管理層發言
Good morning. Welcome to the Sun Life Financial Q2 2026 conference call. My name is Gaylene. I will be your conference operator today. All lines have been placed on mute to prevent any background noise. The conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. The host of your call today is Natalie Brady, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Ms. Brady.
Thank you. Good morning, everyone. Welcome to Sun Life's earnings call for the second quarter of 2026. 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 call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, 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 are also available to answer your questions this morning. Turning to slide two, 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. With that, I'll now turn things over to Kevin.
Thanks, Natalie. Good morning, everyone. Turning to slide five, we delivered strong second quarter results with double-digit underlying EPS growth, reflecting higher earnings across our businesses and continued progress against our strategic priorities. Strength in Canada, Asia, and U.S. all contributed to growth, while asset management continues to build momentum. Underlying net income was CAD 1.12 billion, up from CAD 1.02 billion last year. Underlying EPS was CAD 2.02, up 13% over the prior year. Underlying return on equity was 19.1%. Reported net income was CAD 1.01 billion, compared with CAD 716 million a year ago. Strong protection earnings were driven by growth in all insurance business groups. Canada delivered record results reflecting strong business growth and favorable experience. In Asia, earnings increased from continued business growth. In the U.S., health and risk solutions continue to perform well, while in-force management delivered strong earnings driven by favorable investments and insurance results. In Sun Life Asset Management, SLC Management earnings increased year-over-year, supported by improved fundraising and deployment momentum, while MFS delivered consistent earnings. We also delivered strong top-line performance across the organization. Insurance sales increased 20%, driven by growth in Asia and continued strength in the U.S. Asset management net flows and net wealth sales improved by CAD 16.3 billion, supported by strong private credit fundraising and a large mandate win in our Aditya Birla Sun Life Asset Management business. The scale and brand recognition from this mandate amplifies our growth strategy for asset management in India. At MFS, outflows remained elevated, reflecting continued industry-wide pressure on active U.S. equity managers. Our capital position remains strong. We ended the quarter with a LICAT ratio of 145% and holding company cash of CAD 2.3 billion, reflecting the strength and resilience of our business. During the quarter, we renewed our normal course issuer bid to repurchase up to 10 million common shares and began purchasing shares under the program. Our strong capital position and cash generation continue to provide flexibility to invest in our business while returning capital to shareholders. Overall, this was a strong quarter that reflected the strength of our purpose, our disciplined execution, our business growth across key markets, and the resilience of our diversified model. Turn to slide six. Let me touch on a few areas where we're seeing notable momentum. First, our digital transformation journey. We made significant progress this quarter. At an enterprise level, we recently announced our founding membership in an AI consortium alongside Scotiabank, Telus, and Lightworks. The AI consortium is a collaborative effort to build the infrastructure, governance, and controls needed to deploy AI responsibly at scale in regulated industries. It is helping us accelerate AI adoption in a way that's consistent with the governance standards clients and regulators expect while sharing costs with other major regulated Canadian institutions. In addition, to help technology architecture teams make informed decisions faster, we launched a new proprietary agentic AI platform. It has already freed up time by replacing the manual process of trade-off analysis with structured, data-driven, and scalable decision making. Beyond these enterprise initiatives, we're deploying AI solutions that deliver tangible benefits for clients and advisors. In Indonesia, we launched AI in our contact centers to enhance the client service experience through advanced routing, analytics, and monitoring capabilities to improve responsiveness and first call resolution. More broadly across Asia, we also launched tools in our agency channel that accelerate advisor onboarding and support higher quality service through real-time coaching, strengthening client interactions, and enhancing the onboarding experience. In Canada, we enhanced the My Sun Life app with integrated health capabilities, creating a more connected digital experience and bringing health benefits, services, and support together in one place. We also launched an AI-powered concierge for SLFD advisors, enabling faster access to information and the ability to address complex inquiries, helping advisors spend more time focused on advice and client relationships. Our responsible approach to AI is helping us improve client experiences, operate more efficiently, and scale our businesses while keeping clients at the center. Turn to asset and wealth management. We've now completed our first full quarter of Sun Life Asset Management operating as a unified platform. We've retained strong talent, continue to deliver strong results for our clients, and remain focused on realizing the full potential of our combined capabilities. Our strength in alternatives and our local expertise in new markets continue to be a driver of growth for Sun Life Asset Management. Crescent closed the largest direct lending in its history with $10.8 billion of investable capital, reflecting the strength of its platform and investor relationships. Crescent and Pantheon also closed a $3.2 billion private credit continuation vehicle in the first half of the year, marking the largest transactions in the private credit secondaries market. In India, Aditya Birla Sun Life Asset Management won a large fixed income mandate for a government sponsor, doubling their assets under management to $113 billion. At MFS, while we continue to experience outflows, our active ETFs continue to gain traction, generating inflows more than triple the prior year, with AUM having now doubled since the start of 2026 to $3 billion. In our Canadian business, wealth sales increased 60%, supported by record defined contribution sales, strong rollover activity, and higher mutual fund sales. These examples show the scale and momentum we're building in asset management and the breadth of solutions we're able to provide to a range of clients. Looking to Asia, momentum accelerated across the region. Sales increased 20% to CAD 875 million, reflecting broad-based growth across the region. Hong Kong continued to perform well, with sales increasing 20%, driven by growth across all distribution channels and a 28% increase in advisors to nearly 4,000. Indonesia was another standout this quarter. Sales increased 69%, demonstrating the ongoing success of our expanded CIMB partnership. We also saw strong growth in India and Malaysia, reflecting attractive market conditions and solid execution by our local teams. What stands out to me is the breadth of growth. It's coming from multiple markets and multiple channels. That's important because it creates a more resilient, higher quality growth profile over time. As a result, total CSM now exceeds CAD 7 billion, up over 90% since the adoption of IFRS 17 and providing a strong foundation for future earnings growth. In the U.S., we delivered strong sales results and continued to expand services offered to our members. Medical stop loss sales increased 86% over last year, reflecting disciplined pricing, strong underwriting, and continued success in winning attractive business. We continue to benefit from our scale and capabilities in this market while maintaining our focus on risk-adjusted returns. This quarter, we expanded our suite of health solutions to provide differentiated support for employers and members. Through a new partnership, we're providing access to clinical trials for people facing complex health conditions. Enhancing the solutions available to support access to care, improve health outcomes, and help people through serious health challenges remains a core part of our strategy. In dental, we continue to focus on improving profitability through ongoing portfolio management activities across our government business, growth in our commercial business, disciplined expense management, and continued execution. While there is still work to do, we continue to make progress. Turning to slide seven, we're continuing to perform well against our medium-term objectives. Underlying EPS growth was 13%, above our target of 10%. Underlying ROE was 19.1%, approaching our target of 20%. Our dividend ratio was 48%, within our target range of 40%-50%. Supported by these strong fundamentals, our diversified business strategy strengthened both asset management and insurance and our industry-leading LICAT ratio, we remain well positioned to continue delivering sustainable, broad-based earnings growth over the medium term. I'll now turn it over to Tim to go through the financials for the quarter.
Thanks, Kevin, and good morning, everyone. Turning to slide nine, we delivered strong second quarter results with underlying net income of CAD 1.12 billion and underlying earnings per share of CAD 2.02. Results were driven by strong contributions from Canada, Asia, and the U.S. and continued momentum in Sun Life Asset Management. Reported net income was CAD 1.01 billion. The difference between underlying and reported net income was primarily driven by acquisition and integration related costs in SLC in the U.S., intangible asset amortization, and modestly unfavorable net market impacts. Market impacts reflected yield curve movements during the quarter, real estate returns that were positive but below long-term expectations, and strong public equity market performance in the quarter. Turning to slide 10. Sun Life Asset Management underlying net income of $262 million increased 4% year-over-year, mainly driven by earnings growth at SLC. Favorable seed investment performance and disciplined expense management improved fee-related earnings margins in the quarter. At MFS, higher average net assets supported earnings growth and profit margins improved by 0.6% despite continued fee rate pressure. Reported net income increased 14% from market experience at SLC and also reflects the offsetting impacts of accelerated amortization of certain compensation expenses for retirement-eligible employees at MFS and a gain on the sale of a $1.3 billion block of closed-end funds. The compensation item reflects the timing and recognition of expenses rather than the change in total compensation costs. Capital raising of $4.7 billion and deployment activity of $6.2 billion remains strong across the platform, up 8% and 42% respectively, particularly within our private credit and fixed income strategies. MFS continued to experience net outflows during Q2 from increased industry-wide pressure on active equity managers from the increasing popularity of lower tracking error strategies. In parallel, the business continues to see momentum in its ETF businesses with $0.6 billion of retail inflows and two new ETF launches this quarter, alongside continued growth in fixed income and retail SMA products. Turning to slide 11. Canada underlying net income of CAD 427 million, a new record, increased 23% from the prior year. Favorable insurance experience was a significant contributor to earnings in the quarter, reflecting both seasonality and sustainable benefits from the investments we've made over time in our people, processes, and capabilities. Canada's wealth businesses increased underlying earnings by over 19%, driven by growth in AUM. Reported net income of CAD 443 million reflects favorable market related impacts. Canada's wealth platform reached CAD 286 billion in assets under management and administration, up 18% from last year as a result of record sales in the defined contribution business, increased volumes in the rollover business, and strong equity market performance. Insurance sales were broadly consistent with the prior year in both Sun Life Health and individual insurance, reflecting timing of large deals and sales campaigns. Turning to slide 12, we're demonstrating solid progress and growth in our U.S. business. Underlying net income increased 15%, driven by business growth in medical stop loss earnings, and favorable investment results and insurance experience in in-force management. Reported net income increased 69% from the prior year, driven by a prior year intangible impairment charge in dental and the increase in underlying net income. In stop loss, sales increased 86% year-over-year, reflecting strong close ratios and pricing discipline supported by our risk selection approach. Growth continues to be supported by our differentiated health and risk solutions, advanced analytics capabilities, and continued focus on risk selection. In dental, we continue to reposition the business by improving pricing, exiting unprofitable contracts, optimizing our expense base, and growing our commercial dental business. These actions contributed to improved loss ratios this quarter. Medicaid membership declined 9%, reflecting our deliberate actions to terminate unprofitable contracts, as well as ongoing industry-wide dynamics. Commercial dental sales increased 10% in the quarter, reflecting progress in building a stronger business mix. As we continue to execute against these priorities, we expect gradual improvement in earnings over time. Turning to slide 13. Asia had another outstanding quarter with underlying net income increasing 21% over the prior year, driven by robust organic CSM growth, lower expenses, and improved credit experience. Reported net income increased 158% from the prior year, driven by market related impacts and the increase in underlying net income. Asia individual insurance sales of CAD 875 million were up 20%, primarily from strong growth across Hong Kong and our bancassurance channels in India, Malaysia and Indonesia. Hong Kong delivered insurance sales growth of 20% year-over-year across all channels, supported by expansion of the advisor force by 28% to nearly 4,000 advisors. Indonesia achieved 69% sales growth, reflecting the continuing momentum from our bancassurance partnership with CIMB Niaga. New business CSM declined year-over-year, primarily reflecting the competitive environment in Hong Kong. Although margins were lower than a year ago, they remained strong. Turning to our capital position on slide 14. We ended the quarter with a LICAT ratio of 145%, which increased two percentage points over the prior quarter, mainly driven by a CAD 750 million subordinated debenture issuance at the lowest spread for a seven-year issuance in the Canadian financial sector in the last 25 years. This is a testament to the quality of Sun Life in the debt markets. We delivered book value per share growth of 3% to CAD 42.49 and finished the quarter with a financial leverage ratio of 23.8%. Organic capital generation was 41%, which exceeds our 30%-40% range of guidance. Total CSM of CAD 15.3 billion increased 12% over Q2 last year, driven by strong insurance sales. Together, these metrics reinforce our financial strength and provide resilience in more volatile periods. Turning to slide 15. In the quarter, we returned half a billion dollars to shareholders through common shareholder dividends, delivering a dividend yield of 3.8%. We also renewed our normal course issuer bid to repurchase up to 10 million shares in June, and we purchased 0.8 million shares to date under the program. In closing, we are very pleased with our second quarter results, which demonstrate the earnings power of our business. Our strong balance sheet and capital position provides flexibility to invest in growth, support our clients, and return capital to shareholders. Looking ahead, we remain focused on executing our Client Impact Strategy and delivering sustainable long-term value for shareholders. With that, I'll turn it back to Kevin for some closing remarks.
Thanks, Tim. As I mark five years as CEO, I see this quarter as another proof point of our work to build a more diversified, global, and growth-oriented Sun Life. The company delivered strong earnings growth in line with medium-term objectives. Our diversified global business, strong capital position, and disciplined execution continue to enable progress in areas that matter most for long-term value creation. Across our organization, we remain anchored by our purpose: helping clients achieve lifetime financial security and live healthier lives. Broad-based growth across Canada, Asia, and U.S. health and risk solutions, combined with accelerating asset management momentum, is showing up clearly in earnings growth. We remain confident in our ability to continue creating sustainable value for clients and shareholders. With that, I'll turn it over to Natalie for the Q&A portion of the call.
Thank you, Kevin. To help ensure that all participants have an opportunity to ask questions this morning, please limit yourselves to one or two questions and then re-queue with any additional questions. I will now ask the operator to poll the participants.
分析師問答
Thank you. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question comes from Gabriel Dechaine with National Bank. Please go ahead.
Hey, good morning. My question's on the U.S. business, both the stop loss and the dental. On stop loss, I forget what page in the slides, it says unfavorable experience due to seasonal reserve build. The phrasing seems odd. If it's seasonal, wouldn't you have anticipated that or is there actually a variance here versus what you normally do? Because everybody is focused on the stop loss stuff.
Gabriel. Thanks for the question. It's David. So the Q2 results do include known seasonality from the buildup of IBNR reserves. That is what is in that unfavorable morbidity line. You could consider it unfavorable but expected. The experience was still in line with our expectations despite this. Morbidity in the quarter was impacted mostly because of the IBNR build. We maintained our target loss ratios; the morbidity experience overall is a little bit higher in that unexpected line than a year ago, just reflecting the larger book due to the stronger growth year-over-year over the past several quarters. The loss ratios remain stable within our target range in the mid-70s, which is a very strong result. Overall, the stop loss business continues to perform very well and in line with our expectations.
I guess you said it, and I don't quite get that. Unfavorable but expected. If it's expected, why is it unfavorable? You should have a lower short-term insurance profit number in the quarter or something like that. Is that not how it works? I don't quite get it, so we can move on.
The IBNR reserves do build over the course of the year, just because claims don't pay out at the same time the premiums come in, so it's just a matter of timing. That is why you see that reserve build reflected as unfavorable in the quarter, even though it was expected. The broader morbidity results and loss ratios are in line with our expectations.
The dental business, I understand the strategy there. You've clearly articulated it. Just want to get a sense for how much more business is there to shed, and what's the timeline for that, like the intermediated or brokered Medicaid business?
Yeah. As was noted, dental results were pressured in the quarter predominantly driven by lower membership, which was down 9% year-over-year. We are making progress in dental, and our pricing discipline on new business and decisions to exit unprofitable existing business are driving improvements in the loss ratio. But there are ongoing significant volume headwinds in our Medicaid dental business, and that's consistent with the broader market, which will suppress dental earnings this year. We remain focused on shifting towards a more profitable mix as we reshape that government book of business and continue to grow our commercial dental. Our broader plans include optimizing our expense base and continuing to stay focused on disciplined expense management. We expect these actions to start to shift our business mix over to a more stable, higher quality earnings base over the next one to two years.
If next quarter the Medicaid premiums drop materially, can you give a sense of the glide path here so we can avoid negative surprises? How much of this business is going to be shifted away?
It's a good question. The activities that we are taking are unlikely to fully offset the Medicaid volume-related pressures we're seeing over the near term. Q3 is seasonally the highest quarter for utilization of the year prior to the start of the school year, and then Q4 is a relatively lower utilization quarter. We do expect the membership to remain lower this year. We're also monitoring broader market dynamics that may evolve in 2027.
David and his team are fixing the fundamentals of the state business. It is going to be a fundamentally smaller part of what we do on the dental side as we build out the commercial business, which is going to take a number of years. There's more focus on that. I'd also say the overall U.S. results are really strong in the quarter. It reflects what David and the team are doing to build that out. We were seeing pricing hardening in stop loss, we're winning more of that, and it's coming in at roughly the ratios we would have thought. I'm pleased with how the stop loss and benefits business is doing, and I'm pleased with the progress on the dental side. The state business will be a struggle for a number of years while we shift the focus to commercial.
All right, thanks. Enjoy the weekend.
The next question is from Mike Ward with UBS. Please go ahead.
Hi. Thank you. Good morning. I was just wondering if you could discuss the stop-loss sales result. That was super strong, and I've got to imagine you guys are pretty confident on the margins on new and renewal business. Can you characterize the competitive environment? Is it easier to win new business given the hard market and some competitors pulling back, or are you being more aggressive in growth?
Yeah, Mike. We remain diligent and disciplined in our pricing and underwriting approach, which has led to our scale and leading market position. We are benefiting from our underwriting work and advanced analytics around risk selection and decision making. Our differentiated health capabilities are notable because that focus on cost containment is increasingly resonating in the market as employers are more focused than ever on ways to manage overall medical cost increases. We are benefiting from a continued hard market, and our approach to pricing and underwriting, along with those capabilities, position us well over the longer term. If you look at our performance over the last little while, the 1-1-25 cohort is now largely complete at about 97% complete and in line with our expectations, and we continue to get the pricing on our 2026 business. It's worth noting that sales in the first half of 2025 were a little lower than our typical growth rate due to competitive pressures at the time. Now the market has been hardening into 2026, which has supported our results.
That's helpful. In Asia, could you discuss the sustainability of the strength there and any thoughts on the focus on the MCV business in Hong Kong by China?
Okay. Good morning, Mike. In terms of our Hong Kong business, we've delivered exceptional performance over the last few years and have gained market share over that period. That's been supported by deliberate investments we've made in distribution, brand, talent, and IT, as well as strong execution. The fundamentals of the business are very strong. We have a very diversified business across all dimensions: distribution (banca, broker, and agency), product (protection, savings, and retirement), and client segments including local Hong Kong clients, clients from Southeast Asia, and MCV. The MCV client base makes up roughly about 30% of our overall client base in Hong Kong, and that can change quarter to quarter depending on mix. For that client base, we focus on higher rates of return, diversification of investments, and access to products to help with legacy planning and wealth preservation needs. While there has been public focus on tax elements, the primary focus for these clients has been investment outcomes and wealth preservation. Fundamentally, the business is in very good shape, and I believe we have good momentum that will continue.
Thank you.
The next question is from Doug Young with Desjardins. Please go ahead.
Hi. Good morning. Going to Canada, Jessica, can you talk a little bit about the experience this quarter, which was favorable. It is not as favorable as it has been in the past, but it is noticeably improved. Canada is generating strong returns year-to-date; is this division punching above its weight and how sustainable is this given it's a big part of the Sun Life story?
Hi, Doug. Thank you. For this quarter, you see significant experience gains. About a third of that is from mortality and two-thirds is morbidity. From the morbidity standpoint, we've benefited from sustained and purposeful investments in people, processes, and capabilities, which has led to lower claims volume, shorter claims duration, and maintained pricing discipline while remaining competitive. We've built integrated case management teams supported by health practitioners, improved tailored processes, digital forms, and nudges—all designed to help members navigate recovery more effectively. These purposeful investments over the past few years are driving sustained improvements. Zooming out for sustainability, over the past eight quarters we've had positive insurance experience averaging about CAD 57 million pre-tax per quarter. We do expect continued positive experience, though there will be quarter-to-quarter fluctuations due to seasonality and other factors. In this half of the year, Canada's earnings improved by 15%; only 5% of that was from insurance experience, while the remaining 10% came from strong growth across our businesses. Insurance grew 6% and CSM continued strong growth. Our wealth business reached CAD 286 billion in assets under management and administration, up 18% year-over-year, with CAD 1.4 billion of net inflows this quarter. Wealth earnings grew 26% in the half, helped by favorable markets and positive inflows. Efficiency gains from scale are also contributing. We're confident Canada will continue to perform at or above its medium-term objectives.
Very wholesome. Thanks. One quick one, Tim. The CAD 350 million price for Bell—about 80% of that is being settled in stock in Q3. I assume that's at a fixed stock price, given your share price has gone up a lot. Can you clarify?
Hi, Doug. You're correct. The Bell acquisition closed at the beginning of July, and almost 80% of that purchase price was made in shares, based on the 20-day average share price leading up to the closing. The total purchase was just shy of CAD 400 million overall, and it was about 3.6 million shares. Those shares have already been issued and the amount is fixed. It will show up in Q3 as a subsequent event in our financials because it closed in July, and we will start to pick up earnings from that business in the third quarter.
Perfect. Appreciate it. Thank you.
The next question is from David Andrich with Jefferies. Please go ahead.
Good morning, everyone. Thank you for taking my questions. I want to follow up on Doug's question around the experience gains in Canada. It sounds like you're expecting the positive trend to continue. The second part: some peers have experienced headwinds from long-term disability. I don't see anything like that in your results. Can you comment on that and on your experience specifically?
Thank you. We do expect the insurance experience line to continue to be positive, though there will be fluctuations quarter-to-quarter. Over the past eight quarters, the average has been about CAD 57 million pre-tax. Regarding long-term disability trends, those have been present for some time—for example, since COVID we've seen a notable portion of claims related to mental wellness. This isn't new and the industry has been addressing it. Our approach includes pricing discipline while remaining competitive, and purposeful, sustained investments in people, processes, and capabilities. For example, last year we piloted disability management across Ontario for 20% of our business with technical platforms, processes, and nudges, and this year we are rolling that out countrywide. These steps should continue to help improve outcomes for our members and sustain favorable experience.
Great. Thank you very much.
The next question is from Nick Lu with Evercore. Please go ahead.
Good morning. Thanks for taking my question. First, on Asia: should I read earlier comments as the MCV business represents about 30% of total sales out of Hong Kong? How have local bancassurance partners been reacting to updates on taxes or broader cross-border capital flow?
Good morning, Nick. Yes, the figure I quoted is about 30% of the total Hong Kong sales. Regarding bancassurance partners, we have a very strong bancassurance agreement with Dah Sing. With new requirements in place, banks are exercising more diligence around account openings, which we see across the industry. We work closely with our partners to ensure compliance while serving clients' needs.
Thank you. My follow-up is on the stop loss business in the U.S. Are you at a stage where you have an early view into rate increases for the 1-1-27 cohort? Some peers noted favorable experience on 2026 book relative to 2024 and 2025. Are you seeing something directionally similar?
Hi, Nick. We're monitoring the emergence of experience on the 1-1-26 cohort carefully. It's still early—about 15% complete. Our technical analysis and emerging actual experience are giving us confidence in our pricing approach for the cohort. We'll continue to monitor as the year progresses, since dynamics can change. We remain focused and confident based on our proprietary advanced analytics models and risk evaluation.
The next question is from Paul Holden with CIBC. Please go ahead.
Thank you. Good morning. I want to continue on stop loss. Premiums are up 25% year-over-year and you say margins or loss ratio are in line with expectations. With top-line growth and stable or improving margins, I would have expected more of an earnings lift. Unless you're being more conservative on IBNR, I'm not sure why we aren't seeing more earnings growth out of stop loss. Can you address that?
Sure. We're benefiting from momentum in sales and persistency, and we are seeing that in solid earnings. However, when you look at our overall benefits results, our employee benefits business was down from a record quarter in Q2 2025 that featured very favorable disability experience and some one-time items that did not recur this year. Those elements moderated the overall earnings growth for the benefits line. We remain diligent and confident in stop loss results and continue to monitor trends across the year.
Okay. Regarding Asia: another quarter of very strong APE sales. New business CSM was down year-over-year by about 7%. Can you help explain the disconnect?
Paul, if you look over the last two years, Asia delivered very strong new business CSM growth—over CAD 2 billion in new business CSM across that period. Last year we experienced some tailwinds related to proposed regulation changes that pulled in volumes and increased new business margins. With that behind us, margins have evened out, which explains the relative leveling of new business CSM margins year-over-year. At a nominal level, we still generated CAD 277 million in new business CSM, which remains supportive of ongoing earnings growth for Asia.
Okay. Thanks for the time.
The next question is from Tom MacKinnon with BMO Capital. Please go ahead.
Thanks. Two questions. First, on Asia: with respect to the high net worth business, what proportion of those clients are from China, and would the offshore trust implications from China have any impact on continued momentum in high net worth sales and earnings in Asia?
Good morning, Tom. For our high net worth business, MCV represents about 10% of that specific business. The high net worth business is international and includes clients from Southeast Asia, the Middle East, and other parts of Asia. I don't expect the offshore trust implications to have a material impact on this high net worth business's contributions.
Okay, thanks. With respect to SLC: in a transition year, you've talked about a 20% medium-term outlook for underlying earnings growth. This quarter flows are better but fee-related earnings are kind of flat year-over-year. What gives you confidence the setup is good and you can get closer to 20% growth by 2027? What should investors look for with respect to SLC?
Hi Tom, it's Steve. The business is driven by performance in strategies that the market wants; that leads to positive net flows and growing AUM. If performance and AUM grow while managing expenses, profits will follow. Our core categories—real estate, real estate debt, private credit, and infrastructure—have tailwinds in the institutional space. Wealth is a big priority and should be a major driver of flows over coming years. Internally, prior to the completion of certain put calls, SLC was a collection of businesses operating independently. Now that employee incentives are aligned at the SLC level and the integration is furthered, we can operate as a unified platform, pursue expense efficiencies, align branding and distribution, and present ourselves as a unified enterprise to clients. That should accelerate growth and improve margins. We are four months into the integration and moving quickly on combining systems, distribution, and branding to capture benefits.
To paraphrase, flows are key. Would you expect the second half of 2026 to be better than the CAD 8 billion in net inflows you saw in the second half of 2025? Also, should we expect the pre-tax net operating margin to start picking up after being flat over the last few quarters?
You should look at flows over a multi-year basis because institutional fundraising is lumpy quarter-to-quarter—fund closes can drive significant swings. We expect pickup in flows as we grow AUM, and we expect margins to expand meaningfully as we realize scale benefits and the efficiencies from operating as an enterprise. Our midterm target is for operating margin to be over 30% over the coming years, and we expect that over the next five years it should be in the mid-30% range or higher.
Okay. Thanks very much.
The next question is from Mario Mendonca with TD Securities. Please go ahead.
Manjit, did you lay out the proportion of Hong Kong sales that relate to MCV? I got a little distracted earlier.
Yes, Mario. It was 30%.
Thanks. When you see the decline in CSM generated in the quarter relative to sales, it suggests pricing environment differences year-over-year. Were there any pricing concessions or specials on particular products this quarter? If so, why did you feel the need to do that?
It's a year-over-year effect rather than a single quarter phenomenon. Our product lineup has evolved over the last year and we've introduced products with different features, which affects margins. At current levels, we're generating mid-30% margins, which are delivering the lift in ROE you're seeing. We're pleased with the product lineup.
Mario, Hong Kong is a very competitive market with leading insurers. We've made significant gains in size in Hong Kong over the last few years, and we sometimes face more attention from competitors. We need to be competitive, and that includes pricing, as long as we're maintaining acceptable returns on capital. Manjit's team is delivering strong profitability and diversified growth across agency, bancassurance, and brokers.
So the CSM margin could remain lower given the changed environment. That feeds into how you grow earnings. On stop loss: you're growing it nicely. Is this business one that benefits from consolidation, or are you better off taking share organically because you're repricing it annually? Is this more of an organic story or M&A-friendly?
Mario, we are proud of our differentiated capabilities and are focused on organic growth. Our proprietary analytics, underwriting discipline, and risk evaluation differentiate us and allow us to grow profitably. It's a short-duration business that is well suited to organic growth and annual repricing, so our focus right now is on growing organically and taking share.
Mario, it's not a priority for us to pursue deals in that space. We are a big player, the business is repriceable, and we can win organically.
Finally, government or Medicaid sales in dental were zero this quarter. Is that the new base—i.e., is this business no longer for Sun Life?
We continue to focus on selling and retaining profitable business that meets our long-term earnings margin targets. Government sales have been and will continue to be lumpy. We have a pipeline and will take a disciplined approach to ensure any contracts we take on contribute positively to our long-term earnings profile.
Okay. Thank you.
We have no further questions at this time. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.