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EDITED TRANSCRIPTSLF.TO - Q2 2013 Sun Life Financial Inc. Earnings Conference Call

EVENT DATE/TIME: AUGUST 08, 2013 / 2:00PM GMT

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C O R P O R A T E P A R T I C I P A N T S

Phil Malek Sun Life Financial Inc. - VP of IR

Dean Connor Sun Life Financial Inc. - President & CEO

Colm Freyne Sun Life Financial Inc. - EVP & CFO

Kevin Strain Sun Life Financial Inc. - President, Sun Life Financial Asia

Rob Manning Sun Life Financial Inc. - Chairman & CEO, Sun Life Global Investments

Larry Madge Sun Life Financial Inc. - SVP & Chief Actuary, Sun Life Financial US

Kevin Dougherty Sun Life Financial Inc. - President, Sun Life Financial Canada

Wes Thompson Sun Life Financial Inc. - President, Sun Life Financial US

C O N F E R E N C E C A L L P A R T I C I P A N T S

Gabriel Dechaine Credit Suisse - Analyst

Andre Hardy RBC Capital Markets - Analyst

Robert Sedran CIBC World Markets - Analyst

Doug Young TD Newcrest - Analyst

Mario Mendonca Canaccord Genuity - Analyst

Peter Routledge National Bank Financial - Analyst

Tom MacKinnon BMO Capital Markets - Analyst

Steve Theriault BofA Merrill Lynch - Analyst

Michael Goldberg Desjardins Securities - Analyst

P R E S E N T A T I O N

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Sun Life Financial's Q2 2013 conference call. At this time allparticipants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. (Operator Instructions). I wouldlike to remind everyone that this conference call is being recorded today, August 8, 2013 at 10 AM Eastern Time. I will now turn the presentationover to Phil Malek, Vice President of Investor Relations. Please go ahead, sir.

Phil Malek - Sun Life Financial Inc. - VP of IR

Thank you, John, and good morning, everyone. Welcome to Sun Life Financial's earnings conference call for the second quarter of 2013. Our earningsrelease and the slides for today's call are available on the Investor Relations section of our website at SunLife.com.

We will begin today's presentation with an overview of our results and strategic execution by Dean Connor, President and Chief Executive Officerof Sun Life Financial. Following those remarks Colm Freyne, Executive Vice President and Chief Financial Officer, will present the second-quarterfinancial results. Following Colm's remarks Dean Connor will provide an update to the Company's 2015 financial objective.

Following the prepared remarks we will have a question-and-answer session. Other members of management are also available to answer yourquestions on today's call.

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AUGUST 08, 2013 / 2:00PM, SLF.TO - Q2 2013 Sun Life Financial Inc. Earnings Conference Call



Turning to slide 2, I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financialmeasures which form part of this morning's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequentevents. And with that I will now turn things over to Dean.

Dean Connor - Sun Life Financial Inc. - President & CEO

Thanks, Phil, and good morning, everyone. Turning to slide 4, Sun Life had a very strong quarter. Operating net income from continuing operationsgrew to CAD431 million and ROE was 12.8%. Operating net income, excluding the net impact of market factors, was CAD384 million. Expectedprofits grew 18% year over year and new business strain was down 73%. Both of these changes represent a significant improvement in underlyingearnings power.

We also had very strong top-line growth in the quarter; sales of life and health products increased 32% and wealth sales also grew 32% including44% growth in non-MFS wealth sales. Adjusted premiums and deposits grew 28% and assets under management reached CAD591 billion. Thevalue of new business increased by 60% over the same period last year; this increase reflects higher sales and asset levels as well as the actionswe've taken to improve product profitability and business mix.

I'm pleased to report that we completed the sale of our US annuity business on August 2. This represents a significant transformation for ourCompany and we'll talk more about the impacts later in the call.

Moving to slide 5, yesterday the Company reported operating net income from continuing operations of CAD431 million or CAD0.71 per share,up from the CAD250 million or CAD0.42 per share reported last year. Our capital position remains strong and we ended the second quarter witha minimum continuing capital and surplus requirements ratio of 217% at Sun Life Assurance Company, well above the regulatory requirements.

Slide Six shows our continued strong sales momentum and, as I noted, sales from both insurance and wealth products increased 32% over theprior year period and sales growth was well distributed across all four pillars.

Turning to slide 7, in the second quarter of 2013 we continued to execute well on our strategy of higher growth, higher ROE and lower volatility. Iwill give you a brief update on the key milestones achieved in the second quarter and later in the call I will recap our progress since launching ourFour Pillar strategy and we'll update the 2015 outlook for our business.

On slide 8, Sun Life Financial Canada had another strong quarter and we made real progress toward achieving our goal of becoming the bestperforming life insurer in Canada. Sales were up across the board and profitability improved. Individual insurance sales were up 14% with growthin both the career sales force and third-party channels. Sales in Group Benefits were up 53% with particularly strong sales in the large case market.Long-term disability claims experience continued to improve with the incidence rate at its lowest level since 2008. Business in-force grew to CAD8billion and we remain the number one group benefits business in Canada.

Sun Life also retained its first-place position in the Canadian fixed annuity market with a market share of 32%. Sun Life Global Investments hadanother successful quarter with retail mutual fund sales up 53% over last year driven by growth through both our career sales force and third-partydistribution channels. We retained our number one position in Group Retirement Services and assets under administration of CAD58 billion grew12% from year ago. Sales were very strong at CAD1.1 billion for the quarter and those results included a CAD150 million annuity buy-in sale throughour Defined Benefits Solution's business.

I'm also pleased to report that Sun Life was ranked among the top 20 Canadian brands in a recent study by Canadian Business magazine, receivingthe highest ranking of any insurance company.

Moving to slide 9, we continue to hit the key milestones in our US group and voluntary businesses. Combined employee benefits and voluntarysales for the quarter were up 17% over the prior year with voluntary sales up 35%. Total business in-force was up 8%, maintaining the growth rateachieved last quarter. We are building on our enrollment capabilities, expanding our product suite and driving growth. In the quarter we launchedour first voluntary benefits accident product, which we expect will have strong appeal to our customers.

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We continue to undergo a major transformation of the group business sales and service model which we believe will improve distributioneffectiveness, enhance the customer experience and increase our productivity. We also achieved significant increases in sales of our internationalinsurance and investment products which are aimed at high net worth customers in offshore markets and this was driven primarily by expandeddistribution.

Turning to slide 10, you can see that we had another exceptional quarter at MFS with assets under management finishing the quarter at $354billion. Gross sales were $25 billion for the quarter, 29% higher than the second quarter of 2012, and represented our second-highest quarter ever.Net inflows were $6 billion and reflected strong contributions across retail, insurance and institutional business lines. MFS continues its strongperformance with 97% of fund assets ranked in the top half of their Lipper category based on five-year performance.

Turning to Asia on slide 11, our results demonstrate strong execution in the region. Overall individual life insurance sales increased 38% from theyear-ago period to CAD166 million of annual premium. To put that in perspective that compares to CAD66 million of sales in Canadian individualinsurance. Wealth sales in Asia more than doubled.

Insurance sales in the Philippines more than doubled over prior year, solidifying our number one position in that market. In Hong Kong we morethan doubled our individual life sales as compared to the second quarter of 2012 and continue to generate strong growth in our mandatoryProvident fund business.

In Indonesia sales were up 33% as we continued to expand our agency force which is now over 6,000 advisors. Sharia Sales continue to growrepresenting 20% of total agency sales. During the quarter Sun Life Indonesia was ranked third in the life insurance category in a survey of Indonesia'smost admired companies.

During the quarter we also made good progress in our two new businesses in Asia. We completed our acquisition of CIMB Aviva in Malaysia inpartnership with Khazanah; we appointed a new management team there to lead the venture and successfully launched a new credit protectionproduct with a new bank assurance partner. And in Vietnam we obtained approval to sell four new products and recorded our first sales.

I will now turn the call over to Colm Freyne who will take us through the financials.

Colm Freyne - Sun Life Financial Inc. - EVP & CFO

Thank you, Dean, and good morning, everyone. Turning to slide 13 we take a look at some of the financial highlights from the second quarter of2013. As noted, we had a strong quarter with both top- and bottom-line growth. We reported operating net income from continuing operationsof CAD431 million which is up from CAD250 million a year ago. We delivered operating net income excluding market factors of CAD384 millionand I will go into more detail on some of those factors on the following slide.

We also experienced strong growth in the top-line with adjusted premiums and deposits up by 28%. In the second quarter we saw good year-over-yearimprovements in key lines of the sources of earnings with expected profit on in-force business increasing by CAD73 million over last year and newbusiness strain improving by CAD41 million.

As you can see on slide 14, the net impact of market factors on continuing operations contributed CAD47 million to earnings in the quarter.Operating net income excluding the impact of market factors was CAD384 million. Causes of impact from market factors in the quarter wereprimarily due to higher interest rates which contributed CAD57 million, including the previously disclosed charge of CAD49 million due to a declinein the ultimate reinvestment rate, our URR. This was partially offset by unfavorable equity market experience of CAD14 million including CAD3million from positive basis risk. We have provided more detail on the impacts of market factors in the appendix.

The expected future impact of declines in the URR lessened due to the increase in interest rates in the quarter. Based on the level of interest ratesat the end of the second quarter we expect a CAD50 million charge in Q4 of 2013; a CAD100 million charge in 2014; and a further CAD50 millioncharge in 2015. This represents a CAD100 million deduction from our previous disclosure in the first quarter of 2013.

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Note the changes under consideration by the Actuarial Standards Board may remove some of the future expected impacts. Other notable itemscontributed CAD2 million to earnings in the quarter and included positive credit and mortality and morbidity experience, partially offset by negativeimpacts from other experience, lapse experience and expenses.

This slide also shows the net impact of market factors and other notable items for the combined operations of the Company, which include theresults from our discontinued operations. You can see that the impact of market factors for the combined operations was more significant, in linewith the higher sensitivities of the business being sold, contributing CAD66 million to earnings for the quarter.

Moving to slide 15, we provide details on our sources of earnings for continuing operations. Expected profit of CAD482 million increased by CAD73million from year ago. The year-over-year increase is largely attributable to higher income from assets under management at MFS.

New business strain was CAD15 million representing a significant improvement over the CAD56 million reported in the second quarter of 2012and the CAD46 million reported in the first quarter of this year. This improvement was mostly due to impacts from actions at SLF Canada, specificallyproduct repricing and design changes in individual insurance and investments and gains on higher-yielding assets supporting new business anddefined benefit solutions.

The experience gains of CAD60 million reflects the impact of market factors and other notable items described on the previous slide. Assumptionchanges and management actions resulted in reserve releases of CAD15 million before taxes. These relate primarily to updates and refinementsto actuarial models.

Earnings on surplus of CAD59 million were lower than the second quarter of 2012, due to the unusually high levels of pretax gains on available-for-salesecurities we realized a year ago in response to declining interest rates at that time. The level of earnings on surplus this quarter is more representativeof the normal run rate. Income taxes at CAD130 million are within the expected range for our effective tax rate of 18% to 22%.

Turning next to slide 16 and the results from our Canadian operations. SLF Canada reported operating earnings of CAD210 million, a 13% increasefrom the second quarter of 2012. Earnings in the quarter benefited from positive morbidity experienced in Group Benefits and gains on higher-yieldingassets supporting new business and Defined Benefits Solutions.

Individual insurance sales were up 14% relative to the second quarter of last year due mainly to strong demand for permanent life products.Individual wealth sales increased 2% as higher fixed product and mutual fund sales were offset by lower segregated fund sales following our actionsto deemphasize sales of segregated funds.

Group benefit sales were up by a substantial 53% primarily due to an increase in sales in the large case market. Sales in Group Retirement Servicesincreased 58% driven primarily by new sales in Defined Benefits Solutions and we would note that these sales can vary significantly quarter toquarter.

Moving to slide 17, our US continuing operations reported earnings of $122 million compared to earnings of $8 million a year ago. Earnings in thesecond quarter last year were impacted by declining rates whereas interest rate increases benefited the current quarter. This was partially offsetby unfavorable mortality experience within group life in EBG.

Total EBG sales in the quarter increased 17% compared to a year ago. Within EBG voluntary benefit sales increased 35% compared to last year.Sales of international investment and life products increased 64% and 100% respectively compared to the second quarter of a year ago driven byexpanded distribution.

Looking next at the performance at MFS on slide 18, operating earnings were $101 million, up from $67 million a year ago, driven largely by higheraverage net assets under management. Margins were strong at 37% and up from 32% a year ago due to higher average net assets. Total assetsunder management as at June 30 were $354 billion compared to $323 billion at the end of 2012. The increase was primarily driven by year-to-dategrowth sales of $48 billion and asset appreciation of $19 billion, partially offset by redemptions of $36 billion.

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highlights the performance of our Asian business for the second quarter. Operating income from our Asian operations was CAD46 millioncompared to income of CAD15 million in the second quarter of last year. Net income in the quarter reflected the favorable impact from marketconditions as well as overall business growth. Total individual life sales in the quarter increased 38% from a year ago as higher sales in the Philippines,Hong Kong and Indonesia were partially offset by lower sales in India.

Sales in the Philippines grew 131% due to agency expansion and bank assurance and favorable market conditions. Sales in Hong Kong increased118% driven by strong performance in the broker channel. Sales in Indonesia were up 33% year over year due to increases in the sales force andcontinued positive momentum in the Sharia market. Wealth sales in Asia were up 162% due primarily to increased mandatory profit and fund salesin Hong Kong.

On slide 20 we provide the details on the sale of or US annuity business which closed on August 2. This sale includes 100% of the shares of Sun LifeAssurance Company of Canada US and represents a complete transfer of risk. The total book value loss on the sale of the business is expected tobe approximately CAD1.1 billion, in line with the updated loss estimate we provided at the end of the first quarter.

We estimate a cash level of CAD1.95 billion at the holding company following the close, which is up slightly from the CAD1.9 billion we disclosedin December 2012. Our total cash proceeds amounted to the agreed purchase price of $1.35 billion plus payments under the estimated purchaseprice adjustment of $177 million. I will now turn the call back over to Dean.


Thanks, Colm. And before we begin the 2015 financial objectives update I just like to leave you with a few key messages for the quarter. First, SunLife had a very strong quarter; we continue to deliver strong top-line growth as demonstrated by momentum in both premiums and deposits andin sales. Our underlying earnings power has improved as we have grown our businesses and improved both product profitability and sales mix.And lastly, we continue to execute well on our strategy.

And now for our financial objectives update starting on slide 22. We first introduced our 2015 objectives at our March 2012 Investor Day. We arenow updating these midterm objectives to take into account developments since that time with the most significant one being the sale of our USannuity business.

On slide 23 you can see our updated objective for 2015 net income is CAD1.85 billion compared to CAD2 billion previously. Our objective foroperating ROE is 12% to 13%. We see these objectives as ambitious but achievable.

Turning to slide 24, Canada has generated strong sales growth while making excellent strides in reducing the strain on new business. We've achievedsignificant growth at Sun Life Global Investments with client assets under management exceeding CAD6 billion. In the US we've achieved significantgrowth in the group business and the voluntary benefits build out is on track and delivering results. MFS continues to deliver industry-leadingresults with strong performance driving significant asset and earnings growth.

And in Asia we are growing sales and have expanded our geographic footprint through the acquisition of our Malaysian business and our start-upin Vietnam. Overall insurance sales grew 9% in 2012 and 17% in the first half of 2013 and wealth sales were up 45% and 2012 and 24% in the firsthalf of 2013. We have significantly improved our value of new business driven both by increased sales and product profitability changes. We arealso making good progress in driving the productivity improvements outlined at our 2012 Investor Day and are reinvesting those gains to drivegrowth.

Moving now to slide 25 you will see more detail on our updated financial objectives. We've adjusted our earnings objective at SLF US primarily toaccount for the sale of the annuity business. Net income at MFS has been increased to reflect its strong performance over the past year. The objectivefor our business in Canada has remained the same with headwinds and tailwinds balancing against each other. And in Asia our objective has comedown somewhat to reflect a longer ramp-up period and investments in growth.

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On slide 26 we highlight potential uses of the proceeds from the sale of our US annuity business. And as Colm said, we estimate a pro forma cashlevel of CAD1.95 billion after the close of the transaction. Options for capital management include redemption of additional debt. As you know,we target a leverage ratio of about 25%, greater retention of mortality and morbidity risk on our balance sheet, investments in higher yieldingassets and increased funding for business growth, both organic and potential acquisitions.

We estimate organic annual capital generation of about CAD 500million in 2015 supported by the planned growth of our businesses. We have notincluded share buybacks in the projections for now given the uncertainty of the capital roadmap work underway by our chief regulator.

On slide 27 we show the key initiatives that will drive continued growth in Canada. First to capture the retirement market opportunity we continueto invest in building our career sales force; we are expanding retirement distribution, for example the number of wealth wholesalers has grownfrom eight two years ago to 22 people today; and we will grow Sun Life Global Investments as well as our unique Defined Benefit Solutions business.

In group pensions and benefits we are investing to take our leading total benefits capabilities and mobile services up to the next level, aimed atdifferentiating the plan sponsor and member experience. And finally, in client solutions we are deepening, retaining and growing our relationshipswith plan members at the worksite in order to realize additional asset gathering and insurance opportunities.

Going to slide 28, this year we are making extensive changes in the employee benefits organization in the US and in the way the work gets done.These changes will make the business more scalable and will deliver better service to brokers, employers and plan members. We will grow ourproduct suite and voluntary benefits and differentiate through enhanced enrollment, distribution and technology.

The industry continues to consider responses to the Affordable Care Act and we will remain agile to take advantage of the opportunities that arecreated. And our international life and investments business that serves high net worth offshore customers we plan to reduce volatility and growour market positions.

Moving to slide 29, MFS is focused on initiatives to enhance its global research platform and to continue to drive strong investment performance.MFS will broaden its global presence through expanded product offerings and distribution footprint. MFS is also stepping up its investment inclient relationships with the goal of deepening those relationships and further improving the client retention rate.

And on slide 30 we outline key initiatives for continued growth in Asia. Distribution remains key to continued growth. We are growing our agencyforce across all Asian markets and improving their productivity. As well we plan to grow in alternative channels, particularly bank assurance. Weintend to grow our ventures in Vietnam and Malaysia and make a major push in growing accident and health benefits.

We're also very focused in working with our partners in China and India to grow sales while reducing the expense gaps that still exist in thesebusinesses. We plan to further develop our Wealth Management businesses across Asia, specifically asset management in the Philippines andpension in Hong Kong while continuing to explore Wealth Management opportunities in other markets.

Before we open the call to questions I would like to just recap the key takeaways from our 2015 objectives update. We will continue to pursue thefour pillar growth strategy that we introduced nearly two years ago. We see attractive opportunities to grow in every one of our businesses drivenby the three long-term drivers of demand for what Sun Life does -- that's baby boomers approaching retirement, the downloading of responsibilityfrom governments and employers to individuals and the growth of the middle class in Asia. We have been investing in growth to seize theseopportunities and will continue to do so.

We remain committed to generating growth from lower risk and higher ROE businesses and we'll take a disciplined approach to deploying capitaltowards those opportunities that meet our requirements for growth, risk and return. So finally, we are on track to meet our financial objectiveswhich, again, I would note as being ambitious and achievable. And with that I will turn it back over to Phil for the Q&A.

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Thank you, Dean. We would like to ensure that all of our participants have an opportunity to ask questions on today's call. So I'd ask each of youto please limit yourselves to one or two questions and then to re-queue with any additional questions. With that, I will now ask John to please pollthe participants for their questions.

Q U E S T I O N S A N D A N S W E R S

Operator

Gabriel Dechaine, Credit Suisse.

Gabriel Dechaine - Credit Suisse - Analyst

Dean, just first question on the 2015 targets here, but the capital management component. Can you confirm that there is no special capitaldeployment implied in that 1.85? And then if not, like the items that you list as potential capital deployment strategies, what would your appetitebe for something like a more aggressive debt reduction other than what we've seen so far? Because it looks like you've got a lot of excess capital,generating more over the next couple of years, there's CAD1.6 billion of higher cost debt [in press] for redemption over the next two years. Couldwe see that repaid outright or would you lean more towards refinancing?


Gabriel, I will ask Colm Freyne to respond to that.


Yes, so, Gabriel in terms of the actual model for the CAD1.85 billion earnings in 2015, what we have modeled in that is an assumption that weachieve the 25% leverage ratio at the end of 2015 and that would bring us down from our current debt level.

We do take account -- every time we have an opportunity to redeem or to refinance we do look at our overall capital position. So we wouldn't lockourselves in at this point by saying we'll definitely take all those actions, but that is how we are modeling it. And of course actual decisions at thattime will depend on what other opportunities present themselves. We are comfortable with our current overall leverage ratio. But we do see anopportunity here to bring it down to a lower level.


Okay. And then just to talk a little bit more indirectly about the CAD1.85 billion and how the expense management factors into that. Because I seeoperating expenses for the Company were CAD989 million for the quarter, up 20% year over year. I guess the Malaysia acquisition bumped thatup a bit, but still up quite substantially.

What kind of run rate expense level should we kind of bake into our models for -- by the time 2015 comes around -- when you are pulling back onthe group voluntary group initiative, when you're pulling back on investments in the MFS and a few other factors?

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Yes, I think the overall expense discussion is somewhat nuanced and a little bit complex at the moment because, while we are obviously reducingin regard to the business that we've just sold, we also have significant investments taking place in order to drive earnings and capitalize onopportunities that we see today.

And when we think about the overall expense increase in the quarter compared to a year ago, you are quite right, it is up significantly. I have about18% when I adjust for the stock-based compensation at MFS. And that increased breaks down, Gabriel, between increases at MFS, which are verymuch volume related and related to the very strong performance there. And then other -- and that is about 7% of that 18% increase. Other volumerelated is about 3% of the increase and that is pretty broad-based between Asia, Canada, etc.

And then we have investments in expansion and investments in our initiatives, the US voluntary initiative, in Canada with respect to wealth, withrespect to Sun Life Global Investments, we've got investments in Asia, Vietnam is coming on stream and, as you quite rightly pointed out, Malaysiacame on stream in the quarter. That amounts to about 3% and then in total for the expansion we have a couple of one-time items in the quarterthat amounted to about 2%. And you've got the regular overall increase in expenses.

So we are keeping a very close eye, as you can tell from my detailed commentary. We do have expense initiatives; Dean mentioned those in hiscomments, as we look to drive productivity gains which can then be recycled to achieve the expenses. I do find -- to achieve the earnings objectivesin 2015. I do find that it's often better to talk about individual business groups or units when we think about expenses as opposed to the broad-basedcommentary because there is a different story with respect to each of the businesses.


All right, and if I just throw one last one in there -- you mentioned Asia. And as a component of the 2015 target, the updated one, it is gone down-- don't know the percentage off the top of my head here. I'm just wondering what drove that decline. If Kevin is on the phone, because what hasn'tworked as well as you -- than you were expecting -- because you have made an acquisition since then.


Yes, so maybe I -- Kevin is on the phone and I will maybe just say a couple of quick words and then Kevin can add some additional color aroundthat. We took obviously a pretty hard look at the components in Asia, we've got seven businesses there and you don't have all of them firing onall cylinders at the same time, so that was one factor.

India we've talked about previously with some of the regulatory changes was a factor in the reduction. And then interestingly in India, thedeterioration in the currency, the Indian rupee, has also been a factor. And while we didn't generally adjust for currency, the notable decline in theIndian currency was a factor in the reduction. But, Kevin, I'm sure you have additional comments.

Kevin Strain - Sun Life Financial Inc. - President, Sun Life Financial Asia

I think, Colm, you have covered it quite well. About half was due to the currency primarily in India and about half was due to India underperformingmainly due to the regulatory changes and still working their way through some of those. And also Indonesia being a little bit underperforming.We're seeing some signs of growth in Indonesia, you saw it in the sales in the quarter, but it is a little behind where we thought that would be in2015. The rest of the businesses remain pretty much in line with where we expected them to be.


Thank you very much.

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Operator

Andre Hardy, RBC Capital Markets

Andre Hardy - RBC Capital Markets - Analyst

Thank you. Two questions. The first is a quick one on the CAD1.95 billion estimated cash level at Sun Life Financial closing. What in your mind,Colm, is the right amount of cash to hold at Sun Life Financial or the right range, if you will?


Yes, it is a topic that we are obviously addressing because we have operated with a higher level of cash at SLF in regards to the buffer for potentiallyfunding investments in Sun Life US. In the past we tended to have CAD500 million of cash for general corporate purposes at SLF and we tendedto do have another CAD500 million or so that we kept in reserve in the event that we needed to fund SLF -- Sun Life US in order to maintain itsrisk-based capital ratio. So we tended to be in that CAD1 billion range in previous quarters. It did fluctuate but it was around that level.

So we think today that CAD500 million might be the appropriate level to maintain at SLF given the much simplified corporate structure we havenow. Because essentially SLF has an investment in Sun Life Assurance, it has an investment in MFS; it doesn't need to hold cash to fund any activitieswithin MFS, which of course is self funding. And so, we think around CAD500 million and that gives us some thought as to where we might findyourselves out by 2015.


Thank you very much. And the other question is on the financial objectives for MFS. There's something I don't understand in there. In the first halfof this year MFS made CAD205 million excluding the fair valuing of the compensation. So if you multiply that by 2 the run rate is CAD410 millionfor 2013 and you only expect to make CAD450 million in 2015.

Net sales are strong, performance is strong, I'm guessing you're assuming equity markets will go up 8% a year. There's something that doesn't addup unless you are expecting margin compression. What am I missing in my numbers?


Yes, so I think what you are probably thinking there is that we have extrapolated out in respect of all of the businesses the same type of growthrates. With MFS we've clearly had very strong sales performance. And while we believe our investment performance will continue to drive strongsales performance, we are not projecting or extrapolating the same level of sales out over the future period.

So there is a little bit of caution built into the MFS projections because they clearly will be very market dependent. And when you think aboutheadwinds and tailwinds in the overall earnings for 2015, and these are objectives, these are not forecasts, I think you can consider whether youbelieve there is a tailwind with respect to the MFS earnings. I don't know if Rob, Rob is on the line, if you'd have anything additional to add.

Rob Manning - Sun Life Financial Inc. - Chairman & CEO, Sun Life Global Investments

The only thing I would add is it's a conservative number and if the markets stay healthy we should be able to do better than that.

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Okay. Maybe a better way to ask it is -- I can make my own assumptions on sales and market returns, is there any reason for margins to declinebetween now and 2015 unless assets go down?

Rob Manning - Sun Life Financial Inc. - Chairman & CEO, Sun Life Global Investments

No.


Thank you.

Operator

Robert Sedran, CIBC.

Robert Sedran - CIBC World Markets - Analyst

Actually maybe just a follow-up on Andre's question. Is there any impact in the targeting for the MFS from the stock-based comp that might bleedin overtime going forward? I mean is that one of the factors that might be holding back the earnings growth even if the asset growth and marginhang in?


No, Rob, there is no adjustment for that. We are very comfortable that that is the appropriate way to view the earnings power of MFS and we havenot made any further adjustments.


Okay, thank you. And then just to revisit your explanation on the strain issue, Colm. I guess there were two components of it -- one of them wasproduct repositioning and re-pricing. I think we can probably assume that that one is a sustainable benefit since it has all been done.

The other one was on investment benefits -- I guess I am paraphrasing -- but investment benefits on strain. Is that something that was specific tothe quarter or is that just we've got higher interest rates and finding better opportunities to deploy and therefore strain is at a sustainably lowerlevel and the number we saw this quarter is something that we should consider normal?


No, I think the right way to think of it is that strain was lower this quarter and we wouldn't expect it to be at the same low level in Q3-Q4. We thinkthat the trajectory is heading towards a lower level. So if you look at year over year and if you look at quarter over quarter you can see the decline.But this level in this quarter was bonused by investing gains related to sales.

And as you know, investing gains typically come through on the in-force and I believe last quarter I mentioned that we see sustainable investinggains in the CAD10 million to CAD20 million. You might have noted that for the in-force on the experience line it was actually quite modest thisquarter at CAD2 million and where you saw the benefit of the investing gains come through was on strain.

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So it comes through whether it is in strain or investing gains, we think that source is a good recurring source of ongoing income. But the newbusiness strain was unusually low this quarter. There are seasonal factors, Rob, as well, so that Q4 in Canada and the career sales force tends to begenerally quite a good quarter, so strain can be a little bit lower. But you could expect to see it tick up in Q3 and maybe if you think of it over thebalance of the year it might be in the CAD30 million to CAD40 million range for the total Company.


Okay, thank you. I don't know if this is a question to take off-line or if it is an easy answer. But is there a reason why it would show up in strain onequarter and in expected profit another?


Yes, it generally depends on the type of and size of the sales. So if you have larger lumpy sales in the quarter it could have an impact. So there's alittle bit of -- there are factors related to the size of the sales that are driving it and the placement of assets relative to sales.


Okay. I think I will follow up on that one. Thank you.

Operator

Doug Young, TD Securities.

Doug Young - TD Newcrest - Analyst

First question, Dean, I just wanted to get a sense of how you think Canada has performed relative to what you would have thought a year ago?And where I am going with this is within your objectives you didn't make any change to Canada, but on slight 24 you kind of highlighted somepretty positive things that have happened in Canada over the last year and I'm just trying to connect the two.


Well, Doug, I'm -- we are pleased with Canada's performance. We highlighted, and I won't repeat, a number of the achievements in Canada. It is acompetitive market though and to rise above competition to grow sales requires lots of investment, which we are doing building out sales power,wholesalers, tools, technology, mobile, branding, you name it. So there is a fairly significant investment to grow the business.

I think if you triangulate from the earnings -- if you did the same thing that Andre did on MFS for Canada and you try to extrapolate from the firsthalf of this year you would want to remember that the first half has been flattered by market conditions. So I think we still see CAD900 million asa great target for Canada and ambitious but achievable. And we would be thrilled to pieces if Kevin blows past that, but I would say they are makinggreat progress and on track to achieve that.


And what is that -- I mean, maybe you won't go into the detail, but what does that extrapolate in terms of an ROE for the Canadian division? Andif you don't want to give a number would that be above the 12% to 13% that you are targeting for the Company overall?

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Well, perhaps I can jump in there. So certainly on the new business where we are achieving returns above that, but the impact of the in-force isstill quite significant. And the impact of lower interest rates on required capital. And it is interesting, Doug, that this quarter we did see a little bitof an improvement in capital ratios at Sun Life Assurance as interest rates ticked up.

So I would say that to achieve that higher ROE we need to continue to work hard at managing that in-force and we need a little bit of an uplift interms of interest rates. And we saw a little bit of that come through in the quarter and that helped us in terms of our MCCSR capital.


And Doug, sorry, I would add one more thing. On the question of the ROE for the insurance businesses, the 2015 objective of 12% to 13% reflectsobviously the mix of the insurance businesses in MFS in there. I would say to you that we have more work to do on the insurance businesses, thatwe are -- the 12% to 13% reflects our current plan and planning but -- in actions, but I would say to you there is more work to do there.

Because I think -- I think as Colm noted, as interest rates come up, but as well as the capital roadmap unfolds and as we work harder and do moreto look at where capital is deployed and the models we use to set aside required capital, we are working hard on that file, I will put it that way, weare working very hard on that file.


Okay. And then just secondly, the Q3 typically is when you do your reserve adjustments. And in the press release it noted that that is the case, butdidn't give any specifics as to whether there may be positives or negatives that you see given the work that you have done so far. And so, couldyou update us in what you are thinking?


Yes, Doug, it's Colm here and maybe I will ask Larry Madge, our Chief Actuary to say a few words. But we obviously review the wording in the pressrelease very carefully because we take account of information that we have at the time of preparing our news release. And at the time of preparingthe news release we were not in a position where we had a bias, either negative or positive, with respect to the work that has been done. So thewording was simply to advise that we are -- that we go through that big exercise in the third quarter. But perhaps, Larry, you might want to add acouple of comments.

Larry Madge - Sun Life Financial Inc. - SVP & Chief Actuary, Sun Life Financial US

Sure. Good morning, Doug. Yes, not a whole lot to add relative to what Colm just said. We are currently in the process of reviewing our assumptionchanges and management actions for the third quarter. We are going to have some positives and negatives, but at this point we don't see a biasone way or the other.


And, Larry, is there any particular business that you are doing a deeper dive on this year?

Larry Madge - Sun Life Financial Inc. - SVP & Chief Actuary, Sun Life Financial US

No, normal process and we are working through all the businesses together.

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Doug, one business of course -- this is a blinding glimpse of the obvious -- but one business we are not reviewing is the US VA business.


Great, thank you.

Operator

Mario Mendonca, Canaccord.

Mario Mendonca - Canaccord Genuity - Analyst

Just a quick follow-up question first. The lower strain in the quarter, Colm, it went through -- it related, I suspect, to that GRS sale, that CAD150million sale. First of all, do I have that right?


Well, a part of it related to that and then the ongoing improvements in individual insurance in Canada was the other part. So, you are right that aportion of it related to the larger sales in GRS.


Could you put a number on that, the extent to which there was a gain? And the gain, you referred to it as an investment gain. Is it just simply thatyou're able to source assets that generate returns better than what you have committed to the (multiple speakers) to the pension fund?


Yes, I think the way I would rather answer that, Mario, is to say that last quarter I indicated sustainable CAD10 million to CAD20 million of investmentgains and we see that as still being relevant. So the fact that we had a lower amount in the experience we would see the overall number still beingin that range when you take the combination of new business gains and experience gains on the in-force.


Okay. And then a more broad question. Expected profit up a fair bit, but when you take out MFS expected profit is essentially flat year over year.And I want to reconcile that with all the progress that is being made across the Company, GRS specifically, voluntary benefits, the growth in [P&D]in Asia. At some point I figure all of those positives have to translate into expected profit growth. But what I don't understand right now is why thathasn't emerged yet? And is there some mechanism we could look forward to that would drive that?


Yes. So, on the expected profit, when you back out -- when you look at the year-over-year expected profit of -- increase of CAD73 million, CAD64million of that related to MFS, so the balance spread across Canada, the US, Asia. But you also have to recall that the UK expected profit is lower as

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that business is a run-off business and declining. And we've had -- in our corporate segment we've had a higher planned level of expenses as wecontinue to invest.

So there are some offsets there. So we are pleased that year over year we did see increases in Canada, the US and Asia, albeit quite small increasesin Canada and the US. And it is somewhat of a slow journey, but we believe we are on the right trajectory and we will continue to make progress.


But is there any way to reconcile like all of the positives you are referring to in terms of in-force business growth, P&D, and the numbers you arereferring to are huge in terms of both. Why hasn't that played out yet in terms of the expected profit growth in Canada or Asia or otherwise?


Well, I think there are ongoing pressures in some of our businesses from competitive factors. So while the assets under management and assetsunder administration can grow, the ongoing competitive factors can result in margin pressure, etc. But we do believe that you will see the progressionthrough the value of new business; you will see that coming through in improved expected profit over time.


Thank you.

Operator

Peter Routledge, National Bank Financial.

Peter Routledge - National Bank Financial - Analyst

Hi, Dean, thanks for your comments on share repurchases. I would like to go into that issue a little bit. If I look at excluding out the CAD500 millionyou talked about earlier in cash you would need on a run rate basis for the hold co, you're still at about CAD1.4 billion in excess capital. You add tothat all the capital that MFS throws out, it seems to me like you are in a pretty robust capital position, and your MCCSR ratio, although quite strong,probably understates your capital strength.

And you referred to OSFI and the roadmap as a reason to sort of defer on the capital or the share repurchase decision. Is there an effective ban onshare repurchases right now pending the capital roadmap? Is that the right way to think of this?


Well, I think you've covered a few moving parts, Peter, in your introduction, it's Colm here. And I think one point that -- we have a very strong cashposition; obviously pro forma, the close of the transaction. But as we say as we look out to 2015 we are thinking about our overall leverage ratio.So if you look out to 2015 we would expect to have excess cash and capital at the SLF level, as I mentioned previously, relative to the CAD500million that we might think of as being the more normal level to hold.

And there are a number of moving parts before we could commit to the best deployment of that. The capital roadmap is one item, but obviouslywe've just closed the transaction, we are evaluating the various alternatives that Dean spoke about earlier. But I would agree with you that the SLAcapital, the 217%, does understate the overall capital in the firm, pro forma the transaction, because we know have cash and capital at SLF that issubstantial. So the right way to think of it is now more on that combined basis and we will continue to update you on how we plan to deploy that.

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I will try another way to ask the question. If there wasn't a roadmap in place, on page 26 would one of the options be share repurchases?


Doug, Dean -- excuse me, Peter, it is Dean. I think the Company has, as you know, done share repurchases before and we have talked about our --when asked about the dividend we have talked about a combination of dividend and share repurchases, returning circa 50% of earnings to ourinvestors.

And we still think of it that way and so we would still think of share repurchases as part of our future. And it's a question that we won't be specifictoday as to when and what that might look like and under what circumstances we would actually consider it. But we still consider it as part of thetoolkit to manage capital and manage shareholder returns.


Okay, thanks. And just a quick one for Kevin Dougherty. Individual life insurance sales, you actually had growth year over year. I think that makesyou the only Canadian life co to have positive growth in sales. Is that price, product design, what is driving that?

Kevin Dougherty - Sun Life Financial Inc. - President, Sun Life Financial Canada

Yes, that is right. We are the only Canadian life co that showed growth in Q2. I think there is a lot of things going on there. First thing is the -- thecareer sales force is really, really firing on all cylinders and had a very, very good strong spring campaign. So that is what you saw coming throughthere. On the third-party side there is still lots of room for us to grow. As you know, we are -- we have been in the channel now for a number ofyears but we still have lots of upside, and we are just executing on growing those relationships and trying to realize that potential.


Thanks.

Operator

Tom MacKinnon, BMO Capital Markets.

Tom MacKinnon - BMO Capital Markets - Analyst

A question about the organic capital generation of CAD500 million per year by 2015, it seems to be a little bit better than I would have anticipated.And I'm wondering if you might be able to share with us any further color with respect to that number, how much would be included in there asa result of the -- curtailing the US domestic life business. How much is there just as a result of -- generally I think Canada probably is a significantchunk of that, how much is Canada? And actually, is there any -- is this net of anything? Are you putting capital into any operations? And here I amthinking of Asia.

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Yes, so, the organic capital generation I think is a very important question as we think about sustainability of the business model. And over thepast few years, Tom, it is clearly been a challenge for a variety of factors, and not least of which have been changes resulting from IFRS implementation,which impacted us over the phase-in period. And indeed there continues to be a piece that is being phased in, and then we also had significantregulatory changes in respect of seg funds, capital requirements, that also had phase-in aspects associated with them.

So we haven't had -- over the past number of years we haven't seen that capital generation that we aim for. And I think by 2015, what we are sayingis that we're back to that capital generation that's consistent with our business model of generating cash and capital that can be deployed, whetherit is back to shareholders by buybacks as previously discussed or whether it is redeployed into business opportunities.

So a number of moving parts there. The CAD500 million that we talk about is a net number. It is net of the capital required on new sales, net of thecapital that is freed up on existing and in-force business. It is pretty hard to dissect it on this call because it goes through all of our businesses acrossthe organization.

But importantly, we feel that we've taken a light of product and strategic decisions that head us in a direction where we now have a capital generationthat is significant and sustainable.


Okay. And when you -- as a follow-up, when you put out your 2015 objectives in March of last year, you talked about -- you sort of split it outbetween I think it's called momentum growth and then growth initiatives and product and expense initiatives. It looks like the momentum growthwas responsible sort of for 60% of the growth, and then the growth initiatives 30%, and product and expense initiatives 10%.

I don't know if you can share -- if you have gone through that exercise this time, presumably you must have rather than just pulled some numberout. And I can assume these things would vary by line, but are we really looking at generally the same kind of breakdown in those things, or is thereanything you could share with respect to that?


Yes, I can comment a little bit on that. I think the exercise that we went through last year -- first of all, every time you go through an exercise of thisnature, it has its own aspects to it and you don't follow exactly the same way as you went about it last year. So last year was the culmination of thefairly intense strategic planning process. We put out of the objectives, we set out the Four Pillar strategy. And this year, of course, we are updatingin respect of the transaction and the sale. So we didn't go through exactly the same kind of a process.

But I think in terms of where you can see that momentum and where you can see that transformational piece, I think it continues to be very muchin the United States, but the build out in the voluntary continues to be in Asia with respect to the initiatives there. And we've already talked aboutMFS and how one might view the earnings objectives there. It's, again, a different way of looking at that and I think in Canada we didn't changethe objectives. So I would say the fundamental underlying aspects are the same, but we didn't update those pieces.


Okay, presumably the momentum growth, at least in terms of MFS in Asia, would be better just given the sales levels are probably better than whathas been anticipated (multiple speakers)?

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Yes, it's interesting if you go back and you look at some of the macro factors that would drive that. So on the S&P if you compare to the -- when wedid the investor update in March of last year the S&P -- we were basing it on assumptions that were based on December 31 of 2011, the S&P wasquite a bit lower at that point. So clearly current S&P levels which drive assets under management and strong performance at MFS are positive.

And interest rates, interestingly, at that time, they came down at December 12. When we update it we use that as our starting point for the currentexercise and it had come down, although now recently they have recovered again. So we think on interest rates, the push and the pull, they'reprobably roughly in the same place. And the forward yield curve is a little bit higher today relative to when we were doing the strategic update.

But the number of basis point differentials are not all that significant and indeed quite similar to when we did the Investor Day material a year ago.So we have looked at all of that, Tom, and we really haven't said we need to do some fundamental rejigging at the target. We felt a better way tocome at it was what did we say last time and where are the key areas that we should update.


So, if I understood correctly, this was done assuming the forward curve at December of 2012?


Yes, we looked at interest rates at December 12, which were lower. But of course they have now moved up. So unless they -- the same impacts willapply if they move up in any giving quarter we'll see a benefit. But that to a longer-term view of interest rates still continues to be quite low.


Okay, so the updated objective assumes the forward curve from December 2012?


Yes. So the benefit that we would have seen a year ago in terms of the forward curve is actually quite similar to what we have today. So the structurehasn't changed.


And then you talk about retaining more risk. Does that mean that you would look to reinsure less new business going forward? Would you look atrecapturing some reinsurance treaties? Are there any that you can think of that are on the radar screen there? And I wonder if you can share withus any of those potential options for capital management?


Tom, it's Dean. We would like to retain more mortality and morbidity risk on our balance sheet. And when we look at our risk appetite framework,that is one area where we are under risked and we think we can make good money for shareholders taking those risks, selecting those risks,managing those risks. So we would like to retain more.

And as to the specifics of how we do it, as you note, some of it is through reinsurance arrangements on new sales. And then we would -- we alwayslook at, and I won't call out any specific treaties, we always look at in-force treaties and ask ourselves, are there any treaties that make sense tobring back into the Company?

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And during the financial crisis you will recall that we went the other way and we put some reinsurance out and it freed up capital. It was a relativelylow-cost way to raise capital. And of course in this world where we have a much stronger balance sheet and fundamentally restructured the businessmodel, we would look at opportunities to go the other way. So that -- I won't get any more specific as to particular treaties, but that is how we arethinking about it.


And the final question, if I may, is with respect to the UK business. I mean that is in runoff. Is there any trapped capital there? Are there any -- canyou give us an indication as to how much if not -- if there isn't trapped capital how much is actually kind of repatriated? And what would that looklike under whatever proposed for Solvency II whenever we get it?


Well, I think, Tom, maybe you've summed it up quite nicely there. A little difficult to know. But I think one aspect about the UK, the results were onthe weak side this quarter at CAD7 million. And I know we've had a couple of questions off-line about that. But I think the way we see the UK is thatit continues to be a very good source of earnings and capital for us and we still are confident that that is a business that will continue to operatewell over many years. And so, while there is capital there we do take dividends and capital back from the UK on a periodic basis and that willcontinue. So we are still very comfortable with that picture.


Okay, thank you.

Operator

Steve Theriault, Bank of America-Merrill Lynch.

Steve Theriault - BofA Merrill Lynch - Analyst

First, a couple of quick follow-ups on capital management. Colm, you said earlier, and it is on your slide there about taking down the leveragesomewhat proactively. So I'm just wondering, when I look at -- not that I would stack my model up to yours, Colm -- but when I look at my modelthe leverage sort of naturally declines to around 25% towards the end of 2015 without you having to do very much. So I am curious as to why youmight give up some leverage, which in some ways is a good thing, more proactively then rather just letting nature take its course here.


Well, that is exactly what we may well do. So we are not proposing to take any uneconomic steps here. I have to be a little bit cautious aroundcapital because the leverage that we have is capital qualifying. So it is part of our capital structure, regulatory capital structure. So we can modelout various scenarios, but before we actually take decisions we have to look at a variety of factors. But I think you are looking at it the right way.


Would it be fair to say it is sort of low on the pecking order in terms of things you consider near term?

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Well, I think any aggressive actions would be low on our order of priorities. We are comfortable that we are on a trajectory and a path that is laidout in our discussion.


And I did want to just quickly follow-up on Tom's question. I was going to ask about reinsurance as well. Are there any in-force treaties that arecoming up for renewal soon whether it is the one that you mentioned, Dean, that could have a more meaningful impact on the P&L than -- ratherthan something just sort of fairly modest?


Yes, I think I can answer that one, Steve. And the answer is, no. I mean we have a lot of reinsurance arrangements across the organization, we lookat all of them. And we have to obviously think about the risk aspect as well. There is risk transfer involved in these arrangements, there are riskcapacity issues. So it is complex, but, no, there is nothing, nothing significant that we would be looking at.


Okay, and last one for Wes, if I could. Wes, I think this is the second consecutive quarter you have noted negative mortality in US group unless I'mmistaken. Are you seeing any troubling or persistent trends there or are we just seeing some noise in the last and the first half of this year?

Wes Thompson - Sun Life Financial Inc. - President, Sun Life Financial US

Yes, Steve, actually what we have been seeing in 2012 was higher negative experience in our LTD business. In our group life business it has tendedto fluctuate quarter to quarter over a fairly long period of time. So we don't see the variance this quarter as anything systemic. That said, we arefollowing our normal annual rate study. We will be increasing prices in our group business in group life, LTD and STD, some modestly but quitetargeted in key areas.


And those price changes will be effective toward the end of the year?


Yes, they will be. We will be affecting them at the end of Q3.


Thanks very much.

Operator

Michael Goldberg, Desjardins Securities.

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Michael Goldberg - Desjardins Securities - Analyst

My first question is about the change in your US earnings objective. And I'm just wondering if you can give me a bit of a breakdown. How much ofit is due to the sale of the annuity business? How much is due to the change in EBG expectations? And how much is due to changes in any otherUS legacy business?


Yes, so, Michael, it is Colm here, so let me have a go at breaking down those components. So the overall decrease in the earnings objective for theUS is $180 million. And at the time we announced the sale of the business we indicated that the net run rate impact for the enterprise would beCAD0.22 or approximately CAD135 million, so that leaves CAD45 million to explain.

And about CAD20 million of that has been modeled elsewhere in the earnings objectives because the benefits come elsewhere. The debt repaymentof CAD350 million that we already undertook in the quarter and investing the cash proceeds very conservatively in short term instruments. Thathas been factored in, that is about CAD20 million and that -- so that benefit is elsewhere in the earnings objective. That comes out of the US.

And then we have also reduced the US run rate for 2015 by about CAD20 million and that relates to ongoing investments in EBG and in international.You will have seen that the international sales in the quarter were very strong, up year over year, and that's international investments, internationallife. And we see continued opportunities there. So those are the major components that would take you to that CAD180 million. But perhaps, Wes,if you wanted to add anything on any of that?


No. I think you have captured it. I think it is worthy of mentioning that historically the US business has been very focused on investing in theindividual side of the business. And as we look to really bring in greater management focus to our group and international business, we recognizethe need to catch up in some areas. And so the broader numbers that Colm highlighted do reflect some of those investments that we are makingin the broader EBG and our international platform.


So has there been any adverse impact in this change in expectations due to sort of the impact of losing the distribution channels that you had withthe annuity business that might have contributed to other US legacy business that you are retaining?


No, there has not been. In fact we're really pleased with the continued build out and growth of our domestic group insurance business and thedistribution component of that particularly, as Dean talked about, a lot of the transformation work that we are doing for the group business isfocused on extending and growing the productivity of our group insurance operation. In fact, the second quarter we saw about a 12% productivityimprovement within our group insurance wholesale distribution arm.


Okay. And my other question relates to slide 27, your strategy in Canada. There is no mention of a retail insurance strategy. Can you elaborate?

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Kevin Dougherty - Sun Life Financial Inc. - President, Sun Life Financial Canada

Sure, Michael, it is Kevin Dougherty speaking. And so, there are a lot of things going on in Canada and that slide was just meant to highlight a fewof them. But obviously the retail insurance business continues to be a core part of our foundation and you would see the emphasis on that in ourgrowth in sales.

At the same time we see the retirement market as a big opportunity for us. And to put that in context, the life insurance and health insurancebusiness is very, very much a part of our retirement market strategy. So you might think of it more as investment products only, but products likepar insurance and long-term care, health insurance are all very, very important parts of retirement plans. And so it all comes together under thatbanner.


Thank you.

Operator

And we have no further questions at this time. I will turn the call back over to management for any closing comments.


Thank you, John. I would like to thank all of the participants on today's call and if there are any questions we will be available after the call. Withthat I will say thank you and good day.

Operator

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation. You may now disconnect your lines.

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