But it includes both of them.
That's what I was hoping for. Yes.
Yes, it does. Okay. And then just on The U. S. Sorry, Canadian group side, you had a positive group experience in Canada, I believe.
And just hoping you can flush that out. I mean, I understand you did some pricing, so that obviously benefited. But 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 McGowan. Jeff, do want to speak to our group results? And I think you're mainly speaking to group disability, but we tend to look at group morbidity overall. But Jeff, why don't you jump in?
Yes. Thanks, Paul, and thank you, Doug. So yes, we were very pleased with how we performed in quarter, in line with our expectations. And our incidents and terminations are certainly in line as well with our expectations. So we have not seen a lift on those.
And we performed much stronger since Q1 twenty twenty as was called out in the exhibit. So 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 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 in the mental health side. So 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. Mann 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, and we appreciate you staying with us till the later hour. We actually really look forward to having you join us on June 8 when we can talk more about the Empower business, the Empower business having taken on MassMutual and Personal Capital. And you'll have an opportunity to meet and spend some time with Ed and a number of his management team, and Gary and I will join in as well.
And 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. And 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.