Great-West Lifeco Inc.

Thank you, operator. Good morning and welcome to our second quarter 2017 conference call.

With me on the call today are Garry MacNicholas, Executive Vice President and Chief Financial Officer; Stefan Kristjanson, President and Chief Operating Officer of Canada; Bob Reynolds, President and Chief Executive Officer, Great-West Lifeco U.S.; and Arshil Jamal, President and Chief Operating Officer, Europe. There also a number of other senior officers available to respond to questions as required.

Before we start, I’ll draw your attention to our cautionary notes regarding forward-looking information and non-IFRS financial measures on Slide 2. These cautionary notes will apply to today's discussion as well as to the presentation materials.

I'll provide an overview of Lifeco's second quarter results, including headlines from our Canadian, U.S. and European businesses and Garry will provide a more detailed financial review.

After our prepared remarks, we'll open the line for questions. Referring to Slide 4, let me begin by saying that we're very pleased with results this quarter.

Strong operating performance across our businesses and geographies delivered adjusted earnings of $712 million which was in increase of 6% year-over-year. In Canada, adjusted earnings benefited from healthy growth in sales and fee income as well as a significant moderation in expense growth reflecting progress on our transformation initiatives.

In addition we saw notable improvement in group visibility results and issue which has been a drag on the business in late 2015 and throughout 2016. While year-over-year adjusted earnings growth was needed by lower investment gains.

We were very pleased with the underlying operating performance in Canada. In the U.S.

we saw excellent results that Empower retirement. Earnings reach their highest level in over two years and business momentum is healthy with growth in assets, participants and fee income.

With the integration completed Empower also experienced the decline in operating expenses. At Putnam, were results remain challenge, core net earnings increased reflecting higher fee income and lower expenses.

We continue to actively explore options for improving returns of admin. In Europe strong underlying insurance risk and investment results led the earnings growth in all geographies as well as in reinsurance.

Our Canadian business transformation is progressing on plan. Since our announcement in late April we've been implementing a number of changes in the business.

These changes will make us more productive, improve our offerings to customers and advisors and position us for continued success in an evolving and highly competitive market. As I noted earlier our transformation initiatives are having a positive impact on expenses.

With the realization of approximately 46 million Canadians an annualized pre-tax cost savings to date. We remain confident that we will achieve our previous guidance of $200 million in annualized pre-tax cost savings by the end of Q1 2019.

In fact, we're seeing benefits of our cost discipline and restructuring initiatives across all of our businesses. In the U.S., Putnam has achieved analyzed pre-tax expense savings of U.S.

$53 million at the end of the second quarter. In Europe, the integration of Irish Life Health operations has delivered €8 million in pretax annualized synergies to date with the target of reaching €16 million in the next six month.

And in the Irish Life retail business we've achieved annualized pretax savings of €5 million. Our restructuring and transformation initiatives coupled with expensive discipline across the company have resulted in a moderation in our overall expense growth to 1% on an adjusted basis in the second quarter.

While we keep a watchful eye on costs we're continuing to invest. You may recall at our Investor Day that we defined our strategy in Canada as protecting and extending our core businesses which build on a foundation for growth.

Our acquisition of the Financial Horizons Group which closed on Monday it’s perfectly with the strategy. Financial Horizons Group is the leading managing general agency in Canada with a network of 6,600 independent advisors.

Our strong capital position enabled us to move when opportunities like this one raise and we will continue to actively explore investment to drive growth across our businesses. And now, please turn to Slide 5.

Adjusted earnings this quarter were $712 million, up 6% year-over-year and up 8% on a constant currency basis. As previously communicated, the Company incurred restructuring charges of $127 million in the quarter, while there is $126 million related to our Canadian transformation and the remaining $1 million to restructuring our Irish Life retail business.

Including these charges reported net earnings were $585 million. The impact of currency on earnings this quarter was a decrease of $10 million compared to Q2 2016.

Lifeco maintained its strong capital position with Great West Life's MCCSR ratio at 239% unchanged from the prior quarter. The Company issued $200 million or 5.15% non-cumulative first preferred shares.

As this transaction occurred at the HoldCo level it did not impact the MCCSR ratio. Lifeco cash was $0.9 billion at quarter end and it is also not included in the MCCSR ratio.

Moving to Slide 6, Canadian sales increased by 21% year-over-year with strong individual wealth sales of segregated funds and mutual funds and strong Group wealth sales of single premium Group annuities. It was also a very good quarter for Group insurance sales.

U.S. sales were up 2% year-over-year, primarily due to an increase in sales in Empower.

Participant accounts grow to $8.3 million and core sales are most profitable segment continue to experience good growth with core funded sales up 14% year-over-year. Empower continues to have a strong pipeline across all segments.

Putnam sales were lower year-over-year due to lower institutional sales this quarter, which were partially offset by higher neutral fund sales. In Europe, sales declined 13% year-over-year with lower institutional fund sales at Irish Life investment management, but these were partially offset by higher UK wealth sales and higher pension sales in Ireland.

Turning to Slide 7, fee income increased 12% year-over-year against the positive backdrop of higher equity markets in Canada, the U.S. and Europe.

As we look at the segments results, Canada’s fee income increased 8% primarily due to higher average assets under administration driven by higher average equity market levels. Canada also experienced positive net cash flows in both individual and Group wealth businesses in the quarter.

In the U.S., fees at Empower increased with positive net cash flows and higher average equity market levels, while fees at Putnam were higher due to higher average AUM. Overall U.S.

fee income was up 15% year-over-year. In Europe, fees and other income were up 13% driven by higher asset management fees in Ireland and Germany and higher other income in Ireland.

On referring to Slide 8 on expenses, you will not that we have changed the way we presented the expenses this quarter. The chart at the top of the slide now represents adjusted expenses.

We define adjusted as excluding restructuring charges. The table at the bottom was unchanged and shows adjusted segment on Lifeco expenses as well as Lifeco expenses including restructuring charges.

In Canada, adjusted expenses increased 1% year-over-year reflecting savings related to our business transformation initiatives. As I noted earlier, we achieved approximately $46 million of pretax annualized reductions to date.

In the U.S., looking at expenses in U.S. dollar terms, overall expenses were down 6% year-over-year.

At Putnam expenses declined 9% as a result of cost actions taken in Q4 last year with reduced headcount. At Empower expenses declined 6% due to lower integration related expenses.

And in Europe, adjusted expenses increased 12% mainly due to the addition of cost related to the Irish Life Health business following last year’s acquisitions. As noted earlier, Lifeco total adjusted expense growth was 1% year-over-year.

I will now turn the call over to Garry. Garry?

Thank you, Paul. Starting with Slide 10, adjusted net earnings in the second quarter were $712 million, up 6% year-over-year equating to $0.72 per share.

Including restructuring chargers, reported earnings grew $585 million or $0.59 per share. As we look at the segment, I will speak to earnings on an adjusted basis, excluding the restructuring charges in Canada and Europe highlighted earlier.

In Canada earnings benefited from a significant improvement in group visibility results and lower expenses offset by lower investment gains compared to a very strong quarter last year. As a result earnings declined 5% year-over-year despite strong operating performance.

In the U.S. earnings were up 55% from the prior year driven by growth in fee income and lower expenses for both Empower Retirement and Putnam.

As Paul noted earlier, Empower results were quite strong with earnings of U.S. $36 million compared to U.S.

$18 million last year. Europe’s earnings increased 10% year-over-year and 14% on a constant currency basis with underlying earnings growth in all segments.

Earnings in Europe included a negative impact of $16 million from the decline in Pound Sterling, falling Brexit. Translation rate for sterling, a year-ago were $1.85 compared to a $1.72 this quarter, a decline of 7%.

Turning to Slide 11, Source of Earnings, and as a reminder, the Source of Earnings categories above the line are shown pre-tax. Lifeco’s year-over-year expected profit increased $48 million or 8% from the same quarter in 2016, mainly due to a higher fee income and lower expenses in our wealth management businesses.

Europe also benefited from the addition of new reinsurance transactions and the inclusion of Irish Life Health business. New business strain of $61 million, mainly relates to the inability for – fully defer acquisition costs in our U.S.

and Irish Wealth businesses. There were also fewer bulk annuity sales in the UK this quarter and these typically have a positive impact at the point of sale.

But the pipeline to that business remains strong. Experience gains of 230 million were significantly higher both sequentially and compared to last year.

Positive trading gains across all segments contributed $120 million to earnings. Other experience variances were generally positive and contributed $110 million.

In Canada, it was favorable group experience, primarily due to long-term disability and health claims as pricing actions yield it benefits more quickly than expected. Plus Canada saw favorable expense experience across all lines of business.

In the U.S. there were higher fees and lower expenses than expected in Empower and Putnam.

In individual market unfavorable mortality experience was partially offset by favorable annuity longevity experience. In Europe, it was favorable group mortality and annuity longevity experience this quarter, in addition to the strong trading gains.

Assumption updates and other management actions resulted in the release of $38 million this quarter, primarily due to updated UK annuity longevity assumptions. The negative $174 million shown in other consist primarily of restructuring costs in Canada of $172 million and again that’s pre-tax.

The earnings on surplus of negative $5 million, it was $30 million lower than last year, mainly due to gains on the sale of the Canadian investment property in the prior year. Note we have added a line for adjusted net income, which excludes the restructuring costs, adjusted net income for the quarter increased 15% from the prior quarter and was up 6% in the same quarter last year.

The effective tax rate on shareholder earnings was 13% and that’s inline with comparative quarters. Turning to Slide 12, Lifeco's uncommitted cash position remained strong at $0.9 billion.

Our book value per share was $19.95, up 5% year-over-year. Adjusted return on equity was 13.9% again that – excludes the restructuring charges.

Adjusted ROE continued to be strong in Canada and Europe, above our long-term overall Lifeco targets. We remain focused on improving margins and ROE in the U.S.

segment. And finally, on Slide 13, assets under administration were $1.3 trillion, up $125 billion or 11% year-over-year, driven by market performance and overall business growth.

That concludes my formal remarks. Back to you Paul.

Thanks very much, Garry. Before we open the line to questions, I would summarize by saying that we’re pleased with the quarter including the actions that we’ve taken on pricing and expenses that reflected in our strong experience gains and we see this as sign of good momentum for future profitability.

So operator, we will now open the line to analysts for questions.

Hi, good morning. My first question is just on the potential impact of the DRAFT standards issued by the ASB.

It sounds like it will be maybe in the neighborhood of $50 million or slightly less. Is that a good number to use on our estimates and will this come through in the third quarter or fourth quarter and will it be called out specifically or separately?

Yes. I’m going to pass that one on to Garry.

Garry?

Yes. In terms of the DRAFT standard fee, we did note that if we expect that the change from the ultimate reinvestment rate.

That aspect in particular to be less than $50 million and I think we've mentioned that in prior quarters. In terms of the other aspects of the standards, we don't expect it to be material.

Although, we may actually see an offsetting benefit from some of the mortality improvement and diversification benefits not quantified not expected to be material. So the $50 million referred is just for the URR, but the other aspects weren't included not and we would look to – at this point, I think we're planning on implementing in Q3.

Overall, I would note that the standard doesn't actually become finalized until the fourth quarter allow early adoption is permitted.

Thank you. And just my second question, in the Canadian business if we strip out the restructuring charges this quarter, it looks like there was a loss about $18 million in the corporate segment, which is just a little bit higher than the normal run rate.

Was there any kind of lingering restructuring charges or expenses in there that didn't get backed out? And is there anything else to just really point out because typically you are slightly positive on earnings in the Canadian corporate segment?

Thank you.

Garry, I’m going to just refer that one to on the corporate side. Does that has been sale of Vento…?

That’s the Vento sales last year, that’s an earnings on surplus I think. The expense that went through in the corporate segment took the small very - we can get back to you separately on that item.

Thank you.

But it could have been an additional expense unusual item wasn’t allocated to – from transformation that wasn’t allocated to the other business lines as you mind, but we will just get back and confirm that.

Okay, great.

Thanks very much. First just a clarification question on the restructuring and more specifically the benefits from the restructuring.

I see in the notes you are suggesting that there's $31 million of annualized benefit flowing to the shareholders, but I also see you're saying us $14 million that's come in, in the first half. So is some of that coming through – some of that somehow come through in Q1.

And I guess some detail there and where are we – in terms of the $160 million annualized run rate that we expect to see. I think you said by Q1 2019, where are we at in terms of a measuring stick at the end of Q2?

Okay. Steve, I’m just going to make couple of comments.

First of all, there is the total which would include part and non-part, so that $200 million and then there is the part that is related to non-part. And I think Garry can sort of describe a little bit of geography of where we're at right now.

Sure. There are couple questions here, but first one the $40 million noted so far is in the first half.

The vast bulk of that was in the second quarter following the announcement that we made in April. It was a small amount that was directly attributed to the preparations for that that would have fallen in Q1 that was re-categorized, but that was very small.

In terms of the run rate that’s taking a point of time where we're at now, so that’s the expense run rate we would expect going into the third quarter. Overall, at the press release we signaled $200 million of benefits overall by the Q1 2019 and we are at $46 million of realized gain and that’s on an annualized run rate both of those numbers.

But $46 million so far and obviously as we go through the main accept and transformation and we feel on track to deliver the 200 in the timeframe.

And so it’s $46 million total $31 million to shareholders. Is that right?

$31 million and $15 million it’s the little higher to participating count more the actions in this first period one the distribution side which would be higher allocation to participating then perhaps the overall program will be ultimately and [indiscernible] wondering that one-third, two-thirds spilt.

Okay. Thanks for that.

And then just for Bob on Putnam As I look through net sales growth sales. This is the first time in over a year we've seen negative year-on-year sales growth.

And I suspect it might be institutional of driven but can you give us some color on sales for Putnam please.

Yes, Bob, why don’t you take that to that is Steve that will be is that was lower institutional. But Bob you can take that one.

Yes, that’s if exactly Europe, mutual funds sales were up second quarter last year we had a large institutional or be in dollars and that influence so we did not have that level from an individual client this past quarter so it’s all institutional.

And was the institutional is that to move pass of it some of the classic things we’ve been hearing about lately or is there anything sort of Putnam or anything you highlight?

There is a client to spending a long-term program and they took a break from that – we instituted going forward. So it’s a part of the ongoing program that management [indiscernible] and clients moving up to non-interest.

And so just to be clear we are filling that in Q2, but what we see some of that pass impact year-on-year comps in the second of the half of the year.

No, 100% but we just still [indiscernible] program that will have go to soon.

I think it s spare to say those that we have had retail sales were strong and that’s core and that’s fairly the higher margin business which we like and institutional sales obviously going to lumpy and we like that we like the performance we are seeing this Putnam and we also are seeing in terms of cash flow although not positive where definitely moving in the direction and we like the trajectory we see that.

Thanks for that color. Appreciate it.

Good morning, hear me all right.

We hear Gabriel.

Okay. Just on the experience gains believe you broke it down the $230 pretax it was a $120 million from positive investment experience and the other $110 was other policy holders, but such while that correct?

Yes, I was expect it was the $120 was trading activity – yield enhancement that we often called out.

Okay.

And we discuss with the mortality and mobility perfective expense pick up there is well.

Well, Gabriel I just not that as we think about the experience gains there. A lot of that was RF under estimating the positive impact of pricing and the timing of the expense range.

What we are seeing now sort of the core underling impacts of pricing and expense driving the business ahead and moved ahead of where we thought it would be from an expected some profit basis. So this is really a bit of an early sign of where we think is expected profit is going.

So that the component in the $110 I guess related to the group insurance repricing at Canada that’s and I guess that would roll into expected profit next year.

You start to see that we have also done repricing in our group business in the UK. So there is number of various we’re trying to be as always being disciplined on pricing interest rates – kind of stabilize and getting the price in the right place and then getting our expenses in line.

Getting more upside from the repricing or the fully reflected on the group businesses.

On the Canadian contacts, maybe Stefan, you can comment on that.

Hi, thanks Paul. From the group perspective in Canada where our biggest challenges is long-term visibility.

Once we started taking price we action last year it does take better part of year to get into the system. The renewals occur every month over the 12-month period.

So we are in midways through realizing those benefits. And so I would caution there is natural volatility in that business, but we do expect some continued upward trajectory to those results.

Okay. And like my comment earlier I guess that could be adjusted into – or do you expect that profit would – maybe the higher next year that kind of just reflected there?

We would expect it to go from experience gain up into the expected profits.

Okay. How about the investment experience, $120 million that’s – much on that was in Europe, because I know for and I noted that in the past to have a good period there in 2013 and 2014.

I think problems as well and then last couple of years, the investment experience gains have been really low in Europe in particular and here we’ve got a pretty big rebound possibly in Europe. ROE in a better climate, or is a little bit copy or how would you describe it?

Yes, Garry, you can provide a little color on that.

Sure. The Europe results were stronger they were just over half of that $120 million was in Europe at this time around.

And recent quarters, I mean it does – it is naturally volatile quarter-to-quarter low – if you look over longer term, it’s a little higher than their average, but they’ve been averaging probably close to $50 million over the last few years on a quarterly base, but does move around. And so the – couple of things, one is the Congress was good there.

We also had some lease extensions – favorable lease extensions. So at the end of the lease term, we assume it goes back to adjusted residual value of the property.

We don’t presume that the leases are renewed favorably. So when they extent that and we had a couple longer term extensions which you think is a good sign then back to the extra yield on those leases comes through as yield enhancement.

Okay, and my last one is just the numbers one, the non-controlling interest, there was a reversal as quarter $31 million, I believe that’s related to somehow to the restructuring charge and that reflects like the loss in the prior block this quarter, so instead of process attribution, it’s about the reversal?

Garry?

Yes, that’s correct. That’s the power aspect of the restructuring charge.

So backing out the restructuring charge, I get to adjust that one back that out as well?

The presentation as you just in terms of what we would be focusing on. But all the details are in the financial statements and the MD&A to cover it up there.

Okay, thanks.

Thanks, guys. Good morning.

I want t start back on the expenses and just looking at your Slide 8, I believe it was – so first half when we look at the Europe numbers and you mention the growth there largely relates to the acquisition. Just so I’m on the right track here, I think that acquisition was closed in Q3 last year.

So as we move on towards the end of this year, what is the Europe that expense picture look like, because obviously the other two geographies have trends pretty nicely? Is Europe also going to be in the slap line type of situation after that acquisition laps?

Well, I actually – I’d say this is a bit done and cheap but I actually I hope that it has another two or three biggest spices as we do further acquisitions. But setting that aside, if you know costs basis, actually I think that’s a pretty fair assessment.

Yes, just on the narrow points that helps transaction in Ireland closed in August 2016 and each of the first and second quarter this year, the one rate expense there has been between €9 million and €10 million to something like CAD 14 million for a quarter. So you’d certainly want to normalize for that and that’s absent that we’ve seen some modest growth as we continue to fund various initiative across Europe.

So we’re trying very large, manage the underlying unit costs in each of our businesses, and then particularly in Ireland where we're seeing strong sales growth we're trying to whole the overall level of expenses flat, which is why we have the restructuring initiative on the retail business. I do expect to see some modest growth in expenses in Germany as we investing system there but again we want to continue the rate of growth in expenses to – less then the growth in the number of policies and in the revenue premium and we also might see some modest growth in expenses in our reinsurance business which is grown very strongly in its contribution the overall profit.

So we're looking at it line by line and making sure that we're managing our unit costs very closely particularly at Irish Life for we want to make sure that we get positive leverage as we get incremental sales and right down our unit cost and improve our margins.

And the reason I bringing and this is probably more for Garry as the number guys so to speak. I mean if you take the restructuring charge as we you have with Putnam and then in Canada.

I think from our perspective it's always good if you see the return on that investment relatively quickly. So normalized basis you give us a lot of numbers about you know how far you are in terms of getting to the $200 million.

Is it fair to me to you know adjusted expenses of total company level flat and say we're going to see a run rate basis as we get you know close Q1 2019 living acquisition aside in which expense growth this company is going to be very limited. Is that the right way to be thinking about this going forward?

This is more than just acquisition parts and the – result of some of the restructuring and transformation. To the transformation also considers while we deploy capital in new opportunities for organic growth.

But I think it’s fair to say in the near-term if you look at the impact of transformation related restructuring. Selling aside acquisition we are expecting really to have very, very modest flat expense growth.

That’s been have the net of all those things coming together. But I would say that as we start to see the impact of some of these initiatives whether it’s you know driving forward in Germany, which you know – business which is now becoming it’s sort of showing up.

Some of those businesses as we get strong organic growth you do have to make sure that your services levels are focus that you’ve got the people in place. So unit cost we want to drive unit cost down, but we love to see a high rate of organic growth but actually results in higher expenses.

And let me thank you that Paul. Let me wrap it up with Empower I touched on a couple things.

You mentioned if you tells in your prepared remarks very strong results since really some of the better ones we’ve see for that business. It seem like the start really aligned here I mean you fee income growth double, your sales growth, your expenses or out right down.

Specifically when I look at sales and fees you’ve talk in the past the sales line can be lumpy just given the nature of that business. But just curious is to why the topline of the fee growth would be so much stronger than what you are able to show at on sales.

And then related to that Paul I mean it seems like when we talk about law you mentioned you’d like to see expenses higher on the back of acquisitions. This is the business that you certainly talk about is being one and which you expected there to be significant consolidation in the industry.

What are the trends that Great-West has seen in that market specifically and I leave at that time.

I will speak to that at a high level I am going to differ to Bob, because we will some deeper insights words, but integration is complete so that’s sort of fundamental driver of not having to carrying some of those costs. Part of that is been your ad scale you had scale benefits I would say that we are continuing to even in the contacts the expense level you see news technology and automation to drive down cost and you will see that is a continuing theme.

That is fundamental to this business if the scale business. And we want to expand our proprietary AUM so as we think about what’s driving fee income up markets are favorable but we also want to get higher penetration of AUM whether the opportunity – rollover business.

And then ultimately what that those two things and combination do is that just rise up your core earnings within that. And then ultimately when you talk about targeting acquisitions we definitely and looking for acquisition growth but we are very we want to be somewhat selective from the standpoint that we really like that core market.

We like the core market where there is higher margin where we can take we can leverage our capabilities and really differentiate against the lot of the smaller players who haven’t been able to invest. So Bob you could provide some more color on that.

There have been some consolidation. I think there is a lot more coming in the future.

We acquired J.P. Morgan’s business and that integration was completed in the first quarter of this year.

So we are definitely in the market and I think you are going to see a lot more in the coming months and years.

Thanks for your time.

Thank you.

Good morning. I guess my first question is on Putnam, and as you indicated I think you achieved about 80% of your targeted cost reduction.

And I guess my question is, I mean is this enough to put Putnam back into profitability, let's say in the calendar this year or next year assuming AUM and margins stay stable. And Paul I think in your prepared remarks, you said that you're exploring all options and other options to improve results here.

Can you elaborate on what types of things you're looking at?

Yes. So as we think about driving any of our businesses to probability, we don’t look for any single solutions to those things.

We look at it across the range of things. So I would say first and foremost that Putnam you've got to have strong performance whether it’s a consumer business we're delivering value to end consumers.

And if you don't have the right products and services, you won’t win. So for context there 59% of our funds are top quartile over five years, 80% of funds over median five years, so that is underlying number one and that’s going to help with activate flows.

And we are definitely seeing a shift in particular in fixed income less so in equities, but a shift a bit away from passive and active. And we think we will see more of that especially if there was a market production.

So you've got to be well positioned with organic growth. We think about acquisitions to drive scale and margin, so we're active in the market where we've got calls that are opened and actively got others that we continue to stay focused.

The U.S. market is right for consolidation on the active side and we can really benefit from scale on that, so we are focused there.

And then we [indiscernible] management to support margin growth as well. And I think it’s a combination of all those, and Bob, has his team aligned by looking at all of those things, focusing on an investment management, focusing working with our Lifeco capital markets people in terms of looking for opportunities, and focus with the management team to make sure that we have our expense what we have and get our expense in the right place to drive profitability.

Bob, do you have anything else suited to that.

They work in combination. Obviously, any growth of assets is a huge help to us because the cost – where the costs are.

We can double the assets under management and that had enough cash. So that’s the starting point.

I’ll not add the Paul’s comments on performance. Over the last 12 months, you’ve seen that they’ve not yet shocked their active managers outperforming the benchmark.

The benchmark on the U.S. equity side is dropped median as a performer, so that’s something to watch and it’s inevitable that the flow will turn back to us at our active management just inevitable.

So I guess if I can just go back to my first, keeping it simple, I guess we see that continued trajectory that Putnam should move into profitability over the next year. Because is doesn't seem like there's anything else that would hit it is just continued growth that should move you in that direction with some of the additional expense benefits, is that fair?

That’s where we are.

Okay. And just on the Canadian individual insurance, I guess I just have two questions.

I mean there's less favorable morbidity experience, just wanted some color on what that related to? And then second, you talked about price increases on the group side and that's great.

I'm just wondering where you stand in terms of price increases across your individual insurance suite of products and more specifically the long duration guaranteed products as we move towards LICAT. And just trying to get a sense of what those price increases, what the competitive environment is and what competitors, if you can give the sense of what competitors are doing?

That’s sounds like a great question for you Stefan.

There is a lot of questions in there, so thank you. I think from the Canadian individual insurance area from morbidity perspective.

There is natural fluctuations and volatility in that business. So we don't see many underlying concerns with that particularly as we – and we would expect sort of subsequent period to see better results.

So I wouldn't worry about that. From a pricing perspective, we’re certainly looking at sort of all of our products continually relative to the marketplace and to make sure that we're getting that sweet spot and we look at that on a regular basis and are taking some pricing actions to improve results.

It’s fair to say that we always continue to maintain a stronger discipline in terms of thinking about our target margins and ROE’s and Stefan is being – he would have probably in a little bit more positively talking about the things he has done, because he is really driven the pricing on the back of our group LTV and you’re seeing the result of that we've maintained really good discipline in our pricing on our universal life and I know we continue to look at the same things on the other individual products.

Yes and the last thing I would add is that we're also look at from an expense management perspective, which is on important contributor to the earnings then the ROI’s of those products to make sure that sort of the transformational benefit into the result from a product.

In the pricing side, I guess if you’re taking pricing actions, I assume that means prices are slowly gravitating higher. Is that a fair assumption?

Yes, it’s bouncing at – you want to stay in the market, so – but I would say that hallmark of our pricing actions whether it’s we think about our payout annuity business in the UK, our businesses in Canada is that you don’t want to price leader, be price leader. What you like to do is, you’d like to be in the frame was the really strong client service offering and advisor support offering in your businesses that then allow you to be active and competitive.

But you’ve got also in periods – if we think the market become we diversified business. We’re prepared to pullback through markets when we need to if pricing become a rational.

Okay, I guess when I going to that or we’re going to see what you’ve done in group or we going to see some of that come through in individual insurance over the next year?

Stefan, yes, I don’t think…?

No, I don’t see that. We’re quite continues be response as Paul mentioned.

So what the market is offering and we do look to see what our competitors are doing at any given day and also to each week as we prices. So make sure that we’ve got the right value proposition for advisors and our customers.

Yes, I would just characterize that we’re experiencing solid returns, if I look at our term business in our universal like we’re staying. We are staying on top on interest rates to insure that we’re in the right place on those.

Okay, just lastly Garry, your MCCSR didn’t moved sequentially and what drove that? I’m asking to see something, just trying to think what drove that – I would expect it to increase?

Garry, over to you on that.

Sure. I mean we would have seen a fairly normal increase success that we’ve taken the restructuring charges.

So the restructuring charges would have come out fully in the period. So that was probably about two points on the MCCSR.

Otherwise I think it would have shifted opposite as it often does without one-time items.

There is nothing else in the required capital like an UK or anything that’s – that was that normal?

No nothing usual.

Okay, great. Thank you.

Good morning, just a quick follow-up on the yield enhancement gains. Garry, I appreciate your comments on the leasing side of the least extensions.

But was there anything specific in so far as macro conditions are concern. They would have contributed as a result, anything in terms of spreads or just opportunities that would have made the result especially strong this quarter.

Yes, Garry you can take that and Arshil may have some comments on sort of the general natural of work, the UK that with Garry?

Yes, I mean in general the spreads were tightening during the quarter, we did see some good opportunities. Those lease extensions were probably half of the Europe results or if not a bit more.

So they were quite an important part of Europe result at this time. So the general backdrop, it was – it’s was just a little tightening on spreads that are partially anything from UK visit.

The only macro point that I’ve noted in the quarter the Irish government issued for the first time and long time and inflation relates bond that’s a nice match for some of our inflation length Irish liability so we had a modest contribution and not as much as the UK property for somewhat activity. But as Garry and other subset that the external environment was relatively benign we saw more upgrades and downgrades in the inputs portfolio and spreads have been just generally funding downwards but not dramatically.

So it was impact it was good how work by our property team in the UK and then taking advantage of that opportunity when the Irish government issued inflation length bond.

Okay $25 million I am guessing $25 because that’s half of the $50 million not $50 million sorry with would have been about $60 million of yield enhancement in Europe I think that’s what you said of half of the $120. And I think you said half of that was the yield enhancement sorry was the lease expansion is $30 million about the right number.

I think was a little bit more than half, there was not going a specific number so…

Okay. So where I am going with this is that’s a meaningful number then is that something that we could each Q2 or because I don’t I just no number hearing about before like how frequent should this play up frequently.

This is what leases are coming to so we can speak to that.

Yes, I think we highlighted the nature of our UK property portfolio is underpinned by very long leases, but each of them is asset specific and client specific and we are ongoing negotiations discussion with all of us our tenants and across all of those property. The underlying vacancy rate has been very, very low there but running yield on that portfolio is 5.5%.

And so we are very comfortable with that portfolio from our risk perspective and property people they are like to say that this is get that beep song giving but every time we get an opportunity to have a clients make capital expenditures and improvement in the property and sign a longer lease we get better underlined security in the property and we continue to benefit from the lease cash flows and in particular around distribution type properties which is meaningful part of our overall UK property we have seen tremendous pressure they are in terms of internet retailers and others coming in. So vacancy rates are really low and running yields are improving.

So we took advantage, but it is not a quarter-by-quarter or the same time every year its across the whole portfolio and it’s constant engagement to whatever. It just happened to be there were three very meaningful transactions this quarter.

Okay and then maybe one final follow-up on this you may have address this in the past. But Great-West Life exposure to in London specifically to the investment banking community because I am referring to all of the charter about potentially moving out of London into Europe proper.

I’ll start off there just coming in fact that our focus historically as always been a ton of discipline in terms of diversification. So when we think about our London property or mortgage exposure if would be a modest percentage of total we want to diversifies if we don’t want to have concentrations there or whether it’s our management investment community or investment community of the board are we report on that monitor top but it all the time and Arshil I mean you provide a little more contact.

We had a delivered strategy over the last 36 months to be materially under weight London office, direct property exposure and then virtually all of our commercial mortgage lending over the last four or five years. If it’s been in office in London we focused on very high quality tenants covenants with long leases.

So we feel very secure that our mortgage lending and that our direct property portfolio will be quite resilient. Obviously anything that impact the property market negatively will come through over time, but we are very defensively positioned in our portfolio and we think our running income yield will be very stable and we have a good protection in terms of loan to value and covenants in all of our commercial mortgage transactions over the last number of years.

So we've been very mindful of about that at point and have been very thoughtful in our lending.

I also think there is some detail on that in Slides 27, 28 of the materials that we’ve shared with you just for context relative to our total portfolio.

Okay. So what you said today, you wouldn’t expect any negative yield enhancement or yield losses going forward associated with this.

We feel very good about our commercial mortgage portfolio and our property portfolio in the UK and we think we're appropriately defensively positioned.

Thank you.

Yes. Thanks very much.

Good morning. My first question is with respect to Europe and the strain that we're seeing here.

This is considered triple the strain that we saw a year ago and then almost more than four times the strain we saw on the first quarter. And the sales are actually up over the first quarter.

So what's driving this big negative strain we're seeing in Europe and what can you do about it?

Yes, I’ll refer that to Garry, I just remind that when we look at strain, I obviously think about good strain and bad strain. Good strain is when you’ve got inherently profitable business, but the profit signature is such that you can’t deck all the acquisition assets funds, so you will have strain and then you’ve good inherent long term profitability.

Bad strain is when you are not properly priced and you are not going to cover those costs. So Garry I think is a story of good strain without an offsetting front ending from some other sales that typically would happen.

So Garry, if you want to speak to that?

Yes. I guess couple of comments.

One, the Europe strain it was $34 million – this is precap number, you are referring to Tom. Ireland is about two thirds, it’s just $21 million and that strain is fairly consistent number, if I look over the comparable quarters $20 million, $21 million is relatively consistent and that does reflect in large part the good strain.

We are obviously good on the retail and [indiscernible] wealth business where we just not able to fully differ the sales. We obviously get that back through higher fee income.

The two aspects that are bit more volatile; one is in the UK, so far example in the UK, in Q1 we had a large bulk annuity which contributed positively. So the UK in Q1 was actually our positive numbers $17 million where it was negative this quarter, just regular wealth.

We did not have bulk annuity of any size at all this quarter. So that can really – whether or not we have a bulk annuity and they could be £200 million, £250 million.

They could be quite sizable. That will drive a fluctuation in strains, so they are typically positive.

And then also reinsurance, and again those can be lumpy sales, we have had some good reinsurance sales transactions that have added to expected profitable last year. But sometimes they are positive upfront, sometime they are strain upfront, but those are the spoke deals, so there is no particular pattern.

It just happens if they were positive last year in strain and negative this year. So that’s what causing an apparent move, but there is an underlying – smooth part in Ireland and when you get the lumpiness in the UK and in reinsurance based on just large one-off transitions.

And Garry it’s fair to say that smooth pattern within Empower…

Yes, very much. Empower and Putnam are both quite consistent in the – that’s what leads us $30 million in the U.S.

pretty consistently.

Yes. Just another example of a line of business that probably shouldn't be in the SOE.

So And then if we go into Canada, the Canada surpluses is way down, half of it would it was in the first quarter of this year and $6 million now pretax versus about $30 million in the second quarter 2016. What's happening there?

I will take that. Last year we had a large property that was held in surplus that we sold.

$28 million gain and so the reality is there was a large, I’ll call it a one-time positive last year not repeated and that would really be the differential year-over-year.

So what about quarter-over-quarter, running half of we were…?

Last quarter, Garry can you comment on that?

Yes, we have the very strong mark-to-market and the first quarter – with the numbers are relatively modest and I’ll tell those large one off gain. But we had fairly strong…

Real estate mark-to-market in Q1 [indiscernible] for the exact property, but we had a couple year. So we are probably $4.5 million ahead just on in Q1 relative to – if we add something and gain the seed capital was the little stronger in Q1 that it was in Q2, so just more the mark-to-market on for lot of other sources in connect on those.

Okay and then finally would respect to Empower. If I look just quarter-over-quarter, revenues down 4%, operating expenses are down 4%, participants are flat and net earnings were 53% year-over-year.

So what are the drivers here, like how should we be looking at this business i.e. is sort of speed for participant in it, but that doesn’t seem to be the case.

Is there some spread income that comes in periodically with respect to Empower that can make these results moving that way like, I’m just trying to get a handle is to what’s driving this 50% quarter-over-quarter when we didn’t really see much movement in terms of OpEx or revenue?

Garry, I’m going to just trying to dig through the numbers here to make sure we are following that.

Yes, just to make sure, you’re referring to numbers in our Page 17?

Page 37.

Page 37 of your quarterly supplement is got all those.

In the quarterly supplement.

Yes, you got an income statement there for this line.

I mean – in general you’re right. A lot of this is driven by the ability to drive expenses down into our revenues up for the [indiscernible], so a lot of that is fees, some of its interest margin.

If the other source of income is also you get your yield enhancement gains, you can also get in that business as well in some of the general account business. So lastly I agree with you the percentage increase look strong period-over-period, but the actual numbers kind of relatively small based earnings and your – both your fees and operating on the large number.

So I think getting some of that there. So we’ll sit there and we will go through the – that in a little more detail we get to, but I think it’s really just – in general the drivers we had positive on the fees on the expenses and that’s we take it up a bit.

I think there is also – some aspect of – I think the [indiscernible], but there were some integration cost that were bit higher in Q1 and we would have obviously stop that and not all of that we’re in the restructuring that we’re in cap rates and [indiscernible] restructuring. So this probably – again there is only a couple of million each of those things but it’s a bit annoys that gives you that jump – but it’s a good indication where the business is running.

Yes, I guess if you can any kind of improved metrics to help us look at thing, you do mention interest margin and yield enhancement gain. I wouldn’t have start you would get those kind of things in this processing type business, but maybe you can elaborate on that hopefully in – maybe in the next quarter then because I think drivers of this are use to think it was sort of just fee for participant, but maybe you can help us understand little bit more on that.

Yes, there are some with the general account there is the opportunity for some yield pickup on the general account there as well. And also on the OCI thing that could allocated to it, so we’ll get back to on the drivers on that more detail.

Okay, that’s great. Thanks.

End of Q&A

Okay. Thank you very much operator.

With that I’d like to thank all of you for joining the call today. I would encourage you the contact our Investor Relations area if you have any follow-up questions and we look forward speaking with your again next quarter.

Have a great, and for those of who gone on vacation, enjoy a good break. Take care.