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Operator: Thank you for standing by. Welcome to the Great-West Lifeco Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would like to now turn the conference over to Mr. Shubha Khan, Senior Vice President and Head of Investor Relations at Great-West Lifeco. Please go ahead.
Shubha Khan: Thank you, Morgan. Hello, everyone, and thank you for joining the call to discuss our fourth quarter and full year financial results. Before we start, please note that a link to our live webcast and materials for this call have been posted on our website at great-westlifeco.com under the Investor Relations tab. Turning to Slide 2. I'd like to draw your attention to the cautionary language regarding the use of forward-looking statements, which form part of today's remarks. And please refer to the appendix for a note on the use of non-IFRS financial measures and important notes on adjustments, terms and definitions used in this presentation. And turning to Slide 3, I'd like to introduce today's call participants. Joining us today are David Harney, our President and CEO; Jon Nielsen, our Group CFO; Ed Murphy, President and CEO, Empower; Fabrice Morin, President and CEO, Canada; Lindsey Rix-Broom, CEO, Europe; Jeff Poulin, CEO, Reinsurance; Linda Kerrigan, our appointed Actuary; and John Melvin, our Chief Investment Officer. We will begin with prepared remarks, followed by Q&A. With that, I'll turn the call over to David.
David Harney: Thanks, Shubha. Please turn to Slide 5. 2025 was a great year for Great-West, marked by strong financial results, further advancement of customer propositions and leadership transitions that position us for continued growth. We delivered record base earnings, up 11% over the previous year and a 12% year-on-year increase in base earnings per share, well above our medium-term objective. The double-digit base earnings growth in Retirement, Wealth and Group Benefits has continued our shift to a more capital-efficient business mix. The strength of our balance sheet gives us substantial financial flexibility. This includes over $2 billion in deployable cash at year-end, virtually unchanged from a year ago despite $1.6 billion of share buybacks. This is a testament to the strong cash generation profile of our business. We also continue to bring an increased focus on shareholder value during the year. Our record performance, strong balance sheet and our continued commitment to driving shareholder value through disciplined capital deployment have contributed to strong total shareholder return we delivered in 2025. Please turn to Slide 6. As I already mentioned, we delivered record base earnings per share in 2025, up 12% from the prior year, primarily owing to strong growth in our capital-efficient businesses. This helped drive base ROE of 18.2% with our U.S. business crossing 20% for the first time. We continue to reinforce our position as a leading player in Retirement services and Wealth management, ending the year with total client assets of $3.3 trillion, of which more than $1 trillion represents higher-margin assets under management or advisement. In 2025, Empower crossed the $2 trillion mark for the first time, highlighting the incredible progress the business has made in attracting and retaining customers. Robust capital generation has supported significant return of capital to shareholders, maintained our LICAT ratio above target levels and reduced leverage. In addition to the $1.6 billion of share buybacks in 2025, we've repurchased $250 million in common shares so far this year and may repurchase up to 20 million shares this year under our renewed normal course issuer bid. Given our strong results and financial position, we are delighted to announce an increase to our quarterly dividend of 10% to $0.60 per common share. Please turn to Slide 7. As we reflect upon 2025, it's important to recall that less than a year ago at our Investor Day in Toronto, we unveiled our updated medium-term financial objectives. We reiterated our objectives for base EPS growth and dividend payout, raised our base ROE ambition and introduced a new objective for base capital generation. Recent growth in base earnings per share has consistently exceeded our objective, supported by strong global equity markets and favorable currency movements. The consistency of these results and the consistency of the delivery from each of our 4 segments makes us very confident of achieving our growth ambitions in 2026 and beyond. With higher growth in the capital-efficient Retirement and Wealth businesses, we are well on track to deliver ROE of over 19% in the medium term. We've maintained our disciplined and consistent approach to dividends all throughout, maintaining a payout ratio around the middle of our range. And finally, we are pleased that our base capital generation this year exceeded 80% of base earnings, while at the same time, deploying considerable capital in our Capital and Risk Solutions business this past year to take advantage of compelling opportunities in the market. Please turn to Slide 8. Each of our businesses performed in line with our growth ambitions in 2025. This performance is a credit to our clear strategies, focused execution and commitment to delivering for our customers. The U.S. and CRS comfortably met our medium-term growth ambitions on a constant currency basis. In Canada, our results were adversely impacted by lower earnings on surplus due to falling yields. Adjusted for this, base earnings increased by 6%, a very strong result on the back of 7% growth in 2024. In Europe, earnings on surplus decreased significantly as a result of the nearly $2 billion in dividends paid to Great-West over the past 24 months, which exceeded the earnings of the business by a significant margin. Adjusted primarily for earnings on surplus, base earnings growth for Europe was 7% in constant currency. Overall, I am pleased with the strong underlying momentum across all 4 business segments, which gives us confidence, as I said, on continued growth in 2026 and beyond. Please turn to Slide 9. As I shared last August, we're focused on 4 execution priorities in bringing our strategy to life. I am pleased with the significant progress we have made against each of these priorities in just the past year. Let me highlight a few examples. We have continued to strengthen our Wealth platforms, which are seeing the most promising growth opportunities. Empower Wealth exceeded USD 100 billion of client assets, driven by -- driven in large part by increasing rollover sales with net new assets alone driving net flow organic growth of 14%, which added to market growth during the year and increased operating margin drove an increase in base earnings of [ 26% ]. In Canada, we continue to bolster the platform with book acquisitions and greater integration of the dealer network. And in Europe, we achieved record retail net flows of $4.2 billion as Irish Life continues to expand its market presence. We are also deeply committed to delivering best-in-class service for our customers. There is no better example of this than the strides we have made in expanding Empower's workplace offering with the introduction of private market investments for 401(k) participants, expanded consumer-directed health options and a broadened suite of stock plan administration services. At the same time, we continue to invest in and accelerate the use of new digital technologies, including AI. In Canada, that includes the launch of CaLi, our first AI assistant that is helping to streamline workplace plan member inquiries. And Irish Life is seeing the continued development and utilization of CARA, which has revolutionized the claims process through advanced AI. And finally, we made tremendous progress in streamlining our operations. This included the ongoing optimization of our balance sheet in the U.K., which has yielded more than $2 billion in capital benefits since the start of the program in 2024. And in 2025, CRS ceased writing new mortality risk reinsurance in the U.S., thereby devoting more resources to Capital Solutions where risk-adjusted returns continue to be significantly more attractive. I'll pass now to Jon to provide more detail and insights into our performance.
Jon Nielsen: Thank you, David, and good morning. Please turn to Slide 11. Lifeco delivered record base earnings for a third consecutive quarter. Results in the fourth quarter were supported by strong new business volumes, constructive global equity markets and approximately $0.04 per share of tax benefits. Base earnings grew 12% year-over-year with double-digit growth across the U.S., Canada and Capital and Risk Solutions. In addition, we repurchased nearly $1 billion of common shares during the quarter, contributing to the 13% growth in base earnings per share. As a result, Lifeco's base ROE increased to 18.2%, up 70 basis points from the prior year and well on track towards our medium-term objective of 19% plus. In the fourth quarter, net earnings were principally impacted by the previously announced restructuring plans and unfavorable market experience from interest rates. Please turn to Slide 12. We are pleased that total credit losses were marginally lower than our expected annual range of 4 to 6 basis points. This quarter's credit experience was primarily attributable to a single commercial property in the United States. As a reminder, total credit experience is the aggregate of credit experience shown in our drivers of earnings disclosure as well as our retirement and Wealth P&L statements, all of which are included in the supplemental information package. Going forward, we continue to expect annualized credit experience to be in the range of 4 to 6 basis points and under normal conditions to be at the low end of this range. Now turning to our results by segment, starting with Slide 13. Empower delivered double-digit growth with base earnings up 17% year-over-year in constant currency, reflecting continued organic growth momentum across both Retirement and Wealth. In retirement, strong equity markets drove double-digit growth in average client assets. Planned flows for the second half of 2025 were USD 29 billion, exceeding the USD 25 billion expectation we shared in the second quarter. Looking forward, we expect continued positive net planned flows in 2026, which should dampen the impact of ongoing participant outflows. The retirement results in the fourth quarter were impacted by increased share-based incentive compensation in line with the strong results delivered by Empower, which accounted for most of the increase in operating expenses. We do not expect this to recur in the next quarter. Empower Wealth continued to perform exceptionally well with base earnings up 43% year-over-year in constant currency. Rollover sales drove record net inflows of USD 3.4 billion. In fact, Empower Wealth drove an industry-leading growth in net new assets of 14%. The pretax operating margin was a record 39% this quarter, up 5 percentage points year-over-year. We continue to demonstrate the attractiveness and scalability of our wealth platform. While margins were strong in the fourth quarter, there is seasonality in marketing expenses, and we would expect the first quarter of 2026 to see increased investment in building our brand, consistent with our results in 2025. As such, the full year operating margin of 35% better reflects the near-term margin expectation for the Wealth business. Overall, the performance across the business drove a 200 basis point improvement in Empower's base ROE, which ended the year above 20% for the first time, and we remain confident in our double-digit base earnings growth outlook into 2026. Turning to Slide 14. Base earnings in our Canadian operations increased 10% year-over-year, primarily due to strong insurance experience gains, which more than offset the impact of lower yields from earnings on surplus. Group Benefits continued to deliver solid organic growth as well as favorable health, life and long-term disability experience. The profitability of this business in recent quarters reflects our continued pricing discipline. Retirement and Wealth results were supported by higher fee income due to stronger equity markets and IPC's acquisition of the Wealth business of De Thomas. Turning to Slide 15. In Europe, full year base earnings surpassed $1 billion for the first time, benefiting from favorable currency movements. In constant currency, Europe delivered growth of base earnings of 7%, adjusting principally for the reduced earnings on surplus resulting from increased dividends to Lifeco, thanks to the capital optimization initiatives that we announced at our recent Investor Day. These initiatives have resulted in higher aggregate remittances of dividends than aggregate base earnings over the last 2 years. This has driven an increase in ROE for Europe of over 250 basis points and also additional capital flexibility for Lifeco overall. We expect this trend to continue into 2026. In contrast to the full year result, fourth quarter base earnings declined 2% year-over-year due to unfavorable mortality experience and significantly lower trading gains, both of which can vary quarter-to-quarter. More notably, insurance experience remained favorable on a full year basis. The underlying sales momentum within each of the principal lines of business continued to be strong with growth in sales of over 25% across all products, if you exclude bulk annuities. The Wealth and Retirement businesses benefited from higher fee income driven by favorable equity markets and healthy net asset flows. The Group Benefits in-force book grew by 6% in constant currency, in part due to strong new business volume at Irish Life. We delivered a particularly strong sales quarter with a record $1.5 billion of bulk annuity sales, in the U.K., which reflected an industry-wide rebound in deal flow. Anticipated regulatory changes had temporarily dampened activity in the first half of 2025. Overall, for the year, our sales of bulk annuities declined in line with the overall market. With those regulatory changes now firmly in the rearview mirror, we expect bulk annuity volumes to return to growth in 2026. Turning now to Slide 16. Capital and Risk Solutions delivered a strong quarter with base earnings up 9% year-over-year in constant currency. This was once again driven by our Capital Solutions business, where continued strength in demand drove a 46% year-over-year increase in run rate insurance result in the fourth quarter and 29% for the full year. The pipeline remains robust, and we expect to remain active in the coming quarters. In Risk Solutions, we maintained a disciplined underwriting approach, prioritizing risk-adjusted returns and long-term value creation in the face of competitive market conditions. We continue to decrease our exposure to P&C catastrophe risk, which accounted for less than 8% of our run rate insurance results in the fourth quarter. Now turning to Slide 17. As we've highlighted before, organic capital generation of our businesses remained a significant source of strength. For the full year, base capital generation exceeded 80% of base earnings and free cash flow represented approximately 90% of base earnings as a result of our capital optimization efforts. This high degree of capital fungibility provides strong support for continued capital deployment while maintaining balance sheet strength. Turning to Slide 18. Lifeco's strong free cash flow continues to provide us with significant financial flexibility. In 2025, we repurchased 28 million shares for over $1.6 billion and renewed our NCIB, which allows us to repurchase up to 20 million shares in 2026. As always, we will continue to balance capital deployment through buybacks with other strategic opportunities that enhance long-term shareholder value. So far in 2026, we bought back shares for $250 million, and we would expect to return a similar amount of capital to shareholders in 2025 if compelling M&A opportunities do not emerge. Turning to Slide 19. Lifeco's capital position remains robust despite strong growth from capital deployment in our CRS business and the substantial share repurchases throughout 2025. Our LICAT ratio stood at 128% down from 131% at the end of the third quarter. As we mentioned on our third quarter call, we expected a 1- to 2-point decrease in LICAT due to seasonality in the reinsurance business. Market conditions also supported very strong new business volume in CRS at attractive risk-adjusted returns for the second consecutive quarter. New business in the second half of 2025 reduced LICAT by approximately 2 points. In 2026, we expect to maintain the LICAT ratio above 125% in normal operating conditions, even if new business volume in our reinsurance business remains elevated. Our leverage ratio increased by 1 percentage point quarter-over-quarter to 28%, reflecting nearly $1 billion in share buybacks. Lifeco's cash balance of $2.1 billion positions us for continued growth, financial flexibility and to pursue strategic opportunities, including any compelling M&A opportunities that emerge. Now before turning it back over to David for his comments on the business outlook, I'd like to make a few observations about our expectations for the year ahead. Our 2025 base earnings included approximately $0.10 per share of tax benefits, resulting in an effective tax rate of less than 16%. We expect this to be approximately 18% in 2028, primarily as a result of the growing share of earnings from Empower and recent or proposed tax changes in Canada. Earlier in my remarks, I noted that we expect credit experience to be in the range of 4 to 6 basis points as a share of fixed income assets and at the low end of this range in normal operating conditions. In 2026, this would translate to a range of $70 million to $100 million post tax, given the current size and composition of our portfolio. With that, I'll turn it back over to David for his concluding remarks.
David Harney: Thank you, Jon. Please turn to Slide 21. As we close out 2025, I reflect on the impressive results we delivered over the past year. Our segments have a clear opportunity to continue their growth trajectories by delivering on their focused strategies. At a portfolio level, Great-West has substantial financial flexibility, thanks to a strong balance sheet and continued cash generation. With this strong foundation, we are well positioned to deliver base earnings in line with medium-term growth objectives. This includes our expectation that Empower will deliver double-digit earnings growth in 2026. Our confidence in the outlook for Empower is rooted in the scalability of the platform and strong rollover sales momentum. From a portfolio perspective, we remain on track to generate 70% plus of base earnings from capital-light businesses and drive base ROE of over 19% over the medium term. And we retain significant financial capacity for strategic opportunities to further strengthen the portfolio. If compelling opportunities are slow to emerge, we will continue to return capital to shareholders as we did in 2025. With the announcement of a 10% increase in our quarterly dividend and the option to repurchase up to 20 million common shares through our NCIB, we are well positioned to continue driving attractive shareholder returns. As I begin my first full year as CEO, I am energized by the strength of our businesses, the momentum we have in delivering against our strategy and the highly motivated teams we have in place to deliver for our customers. I'm confident that we can deliver on our ambitions and continue to drive exceptional value for our shareholders. And with that, I'll turn it over to Shubha to start the Q&A portion of the call.
Shubha Khan: Thank you, David. [Operator Instructions] Morgan, we are ready to take your questions right.
Operator: [Operator Instructions] Your first question comes from Alex Scott with Barclays.
Taylor Scott: First one I had for you is on the potential for AI to offer up risks, but also opportunities. And just in light of some of the stock movement in the U.S. and concerns around disruption of wealth managers and things like that, would be interested in your take on it. And what are some of the things that you're going to look to do to take advantage of your scale and efficiency across Empower and Empower Wealth.
David Harney: Yes. So on AI, like certainly top of mind and has been for a number of years now in the organization and I think the way you frame it is right. There are opportunities and risks. And like the big opportunity is around efficiency and AI industrialization of financial services and I think that's pretty well understood. We're going to see AI having a big impact on all of our customer touch points and on the operations behind those within the back end of the business. Last year, at our Investor Day, like we guided on improvement in our overall efficiency ratio from 57% down to 50% or below. That was in advance of, I think, full appreciation of the AI efficiency opportunity that's ahead of us. And at this point, we're very comfortable on exceeding and going below that 50% level, and we'll share more during the year on how we expect to deliver I think, further efficiency gains beyond that. I think the thing that's more top of mind for people now is around the risk and just how AI might change advice. I will say that sort of hybrid advice, AI-assisted advice is well up and running in financial services already. It's in use in all of our call centers. It's gathering information in the background to help agents and advisers. It's monitoring advisers, it's prompting advisers, and it's racking up calls. So that AI-assisted advice is already in existence. And I think there's a lot of parallels to that AI-assisted advice and say, the AI-assisted driving that we're all used to now. So -- but I think what people are wondering about is can we move to full AI advice and how that might impact on models. I think the jury is still out a little bit on that. Our view is still that people will look for human in the loop advice. But it is possible some people will be more comfortable with AI-only advice. And again, I think from our point of view, the most important thing is that people get good advice. People are saving for retirement. These are complex decisions and people get good advice. It is interesting if you go into ChatGPT and tell ChatGPT, I'm a 401(k) participant, I've saved 400,000 and I'm retiring in 6 months. What should I do? It will have a very good conversation with you on withdrawal rates that you should be thinking about from your fund. It will have a very good conversation with you on the asset allocation you should have. It will have a very good conversation with you as well around equity and market risk and explaining the most important thing is not necessarily a fall in the market, but when it happens, that's what we call sequencing risk, and it explains that very well. It will have a very good conversation then on strategies around that, whether it's bucketing, whether it's partial annuitization or whether it's just your overall asset portfolio. But at the end of the day, what it says then when it comes to picking is you need to pick a platform that has basically access to all of those product propositions. It will talk about the importance of price and it will talk about the importance of good service. And for that, increasing scale just becomes more and more important. And we have that in all of our markets, but particularly in the U.S., what we've built is a large open architecture efficient platform that has the best access to different product propositions, has the best service delivery and has the best price. So we will continue to believe that advice will be very important, and we're very comfortable on the different routes that people get to that advice. So I could pick any of these segments, but Ed, you might just want to share a little more on the work that's been done on AI within the U.S.
Edmund Murphy: Yes. Thanks, David. I appreciate the question, Alex. I would just echo some of David's comments. I would say, in general, we're very constructive on AI in terms of the impact that we think it can have, particularly on our Wealth business. We've always subscribed to the hybrid model. If I think back to the acquisition of Personal Capital in 2020, that was at the time, the preeminent digital hybrid wealth management platform in the U.S. And if you look at our Personal Wealth business today, there's multiple use cases of AI that are currently being deployed across the personal Wealth business. We're using AI to improve sales and service supervision. We have over 1,000 advisers. So think about it from a regulatory standpoint, the requirements that we have to supervise every single call to catalog every single call and then to provide qualitative coaching back to those individual advisers and the training associated with that. So that -- it's being leveraged there from a sales coaching and training standpoint. We're also using it to -- for prospect targeting and identifying opportunities with existing customers. I mean, think about our business, we have 900,000 customers. So when you think about the deployment of advice, particularly in the mass market where you have clients that are less complex, their needs are less complex to be able to leverage AI as an advice delivery mechanism is powerful, teeing up that next best step for customers. So again, I'm encouraged by the early results that we're seeing. My expectation is that it should free up capacity and lead to deeper conversations between advisers and clients that build trust, loyalty and ultimately, over time, greater share of wallet, right? I mean the whole intent here is to earn their trust so that they will aggregate more of their assets with Empower versus somebody else. So that's sort of where we are on the journey. It's still early days, but I'm very optimistic about the impact AI can have on our business.
David Harney: Yes. I just add that's 900,000 wealth customers with a pipeline of 19 million customers in our businesses.
Taylor Scott: Yes, that's all really helpful. Second question and connected in ways to the last conversation is just the M&A interest you have. Could you help us frame anything around the amount of dry powder you have available and that sort of thing as well as what is of interest maybe geographically or the types of businesses, et cetera?
David Harney: Yes. So maybe I'll just explain where our interest lies. Jon can follow up and just give some numbers on our dry powder, if you like. I think the first thing to say just standing back from an acquisition interest is, as we explained at Investor Day, we're very confident around our medium-term financial objectives. And to achieve those, we're not dependent in any way on acquisition, and that's totally the right place to be. So that means we can have a very high bar, which we do when it comes to looking at any potential acquisition. So there have to be a strategic fit to our existing 4 segments. So that means they have to add scale or capability to our existing strong market positions. They have to deliver on our internal return requirements and they have to add to future EPS growth and capital generation. And then we have to be very, very confident on execution, just our ability to execute on those. So we look at opportunities across all of the 4 segments. We look at many opportunities. We follow-through only on a minority of those because of the high bar that we put in place. But when we do follow-through then our track record on implementing and integrating acquisitions is like it's 100% over the last number of years. Like it won't be a surprise that our main interest is in the U.S. because, obviously, where we have most confidence given our recent track record is in workplace and our ability to integrate those businesses. But we do look in other segments as well. We've made recent 12 acquisitions in Europe and in Canada and across the different segments, we've done other types of acquisitions as well. So we look across all of the segments. We're patient on waiting for the right opportunities. And I would say maybe just on order, if we did move ahead with an acquisition outside of the U.S., we wouldn't see that as a barrier in any way to future acquisition opportunities in the U.S. So Jon, you might want to give some color just on our dry powder.
Jon Nielsen: Yes. Thank you, David. Alex, we -- obviously, we have about $2 billion of excess cash at the holding company that's been fairly consistent. And if you look at our medium-term group objectives, what we've indicated is we're going to be highly cash and capital generative. So we're going to continue to see significant cash flowing to the holding company that gives us a lot of flexibility as you look forward. We've been generating free cash flow in excess of our capital generation as we've optimized -- gone through some of those optimization activities. We usually like to keep around $500 million of cash at the holding company. So that's about $1.5 billion. Then if you look at the excess capital that we have in our Canadian Life operation -- Canada Life operations, that's about $2 billion. Our U.S. business also has excess capital of about $1 billion. So before you look at any balance sheet capacity from a leverage, and we worked this down significantly, we're around $5 billion of excess capital. And then if you look at what we've kind of said in the past, a 30% leverage ratio wouldn't be unusual for us. That gets you to $6.5 billion. And in exceptional cases, for the right acquisition, we've been able to go above north of that 30% leverage. And then as you will recall, pay it down quite quickly. So that would add more capacity. So we're well positioned. We're pulling on all the -- as we shared our capital allocation framework, we're pulling all the levers, maintaining a strong balance sheet, investing in strong new business. We deployed about 2 points of capital, growing the dividend double digit and then obviously, continuing to look at M&A opportunities. So we're pulling all those capital allocation levers, and we have plenty of capacity if something comes up.
Operator: Your next question comes from Mike Ward with UBS.
Michael Ward: I was wondering if we could just touch on the potential pace of capital return. I just thought the $250 million year-to-date was pretty strong.
Jon Nielsen: Yes. Thanks, Mike. As we indicated, we continue to buy back shares into the first quarter, it's $250 million. As I just shared, we're going to generate quite a bit of free cash flow this year. That free cash flow, we're not going to let -- let's say, we will park it temporarily. So you -- in the event that there aren't compelling M&A opportunities, there's no reason to believe we wouldn't return in order of what we did last year, which was about $1.6 billion in terms of buybacks. But that may not be a straight line. Obviously, we're always looking at market opportunities. Last year, it was back-end weighted. We did $1 billion in the fourth quarter. But in the event that we don't see anything compelling, and I think David laid out the thought process, the bar is high for M&A. If we don't see anything compelling, there's no reason to believe we wouldn't return as much as we did at least last year.
Michael Ward: Okay. And then I was just wondering if you could sort of comment on the competitive environment for actual retirement blocks out there in the U.S.? I know we've kind of [indiscernible] touched on the competition and the developments on the Wealth side. Just kind of wondering about like actual retirement competition.
David Harney: Yes. So maybe on the workplace first, and Ed can follow up maybe on just closer observations from the U.S., and like it's probably a little more competitive than when we made our recent bigger acquisitions, but not hugely so, I would say. So more our point of view is like, obviously, it has to be a right price, but it will be just the mix of business that's in any target and just how clean it is. So that's probably a bigger consideration than price. And then as you go down, further down the scale, then there's smaller opportunities. Again, it's really around cleanness and ease of integration. So prices are probably a little bit above, are more historic -- our recent historic transactions, but not substantially so. Ed, I don't know if there's anything you want to add to that?
Edmund Murphy: No, I might just say that clearly, we're one of the few strategic acquirers in the market. These opportunities really don't lend themselves to financial sponsors typically. And we're obviously a very credible buyer and have delivered on expectations. So for someone that's looking to sell that wants to get their employees and their clients in the right place with the right provider, I think we represent a very attractive option. So -- and I think in some ways, we stand alone as a core strategic acquirer on the space.
Operator: Your next question comes from Doug Young with Desjardins Capital Markets.
Doug Young: Maybe just starting with CRS for Jeff. I mean there was a pullback, I guess, in the P&C retrocession market. Can you talk a bit about that, the financial impact that it had maybe this quarter or what you're expecting going forward? And then you're pulling back from this business, you pulled back from U.S. mortality. Any other changes or any other pressure points that you see kind of on the horizon across your businesses? And I know this Capital Solutions business is doing well. I'm more thinking about the areas of pullback.
Jeff Poulin: Thanks, Doug. Yes, it's a good question. So on the P&C market, the last 3 years, like maybe explaining the market wherein we're doing retrocession business. So our customers are reinsurers and they're looking for cover in case of very big catastrophe. We tend to cover business in the U.S., Europe and Japan, the three big insured markets. So that's really what we're trying to focus on. Earthquake and windstorms are the main perils. And so in the last 3 years, there hasn't been very many catastrophe in the market. Our portfolio has not been touch much. We had a small loss on the California fires last year. But for the most part, it's been pretty quiet. So what we saw at renewals is the rate that the clients were offering were about 20% lower than the prior year. So those rates are less attractive to us. And I think it's cyclical, right? Like that market is cyclical. You get a few claims and all of a sudden, the premiums go up again. So this market has been good to us. We've been in it for over 20 years. It's diversifying. So I still like the market, but we -- this year, we lowered our exposure to it. We've got a certain limit internally that we're not disclosing, but that we didn't put all that limit to work this year, and we reduced our exposure. We like our core clients, so we back them up and then we use them, and then we use the rest of our capacity just when it made sense for us to use it. So we're going to see less earnings or less expected earnings from that business going forward. Having said that, we had a great capital solution year. Last year was fantastic, and we're seeing that continuing in the first quarter. So I think we should be making up the earnings missing on that line from that. Doug, that's -- the mortality business is a different decision. We've tried for many years and the returns were never good in that business, so we stopped writing the new business there. I'm not looking to stop writing any of the other lines of business that we're in. I think we like to be diversified and we remain opportunistic. If you look back 7 years, we wrote a lot of longevity, and we're very happy, and we have a book of maybe $35 billion of underlying liabilities that's producing good earnings for us. Now that Capital Solutions are hot and that this is where we see the opportunity, so we're focused on that. But as a group, I think we see our role as being very opportunistic in picking the right opportunities that are bringing good returns to this group. So we're not going to do business if the returns are less than 17% or 18%. We see our role as deploying capital in really good attractive opportunities. So that's the way we're looking at it. I'm expecting longevity to eventually come back and certainly that the catastrophe market should come back, too. So we're not talking about growing the catastrophe market, but I like the diversification it brings. Does that make sense?
Doug Young: Yes. No, it all kind of fits with the way we've talked about it before. And I guess from the earnings giving up in the P&C retro, what I'm kind of getting is like don't worry about it, like you're doing well in other businesses. And so within that 5% base earnings growth target, like this does not impact any of your guidance?
Jeff Poulin: No, I think we're still in the mid- to high single digit. And the way things are going, hoping it's going to be closer to the high single digit than the mid-single digit.
Doug Young: Yes. Okay. And then second question, just on Europe. There's a drag from negative insurance experience and just hoping you can unpack what you're seeing there. And then, Jon, you talked about pulling $2 billion out of Europe. I mean that's a lot of money. What does that signal strategy-wise, if anything, for the European operation?
David Harney: Maybe Linda, do you want to talk on insurance experience and give some broader color on insurance experience as well. And then, Jon, you can talk about the capital.
Linda Kerrigan: Yes, sure. So on the insurance experience in Europe, we're really seeing volatility quarter-to-quarter, and it's really driven by the Group Benefits business and particularly this year on mortality experience. And we do expect overall at the Lifeco level when you look at all our mortality lines to continue to see volatility, mortality. But I think the key point in terms of Group Benefits business in Europe, which is the key driver of insurance experience in Europe. And I think the key point is that if you look at the full year, we were actually in insurance experience gain territory.
Jon Nielsen: Yes. And Doug, on the second question, I don't think it means anything strategically. It's an operational and financial lever that we're pulling to -- as you would expect, to maximize the returns we get from all of our businesses. I think, in particular, Europe, we found those opportunities to raise capital returns. We've continued to grow the business. I think in my script, I mentioned a very strong quarter in the fourth quarter for both annuity sales, combined with a really strong year across all of -- if you look at all the other lines of business in Europe, 25% growth in all the other sales combined. So we've seen really strong growth there. So we're continuing to deploy capital to grow Europe. We're confident if you -- when you adjust for -- principally for that capital return that, that mid-single-digit objective over the medium term is a good target. And we should continue to see the returns or the ROE grow from that business both from the residual efforts that we still have to go on capital optimization and also from the -- over time, you see the growing more capital-light businesses, our Wealth and Retirement businesses in Europe combined with our other businesses. So really happy with that. And we've just made the business much more efficient from a financial perspective.
David Harney: Yes. I think that's a good point on the top line growth. Lindsey, you might want to just add some color just to the top line performance we've seen recently and the outlook.
Lindsey Rix-Broom: Yes. Thanks, David. Yes, I think we have -- as Jon said, I think we're really pleased with the strong sales performance that we've seen across the year, particularly in Wealth and Retirement. Obviously, we saw a bit more of a subdued first 3 quarters in bulk annuities due to some known potential regulatory changes. When that went away, we saw the pipeline come through in Q4 and saw a very strong quarter for bulk annuity. So I think we're optimistic about 2026 and continuing on the growth in all of the product lines that we've got across the businesses in Europe and continuing as well to push on with our bulk annuity business as the market returns to a bit more normality.
Operator: Your next question comes from Gabriel Dechaine with National Bank Financial.
Gabriel Dechaine: I just want to revisit this buyback and M&A dance, I suppose. You did reference that last year, your buyback was back-end loaded. Is that how we're going to find out if you find a deal or not that you'll have maybe modest activity until later in the year? And then just on M&A, it sounds you are being a bit explicit about it, which we appreciate and the criteria description was also appreciated. Let me ask you this about scale in existing businesses. Is there also an appetite for adding complementary businesses? So let's take the U.K., for instance, you're a group insurance provider and you have the payout annuities business. Would there be a fit for a business that's more in the group pensions like active employee group pensions market that sort of fits in with that would be sort of similar to what you'd -- not really, but kind of to what you do with Empower in that retirement accumulation and then rollover business? I know that was a lot of words, but I think you know where I'm going with that.
David Harney: Yes, it's not hard to get to where you're going with that, all right. And like my overall comments on acquisition targets would be just very similar to what I said earlier, like we have a high bar. We're not under pressure to do any acquisitions. When we talk about strategic fit, though, we do talk about adding scale to existing market positions, and we have very strong market positions in all of our 4 segments. But strategic fit also covers adding capability, and that could be along the example that you gave and certainly adding workplace in the U.K. would add a capability that sits alongside the existing business segments. They can operate very well without that workplace capability, but it would add to it. But all of the other hurdles have to be met. And as I said, the most obvious place for us to execute well remains workplace in the U.S., but we would look at all of the segments, as I said earlier.
Gabriel Dechaine: Got it. And on the buyback stuff. Jon, I suppose?
Jon Nielsen: Yes. I mean, Dave, we don't necessarily have a set buyback target for each quarter in 2026 at this point. We've got off to a strong start and wanted to continue the momentum that we had at the end of the year. We renewed our NCIB program in January 2026. It gives us initial capacity of 20 million shares. Obviously, there's some flexibility if we would need to, to go back and increase that as well. But we just evaluate the environment. We evaluate the attractiveness of the share price and any opportunities in the market. And I would just stick back to what we said here in the event there aren't compelling M&A opportunities in 2026, you should expect us to return at least as much capital as we did in 2025 and timing being considerate of numerous factors, including the cash flow that we have from our companies and when we get it, the share price opportunities in the market and so forth.
Operator: Your next question comes from Paul Holden with CIBC World Markets.
Paul Holden: I want to go back to the discussion on Capital and Risk Solutions and the change in earnings mix. So I fully appreciate the opportunistic nature of the business and pursuing where margins are best at a point in time. I would have thought maybe that would translate to higher ROE, but ROE roughly flat year-over-year. So is that something that could change in '26 as you've shifted mix more through '25, maybe it becomes more obvious than the ROE number in '26? Or is there another way we can kind of see the margin improvement in the business?
Jeff Poulin: That's a good question. I think that ROEs are already pretty high at 40%. So I think that -- and a lot of that comes from the Capital Solutions business. So we have deployed a fair bit of capital. This capital comes back relatively quickly when we deploy it. So that's the advantage of a 40% return. So if these transactions stay on the books long enough, it could improve the returns a little bit. But there's also some fluctuations from quarter-to-quarter. I think depending on the way we structured the deal, there might be some higher capital in the fourth quarter than there is in the -- fourth and the first than there is in the second and third quarter. So we see some of these fluctuations a little bit too and that might be what you're seeing there. But yes, I would expect that it would go up a bit because the mix is going towards Capital Solutions, which tends to have slightly higher capital -- higher return.
Jon Nielsen: And maybe if I just add, I mean, deploying capital in new business, even if it isn't at the current ROE can be quite attractive from an overall Lifeco perspective. So we have high hurdles for new business, and we're getting great returns on that new business, but it may not be incremental to the 40% ROE, but still be very, very attractive, Paul.
Paul Holden: Understand. In another perspective just to look at the benefits of the change in mix there, is maybe ROE doesn't change a lot, but the earnings volatility should be lower. Is that a fair conclusion?
Jeff Poulin: Yes. I think that's right. There's less -- there's probably less experience change with the Capital Solutions business. There is sometimes reserve. We're depending on the experience we're getting, we could set up reserves. And then the volatility usually comes from renewal or termination, right? So you have these transactions that terminate, then you lose these earnings going forward. So that's where most of the volatility comes. But generally speaking, it's a more stable block.
Paul Holden: Yes. Okay. My second question is for Jon. I think some of the numbers you gave us on how to look at excess capital across the business are new. I just want to be clear like on the -- I call it the fungibility of capital. So say, the $2 billion of excess capital in Canada Life, for example, like if you were to do a deal, in the U.S. Workplace Solutions, which is clearly where you've pointed to is the highest probability. Like could you actually extract that $2 billion from Canadian Life as an example, to use it for U.S. Workplace Solutions business? Or would that has to be used within the Canadian Life regulated entity?
Jon Nielsen: I think we have a lot of financial flexibility, and we've done that. And we've shown the fungibility of our capital. Would we go down to 120% in a transaction, we could. Would we is a different discussion. We're just trying to articulate how much excess capital there is and how would we look at the framework. We have various funding sources, as you're aware. We have funding sources that are in the U.S. and within Canada Life. We have borrowing capacity. We feel very comfortable, Paul, that we have the capacity to fund most of any transactions with our current balance sheet.
Paul Holden: Okay. I think I understand what you're saying is, given the type of opportunities you're looking at, you wouldn't need to issue equity. Okay. I'll leave it there.
Operator: Your next question comes from Tom MacKinnon with BMO Capital Markets.
Tom MacKinnon: Just a question on Empower Retirement. If I'm looking at average client assets both in quarter and for the whole year of 2025, they're up 12%, but the net fee and spread income, which is kind of a bit more of a revenue item, I guess, is only up 4% in 2025 and just up 5% in -- year-over-year in the first quarter or in the fourth quarter of '25. So -- and even if we look at the asset-based fee income, it's only up 5% last year despite the 12% growth in average client assets. So maybe you can talk a little bit about why -- what you're seeing in terms of marketplace? Why is this phenomenon that I'm pointing out happening? Is there higher competition with respect to this business going forward? And what should the outlook be with respect to net fee and spread income growth going forward?
David Harney: Okay. Maybe I'll pass that over to you, Edmund, if you just want to talk about sort of mix of the revenue and just how that can change.
Edmund Murphy: Yes, in terms of the mix, if you go back a few years ago, we were far more concentrated on asset-based fees. And I think over time, what we've seen is less dependency on asset-based fees as we broaden out the revenue stream. So you're seeing a good mix of spread income. You're seeing good contribution from non-asset-based fees. So the percentage of asset-based fees have come down. You're also seeing some compression in the business, which is to be expected, which is why we're very focused on continuing to lower unit cost. We had another strong year in 2025 and lowering our fully allocated unit cost, and we expect that to continue over time. So asset-based fees as a percentage of total revenue have come down as we've expanded the different sources of revenue, particularly as we've added additional product capabilities. And I think you're going to continue to see that play out going forward.
Operator: Your next question comes from Mario Mendonca with TD Securities.
Mario Mendonca: If I could just follow up on that line of questioning. In U.S. Retirement, there's been negative operating leverage in 2 of the last 4 quarters. And what I'm trying to wrap my mind around is if we continue to see this compression, doesn't it sort of argue for what other folks on this call are asking about, like you really do need to grow this business through M&A. And that sort of is in contrast to what you said, David, early on, where you said you don't really need M&A to reach your targets. I mean these numbers would suggest that you do because it really is hard to grow this business if you're generating negative operating leverage. Do you know where I'm going with this?
David Harney: Yes, I do and I disagree. I think if you look at the full year of 2025, it's just -- it shows clearly how we can grow Empower absent acquisition at double-digit plus. And that comes from just high single-digit growth of the Retirement business and over 20% growth of the Wealth business. And the two things that makes me just very confident about the Retirement business in the U.S. are we're in positive net plan flow, which means we're winning market share every year, and that's adding to the scale of the business. And the other thing that you're seeing post the integration of all of the businesses and the building of that open architecture platform that I talked about is just the increasing scalability of the business. So operating margin has improved from, I think it's 29-point-something percent to over 30% this year. So we've had 110 basis point improvement in the operating margin of the Wealth business, and that scale advantage is just going to continue. So we expect to see very similar performance overall for Empower in '26 that we saw in 2025. So that's double-digit growth again, absent acquisition.
Edmund Murphy: If I could just add, if you think about the acquisitions that we've made, particularly the option tracks back in late 2024, where we're providing equity plan administration. We have far more revenue levers on the workplace side than we've had historically, which I think speaks to what we talked about earlier in terms of broadening out the revenue base and the sources of revenue. I'm actually tremendously optimistic about our ability to drive stronger penetration with services like health savings accounts, flexible spending accounts, equity plan admin, actuarial consulting across our 90,000 corporate sponsors. Including in that would be executive services, where we're taking a lot of our personal wealth capabilities and we're bringing them to the workplace, offering advice and financial planning. And that's still very much in the early days. So I would concur with David. I mean, obviously, M&A would be additive and accretive when we do it well and we know how to extract the synergies. But we can continue to grow the workplace business very attractively provided we can execute on this multiproduct approach that we've been pursuing. So again, I'm pretty optimistic.
Mario Mendonca: So let me pursue that just a little bit longer. You offered us an outlook that planned flows would be positive in 2026. That's good, but it's not a particularly ambitious outlook, though, considering that participant outflows over the last 4 quarters have been $39.4 billion. So you're going to need an awful lot of plan inflows to offset that if markets aren't giving you what they gave you in 2025. So I mean, how do you address the notion that calling plan outflows positive in 2026 isn't all that ambitious?
David Harney: It's a market dynamic just with baby boomers that the overall workplace market has that 2% outflow, and that's going to persist for the next couple of years. So that's the starting point for all players. As I said, we win market share every year. So that means our net plan inflows are positive. For us, most years, that has that outflow of 2, so it brings it down to 1 or less than 1. And then you have market growth and just growth in our participant numbers that offset that. And then we have just the scale advantage that we have, which is adding that improvement in our operating margin. And then there's the revenue scale that Ed talked about. So that dynamic you talked about has been there in the last 2 years, and we've delivered on that growth in that market environment in 2025, and we expect to do the same again in 2026.
Mario Mendonca: Okay. Can I just go to one other quick top...
Edmund Murphy: I think, participant outflows, I agree with you on participant outflows. Frankly, it's not something we're preoccupied with. I mean if you just look at the facts, participant outflows are largely driven by higher balances, 75% of it is rate related. The people that are taking distributions typically have higher balances than the new participants that you're bringing on the platform. We added $37 billion in assets under administration in the fourth quarter. We added $230 billion for the year. And we also added net 500,000 participants to the platform in 2025. So despite the net participant outflows, the business remains strong. The pipeline is robust, and we continue to take share from the competition. And I would also note that we did roughly $7 billion in gross sales in our Wealth business in the fourth quarter of 2025, where that was predominantly coming from the workplace business. So some of it is certainly leaving the complex, but some of it's staying in the complex as well. And so I think the real issue is, are you able to continue to take share and grow the business organically at a rate faster than the market? And the answer to that is yes. Historically, we've done it, and we'll continue to do it going forward.
Mario Mendonca: All right. A quick other topic. Earlier on in this call, David, in addressing a question around AI and let's call it, disintermediation or disruption, you gave us that interesting example where you go on ChatGPT and you ask a question. And you made points like and you can have a very good conversation with ChatGPT about asset allocation and everything else. And as you were going through that, just I can't think of myself, like is David making an argument for why AI, precisely the argument for why AI could disrupt this business. So help me understand what point were you trying to make there that AI is a problem? Or help me -- just help me understand what point you're making there?
David Harney: The point I'm making is there's lots of different avenues for advice at the moment, like we have our own employed advisers, people can go and get independent advice. So both of those are human forms of advice, if you like. And I think they will be increasingly AI assisted and will become more efficient. But there will be an avenue of AI-only advice. And I suppose the point I'm making is the nature of that advice at the end of the day, even though it's AI-driven, is not any different to the best human advice that you get at the moment. And ultimately, that advice is going to point you to an open architecture platform that has good access to product propositions, has the best price in the market and has the best service in the market. And Power is going to do very well in that environment.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Khan.
Shubha Khan: Thanks, everyone, for joining us today. Following the call, a telephone replay will be available for 1 week, and the webcast will be archived on our website for 1 year. Our 2026 first quarter results are scheduled to be released after market close on Wednesday, May 6, with the earnings call starting at 9:30 a.m. Eastern Time the following day. Thank you again, and this concludes our call for today.
Operator: This brings today's conference call to a close. You may disconnect your lines. Thank you for participating, and have a pleasant rest of your day.