Phil Witherington: Sure. Thanks, Paul. This is Phil. The main benefit that we see from interest rates on an IFRS 17 basis is actually the closer matching of the economics of the assets and liabilities. So what we have observed during the 2022 ongoing parallel runs is that the greater stability in our book value as a result of the largely offsetting movements in assets and liabilities as a result of movements in interest rates. And that really reflects the fact that when we manage our asset portfolio, we hedge our liability movements on an economic basis and IFRS 17 is a closer representation of the economics. So when you translate all that to the — what we see in an IFRS 17 environment, we see greater stability in book value And when you compare that greater stability on an IFRS 17 basis to IFRS 4, during the course of 2022, we’ve seen rising interest rates that has had a lowering impact or an adverse impact on IFRS 4 equity, but very stable IFRS 17 equity, including a more stable LICAT ratio, which I think is a very positive factor for the future.
Steven Finch: And Phil, I’ll just jump in there in terms of interest — the impact of interest rates flowing into earnings, some of — the same benefits that we’ve seen under IFRS 4 in 2022 from higher rates, particularly earnings on surplus, that will flow through as well under IFRS 17.
Paul Holden: Okay. That’s helpful. And that kind of leads me into the second question, which is the earnings on surplus was obviously very positive this quarter. I mean a significant outlier versus recent quarters and even going back over history. So just wondering if you can help us break down to what extent that’s attributable to higher bond yields? And how much might be sort of, to abnormal gains on seed capital and other factors?
Phil Witherington: Got it. Thanks, Paul. Great question. And earlier this year, for the first 3 quarters, I think some of the benefits of higher interest rates have been less visible because of declines in seed capital and the absence of AFS equity gains being recognized in core earnings because of market conditions. But when we look at Q4, a more normal market environment, we do see the benefits of higher interest rates showing through in earnings on surplus. And to give you a sense of the magnitude there, when you look at our after-tax earnings on surplus in the fourth quarter, $295 million, $260 million of that is coming from yield on fixed income instruments. That’s an $80 million increase after tax compared to the fourth quarter of last year.
And what that reflects is the sustainable impact of higher interest rates that currently prevail. So if rates stay where they are, we would expect not only that to remain stable, but also to increase over time as we continue to invest in higher-yielding instruments. Now the — to your point on to what extent is the seed capital gains and gains from AFS equities included within that? That’s — the dollar amount in the fourth quarter in aggregate for AFS equity gains and seed capital is just over $100 million. Typically, I would expect somewhere between $80 million and $100 million a quarter. So this is — I’d say just above the typical range that we would expect maybe in the order of $10 million or so. But I would emphasize this is a normalization, I think, in the fourth quarter of what we would typically expect to see on an IFRS 4 basis.
And the first 3 quarters of the year were not what I would typically expect to have experienced.
