Good morning, ladies and gentlemen. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Sun Life Financial Q3 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. The host of the call is Leigh Chalmers, Senior Vice President, Head of Investor Relations and Capital Management. Please go ahead, Ms. Chalmers.

Thank you, Stephanie and good morning everyone. Welcome to Sun Life Financial's earnings conference call for the third quarter of 2020. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's presentation with an overview of our third quarter results by Dean Connor, President and Chief Executive Officer of Sun Life Financial. Following Dean's remarks, Kevin Strain, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management will also be available to answer your questions on today's call. Turning to Slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I will now turn things over to Dean.

Thanks, Leigh and good morning everyone. As the world continues to navigate through the challenges of this pandemic, I want to express my deepest gratitude to our employees and advisors who are there for each other and are there for our clients. So far this year, we have delivered more than $140 million in claims paid to the families of clients who have succumbed to COVID-19 and paid millions more in pandemic related health claims. We've delivered strong relative investment performance for clients and our client experience survey scores have increased again for the fourth consecutive year in part due to our outreach and response on COVID-19. It's times like these that remind us why we are in business and underscore the importance of what we do for clients. Turning to Slide 4, Q3 was a strong quarter. Reported net income was 750 million, up 10% over the prior year, primarily from more favorable market related impacts partially offset by reserve strengthening from assumption changes and management actions. Underlying net income of 840 2 million grew 4% over the third quarter of last year, and underlying earnings per share grew 5% over the same period. Assets under management grew 12% to just under $1.2 trillion. We generated a strong underlying return on equity of 15.1% for the quarter. The LICAT ratio at SLF is 144%. A level well in excess of the supervisory minimum. Our capital and cash positions remain healthy, and along with a low leverage ratio of 21.5% provide flexibility and opportunities for capital deployment. On October 21, we announced our intention to acquire a majority stake in Crescent Capital Group, a global alternative credit investment manager primarily focused on below investment grade credit. Crescent is headquartered in Los Angeles with offices in New York, Boston and London.…

Thanks Dean and good morning everyone. Turning to Slide 6, Sun Life continued to perform well during COVID-19, which is a testament to our strategy to de risk the business and to invest in technology coupled with our track record of strong execution. With strong financial results for the quarter including for earnings, ROE, top line growth and capital, our reported EPS for Q3 was $1.28 up 11% over last year, and our reported net income for Q3 was $750 million. Reported earnings were driven by strong underlying net income and favorable market related impacts partially offset by unfavorable assumption changes and management actions. Market related impacts were predominantly driven by interest rates and equity market growth, partially offset by the narrowing of credit spreads and changes in the fair value of investment properties, mostly from office and retail property valuations. Underlying EPS of $1.44 increased 5% over a strong Q3 in 2019. And underlying net income in the third quarter was $842 million driven by strong results across all four business groups. Growth and expected profit and new business gains, positive claims experience and positive investment experience were partially offset by lower earnings on surplus income and corporate results. As the prior year results also benefited by $78 million from the tax resolution of tax matters that did not reoccur this year, including $58 million in corporate and $20 million in Canada. We had net positive claims related experience in the quarter. After tax morbidity was a favorable $65 million driven by favorable results in our Canadian and US group benefits businesses. Mortality after tax was a negative $19 million predominantly from our US group business related to COVID-19 claims. We had positive investment related experience. Investing activity gains were $20 million after tax. Credit experience in the quarter…

Thank you, Kevin. To help ensure that all participants have an opportunity to ask questions on today's call, I ask each of you to please limit yourself to one or two questions, and then to re-queue with any additional questions. And with that, I'll now ask Stephanie to please poll the participants for questions.

Thank you. [Operator Instructions] And our first question will come to mind of Scott Chan of Canaccord Genuity.

Good morning. My question is on MFS. Really strong quarter, nice pre-tax operating margin of 40%. But looking onto 2021, outside of market factors, perhaps just an update on industry fee trends and if that is impacting MFS? And also on expenses, which seems to be well controlled in the quarter, just a bit of an update there in terms of what you're seeing for next year.

Thanks Scott.

Hey, good morning, this is Mike Roberge. And yeah, so given the mark - we've guided really over the last number of years around a margin in normal environments in the mid to high 30s. This quarter was a little higher than that and some of that due to some cost control that we took earlier in the year given what the market did early. But also things like travel and entertainment are down given COVID. So some of that's probably not sustainable through the cycle. So we continue to think that mid 30s high 30s range for the margin is what's probably sustainable. In terms of fees, when you look at industry fees, they continue to come down 1% plus per annum, if you look across the industry, we would expect the industry to continue to see that year-on-year really for some period of time. We've been fortunate that we've run fee erosion less than that. And some of that is mix or institutional businesses has been an outflows while our retail business has been solidly in inflows. And so we've been outperforming the industry from a fee perspective, but we would stay with a guidance of anywhere from mid to high 30s through cycle.

Okay, thank you very much.

Your next question is from the line of Gabrielle Dechaine with National Bank financial.

Good morning, I just want to ask you about the real estate valuation losses. That's the sixth quarter in a row we've seen those. Just wondering if you can tell me what the - what impact that has on your reserve assumptions? Is there a charge that might ensue? And maybe some sensitivity what - if you were to reduce your real estate return assumption by 100 basis points or something, is that a big number or not?

Thanks, Gabe. I'll turn the question to Kevin Morrissey on the valuation assessment and the real estate assumption. And then maybe if Randy wants to add any detail on the performance of the real estate class, he can do that.

Yeah, thanks for the question, Gabriel. It's Kevin Morrissey. So yes, we have had a recent trend that has been unfavorable in the real estate returns. The longer-term experience has been quite positive. And remember for the valuation assumption this is a very long-term assumption. And so far, this year, we've certainly seen some impacts from the pandemic that are being observed in the real estate portfolio. And we're monitoring it longer term. I think it's a little too early to conclude for the longer-term assumption Gabriel, where that's going to go. We still continue to view real estate very favorably from a relative value perspective, especially in this low interest rate environment. So in terms of the size we have disclosed the relative sensitivity of our assumptions for real estate. I don't want to speculate on the size of a potential change. As I said our long-term experiences continue to be favorable, and we continue to have confidence in our current assumption.

Yeah, it's Randy Brown. I'll comment on real estate valuation for the quarter. The valuations in the portfolio were actually okay. They came out slightly positive, actual, total rate of return. But as Kevin said, they did underperform longer term assumptions. The portfolio is highly diversified. We're very comfortable with it. And as Kevin mentioned, we're actually quite favorable on real estate as an asset class, in the very low rate environment. We think the real rate of return available in real estate and other real assets in this environment will be quite attractive both for both for us and for others.

All right, thanks. My next question is on the group business and another quarter here where claims experience has been positive. I'm wondering to what extent the recent results have benefited from the government support programs. And if maybe looked at a different way to this type of trend the positive claim trend, would that compel you to bake in that performance into your expected profits next year? That gives a, I guess, a comment on sustainability.

Gabe, its Dean. I'll ask Jacques and then Dan, to comment on the first part of your question. And then and then Kevin Morrissey to comment on the second part on expected profit.

Hi, Dean and Gabriel. Thank you for the question. As you say, there is indeed a lot of uncertainty out there. What we saw with claims is a gradual ramp up through the quarter. I would say as we were ending the quarter, the level of activity was pretty well back to the normal levels. The fact that it gradually increased during the quarter, of course, it benefited for us. I would say looking ahead, it's tough to predict Gabriel. The second wave could be stronger than we think. And it could impact. I would also point out that the floor claims is favorable when we look at the experience at the same time that we have Administrative Service Only business or ASO as we call it, and one of the things that means is that actually generates lower fees for us because the fees are off the volume of claims. So it's a bit of a mixed picture, there remains a fair bit of doubt, in terms of where we're going. But that's obviously something we're watching closely Gabriel. I'll turn it to Dan.

Thanks Jacques. For the morbidity in the US group business, there's a few different factors at play here. The primary driver of favorable disability - a favorable morbidity experience for us in the quarter was in our stop-loss business. And a fair amount of that was actually the emergence of experience from prior periods. So we can't really relate that to economic factors or COVID at this point. Our disability experience was generally in line with expectations. So there certainly may be some impact so far of the very strong supports that have been provided to businesses in the US. But as Jacques said, it's a little difficult to predict how that will emerge going forward. Kevin?

Gabriel, its Kevin Morrissey. Could you just clarify your question on the expected profit impact please?

Well, I guess that Jacques and Dan's question sort of answered it. Like whenever you see positive experience over an extended period in group and especially the following year, you kind of baked that into your expected process, and to reflect some stuff that you view is more sustainable, but maybe not concerned with?

Yes, I think that's right. I think that's the right way to think about it Gabriel that the expected profit does align with the pricing assumption. So to the extent that we do make updates and changes as part of those assumptions, they would be reflected in the expected profit in the next year. But it really does align with pricing and pricing changes.

Okay, thank you.

Your next question is from a line of Meny Grauman with Scotiabank.

Yeah. Hi, good morning. Following up on the comment that - you talked about the risk of a second wave that's in front of us. I'm wondering if there's any actions you could take sort of proactively to take risk off the table, given that uncertainty and I'm thinking about building reserves in particular. We heard from one of your peers yesterday about sort of a little bit more caution, look more cautious stance as they look forward. So I'm just wondering if that's something that's on the table and why or why not would you consider them?

Maybe I'll take the first shot at that and if Randy wants to add some things or others can on the call. It's - if you look at COVID-19 and what's happening, I think one of the most important things we're doing is as we talked about earlier, is our pivot to everything digital and building a digital capabilities and we're seeing really good traction on that. On the risk side we're well aware of the risks on mortality and morbidity and you've seen the impact they've had on the results and we continue to look at that and manage that. And as we think about pricing actions and mix the business and those types of things. And on the invested asset side it's - you're seeing lower and lower yields. And as I mentioned earlier, one of the things that we can do is with the addition of some really effective asset managers and a low yield environment, we can leverage SLC to drive yield up. And we think that if you look at SLC, the timing for adding these capabilities is perfect, given the environment that we're in right now. And you heard Randy, talk a little bit about that. So we continue to run scenarios, we continue to stress tests the capital, but overall the business is performing well. And you can see that in the results so far this year. So I don't think there's anything special we're doing outside of continuing to be good risk managers, thinking about investments and how investments can perform in different scenarios and then building digital capabilities.

And Meny its Dean. I would just add to Kevin's comments just to build on that that in some ways, the most important things we did several years ago, which was to de risk the asset portfolio. Randy's talked about that before that set us up nicely coming into this pandemic. Obviously, we didn't know it was going to be a pandemic. But we were looking ahead thinking at some point, this credit cycle had to turn for some reason. And in hindsight, I'm glad we took those de risking actions we did that was the right time to do it. Go ahead Kevin.

I would - it's Kevin, again, I'd add one more thing. The fact that we're geographically diverse means that COVID is having different impacts in different markets at different rates. And that also benefits us.

Thank you.

Your next question is from the line of Darko Mihelic with RBC Capital Markets.

Thank you. Good morning. First question is for Kevin Strain. You mentioned in Asia that expected profit was impacted by some planned expenditures. Can you maybe highlight how much that was? And if that is expected to continue next quarter and into next year?

So the way that we do our expect - Darko, its Kevin and Leo could add to this, but the way that we do our expected profit for corporate costs like the regional office is we put our planned expenses into the expected profit. And the difference between the 10% return and the 4% for the VNB 10% growth versus the 4% relates back to that. In fact, those planned expenses because of a lot of different things, good management, but COVID reducing expenses, and those types of things actually didn't happen. And we saw a small positive, but the number is, it's less than 10. And you see it, it comes through the expense results has a positive and a negative score. So I don't see this necessarily reoccurring next year. We set the plan for expenses. The growth in VNB in Asia from the businesses is largely consistent with the growth we'd expect to drive a 15% earnings growth from Asia. In fact, it was a headwind, a small headwind in the 10%, related to equity markets coming down. So overall, I'd say it's - that kind of gives you the perspective of where that lies Darko.

And I just want to flesh out Asia a little more in terms of - we all know that the Philippines has had a bit of a difficult run with COVID. You've done some work there on digital. So are we to expect that that should bounce back? And perhaps have better than 10% EPS growth for the whole segment into 2021.

I'll turn that to Leo.

Yeah, good mood morning Darko it's Leo here. So in the Philippines, what we've seen, as you can see from the numbers is that sales were in fact down about 25% from last year this quarter. But if you look at sales this quarter compared to prior, we basically doubled sales compared to Q2. The context that you've mentioned is very severe situation from a COVID-19 standpoint with probably one of the worst health crisis in Asia, and also one of the strictest movement restriction environments in Asia as well. And so that's had material impact on sales, especially in a market where if you look at our agency model and the culture, it's very much based on relationships and human interaction. So what you've seen over the course of the last quarter the bounce back that we've had is very much driven by a lot of actions we've taken because the broad environment is pretty much the same. We've driven a lot of digital rollout. Dean mentioned a few of them. So for example, we've got digital point of sales capability across the market. We've also rolled out virtual capabilities on top of digital point of sale. So that means you can basically do things remotely with digital signatures and so on. We've also raised our medical limits, through capabilities like ROAM, the Remote Medical Exams that Dean was talking about. And then we've also really dialed up our reach out to clients with things like webinars, which - one of the positive byproducts of this whole thing is with webinars, we're actually reaching an order of magnitude more clients in things like education events. So there's been there's been a lot of activity to overcome these movement restrictions that's creating some of this momentum. More tangibly, at an underlying activity level, what we're seeing is that the activity ratio of our advisors is almost back to pre-crisis level. But we are seeing lower policy size. And in my mind, that's reflecting the economic challenges of the markets, you've got significant unemployment, you've got a lot of people across the Philippines who have lost their jobs or at reduced discretionary spend capabilities. And so while we expect to see a continued rebound of our activities in the Philippines, we do expect significant headwind from the economic situation, and then also just the uncertainty with regards to future waves of COVID-19. The situation hasn't really improved. And different parts of the Philippines keep going back and forth between severe lockdown and slightly less severe lockdown. We don't anticipate that to get much better over the next couple of quarters. So we're optimistic about our own business momentum. But at the same time, we're just realistic about the significant headwinds there in terms of the continued economic volatility and COVID-19 wave.

And just a point of clarification, the Philippines when you make sales there, are they predominantly new business gains?

Yeah, yeah. There's material new business gains with the sales, correct.

Okay, great. Thank you very much.

Darko just quickly, Kevin, I think I might have said VNB once by accident there. So it's 10% expected profit growth from the businesses, 4% when you include the regional office, just to make sure it's clear for everybody.

Thank you.

Your next question is from the line of Doug Young with Desjardins Capital Market.

Good morning, a big picture and maybe this is for Kevin. I mean, there's a lot of your listed things that moved for you and against you, I guess in the quarter and I'm not talking - I'm talking from an underlying earnings perspective, not including ACMA. And so I'm just trying to get a sense of was there anything unusual this quarter that really leaned in your favor from investment gains or higher than or higher than normal - or favorable policyholders behavior expenses, things that - items that may or may not recur. Just trying to get a sense of when I look at the quarter, is there anything really abnormal leaning one way or another?

Yeah. Thanks, Doug. When you look at the notable items, you can see that they were $35 million for the quarter. And I think this is a good place to look for those sorts of unusual things. From a notable items basis. That's right, on a quarter rolling average. So I think it's roughly where to expect to be. It's higher from morbidity this quarter, obviously at 65. And we had the mortality hit, but on average, it's right where we've been the last eight quarters. And we had a tailwind last year from taxes that didn't reoccur this year. So I think as I look at it there's not a lot of noise per se in the results, you've got a very sort of clean thing that there wasn't a lot of onetime items here. The improvement in morbidity, as we've talked about is there's obviously some uncertainty whether it will continue to be as strong as it was this quarter. But overall, it was a good quarter.

Okay, perfect. And then just to answer US and enforce management, I know Dean, I've asked you this before. It's another third quarter that's gone by and there's a fairly sizable hit from an ACMA perspective. I look the last three years and you've lost money on this business from a net perspective, and probably happened again this year as well. And so just trying to get a sense of why keep the business? And I get you don't need the capital, but it's a non-core business, causes a lot of noise. Just wanted to get another sense of your outlook for this business and plans for the business.

Yeah, thanks, Doug. I would say that the work that we continue to do with the enforced management business in the United States, which includes renewing reinsurance treaties, restructuring AXXX structure, as we did this quarter, strengthening reserves for lapse, et cetera, are things that have to get done, whether we own the business or others own it. So our view has been we need to optimize this business for all the different dimensions, expenses, capital, cash generation, tax, the role of reinsurance, and of course, being there for clients. And our focus has been how do we - we have to deal with all the issues I just mentioned, but how do we also make it a better business and improve it? And so there's been a lot of progress we've dealt. We've talked before about some of the work we've done on stranger owned life insurance cases, stolen cases, and we've made some great progress there. We've made good progress on expenses and so on. All the other issues that you point out have been headwinds or headwinds that we would - somebody would have to have dealt with one way or the other. So that's how we're thinking about it. And we'll continue to optimize it. And in that sense, that's the way we are thinking about our UK business as well, which is also closed, but lots of contingency opportunity to optimize it.

And are you done like is most of the big heavy lifting done? Are you halfway through? Or are we in the fifth inning, sixth inning just trying to get a sense?

Doug, we're never done. We're never done. I would I would just say, as we look ahead, we continue to see opportunities to optimize these closed box businesses.

Okay, thank you.

Your next question is from the line of David Motemaden with Evercore.

Hi, good morning. I just have a question for Dan, on the stop-loss business in the US in the competitive environment there. There have been a number of new entrants or planned new entrants in the market, including a Swiss Re and Google partnership and Zurich has also said they want to enter that business. I guess, you guys have been at it for a while and people come and go in the market. But what's your view on the competitive nature of the market in the stop-loss business, specifically, given these new entrants? And how does that impact your view of your margin goals?

Surely, it's always been a highly competitive business. And as you noted, competitors do come and go, including go we've seen some leave the market. It's obviously a very attractive business. So it's attracting interest at all times. What I would say about the way we think about it is it's a business that is highly dependent on the skills of the people, the expertise. And that's really what the brokers consultants and employers are looking for is a really excellent partner with people who really understand the business and can help them manage through it. So we believe we've got the best team, we have the largest team in the industry, we're the largest independent player, and we back that up with the best talent and that will continue to be our differentiation. At the same time, it is our intent to continue to expand the business to differentiate beyond core stop-loss by helping our employer clients manage claims and care more effectively. So look, for more from us on that in the future. We already have good clinical capabilities in place, but we hope to grow that over time. And then just as far as the current environment, it's remaining competitive, but reasonably rational. And as far as the new entrants those are planned entrants. We haven't really seen them in the market yet at this point.

Okay, great. That's, that's helpful. And then if I could just shift to Asia and just a question for Leo on the international hub sales, so another strong result this quarter, and that contributed to a smaller new business drag and helped total Asia sales stay flat. I know last quarter there was some of the existing pipeline coming through converting to sales. So I'm just wondering if you could talk about the dynamics of this quarter. And specifically, if you've been able to start replenishing that pipeline, so we don't see a big drop off in sales at some point once the pipelines exhausted.

Thanks David. Good morning. So with international sales, and international hubs in general you'll recall that we made it a strategic priority for us in Asia. In general, we see strong demand in Asia for high net worth, ultrahigh net worth, estate planning and tax planning type of solutions. And as a result, we've made a number of big investments in this business. We did the restructuring, creating the international hubs, we've been investing in the technology, we launched a new platform, with new client portal, new broker portal, we've been innovating the products and so on, so we think all of that is helping with the momentum of our business in a market that's quite competitive. And in our view, that's explaining some of the continued success of that business. At the same time, obviously, we've got COVID-19. And I mentioned last quarter, we typically have a sales cycle of about six to 12 months in this business. And so as of Q2, I was describing, you know, the strong results and saying that those were probably sales that started somewhere in 2019, or early 2020. That's still the pattern for us. And so, if you think about our sales in Q3, a lot of these would have started maybe late 2019, or sometime in the start of the COVID waves this year. And as a result, if you think about our sales this quarter, they're still strong compared to last year, but they're down compared to Q2. And that in our minds reflects some of the headwinds related to COVID-19 and the challenges with travel restrictions and quarantine. And so if you think about sales in this market going forward, we do feel very good about our competitive position, vis-a-vis other insurance companies, given all of the investments we've made and the capabilities we've built that I've described. But if you think about the pipeline at the level of brokers, we do think that that is shrinking. And that as we think about the next couple of quarters, you're basically going to see pipeline that started after the start of COVID-19 in Asia in the February, March timeframe. So we've got these two offsetting aspects that we're expecting strong competitive capabilities on our side, but smaller pipeline with brokers as a result of travel restrictions and quarantine.

Okay, great. That's helpful. And if I could just follow up, so is this business - I would think it's kind of hard to do on a virtual basis. But is that something that you guys are exploring? Because I know that low interest rates helps this business, just from a premium financing standpoint, which I understand is a bigger component in some of the high network sales? But are you guys exploring maybe more virtual sales? Or are there certain regulations that would prevent you from completing a virtual sale?

So I think there's a couple of aspects to this. One is, these are heavy planning-oriented sales. And given the nature of the transactions, they're very advice intensive, they tend to be face-to-face type of interactions. So that's one aspect of just how the business is transacted. That said, we are evolving to reflect the current environment and we can conduct some of these transactions remotely. And so we have rolled out capabilities, including e-signature, and DocuSign to enable remote sales of this business. But just given the nature of the transactions, we still find that most clients, most brokers wanted to conduct this business face-to-face. That could evolve if the pressures of travel restrictions just continue. But it's mostly the nature of it today.

Got it. Thank you. That makes sense.

Your next question is from the line of Paul Holden with CIBC.

Thank you. Good morning. Two questions, want to go back to the discussion on experience and Canada group benefits, and I guess disability in particular, so it was positive this quarter, but was a source of negative experience last quarter. So I want to better understand what's creating that volatility, and what that might mean for future results. If we can make any inferences.

Jacques, we'll turn that question to you.

Thank you, Kevin. And, Paul, thank you for your question. So indeed, if you look at Q3, this year versus Q3 last year, we have a very good improvement in our experience. It is driven predominantly by disability and group benefits. So I'll take you back perhaps quickly, Paul, there are three key levers here that are important in this business. Number one is what we call incidents. But it's really just the volume of cases that we get. The second one is recoveries or is how quickly, how many people we get back to the work from disability. And last is pricing and you've heard me talk about that before. We recognized early on last year, actually, that this business needs a re-pricing without did that. So if you if you compare Q3 this year to Q3 last year, the main driver of it, or the largest driver of it, is the volume, it's the incidence. And we're not quite sure Paul, frankly, whether it's a one data point, or the start of a new trend, that's kind of a tough one to call. As you know, we have had over the last few years, a growing incidence level and mental health and Dean referred to that in his remarks as being a very important driver. So we have a positive experience or a favorable experience on incidence. We're watching that closely, as you can imagine, to see whether it continues or not, but that's really what is the main driver for the delta versus last year.

Got it, that's helpful. Thank you. And continuing with the group business, and this question applies to both Canada and US. Q4 tends to be the peak quarter for sales just - that that's a piece of the business that's been impacted by COVID. Seems like there's less transaction activity taking place in group across the industry. So it would be helpful to get a view on what you're thinking, what the pipeline looks like for Q4 sales, given the historical importance of that quarter for gaining new business.

Paul its Dean, I'll just jump in here and say we, as you know, we tend not to give forecasts looking forward for sales numbers. I think, Dan described some pretty good sales momentum in the third quarter, you saw that in the numbers. But I would prefer that we not get into the business of projecting sales forward. It's not typically how we've done it.

Maybe you can talk a little bit about the dynamics going into the quarter, again, with COVID being somewhat disruptive to that market?

Dan do you want to just make some overall comments on how clients are thinking about this? Because obviously any actions that we saw in the third quarter were instigated - any sales activity were driven by client needs first and foremost.

Yeah, I think our sales organization has really done a great job at adapting to this environment, we went 100% virtual literally overnight. And as you saw, our third quarter results were quite strong overall, up 24% and up 40% in our group businesses, up also in our stop-loss business. So that's reflective of their ability to react very well to this environment. And to do this it - conduct the sales process and maybe more importantly the entire case installation and enrollment process 100% virtually and very effectively, and that's what clients are looking for right now. It is true that there are fewer clients so far during this pandemic in the marketplace, proposal activity is down across the industry. But our close ratios have been excellent because clients are coming to us for those digital and virtual capabilities and our ability to serve their needs in a unique way at this time. So again, as Dean said we wouldn't get forward looking information. But we would certainly think that those capabilities will continue to be attractive in this environment.

Got it, that's helpful. Thank you.

Your next question, it's an alliance of Nigel D'Souza with Veritas Investment Research.

Thank you. Good morning. I had a two-part question on how to think through the impact or the potential impact from a low rate environment. So the first part is when I look at earnings on surplus that was negatively impacted this quarter from lower investment income. So is that mainly just quarterly noise that comes from market volatility? Or is that reflective of being in a low yield environment? In other words, should we think of that as a one off? Or do you expect going forward that a loaf along the yield environment will put some pressure on investment income and earnings on surplus?

It's Kevin, Nigel. You're absolutely right. We had a lower earnings in surplus just under $100 million. And it did reflect the lower yield, the AFS gains we had were 26 million. And so there is some volatility that comes through an AFS. But we were definitely seeing as we've realigned the portfolio the last few years that we're getting lower investment income. It's one of the reasons I talked about the potential of leveraging SLC which operates really well in a low yield environment and could potentially add some yield to the surplus. But the big chunk of what you saw this quarter was the lower yield on our current invested assets. We were lower on AFS compared to Q3 last year, but I think the biggest pieces that that sort of lower yield we're getting on our invested assets.

Okay, that's helpful and if you could pivot off of that and think about the product side annuities business. So in Canada annuity premiums were strong this quarter. But if we look ahead, could you speak to the challenges you're potentially seeing for annuities as positioning it as an attractive product in a low yield environment? And you've already talked a bit on how you're looking to pick up yield on the asset side. Is that - are those kind of hand-in-hand there where you're trying to generate yield on the asset side, but also kind of support the annuity returns to make them attractive?

Jacques, why don't you take that?

Yeah. So are you focusing Nigel on the group side of the business or the retail side of the business?

If it's possible you can maybe comment on both would be helpful, I think.

Sure. Okay. Well, let me start, Dean and Kevin both highlighted in their opening remarks, the largest annuity transaction that we have is 1.1 billion in the quarter, as you can imagine, we're quite pleased with that. This is a business model that can be lumpy, and there's seasonality to it. But what I would say is it's a little bit similar to what Dan said on stop-losses. We are the market leader in that business, we've been for a number of years, we have a very, very strong team in place, we've done some of the most complex and innovative transaction. So what that does mean is that we tend to pretty well see all the bots if I can say that and exercise quite a bit of discipline on and be selective on where we want to take our own ideas. The pipeline, you might think that low interest rates is having an impact there. But what tends to happen Nigel is companies that annuitize liabilities tend to start by being on what I would describe as de risking path for a while. And what they'll do is they'll move assets from what I would call growth assets to matching assets, right. So they tend to be immunized because as rates go down, yes, the liabilities go up, but so does the asset portfolio. And the real driver of what's happening in the market is really the funded ratio so that ratio assets liabilities, so I say that that's one dynamic for those employers by the way or plan sponsors that may have retained growth assets will be ended up being hurt earlier in the year when COVID hit. But as you know, markets have recovered, so there's still some good opportunities. So if you look here to…

That's helpful color. Yeah, that's really helpful color. Thank you.

Your next question is from the line of Tom MacKinnon with BMO Capital.

Yeah, thanks. Good morning. I want to talk a little bit more about the earnings on the surplus in this leveraging of SLCs capabilities. Kevin, this is the lowest we've seen earnings on surplus probably for like three years, this might be the lowest quarter we've seen for earnings on surplus here. So maybe, as you leverage SLCs capabilities, how should we be looking at earnings on surplus going forward? How much of the surplus assets does SLC manage now? And how much more are they going to manage going forward with this leveraging you're talking about? And if I look at SLC, it's largely real estate and some private debt and infrastructure. Does that mean you'll be bringing more real estate into the surplus portfolio? And is there any talk about having SLC manage any of the assets setback liabilities as well? And I have a follow up after that. Thanks.

Okay. Okay, thanks, Tom. Well, SLC manages 100% of the assets in the surplus account. But as you know, there's a mixture of assets there. It's more related to some of the new capabilities we're bringing in. We will see opportunities to do seed investments inside of SLC and we've talked about that in the past, but there's also abilities to look at other sort of non-fixed income pieces that we could put into surplus. We'll do that over a number of years, right on a fairly steady basis. So you'll see it as it as it emerges. It will create some volatility for surplus earnings because of the difference in those investments as we do it. And we'll be kind of mindful of that. As you as you know, this is lower and it's definitely related to the yields and the ability to do AFS gains than it's been in the past. I do think that if you were thinking about a range, we can continue to grow over 100 bringing in some of these additional assets over time that will build up that income. But it will add some volatility.

Yeah. So following on that you said you're going to leverage their capabilities, but they're already managing 100% of the assets. So when you say leverage -

Yeah, leveraging capabilities of the new businesses we bought, so InfraRed and Crescent, for example, but also doing some additional things with BGO as BGO expands its capabilities.

Okay, is there any talk about having those capabilities work their way into the assets that back your liabilities? Are you going to try to work to bring in some more of those capabilities into those assets?

So they do manage some assets already that back liabilities and so you can think about SLC broadly supporting both the liabilities when it meets the investment objectives of the - and the cash flow needs of the policies but also supporting surplus.

Okay, so I take it that the real estate that's on the books is largely SLC managed is that -

That's right. BGO would manage all of the real estate.

And as you kind of crank up SLCs capabilities and earnings on surplus, are you trying to crank up their capabilities for the assets that back liabilities as well?

We would be using them for - we'll use the new asset classes when it's appropriate to support liabilities if it matches the needs of the particular segment and we'll also use it in surplus. So yeah, Tom, we would use it in both liabilities and in the surplus segment and in fact we've got - we are already using as you would know real estate backing liabilities as an example.

Okay, so just to close that it sounds like earnings on surplus could get better, but there could be more volatility associated with this new initiative.

Yeah, that's how I would see it and it would happen over time.

Okay, thanks. And then the second question is really, maybe for Dean. I think that you've sort of filled in what you need now with SLC as far as I can gather with Crescent, and then getting InfraRed earlier. So I would say maybe SLC - you're finished with building out SLC. What are your next steps now? You've got - you've always generated good excess capital, you got fairly low leverage, you still have ample excess capital, what are you looking at? What are your cape - what kind of capabilities do you think you would need to fill? Where do you see opportunities?

Yeah, thanks, Tom. So you're right. As Steve Peacher said, when we announced the Crescent acquisition that we've filled in the key pieces to the puzzle, and we've got really now a really compelling set of offerings to clients in this low for longer - lower for longer world within SLC. And so we'll pause on M&A in SLC, on sizable M&A, we'll take a pause and do as much as we can to leverage what we've put together and to grow it. When we look outside of the asset management pillar. And by the way, I should also say that you're not likely to see us acquire with MFS. MFS is at scale already, got terrific capabilities across equities and fixed income, across retail institutional, across geographies around the world. And in a world that's consolidating asset management firms, which as you know, tends to put money in motion. When firms combined, we - one of the things that MFS has been focused on is trying to be a net beneficiary of that money in motion. And in fact that's in part what's been driving some of the growth in sales in MFS. So you're not likely to see us acquire there. When we look at Asia, our story continues to be one of looking for opportunities across all of our markets in Asia and across different distribution channels. So we did the banca deal with TPBank at the start of this year in Vietnam. That's gone extremely well, it's actually ahead running ahead of our plans. They're very well-run bank and they've - the partnership is off to a great start. So can we find more banca deals across Asia? Could we buy larger percentages of the businesses we're already in with JV partners, could we buy other…

Okay, thanks for the color.

Your next question is from a line of Mario Mendonca of TD Securities.

Good morning, I see we're over an hour, so I'll try to be quick. The growth and expected profit in both Canada and the US has been running fairly hot over the last few quarters. In the US it's been the last two quarters. When I look at businesses like this and I see growth like that I'm trying to disaggregate the growth into the two broad points. One is just your organic growth in the business itself growing the assets, growing in force and then secondarily, all the management options that go along with that things like pricing and expenses. Can you help me make that disaggregation in expected profit growth in Canada and the US the more normal business versus all the other stuff you're doing?

So Mario, I'll turn it to Jacques and then Dan. And I will - we'll add just one thing as I do that. If you look at the growth, there is a component that's related to expense reductions as well. And that roughly runs probably about half for both of them. But I'll pass it over to them to add some more color to that.

Thank you, Kevin. And thanks, Mario. And I'll try to be quick, but it's in line with what Kevin just said. So first of all, we're quite pleased that 13% and if you go back, you'll see that it's quite a number of quarters. Now, it's pretty well, seven quarters in a row that were growing expected profit quite nicely. But what's happening in Canada, which we're quite pleased about, is this actually happening across all of our businesses. So it's not one business or two pulling the rest. And it's a lot of things like - I talked about defined benefit solution, SLGI got momentum now and growing earnings nicely and Ella and all this stuff that we're doing in digital. But to come back to your specific question, it's pretty well in line with what Kevin just said. So you can think of it as half of it is coming from this sort of fundamental business growth and half of it is the real expense discipline that we've been applying for the past couple of years. And we've done that of course, at the same time as freeing up dollars to continue to invest in our strategic growth areas, but think of it as about half and half scenario. Dan over to you.

Yeah, thanks Jacques. In the US, the biggest contributors to expected profit growth right now have been our stop-loss business and full scope. So stop-loss is adding to that in every dimension, strong margins, good renewals, and of course, substantial top line growth. Our full scope business is now making a nice contribution as well, particularly as full scope has expanded into new product lines. And then in our group business, we should start to see bigger contributions to expected profit in the future as we continue to manage down the expenses and build the scale in that business.

Yeah, so just put a final point on this. It's - half is expense half is business growth and I would say I start off with the notion that I believe business growth can continue at its current pace. It was fair to say that eventually the expense benefits starts to taper off over the next few quarters or a year or so.

Mario, its Kevin. I think that's right. I think you'd say that - we still have some room on expense discipline and those types of things. But over time, as you work your way through that that slows down a bit. And I was saying it's happened total across the both, US is a little bit less than half. But if you looked across the both it's about half in total.

That makes sense. Thank you.

Our next question is from the line of Humphrey Lee with Dowling & Partners.

Good morning and thank you for taking my questions. Just a couple of questions to Dan, looking at the top line for group benefits in the US, I understand what you laid out in terms of your kind of virtual capability and how you're able to close transactions. But do you see yourself as - in terms of that offering as somewhat unique in the marketplace? Because definitely looking across the board, the US group insurance players have seen out top line pressure and much weaker sales than what Sun Life has been able to deliver. Are you seeing kind of something that is unique to Sun Life?

Well, thanks, Humphrey. I think we do, obviously not completely unique, but as you pointed out, many of our competitors saw significant decreases in sales in the third quarter and we saw a significant increase. So I think our digital capabilities are meaningfully differentiated at this point. And they're across a variety of areas. You heard Dean mentioned Maxwell, that's certainly helping us. The enrollment in Maxwell has grown from 12,000 employee live to about 30,000 during the year. We've done 500 virtual enrollment meetings, which is 100% of them in the recent months. We've introduced a variety of new capabilities for doing enrollment meetings across different platforms, including one-on-one meetings as well as group meetings and a number of other digital capability. So I think the broker community which represents the employers has come to see us as a good home in this environment, a good place or company that can deliver those kinds of services. So I think we do - we have developed some differentiation during this period of time on digital and virtual, but lots of opportunity to grow that in the future.

And how does that - like in terms of the marketplace, given these slowdown in other kind of RVRVBF [ph], how's your persistency trend kind of over this period.

Yeah, persistency, has improved, as I think it has for many, because some employers have decided to defer on looking for new benefits partners during this period of time. So our persistency is definitely up a bit.

And then just one follow up question. I think, in Dean's remark, you talked about from M&A perspective in US group benefits, you're looking potentially maybe adding some complimentary capabilities to stop-loss. Given your book of business is pretty established and a major player in the marketplace, what other capabilities would you look to add for stop-loss?

Yeah, I mean, I can't get overly specific, but what I would say is we think of stop-loss really as part of the overall health insurance ecosystem in the US. And we are a partner now to employers representing about five million employee lives in the US for their self-insured health plans. And historically, our involvement in those health plans was primarily high claim risk protection, we've been expanding that out into helping them and their employees manage care, navigate difficult situations. And we do have a program called Clinical 360, which already does some really quite effective and helpful things in that space, but we'd like to expand that more. We'd like to step further into the health care space, providing care management, navigation type services, to the members we work with who are facing serious illnesses, because we think there's a real win-win there for everybody. We can help people get better outcomes. And we can help employers manage their cost profile at the same time because better outcomes almost always are less expensive.

So it's more adjacent features as opposed to looking to add more scale, correct.

That's - I would say - I think that's the right way to think about it. Because we have a lot of scale. We're the largest in the - largest independent stop-loss carrier. And our sales are far above anybody else's each year. So we are continuing to build scale organically. What we'd like to do is add capabilities, which would further differentiate us in the market.

That's helpful. Thank you.

At this time, we have no further questions. I will turn things back to Miss. Chalmers for closing remarks.

Thank you, Stephanie. And I would like to thank all of our participants today and if there are any additional questions, we will be available after the call. Should you wish to listen to the recording of this call, it will be available on our website later this afternoon. Thank you and have a good day.

This concludes today's call. Thank you for participating. You may now disconnect.