Great-West Lifeco Inc.

Thank you, Rosanne. Good morning, and welcome to Great-West Lifeco's Fourth Quarter 2019 Conference Call.

With me on this call is Garry MacNicholas, Executive Vice President and Chief Financial Officer. Garry and I will deliver today's formal presentation.

Also joining us on the call and available to answer questions are Arshil Jamal, President and Chief Operating Officer, Europe; Jeff Macoun, President and Chief Operating Officer, Canada; Bob Reynolds, President and Chief Executive Officer of Putnam Investments; Ed Murphy, President and Chief Executive Officer of Empower Retirement will not be participating in today's call, as his father recently passed away and he is with family. Given his absence, Andra Bolotin, our Empower CFO has joined the call.

While Arshil will handle the questions regarding Europe and reinsurance results on today's call, I wanted to note that earlier today, we announced a number of organizational changes that will take effect following today. These include Arshil Jamal moving to a newly formed role at Great-West Lifeco as President and Group Head of Strategy, Investments, Reinsurance and Corporate Development.

Working with these teams and operating company president, his focus will be on identifying and driving value creation initiatives across Great-West Lifeco. As a result of this appointment, David Harney, CEO of Irish Life Group has been named President and COO Europe.

Both Arshil and David will report to me and I'm looking forward to working with each of them in their new roles. I would also note that David McCarthy our Deputy CFO will continue to be associated with Gary MacNicholas, but will work very closely with Arshil in his new role.

Before, we start, I will 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 material.

I will begin with an overview of Lifeco's fourth quarter results and business developments. Gary will then take you through the more detailed financial review and after our prepared remarks we'll open the line for questions.

Please turn to Slide 4. The company reported adjusted earnings of $0.80 per share up 11% year-over-year.

These results reflect strong underlying growth in our operating businesses, a significant improvement in equity markets compared to Q4 last year, the sale of the U.S. individual markets business and our successful substantial issuer bid in the spring.

In Canada, earnings included strong business growth in group customer and investment gains. However, this was more than offset by the impact of actuarial basis changes.

In the U.S. adjusted earnings were higher due to improve markets, expense discipline at Putnam, participant growth at Empower and a net benefit from some one time items.

In Europe, higher earnings reflected solid underlying growth across all geographies, particularly in reinsurance as well as the benefit of successfully resolving a longstanding tax matter in the U.K. There were three adjustments to net earnings in the quarter.

Two were at Putnam. The first was a $199 million charge related to the reevaluation of a deferred tax asset and the second was a $36 million restructuring charge related to cost savings initiatives.

This third adjustment was a gain of $8 million realized on the sale of our U.K. heritage policies to Scottish Friendly completed on November 1st.

Gary will provide additional color on these adjustments later in the presentation. On a full year basis, adjusted earnings per share were $2.94, while down from 2018, business fundamentals remain solid and our capital position remains strong.

The company's Lifeco cash ratio was 135% at the end of the fourth quarter, well above our internal target range of 110% to 120% and Lifeco cash was $700 million giving us ample financial flexibility. We also pleased to announce that the Board approved a 6% increase in our common dividend making this our sixth consecutive year of dividend increases.

I would now like to take a few minutes to update you on our strategic priorities and recent business developments. Turning to Slide 5, in Canada, we entered the New Year as one strong unified company under the brand Canada Life.

With the amalgamation of our three insurance companies complete, we are sharpening our focus on growth while capitalizing on efficiencies from ongoing simplification of our business model. We continue to be an industry leader in group benefits and we've demonstrated that leadership with the highest group life and health sales among our peers again this year.

Innovative benefit solutions and service excellence contributed to these outstanding results. A key part of our growth strategy is deepening relationships with the 9 million Canadians we count as group customers.

To this end, we're continuing to introduce new digital capabilities to increase group member engagement. An example is the pending launch of a new integrated member digital platform, which will deliver a seamless experience to group customers who have both benefits and savings products with us.

Turning to our individual business, we launched a new Canada life segregated fund shelf in the fourth quarter, bringing together the best funds from our three legacy platforms to create a simplified shelf for all adviser channels. The success of the launch and the attractiveness of the new seg fund product shelf helped boost our fourth quarter results and positions us well going forward.

We also invested in digital tools and technologies to support the advisor community. A new advisor portal is currently in pilot and receiving positive feedback.

In the U.S., Empower finished the year with record sales and impressive growth across small, mid and large plan segments. Empower continues to be highly rated by retirement plan advisors.

It was recognized as the number one value for price for a 5th consecutive year by Plan Advisor Magazine and received top marks for client service and online tools. External endorsements like these are driving a robust pipeline at empower.

At Putnam strong investment performance is attracting flows with mutual fund net inflows of $1.5 billion in the quarter, the highest level in over a year. As of December 31, 2019, 82% and 86% of fund to houses performed at levels above the Lipper median on a three year and five year basis respectively.

This combined with expense discipline is contributing to an improvement in Putnam's profitability. Turning to Europe, our reinsurance business continued to demonstrate its strength and risk and capital solutions issuing a long-term contract covering the longevity risk within a €12 billion portfolio of Dutch pension liabilities.

This fall is another significant transaction earlier in the year covering 5.5 billion of Euro pension liabilities also in the Netherlands. These transactions add to our diverse longevity portfolio and highlight our expertise in creating unique risk plan restructures to benefit our clients globally.

In U.K., we closed the sale of the heritage block of policies to Scottish Friendly, bring up capital, allowing us to focus on growth in the U.K. retirement and group benefit markets.

We're also leveraging recent acquisitions to extend distribution and growth of our wealth management franchise in Ireland and expand our footprint in the German broker market. With that, please turn to Slide 6 for further discussion of our fourth quarter results.

In Canada, sales were up 5%, as noted group customer led the industry in group life and health sales in the fourth quarter and for the year. Individual wealth sales were higher compared to last year in part due to higher segregated fund sales as advisors and clients respond favorably to the new Canada life shelf.

In the U.S. Empower recorded sales of U.S.-12 billion with growth driven by mid and small plan sales.

At Putnam net flows were positive on the back of lower gross sales. In Europe, sales were up 10% with higher fund management sales in Ireland, while not included in traditional sales metrics, the major reinsurance transaction noted earlier, drove new business gains in the quarter and will add to future earnings.

Turning to Slide 7, Lifeco fees were up 7% year-over-year with strong growth across segments, excluding the divested U.S. individual markets business from Q4 2018 figures, Lifeco fees were up 10% and the fees in the U.S.

were up 13%. As noted on the slide, higher fees were driven by strong market growth.

Participant growth at Empower improved performance fees at Putnam and strong net flows in the U.K., Ireland and Germany. Referring to Slide 8, Lifeco adjusted expenses were down 2% year-over-year, 1% in constant currency with excellent cost controls across segments.

In Canada, expenses were flat reflecting continued expense discipline, adjusting for one-time items in the fourth quarter last year, expense growth was approximately 3.5% in line with our expectations. In the U.S.

expenses were down 3% but again adjusting for the sale of the individual markets business would have increased by 3%. Empower expenses were higher in line with sales and participant growth and expenses at Putnam were down 6% in local currency reflecting benefits achieved to-date with restructuring.

And in Europe expenses were flat and up 2% in constant currency as we continue to balance growth initiatives with good expense controls. I will now turn the call over to Gary.

Gary?

Thank you, Paul. Starting with Slide 10, earnings in the quarter were $0.80 per share on an adjusted basis and increase of 11% year-over-year.

Adjusted EPS growth reflects solid operating performance as well as the combined impact at the sale of the U.S. individual markets business and our substantial issuer bid earlier this year.

The results included a number of larger items that overall were generally offsetting, however created variability within the segments. In Canada, fee growth, good expense discipline and strong trading gains were more than offset by reserve strengthening, which led to a 39% decline in earnings.

In the U.S., Empower earnings were $77 million with strong underlying business results and the benefit of a positive basis change. At Putnam, core net earnings improved to $13 million from a loss of $22 million in Q4 2018 primarily due to higher fees and lower operating expenses.

Europe suggested earnings were up 27% and included a gain on the large reinsurance transaction, good yield enhanced results in the settlement of a U.K. tax issue, partially offset by adverse health and disability claims.

Please turn to Slide 11. This table summarizes adjustments to our net earnings in 2019 and 2018.

The first adjustment I'd call out, was the 199 million charge related to the revaluation of a deferred income tax asset at Putnam. This is a non-cash accounting change in respect of certain restricted tax losses that arose in the years immediately following the Putnam acquisition.

It's important to note that tax losses are still available and management intends to utilize these losses in due course through a combination of continued organic growth tax planning strategies and potential strategic initiatives such as M&A. From a proven accounting perspective, we are limited in the income we can project from these activities which resulted in the revaluation.

The second adjustment I'd note was the 36 million restructuring charge at Putnam covering expense initiatives including realigned technology and facilities, fund consolidations and staff production. We expect to realize 33 million U.S.

in pretax annual expense savings as a result of the restructuring mostly by the end of 2020, with U.S., 24 million in savings achieved to date. The third adjustment was an 8 million gain on the sale of U.K.

heritage policies to Scottish Friendly. While the earnings impact is modest, this sale freed up approximately 70 million of [indiscernible] LICAT have positioned the U.K.

to involve certain legacy systems as part of its overall transformation efforts. Please turn to Slide 12.

This table shows the segment and total Lifeco results from a source of earnings perspective and does reminder the SOE categories above the line are shown pre-tax. Looking first at expected profit and excluding U.S.

individual markets which accounted for 35 million in Q4 2018, the year-over-year increase was 7% reflecting growth at Putnam, Empower and Reinsurance and improved volumes in Canadian group customer. New business strength was lower than both prior quarter and prior year due to a couple of factors.

Putnam and Empower showed higher strength, but we think of this as good strength reflecting primarily non-deferred sales costs on strong new business activity balancing this was the upfront gain on the longevity reinsurance transaction noted earlier. Experience gains contributed 55 million in the quarter while management actions and changes in assumptions reduced pretax earnings by 112 million, I will discuss both on the next slide.

Earnings on surplus of 57 million improved due to a number of favorable items including realized gains on trading and surplus assets and the swing in key seed capital impacts from a negative last year in the market turmoil to a gain this period and this is most notable at Putnam. And in the tax line you can see the impact of resolve in the U.K.

tax matter noted earlier. Turning to slide 13, these tables expand on the experience results and management actions on basis changes to highlight various items in the quarter a gain on a pretax basis.

Starting with experience results, strong yield enhancement was supported by equity release mortgages originated in the U.K. through Canada Life Home Finance.

These gains, however, probably offset by experienced pressures from morbidity expenses and policyholder behavior. There were continued morbidity losses in Ireland in Group LTD and Health, as we've noted in prior quarters, we have taken repricing action including several increases in health insurance premiums, but the impact will come in over time as repricing occurs at contract renewal dates.

There was also some morbidity impacting Canada due to recent [indiscernible] changes, but we expect this to be temporary as the market adjusts. The expense variance was primarily in Europe and this represented higher strategic costs in Q4 than originally planned as we continue to make some good progress there.

This quarter we completed a number of actuarial reviews in Canada, typically these results in both positives and negatives. This quarter, while none of the individual changes was material, there were fewer positives resulting in an overall negative 113 million.

In the U.S., we strengthened mortality assumptions and retain to U.S. legacy block, it was not part of the individual markets transaction, but this was offset by the positive impact of a partial pension close out.

Turning to Slide 14, this table shows the segment and total Lifeco results from a source of earnings perspective for the full year 2019, I'll just make a couple of comments here. I would expect the profit, again excluding U.S.

individual markets from the prior periods, Lifeco's expected profit of 2.9 billion in 2019 was up 4% year-over-year. Experience gains in 2019 were comparable to 2018, strong trading gains were partially offset by U.K.

retail property losses as noted in Q2 especially and morbidity losses in Ireland which we are working to turn around. Management actions and changes assumptions were 139 million compared to a historically high level of 717 million last year driven in part last year by the sharp changes in U.K.

longevity. We have commented throughout the past year on providing additional disclosure to explain the drivers of lower contribution or basis changes, the most material of which was policyholder behavior in Q3.

Offsetting this were positive contributions from a near-term mortality and economic and some morbidity updates. While contributions for basis changes were lower this year, the balance sheet remains as strong as ever.

Historically, experience gains and the basis changes together, the average is around 20% of total earnings, with about 60% of that coming from basis changes. While, its always difficult to quantify in advance given the balance sheet fundamentals remained consistent, we'd expect basis changes to continue to contribute positively.

However, given our focus on operational growth including investment in pricing actions noted earlier, we expect operating earnings over time including experience gains will be a higher proportion of total earnings. In total, adjusted earnings before tax were 3.3 billion for 2019 and the full year effective tax rate on shareholders earnings was 10% compared to 13% last year.

Turning to Slide 15, book value per share was 21.53 down 2% from last year primarily reflecting the impact of the substantial issuer bid and currency translation. Our LICAT ratio 135% down from 139% last quarter, the four point decline was most related to the capital impact of the large reinsurance transaction in the quarter.

As a reminder, return on equity is based on rolling four quarters, adjusted return on equity was 13.8% in the fourth quarter and we continue to target a longer term ROE of at least 15%. Reported ROE of 11.7% includes adjustments for loss on sale of the U.S.

individual markets business in Q2 2019 and those noted this quarter. Turn to Slide 16, I'd just note assets under administration were one 1.6 trillion up 231 billion or 17% year-over-year reflecting higher markets and business growth.

That concludes my formal remarks, back to you Paul.

Thanks very much Gary. So with Slide 17, I'm going to close our formal comments.

So referring to Slide 17 as we look ahead many of the same value creation drivers from 2019 will continue to be our focus. And the focus of our efforts in 2020.

We made strong progress in expanding our Empower IRA rollover and Canadian next step rollover strategies. These strategies are being strengthened by highly engaging and digitally enabled platforms like Empower's my total retirement.

We will continue to build out these and other workplace delivered solutions to meet the lifetime needs of millions of plan members across all of our businesses. We continue to invest in digital tools like Simple Protect in Canada and our redesigned retirement account in the U.K.

The focus is helping advisors be more effective and productive and delivering wealth management solutions to their clients. We will continue to advance these capabilities to grow our share of advised wealth management customer assets.

This continued investment and distribution is key to our meeting the needs of affluent and high net worth customer segments. We leveraged our reinsurance and bulk annuity expertise to capture a significant pension risk transfer opportunities in Europe, in North America.

We will continue to strengthen and expand these capabilities to increase our share in a large and growing market for risk and capital solutions. We deliver an excellent fund performance striving positive flows across many of our asset management platforms.

We also leverage new investment capabilities like equity release mortgages to support liability pricing and yield enhancement. And we will continue to invest in expertise and innovation to drive strong asset management performance and investment solutions to deliver AUM growth and strong general account performance.

That concludes my formal remarks, Roxanne, and we will now open the line for analysts questions.

Hey, good afternoon. I wasn't expecting to go first here, but anyway can we discuss the morbidity issues in Canada and Ireland?

These have come up before. I just want to get some updated timing on while, first of all, I only get the size, how much was it in Canada, how much was it in Ireland?

And then, an updated I guess timing on when you expect the repricing initiative to start to bring margins back up to a normal standard?

Okay. Thanks, Gabriel.

That is sort of a two region three part questions. So I'm going to start off with that.

So generally speaking we're talking about group businesses where -- but in slightly different shapes and sizes. So if you think about the group business in Canada, it's annually renewable.

So, as we see some challenge on the morbidity side, we tend to -- we'd take pricing actions and generally those pricing actions will carve in over a 12-month period as we sort of increase pricing through the renewal process. I'm going to let Gary speak to sort of the size and scale of that.

On the Irish side, this was more market-related increases in claims in the market. It was not anything to do with our book in particular.

It was just higher claims rates right across the market. And as a result, we're putting through pricing increases and the bottom-line is over time that will also carve in.

And I think Gary again can provide a bit of insight into the scale of that. So slightly different drivers, but the reality is, these are things on both disability and health where we're really trying to make sure that we're on top of pricing.

Gary would reference one of the things we had some changes to OHIP plus where there was some increasing claims as a result of the change in government policy. Again, we'll adjust pricing and we'll get back on the side.

So these are the typical ebbs and flows of a more [vivid] [ph] businesses where you just have to stay on top of pricing and we are very, very disciplined in doing that. Gary, do you want to give some context?

Sure. So we chose I think 58 to pretax in the source of earnings disclosures for this.

Just over 20 that was in Canada. And again, a couple of factors, you had a good experience recently, so it's a more of [indiscernible] issue and I think that we're working its way through pretty quickly.

On the remainder was in Europe most of that was in Ireland. And again, it's partly the health business, which is annually renewable and we have already put those increases in.

And then submits in the Group LTD, which has longer renewal dates often two or three years in Ireland. And again, we'll bring those in.

The ones you've heard about early in New York, primarily on the health side. And that was an industry wide phenomenon so that gives you a little more color.

Okay. So Canada quick fix, Europe might take a little longer.

Yes. That's good characterization.

Thank you.

And just, I guess, on Canada overall aside from this morbidity issue, if I ignore the management actions or the reserve adjustments earnings, you are still down 13%, that's weaker than what we've seen over the course of the rest of the year. But, the rest of year wasn't exactly blow out either.

Just wondering if you can give me a sense of what's going on in the Canadian business and what your outlook is there, if I could just put it that simply.

I'll start off with that one and then I will defer to Jeff Macoun to provide a bit of color. So as we look at the outlets for Canada, we're very bullish, overall on our business there, it's a very strong platform.

On the group side, we're taking some pricing action where there is a little bit of drag there, but we really see significant upside as we have stronger sell through. We talked about next step, rollover assets and those are -- that's very profitable businesses.

We really turn people from group plan members into more lifetime customers. We also liked the fact that we're leveraging real strength on the life and health side into the group wealth side.

The individual business, I'd say we're more in the process of retooling, I mean, when you think about it, there's lot going on in terms of digitizing advisers. There's the pressure of low interest, the low interest environment.

But at the end of the day, we think that's a critically important business for reaching high net worth affluent customers from a standpoint of wealth management. I will let Jeff throw a little more color there.

Jeff?

Thanks Paul. Gabriel just to pick up on the morbidity side, as Gary mentioned, we've taken action on that.

Gary called out on the health and on the disability. We put through an adjustment on the rates earlier in the year, and of course, as Paul mentioned, that renewable on annual year.

So I feel we're on top of that. To get a little bit more bullish on the outlook going forward, on the group side.

As Paul mentioned our plan really is to engage the plan members directly more in 2020. Paul mentioned the next steps program is a good example of that.

And we've seen actually 17% growth over the past year alone on that. So we have another number of plans and actions underway.

Our sales are good, as Paul mentioned the number one for the last two years in a row and we have a number of innovative actions and digital implementations coming forward in '20. On the individual side just to build off of Paul, we are looking to more modernize our product shelf both on the life and wealth site.

We are taking our typical protect up option to more of advise to determine our part side. And as I also mentioned at the start, we have a number of launches underway on the wealth side, particularly we launched in November on the [indiscernible] side.

So we believe these are strong opportunities for growth in 2020.

Gary any comment on the growth number that Gabriel referenced?

Yes. I was just looking at some of the source of earnings Gabriel and I mean the expected profit was up year-over-year, it was off modestly, but it was up over year.

And there is a little bit of pressure on new business gains in Canada. That's really just the fall in just straight to the back end of the year.

It takes a bit of time to reprice, the lower interest rate. Now those are that large size, I wasn't quite seeing a 13% drop, but not try or just to do it.

Happy to take that offline later on though.

Thanks guys. Good afternoon.

Start with Gary on page number 12 of the slides. This is maybe just a little bit more interpretation based in Nature.

So Great-West compared to most of your peers, there's never been a company that's done a lot of adjustments. I think you've basically for the most part reported it as is, when we look at the adjustments today and come to the results we see here on the segments.

As you referenced, so Europe actually has a recovery, which I think you said is due to a local settlement. Why wouldn't something like that when you're actually having a recovering taxes be included in adjustments, if you're going to go that route and report in just a number.

Philosophically, how do you decide what comes in and what doesn't because that seems like something that would be seen as non-recurring.

I'm going to let Gary a touch on that one.

Yes. And we do actually use a very consistent approach over this over time.

And the things that we look at as adjustments have typically been restructurings. And we've seen that a couple of times to Canada, Putnam, the U.K.

last year. We see the DPA intangibles those types of things that are at.

So those are quite unusual ideas, if you look at something like the tax case resolution. I mean it was a larger item.

But we've -- that's a part of our regular business. We have tax settlements and the generally being positive gains what we've held against them.

This one's a little larger than that had been, but we've had some large ones in the past as well. There was a German one we call that a couple of years ago.

That was, it needs half size, if not more, that was quite a substantial one. We've had a number of them in Canada over the years.

That's part of our regular business. It was a bit larger, so we made sure we disclose it.

Gary, I would also add that when you think about that the tax gain, we were dampening earnings over many years as we were setting up. You're setting up provision in anticipation of the challenge.

And the reality is then you ultimately, you end up wherever you saw with the tax authority and the reality is it was dampening earnings and it's not coming back into earning. So I wouldn't characterize that as an adjustment similar to something like the DPA right down.

The DPA, the adjustments we make are few and far between. We've had more restructuring so more recently, but the rest of the earnings like the large P&C claims come in every now and then.

The U.K. retail property losses, we just flow those through our earnings.

And whether they're positives or negatives that's part of our business. So we have been very consistent in that.

It's just they have to be in the same parent. So I understand the question.

So, that's why I started it the way I did. Like you guys have been -- shall we say -- there's been less than in the way of adjustments taken from this company over the years.

But look, when you see a weight, when you see an outright tax recovery in your larger segment. It just seems like if, if you're going to call out three things and it seems like, at least to me, that would have been a fourth, if we're trying to get to a run rate earnings power.

But I understand your point. Okay.

Let's move on from that. Paul, this is one just, it's a conversation that's come up with investors in the last few months.

So I thought I'd ask it to you in this forum. Obviously, since we had one of these calls last, there was the transaction between shall we say your partners at Power Financial, Power Corporation.

How, if at all, would you describe to shareholders how this transaction impacts Great-West Life? Whether it would be from a management oversight, regulatory expense, is there anything that shareholders will see different under that, the change in structure between those entities?

Yes. The reality is Lifeco is separately regulated entity, independent of that with different shareholders.

And the reality is there's no direct impact. I would say though, that if you think about that that transaction, I think it's reflective of an increased focus on value creation and that will flow through to our Board and our management team.

And so it's sort of a sharpening of focus. I think the market has actually responded quite favorably to it.

And I think it's a real bias. It's showing a bias to action.

That's what I would characterize. But that will be more at the board table at LifeCo, which is separate from what's going on in those particular -- in those holding companies.

And last question this might go back to Gary. I appreciate you talking about the impact of the basis changes this quarter in the management actions and changes in assumptions line.

I agree with something you said. You've got to go back a long way to see a quarter in which that particular component of the SOE posted a negative result.

And you seem to be suggesting it's not going to be negative, it's just not going to be quite as large going forward. We look at a year in which -- on your measure adjusted EPS was lower.

And obviously you had a few moving parts. Is the contribution of this stream been impacted by the fact that there have been consistent gains that have been realized for a number of years and there just isn't as much in the way of basis changes that can be released back into earnings?

Is that the right way we should be thinking about that going forward.

Gary, I'll let you.

Sure. I think the first thing I comment on, it's particularly the last few years that a lot of the basis changes have been driven by good experience.

So we've been on the right side of a number of experience trends such as the longevity. So, that really has impacted the margins on our balance sheet.

And as I think it made clear, we feel our balance sheet is just as strong in terms of -- the margins in our balance sheet that have been in the past. So we would be expecting a positive contribution going forward.

Part of my comment there was around our increasing focus on growing our operating earnings and really turning around our experience gains and getting those which are more influenceable by management getting those stronger contributions. So, naturally if those grow, if the other makes a steady contribution, that percentage will decline.

The other comment I'd make is, there's a natural, if you think about the shape of our business in terms of the growth. We're growing wealth management platforms, we're focused on trying to unlock value on the asset management side.

And those are businesses that are going to tend to flow into more an operating earnings view then, sort of building up balance sheet strength. So I think it's just a natural evolution.

But as Gary said we had strengthened the balance sheet. We just see that as a natural progression of the business there's going to be stronger contributions on the operating earnings side and some of those balance sheet items will continue to make contributions but probably on balance not to the same extent as the operating earnings growth.

So to paraphrase and to wrap it up for me, Paul, it seems like the way you're describing it, it's more of a geography of the sources of earnings. We're going to see more through the expected profit line and the likely less through the basis change line is that, if I just have to paraphrase what you are saying?

Yes. That's good way to put in.

Frankly, that's kind of the world's world we'll all be living in when we get IFRS-17 as well. So it's natural progression of the business.

Yes, just continuing on that point, I think you said 20% of the earnings typically are from the combination of experience gains and actuarial assumption changes. And 60% of this '20 was from actuarial assumption changes.

So that's 12% of earnings. So give us some metric as to what this might be going forward, if it's typically been around 12% of earnings, do you think, probably somewhere in the area of three quarters or two-thirds of that number.

Just to help us get a handle as to how we should be able to forecast that impact.

So, Tom, this is Paul. And I'll start off, not being an actuary, I'll answer that one.

As a starting point now I'll say that, we can't forecast exactly what's going to happen. Five years ago, six years ago, we couldn't have forecast what was going to happen with U.K.

and mortality over time. You can't forecast what's going on with morbidity and the like.

There is obviously controllable things where we're driving down expenses and you got to look at your expense reserves. You've got to have discipline on the investment side and you'll have absolute default provisions in the life.

But at the end of the day, you can't forecast that. What we're saying is that as we drive the business forward, we see a lot of potential upside and growth in our operating earnings, and as that'll flow through in your experience gains and your new business gains.

And as we shift the business that way, it will naturally have a bit of a moderation in the contribution to the balance sheet. But it's still a strong balance sheet.

It's as strong as it ever was. It's just the shifting of the business.

So Gary, I don't know, I don't think you're going to give a number, but I'll you go there because now you have to -- there's actuarial standards where if you knew what it was now, we would be addressing it in our earnings right now.

No. And I think you mentioned 12% and we suggested it's going to moderate a bit and you can put your own number on and moderate a bit means, that's I think all I had.

Yes. Maybe it's a function to some extent as to how much of the business is balance sheet related versus how much is really off balance sheet related and Putnam and Empower really off balance sheet related.

So as those become a bigger portion, hopefully then this binded by this naturally should fall. Is that a safe assumption?

I was counting. That is, and even think about we've got our wealth management businesses which are far less well cheap related than the traditional life businesses that we would have.

And so it's just and our reinsurance businesses, a lot of those that have very little balance sheet impact. So as we see growth it'll have it's -- they're all different shapes in terms of the profit signatures and the capital signatures and the balance sheet signatures.

Okay. That's great.

Just a couple of questions with respect to numbers questions with respect to Slide 12, the fact that the tax rate was actually a negative tax rate. Do we have -- do we know what the help was from the tax settlement?

I mean that 19 negative in taxes in -- from that slide. Do we know what was driving the fact that you got a tax rebate here?

Yes. I think it is noted in the MD&A, which I didn't have right in front of me here, but I believe it was a 100 million or 101 million was the U.K.

tax issue in the tax line.

Okay, good. And the 38 earnings on surplus gain in Europe, is that largely AFS gains?

It's a combination of a couple of things. There are certainly AFS gains in both U.K.

and Ireland. And there's we have had some interest accrued, but we hadn't -- that we hadn't done flow to earnings as Paul was saying, we've been adding to these expenses and interest accruals to these tax expenses, some of that reversed as well.

So, but it was, it was AFS gains predominately in Ireland in the U.K.

And the 38 impact a new business in Europe was from the reinsurance transaction? Is that correct?

Yes. That was the number one driver.

We had a quite strong annuity gains in Q4 last year actually. And then we had some again this year, last time it was in the U.K.

in the bulks, this time the reinsurance, but that's what's driving that.

And the last one is the partial pension core was out in the U.S., was that booked in the Empower numbers that could we get on the other supplement?

No. Actually we -- there was another change that if quite make the list, it was the partial pension close out and that legacy and mortality adjustment were both in the retained business.

And so they were largely offsetting. And then the empower got about on 22 million lift if I recall U.S.

dollars after tax from a interest margin reduction on their general account product.

Is that, do we look at that as more of a one time item?

Yes. That's, we have strong interest margins, but that a one time basis change.

Hi, good afternoon. Just on the Empower.

So if I take that 76, I think, I don't have the page, but the 76 million, I think that's U.S. of earnings.

So I would take, if I wanted to try to get to a normalized earning for Empower, I would take out that 22 million after tax gain that you just talked about. And correct me if I'm wrong, and then I think there's also some higher investment gains at Empower.

I'm trying just to get a sense of what -- if you normalize Empower, not that there's ever a normal quarter, but if you normalize it, what would have been the earning power for Empower in the quarter?

Gary, do you have quite a bit of color on that.

Yes. I just I'd had a bit, I think we were showing Empower at 77, if I had to ballpark it.

And again, there's always a bit of noise as we mentioned. We did have both that basis change and the -- again, I would, had to set around the 45 million range.

And that would compare to 32 million this time last year. So it was a good increase year-over-year, I put in that range, but I know we tried to lay it out in the MD&A but it's hard to do that.

But I that's how I think of it.

It's around 45 million U.S. versus 32.

Okay. And the, Gary just, in Canada there was quite a few in the management action and assumption changes, and I apologies if you've covered this already, but policy holder behavior was negative, Canadian longevity was negative, Canadian morbidity was negative.

Can you unpack a little bit about, obviously you've finished up some studies. Can you talk a bit about what the drivers were for each of those three items?

Yea, sure. I mean, and then where as I went through, as we were preparing for a year and go through used a lot of them were just to experience that wasn't -- hadn't been updated for a couple of years.

So it was just finalizing. Even within those numbers, there were often two or three smaller pieces.

So they really were lots of tens and twenties that the data is up. There were some in a unit -- there are a couple of universal ITs.

Also behavior is really focused on universal life, again, two different product lines within that some limited pay and some loyalty, small changes in each of those disability and I was just catching up on and experience a disability. The longevity, we've done a fair bit of work on the longevity and that has been reflected in our pricing success recently on really drilling down in a much more refined approach.

And we've applied that back to some of our older groups. We had focused on a lot of our getting our new business right.

And we, we put this new and refined methodology back. In total, it almost came out the same because it is a refinement, but it was a slight adjustment.

Not again, that sort of one time I didn't replace that. So, all smaller catch up items.

It's Paul. Again, I would note that in behind those three categories, you'd probably have six or more items that are moving there.

Typically we would see three positive, three might be -- three with a release and three with the strengthening. This was just an unusual quarter in that regard where they all moved in the same direction.

But it's not indicative of any weakness from the balance sheet. It's indicative of the work we chose to do this quarter.

So the policy holder experience was individual insurance, more limited pay WRT, the morbidity was more low long-term disability in the group side. And then, the longevity was more of the payout annuity and just basically catching up on what you've been doing on the pricing, did I catch that, right?

Except for one thing, the disability was on the individual side rather than the group side.

Okay. And so the morbidity sides, so what was the morbidity?

Did I catch that?

Yes. That's the individual.

That's on the individual. So that's okay.

Perfect. Okay, great.

Thank you.

Thanks very much, Roxanne. So with that, I would like to thank all of you for joining the call today.

And if you do have any other questions or wanted to dig into a bit more detail, please do contact our Investor Relations for those follow-ups and we look forward to speaking with you at the end of next quarter. Have a great day.

Take care.