Great-West Lifeco Inc

TSX:GWO

Earnings Call Transcript 2021-Q1

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Great-West Lifeco First Quarter 2021 Results Conference Call. I would now like to turn the conference over to Mr. Paul Mahon, President and CEO of Great-West Lifeco. Please go ahead.

[Paul Anthony Mahon, President, CEO & Director]

Thanks, Ariel, and good afternoon, and welcome to Great-West Lifeco's First Quarter 2021 Conference Call. I hope you and your families are safe and healthy. Before I move on to our prepared remarks for the quarter, I'm going to take a few moments to touch on the ongoing impacts of COVID-19 on our communities and world. To start, I want to acknowledge and thank all of our health care and essential workers. It's been a long road for you and your tireless work has ensured our health and safety and kept our communities running. And to those of you who've lost a loved one due to COVID my heartfelt condolences go out to you. Our appreciation also goes out to our dedicated advisers and employees for their ongoing efforts. You continue to serve our clients and deliver on our commitments as you balance family and other responsibilities well. Most of you working from home. While there's real hope as vaccination efforts advance, the world is also coping with new waves and variants of COVID-19. And we see health care systems in many countries remaining truly stretched. We've seen the heart wrenching impacts to people and families in India where we actually have an Empower Retirement team. And as a demonstration of care for our over 1,000 Empower associates living there, Empower Retirement, along with our Canadian operations and together with Power Corporation and IGM are donating over $250,000 to Red Cross Disaster Relief efforts. And in other countries like the U.S., vaccination rates are helping to stem the surge of additional COVID infections. And what we see is that's allowing countries to increasingly open for business, travel and things like connecting with family and friends. And I would say that's things that we all yearn for. So in my mind, it's clear that vaccinations will be critical to achieving both health safety and a vibrant economy. And that's why we're really encouraging vaccination for all those who are eligible, including our staff and advisers. I'll share that I personally had my first AstraZeneca vaccination, and I look forward to my second shot. So getting on to business. Joining me on the call today is Garry MacNicholas, Executive Vice President and Chief Financial Officer, and together, we'll deliver today's formal presentation. Also joining us on the call and available to answer your questions are David Harney, President and Chief Operating Officer in Europe; Arshil Jamal, President and Group Head, Strategy, Investment, Reinsurance and Corporate Development; Jeff Macoun, President and Chief Operating Officer, Canada; Ed Murphy, President and Chief Executive Officer of Empower Retirement; and Bob Reynolds, President and Chief Executive Officer of Putnam Investments. Before we start, I'll draw your attention to our cautionary notes regarding forward-looking information and non-IFRS financial measures on Slide 2. These cautionary notes apply to today's discussion and the presentation materials. Moving to Slide 4, you'll see a high-level summary of the key themes that we're going to cover today. We reported a solid first quarter with continuation of the momentum we saw in Q4 and strong and consistent operating performances across all segments. Our recently acquired businesses, MassMutual and Personal Capital are performing well. The integrations are on track and MassMutual contributed solidly to the first quarter results. Our capital position remains strong and our LICAT ratio was at 123% at the end of the quarter. While down 6 points from Q4 due to rising interest rates in the quarter, we're comfortable with our LICAT ratio, which remains above our internal target range of 110% to 120%. And while rising rates have a dampening effect on LICAT, the higher interest rate environment is positive for our overall business and the value we can deliver to our customers through our products and services. From a business perspective, we've experienced modest financial and business impacts from COVID in the quarter, which are outlined on the next slide. So please turn to Slide 5. From a revenue perspective, sales and quote activity are trending upward and in most cases, nearing pre-pandemic levels. While activity remains impacted by lockdowns in some jurisdictions, overall trends are favorable. And we've seen good persistency in asset retention across our group businesses. While the impact of credit was modest across bonds and mortgages, COVID-related pressure still exist in some sectors. We're maintaining a cautious outlook for segments of the office and retail subsectors. We continue to monitor our invested assets portfolio closely and believe in its high-quality, diversified nature, which will help to mitigate potential future pressures. So in summary, business momentum and our sales pipelines are strong, and we remain confident in the resiliency of our business. Turning to Slide 6, we provide an overview of earnings. Base earnings were $739 million and net earnings were $707 million in the first quarter. Base EPS of $0.80 was up 36% year-over-year and steady with last quarter. Expected profit increased 21%, reflecting solid business growth and an ongoing recovery from the effects of the pandemic and a strong contribution from the MassMutual business acquired last year. Net earnings of $0.76 per share posted a strong rebound from COVID impacted $0.37 a year ago. Net earnings included modest U.K. property-related impacts and U.S. integration costs. Please turn to Slide 7. You'll note we've taken a different approach to operating results slides this quarter. We've changed the format to focus on segment operating performance, including top line and net growth to facilitate greater insights into growth drivers and market trends. Turning now to Canada. We saw solid operating performance in Q1. Group Insurance sales were strong due to large cases and overall persistency. For the second consecutive quarter, Canada Life led the market in Group Life and Health sales. We also saw strong asset retention in Group Wealth as plan members switching jobs or retiring opted to keep their assets with Canada Life through the next step program. This is the same dynamic that we refer to at Empower with our retail IRA rollover business. While individual insurance sales were slightly lower due to fewer large cases, quote activity is trending upward, and we continue to add new products and services. And as an example, we launched the Canada Life My Term Flexible Life Insurance product. This new customizable product allows customers to pick the exact term length they want between 5 and 50 years. And we're seeing the benefits of our past investments really playing out with over 80% of individual insurance applications now being done digitally. This reflects continuing strong adoption of our SimpleProtect digital life insurance app. Individual wealth saw record sales across segregated and mutual funds and positive net flows. These strong results reflect excellent progress in building out our wealth business in Canada, which was advanced through the combination of GLC Asset Management with Mackenzie Investments and the new product launches we made last year. Strategic advancements continue, including the introduction of an adviser solutions which provides enhanced support for advisers who are doing business directly with Canada Life. The technology-enabled offering is adapted to each adviser's unique needs, including product support, practice management and succession planning. Please turn to Slide 8. Empower continued its strong growth trajectory after leading the defined contribution record-keeping market in growth by participants and assets in 2020. Sales of $64 billion reflected strong results across market segments and included a mega plan sale, with approximately 316,000 participants and USD 49 billion in assets under administration. As noted in the past, Empower sales can be lumpy and will be elevated in quarters when we onboard large or mega plan sales. While Empower is the second largest player in the in the U.S. DC recordkeeping market, extending the business to meet the retail wealth management needs of its over 12 million participants is a key part of our strategy. We're pleased to have reached a new milestone of $19 billion in retail IRA assets under administration as of quarter end, with strong growth in roll-in and rollover assets, IRA customers and managed account sales. While integration is proceeding, Personal Capital continues to make strong progress as a standalone business with positive growth in new client assets to end the quarter with AUM of $18 billion. On a combined basis, Empower and Personal Capital standalone retail assets reached $37 billion. This is an increase of 14% from Q4 2020. On a year-over-year basis, including Personal Capital assets pre-acquisition, combined retail assets were up 68% from Q1 2020. Staying on this retail wealth management theme. In April, Empower announced it will launch a new digital experience later this year. The new offering will bring together the combined experience, technology and capabilities of Empower and Personal Capital. This represents the first stage in a more robust integration of Personal Capital's technology and client engagement capabilities into Empower's DC and retail platforms. Finally, the acquired MassMutual business contributed strongly to Empower base earnings in the quarter and integration is progressing well. We've achieved USD 40 million in annual pretax run rate synergies to date and are on track to reach our USD 160 million target in 2022. Please turn to Slide 9. Putnam sales of USD 13 billion were down 14% from last year, but steady with last quarter as sales of short duration income products slowed due to lower yields while equity sales improved. Net outflows of $2 billion were mainly institutional and fixed income products. Behind this result was offsetting net inflows in equity products driven by continuing strong performance with 7 of 10 U.S. equity funds having 4 or 5-star Morningstar ratings. Putnam is driving organic growth with new fund launches. In February, it announced the launch of active ETFs with the first of these products expected to be available this quarter. Please turn to Slide 10. Europe had a very solid commercial performance in the first quarter with sales and profitability in many product lines in our 3 markets returning to pre-COVID levels. In addition to the new presentation on this slide, we've included additional details on European sales on Slide 28 in the appendix. Wealth sales have continued to recover with strong growth in individual pension sales in Ireland and Germany. German sales were up 20% year-over-year. And we're excited to have completed our first quarter where all in-quarter sales were processed on our new more digitally enabled administration platform. Wealth client retention in all markets remain solid, supporting another quarter of positive net flows and AUA growth in local currency. Europe AUA is up 16% over the last 12 months, adjusting for the sale of Irish Progressive Services in Q2 2020. Group wealth is mostly workplace pension sales in Ireland and will vary a lot from quarter-to-quarter based on when we win large new mandates. Similarly, annuity sales will spike in quarters with bulk annuities. While there were no bulk annuities in the first quarter, activity has returned to the market with many pension schemes looking to transfer their liabilities, and we are actively engaged in assessing these opportunities. Individual annuity sales were solid in Q1, and our equity release mortgage business continues to perform well. We're very pleased with this business, branded Canada Life Home Finance and the financial flexibility equity release mortgages offer our customers in retirement. We also maintained our group insurance market-leading position in the U.K., helped by new services such as We Care, which provides digital and virtual services to support physical, mental and financial well-being of employees. Please turn to Slide 11. Capital and Risk Solutions had another good quarter following a record year in 2020 and has demonstrated strong growth by offering tailored reinsurance products to our clients in the U.S. and Europe. Because these transactions can take different forms and structures, expected profit is the best way to see how the segment is performing. While CRS relies on its established markets and products to sustain strong earnings, it also focuses on developing new markets and new products for growth. Examples of this are a large asset-based transaction in Japan and a transaction covering lapse risk in Israel. Both were closed in the first quarter and show that we can extend our expertise and creativity beyond North America and Europe. I'll now turn the call over to Garry to review financial highlights. Garry?

[Garry MacNicholas, Executive VP & CFO]

Thank you, Paul. Please turn to Slide 13. Base EPS of $0.80 was up 36% compared to the prior year. While there were some COVID-related headwinds in base EPS last year, the improvement is more a reflection of underlying business growth both organic and through M&A. We've had strong base earnings results across the segment, and I'll touch on highlights momentarily. Net EPS of $0.76 was up over 100%. In addition to growth in base earnings, a large part of the year-over-year swing comes from the COVID-driven market-related impacts in 2020, with only a modest headwind from excluded items this quarter. On a segment basis, starting with Canada, base earnings were $298 million, up 9% from last year. Continuing favorable results in health and LPD claims and solid yield enhancement contributed to strong experience gains this quarter. New business also contributed positively as a result of repricing actions earlier in 2020 and higher interest rates. In the U.S., base earnings were up significantly from Q1 2020. The MassMutual business performed well in its first quarter, adding $48 million to base including early expense synergy gains and strong fee income. We see an opportunity for further yield and spread pickup as we position investments to our target asset mix in the general account. Personal Capital was in line with our expectations, profitable on in-force, but recording a base loss of $14 million as we continue to invest in new customer acquisition to fuel growth and future profitability. Excluding MassMutual and Personal Capital, Empower's base earnings increased by 30% as a result of higher market levels and strong organic growth. Putnam's results improved sharply year-over-year. While seed capital showed a small loss this quarter, it was much improved from the large mark-to-market losses in Q1 2020. I would also note that institutional performance fees, which were a $30 million benefit last quarter are seasonal and concentrated in Q4 each year, so did not contribute in Q1. In Europe, base earnings increased 52% over a softer Q1 2020 with improvements in each of the 3 geographies. Base earnings benefited from solid yield enhancement and favorable longevity and morbidity experience, partly offsetting higher life claims. Capital and Risk Solutions saw another quarter of strong base earnings growth, over -- up 22% over Q1 2020, reflecting the expected profit contribution on business written in the past year. COVID continued to impact mortality rates with higher claims in the U.S. traditional life reinsurance business being partly offset by favorable longevity experience. Turning to Slide 14. This table shows the segment and total Lifeco source of earnings from a base earnings perspective, which excludes the lines for management actions and changes assumptions and other and also excludes certain market-related items from experience gains and losses. We introduced this view last quarter given the number of adjustments at the time and have maintained the additional disclosure. Expected profit was up 21% year-over-year. Of the 21% increase, about half was due to the additions of MassMutual and Personal Capital, with the other half, about 11% coming from business growth across the other segments, most notably in Capital Risk Solutions, which was also up 21% from last year. Regarding new business impacts, notable changes include the improvement in Canada mentioned earlier and an increase in new business strain in the U.S., which now includes Personal Capital, MassMutual. And this is a direct result of strong growth. As a reminder, the U.S. strain is on investment contracts and represents business acquisition costs that cannot be deferred under IFRS. On the flip side, the benefit of future margins, including margins to recoup those acquisition costs will come through the expected profit line in future periods. Experience gains contributed positively in the quarter, and I'll cover these on a separate slide later. Earnings on surplus of minus $31 million is down from the prior year. This is partly due to higher ongoing financing charges as a result of debt raises last year to support the recent acquisitions as well as lower realized gains on available sale assets in light of rising interest rates. The effective tax rate on base shareholder earnings was 10%, primarily reflecting the jurisdictional mix of earnings with a contribution from getting close to settling certain outstanding CRA matters. Turning to Slide 15. The table on this slide is a reconciliation of base to net earnings, highlighting the key items that are not included in base earnings. Just 2 items to call out: the first being market-related impacts. This primarily represents an adjustment to U.K. property values used in payout annuity liability calculations. And the second is integration costs associated with MassMutual and Personal Capital. And we'll be noting these each quarter along with the progress towards achieving expense synergy targets. And as noted earlier, MassMutual has hit a run rate of $40 million so far on route to our $160 million target overall. And those are annualized pretax. There are no further material impacts from assumption changes in the period. Please turn to Slide 16. This table shows the segment and total Lifeco net earnings results from a source of earnings perspective, and it essentially combines the information from the base earnings SoE with adjustments for the excluded items on the prior slide. The Other line is where we record the integration costs mentioned earlier and recall these are all pretax numbers. Please turn to Slide 17. These tables expand on the experience results as well as the management actions and changes in assumptions to highlight various items in the quarter, most of which we've touched on earlier. As shown in the chart on the left, yield enhancement continues to contribute positively particularly in Canada and the U.K. and the market-related impact was discussed earlier. I'd also call out that there was a gain, a positive combined net impact of mortality, longevity and morbidity as we continue to benefit from a diversified book of business. Expense variances reflect strategic project spend mostly in Europe and credit-related impacts were negligible this quarter, which is a good outcome that reflects the quality of the portfolio, but we do continue to watch that closely. Moving to Slide 18. This slide highlights operating expenses by segment. While expenses are up notably year-over-year, this is to be expected given the growth in business and expected profit, both organically and through M&A activity. Canada and Europe expenses are pretty steady year-over-year. CRS expenses were up 13%, which compares favorably to the 21% increase in expected profit. And in the U.S., expenses are up largely due to MassMutual and Personal Capital acquisitions, but also due to business growth at Empower. Please turn to Slide 19. The Q4 book value per share of $23.36 was up 5% year-over-year and up 2% sequentially, driven largely by increased retained earnings, partly offset by currency movements. The LICAT ratio at Canada Life remained strong, although down 6 points from year-end. The primary impact came from the sharp rise in risk-free rates, which accounted for a 3.5% -- 3.5 point decrease in the ratio. In addition, as noted last quarter, this also includes the continued phase-in of the new most adverse LICAT scenario, which impacted the ratio by 1 point. Assuming we stay in this LICAT interest scenario, the full impact will continue to be smoothed in over the next 3 quarters at just under 1 point per quarter. We've also seen growth in asset-related requirements from increased non-fixed income investments and the new reinsurance transactions. Lifeco cash of $1 billion is not included in the LICAT ratio and would be worth about 4 points. That concludes my formal remarks. Back to you, Paul.

[Paul Anthony Mahon, President, CEO & Director]

Thank you, Garry. Please turn to Slide 20. Looking ahead, we'll continue to maintain a high level of diligence -- vigilance around COVID-19 and closely monitor ongoing risks in the markets where we operate. We'll also continue to do all we can to support our employees and communities as the pandemic continues to put so much strain on the health and livelihoods of so many. In Canada, we remain focused on elevating our wealth management strategies through the combination of GLC Asset Management with Mackenzie Investments. We saw benefits in the first quarter with strong individual wealth sales and positive inflows. We will continue to leverage digital capabilities and product innovations to drive further revenue growth and serve our customers. In Europe, our focus remains on unlocking value from the investments we've made in our wealth and retirement platforms, including wealth tuck-ins in Ireland and our extension into the German corporate pension space. In Capital and Risk Solutions, we will continue to leverage our expertise and experience in longevity and life capital solutions to grow this business and extend into new markets within our risk appetite. At Putnam, we continue to deliver strong performance for our clients and the positive flows we see into higher fee equity funds illustrates positive momentum. And finally, at Empower, we're focused on building out our retail wealth strategy as we integrate Personal Capital and expand our offering to over 12 million plus plan participants. We made solid progress in the first quarter with strong growth in retail assets and plans to roll out the new digital experience to plan participants later this year. We're also on track to realize the synergies and accretion targets we set for the MassMutual transaction. And on that note, please turn to Slide 21, where we're pleased to announce that we will host an Empower Retirement Investor Day on June 8. We will post event details in the coming days and look forward to sharing more with you about the Empower business and our plans to grow and win in the U.S. retirement services and retail wealth management markets. That concludes my formal remarks. Ariel, please open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from Meny Grauman of Scotiabank.

[Meny Grauman]

Garry, when you talked about the tax rate this past quarter, you mentioned something about getting close to resolving certain outstanding CRA items. Just wondering if you can elaborate on that. What was the impact from that?

[Paul Anthony Mahon, President, CEO & Director]

Garry, just take that one straight away.

[Garry MacNicholas, Executive VP & CFO]

Yes. Okay. Thanks, Paul. Yes, the -- so a couple of things to note there. The thing I called out there, that was -- we reduced our uncertain tax provisions they're called by about $30 million as we get close to finalizing a settlement. So that was -- and that was split between -- I think it was $20 million Canada and $10 million Europe. On the other hand, we had other areas where our tax provisions increased slightly. So the net impact from lower tax provisions was about $15 million overall. But the specific item I was calling out was about $30 million.

[Meny Grauman]

Okay. And then if I could just ask about the Capital and Risk Solutions business. It sounds like there's lots of momentum there, expected profit up 21% year-over-year. I'm just wondering, as you look ahead, do you expect that pace to continue? Is there anything in that, that you would exclude on a run rate basis? How do you look at that expected profit growth going forward?

[Paul Anthony Mahon, President, CEO & Director]

Yes. Meny, it's -- if I refer back to Garry's comments, the expected profit growth you see now is reflective of transactions that we would have done in past quarters, and they're now flowing through. And as Garry or as I outlined, there was a couple of transactions in quarter where we'll see the lift in future quarters. Having said that, we use discipline in terms of our aspiration for growth with this business where we want to keep it within our risk appetite. We want to make sure that we've got really good discipline around return characteristics, profitability and risk. So that would sort of be a general comment. I'll let Arshil comment a little bit more on the way we think about growth going forward. Arshil?

[Arshil Jamal]

Thank you, Paul. So in terms of the transactions and the growth we've seen over the last couple of years, we've really seen some outsized growth on the longevity side, particularly in the swap area, both in sterling and in euros. And the market conditions there are tightening up a little bit. So I think the highest level of growth has already happened, but there are still opportunities for us even in that market. We also continue to see reasonable opportunities for us along -- across our structured portfolio in the U.S., particularly on the health side, in Europe around Solvency II relief and we highlighted a mass lapse transaction in Israel. So again, we've seen reasonable growth in that structured financial solutions area, and we'd expect that to continue. And then finally, on the traditional side, we've seen some tightening extra competitive pressures in the U.S. But we announced that transaction in Japan on an older age block which was very interesting for us because we got all of the premium upfront. So we have very little reinvestment risk there. And we can fully hedge out the interest rate exposure and then over time, try to add some spread. So again, we're not promising the 20% type growth that we've seen in the very recent past, but there's still lots of opportunity for us to continue to grow reinsurance in pace with how -- the growth of the rest of the company.

[Meny Grauman]

And just as a follow-up, I know you're emphasizing that you're increasingly looking outside of North America and Europe. What's the competitive landscape once you go outside of those jurisdictions. Does it become less competitive? If you could just give some color on that?

[Paul Anthony Mahon, President, CEO & Director]

Arshil, why don't you go straight to that?

[Arshil Jamal]

So thank you. I think we're really picking our spots when we're sort of extending beyond our core markets of the U.S. and Europe. So Israel is quite attractive for us. It is not an overly competitive market, but there are others who are there. But really in that market, we're benefiting from our Solvency II structuring capabilities. And in Japan, we're really leveraging the strength of our global investment organization, including our investment shop in London. That's part of the U.K. operation because we got that large upfront premium from the Japanese client. So we immediately hedge all of the interest rate risk. So the markets outside the U.S. and Europe are very large, potentially in Asia and other markets as well. And we're only scratching the surface there. So I think the near-term constraint there is less the competitive dynamic but much more finding ways for us to leverage our capabilities and doing that in a way that's consistent with our risk appetite and the growth that we're seeing in the other areas. So I don't want to neglect at all growth opportunities in the U.S. and Europe, and I view that geographic expansion is very complementary for us.

[Operator]

Our next question comes from Mario Mendonca of TD Securities.

[Mario Mendonca, MD & Research Analyst]

Paul, in your opening remarks, you offered something that was very similar to what we heard from a few of the other life companies this quarter, specifically that higher interest rates could sort of enhance the product offering for customers going forward. Now when you -- when I hear an insurance executive offer that, I immediately think of better pricing illustrations on universal life. Is there more to it than just that? Is there -- are there other products? Or is it as simple as just saying long-term life insurance illustrates better with a higher rate.

[Paul Anthony Mahon, President, CEO & Director]

Well, I think you captured probably a core issue, which is the reality is that a number of these intra-sensitive products do not provide a strong consumer value until you can actually get some real throughput in terms of returns. So I would say that's one driver. I think the other dynamic, though, I think about is diversification of offerings and opportunities for customers because if you kind of think over the last number of years, Par has tended to be -- has taken up a lot of the sales share, for example, in Canada, and universal life has really sort of struggled to offer sort of competitive returns. And as we see those rates rise, I think it allows for those stronger returns. I think the other reality is those stronger returns, number one, can offer in part, better pricing for clients and in part, better margins for us. So overall, I think it just sort of takes away a dampening effect and opens up the opportunity for a more diverse and competitive product offering.

[Mario Mendonca, MD & Research Analyst]

And would you point us to other potential positives in the higher rates, like earnings on surface or new business? I mean, are there -- is there more than just margins on sales. What else would you point to?

[Paul Anthony Mahon, President, CEO & Director]

Yes. The other things I would point to would be things like there's a number of -- there's guaranteed -- there's products with guaranteed rates or match rates. So as we -- as we have higher rates, you're in a better position that way. More attractive annuities would be a critically important one. If you think about people who are looking to secure certainty of lifetime income, it's hard to take that on when you're in a really low interest rate environment, but things like annuity products become far more attractive as rates start to widen. And I think the other reality is even if you think about long-term disability products, those disabled life reserves are also invested in assets and they have to be fairly secure, steady assets. So again, LTV rates can become more competitive. So overall, it has a really broad impact on our business. It's -- to me, it's a -- there's lots of potential positive lift.

[Mario Mendonca, MD & Research Analyst]

Give me -- sort of a different type of question, Paul, about the tax rate. The tax rate does bounce around a lot. I think it does for a lot of companies. But what's sort of really noticeable for Great-West Life is that over the last, say, 7 quarters, the base tax rate has been around 8% or 9%. What are we seeing there? Is it just that in these last 7 quarters, there's just been a lot of opportunities to lower the tax rate through finishing up an audit or just special provisions that are being released. Like what are we seeing over the last 7 quarters that would lead to such to single-digit tax rates for Great-West Life?

[Paul Anthony Mahon, President, CEO & Director]

Yes. I'm going to defer to Garry in a moment, but I'll just touch on 3 things. Number one, we're going to get our relative jurisdictional mix of business, which will drive that -- so to the extent that we're having higher growth in business and lower tax jurisdictions, you're going to see that dampening effect. You will see us obviously working through tax matters with the various authorities and resolving those. And I think the other thing is thinking about how we structure our business in terms of taking advantage of restructuring, leveraging various aspects of the business that way. But I think if you look at it overall, to a large extent, there's lots of those opportunities. But our continuing view would be that we really think that the underlying tax rate really is in that low to middle double-digit rate. And I'll let Garry speak to that. And Garry, you probably have some stats on sort of where the help has been from a tax perspective.

[Garry MacNicholas, Executive VP & CFO]

Sure, Paul. I think you've actually summed it up well. A lot of the benefit or the lower tax rate just comes from a couple of things. And one is certain of our investment income isn't subject to taxes, there's tax advantage in investment income. But a lot of it really is the mix of jurisdictions of our -- the -- where the earnings that are rising, the different jurisdictions. Because Canada is the highest of all the -- I think the small amount was taxed in Germany because most of our German business is run out of Ireland as well, which is, as you know, would be a lower tax rate. So it really is that jurisdictional mix. So our -- I think a typical tax rate in that low double digits is not unusual. And if you take a longer average, I think it is lumpy. You're right, Mario, but we've had a number of larger older tax matters wrapped up. And typically, we have provisioned for them. So when we do finally wrap them up, we always hope there's a little left over that falls to the bottom line as we resolve those matters. So on average, I think that does -- or has at least in the past, tend to lower the tax rate. So the combination of the 2, I'm not surprised. I haven't done the average, but I'm not surprised it to be like this quarter 10% or maybe even a little less as we have wrapped a few up lately.

[Operator]

Our next question comes from Paul Holden of CIBC.

[Paul David Holden]

I have 2 questions for you. The first is on LICAT and the interest rate sensitivity. So you do disclose a sensitivity number in your MD&A. And it uses an example of a 50 basis point rate increase. If I was to think about that type of scenario, is that enough to result in the scenario switch, whereby you get out of this more punitive scenario? Or would you need to see something even higher than that?

[Paul Anthony Mahon, President, CEO & Director]

Paul, I'm going to refer that question on to Garry. Garry?

[Garry MacNicholas, Executive VP & CFO]

Sure. No, at this point, I mean, it does -- when we do those -- we do put the disclosures in. So the 50 basis points, and you'll see prior disclosure, it still would be hit -- we don't cross scenarios at this point with 50. It would be higher than that. It would likely be over 100 basis points up before we crossed. And I just want to caution though that does change as our business changes, whether it's -- we update our actuarial liabilities just as the overall -- and our investments just to our investments as they change. But it's -- I think if you think of it as more than 100 bps, that's probably a good spot right now before it would switch back.

[Paul David Holden]

Got it. Okay. That's helpful. And then my second question is around the expected profit growth in Canada. If I think about the -- it was up 5% year-over-year. And You also sold GLC Asset Management at the same time. I mean that seems to me like a pretty good result. So maybe you can talk about some of the drivers and sustainability of that type of growth and absent now GLC.

[Paul Anthony Mahon, President, CEO & Director]

Well, I might start with Garry, just trying to provide a bit of context around the 5%. But then I think, Garry, why don't you pass it over to Jeff Macoun because Paul, the core underlying issue there is -- you heard us reference the growth in our wealth management business set a record level, and we're seeing some net sales there. Notwithstanding a bit of a softer life quarter, we're seeing pretty solid growth there. So underlying that, it's kind of growth -- it's growth in the business. But Garry, maybe you can provide a little context around the 5% in relation to GLC and then maybe Jeff can speak to sort of the drivers of growth that are going to support that.

[Garry MacNicholas, Executive VP & CFO]

Yes. I'd note a couple of things. First of all, the impact of the loss of income, I guess, following the sale of GLC, as we called out at the time was really single digits for the year. So It didn't have much of an impact. It was a very small impact on the expected profit, a slight headwind there, but $1 million or $2 million. No, the benefits really come from just our some of the repricings we had done in the past in our group business. So just getting the rate increases there, the execution of renewals and good margins in our group business and somewhat lower expenses. Those have been sort of the net ones that come through to the expected profit. So we're seeing some improvement in our margins. That's really what drove the 5%.

[Jeffrey F. Macoun, President & COO for Canada]

Paul, if I could add that -- just come behind Garry there. I would add that, as Garry pointed out, Paul, we started, I'll call it, late '19 and certainly '20 through Garry referenced the group block, we took pricing action twice. And we're now seeing that margin and those -- that -- the renewals coming through in a nice way. And our persistency was up in quarter in group. So that's positive. On the individual side, Garry and Paul touched on that a little bit. We also took action on UL term, our CIDI starting in late '19 and into '20. And so what you're starting to see is the flow-throughs of those actions we took in '20.

[Paul David Holden]

Okay. So those sound like sustainable factors. That's great.

[Operator]

Our next question comes from Gabriel Dechaine of National Bank Financial.

[Gabriel Dechaine, Analyst]

Just a question on MassMutual. The USD 38 million of earnings contribution. I mean depending on how I treat the synergies and the financing costs, it looks like it may have exceeded the run rate that you're kind of guiding us to for accretion in 2022 based on the accounting acquisition presentation? Is that just my math that might be off? Or did something special happen this quarter?

[Paul Anthony Mahon, President, CEO & Director]

I'll start with Garry on that. Just to make sure that that's consistent with our view. And then maybe I can just speak to the early -- our early progress, which is underlying separate from the numbers underlying it's going very well right out of the gate. We're really pleased with the MassMutual integration. But Garry, why don't you speak to the USD 38 million, and then maybe I can talk a little bit about just progress, and how that might be maybe a bit stronger than we might have expected.

[Garry MacNicholas, Executive VP & CFO]

Yes. I think that's a good way to sum it up Paul. I mean, I haven't gone through the exact math you had gone through Gabriel. And we're happy to line those up after. But I would say that we're off to a good start. So we'd be cautiously optimistic. One thing I'd note is that in our original, we would have had a certain view on potential shock loss lapses. I think we've and Ed can speak to this. I think we're very pleased with the retention of clients, and so that might be a help. Asset levels would have been -- obviously, markets have continued to perform. So those higher asset levels in Q1 than we might have anticipated when we originally described in the transaction. Those are also -- obviously, the markets go up or down, but those have also been a positive. So I'm not surprised you're seeing it up a little better. There's a few positive factors there, but maybe Ed can talk about the business.

[Edmund Francis Murphy, President, CEO & Director]

Sure.

[Paul Anthony Mahon, President, CEO & Director]

Go ahead.

[Edmund Francis Murphy, President, CEO & Director]

No, I was just going to add that we're seeing strong revenue per Par there, and we expect that to continue. Obviously, as Garry mentioned, the market's helped. It's still early days, obviously. But in terms of the client retention effort, we're running ahead of plan there. So I think that is a contributing factor. And the program in general is on track at budget. And as Paul mentioned in his opening remarks, we're on track on the synergies for the year, too.

[Gabriel Dechaine, Analyst]

Okay. Great. And nothing like what Garry was talking about in terms of reinvesting some of the general accounts. That's for revenue synergies that's part of the original plan? It's not anything new that you've discovered?

[Garry MacNicholas, Executive VP & CFO]

No. What I was -- called out in my notes is that we haven't quite reached our target asset mix there. So there is a potential to add some yield and spread as we reach our target asset mix. Just obviously, the assets are just transferred right at close at year-end. So we've got some potential there.

[Gabriel Dechaine, Analyst]

Potential like I think it was $30 million in terms of revenue synergies above and beyond that, possibly?

[Garry MacNicholas, Executive VP & CFO]

I think Ed can talk to those. I think those were a different type of revenue synergies.

[Edmund Francis Murphy, President, CEO & Director]

The revenue synergies really won't begin to kick in until the relationship -- for the most part, won't be -- won't really kick in until the relationships come on to our platform. But we'll see some but a lot of it will...

[Paul Anthony Mahon, President, CEO & Director]

Yes. Gabriel, just to clarify, I think what Garry is referring to is that if we looked at the overall investment gains and yields we were expecting, on the invested assets once they're brought over and kind of invested with the target portfolio, we would expect a certain level of yield. We've not fully transitioned it. We've got some lower-yielding assets. We'll get them to the target. It's not part of that. It's just where we're maybe a bit ahead in some areas, we're a little bit behind on that. And all of these things are going to come into the frame in the subsequent quarters.

[Gabriel Dechaine, Analyst]

Okay. Great. I'm sorry for cutting people off. It's hard to tell when someone starts, someone stops on these things.

[Garry MacNicholas, Executive VP & CFO]

No problem.

[Paul Anthony Mahon, President, CEO & Director]

No problem at all. Good questions.

[Operator]

[Operator Instructions] Our next question comes from Tom MacKinnon of BMO Capital.

[Tom MacKinnon, MD & Analyst]

Curious on your comments about the bulk annuity market saying that activity has returned, but there haven't been any kind of sales. Maybe you can describe what's been driving that activity? Is it -- do rising interest rates help? And what is really your -- what differentiates you from your competitors in the bulk annuity marketplace in Europe? And then have you ever thought about transporting those capabilities into North America? And to what extent does an increase in bulk annuity business lead to better yield enhancements, assuming that you source assets through bulk. Does that have any bearing on your ability to have any kind of uptick in yield enhancements? So sorry about a bit of a mouthful there, but if you can try to tackle that, that would be great.

[Paul Anthony Mahon, President, CEO & Director]

Okay. Thanks, Tom. Tom, I'll start off and then I'm going to turn it to David Harney to provide a bit more color. There's kind of 3 questions there. I'm going to let David speak to what unlocks the market, why is the market opening up now versus maybe not over the last few months, and we do think interest rates play into that. The question about would we consider participating in this market. For example, in Canada, we'd call it the single premium group annuity market. Every market has to have their own name for a business opportunity. And absolutely, as we think about longevity and taking on that as part of our -- within our risk appetite. We do look to opportunities in Canada. And I would say that that's an area that Arshil Jamal and the Capital and Risk Solutions Group are thinking about. I would also note that as we think about playing in the longevity market, we do it both through the bulk annuity "business" but also through our Capital and Risk Solutions Group. And for sure, to the extent that we're doing transactions that come along with assets, yield enhancement is obviously one of the opportunities that comes with that. So I'll turn it over maybe to David, though to provide a little bit more color. And to the extent, Arshil, that if you have anything to add, feel free to jump in after that. David?

[David M. Harney, President & COO of Europe]

Yes. Just our comment on that was -- it's partly gold related and partly interest rates, like obviously, bulk annuities, they're big transactions for our pension schemes to sort of undertake and execute and take a little bit of time. So we just saw a slowdown in schemes entering the pipeline last year, mostly because of COVID. So we're sort of out of that now and the pipeline of schemes that are out in the market are looking to execute at the moment is back to normal levels. We won't raise bulk annuity scheme every quarter. But I suppose we're just calling out that we are active, and we would expect to win some schemes again this year, and we're finding that our pricing is pretty competitive. I suppose our competitive advantage comes from a number of sources. Like being able to work with the Capital and Risk Solutions team is a big help to us in the U.K. And then the various investment management companies that we have and particularly the company in the U.K. They work very hard to earn good yields on the assets that come with these deals, and that helps us be competitive in the U.K markets.

[Paul Anthony Mahon, President, CEO & Director]

David, I think it's also fair to say that we've been in this business for a long time in the payout annuity business. And I think we actually do have pretty deep expertise on the liability selection side. So the whole managing the liability side, understanding those is key. And then obviously, the asset management side is the other part that comes into play. And when we look at those businesses, we think about the combined benefits of do we have the underwriting risk selection expertise? Do -- can we source assets either directly through the in-market investment management shop we have or across our group because we look to those things?And then the final one is how can we use Capital and Risk Solutions as a reinsurance entity to use some internal reinsurance structures where we may be able to get some additional advantage there. So those are kind of the 3 parts of the recipe that have allowed us to participate. And again, that means that we're not blind to opportunities, but we want to make sure that if we consider things in Canada or elsewhere, that it has the same overall risk and return profile that we could get in the U.K. market. Or if you consider some of the longevity transactions we've done in Capital and Risk Solutions in Continental Europe as well. Arshil, anything else you'd add to that?

[Arshil Jamal]

I would add a couple of points. We certainly did see through sort of 2019 and 2020 that the way the swap spreads were working, it was better for our assets in North America to support our European bulk annuity efforts as a boost to originating assets in other places to support liabilities in Canada. So the swap spreads were one of the factors that sort of made the margins that were available to us in Europe more attractive. And then our U.K. origination of equity release mortgages, some of that has been [Audio Gap] in Canada. The real constraint for us in Canada being more active in the FPGA market is really the competitive landscape. The returns have been historically a little bit lower. And we're working hard to see if we can find different investment strategies using some of the capabilities that exist for us outside Canada [Audio Gap] bring those to bear to support [Audio Gap] in Canada on FPGA. So I'm cautiously optimistic that in due course that our offering in Canada will become more competitive as we find ways to tap in on our asset origination capabilities in the U.S. and in Europe. And if the swap spreads are going in the right direction to support our offering in Canada. But as Paul indicated, there are a lot of ways that we can get those asset-heavy type of transactions, bulk annuities, reinsurance, FPGAs, and we're very cautious -- conscious of all of the markets that we -- all of the opportunities that are available and thinking deeply about making sure that we get the best return for our shareholders.

[Tom MacKinnon, MD & Analyst]

Okay. If I could just ask really one more -- one on Putnam. Margins are down to like the 2%-ish range. The core earnings were not -- it's back down to low single digits into outflows again. So what's the thinking on Putnam? I mean we had a bit of -- we had some cost cuts. margins came back up, but we're back to where we were before.

[Paul Anthony Mahon, President, CEO & Director]

Yes, Tom, I'll start with that one. To start with, to kind of unpack the quarter, there's I guess 3 dynamics at play. Number one, we saw performance fees were high in Q4. And I think we disclosed that, that was kind of a not regular repeatable event. They tend to be back ended into the year. So that was part of what drove the higher margin in Q4. The other issue we had was that Garry referenced in his speaking notes was on Seed Capital. There was some hedge funds that are more tech-based where Seed Capital has been a very strong consistent contributor. And what happened with dislocation on some of the tech funds in Q1 as we saw a bit of a fall away there where we've actually seen a recovery already happening in Q2. So there was sort of that dynamic going on. And I guess the third one would be that a lot of the positive flows we've had has tended to be in fixed income and some shorter-duration fixed income. And one of the dynamics and trends we've seen has been a bit of a turn in terms of equity -- flows into equity funds, which we actually think is really pointing to health of the business. It really aligns well with our wholesaling strategies and the like. And so we like where our performance is at. Our customers are doing very well. I'm going to let Bob speak to that. But maybe I'll just have Garry provide a little bit more context in terms of our view of this particular quarter's margins because I think where last quarter was elevated, I think this quarter was kind of temporarily dampened. And I do think we actually feel pretty good about Putnam's performance. So I'll let Garry speak to that. And then maybe Bob wants to comment a little bit on performance and our views on how the overall franchise is delivering for customers and how that -- where there's real potential for flows from our perspective. Garry?

[Garry MacNicholas, Executive VP & CFO]

Sure. I think I'll just call out a couple of things. I think we've noted the performance fees, which the institutional performance fees are basically a Q4 item. So that is a seasonality in Putnam. A couple things to note the seed capital. I think we tend to just report it quarter-by-quarter. But if I look back, it was just over CAD 30 million. This would be Canadian dollars. Just over CAD 30 million in 2019 and even notwithstanding some of the volatility last year ended up the year, I think, around CAD 45 million, CAD 47 million. So it has typically been a positive contributor about 8 to 10 a quarter type of contribution, and it was minus 6 this quarter. Again, that was some specific mandates and maybe Bob could touch on those that I think they bounced back in April, but the mark-to-market was not good at the end of Q1. And then just lastly, on the seasonality point, again, these are not large numbers, but they -- the overall income isn't that large, so they can have an impact. And that's -- some of the expenses are -- tend to be front-ended. Some of the expenses are front-ended at Putnam in Q1. Just around there's payroll taxes that are a bit higher in Q1. I think -- and then there's the stock-based compensation tends to be higher in Q1 as well. So there's a couple of seasonality items. So I think Paul summed it up well. I think underlying that, the revenues and expenses are trending the right way. But there is some noise.

[Paul Anthony Mahon, President, CEO & Director]

Yes. And Bob, maybe you can just speak to the -- to our view on performance and flows because actually, we come into this quarter feeling pretty good about the strength of the franchise. Bob?

[Robert Lloyd Reynolds]

Yes. We feel very, very, very good about what's going on. From a performance standpoint, Barron's Magazine comes out with an annual survey. And the last 10 years, Putnam was the third top-performing money manager in the U.S. And if you look at versus Lipper, we're in the top third in performance over the last 3 and 5 years, respectively, when you look at total fund assets. And Paul, you touched upon having 24 funds and 4 or 5 stars in Morningstar. So that's being reflected in the business. We touched upon equity flows were positive in all channels, which is a switch -- that means management fees up. And if you look at the pipeline institutionally, if you look what's going on in the retail space being placed on platforms and model portfolios, all the momentum is there for Putnam to have a good year.

[Paul Anthony Mahon, President, CEO & Director]

Thanks, Bob.

[Robert Lloyd Reynolds]

You're welcome.

[Operator]

Our next question comes from Doug Young of Desjardin Capital Markets.

[Doug Young, Diversified Financials and Insurance Analyst]

I'll keep this real quick. The $38 million from MassMutual, is that after financing costs?

[Paul Anthony Mahon, President, CEO & Director]

Garry, I'll let you comment on that one?

[Garry MacNicholas, Executive VP & CFO]

The -- I think the financing costs, I don't think we've attributed them directly to MassMutual. So that would include the amortization -- the amortization of intangibles, but not -- the debt's not specifically attributed.

[Doug Young, Diversified Financials and Insurance Analyst]

And can you break that out? Like what was the amortization of intangibles? And what would the financing costs be net of that or...

[Garry MacNicholas, Executive VP & CFO]

Yes. I can 2 -- on the amortization of intangibles, I think you'll find it in the financial statements. I'm doing this from memory. I believe it was the $19 million. It's in the Note 3 of the financials. You'll see we set up the intangibles and we call out the amortization in Q1. And then the financing, again, I don't have the specific for MassMutual. I have the year-over-year change in financing overall, which is really a combination -- mostly MassMutual a little bit of Personal Capital and the year-over-year change was about $12 million in our financing costs.

[Doug Young, Diversified Financials and Insurance Analyst]

Is that Canadian dollars? Or is that U.S. dollars?

[Garry MacNicholas, Executive VP & CFO]

That's Canadian. That's for the quarter.

[Paul Anthony Mahon, President, CEO & Director]

Garry, you know what? I think we should probably get back to that $38 million. I know the $38 million definitely has the cost of the intangibles, which USD 15 million. I do think there is some debt costs attributed to that $38 million. So we should -- Andra Bolotin, who I think is on to take questions. Andra, do you have more detail on that?

[Andra Sloane Bolotin, Executive VP & CFO]

Yes, Paul. The $38 million does include the amortization of the intangibles and the financing costs related to the acquisition. I'm just looking for the breakout of the financing right now.

[Doug Young, Diversified Financials and Insurance Analyst]

But it includes both of them. That's what I was hoping for.

[Paul Anthony Mahon, President, CEO & Director]

Yes.

[Andra Sloane Bolotin, Executive VP & CFO]

Yes. It does.

[Doug Young, Diversified Financials and Insurance Analyst]

Okay. Okay. And then just on the U.S. -- sorry, Canadian group side, you had a positive group experience in Canada, I believe. And just hoping you can flesh that out. I mean I understand you did some pricing, so that obviously benefited. But are you seeing some positive outcomes from terminations, incidence rates. Just hoping to get a little more color.

[Paul Anthony Mahon, President, CEO & Director]

I will pass that one right over to Jeff Macoun. Jeff, do you want to speak to our group results. And I think you're mainly speaking to group disability, but we tend to look at group morbidity overall. But Jeff, why don't you jump in?

[Jeffrey F. Macoun, President & COO for Canada]

Yes. Thanks, Paul. And thank you, Doug. So yes, we were very pleased with how we performed in quarter in line with our expectations. And our incidents and terminations are certainly in line as well with our expectations. So we have not seen a lift on those. And we perform much stronger in Q1 2020 as was called out in the exhibits. So in part, we manage this business very closely. I mentioned in an earlier comment, on renewals and execution of the business, our persistency has gone up. And at the same time, we've been able to manage well the margin. The other thing, too, is that I think we're providing very good value on the mental health side. We did see mental health claims rise just a little bit, and we've added a number of value adds over the last year in the mental health side. So we're very pleased where we're at on the group disability side.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Mahon for any closing remarks.

[Paul Anthony Mahon, President, CEO & Director]

Thank you very much, Ariel. Well, I want to thank everyone for participating in today's call. I know this has been a long day with lots of reporting going on today, and we appreciate you staying with us until the later hour. We actually really look forward to having you join us on June 8 when we can talk more about the Empower business, the Empower business having taken on MassMutual and Personal Capital. And you'll have an opportunity to meet and spend some time with Ed and a number of his management team. And Garry and I will join in as well. And in the meantime, I just encourage everyone to stay healthy. And if you're not yet vaccinated and you get the opportunity, please take advantage of it for all of us. And thank you very much, and see you soon. Take care.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.