Paul Holden

Paul Holden asked why RBC isn't increasing its EPS growth target, given the higher ROE target and strong organic capital generation, suggesting it might be held in reserve for capital deployment. He also inquired if the 2026 PCL guidance, combined with an outlook for improving GDP and unemployment, implies higher PCL in the first half of the year moderating in the second half.

Answer

Katherine Gibson, CFO, stated that while confident in the 17%+ ROE, keeping the EPS target at 7%+ is the right complement for maximizing shareholder value, emphasizing that both targets have 'pluses' and are not capped. Graeme Hepworth, Chief Risk Officer, clarified that the 35-39 basis points PCL range is expected to persist through 2026. He noted that while macro trends may improve, credit outcomes won't fully manifest until 2027, with retail unsecured products potentially improving quicker, but mortgages facing pressure from refinancing, leading to a plateau through 2026.

Paul Holden questioned why RBC's EPS growth target wasn't increased, given the higher ROE target and strong organic capital generation. He also asked if the 2026 PCL guidance, combined with an improving macro outlook, suggests higher PCLs in H1 moderating in H2.

Answer

Katherine Gibson, CFO, stated that maintaining the 7%+ EPS target complements the 17%+ ROE target for maximizing shareholder value, noting both have 'pluses' and are not capped. Graeme Hepworth, Chief Risk Officer, indicated that PCLs are expected to plateau in the 35-39 basis points range through 2026, with macro improvements manifesting in credit outcomes in 2027. He noted that while unsecured products might improve, mortgages could face upward pressure due to refinancing impacts.

Paul Holden sought clarity on the outlook for commercial lending, trying to reconcile management's cautious commentary with the segment's solid loan growth and asking if a trade resolution could accelerate activity.

Answer

Group Head of Commercial Banking Sean Amato-Gauci confirmed that growth is tracking within the guided 1-1.5% sequential range for the second half of the year. He noted that while improved business sentiment hasn't yet translated into accelerated pipeline conversion due to uncertainty, the bank is confident in its Investor Day targets, supported by its diversified portfolio and the HSBC integration.

Paul Holden asked about the potential speed of a rebound in investment banking activity following improved tariff certainty. He also inquired about the drivers of strong growth and the decline in NIM within the Commercial Banking segment.

Answer

Group Head of Capital Markets, Derek Neldner, explained that flow financing activity recovers quickly, while strategic M&A has a longer lag time. Group Head of Commercial Banking, Sean Amato-Gauci, attributed the NIM decline to an accounting shift and the strong loan growth to a multi-year strategy of investing in coverage for larger clients.

Asked about the potential speed of recovery for investment banking activity given improving tariff certainty, and questioned the drivers of strong commercial loan growth and the segment's declining net interest margin (NIM).

Answer

Investment banking flow financing can recover quickly, while M&A will lag. The commercial NIM decline is a technical issue related to BA migrations, and the strong loan growth is a result of a multi-year strategy focused on larger clients, though sequential growth is moderating.

Paul Holden of CIBC World Markets asked about the potential speed of an investment banking activity rebound if tariff uncertainty subsides, and also questioned the drivers of strong growth and the net interest margin decline in Commercial Banking.

Answer

Derek Neldner, Group Head of Capital Markets, noted that flow financing rebounds quickly while M&A takes longer. Sean Amato-Gauci, Group Head of Commercial Banking, explained the NIM decline was due to an accounting shift to other income, and attributed strong loan growth to a multi-year strategy of investing in coverage for larger clients.

Paul Holden from CIBC sought to confirm that performing PCLs were not increased for tariff risk due to adequate existing scenarios and asked if the impaired PCL peak is still expected in the second half of the year.

Answer

Chief Risk Officer Graeme Hepworth confirmed that existing pessimistic scenarios were deemed adequate, noting they held back on potential releases due to tariff uncertainty. He stated that Q1 was likely the peak for impaired PCLs due to the one large account. While retail PCLs are still expected to rise through the year, he clarified that any material Stage 3 impact from tariffs would likely be a 2026 event.

Paul Holden asked about the net interest income (NII) and earnings sensitivity to the current rate-cutting cycle, seeking insights into any nuances that might make this cycle different from past ones, such as shifts in funding mix.

Answer

Interim CFO Katherine Gibson provided a holistic view, noting that while lower rates negatively impact some deposit income, this is offset by strong tractor benefits from core deposits and hedging strategies at City National. She highlighted that while a shift from GICs to wealth products might lower Canadian Banking NII, the diversified business model would capture those flows in Wealth Management, resulting in a relatively flat impact for the overall organization. She confirmed the takeaway that NII sensitivity may be less than disclosed numbers suggest.

Paul Holden inquired about the factors contributing to International Banking's lower 2026 growth guidance compared to original plans, including the pivot to balance sheet growth, and asked about the top drivers for Global Banking and Markets' revenue and earnings growth in 2026.

Answer

Group Head of International Banking Francisco Aristeguieta attributed International Banking's growth to regionalization, the WBN transaction, and strategic pivots in GBM, commercial, and retail, despite modest GDP growth and political uncertainty. Group Head of Global Banking and Markets Travis MacHen cited balance sheet discipline, global connectivity, cross-border activity, and enhanced advisory capabilities as key GBM growth drivers.

Paul Holden asked Francisco Aristeguieta about the International Banking segment's 2026 growth guidance of low single digits, noting it was lower than the original high single-digit plan. He sought clarification on contributing factors and whether the pivot to balance sheet growth remains part of the plan. He then asked Travis MacHen to highlight the top drivers for GBM's revenue and earnings growth in 2026 and what metrics should be tracked for success.

Answer

Francisco Aristeguieta (International Banking) explained that the segment is in a position of strength due to regionalization and the WBN transaction. He detailed the pivot to growth, including expected double-digit loan growth in GBM (after deselecting low-returning loans), new capital markets capabilities, a 'cash-first' strategy for the commercial bank, and a multi-country value proposition for affluent retail clients. He projected mid-single-digit PTPP growth, offset by increasing PCLs and higher taxes, acknowledging modest regional GDP growth. Travis MacHen (Global Banking and Markets) highlighted relentless focus on balance sheet discipline (capital velocity, deposit pricing, selective lending) as a key driver, leading to NIM expansion. Strategic drivers include the unique global connectivity of the franchise, low client penetration rates, cross-border activity, and building product/advisory capabilities to grow fee income. He also noted a disciplined market approach and healthy pipelines.

Paul Holden from CIBC World Markets asked about the sustainability of the strong fixed-income trading revenue and questioned why gross impaired loan (GIL) formations were rising while impaired PCLs were falling.

Answer

Travis Machen, CEO of Global Banking and Markets, noted that while the record quarter benefited from volatility, the bank is building a more durable franchise to make strong results more normal. CRO Phil Thomas acknowledged higher GIL formations in certain pockets but stated that based on forecasts, he does not expect this to translate into higher PCLs.

Paul Holden inquired about the expected timeline for the productivity ratio in Canadian P&C banking to improve following significant technology investments. He also asked for a mechanical explanation of how the quarter's credit provisions boosted the CET1 ratio.

Answer

Aris Bogdaneris (Canadian Banking) stated that while the bank continues to invest in its primacy strategy, it is managing costs prudently. He expects the segment's efficiency ratio to begin improving in 2026 as NIM compression stabilizes by year-end. CFO Rajagopal Viswanathan explained the CET1 boost occurred because the large ACL build, driven by expert judgment, reduced the capital shortfall between accounting losses and the higher regulatory expected loss calculation, resulting in an 8 basis point capital benefit.

Paul Holden asked about the expected timeline for productivity improvements in Canadian Banking given ongoing technology investments, and requested an explanation for how the PCL build positively impacted the CET1 ratio.

Answer

Aris Bogdaneris, Head of Canadian Banking, stated that while the bank continues to invest in its primacy strategy, he expects the productivity ratio to begin improving in 2026 as net interest margin compression stabilizes. Raj Viswanathan, CFO, explained the CET1 ratio benefit: the accounting ACL build reduced the existing shortfall against the higher regulatory 'Expected Loss' figure, thereby lowering a capital deduction and boosting the CET1 ratio by 8 basis points.

Paul Holden asked if a scenario with significant and permanent tariffs would alter the bank's strategic thinking on capital allocation, particularly regarding its North American corridor strategy and U.S. investments.

Answer

President and CEO L. Thomson responded that he sees no need to pivot from the North American strategy at this time. He reiterated the capital allocation priority of Canada first, followed by the U.S. and Mexico, stating it is 'way too early to think about pivoting' from a strategy he believes has strong long-term rationale.

Paul Holden questioned the 2025 balance sheet growth outlook for International Banking given improving macro conditions versus the client primacy strategy, and asked about the potential for performing allowance releases in Canadian retail.

Answer

An executive from International Banking clarified that 2025 will be a transitional year with a flattish balance sheet, as the net effect of client deselection and strategic refocusing continues. Chief Risk Officer Philip Thomas noted the resilience of the Canadian consumer and stability in auto loan write-offs, stating that while one quarter is not a trend, he is encouraged by current performance, which could influence future allowance levels.

Paul Holden asked about the Hong Kong APE sales, noting a year-over-year decline after strong prior quarters, and sought an outlook for positive sales growth in the next few quarters given challenging comparables. He also inquired about the strategy refresh's implications for the earnings trajectory of Canada and the U.S., specifically whether short-term higher expenses from investments would lead to longer-term growth rates.

Answer

Steve Finch, President and CEO of Manulife Asia, acknowledged the modest year-over-year decline in Hong Kong APE was against a very strong prior year, noting year-to-date APE increased 46%. He highlighted strong value metrics (NBV up 10%, NBCSM up 12%) due to favorable mix. He expects seasonal variability but remains optimistic about Hong Kong's strong market fundamentals and demand. Phil Witherington, President and CEO, clarified that the strategy aims for each segment to contribute to the 10%-12% core EPS growth. He expects low to mid-single-digit growth for the U.S. and slightly higher for Canada, emphasizing investments to sustain scale, capital generation, and growth rates, not necessarily implying higher short-term expenses that sacrifice efficiency targets.

Paul Holden asked about the outlook for Hong Kong APE sales, given a modest year-over-year decline following strong prior quarters, questioning whether positive growth is expected or if a normalization in growth is more likely. He also sought a better understanding of the earnings trajectory for Canada and the U.S. under the refreshed strategy, specifically if short-term higher expenses from investments would lead to longer-term growth rates.

Answer

Steve Finch, President and CEO of Manulife Asia, acknowledged the modest year-over-year decline in Hong Kong APE but highlighted strong year-to-date growth and robust NBV/NBCSM performance, expressing optimism for the medium term. Phil Witherington, President and CEO of Manulife Financial Corporation, clarified that all segments are expected to contribute to the 10-12% core EPS growth, with Canada and the U.S. contributing low to mid-single digits, and investments aimed at sustaining scale and growth without withdrawing the sub-45% efficiency target.

Paul Holden of CIBC World Markets sought clarification on the mechanics of the Comvest deal being immediately accretive to ROE and asked about the attractiveness of the Hong Kong MPF business post-transition.

Answer

CFO Colin Simpson explained that immediate ROE accretion is achieved by redeploying low-earning surplus capital into the higher-earning Comvest business. President & CEO Philip Witherington affirmed the Hong Kong MPF business remains attractive, noting the expected earnings headwind was already factored into the company's 2027 targets and that growth should overcome the impact within a few years.

Paul Holden of CIBC asked for details on the drivers of the negative ALDA experience and questioned the threshold for revising long-term return assumptions after recent underperformance.

Answer

Trevor Kreel, Head of Investments, explained the weakness was driven by real estate and private equity, consistent with market conditions, though the portfolio still generated positive total returns. He and Chief Actuary Steven Finch reiterated that assumptions are long-term and reviewed annually. They feel current assumptions remain appropriate, noting a key factor for a past reduction (in 2017) was a significant drop in interest rates, a condition that has now reversed.

Paul Holden asked for the drivers of higher earnings on surplus and the outlook given interest rate moves. He also questioned why Manulife did not take a write-down in its Vietnam business, unlike a competitor, following challenging industry conditions.

Answer

CFO Colin Simpson explained the surplus earnings increase was due to currency effects and a one-off fund rebalancing. Incoming CEO Philip Witherington addressed the Vietnam question, highlighting Manulife's resilient in-force portfolio and contractual protections in its bancassurance partnerships, which ensure the recoverability of its intangible assets.

Paul Holden from CIBC inquired about the Global Minimum Tax (GMT), asking how much of the Q2 charge would have been allocated to the Asia segment and seeking visibility on the timeline for its enactment in key jurisdictions like Hong Kong. He also asked for clarification on the insurance experience in Asia, noting that while the total experience impact was flat year-over-year, the allocation between P&L and CSM had changed.

Answer

CFO Colin Simpson stated that $30 million of the $46 million GMT charge was attributable to Asia and expects Hong Kong to adopt the tax in 2025. CEO Roy Gori noted the pro-rata impact is minimal. On insurance experience, Chief Actuary Steven Finch explained that positive claims experience in Vietnam and Japan benefited the P&L, while adverse persistency results in Vietnam and Singapore negatively impacted the CSM. He noted the Vietnam persistency issue is showing modest improvement.

Paul Holden inquired about Sun Life's expectations for Medicaid repricing in 2026, seeking insights into state communications and anticipated outcomes. He also asked about reinvigorated efforts to accelerate growth in US commercial premiums to diversify away from the Medicaid business.

Answer

David Healy, President of Sun Life U.S., explained that progress with states on 2026 repricing is reasonable, except for one large state, while health plans are slower. He noted a focus on structural changes, including potential contract terminations if pricing isn't met, expecting gradual improvement in 2026. For commercial premiums, he highlighted over 30% growth since acquisition and emphasized continued focus on this segment as a key growth opportunity.

Paul Holden inquired about Sun Life's expectations for Medicaid repricing in the U.S. dental business for 2026 and the company's strategy to accelerate growth in U.S. commercial dental premiums to diversify away from Medicaid.

Answer

David Healy, President of Sun Life U.S., explained that progress on Medicaid repricing is gradual with states but slower with health plans, potentially leading to structural changes or contract terminations. He affirmed a strong focus on growing commercial dental, noting over 30% premium growth and 20% membership growth since acquisition, leveraging existing group benefits and distribution.

Paul Holden of CIBC World Markets asked about the earnings contribution from the U.S. medical stop-loss business versus other employee plans and questioned which metric, fee earnings or underlying income, is a better indicator of SLC Management's run-rate growth.

Answer

President - U.S. Dan Fishbein stated that stop-loss results were in line with expectations and that pricing has been adjusted for 2025. Executive Chair - SLC Management Stephen Peacher identified fee-related earnings (FRE) as the best indicator of core performance, as it excludes volatile items like catch-up fees. President & CEO Kevin Strain confirmed SLC is on track for its Investor Day targets.

Paul Holden of CIBC World Markets asked for an update on the U.S. Medical Stop-Loss business performance and repricing actions, and questioned the divergence between SLC Management's fee earnings growth and underlying earnings growth.

Answer

President - U.S. Dan Fishbein stated that stop-loss results were in line with expectations, with experience stabilizing and necessary price increases for 2025 having been implemented. Executive Chair - SLC Management Stephen Peacher explained that fee-related earnings (FRE) are the best view of core earnings power, as underlying net income can be volatile due to lumpy catch-up fees and seed investment marks. CEO Kevin Strain added that SLC is on track to achieve its $235 million target for the year.

Paul Holden asked about the drivers behind the year-over-year growth in the U.S. business's expected profit line and sought to understand the discrepancy between the 4% stop-loss premium growth and the much higher 14% rate increases being implemented.

Answer

Kevin Morrissey, SVP & Chief Actuary, explained that the expected profit line's growth is driven by the volume of in-force business and pricing expectations, which are updated annually. Daniel Fishbein, President of Sun Life U.S., clarified that the gap between rate increases and premium growth is due to clients often choosing to 'buy down' their benefits (e.g., taking higher deductibles) to offset rate hikes, and Sun Life's current focus on maintaining margins over aggressive growth.

Paul Holden asked for the common drivers behind the large stop-loss claims and what underwriting changes are being made beyond price. He also requested an update on the previously announced $200 million expense savings program.

Answer

Daniel Fishbein (executive) identified three drivers for claim severity: more advanced cancer cases, a significant increase in premature births/neonatal care, and hospital price increases. CFO Timothy Deacon reported that the expense program achieved $82 million in savings for the full year 2024, ahead of the 40% target, with the full $200 million expected to be realized, supporting overall growth objectives.

Paul Holden asked about the new disclosure on organic capital generation, questioning if the $588 million figure is a sustainable quarterly run rate. He also asked for confirmation that SLC Management's 2025 net income target remains unchanged and how the restructuring might impact it.

Answer

Timothy Deacon, EVP & CFO, explained that the $588 million in organic capital generation was an above-target result driven by strong sales, and a more normal range would be 20-30% of underlying net income. Stephen Peacher, Executive Chair of SLC Management, confirmed they are still on track for their 2025 targets, stating that while SLC is participating in cost reductions, earnings growth will be driven primarily by growing AUM and revenue, not cost-cutting.

Paul Holden of CIBC World Markets asked about the Canadian P&C NII outlook, questioning why NIM guidance is only 'stable' for Q4 given positive trends in loan mix (higher-margin cards/HELOCs) and deposit mix (shift to demand).

Answer

Sona Mehta, Group Head of Canadian Personal Banking, acknowledged the strong momentum in RESL and cards, as well as favorable deposit mix shifts. However, she affirmed the 'relatively stable' NIM guidance for Q4 is sound, noting that numerous factors, including overall balance sheet mix, influence the final outcome.

Paul Holden of CIBC World Markets asked for an update on the NII outlook for Canadian P&C, focusing on loan growth dynamics and deposit mix shifts. He also questioned why NIM guidance is 'stable' for Q4 given several positive drivers in Q3.

Answer

Sona Mehta, Group Head - Canadian Personal Banking, highlighted strong sequential momentum in RESL, robust credit card growth, and a positive shift to demand deposits. She noted that while Q3 benefited from favorable deposit and loan margins, the guidance for relatively stable NIM in Q4 remains sound due to the interplay of numerous factors, including balance sheet mix.

Paul Holden from CIBC questioned the drivers behind the sequential decline in impaired PCLs in Canadian P&C banking, given the cautious macro outlook, and asked how much of the cost restructuring savings would be reinvested versus dropping to the bottom line.

Answer

Chief Risk Officer Ajai Bambawale explained the PCL decline was broad-based and reflected strong underlying credit quality, aside from tariff risks. CFO Kelvin Tran stated that the majority of savings from the restructuring would be redeployed to fund investments in future growth, particularly in digital, AI, and technology.

Paul Holden inquired about the U.S. balance sheet repositioning, asking if the paydown of high-cost borrowings could coincide with portfolio sales and if selling lower-yielding assets could be accretive to Net Interest Income (NII). He also asked for the Q1 cost of risk and control remediation and for assurance that the USD 500 million guidance for these costs would not increase.

Answer

Leo Salom, President and CEO of TD Bank, America's Most Convenient Bank, confirmed that proceeds from a $9 billion portfolio sale in Q2 will be used to reduce borrowings, with further reductions occurring gradually. He stated that Q1 AML remediation costs were $86 million and expressed confidence in the full-year USD 500 million guidance, noting costs would be more material in the second half. CEO Raymond Chun added that the guidance includes a budget for the 'look-back' process and the bank will provide updates if necessary.

Paul Holden asked how the U.S. segment maintained a flat year-over-year efficiency ratio despite significant risk investments, raising concerns about potential revenue impacts from cost-cutting. He also revisited the decision to repurchase TD stock while simultaneously selling Schwab shares.

Answer

Leo Salom, President and CEO of TD Bank, America's most Convenient Bank, explained that a productivity program focusing on organizational rightsizing, real estate optimization, and tech simplification created the capacity for these investments without compromising growth initiatives. CEO Bharat Masrani reiterated that the capital decisions were made based on the bank's prudent and conservative approach to capitalization, and the buyback was part of a previously announced program.

Paul Holden of CIBC sought clarity on whether the bank's enterprise-wide risk investments would cover potential 'regulatory spread' to Canada without increasing costs, and also asked for all-bank net interest margin (NIM) guidance.

Answer

CEO Bharat Masrani confirmed that the existing expense guidance for mid-single-digit growth already incorporates all planned risk and control investments. CFO Kelvin Tran noted that while they don't provide all-bank NIM guidance, a neutral outlook was 'not unreasonable' given opposing trends in Canada and the U.S.

Paul Holden of CIBC World Markets Inc. asked about the sustainability of the strong year-to-date operating leverage and whether it represented a pull-forward of future benefits. He also inquired if the rapid improvement in U.S. credit migration was due to BMO-specific actions.

Answer

CFO Tayfun Tuzun stated there was no pull-forward of benefits and reaffirmed BMO's commitment to continued positive operating leverage. Chief Risk Officer Piyush Agrawal attributed the improved U.S. credit performance to both a better macro environment and BMO's specific underwriting tweaks, which are now yielding results.

Paul Holden asked about the sentiment of Canadian commercial customers and requested an update on the capital markets M&A pipeline, particularly in the mid-market private equity space.

Answer

CEO Darryl White indicated Canadian commercial clients are in a 'wait and see' mode with cautious optimism, resulting in moderating but still positive loan growth. CRO Piyush Agrawal described the M&A market as mixed, with U.S. weakness but a 'cautiously optimistic' pipeline as client engagement picks up, though revenue conversion takes time.

Paul Holden of CIBC World Markets asked about the sentiment among Canadian commercial customers and for a refresh on the capital markets M&A pipeline, particularly in the U.S. mid-market.

Answer

Nadim Hirji, Group Head of Commercial Banking, stated that Canadian clients share a similar 'cautious optimism' to their U.S. counterparts but expects loan growth to moderate while remaining positive. An executive from Capital Markets described the M&A market as a 'mixed picture,' with U.S. activity weaker post-tariff announcements but now seeing a pickup in engagement, leading to a 'cautiously optimistic' outlook.

Paul Holden addressed concerns that BMO's C&I loan book might be more susceptible to credit losses in a tariff scenario and asked for the forward outlook on the U.S. P&C net interest margin (NIM).

Answer

CRO Piyush Agrawal and Nadim Hirji, Head of BMO Commercial Banking, refuted the idea of specific C&I vulnerability, emphasizing the portfolio's geographic and sector diversification. On margins, CFO Tayfun Tuzun guided for overall stability in the U.S. P&C NIM. He noted that while deposit mix improvements are a positive driver, the benefit could be offset by the mathematical impact of resurgent loan growth expected in the second half of the year.

Paul Holden of CIBC inquired about the strong underlying earnings growth in Capital and Risk Solutions, which appeared to be tracking ahead of guidance, and asked about the drivers behind the consistent double-digit growth in European group premiums.

Answer

Jeff Poulin, EVP of Reinsurance, acknowledged that strong Q1 sales from new products could lead to full-year CRS results slightly ahead of the mid-single-digit target, but noted the business can be lumpy. David Harney, President and COO of Europe, attributed the strong European premium growth to salary inflation, employment levels, and more recent health insurance rate increases in Ireland, all supported by strong client retention.

Paul Holden inquired about the strong double-digit earnings growth in Capital and Risk Solutions (CRS), asking if it could surpass medium-term targets for the year, and also asked about the drivers behind consistent double-digit growth in European group premiums.

Answer

Jeff Poulin, EVP of Reinsurance, acknowledged that strong Q1 sales from new products could lead CRS to finish the year slightly better than its mid-single-digit target, but cautioned that the business is lumpy. David Harney, President and COO of Europe, explained that European group premium growth was driven by salary inflation, strong employment, and more recently, necessary health insurance price increases in Ireland to reflect higher claims experience.

Paul Holden inquired about the drivers behind the strong, double-digit earnings growth in Capital and Risk Solutions (CRS) and the consistent double-digit premium growth in the European group business.

Answer

Jeff Poulin, EVP of Reinsurance, attributed the strong CRS results to new product innovation and a very good sales quarter, suggesting the full-year result could be slightly better than the mid-single-digit target, though he cautioned the business is lumpy. David Harney, President and COO of Europe, explained that European premium growth was driven by salary inflation, strong employment, and recent health insurance rate increases in Ireland to reflect higher claims experience.

Paul Holden of CIBC World Markets asked about Empower's positioning for small business 401(k) plans, particularly low-cost options, and how Great-West Lifeco could opportunistically benefit from potential market disruptions caused by tariffs.

Answer

Empower CEO Ed Murphy confirmed the company has a low-cost, straight-through solution for small businesses and is well-positioned to capture growth from new plan formation spurred by state auto-IRA mandates. CEO Paul Mahon stated the company is well-positioned to navigate tariff impacts due to its diversified, domestic businesses and could find opportunities, such as participating in Canadian infrastructure investments.

Asked about the progress of profit improvement initiatives in Europe and for more details on the competitive pricing environment for individual insurance in Canada.

Answer

Most benefits from the European initiatives are now realized and flowing through earnings, making the current quarter a good indicator of future performance. The Canadian individual insurance market remains competitive but stable; the company maintains a disciplined approach to pricing and risk, particularly in participating whole life and long-duration products, and there has been no acute change in competitive dynamics.

Inquired about the realization timeline for Empower's cost synergies, the reconciliation of Empower's AUA growth with flat earnings, and the growth strategy for the Capital and Risk Solutions (CRS) business.

Answer

The company detailed that the remaining Prudential synergies will be realized through 2024 and into 2025. The flat earnings at Empower despite AUA growth were attributed to a mix of factors including integration effects, diverse revenue streams beyond asset-based fees, and normal market fee compression, which is being offset by cost savings. The CRS business is viewed as a key diversifier and is expected to grow in line with the overall company, not necessarily at an accelerated pace.

Asked about the remaining scope for capital optimization across the company, whether this optimization could lead to a higher ROE target, and for an outlook on the Capital and Risk Solutions (CRS) business for 2024.

Answer

Capital optimization is a continuous process driven by portfolio reshaping and new asset sourcing, not a finite project. This ongoing optimization is intended to lead to a higher ROE and eventually a higher ROE target. The CRS business has shifted towards structured reinsurance, which is growing well, while being more cautious on longevity reinsurance. Growth is expected to continue, albeit at a potentially slower pace than in recent years.

Asked for clarification on the accounting for equity release mortgages, changes in real estate cap rates, and the net earnings outlook for Empower considering both Prudential attrition and remaining synergies.

Answer

Equity release mortgages are used to back liabilities, and their yield enhancement impact is now minimal under IFRS 17 and due to low volumes. Real estate cap rates have risen over 100 bps in the U.K. over the past year. There is further net earnings upside at Empower, driven by ~$114M in remaining cost synergies and significant revenue opportunities from cross-selling to the newly integrated client base.