Great-West Lifeco Inc

TSX:GWO

Earnings Call Transcript 2021-Q4

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Great-West Lifeco Fourth 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]

Thank you, Ariel. Good afternoon, and welcome to Great-West Lifeco's Fourth Quarter 2021 Conference Call. We hope you and your families are safe and healthy. Joining me on today's call is Garry MacNicholas, Executive Vice President and Chief Financial Officer. And together, we will 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, 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, Empower; 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 apply to today's discussion and presentation materials.Please turn to Slide 4. Great-West Lifeco continued its positive momentum in 2021 and delivered strong results during a year when we made significant advances on our value creation priorities. Full-year 2021 base earnings of CAD3.3 billion and base EPS of CAD3.51 increased 22% over 2020. In a rapidly changing world, Great-West Lifeco once again demonstrated its strength and ability to adapt. I thank my colleagues across the organization for their contributions and dedication to our customers amidst continuing pandemic challenges. The 2021 results reflect strong organic growth, the benefits of recent acquisitions and disciplined capital deployment. Guided by our value creation priorities, we made great progress across our businesses.In the U.S., Empower reached an agreement to acquire the Retirement Services business of Prudential Financial, which we expect to close early in the second quarter of 2022. Like the MassMutual transaction, Prudential will add greater scale, synergies and capabilities, further reinforcing Empower's leadership position in the U.S. retirement market and growth opportunities in the broader U.S. wealth management market. The integrations of MassMutual and Personal Capital have been an important focus over the past year. Empower's expertise as an integrator is proving out as we deliver on expense synergies, maintain high client retention and see healthy asset growth in Empower's DC and retail wealth management businesses.We also expanded Personal Capital's digital advice capabilities with the launch of a new personalized digital experience. This experience is being rolled out across the Empower platform and now available to over 2 million plan participants. The new online tool illustrates a person's unique financial picture and offers users financial wellness guidance and advice. It is one step in our longer-term strategy to be a primary provider of lifetime financial wellness support and services to the millions of Americans who have retirement plans with Empower.In Canada, we saw strong top line growth in 2021 and expanded our group customer business with the acquisition of ClaimSecure, adding 1.25 million plan members and increasing access to the TPA and TPP services market. Canada Life finished the year strong when it was awarded the Federal Government healthcare benefits plan, the single largest group plan in Canada. When implemented in 2023, we'll be supporting the well-being of an additional 1.5 million Canadians. I congratulate Jeff McCowan and his team for this historic win.In Europe, Irish Life continued to expand its footprint in Ireland with acquisitions like Ark Life and our joint venture investment with Allied Irish Bank. We also continue to leverage our recent smaller acquisitions of brokers and advisers to expand in wealth management. In Germany, where we have a strong position in retail pensions sold through brokers, our recently launched digital servicing platform gives us the ability to grow our stake in the developing group pensions market in Germany.Our Capital and Risk Solutions business entered into new reinsurance markets in Japan and Israel this year, while continuing to partner and provide the bespoke solutions to existing clients in North America and Europe. And across the company, we employed our ESG investment expertise to develop and launch new ESG product portfolios at Putnam, PanAgora and Canada Life. We also continued to expand our access to alternative investment capabilities through Northleaf and the recently established strategic partnership with Sagard Holdings. Together, our focused value creation priorities and disciplined execution against those priorities have led us to meet or exceed medium-term financial objectives in 2021.Please turn to Slide 5. This slide outlines our 3 medium-term financial objectives and tracks our performance on a 1-year and 3-year basis. I'm pleased with our strong performance against all 3 measures. Base EPS growth of 22% in 2021 and 13% compounded growth over the last 3 years, exceeded our 8% to 10% objective, reflecting solid organic growth, a healthy rebound from COVID impacts in 2020 and a strong contribution from the MassMutual acquisition. Base ROE of 14.6% reflects the shift in our mix towards more capital-light group and wealth management businesses in recent years. And our dividend payout ratio of 51.4% in 2021 was within our target range of 45% to 55%.Please turn to Slide 6. Our fourth quarter saw strong overall results. Base earnings were CAD825 million and net earnings were CAD765 million. Base EPS of CAD0.89 was up 11% year-over-year. The year-over-year growth reflects strong organic growth, the achievement of synergies and solid performance in acquired businesses, along with the benefits of higher market values. Net earnings of CAD0.82 per share were down 16% year-over-year. You'll recall, Q4 2020 included 2 large positives, the revaluation of a U.S. deferred tax asset and the net gain on the sale of GLC. This quarter, we recognized additional contingent considerations given the strong performance of the Personal Capital acquisition and a number of smaller wealth acquisitions in Ireland. While it impacts net earnings in period, it represents significant additional value being created for the future from these acquisitions.Please turn to Slide 7. Canada saw strong sales momentum in all business segments and product types in the fourth quarter. Total sales were up 31% year-over-year with enhanced digital sales capabilities and insights from artificial intelligence supporting these strong results. In addition, the significant Federal Government plan win that I noted earlier, which is actually not reflected in these numbers, Canada led the market in the group life and health sales, both in quarter and for the full year. Momentum in the business has returned to pre-pandemic levels. We also introduced product enhancements, including ESG seg funds and expanded aging amount limits for SimpleProtect, our online Internet application, and over 4,000 financial advisers in our Advisory Solutions network now have access to a new digital financial planning platform, improving advisor and customer experience.Please turn to Slide 8. Empower saw continued strong momentum with assets under administration, excluding Personal Capital, up 21% to $1.1 trillion. Large plans coupled with strong growth in Retail Wealth Management drove the year-over-year increase in sales. Empower IRA assets were up 49% to $24 billion, while personal capital assets were up 41% to $23 billion. As noted earlier, our MassMutual and Personal Capital integration programs are progressing well and on schedule. We've achieved $80 million in annual pretax run rate cost synergies to date for MassMutual. We remain on track to achieve our target of $160 million by the end of 2022 and are pleased with Empower's performance on all key metrics, including AUA and participant growth, retail asset growth and our underlying earnings momentum.Please turn to Slide 9. Putnam's AUM was up $11 billion year-over-year to $202 billion. Sales increased 7%, reflecting strong institutional sales growth. Net flows were flat with outflows in lower fee fixed income products offset by improved flows and higher fee equity products. Both trends are consistent with the broader market and resulted in a modest increase in Putnam's average fee rate. Putnam's continued strong investment performance is demonstrated by 4- and 5-star Morningstar Ratings on 25 funds and over 80% of fund assets performing at levels above the Lipper Median on both a 3- and 5-year basis.Please turn to Slide 10. In Europe, we saw continued strong growth in equity release mortgages in the quarter and closed 3 U.K. bulk annuity deals totaling CAD320 million. Wealth sales were up 28% year-over-year, largely driven by international bond sales in the U.K. and retail pension sales in Ireland. And finally, assets under administration across Europe continued to increase, with positive net flows in both wealth and investment-only mandates.Please turn to Slide 11. In our Capital and Risk Solutions segment, expected profit rose 2% year-over-year with growth in structured life and longevity portfolios. Results were muted by the negative impact of a stronger U.S. dollar as noted on the slide. We are pleased that our structured solutions and longevity pipelines are both strong as we move forward into 2022. Like the industry, we continued to see COVID-related adverse experience in U.S. traditional life that was improved from the prior quarter.And with that, I'll turn the call over to Garry to review the financial highlights. Garry?

[Garry MacNicholas, Executive VP & CFO]

Thank you, Paul. Please turn to Slide 13. Overall, as Paul noted, we were very pleased with the financial results this quarter. In addition to highlighting the strong momentum we see across the business, the results also reflect the strategic deployment of capital in the past year.Compared to the prior year, base EPS of CAD0.89 was up 11% and 14% in constant currency, given the strengthening of the Canadian dollar. The increase was due to several factors, including broad-based business growth, higher stock market levels and the significant acquisitions in the last year. Notwithstanding continued adverse U.S. life claims experience in the Capital and Risk Solutions Reinsurance business unit, the strength in base earnings was evident across the segments, reflecting very solid fundamentals and a diversified book of business.Starting with Canada, base earnings were CAD317 million, down 9% from an exceptionally strong Q4 last year. Business performance was good with expected profit up 4% and insurance experience, particularly health and disability, producing a solid gain. Canada also saw a strong contribution from yield enhancement activity in the quarter. In the U.S., base earnings were up significantly year-over-year with strong organic growth at Empower and the inclusion of the MassMutual business this year.The acquired MassMutual business continued to perform well, although down from the last couple of quarters due to one-time reporting true-ups. The business added CAD55 million or $44 million to base earnings, including expense synergies and strong fee income. Note, this includes financing costs and amortization of enhances. On an annualized run rate basis, $80 million of the targeted $160 million pretax expense synergies have been achieved thus far. Customer retention to date has also been strong and integration activity is on track to complete later this year.Personal Capital continues to invest in new customer acquisition to fuel growth and profitability and recorded a base loss of $6 million, in line with expectations. The in-force book of business continues to generate profits and net asset growth has exceeded initial expectations. This welcome growth in turn, triggers the additional contingent purchase consideration recorded this quarter. On the integration front, as Paul noted, the rollout of the Personal Capital digital capabilities to the broader Empower client base is successfully underway with over 2 million plan participants now having access to the enhanced user experience.Looking at Empower, excluding MassMutual and Personal Capital, base earnings were up smartly year-over-year as a result of strong organic growth, higher markets and the continued expansion of the Empower IRA rollover business. On a sequential basis, Empower base earnings declined $117 million from $145 million, driven by seasonal expenses and several one-time items, which combined totaled approximately $22 million after tax. Allowing for this, Empower base earnings were broadly in line with the past couple of quarters closer to a more normalized earnings run rate.Putnam's results increased year-over-year with higher fee revenues from higher average AUM and a one-time tax benefit, partly offset by lower net investment income on seed capital mark-to-market losses and reduced performance fees this period. A small number of products drove the year-over-year decline in both performance fees and net investment income with stronger calendar year performance in 2020 compared to 2021. In Europe, base earnings increased 9% year-over-year, 14% in constant currency. U.K. base earnings benefited from new business gains on the large bulk annuity sale reported in Q3, strong yield enhancement and a favorable tax impact. Ireland-based earnings increased 8% year-over-year with higher fee income and positive health and disability experience more than offsetting adverse life claims and base earnings in Germany were steady.In Capital Risk Solutions, the reinsurance business continues to grow, including the expansion into newer markets during the year, notably Japan and Israel. U.S. life claims were again elevated in line with the industry and we continue to hold the provision for additional access claims in the near term. In contrast with the U.S. experience, mortality rates have been less impacted recently by COVID in the U.K. and Netherlands, and as a result, we did not see the offsets in the longevity business this quarter. At the Lifeco level, notwithstanding the growth in base earnings, net EPS of CAD0.82 fell 16% from Q4 2020, primarily due to the 2 large nonrecurring gains last year, as Paul noted earlier. And whereas this quarter, we recognized additional contingent consideration resulting from the success of recent acquisitions.Turning to Slide 14. We can see the impact of various excluded items, which net to minus CAD60 million overall. These are predominantly acquisition-related covered earlier and actuarial liability-related, which I'll describe further in the upcoming slides. Turning to Slide 15 and 16. These next 2 slides highlight the source of earnings. First, from a base earnings perspective and then a net earnings perspective. And I'll focus the comment on Slide 16, the net earnings SOE display with a reminder that the amounts above the line are pretax.First, expected profit was up 16% year-over-year, notwithstanding some currency pressure with the euro down 7% year-over-year and the U.S. dollar down 3%. MasMutual was not in Q4 2020, but added CAD73 million this quarter. Even before that addition, expected profit was up 7% or 10% on a constant currency basis. We are seeing a 39% increase at Empower coming from strong organic business growth and fee income benefits from higher market levels. Canada was up 4% and the Europe and Capital Risk Solutions segment grew more modestly given currency headwinds.Moving to new business impacts, I'll call out a couple of points. In the U.S., we saw an increase in the nondeferrable acquisition costs as a result of strong sales and adding MassMutual new business this year. In the U.K., building on the large bulk annuity sale last quarter and smaller ones this quarter, the investment team was able to secure attractive backing assets, producing a pretax gain of CAD26 million, which offset nondeferrable acquisition costs on the wealth business in Ireland and the U.K. Capital Risk Solutions reverted to more modest new business impacts this quarter compared to an outsized gain last quarter and an outsized strain a year ago. Single large reinsurance transactions can cause new business impacts to fluctuate from period to period in this segment.Experienced gains contributed positively in the quarter and I'll cover these in more detail on the next slide along with the actuarial basis changes. Note, certain U.K. property-related experience gains are reflected in the actuarial liabilities and as such, are excluded from base earnings. This accounts for the difference between the experience gain lines between base SOE and net SOE on these 2 slides. Earnings on surplus of minus CAD36 million is down down from positive CAD6 million last year, primarily due to seed capital losses at Putnam this quarter compared to strong seed capital gains in Q4 2020, plus increased financing costs in respect to the advanced funding of the planned Prudential Retirement business acquisition.Note, CAD14 million of the CAD36 million relates to loss consolidation accounting, which is reversed below the line in noncontrolling interest and it has no bottom line impact. The effective tax rate this quarter was 9% on base shareholder earnings and 10% on net earnings, primarily reflecting the jurisdictional mix of earnings and tax exempt investment income and the release of certain tax provisions. By way of comparison, the effective tax rate on base earnings in Q4 2020 was 13%.Turning 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, some of which we touched on already. As shown in the chart on the left, yield enhancement continued to contribute positively, particularly in Canada this quarter. We continue to originate a steady volume of equity lease mortgages in the U.K. on a solid residential property backdrop. The net impact of mortality, longevity and morbidity was modestly negative this period due to the combination of COVID-related claims in U.S. life reinsurance and U.K. and Irish group life, offset by positive experience in disability and health, again, reflecting the benefits of a diversified book of business.Credit-related impacts were positive this quarter as our high-quality investment portfolio continues to perform well with minor ratings changes and a recovery in previously impaired assets contributing to an experience gain. The expense variance variances shown here reflect strategic project costs and some seasonal and one-pass expense items. I'll review expenses in more detail on the next slide. The chart on the right details the major basis changes with a positive impact from changes in the economic assumptions used in liability modeling, primarily interest risk and benefits inflation provisions in the European business and modest adjustments in other areas.Moving to Slide 18. This slide highlights operating expenses by segment. Expenses were up year-over-year, as expected, given the increase in business, both organically and through M&A. And we also saw our bump in expenses sequentially, largely related to normal seasonality and some one-time items. In Canada, expenses were up 4% year-over-year, reflecting increased sales activity and sub-advisory expenses related to the GLC/Mackenzie transaction. On a sequential basis, Canada's expenses were higher, in part due to seasonality as well as technology investments supporting growth.In the U.S., the MassMutual acquisition added CAD105 million to expenses in the quarter. And excluding MassMutual, the U.S. expenses were up 6% year-over-year. The sequential increase in U.S. expenses was partly due to one-time expenses in Q4 and the normal seasonality in certain expense items at Empower. These items equated to more than half the increase, while the rest was related to strong sales and business growth. In Europe, expenses increased 13% year-over-year, mainly due to acquisition-related costs in Ireland and strategic investments in U.K. and Germany. The increase in Europe's expenses on a sequential basis was amplified by the one-time pension curtailment gain of CAD55 million that we called out for Ireland last quarter. In Capital and Risk Solutions, expense growth is aligned with growth in the business and expansion into newer markets.Please turn to Slide 19. The Q4 book value per share of CAD24.71 was up 8% year-over-year, primarily driven by increased retained earnings given the solid results in each of the past 4 quarters. Currency translation in OCI has been a headwind this year with the strengthening Canadian dollar, but this has been offset by the pension OCI given the increase in interest rates. The LICAT ratio at Canada Life remained strong at 124%, up 1 point compared to last quarter, given continued solid earnings net of dividends. In addition, Canada Life moved to a new most adverse LICAT scenario in Q4. This nullified the downward impact of the prior scenario this quarter and is expected to lead to an increase of 1 point per quarter for the next 5 quarters as this change is smoothed in over time. Lastly, I'd note that Lifeco cash, which is not included in the LICAT ratio ended the quarter at CAD0.6 billion, unchanged from last quarter.Back to you, Paul.

[Paul Anthony Mahon, President, CEO & Director]

Thank you, Garry. Please turn to Slide 20. I'll close our formal comments by saying that we're pleased with our top line and bottom line momentum across Lifeco as we leverage our investments in organic and M&A enabled growth. Looking ahead, we remain confident in our ability to deliver on our medium-term financial objectives as we work to successfully integrate acquired businesses and execute against our value creation priorities.We believe that to create this sustainable value for shareholders, we must also be committed to responding to the needs of all stakeholders. It's with this mindset that we're developing and implementing strategies in support of the environment, diversity, equity inclusion and sustainability across our organization. This work enabled us to make a commitment to achieve net zero greenhouse gas emissions by 2050. We look forward to sharing more on this initiative and announcing interim targets later this year.That concludes my formal remarks. Ariel, please open the line for questions.

[Operator]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Meny Grauman of Scotiabank.

[Meny Grauman]

Garry, you referenced good retention at MassMutual and I'm wondering if you have any more numbers for us related to retention? Anything you could provide?

[Paul Anthony Mahon, President, CEO & Director]

Manny, it's Paul. I'll jump in on that. We won't get -- I'm going to turn that over to Ed Murphy to talk about where we're at from a retention perspective. The reality is we look at retention across a range of different segments, but we're performing actually at or better across those segments, and I'll let Ed provide a little bit more color. Ed?

[Edmund Francis Murphy, President & CEO of Empower Retirement]

Yes, to Paul's point, we feel really good about where we are. We've transitioned 3 waves of clients over to our platform. The fourth wave will transition over next weekend. There's a total of 8 waves. So, we expect to complete the transition in the early fourth quarter of 2022. But we're running at or ahead of plan in terms of both asset retention, client retention and revenue retention.

[Meny Grauman]

And just a follow-up. So, in terms of the way that you mentioned, I would assume that you're kind of halfway there. Is that righ just given your comments before?

[Edmund Francis Murphy, President & CEO of Empower Retirement]

No, I would say, yes, Meny, I would say we're not halfway there. We're halfway there in terms of the number of waves. But as you would probably expect, we tend to start off with the smaller, less complex waves and build up towards the larger, more complex waves in the latter part of the transition program.

[Meny Grauman]

And then just switching gears, there was some discussion in terms of the shift in mix at Putnam away from fixed income into higher earning equity products. And I'm just wondering, as you kind of look at what's happening early in Q1, do you still see that trend? And what do you expect going forward? And what are the implications for performance at Putnam, given that shift that you're seeing?

[Paul Anthony Mahon, President, CEO & Director]

So, I'll start off with that one, Meny, and then I'm going to turn it to Bob. So, as I outlined in my opening comments, we're really pleased with Putnam's fund performance for its clients. And you see that in the Morningstar Ratings. You see that in the Lipper results and that manages itself, obviously in attractive funds to clients. And what we've seen is strength in equity flows. And I think that's an industry phenomenon, but in particular, I think Putnam is experiencing that. And I'll let Bob speak to sort of his outlook. Bob?

[Robert Lloyd Reynolds]

I think when you look at 2021, we did have positive equity flows in all of the channels. And as Paul said, it was due to performance. We have [indiscernible] 4 and 5-star fund and a majority of -- a large majority of the 5-star funds are in the equity side. So thus far this year, again, in all channels, even though we're in early February, we do have positive flows in all of the channels in equities. So, that has continued.

[Operator]

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

[Gabriel Dechaine, Analyst]

I'm going to ask this in a layman's way, but I know the yield enhancement numbers, yield enhancement, that isn't fun to layman, but 100-some-odd million, are typical figure for you. What would that number look like under IFRS 17?

[Paul Anthony Mahon, President, CEO & Director]

That, Gabriel, is one that I will definitely pass on to Garry. I think it's a bit more complex. A lot of it will depend on the geography and nature, but I'll let Garry provide you with some context.

[Garry MacNicholas, Executive VP & CFO]

So, the short answer is, I don't know exactly what it will look like. And the reason I say that, Gabriel, is that as -- depending on the type of approach you use to discounting your liabilities, this IFRS 17 speak, it's top down or bottom up, you'll get a different treatment and we'll have different approaches across our various portfolios. So, I think at a high level, we'll see it reduce. That we would expect to see, but we wouldn't expect to see the impact. It won't be called yield enhancement, but the same type of your impact would happen just by the way the -- any asset trading will flow through discount rate. So, you'll see a number that will be somewhere in between these type of typical numbers. You're right, this is in our sort of typical range. You'd likely see something in between the two. It won't go away completely, but it will certainly diminish in some portfolios because the way we're going to discount liabilities. Hopefully, that helps.

[Gabriel Dechaine, Analyst]

Well, in between the 2 ways? And something like now and in between what?

[Garry MacNicholas, Executive VP & CFO]

I'd just say in between 0 and where we are today. It doesn't go away completely, but it will reduce.

[Paul Anthony Mahon, President, CEO & Director]

Gabriel, the other point I'd make is if you look at the trajectory of our business and sort of where our growth is right now, you're seeing very strong growth in our -- obviously, our group retirement and a lot of our wealth management business. So, we're seeing a shift in our mix to businesses where yield enhancement hasn't historically featured. And so obviously, there's sort of no quote unquote change on change there that would be impacted. So, as business shifts into -- as we're seeing the high growth in Empower and our Wealth Management businesses, that construct of yield enhancement would typically not be a feature as strongly.

[Gabriel Dechaine, Analyst]

The other question on the group business, it's come up a lot today in the past. I mean there's a lot of stuff happening in that business or in society or more broadly, that affect the outlook of that business. I'm just wondering how you view the lay of the land in terms of actions you've taken to reprice the book, which may have pre-dated COVID and businesses that are probably looking to extend coverage or buy, yeah, buy more coverage or the competitive action for talent? And then the incidence rates and duration of claim issues, and cost of medical care. And on the headwind side, those three, in particular medical care and cost of claim and duration of claim and incidence rates, are there any that are kind of percolating that we should be aware of as we look towards the full year outlook here?

[Paul Anthony Mahon, President, CEO & Director]

So Gab, and you see, I said it right there. I would say there's -- you've sort of asked 2 questions there. What is the upside and why do we like the business, and then I think you're asking about downside sort of more technically as we think about claims, incidence and claims termination rates and the like. Let me talk at a high level about our views on the group business. And I think it actually extends beyond group benefits and into group retirement, especially when you talk about the competition for talent and the importance of having high-quality benefits for people's financial security or health security. So fundamentally, that is -- we think is a critically important part of why this is a very attractive business for us. So, I'd say that if you think about the fundamental, the fundamentals of people saving for retirement, the fundamentals of people wanting to have benefits.Then we look at those businesses through a broader lens and we say, these are businesses actually where we have millions of client relationships. And a lot of the things that were traditionally delivered via face-to-face advice or over the phone or in employee meetings and the like are moving to digital. And when you take the power of a personal capital type platform or you take the power of our planned member as customer digital solutions in Canada, those relationships, the value of those relationships can go a lot farther in terms of actually building an actual retail client base through digital means. So, I think it's very powerful. So, we look at that business and we do think people will be raising the bar for benefits from the standpoint of competing for talent. And I think that goes to us making sure that we're focused there. And so, I think that's really important for us.The second part, in terms of our views on claims management, I mean, our performance has been very strong through the period. And I think that goes -- and I'm going to just talk about it at a general level, goes back to our discipline in pricing, our discipline in underwriting and actually, our discipline in claims management, making sure that we're really taking care of the climate and taking care of the company and I think it's really been a strength of ours. And this applies not just to the Canadian book of business, it's the U.K. life and income benefit business. It's the Irish Life business on the group side. But I'll let Jeff Macoun provide a bit of context on his perspective on the business and in particular his perspective on our performance right now and outlook for things like claims incidence and the like. Jeff?

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

Thanks, Paul. And I'm going to go with Gab, Gabriel. Maybe just to build on Paul's points, if I could, Gab. As Paul talked about our expansion with members across Canada and so the ClaimSecure addition brings 1.2 million Canadians for us to tell our story to in addition to why we're quite bullish on this market is it opens up the third-party admin market or the third-party payer market that we would have a relatively lower share in the Canadian market. And so there's lots of growth there for us. So, that tells us that we expect to have large growth in that. And I can already say since ClaimSecure has come onboard that we've been successful in a number of cross-sell opportunities and there's many more. So, this is opening a lot of room. We touched on the government of Canada, it brings us 1.5 million Canadian. That was important for us to tell our story.The other thing is why we're quite bullish on this business is that the relationship between the group retirement market and the group life and health market as one Canada Life, we've moved very aggressively to a single sort of entry point and the opportunities between those businesses is really significant. And that's one of the reasons we had record, record sales in '21 in that business. And quickly I'll just conclude. Paul's comments on disciplined management, I mean this has been a hallmark of Canada Life for years. And so from a disability perspective, we know this business well. We manage it well. We placed adjustments in pricing well before COVID through. We continue to monitor that aggressively. And so we really know this business and have been putting through the appropriate rate adjustments to get the appropriate margins as we go through.

[Gabriel Dechaine, Analyst]

And just to simplify it, but the the morbidity trend and I think tied to mostly to your group has been a bit positive and neutral over the past few quarters. Is that -- do you think that's sustainable for the rest of the year? Or there's 2022 that we have ahead of us?

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

Well, I would -- you're right, Gab, that we at Canada Life have enjoyed very good morbidity and mortality, I might add. We enjoyed a good year in '21. This business is a -- it takes about a year to get through the pricing. And so that we did put pricing adjustments through in '21. So, we're fully loaded as we enter into '22 and that should provide a good safety as we move through '22.

[Paul Anthony Mahon, President, CEO & Director]

Gab, can I -- are you okay on that one? Because I wanted to come back to the yield enhancement point. Just one of the points and Garry, just sent me a note, I want to put a fine point on it. When you think about yield enhancement, there's no change in the economics of the business. What we're talking about is the -- we're just talking about the incidence of when earnings occur. So, rather than the front-ending or some front-ending that you would have in terms of yield enhancement, what you're going to see that is spread out over the broader life of the contract. So, as we think about value creation and taking steps to enhance yield to drive either stronger pricing or to drive stronger returns, it's all there. It's just a question of the incidence. So, I don't want you to go away thinking that there is a diminution of value creation. The value is there.

[Operator]

Our next question comes from Tom MacKinnon of BMO Capital.

[Tom MacKinnon, MD & Analyst]

Garry, maybe if we go to Slide 13, there's a few kind of favorable tax items mentioned in there. If you can maybe highlight what each one of those are with Putnam and then Europe and in Capital and Risk Solutions and how much they were? And I have a follow-up.

[Paul Anthony Mahon, President, CEO & Director]

Tom, let me just start off. And we'll certainly go to that detail, and Garry can probably can take you through some of it, but it might be worthwhile to get into a one-on-one if you want to get into a lot of detail. Suffice it to say, this quarter, a tax -- a tax rate, as Garry outlined in that 9%-ish range compared to 13% a year ago. So, there's a number of one-time items and we continue to view that, that low-teens rate is kind of what the normalized rate is. We actually do see that normalized rate likely growing over time because a lot of our growth, as you'll have noted, is in the U.S. jurisdiction where there's a slightly higher tax rate. So right now, we still are quite confident that our view of a low-teens tax rate is sort of where we're at right now, probably a little bit of lift as we look forward. But Garry can provide a little bit of context around the details. Garry?

[Garry MacNicholas, Executive VP & CFO]

I think Tom, and as Paul said, we can go into further details offline as need be. But at a high level, there's a lot of moving parts to the year-end tax to, as you can imagine. In terms of the ones we're calling out for ballparking for, say, Europe and Capital and Risk Solutions is probably in the 20 million for each of those range. And actually, the overall for like it was probably in that sort of probably call it around 40 million ballpark for the overall amount at Lifeco level. What you saw in the U.S., Putnam picked up, I think, just over 20 million, but there's an offset. There was a negative items in the corporate section there.So, I think the net in the U.S., which is actually very small and Canada, I think, was a small going slightly the other way. They had a higher tax rate this year than last year. So, it's probably 40 million overall, and I'd call out the 220 million bids in Europe and reinsurance, but there's a bit of geography in the U.S. and then Canada, if anything, a little bit of pressure on the tax rate. So, that gives you a high level.

[Tom MacKinnon, MD & Analyst]

Now the Empower, you look quarter-over-quarter, assets went up 5%. I think participants are up, yet the earnings -- the base earnings were down 20% quarter-over-quarter. You mentioned something about seasonality of expenses. I'm not sure what some of the other things were contributing to that. But I'm not sure how we should be looking at a run rate. Should it be related more to the third quarter or the fourth quarter? Help us understand that.

[Paul Anthony Mahon, President, CEO & Director]

So, Tom, I'll start off there, and then I'll let Garry provide a little bit of context around the seasonality and one-time items. So, we launched into this, obviously, Empower has been in strong organic growth mode. We had seen the benefits of MassMutual coming onstream early in the year and there's a bit of lumpiness as the benefits come onstream, but also the fourth quarter typically has some seasonality on things like customer mailings and the like that are quite different. So, the reality is as we look at the trajectory of the business, those sort of second and third quarter results are more indicative of the way we think about the results, but I'll let Garry provide a little more color there. Garry?

[Garry MacNicholas, Executive VP & CFO]

Actually, Paul, you went where I was. If you look at the second and third quarter, they were pretty consistent results, and that's probably close to what you see in the run rate there. Yes, you mentioned Paul in the expenses and some of the one-time items that there is a seasonality to it, and that's, you've got 13 million people. You've got a lot of year-end packages, a lot of print and postage, and that adds up when you've got such a large participant base.There were some one-time costs, some penalties or break fee on our major technology contract change. There were some true-ups on the MassMutual accounting for certain fees and commissions. And then frankly, of course, we do true-ups or variable comp at year-end. And as you've seen all year, Empower has had a fantastic year. So, we would recruit something for that as well. So, you do have those, those expenses. And I think you can see it in the appendix, if you look at how the expenses grew quarter-over-quarter compared to how it was running the rest of the year. So, that gives you some idea of this quarter in particular.

[Tom MacKinnon, MD & Analyst]

So, it sounds like it's more of a real number. It's just the seasonality of your expenses are just higher in the fourth quarter. Is that fair to say?

[Garry MacNicholas, Executive VP & CFO]

Yes that and some one-time items. We wouldn't have necessarily major software costs on contract changes or these MassMutual accounting drops, that's a function of being the first year of the transaction. That was less the seasonality.

[Tom MacKinnon, MD & Analyst]

And the last one is, I think you mentioned CAD28 million in other experience gains. I don't remember what it was, but maybe is it more of a one-time? I think it's on Page 17 of your slides. Is that more of a one-time? Or how should we be thinking about those things going forward?

[Garry MacNicholas, Executive VP & CFO]

Yes, I'll -- if you don't mind, Paul, just take that one. Those are typically just a collection and they would typically be one-time. Some of them are regularly you might have also to behave with it, it fluctuates around a bit. These ones were a net positive, but that really is just a collection of odds and ends that don't earn. Notable enough or of wide enough interest. So, I would tend to think of those as one-time. In each individual one, there could be a variety, but the actual other could be plus or minus, but it's typically a smaller number.

[Tom MacKinnon, MD & Analyst]

And sorry, just to squeeze one last quick one. The government plan you picked up. Is that an ASO plan? Like is there any capital relief for that? Or is that just strictly fee income?

[Paul Anthony Mahon, President, CEO & Director]

That one is to Jeff. Jeff, do you want to describe the nature of that plan?

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

It's a 12-year contract with approximately, I think it's something close to CAD26 billion or CAD28 billion on a fee basis, ASO fees. We cut fees on that and July 1, 2023.

[Tom MacKinnon, MD & Analyst]

Is there any way you can tell us what you think the additional fees would be associated with this?

[Paul Anthony Mahon, President, CEO & Director]

Tom, I think it would be early days for us to do that. I mean, we're working through -- we obviously -- when you add a piece of business like this, you do it to make sure that it's going to be economically attractive over the long term. In the early going, we got to bring it onstream. But we're going to be working hard through this period with increased automation, digitization. So at the end of the day, we view that as something that will have potential but then growing potential the more we automate.

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

Yes, that would be fair, Paul.

[Tom MacKinnon, MD & Analyst]

How did you win that? Was that a competitive bid?

[Paul Anthony Mahon, President, CEO & Director]

Jeff, why don't you describe that? Tom, there's sort of 2 key measures. We cannot go into -- clearly, we can't tell you about others that would have participated in the competition. But we can tell you about one of the things that are important to a large client like that and the way we thought about. So, we really can't, we really shouldn't get into the details of that. But suffice it to say, at the end of the day, service is going to be critical, right? So Jeff, is there anything that you could disclose on that.

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

I think we wouldn't want to go too far of course, there was a public bid, and we were successful. And I don't think I would feel comfortable getting into some of the details at this point, but it was very much a public bid, delighted to win the plan. It's going to give us lots of horsepower, lots of brand recognition and allow us to employ our strategies more broadly, whether picking up new accounts or just brand recognition and technology enhancements in the marketplace.

[Tom MacKinnon, MD & Analyst]

Congrats on winning that plan.

[Operator]

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

[Doug Young, Diversified Financials and Insurance Analyst]

Just a few, hopefully, follow-up questions here. On the MassMutual, the sequential decline in earnings contribution, Garry, is that the $22 million that you talked about in your prepared remarks and that was the one-time impact. Did I catch that right, or was I wrong?

[Paul Anthony Mahon, President, CEO & Director]

Garry, you could go to that one.

[Garry MacNicholas, Executive VP & CFO]

That I was just calling out the seasonal one-time items were worth about $20 million and that's most of the sequential decline.

[Doug Young, Diversified Financials and Insurance Analyst]

And that's seasonal? That's what you -- like is that the breaking of the tech fees or --?

[Garry MacNicholas, Executive VP & CFO]

That's why I say, seasonal and one-time in sort of 2 categories. You get some seasonality in Q4 and then there were some just one-time items in the same quarter.

[Doug Young, Diversified Financials and Insurance Analyst]

What's the one-time item? Can you quantify that?

[Paul Anthony Mahon, President, CEO & Director]

Why don't I, Doug. So, the seasonal is things that would be typical that would repeat in another -- in future quarters and the business will continue to evolve. One-time is things like break fees on a contract or truing-up on our incentive compensation because we had very, very strong growth and success in Empower this year. And then a third factor I think Garry outlined is that we're in the initial phases that we're working with MassMutual on that. So, we had some true-ups on sort of the annual -- overall annual results on some fees that are back and forth between MassMutual. So, all of those things are one-time in nature.

[Doug Young, Diversified Financials and Insurance Analyst]

Just -- and I get that. I'm just wondering what the dollar -- like how much of that $20 million was one-time. So, if I can kind of triangulate back to what the contribution was excluding that?

[Paul Anthony Mahon, President, CEO & Director]

Garry, do you have that?

[Garry MacNicholas, Executive VP & CFO]

I'd say broadly, it's broadly half and half of those amounts of the [indiscernible], off top of head, maybe a little more on the one -- no, it's probably about half and half.

[Doug Young, Diversified Financials and Insurance Analyst]

It doesn't have to be exactly precise. And then I'm just wondering, can you quantify -- maybe you have and maybe I haven't seen it, quantify what the impact from COVID was this quarter? And I know it probably is more related to Arshil's business in the reinsurance side. But just curious as if you could quantify that.

[Paul Anthony Mahon, President, CEO & Director]

So Doug, at a high level, if you think about COVID, there's positive and negative impact. We've seen a real recovery from COVID as the economies grow and when we talk about sales results. But the 2 broad areas where I guess, you'd be thinking about would be mortality and new mortality and life mortality. And maybe I'll let Garry start off at a high level because it's sort of -- when you think about this, it's not all in Arshil's mandate, that also exists in some of our commercial business. And then perhaps I'll pass that over to Arshil for a bit of context on the Capital and Risk Solutions business. Garry?

[Garry MacNicholas, Executive VP & CFO]

The -- I think at the highest level, I mean, we do call out in our -- on our slides, I think it's Slide 17, where we have the additional detail on experience gains and we show in there the mortality, longevity, the morbidity, like the health and dental disability, all of that rolls in together. And my comment there would be the sum of those is basically, they're all offsetting. I mean there was a very small net negative. And the reason I call out of it is very difficult to say exactly what's COVID-related, what's not, what's the regular fluctuation. We've attributed the vast majority of these fluctuations to COVID. You can see it in extra mortality in the U.S. life reinsurance, you can see it in some of the -- some of the favorable morbidity we might see from less utilization of certain healthcare services in various segments. And obviously, some of it comes down to our claims [indiscernible] prices.So, it is tough to know exactly which is COVID and not, but when we look at it, our sense is that we're basically balancing out across them all, but it was higher in the life side. I think just to give a ballpark, it was probably in the 40 million -- 40 million to 45 million of pretax on the life mortality side and then offsetting impact in the other areas. So, that gives you a bit of an idea.

[Doug Young, Diversified Financials and Insurance Analyst]

And then maybe just lastly, the expected profit growth in Europe and CRS was lower than what I would have expected. And it sounds like FX was a bit of a contributor. But growth has been fairly strong in terms of sales. Is there something else that I'm just technically methodically not thinking of in terms of why we wouldn't be seeing better expected profit growth in Europe and CRS?

[Paul Anthony Mahon, President, CEO & Director]

Garry, I'll let you take that one.

[Garry MacNicholas, Executive VP & CFO]

No, I think obviously, we did go through a very good period of growth. And a number of those large transactions were on the longevity side. And they were in euros. And as I mentioned during the comments, the euro was down 7% year-over-year. So that -- those expected profits that come off those contracts are certainly down. And then we didn't have a lot of longevity new business in 2021. There weren't just many -- as many transactions. I mean you obviously could comment more on this. I think the pipeline is strong coming to 2022, but there were less deals done. So, we weren't -- a big book of annuity business, longevity business does run off. That's the nature of it. It runs out every year. We didn't really replenish much in 2021. So, again, that would have a bit of a dampening impact on your expected profit. But still, it went up notwithstanding the FX. So, I think it is good steady growth in reinsurance.

[Doug Young, Diversified Financials and Insurance Analyst]

Have you given Europe and CRS expected profit growth on a constant currency basis? If you did, I apologize I didn't catch it, but if you have it handy, that would be helpful?

[Garry MacNicholas, Executive VP & CFO]

I don't actually have it handy, but we could do a follow-up, if that helps.

[Operator]

Our next question comes from Paul Holden of CIBC.

[Paul David Holden]

A few questions for you. First, related to Empower and the competitive pricing environment in that market. We know that over the years, it's been a fairly competitive market. Just wondering with all the consolidation that's taken place, including Empower as a consolidator, has that settled down at all, as prices become more stable than another way?

[Paul Anthony Mahon, President, CEO & Director]

Good question, Paul. That's one that Ed can definitely speak to it.

[Edmund Francis Murphy, President & CEO of Empower Retirement]

I'd say the market remains very price competitive. However, you have firms like us and others that have invested a lot in the infrastructure and our value proposition. And as such, we can and have been able to command a premium in the market and continue to -- and obviously, we're continuing to grow the business organically at 2x to 3x the rate of the market as measured by net participant growth. So, I don't know if it's a leveling off yet per se, but there's definitely less choice in the market. And I think for a premier provider like us, it puts us in a very good position to capture the economics and the value for the service that we're providing.

[Paul David Holden]

Second question is related to Canada individual insurance sales. So, they were up 3% year-over-year, but if I look at the 2 competitors that also reported results, their growth rates were much higher. So, just wondering if you have any color there? Do you think the growth differential is related to maybe differences in product mix or if there's anything going on in the distribution side that might explain [Technical Difficulty]?

[Paul Anthony Mahon, President, CEO & Director]

Paul, I'm going to pass that one to Jeff. But suffice it to say, we're always very much focused on balancing, trying to achieve strong sales growth, broadening the customer base, but also really good discipline about making sure that we're participating in the parts of the market and in the product areas where it's going to be quote unquote win-win-win. Win for us because it's good economic outcomes, good for the customer because we've got strong products and good for the sales force because we're giving them products that we're fully committed to. So, as we look at the year, we actually executed on our plan as we were happy with the results of our plan and Jeff can provide a little bit more color relative to what was behind that growth rate. Jeff?

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

So, it's a good call out. I mean we did '21 and in quarter overall was an exceptional sales year for us at Canada Life on life insurance and specifically, as you called out the 3%. We look upon this business on the long term. So, we really want to strike a nice balance between the price discipline, risk selection, market share, sales volume. And so in year and in quarter, I mean, we had a strong year in our flagship product in participating life insurance. We did take action in some of our other products on a pricing basis to look at this on a longer-term basis. So, our reach in the distribution is strong. We had strong growth year-over-year and in all of our channels. I would say that on the term side and UL side, we took some pricing actions, I think, on the long term. We were pleased with our par sales, which were higher than 3%, and we're looking for growth in '22 in this line.

[Paul David Holden]

And then one last question for me related to capital and the interest rate scenario switch. So, have you disclosed, you can add roughly 1 point to LICAT in each of the next 5 quarters? And then my estimates would suggest you're going to add close to another 1 point from regular organic capital generation. So, let's call it 10 points being added to LICAT over the next 1.5 years. How do you think about that additional capital flexibility you've gained now? Sort of what are the priorities as you think about that? Like do you have to keep a cushion just because -- in case the interest rate scenario switch goes the other direction again? Do you get more aggressive with delevering on the acquisitions you've done? Just again, broad thoughts on how you're thinking about that capital flexibility?

[Paul Anthony Mahon, President, CEO & Director]

I'll start off with that one, Paul. So, you're correct. Those would be the -- we'll call them the capital strengthening. And I'd say that first and foremost, I'd say as we build up more firepower, I think deleveraging is for sure a priority for us. I think deleveraging gives us a lot of flexibility and freedom as we think about next steps on growth. So, that's kind of #1. That's #1 in our mind. When we get more aggressive or less aggressive, we're not actually that concerned about a scenario switch. The steps we've taken, we think, are pretty solid. So, we'll look at that capital as a source of strength, ultimately to be used in an effective way. As I said, first and foremost, deleveraging. But after that, it's about opportunity and that's the mindset we've got.

[Operator]

Our next question comes from Nigel D'Souza of Veritas Investment Research.

[Nigel R. D'Souza, Investment Analyst]

I actually had a follow-up question on the interest rate scenario, in fact, the LICAT. Can you give us some color on what would actually just even hypothetically drive a interest rate scenario switch? And if that isn't likely, should we interpret it as, the sensitivity to LICAT from higher rates, which I think is 3 percentage points for 50 basis points parallel increase. Should we just interpret it as that capital benefit offsetting? What could be a rising long-term yields over the coming months?

[Paul Anthony Mahon, President, CEO & Director]

I'll let Garry answer that one, just to make sure that we've got the geography of the numbers there, right, Garry?

[Garry MacNicholas, Executive VP & CFO]

You're actually reading that correctly that the -- if you do indeed see a rising -- a rising interest environment, I think we've put the sensitivity in our materials, that's where you've got the 3 points from the 50 bp rise. And that's -- so yes, you'd see that. In terms of the scenario switch, it would take -- I think it would take a combination of a fairly sharp decline in rates and changes to our ALM approach, and you obviously, we expect the rates they don't seem to be going down that rapidly at the moment, but obviously there were contains. And certainly, our ALM approach, we're not planning on changing that. That's what I said, don't see the scenario switch being very likely. And that's getting -- picking up a point every quarter in addition to our regular retained earnings growth will certainly give us some protection against just like for the whole industry has a natural bit of headwind when interest rates are rising.

[Nigel R. D'Souza, Investment Analyst]

And quick clarification. Does IFRS 17 impact this dynamic at all?

[Paul Anthony Mahon, President, CEO & Director]

Garry too.

[Garry MacNicholas, Executive VP & CFO]

In terms of the -- obviously, the first thing I'd say is on IFRS 17, the industry and ourselves, but obviously is active part of this, the industry are working with OSFI just to make sure there's no unintended consequences on move to IFRS 17. OSFI have indicated that they are looking to keep the capital regime neutral, and there's -- and that in terms of both the level of transition and also looking at potential volatility as well. So, I think there's nothing directly tied to IFRS 17 in that. It's really obviously, the end impacts will be depending on where OSFI finalize it. But certainly, OSFI looking to keep IFRS 17 as a neutral transition. So, I don't -- I wouldn't foresee that changing the earlier narrative.

[Nigel R. D'Souza, Investment Analyst]

And apologies if I missed this, but was any color on the specific actions you took to pick up or enhance yield in Canada? Any color there on how you achieve it?

[Paul Anthony Mahon, President, CEO & Director]

Garry, over to you.

[Garry MacNicholas, Executive VP & CFO]

This is -- we have a certain I'll call it modest reinvestment assumptions in our in our actuarial liabilities. And what -- we've used it number, I mean there's a variety of investments we would have gone into. But one of the ones I think I called out in the speaking notes or Paul might have is that we do use on a swap basis, the equity release mortgages are a good source of alternative assets. They have good long duration. So, they're very effective at backing longer-duration liabilities and they come with attractive spreads as an alternative asset class. So -- and when we swap them from sterling into Canadian to back or Canadian liabilities, there's benefits there as well. So, those have been -- that's probably the one I'd call out. It's been a very effective trait for us where we've picked up some value. That's what's one of the big contributors to the Canadian yield enhancement.

[Operator]

Our next question comes from Darko Mihelic of RBC Capital Markets.

[Darko Mihelic, MD & Equity Analyst]

I just want to take you back to earnings in surplus for a moment. Just want to make sure I understand the impact that hit this quarter. And ultimately, what I'm looking for is a better way to think of what a more normalized level would be. I think you said there was a CAD14 million impact. I think you called it -- I was checking my notes, sometimes I scribble. And what else, do we see capital losses? I mean is there any way you can sort of help me walk me through the math behind how we got to the negative 36% or maybe you can just talk generally about what a more normal run rate would be for earnings in surplus? Either way, I'm just looking for like the breakdown of what caused it go worse than last quarter.

[Paul Anthony Mahon, President, CEO & Director]

Garry, I'll let you take that. And obviously, I'll start out with the -- talking about the offset to some of that in the last consolidation. So, over to you, Garry.

[Garry MacNicholas, Executive VP & CFO]

That's, I'll call it, I'll kindly call it a cork in the accounting regime. It's not our own making. This is where, depending on -- in certain of the funds where we have seed capital, depending on our percentage of the fund, we have to consolidate the entire fund and then we back it out again. So, we had some seed capital losses. Our share we keep and then the CAD14 million represented other -- losses for all the other people in the various funds that were involved. It is system mark-to-market, obviously, rather than a realized gain the vast majority is mark-to-market, but that just comes out in noncontrolling interest. So, that's CAD14 million, you're right. You remembered the number. Otherwise, it would have been a minus 22%.And really what goes into surplus capital for us in addition to the seed capital mark-to-market, but what goes in there are the largest things overall are the financing costs -- and that would have risen since last year because obviously, we've prefunded some of the Prudential acquisition financing. So, we've got acquisition costs. And then you just got the other invested assets in surplus. We would have had -- also going through here from time to time or -- when you crystalize gains in other comprehensive income, so you have -- you crystallize some unrealized gains by trading the assets in surplus, we talked about in the past. We had very little this year. We've had higher amounts of that in the past. I think if you look at, certainly, if you look at the full year, we'd have had more of that in 2020. And that typically occurs when interest rates are falling, you end up getting mark-to-market gains on fixed income. And as you trade those assets, you can basically harvest or realize those gains and they come through the P&L.So, that wasn't much of a feature in 2021 compared to because of rising rates, but it was in 2020. But really it's the run rate income on your various surplus assets. A number of them don't have a yield, but it's the run rate income and then the financing costs and their pretax financing costs there. So, those are -- overall, those are often larger than it's not unusual to have them larger than the other surplus income. So, something in very low numbers or even negative is not that unusual.

[Darko Mihelic, MD & Equity Analyst]

And I just wanted to follow-up on Gab's question with respect to the yield enhancement. I just wanted to make sure that I heard you correct in that you were not talking about the entire net investment results being lower than the yield it has been. In fact, what you were referencing was if you do something like an equity release mortgage, the net impact on the net investment result would be milder than the current yield on asset. Did I hear that -- is that the way I should interpret what you said?

[Garry MacNicholas, Executive VP & CFO]

That is an excellent way. We get the same value over time. But right now, a portion of it would be more recognized upfront and less later on. And then the new regime, you'll recognize the spread more evenly over the likely asset. So, it is -- you've interpreted it correctly.

[Darko Mihelic, MD & Equity Analyst]

And then just as a follow-on to that then, I know you're running a parallel system. What is -- what is your plan kind of release of information around some of these things like the investment result, earnings power or transition? I'm not thinking that it's going to be all held until Q3, and then there's going to be some massive big reveal. I'm anticipating that you'll sort of release some information as you get it to us? Or have you guys thought about that at all? Or what's on your mind with respect to releasing or informing us of some of the major things with respect to IFRS 17?

[Paul Anthony Mahon, President, CEO & Director]

Garry, do you want to start there?

[Garry MacNicholas, Executive VP & CFO]

Sure. Yes. I think I mean we've had quite a number of kind of conversations internally about -- as we get closer, we haven't -- in terms of the actual parallel runs, obviously, we will be running comparative quarters during 2022, but that hasn't kicked off yet. So, as we get closer and we start finalizing our policies and feel we can give better direct -- at least directional information and areas to look at, whether it's broader. I think people have a pretty good education on it, but I think we can clarify exactly how it might apply to us.We don't see a big bang approach on that. We do see having some dialogues and one-on-one dialogue, some disclosures on our calls that will give a directional information and that will come out through the year rather than all at once. So, you're right. We aren't planning an all at once big thing, although, obviously, the final published results will, but that's a different matter. But at least to give -- so we're not looking to surprise anyone here.

[Darko Mihelic, MD & Equity Analyst]

And I'm just grouping it into sort of 3 buckets of concern, right? The first bucket is transition impact on balance sheet. The second impact is anything if anything on LICAT and the third is earnings power. Which of those 3 buckets do you think you're better prepared to talk about earlier? And what do you think you have to wait until [indiscernible] in the process?

[Paul Anthony Mahon, President, CEO & Director]

I would say, Darko, that the reality is they're all interwoven. They're interwoven for sure. And we're still continuing as an industry to work with OSFI on how this will play out with LICAT relative to volatility. So, it's hard to sort of describe one of those as being locked down before the others because of that. But Garry, you might want to provide a different perspective.

[Garry MacNicholas, Executive VP & CFO]

No, I think you're right, Paul. There's certainly -- there's definitely a connection between the example that I think most people use is the contractual service margin coming out of retained earnings on transition, there'd be some aspect to that, and that will also feed into the income as it gets re-amortized back into earnings. So, they're definitely connected. And you're right, it's ourselves and the industry not only working with OSFI, which I mentioned earlier, but also working with the rating agencies just to make sure it's well-handled. If we stand back from it, the economics of the business aren't changing. It's an accounting transition. And so we need to make sure that it lands appropriately and we get -- and we think that by the right education, we can assist all the various stakeholders in that.

[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, Ariel. Well, again, as always, we appreciate your time and your questions and your interest, and we actually really look forward to connecting with you all in early May for our Q1 reporting and our annual meeting. And from there, we wish you a healthy and great first quarter.

[Operator]

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