Okay, awesome. My pleasure to introduce Kevin Strain, the Chief Executive Officer of Sun Life Financial. Kevin, welcome. Thanks for joining us today. I would love to maybe start on, just dive right in here if you do not mind.
Sure.
A nice little sort of segue to talk about Lifecos. I am kind of sick about talking about banks all morning.
Yeah, sure. Can I say something quick too? I love this conference because it kind of kicks off, almost to me, it is like school year. It kicks off September. We are all back to school, and we are ready to go. That is one of my favorite ones, and you get great attendance and great meetings, so thanks for pulling it together again this year.
Yeah. Super happy to be part of this, and thank you.
Yeah
for joining us. Really appreciate you attending. Maybe starting with the medium-term targets.
Yeah.
Obviously, the ROE coming in just north of 19%, very impressive number, and it's already within striking distance of your 20% target, and then I'm just wondering, as you look, drive that sort of next leg.
Next step. Yeah. We've had our medium-term objectives out for a number of years now, and of course, 10% earnings growth, the 20% + ROE, which you're referencing, and 40%-50% of our earnings going out as dividend. Which roughly gives us, if we're growing earnings 10%, we're going to be roughly growing our dividends at 10%, so it gives a nice yield to the stock as well. On the ROE side, as you said, we hit 19.1%. We have a great mix of business. Our asset management business, which is now 35% of the company, is very low capital. Our business in the U.S. is very low capital. Canada, we have a fantastic ROE, and we have a great mix of businesses foundational for us. Asia's growing fast.
Asia has lagged our ROE for a time as we have been building scale, but now as we build scale and we are seeing Hong Kong, and high net worth in India, Philippines get bigger and larger, we are seeing that ROE drive up. That 19.1%, we are pretty confident of it hitting our medium-term objective of 20%, and that Asia will drive growth, asset management will drive growth, getting the U.S. business right will drive growth. There is a bunch of elements of our business, the mix of our business, the 10% earnings growth and where it is coming from should all drive that ROE growth. I think 20% ROE is a good ROE for us. It is a good indication of the value-
It is good for any large cap.
It is good, yeah. We continue to drive towards that, and we have conviction to achieving that.
Okay. Thanks for that. Would love to talk about the different business lines, maybe starting with the U.S. and the stop-loss business, just because you did have some headwinds there most of 2025, and then you have had some pretty decent traction on-
Yeah
progress on the repricing. Just wondering if you can maybe talk about the long-term trajectory here, because it is a business that you are scalable in. You are a big player in the U.S. market.
Yeah.
How excited are you about stop-loss in terms of, say, the next three to five years?
I have been on the Sun Life executive team now for almost 15 years, and for a good chunk of that, four years as CFO and now over five years as CEO. That business has performed well for us consistently and sustainably. We have scale. We know what we are doing. We have built good pieces around it. It had one quarter that was not very good, and it was the Q4 of 2024. It was not even 2025. It has really created a lot of noise for. I am surprised by how often I answer a stop-loss question. We have guided to a 7% margin for our U.S. group benefits business. The stop-loss is at the higher end of that. You can imagine a world where the stop-loss business is not exactly this, but is earning 8% a year. So it is 2% a quarter.
In 2024, we earned 2% the first quarter, 2% the second quarter, 2% the third quarter. We had a small loss in the fourth quarter, which was claims that we did not see coming, which we probably could have, and it was hangover a little bit from COVID and those types of things. It did hurt the earnings in the fourth quarter, but if you looked at it for the year, we were still, say, 6%, right? Because we were like 75% of the earnings. Tim and I read the team the Riot Act. We said, "Do not surprise us with claims again. We need to be more on top of this." There were some fundamental reasons why that happened, but we put new processes in to make sure we were seeing them. If you looked at 2025, it was like 2%, 2%.
In the third quarter, Tim and I scared the team so much, it looked like the claims were going to be a little higher, and we took a little bit of conservatism and increased the reserve a little by about half of that. Then by the fourth quarter, it had sort of corrected itself. If you look at this, and I'm thinking back, if I went back into 2020, 2021, 2022, 2023, you would've seen this very consistent business. We had one quarter where the claims impacted us that we probably should've seen coming. We've added new capabilities around that. We're one of the largest players. We have scale. We've put different pieces of business. It's got a really good ROE. It's got good earnings growth. I do recognize that the industry was going through a lot of change, right?
You're seeing medical costs grow quickly in the U.S. You're seeing incidents grow in the U.S. We're able to price for that. We've talked about this. We had close to 16%, around 16% price increase 2024 to 2025, and around the same 2025 to 2026. We see this as being a very good, sustainable driver of our insurance business in the U.S. I'm always surprised by just how many questions we get asked. The industry is struggling, but sometimes it's players that don't have scale or don't have the background. We've been doing this for 40 years. That consistency of our approach is really good for plan sponsors and really good for brokers. That consistency really in our earnings other than the one quarter give me a lot of confidence. We do watch it.
It is a business where you have a lot of medical inflation, and you have a lot of incidents growing up, but as long as we can price for it, and we're annually repricing a lot of this, I think that's okay. If you look at it, just logically, one bad quarter out of 10 years doesn't seem to paint a bad business to me when the full year was also still okay. We continue to manage it, we continue to look at pricing. We continue to be confident in hitting earnings growth and ROE targets. I think it gets way more attention from our perspective than it deserves in terms of being bad. I think the attention honestly that we should get is, how are you outperforming the industry in this space? It's basically data, and knowledge, and history, and structure, and client interactions.
It's a good business for us, and I think you're going to continue to see that.
Okay. At the risk of annoying you, I know you probably- you don't want to hear more questions about the U.S. dental.
No, I think that's-
It is something that investors still bring up from time to time when I have my conversations. You do want to move that in a better place. You're focusing more on the commercial. You're transitioning it over time.
The U.S. dental business is a little bit different than stop-loss, a lot different than stop-loss. It is a business we have an issue, and we need to fix it. There's a systemic issue in that in the current environment, the states aren't covering the cost of the claims. We've given David the flexibility to only take business when we think that the state understands the value that they're getting, and that we The margins there are already razor thin, so we didn't have huge margin expectations, but we've given David the capability to say, "Let's build a profitable business that's in the Medicare/Medicaid state space, where we're partnering with states over the long term." So that business, not like the stop-loss business, is under challenge, and it's pricing challenge from the states.
Part of our thesis in buying the DentaQuest business was we were a relatively small player in the commercial dental. The commercial dental is the second most popular benefit in the U.S. benefit space, and we were a very small player in dental and a small player in vision. This gave us provider networks, and it gave us technology to become bigger in that. We've shifted our attention over the past six, 12 months to sort of say to David, "Focus on building profitable commercial business." The relationship with companies is about providing benefits that employees want with good services, where they can trust the organization. That's a focus we can align to. The focus at the state level is something different.
We're emphasizing the commercial business, which you would've seen, Mike, and we're trying to make sure that we find the right niche, the right piece of the Medicare or Medicaid business where we can work with states or we can work with healthcare providers that work with states, because sometimes we're a sub-provider to the healthcare companies, where we can make at least a margin that's acceptable over a sustainable period of time. That's the journey we're under is finding that right spot. I feel pretty good about the commercial side.
We're doing the right work internally on the state side. It's not clear that that pricing is going to follow, and it's clear to me that running a business with zero margin is not what I want to do.
I'm just curious, Kevin, you mentioned working closely with states that seem willing to provide-
That understand the value and want to add value to
Yeah. If you sort of look at the footprint, like X number of states, what proportion is along that line of thinking? Is it like a third, a half? Is it
Not enough of them right now. I think the team is actively working with each of the states and trying to show the value we create, and the value we create for their citizens, because it is substantial, but it's a tough environment. I'm not going to sugarcoat it. It's a tough environment when you get into Medicare/Medicaid at the state levels, and we're not the only ones that are experiencing it. I have a lot of confidence on the commercial side, and I have confidence in David and the team on doing the right things on the state side. But whether the states are going to reflect that in the pricing is still to be seen.
Okay. Fair enough.
We will have to adapt our strategies to what that looks like.
Okay. Thanks for that. Maybe switching gears to, I guess, SLAM, Sun Life Asset Management, just curious if you could maybe talk a bit about just the cohesiveness that you get with BGO and Crescent, post buy-ins.
Yeah
management equity plan.
Yeah.
How that platform now will work differently than it might have been in the past as a sort of siloed dynamic.
Yeah.
Because I think that's where investors maybe want to just hear more about like what
Yeah, it's a great question, Mike. We've been on an over 10-year journey now to build out an alternative asset management business that will sit beside MFS, which is public equities, public fixed income. We've been building out. We bought now three real estate companies, Bentall Kennedy, GreenOak, and Bell. We bought a private credit company that's working with our private fixed income capabilities. We bought Crescent. We bought infrastructure company in InfraRed. We bought two LDI companies in Prime and Ryan Labs. We bought AAM, which is helping us bring the alternatives capabilities to U.S. wirehouses. We've built a lot of capabilities there. For the first time starting this year, we're starting to bring those all together under the leadership of Sonny Kalsi. Sonny was one of the founders of GreenOak.
Sonny can see the value we're creating, can see the organization and how they all come together. That's what's attracted him to be the CEO. In fact, he rolled a big chunk of his ownership in BGO into the new organization. We're working with Sonny to do two things. One, there's about 1,500 clients that those organizations service, but there's not a lot of overlap in the clients. So we're bringing one distribution platform together where Crescent may be meeting with an institutional investor in some part of the world, and that institutional investor needs some real estate, he can bring up GreenOak. There's some top-line synergies you can imagine happening. All stations had their own platform. We're going to need one platform because we're bringing it into one organization.
Sonny's focused on growth on the top-line side and also reducing expenses on the bottom line side. I think those are both going to be very good for us, and that's his primary focus over the next 12 months, is unlocking those. At the same time, we created Sun Life Asset Management under Tom Murphy. Tom Murphy is looking for ways to create a flywheel between our insurance business and the asset management business in support of SLC, but also in support of MFS. That's where things like our Wilton Re transaction came from. We started that process with Wilton Re probably a year ago and figuring out a way that we could be the asset manager alongside of their sidecar business they were creating.
That is an example where we brought insurance expertise, we brought relationships and know-how to the table to help SLC build a bigger business. We expect that is going to give about $10 billion in assets and a good chunk of those assets will be in the alternative space. SLC will manage that whole $10 billion and a good chunk of them will be in the longer duration space. We are also looking for ways to leverage our wealth business where we can drive flows into there. We built a relationship with Scotiabank. With Jackie's team, we have created a distribution relationship for SLC based on our relationship. That is sort of part of the idea of this flywheel. In addition to Sonny looking for top-line and expense synergies, Tom is out there looking for solutions that can help drive more assets to SLC.
Ultimately it is really about creating that bigger alternatives business. There is about $200 billion in AUM today. We have got a commitment to grow that business earnings at 20%. We want to see increasingly flows coming in there and then improving the margin a little bit on the expense side.
This year is still a transitional year.
This year is a transitional year. They literally just came together.
Right.
You asked another question, which was the management equity plan. We probably identified about a year and a half or two years ago that if we were going to be successful in the alternative space, we had to find a way to have more of the ownership in the hands of the asset management team there, the investments team there. We looked at what other alternative asset management companies were doing, and they were roughly 20%-25% of the firm was owned by management. We went through a process through staking grants, through the management equity plan, through leveraging, through helping founders roll over to get to 22% ownership, and we think that alignment's going to be really good. That's more than we thought we would do when we first did the transactions, but we think that's going to be really important for the long-term growth.
There's a lot of alignment for Sonny and his team to find those revenue synergies and to find those expense synergies and to continue growing that business. That management equity plan, I think, was fundamental to us structuring the asset management business to be successful.
Thanks for that very thoughtful response. Wanted to ask about MFS.
Yeah.
Obviously, there's been some industry headwinds around active versus passive, some clients bringing money in-house, which has impacted your flows and then you've got a big part of your cost base being variable, which doesn't maybe allow the same amount of cost cutting that otherwise might be there as an opportunity to sort of move the needle. Just in terms of MFS, how do you sort of think about that franchise longer term, and how do you create value just given some of those dynamics that seem to be pretty consistent for a while now?
If I went back to 2014, Sun Life was an insurance company that owned MFS. We were not an asset management and an insurance company. We've been on a journey the past 12 years, 13 years to become an asset management and an insurance company. That growth was about investing in the alternatives business that we just talked about. It's also about thinking about MFS differently. MFS is part of our asset management business. It's part of SLC Management. Its role is public equities and public fixed income. If I had a magic wand, our business today is about 35% asset management, and it's 65% insurance. The perfect mix for Sun Life, which is what we're driving towards, the goal, and we've set this for the board, would be 50% asset management and 50% insurance.
That 50% asset management, I would like to see it be about 50% public equities and public fixed income and 50% alternatives. That, we're on a path to that with the 20% growth in the alternatives. It's not to downplay MFS' role, but it's to say that we need a balance across all of our asset management businesses to drive that. That is the mix we're driving towards. That's why we're putting this emphasis on the alternatives. Sometimes people say we're not doing enough with MFS. The first thing we did, we're building out a full asset management complex, so we've fundamentally invested in and built a very good alternatives business. That's why we won the Wilton Re contract because they saw our investments capabilities. In the case of MFS, I've spent a lot of time with Ted and the team there.
They've been building out their public fixed income. They've got great performance in public fixed income. We've been helping them with seed capital, so they're focused on that. They've been building out their active ETF business. They've been building out their SMA business. There's no doubt that the public equity active asset management, you guys are all in that business. It's a tough business right now. We still think it's important. We think it's important through different cycles. We think it's still an important part of the market. We think it's still important to how organizations and economies work. I was jokingly saying earlier that we wouldn't come here and speak to active asset managers for a day if we didn't think what you did was important. We think it's important.
We do recognize that it's been a challenging cycle, and that cycle has kind of worked its way through the institutional business now into the retail business. We know what's driving it, but we also know that MFS knows how to manage money. They know how to work through cycles. We know that this is a difficult cycle. We think they're doing the right things with public fixed income. They're doing the right things on their equity side. They're not going to disappoint their clients. Their clients know what they're doing and why they're doing it. They've told the clients the story. The worst thing they could do now is change their investment style, and then clients would've gone through five years of performance, which we keep calling it bad performance, bad relative performance. Their performance probably last year was 20% increase versus 25. It's still pretty good, right?
But what you do not want to do is see them change their performance just as the cycle changes. So we are very confident in the MFS management team. We are very confident in what they are doing to extend their business into other areas. We recognize that it is a challenging time. But overall, I think that support that they get from us is actually important, and we are trying to support them in other ways. I talked about Tom and the flywheel. We are trying to make sure that inside of our wealth businesses, that MFS is getting the right allocation, and we are working with them closely. They get about CAD 25 billion of their AUM is from our wealth businesses in Canada. Our wealth businesses in Canada have CAD 280 billion. So maybe 25 is not enough.
Maybe there is more opportunity there, and we are working with them on things like the blended funds and blended research funds and those types of things. So, we are finding ways that we can help drive flows. We are finding ways to seed investment. We are finding ways for them to build out their strategies, SMAs, and active ETFs and fixed income. And we are also trying to recognize that it is a cycle and some patience is important. I hope all of your owners also have that patience in what you guys do because it is hard. It is not easy.
Thanks for that color. I wanted to ask about the Asia business.
Yeah.
I know Manjeet has long-term ambitions, wants to grow it in different aspects of the existing footprint.
Yeah.
You've obviously had a lot of success, Hong Kong, India, you name it. Maybe talk about that business as a growth engine for Sun Life. Obviously, you're focused on that 50/50 split.
Yeah.
Asia seems to be a pretty good opportunity. Maybe even potentially on that, you can sort of dovetail into the M&A angle with Asia.
Yeah
I think the 50/50, Mike, is a good point. The 50% that's insurance, Canada's obviously foundational for us, and Canada helps us with the wealth business. I just talked about that, both in SLC and in MFS. It's foundational for us providing talent and thought process, all that kind of stuff. Asia is the fastest-growing part of that insurance 50%, and it will become an increasing piece of that. It's about 20% of the whole company. So of the 65% that's insurance, say it's 30% or a little bit over 30%. That's going to keep growing as a percentage of that insurance side. I think it's really important for us. We have scale now. We're good at it. We're in the right eight, nine markets. We have four businesses now that are of scale and are performing really well, Hong Kong, high net worth, Philippines, and India.
We're building good durable businesses in Indonesia, Malaysia, in China and in Vietnam. Varying degrees of challenge, and there's never not challenge. It's been a big part of our growth engine. I took over Asia in 2012. It was making CAD 100 million a year in income, and now we're making CAD 200 million a quarter.
Yeah
or more. Probably 2.25 a quarter. The ROE is improving. Manjeet is doing a great job of setting the right tone there, and it is our responsibility to keep supporting him to make it get bigger. He actually does not need M&A to do it. We have agency bancassurance brokerage in pretty much every market. We have digital distribution in a lot of the markets. We feel like we are partnered with the right banks. We feel like we are in the right markets. It is really about focusing on execution and getting that done. I am not saying we would not do some M&A, and we have added a lot of capabilities with bancassurance over the years, but it is really about building that momentum and growing alongside of those markets as they grow.
Hong Kong, India, and high net worth, in particular, have done phenomenally well the last couple of years. I think that there is momentum that is going to come over time in the ASEAN markets.
Okay. Thanks for that. Then maybe going over to the Canadian business, what did you refer to it as? Foundational or sort of-
Foundational, yeah.
I mean, despite that dynamic, the growth has been pretty good.
Very good. Yeah.
Pretty impressive.
Yeah.
I am wondering in what is normally seen as a mature market, with a few dominant players, including Sun Life, obviously. What are the greatest opportunities to grow the Canadian business from here? Is it like a cost story? I know you are investing a lot in the digital side and making it more efficient.
Yeah.
Is it that, or is it, I guess if I ask an insurance executive, Canadians are always under-insured to some extent.
Yeah, I think it's a lot of things. Jessica has brought a real new energy to that team. She comes in, she's an engineer, software engineer from MIT who worked for Ping An as they were developing a lot of their digital stuff. She's bringing a real digital mindset to that business. She sees opportunities, in particular, in the benefit space and in the GRS space to bring digital capabilities to lock into that. I think we've undervalued our CAD 280 billion in AUM in GRS, and we think there's opportunities to leverage that and leverage our wealth background and wealth experience and relationship we have with investments teams and investment managers. Then that dedication to health. So I see opportunities in the wealth side.
I see opportunities on the health side and in terms of individual and our advisor and the individual base, so I'm actually going to an event with them in a couple of weeks. They are bringing integrated life insurance, health insurance, wealth, estate planning to clients, and that is very much needed. So I actually feel like if we can get this holistic planning concept right for our advisor base, grow our wealth business and grow our benefits business, we're well structured to hit the 6% growth that we're expecting out of Canada. Jessica has been way outside of that, and I think our commitment to digital should also help that to grow both top and bottom line. So I think Canada is a pretty interesting place, and it's got a good, strong, dynamic leadership team.
Okay. That's super helpful color. On capital, you probably get annoyed being asked this question often, but just on buybacks.
Yeah
and the whole dynamic, maybe you can touch on the whole dynamic of capital preferences. Obviously, organic is number one, M&A, maybe tuck-ins here and there. It doesn't sound like you're looking for anything transformational, but on the buybacks specifically, I'd love to get your thoughts on maybe a more aggressive buyback potentially, or is that something that's just not in the cards for now? Because it seems like your LICAT being as high as it is-
Yeah
could easily absorb that.
We're looking at. You're absolutely right. We start with organic growth to the business and the dividend, and then we look at M&A where we think we can add capabilities, but meet our financial returns and execute, and that's an important piece. Then the buybacks. The buybacks, we've been, in essence, buying back shares at the rate that we've been creating capital, right? So, we see that as being a very sustainable buyback program where we can consistently, it helps our EPS, it helps our ROE, where we can consistently deliver that capital back to our investors. And that's important to us. And that part we are committed to. We will do, and we have done M&A, but if I look at it today, MFS really isn't interested in doing M&A.
If you think about my 50/50, we don't have to add to public equity, public fixed income. The alternatives business in the next 12 months is going through its integration. I think that's really important they get that part right and we support them with the Wilton Re deal and the wealth into there. Canada, there's not much to be done. The U.S. isn't, I've told this to Dave, and I said in the call, they're not getting capital until they get through the fixing of the DentaQuest business. If you look at Asia, I said it earlier, I think we're in the right markets. We've got the right distribution. It's really about organic growth. So there may be some smaller things. We're buying up in Malaysia from 49% to 70%. It's a few hundred million CAD. It's disclosed in the notes. That we're waiting for regulatory approval.
But I don't see M&A being a significant piece of what we do over the next little while. I think our buybacks will then form part of generating the capital back. We are looking for ways of growing organically and organic income, and there's things we can use that capital for organically as well. So I'll give you an example. We have, and it's with Scotiabank, actually, we have a line of credit that we've given to the SLC Management team of about CAD 1 billion when they need to create seed capital. We're looking at bringing capital up from our subsidiaries back into the hold co, and rather than paying it out, we're looking at ways that we may invest that more into seed capital at SLC if we can get two things.
One, good sustainable returns, but two, if I give CAD 100 million of seed, I want them to be able to generate CAD 1 billion of other assets in. We're going to look at ways that we can do some of that as well. So there's ways that we can use our capital strength to do buybacks, drive earnings, drive organic earnings, strengthen those businesses we want to grow, and position ourself well. So I think the large M&A is hard, and I think you have to be ready for it. I think at this point in time, we have a lot of other things to do that will drive the MTOs that we started talking about earlier.
Okay. Awesome. Just in the interest of time, I guess we'll stop it here, but-
Yeah. Thanks.
Kevin, thank you so much for the insights.
Thank you.
Always super nice to have you on stage.
Great to be the first insurance guy ever.
Yeah.
Asset management insurance guy.
Nice change of pace. Thank you very much, Kevin.