Great-West Lifeco Inc

TSX:GWO

Earnings Call Analysis

Strong earnings driven by acquisitions and strategic growth

Great-West Lifeco had a record-breaking first quarter in 2024, surpassing $1 billion in base earnings for the first time. This milestone was driven by successful acquisitions and solid organic growth, particularly from Empower in the U.S. which reported $1.6 trillion in assets under administration. The company saw a 23% increase in base earnings per share and a 17.2% base return on equity. Despite global uncertainties, higher interest rates, and strong equity market performance contributed positively. Looking ahead, the company expects continued strong performance, bolstered by disciplined capital allocation and market expansion efforts.

A Strong Start to 2024: Record Earnings and Revenue Growth

Great-West Lifeco's first quarter of 2024 has been exceptionally strong, marked by record base earnings surpassing $1 billion for the first time. This represents a 23% increase in base earnings and a 22% increase in base EPS over the prior year. Base ROE also saw a significant rise to 17.2%, up more than a full percentage point. These results underscore the company's disciplined approach and strong portfolio repositioning efforts aimed at sustainable growth.

Empower's Continued Success in the U.S.

In the U.S., Empower, a key business segment of Great-West Lifeco, reported record base earnings and assets under administration exceeding $1.6 trillion. Empower has successfully integrated Prudential’s full-service retirement business, meeting and surpassing cost synergy targets. The company aims for a 15-20% growth in base earnings for Empower in 2024, reflecting the strong pipeline and increasing penetration of its wealth business.

Performance Across Geographies

In Canada, the acquisition of Investment Planning Counsel and positive market performance has significantly boosted the individual wealth segment, while premiums in Group Life and Health rose by 19% year-over-year. In Europe, the business achieved its fifth consecutive quarter of growth, driven by solid sales in group benefits, annuities, and retirement savings. Book premiums in Group Life and Health in the U.K. and Ireland increased by 10%, reflecting strong organic growth.

Capital and Risk Solutions (CRS): Diversification and Growth

Great-West Lifeco's CRS business continues to perform well, with a robust year-over-year increase in structured sales and positive insurance experience. The anticipated impact of global minimum tax, if enacted, is estimated to reduce future quarterly earnings by approximately $35 million. Despite this, the CRS business remains a crucial diversifier, contributing significantly to base earnings.

Focus on Sustainable Growth and Market Positioning

Great-West Lifeco has maintained a strong and stable balance sheet, with an improved LICAT ratio of 129%, up 1% from the previous quarter, and decreased leverage ratio due to the repayment of short-term debt. The company's financial strength provides the capacity to seize future strategic opportunities. Significant investments are being made in technology and operations to drive efficiencies and support long-term profitability.

Guidance for Future Performance

Looking ahead, Great-West Lifeco remains confident in sustaining its growth trajectory. The company expects the global minimum tax to increase its effective tax rate to the high teens. It also anticipates Empower to achieve significant earnings growth in 2024, driven by ongoing synergies and market expansions. The strong start to 2024 positions Great-West Lifeco well for continued success and value creation for its stakeholders and shareholders.

Earnings Call Transcript 2024-Q1

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Great-West Lifeco First Quarter 2024 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Mr. Paul Mahon, President and CEO of Great-West Lifeco. Please go ahead.

[Paul Mahon, executive]

Thanks, Galen. Good afternoon, and welcome to Great-West Lifeco's First Quarter 2024 Conference Call. Joining me on today's call and to deliver parts of the formal presentation are Ed Murphy, President and Chief Executive Officer of Empower; and Jon Nielsen, Executive Vice President and Chief Financial Officer.

As I look around the table here today, there are 3 faces that are missing from the last quarter: Garry MacNicholas retiring after 43 years; Jeff Macoun retiring after 40 years; and Arshil Jamal retiring after 25 years. I know they are listening in as keenly interested investors, and I want to thank them for their important contributions over so many years. I also want to welcome a few officers, who have not participated in past calls with analysts and investors. Jon Nielsen of note as our Lifeco CFO; Fabrice Morin as President of our Canadian Operations; Jeff Poulin, who leads our Capital and Risk Solutions business; and also Linda Kerrigan, our appointed actuary. Today, along with other officers that you've heard from before, will be available to answer your questions.

I'll now draw your attention to our cautionary notes regarding forward-looking information and non-GAAP financial measures and ratios, which is found on Slide 2. These cautionary notes to the information we'll discuss during the call.

Please turn to Slide 5. I'm pleased to share that we've had a great start to the year, building on our momentum from 2023. Together, our teams delivered a third consecutive quarter of record base earnings, and for the first time, we exceeded $1 billion in base earnings. Net earnings were also over $1 billion this quarter. These results reflect the intentional and disciplined work we've done to strengthen and reposition the portfolio for sustainable growth. We've seen excellent performance across all 4 of our operating segments, each of which have clear business strategies to unlock value and drive growth today and over the longer term.

In the U.S., the execution of our strategy continues to deliver results. Empower reported record base earnings this quarter surpassing $1.6 trillion in assets under administration. Past acquisitions have expanded Empower's scale and capabilities and continue to provide a foundation for strong and sustainable growth. We've completed the integration of Prudential's full-service retirement business, solidifying Empower's position as a preeminent workplace retirement services provider in the U.S. Empower exceeded retention targets set for this integration and successfully achieved is achieving its target run rate cost synergies. Ed will share more on Empower's results and provide an integration update following my comments.

Across our businesses, we're delivering against our value creation goals, and we are operating at the top of the range of our base ROE medium-term objective. Our financial strength and flexibility leave us well positioned for continued strong growth. And our stable of trusted brands continues to support excellent performance and market leadership.

Earlier this year, Brand Finance, a leading brand valuation consultancy, rated Canada Life the third most valuable brand in Canada and the highest ranked Canadian insurance company in a list of over 5,000 brands across industries. This recognition reflects our commitment and focus on our people, our customers, advisers and communities.

Please turn to Slide 6. Our results this quarter reflect a strong start to the year. Base earnings of $1 billion and base EPS of $1.09, increased 23% and 22%, respectively, over the prior year. Base ROE increased to 17.2%, up over a full percentage point over the prior year, and book value per share also increased 6%. Our capital position continues to strengthen, including increased cash, a higher LICAT ratio and a stable leverage ratio. While this was a great quarter, we want to note that the high earnings growth is relative to a softer first quarter in 2023, which was also the first under IFRS 17. We also note that the first quarter of '24 does not reflect the full potential impacts of global minimum tax, which will affect future quarters if enacted.

Please turn to Slide 7. In Canada, we delivered solid results and continued to take actions to position the business for sustainable growth and performance. In individual wealth, the acquisition of Investment Planning Counsel, coupled with positive market performance, significantly accelerated growth in average AUA. While the acquisitions of IPC and Value Partners have improved net flows, the seg fund industry remains in outflows. We're continuing to take steps to strengthen our individual wealth business as we build a leading platform for our advisers and customers, including reinforcing the unique value segregated fund products have for customers.

In Group Life and Health, our results continue to reflect our leading position in the Canadian market, with premiums up 19% year-over-year, driven by solid organic growth and the addition of the public service health care plan. In insurance and annuities, CSM increased over the last quarter, largely due to a onetime reinsurance recapture gain. We continue to approach nonparticipating insurance with a focus on customer value, balanced with pricing discipline. We do not consider CSM to be a key growth metric in Canada, given our capital-light growth focus on our workplace and wealth businesses.

Please turn to Slide 8. Our European business delivered a fifth consecutive quarter of growth across all value drivers. These results are supported by consistent performance across our product lines, which benefit from the stable nature of financial necessities like group benefits, annuities and retirement savings. Last year, we took disciplined actions across our European businesses to strengthen our market position. The benefits of these actions will be reflected in future quarters' results.

In wealth and retirement, average AUA was up 14% year-over-year, due to good market performance and positive net inflows. Growth in wealth remains underpinned by our wealth strategy in Ireland under the Unio brand and through our JV with Allied Irish Bank. In workplace, we experienced solid sales and organic growth in Group Life and Health in both the U.K. and Ireland, with book premiums up 10% year-over-year. In insurance and annuities, individual and bulk annuity growth in the U.K. helped drive CSM up 17% year-over-year. Overall, this was a very strong quarter of quality earnings across Europe, and we feel well positioned to continue this performance over the medium term.

Please turn to Slide 9. Our Capital and Risk Solutions business continue to create value with strong structured business growth and expansion into new markets. As a result of the global minimum tax not yet being in effect in Canada and the Barbados, these results exclude the anticipated tax impact we disclosed during our fourth quarter call last year or earlier this year. CRS had positive insurance experience with lower-than-expected mortality results in our U.S. traditional life book.

Our sales continued to grow largely through our U.S. structured business. Please note that this structured business is accounted for on a PAA basis and does not impact CSM. Looking ahead, we see lots of opportunity for our CRS business to continue to grow and act as an important diversifier for Lifeco through disciplined pricing and risk selection in line with our value creation objectives.

I'm now going to turn the call over to Ed Murphy to discuss the Empower results. Over to you, Ed.

[Edmund Murphy, executive]

Great. Thank you, Paul, and good afternoon, everyone. We delivered a strong quarter at Empower with growth across both Workplace Solutions and Personal Wealth. In both business lines, we continue to earn new business and capitalize on our enviable market position with a differentiated offer in the retirement services space. Our Wealth business continues to see gains in large part as a result of the scale brought by our Workplace Business. Our average AUA has risen to $1.6 trillion, supported by the benefits of higher markets, over the past year, our average AUA is up more than 15% in the workplace business.

We've seen especially strong growth in the public plan sector and also in the adviser-sold segment, where we continue to benefit from strong relationships with intermediaries. In fact, Empower recently introduced a new innovation to the workplace market to help address the needs of smaller employers. Leveraging our digital capabilities, this offering helps streamline the end-to-end 401(k) plan setup process and simplifies planned features and design decision points. The new solution helps to reduce both cost and administrative burdens often faced by small employers.

Recent new policy improvements, the SECURE 2.0 Act, including tax incentives, have created new opportunities for employers to start retirement plans. This has the twofold benefit of putting in power in a positive industry leadership position and helping to address a pressing public policy retirement need in the U.S.

A third-party research firm, Cerulli Associates, recently published a forecast showing significant growth potential in the 401(k) market in the U.S. There are approximately 700,000 plans in existence today. Due to these new opportunities for small employers to start retirement plans by the end of the decade, that number could total 1 million plans, increasing the market size from $31 trillion to a predicted $47 trillion according to Cerulli.

In addition, Empower announced new partnerships with industry peers to offer a suite of retirement income products in the market. The case for return income in our market is strong, and our demonstrated leadership role in the industry positions us advantageously for the future. One of the hallmarks of our successful workplace business is the diversified client base we serve. The business benefits from a segmentation strategy that has empowered servicing the needs of different clients through different channels and approaches.

On the Personal Wealth side, average assets under administration is up 25% since the first quarter of last year, which was when the new Empower Personal Wealth brand was launched. Both strong market performance and continued net inflows have contributed to our success in this business.

Please turn to Slide 12. Empower is built on a foundation of 3 building blocks that make us successful, industry-leading retirement plan services; growing our direct-to-consumer wealth management business; and M&A excellence. In today's remarks, I will focus on the third I'm listed here, excellence in M&A.

Turn to Slide 13, please. Customers and intermediaries recognize that Empower has made acquisitions and investments. They know that we're committed to the retirement services market, while other providers have exited. We believe this is a critically important factor in our growth and provides intrinsic value to our brand and reputation that is not always quantifiable. Customers want to put their plans with a provider that is committed to the retirement business. Empower's acquisitions of JPMorgan, MassMutual and Prudential have helped to deliver that message. Following these acquisitions, Empower now administers $1.6 trillion in assets on behalf of 18.6 million individuals.

Please turn to Slide 14. Since 2014, Empower has generated significant value by utilizing its technology and integration prowess to drive synergies and reduce cost. During that period, Empower successfully completed 26 different plan migration waves, including 48,000 plans, 6.7 million participants from 10 different record-keeping platforms, 500 billion data values. In total, we have integrated $657 billion in assets. What we have accomplished here is not simple. Record-keeping integration require a significant skill set, and we have the best team in the industry that knows how to do this work.

Please turn to Slide 15. Turning to the MassMutual and Prudential integrations. I'm pleased to share that we have completed the Prudential integration with the final piece occurring this month. Our team is highly skilled in this area, and the commitment to both quality and achieving our synergy goals has led to a successful program. This work is a great testament to the dedication of our teams.

Similar to the MassMutual business, the retention levels of the Prudential business are above original expectations. This includes asset retention of 94% and revenue retention of 86%. The cost synergies have met targets for both transactions and allowed us to take 39% of cost out of the MassMutual business and 32% out of the Prudential business. Along with these financial metrics, Empower's integration of the Pru business offers a true expansion of our capabilities. Our ability to offer a broader set of financial benefits to workplace clients now includes defined benefit, nonqualified plan administration and insurance separate accounts. As the benefits market in the U.S. continues to develop, we are well positioned to meet growing client interest in this product suite.

Please turn to Slide 16. With the completion of the Prudential acquisition, it's important to demonstrate that the benefits of scale are becoming apparent in our cost structure, despite the impact of inflation.

On Slide 16, starting on the left side of the page, we define our base cost per participant as those cost pre-acquisition to be 100%. Cost per participant increased 17 percentage points with the additions of both MassMutual and Prudential, who are operating at higher expense levels, realizing the cost synergies reduced the overall cost by participant by 20 percentage points. Then with an inflationary market, Empower was able to achieve efficiencies, which added scale for a further reduction of 3 percentage points. Over this time period of 2020 to 2024, Empower has seen an overall reduction in cost per participant of 6%, which really positions us well.

Please turn to Slide 17. Recognizing the success of the past few years, Empower does still have further opportunities to expand cost leadership, allowing for investment in customer experience, continued organic growth and higher margins. Examples of some of these opportunities include redesigning end-to-end processes in a scalable way with a client-centric view, increasing utilization of GenAI and automation, further leveraging our global footprint to maximize our talent pools, optimizing how we communicate with our clients, and finally, further participating in market consolidation on an opportunistic basis.

With that, I'll now turn the call over to Jon to review the financial results.

[Jon Nielsen, executive]

Thank you, Ed. Please turn to Slide 18. Before I get into my remarks on the quarter, I'd like to take the opportunity to express how excited I am to be part of Great-West Lifeco and help the business build on the great momentum that we've delivered over the past few years. I wanted to particularly thank Garry for his support during the transition as well as for his outstanding achievements as CFO for the last 9 years.

Despite continued uncertainty and volatility as the market responds to inflationary pressures and central bank responses as well as the ongoing geopolitical tensions, the macro environment has benefited our financial results, primarily as a result of higher interest rates and equity market returns. The equity market performance supported growth in assets under administration within our wealth and retirement businesses. This has increased our asset-related revenues, which are just one of the diverse revenue streams that we have within these businesses.

I would note, while this S&P 500 was up more than 10% for the first quarter, approximately half of the gain was driven by just 4 stocks. Many of our customers have balanced portfolios comprised of a mix of public equities and fixed income, leading to a diversified exposure as opposed to being concentrated in those 4 stocks. In the recent quarter, we experienced slightly higher interest rates which have continued into the second quarter. This led to positive market experience within the first quarter of 2024 and more fundamentally provides a tailwind through higher yields on our surplus as a result of the relatively short duration of these portfolios.

In terms of currency exposures to earnings, U.S. dollar and the euro were stable with limited changes year-over-year or quarter-over-quarter. The British pound gained against the Canadian dollar compared to the prior year, which has modestly benefited our results.

Turning to Page 19. As Paul noted earlier, we had another record -- Page 20. As Paul noted earlier, we had a record quarter for our base earnings, continuing the excellent results in the last 3 quarters of 2023, and we surpassed $1 billion of base earnings for the first time. It's also important to highlight that this is the first year-over-year comparison where we operated under IFRS 17. We have now adjusted to this new reporting basis and believe it provides a greater degree of transparency in the high quality of earnings that our businesses generate. We continue to build on the strong foundation and look to further optimize our businesses in this new environment.

Year-over-year growth in base earnings was driven by excellent performance across all 4 of our segments. The results for this quarter do not reflect the full anticipated global minimum tax impact that we shared in our fourth quarter earnings call. This quarter only reflects a small impact in Ireland, which has enacted the new tax regime. The new regime is yet to be effective in Canada or Barbados. If it had been in effect, the impact on our first quarter results would have been a reduction in earnings of approximately $35 million, about 80% within our Capital and Risk Solutions and 20% within Europe.

Our base return on equity for the quarter is slightly above the upper end of our medium-term objective of 16% to 17%. The improvement in ROE has been driven by growth in base earnings the successful integration of Empower's recent acquisitions and disciplined capital allocation as we continue to grow our capital-light, wealth and workplace businesses.

Turning to Slide 21. As I mentioned earlier, you can see on this slide that all 4 segments strongly contributed to base earnings growth. In Canada, base earnings were driven by solid business performance and strong insurance experience, particularly in our long-term disability business as well as the contributions from our recent wealth acquisition.

In the U.S., Empower had another quarter of earnings growth with the continued integration of the Prudential business, higher fee income from equity markets, a modest increase in crediting rates and steady growth in Personal Wealth. Growth in base earnings led to an increase in ROE of over 100 basis points. Over time, we expect the ROE for Empower to move towards the -- towards our medium-term objective of 16% to 17%.

In Europe, growth in net fee income, earnings on surplus and expected insurance earnings more than offset a higher effective tax rate. Base earnings growth within Capital and Risk Solutions reflected the contribution of robust structured sales throughout 2023 and improvements in mortality. We continue to maintain pricing discipline, while strategically allocating capital to opportunities with strong returns as well as diversification with our other segments.

Moving to Slide 22. Insurance services results were up year-over-year, driven by growth in insurance earnings, particularly for short-term insurance contracts across all segments as well as improved insurance experience within Canada and Capital and Risk Solutions. The net investment result is also up year-over-year as fixed income reinvestments into higher interest rates benefited our earnings on surplus.

In the quarter, we saw benign credit impacts. We continue to monitor our commercial real estate mortgages in the U.S. closely, and we don't expect to be fully immune from credit experience. However, we expect any impacts to be manageable and in line with our previous statements. Trading activity primarily within Europe reflected asset origination in excess of our new business needs.

Turning to Slide 23. Net fee and spread income were up year-over-year due to growth across the U.S. and Europe, where we benefited from the increase in equity markets and organic growth. Taxes increased year-over-year, driven by higher pretax earnings and a higher effective tax rate, which reflects a shift in jurisdictional mix and the nonrecurrence of tax benefits in the first quarter of 2023. We continue to expect the global minimum tax, if fully enacted to result in an increase in our effective tax rate of around 3%, resulting in an overall effective tax rate on base earnings in the high teens.

Turning to Slide 24. Within the quarter, net earnings were slightly above base earnings as positive impacts from market experience, offset impacts of business transformation and ongoing amortization of intangibles. The positive market experience was driven by increases in interest rates and public equity markets. These positive impacts were partially offset by a negative impact related to our real estate holdings where our total return for the quarter was essentially flat versus our expected return of approximately 2%.

Business transformation effects included a modest charge for outsourcing of certain IT activities as well as the integration costs related to our wealth acquisitions in Canada and the impacts at Empower as we near completion of the Prudential integration in the first quarter. We expect insignificant integration costs for Prudential in the second quarter of 2024 as we've now completed this program.

Turning to Slide 25. We continue to maintain a strong and stable balance sheet, building financial resources and the capacity needed to take advantage of future opportunities as they arise. Our LICAT ratio increased to 129%, up 1% from the prior quarter. As a result of our ALM strategy and our accounting policy choices we've experienced a much more stable LICAT result under IFRS 17. This stability highlights the resilience of our balance sheet, and it gives us capacity to execute on strategic opportunities.

Our leverage ratio has also decreased over the past year as we've now paid down all of the short-term debt that was used to fund the Prudential acquisition. Our cash also grew as strong earnings and capital generation within our businesses allowed for the steady flow of cash up to Lifeco. We expect to continue to deliver strong capital generation and for excess cash to build at Lifeco. Overall, we're extremely pleased with the results during this quarter, and we're off to a very strong start to 2024.

With that, I'll turn the call back over to you, Paul.

[Paul Mahon, executive]

Thanks, Jon. I'll close by just commenting on the fact that our repositioned portfolio and disciplined execution continues to deliver for our stakeholders and shareholders. Momentum from the most recent quarter shows growth and performance at the top end of our medium-term financial objectives. We're building on a track record of growth and driving strong shareholder returns. Our annualized total returns have outperformed key market indices on a 1-, 3- and a 5-year basis.

As we look ahead, we're well positioned for continued growth. With our strong financial position, we're ready to take advantage of opportunities that will define the next phase of our growth plan. I'm truly excited about what we can accomplish in the remainder of 2024 and beyond, driven by the strength of our team and guided by our clear focus.

And with that, operator, please open the line for questions.

[Operator]

[Operator Instructions] Our first question is from Meny Grauman with Scotiabank.

[Meny Grauman, analyst]

I wanted to ask a question about, really, the combination of Slides 16 and 17. If I look at that, 94% in the evolution of cost per participant versus the 2020 baseline. Question is how low can that go, given everything that you highlight on Slide 17? Is -- what's the right way to think about in terms of the potential there to go below 94%?

[Paul Mahon, executive]

That's a good question, Meny. And I'm going to turn it over to Ed. Ed, do you want to provide some context around the drivers of cost structure?

[Edmund Murphy, executive]

Yes. I think that, obviously, as we continue to do acquisitions, you can see that there's a tremendous amount of operating leverage in the business, and we're able to lower our unit cost in that regard. But we also have a number of things that we're working on to drive unit costs lower. Some of those are the ones I mentioned in my prepared remarks with respect to automating and digitizing the business, expanding our offshore capabilities. We're continuing to grow offshore both in India, now in the Philippines.

And so I would just say that the focus is really around how we can do more straight-through processing and how we can automate the business. And so we have a number of initiatives underway in 2024, and we're pretty confident that over time, we can continue to drive our unit costs lower.

[Meny Grauman, analyst]

And would you think that you could sort of get below 90%? Does that make sense to you? Or is there some sort of floor there that's not realistic to cross below?

[Edmund Murphy, executive]

I would just say that we believe there's opportunity to take our unit cost lower than where they are today. I will note that on a comparative basis, I think we probably are -- on a fully allocated basis, we're probably, if not the lowest cost in the industry today, we're one of the lowest, which gives us tremendous advantages as you would imagine, when you think about pricing new business. But there's opportunity there, and we're pretty excited about it.

[Paul Mahon, executive]

Yes. Meny, I might follow on and say when we look at across our businesses and we look at generative AI and being able to use robotics, there is a significant number of processes even continuing in Empower, which is one of our most digitized that are still manual, where we're still taking hundreds of thousands of calls. We see a lot of opportunity. And I would say, Empower would be one of the key areas where there's a lot of opportunity.

[Edmund Murphy, executive]

Yes. Just one follow-up to that question, Meny, too. I would say that, if you look at the last 3 years, we laid this business case out for you, a lot of our discretionary development capacity or application developers were focused and directed at the task at hand, which is essentially the complex integration programs that we've been pursuing in the last 3 years. We are now turning our efforts inward to focus on what I would characterize as deferred maintenance, if you will.

So opportunities to streamline the business and to take some of the friction out so we can give our customers a better experience. So if you think about what we're doing in technology, we're continuing to invest in technology. You can see that running through our P&L. It's really important. But a lot of that development capacity now is being focused on what I would call continuous improvement and transformation. And we have a very detailed agenda to get after that.

[Meny Grauman, analyst]

That's helpful. And then just maybe taking to the top of the house, if I look at just the non-directly attributable and other expenses, a pretty good decline quarter-over-quarter. Is it reasonable to expect further quarter-over-quarter declines in that specific line item?

[Paul Mahon, executive]

Yes. Meny, I think there's a bit of an unusual movement in the quarter-over-quarter. I'll let Jon speak to sort of what is a better -- maybe a better guide to thinking about expense going forward.

[Jon Nielsen, executive]

Yes. Thanks for the question, Meny. Yes, if you look back at fourth quarter, there were some discrete items in the fourth quarter number. What we would say is our objective for the year is -- and the way to think about this is the average of the last 4 -- average of the 4 quarters for 2023 would be kind of a way to think about what we're aiming to achieve in 2024. So that's about [ 12, 1-2-5-0 ] so the average of that over the 4 quarters.

[Operator]

The next question is from Paul Holden with CIBC.

[Paul Holden, analyst]

First question is related to Empower and just what are the -- maybe you can give us a sense of what the cost synergies realized to date have been, i.e., how much is still yet to be realized on that $180 million going forward?

[Paul Mahon, executive]

Jon, why don't you start on that one?

[Jon Nielsen, executive]

So you can think of at the end of the first quarter, we added another $15 million to that, so the $85 million will continue to run out post -- moving out of second quarter. And the way to think of how much will hit the P&L because, obviously, we're guiding to when those synergies start to run through our P&L. You can think of it as kind of between 0.5 and 2/3 of the $100 million that we came into 2024 guiding to will come through the P&L through the rest of 2024.

[Paul Mahon, executive]

Yes. And with the balance to follow in '25.

[Paul Holden, analyst]

Okay. And then when -- I just sticking with Empower, when I look at the year-over-year change in AUA as you've highlighted in the DC plan, up 15%. But then I look at DC earnings flat year-over-year. How do I reconcile those 2? Like some people I talked to are taking that as a sign of fee compression in the business. Is that the right way to read it? Or is there something else going on there?

[Paul Mahon, executive]

Paul, there's a lot of moving parts here. I'm going to let Jon unpack that for you.

[Jon Nielsen, executive]

Yes. So maybe start with kind of top of the house comments about the integration of the transactions and how that will play through. I think you touched on one of the elements. The integration benefits that are still yet to come into the P&L, and we gave you guidance. I think the other thing that we've tried to provide this quarter is a little bit of the element of the plans that are -- we delivered 86% of the overall plans in terms of being integrated into our run rate earnings as we've guided. We've kind of given you a sense of as those plans come off that don't follow even though we've exceeded our target, there is obviously a revenue loss from that. We're nearly through. As we said, we're completed with the Prudential transaction.

In terms of the amount of what we're calling shock lapses, still to come in second quarter is about $4 billion. And then we'll kind of hit the normal run rate revenues. And as I mentioned, the synergies start to come through. I think the other thing that we wanted to call out is the diverse revenues that we have within the defined contribution revenue stream. And if you see -- we added in the appendix or brought a slide to the appendix on Slide 31, which gives you a sense of those asset-related revenues, which are about 50% of the overall pool of revenues. The spread from our stable value product is about 25% and then the other fees, which are principally participant or plan related are another 25%.

So while AUM is an indicator of some of the revenue sources, there are other revenue sources. And depending on the size of plan, those revenue sources are slightly -- are different in terms of the proportion of different revenues. We feel very strong about the earnings potential of the DC business and expect to continue to grow earnings as we look forward. So I don't think it's a sign of any necessarily material fee compression. Just a matter of how we -- where we are in the integration and the different sources of revenue that those plans have.

[Paul Mahon, executive]

Yes. I agree, Jon. I think it's fair to say though that there is fee compression in any competitive market. And going back to the whole point of how do you drive down your cost, you can end up with a winning strategy in a market that has some fee compression where you're deploying technology and driving down cost and sort of overcoming that. And I think that's clearly one of the strategies that Empower thinks about right it for sure.

[Edmund Murphy, executive]

And I think, frankly, we're seeing that play out in our results. If you look at our sales through the first quarter, we're up 76% year-over-year in Workplace. And particularly in the core market, we were up 40% year-over-year, and that's the smaller market segment that we've shared with you before. And our pipeline remains very, very strong at $2 trillion. So if I look outward, we've got another $15 billion or so of committed sales in 2024, and we have another $15 billion of committed sales already in 2020.

So lots of activity from an organic standpoint, we're continuing to grow at a multiple of the market, particularly as defined as net participant growth. So organically, growth is strong. Clearly, we saw lower general account margins. We saw a modest increase, as Jon mentioned, in crediting rates. And then we just lower volumes, which certainly had an impact from a year-over-year revenue standpoint. But organically, sales pipeline value proposition is clearly resonating in the market.

[Paul Holden, analyst]

Okay. That message is clear. One more question for me on Capital and Risk Solutions. You referred to growth in the structured reinsurance business. It looks like, obviously, that is a short duration business, if I look at the composition of income you're generating there. So maybe just some better understanding of what kind of liabilities are associated with that structured reinsurance business?

And then two, with the growth you're achieving there because it is short duration and maybe more capital light, would you consider growing CRS at a slightly faster pace than overall GWO earnings, i.e., increasing the earnings mix this year from CRS?

[Paul Mahon, executive]

Perhaps I'll take the second question first, and then I'll turn it over to Jeff. So Jeff Poulin, who's joining us today. I think it's a great question. So Jeff can give you a bit of color on those structured deals. We really like the Capital and Risk Solutions business. It is a great diversifier across the group. It actually also leverages deep expertise of the team that we use either as well for internal reinsurance structures and for giving ourselves a bit of a window on the world to understand what's going on in various markets.

So we really like the business. We like it growing sort of at or around the rate at which Lifeco grows. It's kind of a really good diversifier in that context. And so I wouldn't see it as a place where we would necessarily accelerate, but I see it as a place that it will continue to be both a strong contributor, but also a really strong part of our understanding of markets -- competitive markets.

So with that, I'm going to turn it over to Jeff to talk maybe a bit about the structured business.

[Jeff Poulin, executive]

Thanks, Paul. Yes, I guess when we're looking at structured business, we're looking at the way people -- the purpose of the reinsurance transactions we're trying to enter into. So the goals are financial more than risk for the purpose of the transaction, we're looking at them. We're offering solutions that are shorter term in nature and more out of the money. And what we try to do is either improve the reserves of the client or the capital of the clients and the return on the business that they have and let them have some of the profit back on the business. We take the first few dollars of profit and give them back the excess. So that's how we structure it.

The underlying liabilities could be anything from mortality to longevity, to disability, to group life, group health. We even have some mortgage insurance in there. So there's a variety and a very well-diversified variety of businesses in there. And it all depends on where we see the opportunities. We're focused on where we can get the best return on equity. And we would like to continue to grow the mortality business and the longevity business.

But in this post-COVID world, it's been difficult to know where mortality is going. So we've been very disciplined and have sort of been careful with those businesses. I think it's a matter of time before we make a decision and have a bit more data and go there. But that's really been our plan. So the structured business has grown faster than our more traditional business.

[Paul Mahon, executive]

Yes. And Paul, I might just close that by saying that it's a great diversifier across Lifeco, but it's also a really good diversified business within and the way Jeff described it across all those risks, including he didn't say this, but we even do a little bit of pet insurance as an example. These are out of the money low-risk sort of more tail risk in a lot of case transactions. And what we're really doing is helping with capital solutions. And yes, there are remote risks, but we're helping with capital and financial solutions. And you're able to do that because you've got the expertise to help and you've got that diversification as opposed to concentration.

[Operator]

The next question is from Tom MacKinnon with BMO Capital Markets.

[Tom MacKinnon, analyst]

Yes. First question, just with respect to Canada and the Group Life and Health. The book premium is up nicely year-over-year, up $15 billion, up nearly 20% year-over-year. But if I look at the expected earnings on the short-term contracts, they're only up 5%. So what's happening with respect to -- is this due to a group coming in that would have been a lower margin or margin is not fully realized yet? So any color there would be great.

[Paul Mahon, executive]

I'll pass that one over to Fabrice to share his thoughts on that.

[Fabrice Morin, executive]

Thank you for the question, Tom. And first, let's step back in the group business. There's smaller plans and there's larger plans. The smaller plans are typically fully insured. The larger plans, many of them would be administrative service only, so we don't take risk with these plan, but they come at much lower margins. So the margin complexion is variable by client size.

As you know, I'm sure we have onboarded the Canadian Federal Government Plan, which would account for a large portion of that book premium growth that would correspond to an ASO plan at a lower margin level in this. And also that we will report in IFRS 17, the risk business where we take risk goes into insurance service results and the margin on plans where we don't take risk where we're only a processor goes lower down on the P&L in the fee business results. So the ratio that you're calculating there, the average margin will have gone down because we grew into a large plan, but the ratio does not include the margins we make on these large plans.

[Tom MacKinnon, analyst]

Okay. I mean the net fee and spread income is flat year-over-year as well. So if it would have been picked -- if some of those ASO fees would have been picked up there, they don't really seem to be showing in the Canadian net fee and spread income or maybe there's other things in there, too?

[Fabrice Morin, executive]

It would have been picked up part of that, but there's other business that goes in there, including our retirement business and other wealth business, fee business that goes in there, we'd be happy to follow up on that.

[Tom MacKinnon, analyst]

Okay. Okay. Second is on the -- just with respect to the Pru synergies, I think the MD&A on Page 14 says you've completed the Pru migration in the second quarter, and you achieved $100 million run rate synergies. But it sounds like you haven't achieved all of them. There's $85 million left and you're going to earn some of that in 2024 and some of that in 2025. Is that how we should be interpreting that?

[Jon Nielsen, executive]

Yes, that's right, Tom. Sorry, I blurred it out there before you finish your question. So the way we measure the achievement is when we put the cost actions in place that will then play out through the earnings over the next 12 months. So as you recall, we had $100 million left at the beginning of 2024. An additional $15 million was achieved during first quarter, and then the residual $85 million come through, but they play through on an annual basis, right? They start to play through -- midway through the second quarter. And that's what I was getting at is to 1/2 to 2/3 of that $100 million should come through -- will come through in the second, third and fourth quarter ratably and would entail into 2025.

[Tom MacKinnon, analyst]

Understood. And color with respect to the interest rate environment, what that's doing to credit rates? How is that -- the MD&A notes a little bit of spread issues with respect to some higher credited rates. How should we be thinking about kind of margins with the stable value stuff under this higher rate environment?

[Jon Nielsen, executive]

Thanks again, Tom, for the question. Yes, we did note that we had modestly higher credit rates in the Empower stable value. Part of that was contractual and the other part was discretionary. It was a small number of basis points increase overall. We continue -- that product is really, as it says, stable value. It's meant to be a store of capital for people who don't like market volatility. So it's an important part of our product set. In a market with upward market returns like we've seen, you'll typically see less flows into that account.

In terms of the other impacts of interest rates, I think we highlighted fairly -- the fairly high degree of impact of higher rates on our earnings on surplus. And as you know, we continue to see higher rates in the first 4 months of this year that will ratably -- if they stay there, we'll continue to come through our earnings on surplus as our assets mature. Those are relatively short duration. So you can think of that tailwind and interest rates in the first 4 months of this year playing into our earnings on surplus as we look forward.

[Tom MacKinnon, analyst]

Great. And then a final one, I think in the first quarter -- or in the fourth quarter slides, you said you're looking for Empower to grow its base earnings 15% to 20% in 2024. Do you still stand by that?

[Paul Mahon, executive]

Tom, yes, we do. Lots of confidence in that business. As Ed talked about, pipeline is strong, synergies on the come, a wealth business that we're increasingly -- early innings in that business, we've done a modest penetration into the overall potential client base. So we're confident in that business.

[Operator]

The next question is from Doug Young with Desjardins Capital Markets.

[Doug Young, analyst]

Just a follow-up on that 15% to 20%. I assume that is all in for the U.S. division. So that includes corporate, that includes the pickup of the Franklin dividend. Is that correct?

[Paul Mahon, executive]

Yes, that is correct.

[Doug Young, analyst]

Okay. And then just back to the CRS, I guess -- the results can obviously be lumpy. We can look back over time in terms of the ups and downs. This quarter had good experience as you articulated. I guess, my question is, is the $222 million of base earnings, 54% based ROE, like, is this a normal quarter? Or was this a particularly strong quarter, and we should expect some normalization? Just trying to get some perspective on how to think about the earnings on a go-forward basis from this division.

[Paul Mahon, executive]

I'll start with that and then pass it over to Jeff, Doug. So as I said before, it's a diversified business. So it's diversified across some of the more traditional life and longevity, mortality. We've got our P&C catastrophe business, and then we've got all the structured businesses. And in any given environment, you're going to see different dynamics.

So as Jeff said, once we have better sighting on sort of long-term trends post-COVID, we would start to sort of participate probably more fully in the mortality market. But we're -- I wouldn't say we're on the sidelines, but we're being really disciplined in watching others. We might say take bets in that market. So we're being disciplined. Having said that, diversifying the structured business, we have noted that the global minimum tax impact on CRS has not flowed through, and we've provided some guidance on how that would play out.

But I would characterize this as a good quarter, but not like a crazy strong quarter, but it's all those different moving parts. But the beauty of it is diversification. So Jeff, I'll let you add some more color. But that's the way I view of the business.

[Jeff Poulin, executive]

Yes. There is definitely some lumpiness in the results due to mortality -- or I think in the fourth quarter, we released like we had good experience on the P&C catastrophe side. We see our clients every September and October, talk to them, they explain to us where they think the losses are going. So we released, I think, $60 million of reserves that we put up prior to that. So there was good experience and does create some lumpiness. But I think the structured business is relatively stable. Mortality is going to have good quarters and bad quarters, and we had a good one.

I think what I would say is that we're expecting the structured business to continue to grow. But maybe mortality is a bigger question mark. We don't know for sure yet where it's going to go. So there could be some lumpiness there. And Paul mentioned the global minimum tax. I think that has roughly 10% effect on our business. We've taken some of it in our Irish business, but Barbados and Canada is not enacted yet. So we -- if they did, then it would have a 10% effect on our business. So it gives you an idea of where I think we're going, going forward.

[Doug Young, analyst]

And just a follow-up, maybe this can provide some perspective. But have you -- or would you tell us or break down how much that structured product contributes to profitability?

[Jeff Poulin, executive]

We do that already. I think that when you look at the short-term business, most of that, that's not in the CSM or the RA release, is mostly the structured business. There's a bit of P&C catastrophe maybe $20 million a year -- sorry, $20 million a quarter, but the rest of it is all structured. So let's say, $100 million of structured earnings per quarter.

[Doug Young, analyst]

Okay. And then just lastly, Jon, you talked about the asset repricing or the investment repricing short duration as interest rates have gone up and the impact on earnings on surplus. I mean how much of the -- that portfolio has been repriced and how much more will be repriced as we flow through at higher rates through the year? Just trying to get some perspective on how to think about earnings on surplus?

[Jon Nielsen, executive]

Yes. if you think about it kind of geographically, you would think around 1 to 2 years for most of the business. Empower, I think is a little bit longer than that. So think of it 2 to 3 years. So there is a little -- there is more to come. But obviously, the sharp rise in rates in the first quarter will come through as well. I think those are reasonable amount. So there's a little -- there's some more to come, but we are well into that of repricing.

[Operator]

[Operator Instructions] The next question is from Nigel D'Souza with Veritas Investment Research.

[Nigel D'Souza, analyst]

I wanted to turn to your Canada segment and touch on CSM. I know you've set us on a growth -- focus for growth. But the balance has declined, but it's been offset by what appears to be a higher rate of CSM amortization over the last 4 quarters into earnings. Is that entirely driven by a shift in product mix? Or would there be any other factors that improve the amount of CSM that's amortized into base earnings?

[Paul Mahon, executive]

I will turn that one to Fabrice to start and perhaps Linda could weigh in.

[Fabrice Morin, executive]

So if you look at the opening and closing balance of CSM, there would be a onetime impact this period, because we had a reinsurance -- an external reinsurance action that has added to our CSM in this period. So that would be favorable, not flowing through earnings, but adding to our base of CSM for future earnings. Otherwise, yes, we have been amortizing more CSM into earnings and creating CSM, we continue to be disciplined in our individual insurance business, the nonparticipating side of our insurance business. That's what we report on this -- if you look at this area of CSM, so what we would have seen this quarter, I believe, is consistent with what we have seen in past quarters.

[Paul Mahon, executive]

Yes. And Nigel, it is indicative of -- if you think about the duration of the liabilities and the way they run off relative to your expected termination of contracts and the like, I think it's just following the natural flow of the book with the adds coming in with whatever their duration is, the things that come off on their duration. And at this stage, as we pointed out, notwithstanding that it has been getting a bit smaller. But at the same time, we remain very committed to the non-par business in Canada.

We just want to make sure we're writing it in a disciplined way where it's creating value for all stakeholders, good value for the client, good value from a standpoint where advisers have the right tools to sell and good value for the shareholder, where we're getting the right return on capital. So that's kind of the balancing act. And we think it's the right way to play this particular market right now given the competitive conditions.

[Nigel D'Souza, analyst]

Okay. That's helpful. And I just wanted to clarify the guidance on global minimum tax. I believe it's 2 to 4 percentage point increase in your effective tax rate at the all Lifeco level. And when I look at the trailing effective tax rate was about 15%, I'll put it around 17% to 19% going forward. But when I look at your commentary on base earnings this quarter, if it was enacted, I calculate an effective tax rate closer to 20%. So just wondering if that's right and if there was any items in this quarter that resulted in that effective tax rate being higher? Is it just the mix of earnings? And then is that 17% to 19% range the right way to think about it going forward?

[Paul Mahon, executive]

Yes. Well, Nigel, I'll tell you that 17% to 19% is the right range. I wonder whether we might take that offline and just go through your -- compare our calculations, because as we've noted, there's been a little bit of it recognized in the context of Ireland adopting. The remainder that will be adopted related to Canada and Barbados on the assumption that is enacted, but our calculations wouldn't take us into that range where you're at. So perhaps off-line, we could go through the math just comparing that, that way.

[Operator]

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

[Paul Mahon, executive]

Thank you very much, operator. Well, I would like to thank everyone who's participated in today's call. We really do appreciate your interest and insights as we look through our results in any given quarter. As I'll restate from my final comments in the prepared comments, we remain very excited about the opportunity we have as we look ahead through the balance of 2024, and we really look forward to connecting -- reconnecting with all of you in August, hopefully, during sunny times in August and hopefully with the Canadian hockey team having won Stanley Cup. Okay. Thank you, and have a great rest of the day.

[Operator]

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