Q1 2020 Earnings Call

Do you start by her meeting is ready to begin the <unk>.

Please be advised that this conference call is being recorded.

Good morning, and welcome to the money like financial first quarter Twentytwenty financial results Conference call.

Your host for today will be Adrian O'neil. Please go ahead and there's o'neil.

Thank you and good morning.

Welcome to many lives earnings conference call to discuss our first quarter 2020 resolved.

For the first time in our company's history, we are conducting this called virtually.

Our earnings release financial statements and related Mdna embedded value report statistical information package and webcast slides for today's call are available on the Investor Relations section of our web site at Manulife Dot com.

We will begin today's presentation with an overview of our first quarter and an update on our strategic priorities by Roy Gori, Our President and Chief Executive Officer.

Following rois remarks, so wed bring 10, our chief financial officer, well discuss the Companys financial and operating results.

We will end today's presentation with Scott Hart, our Chief investment Officer, who will discuss the company's general account invested asset portfolio and the effectiveness of our hedging programs.

Following their prepared remarks, which were recorded earlier this week to ensure optimal sound quality, we will move to the life question and answer portion of the call.

We ask each participant to adhere to a limit of two questions.

If you have additional questions. Please re queue and we will do our best to respond to all question.

Before we start please refer to slide you for a caution on forward looking statements and slide 44 for a note on the use of non-GAAP financial measures in this presentation.

No that certain material factors or assumptions are applied in making forward looking statements and actual results may differ materially from what is stated.

This slide also indicates where to find more information on these topics and the factors that could cause actual results to differ materially from those stated.

With that I'd like to turn the call over to Roy Gori, Our President and Chief Executive Officer ROI.

Thank you.

Good morning, everyone. Thank you for joining us today.

Turning to slide.

Oh.

No watching the significance of the situation that we find out so.

Community.

We'll keep the sympathies to those have been directly impacted.

And our men's gratitude.

Yeah.

And your workers for the crucial contributions.

I believe it at the times like these that we had a responsibility.

[laughter].

Yes.

And communities.

And that's exactly what we're doing it.

[laughter] employees.

Our.

Focus and commitment to supporting our customers around the world.

Very proud that enacting a business continuity plans and they.

Said about global employees to work during the period.

Today.

He just said about employees or what.

As many of our colleagues so into the office in China at home.

We have in short salary continuous.

Flexible arrangement to employees, we counted 'cause it not seen related challenges with remote work.

This is a challenging tied to many people.

Focused on ensuring that our customers are receiving the highest level of service and support.

Well I mean every market.

It continues.

And services.

In order to make things easier.

As wells for employees advisors and I just.

We responded to the crisis by leveraging technology.

At least deployed various quite solutions.

Exactly.

Things when you tools.

I had in the pipeline.

The cases, we move.

The play existing technology to new markets.

Oh sure for example.

Inflation.

In addition, we've dedicated to the $20 million financially to customers were experiencing hardship.

These include extended premium Grace period on a number of insurance products across all segments.

Mortgage payment deferrals.

And waiting to see before one time, how cheap with true.

Global wealth and asset management business.

Well.

The causes supporting healthcare workers at hospitals, providing 'cause it 19.

It's eight programs to provide food security.

Well go population you know communities.

Before we move all I'd like to say knowledge, how incredibly proud I am at an annualized.

So.

Well it seemed vendors had risen to the challenge and gone above and beyond to be but.

When they need us most.

Many of them all the cool today and thank you to each other.

So let's fix.

We're pleased with how smoothly employees.

And functions.

Well to transition to working from home.

[laughter] <unk> key strategic investments.

A quick and tools.

Last few years.

We had a mature work from home culture.

For example.

North American employees have been working remotely.

Resulting in VPN usage, increasing to 2.5 times regular.

And yet.

During peak periods.

Bridge network utilization is less than 50 fought to fit well that total capacity.

We are keeping team members up today by hosting enterprise wide pellicles posting regular video updates from senior executives.

C series, the tech various topics of interest including mental health.

Finally.

Learning tools, a well developed that as a result participation in training programs continued at pre crisis levels.

In addition, we leveraged this expertise to pivot the online learning for L. agents and advisors around the globe.

Turning to slide seven.

As I said earlier, we responded to the crisis by rapidly deploying new and existing technology.

This included launching checkbook technology to manage costs and the volumes.

Going to enable called Tech was transactions.

Reinforcing our existing digital tools, such as the applications for life insurers in Canada and the U.S.

We've been able to north face to face processes the sales.

In Asia.

Prior to the crisis, we've been using this technology in China, and thanks to that experience capabilities, we're well developed.

[laughter] installation measures were put in place around the world, we accelerated out plans to roll out this technology more broadly in the region.

This enables that distribution partners an agent.

Engage with customers according to their preferences.

It also positions us well to capitalize on any changes in customer sets that post coated 19th and supports productivity and retention.

Before.

Ultimate test as to whether these measures the working well use the MPS school.

Well.

So we actually experienced a slight improvement trends actually olympias school since the onset of.

Team, which we see as a big we've given elevated claims volumes and the pivot to working remotely.

Turning to slide it.

They entered the quarter in a position of strength.

Thanks to the work we've done over the past decade to de risk out business and reduce that company sensitivity to market movements.

The first quarter of 2020.

<unk> ratio improved to 155%.

Leverage ratio of 23%.

Considerably lower than it was two years ago and is now below a medium to target.

This combination result in more financial flexibility than we've had in recent years.

We have a high quality invested asset portfolio.

He said fixed income assets right. It is investment grade.

It will delve into our general account portfolio and the effectiveness about hedging program in his presentation.

With diligently worked towards becoming a digital customer leader.

As you said before this is serving us well in the current environment.

Finally expense efficiency as being one of the highest priorities and we've made meaningful progress towards that 2022 talking with the delivery total expense savings of $700 million.

And asphalt culture of expense discipline is serving us well in this environment.

As a result of these strengths I'm confident that menu life is well positioned to navigate these crisis and the associated economic downtime.

Turning to slide nine.

Yesterday, we announced the first quarter financial results.

The current of ours continues to disrupt economy and capital markets worldwide.

Our operating conditions during the first quarter were understandably affected.

Despite these challenging conditions, we delivered solid results.

Demonstrating the diversity and resilience about businesses.

We delivered net income attributed to shareholders of $1.3 billion.

Core earnings of $1 billion.

Relatively small variance between these two figures have been challenging macroeconomic conditions. He is a testament to the performance of equity market and interest rate hedging programs.

Core or where he was a resilient at 8.2%.

And we achieved net inflows of $3.2 billion in global when we all business lines contributing positive net flows.

Book value per share rose to $26.53.

Also reported embedded value a $58.1 billion well $29.79 per share as of December 31, 29 team.

It's worth noting that embedded value only reflects a portion of the value about businesses.

Attributes and those value to future new business.

And only tangible book value throughout growing wealth and asset management businesses as well as PNC reinsurance operations Emmanuel I think.

Turning to slide 10.

Despite the challenging environment I believe that we've accomplished a great deal in the first quarter.

We successfully completed 2022 portfolio optimization target.

I've been Dls capital in the fourth quarter of 29 seen three years ahead of schedule.

Well, we've achieved a target.

We generated an additional $265 million of capital benefit in the first quarter 2020.

Through a variety of initiative.

The initiatives announced to date have resulted in cumulative capital benefit of $5.3 billion.

We remain focused on aggressively managing costs to drive expense efficiency.

Which resulted in modest core expense growth to send the first quarter 2020, which is well below historic average.

A third parties to accelerate growth into hotspots into businesses.

We aspire to have these businesses generate two thirds of total company core earnings by 2022.

In Asia, we extended our exclusive strategic bancassurance arrangement with banked on them on Indonesia to 2036 I.

On a global when we launched a large case U.S. for time and playing with $2.6 billion with over 100000 participants.

At both parties out customers and how we're using technology to attract engage and retain customers by delivering an outstanding experience.

As I previously mentioned during the first quarter 2020, we leveraged our digital platforms to better serve customers during the cold the 19 pandemic.

A final prior year, it's high performing team.

Our target is to achieve top quartile employee engagement compared to global financial services and insurance P is by 2022.

In February I was delighted to announce the appointment of parents, they get as Chief marketing Officer.

Any much we were named one of candidates vis vis the employees for the third year in a row Y media cool.

Slide 11.

In conclusion, we have a fantastic the this franchise and a winning team.

We are in a position of strength.

They focused on maintaining financial flexibility and operational resiliency.

The long term fundamentals and demographics underpinning our strategy remain unchanged.

Funds such as these reinforces the importance of insurance wealth management and retirement products, which we believe will drive high demand for our products in the future and even stronger customer preferences to interact with companies, who have digital capabilities and streamline process.

We are in and Unprecendented macroeconomic environment.

And there are many possible scenarios on the length the nature of the impeding recovery.

The possibly recovery remains to be seen but I'm confident that we are in a position of strength.

We remain committed to out dividends, along with our medium term financial targets.

Thank you and I'll hand over to fill Wetherington, who will review the highlights about financial results Phil.

Thank you Laurie and good morning, everyone.

Turning to slide 13, and our financial performance for the first quarter of Twentytwenty.

That's really mentioned considering the challenging conditions, we delivered solid results.

Highlights the key drivers about first quarter performance with reference to the next few slides.

Turning to slide 14 core earnings in the first quarter, <unk> 20, $21 billion down 34% from the prior year cools, though on a constant exchange rates faces.

The decrease in core earnings was driven by the unfavorable impact of markets on seed money investments the absence of core investment gains.

No in new business volumes in Japan, compared with a very strong quarter for Japan coli and the play with it.

And unfavorable policyholder experience in North America, including elevated travel insurance claims related to cope with 19.

These items were partially offset by the impact of enforce growth in Asia and higher fee income from high average asset levels, you know global wealth and asset management businesses.

We are pleased with the resilient performance about businesses. During these challenging times and believes that money life is well positioned to continue to succeed through this period of uncertainty and the subsequent recovery.

We did a good net income attributed to shareholders or $1.3 billion and the first course Oh.

No we recognized losses of $608 million from investment related experience.

By lower than expected returns on older primarily due to the impact talk sharp declines in oil prices.

The favorable impact on fixed income reinvestment activities as we took advantage of why the corporate spreads served as a partial offset.

The gain of $2.1 billion from the direct impact that interest rates was primarily driven by why the corporate spreads unrealized gains on the sale of assets phones, partially offset by the impact of lower risk free rates.

The charge of $1.3 billion from the direct impact if equity markets reflect significant declines in global equities during a volatile quota.

We also reported a $72 million gain related to a tax benefit from the U.S. has act as a result of carrying back net operating losses to prior years.

Slide 16 shows how source of earnings analysis.

Expected profit on enforce increased amount is 3% on a constant exchange rate basis.

My growth in Asia.

New business gains were lower than the prior year quarter due to lower sales volumes in Japan.

As a reminder, the first quarter of 29 team was an exceptional quarter or would you kind of Cody sales.

<unk> policyholder experience in the first quarter was unfavorable primarily due to higher travel claims in Canada related to cope with 19 traveled interruption on cancellation and higher claims in our U.S. life insurance business.

Oh P.C. policyholder experience was neutral in the first quarter of Twentytwenty.

Turning to slide 16.

We did a good core earnings growth of 6% in our global wealth and asset management business driven by higher average asset levels.

Core earnings in Asia decreased by 7% driven by lower new business volumes in Japan.

He recalled within the first quarter of 29 team, we experienced a significant increase in coty cells in Japan was custom is anticipated the introduction of unfavorable tax changes.

In contrast, our businesses in Hong Kong and Asia, rather so still a good double digit core earnings growth, which served as the partial offset.

In the U.S. core earnings decreased by 13% driven by on favorable life insurance policyholder experience.

Core earnings in our Canadian business decreased by 16%, primarily due to unfavorable trouble claims experience related to cope with 19.

We delivered core honorably or 8.2% in the first quarter of twentytwenty against the backdrop of challenging market conditions.

Slide 17 shows on new business value generation and AG sales.

In the first quarter of Twentytwenty, we did a good you business value all $469 million down 11% from the prior year quarter.

In Asia, New business, probably decreased by 14% compared with the first quarter of 29 team. It was growth in Hong Kong and Asia, rather it was more than offset by a decline in Japan.

In Canada, New business father, you increased by 24% from the prior year quarter, driven by higher sales across all business lines.

And in the U.S., new business value decreased 23%, primarily due to the impact of lower sales volumes and less favorable business mix.

The first quarter of Twentytwenty, we did a good APC sales of $1.6 billion than 9% from the prior year KUSA.

The decline in a b cells growth is driven by the impact of tax changes on coli product sales in Japan, which offset growth in Hong Kong and Asia other.

In Canada, <unk> growth of 44% compared with the first quarter of 29 team was driven by large case group insurance sales and continued growth about individual insurance business.

In the U.S.A.P. sales were largely inline with the prior year quarter as low domestic universal life sales following regulatory changes in the fourth quarter of 29 team more than offset hi, its and international sales.

Turning to slide 18.

Our global wealth and asset management business generated net inflows of $3.2 billion in the first quarter compared with net outflows of $1.3 billion in the prior year quarter with positive contributions from all business lines, Despite higher retail redemptions in the U.S. in Canada the mood.

Equity market declines in March.

In the U.S. net outflows of $2.2 billion in the first quarter of Twentytwenty improved compared to $4 billion net outflows in the first quota of 29 team.

This improvement was driven by higher retail gross flows primarily from strong institutional model allocations and intermediaries sales as well as the sale of a large case retirement plan.

In Canada net inflows of $2.8 billion improved compared to net inflows of $2.1 billion in the first quarter of 29 team.

Improvement was driven by higher gross flows into institutional asset management equity mandates.

In Asia net inflows of point $6 billion, what inline with the prior year quota is high and its inflows in retirement were offset by higher mainly institutional redemptions.

Our core E that Tom margin remains solid at 27.3% inline with the prior quarter end up 30 basis points from the prior year quota.

Our average a U.N. remained stable compared with the prior year quarter as the unfavorable impact of markets was offset by net inflows.

Turning to slide 19.

We have entered this downturn with a strong balance sheet and regulatory capital position.

Our financial position has strengthened further in the first quarter of Twentytwenty.

We have $31 billion its capital about the supervisory target.

Like catch ratio improved to 155%.

The 15 percentage points increase compared to the prior quarter was driven by the positive impact of whitening corporate spreads and lower risk free rates, partially offset by the impact of lower public equity and older valuations.

Our leverage ratio declined to 23% two percentage points below our medium term targets for 25%.

The decrease in the leverage ratio was driven by the impact of lower interest rates, which increased the body with <unk> securities.

The $500 million subordinated debt redemption. This occurred in January 2020.

The favorable impact of a weaker Canadian dollar and growth in retained earnings.

These factors were partially offset by share buybacks.

Given the high levels off market volatility on a rule uncertainty. We believe it's it's prudent to have strong levels of capital and liquidity and to adopt a longer time horizon than a normal conditions to address future financing needs.

Oh, a relatively low leverage ratio allows for this cautious approach to pre financing.

Turning to slide 20, we continue to maintain strong liquidity at both consolidated and legal entity levels and we are confident in our ability to meet all out payments and obligations.

Approximately one quarter of the assets in our general account portfolio, our liquids government bonds and cash.

I would also like to reiterate our capital allocation priorities, which remain unchanged.

Organic investments in our highest priority businesses remain our top priority followed by sustainable dividend increases opportunistic share buybacks and then M&A.

It's worth noting that it is not unreasonable to expect that subsidiary remittances would be lower in this interest rate environment. However, we do not expect this to be a constraint to our capital priorities.

As an example of a appetites to deploy capital within the last few weeks, we have extended our exclusive bancassurance agreement with banked on them on Indonesia until 2036.

Slide 21 outlines our medium term financial operating targets and our recent performance.

Core EPS growth cool ROTC and expense efficiency were below our targets, primarily driven by the challenging macroeconomic environment in the first quarter of Twentytwenty.

Like most other companies, we expect the second quarter of Twentytwenty to be a challenging one given the isolation measures that have seen in place around the world.

In rights at the current environment, we would not expect to achieve a medium term core EPS growth target of 10% to 12% this year.

We are in a strong position and we remain committed to our dividend along without medium to financial targets.

I would now like to turn the call over to Scott, Hans who will discuss our general account investment portfolio.

Scott.

Thank you Phil and good morning, everyone I'm pleased to provide you with a more indepth update on the direct impact of equity markets and interest rates in our results an honor our investment related experience.

We'll also provide some additional color on the strength of our investment portfolio.

Please turn to slide 23.

As you might recall, our dynamic program hedges variable annuity rests on a best estimate economic basis.

Our macro program hedges the remaining equity market risks not covered by the dynamic.

Or be a hedging program was severely tested this quarter given the significant volatility we saw in both interest rates in equities.

Program performed quite well offsetting 93% of the increase in the liability.

Sweat slippage was roughly half due to the trading needed to rebalance the hedge and half due to the underlying funds underperforming our hedging benchmarks.

It's fun to underperformance typically reverses when markets normalize.

Our interest rate hedging program uses the combination of long bonds and the cash market.

Starting interest rate swaps treasury forwards and Treasury futures.

We do also use interest rate forced to hedge minimum interest rate guarantees and our liabilities.

Our sensitivities to interest rates and equity markets have been significantly reduced since the 2008 global financial crisis.

Starting from 2013, when we achieved our hedging targets you can see the impact from interest rates in equity markets have largely offset each other.

And over time have had an immaterial impact on net income.

During the first quarter of 2020, we saw the U.S. 30 year risk free rate drop over 100 basis points. The S&P 500 dropped 20% the VIX increased to 80%.

Corporate spreads widened by roughly 150 basis points.

These volatile market conditions, we recognized a 792 million dollar game as losses related to the direct impact of equity markets and falling risk free rates were more than offset by widening corporate spreads.

So.

Well, we are certainly in a period of extreme market stress our hedging programs have been affected it mitigating net income variability and we remain within our equity and interest rate risk.

[music].

Next slide 24 shows a recent history of our investment related experience.

As a reminder, investment related experience is derived from three sources, one fixed income reinvestment, which compares our purchase and sale activity 12 reserve assumptions to credit experience, which compares the impact of downgrades and defaults to that assumed in our reserves.

Free all that another which compares how does the total return on our all the investments performed relative to our reserve assumptions.

As a reminder, all though.

Short for alternative long duration assets is our term for private non fixed income assets comprised largely of real assets.

Over the past three years investment related experience has been significantly in excess of the $400 million. We can include in our core earnings.

Gains from fixed income reinvestment had been strong and steady over this period and we're a significant contributor this quarter because we took advantage of the very widespread environment to redeploy government bonds into high quality spread products.

Credit results have also been a reliable contributor up to the current quarter.

In recessionary periods, we do expect credit results to be worse than our through the cycle reserve assumptions.

Although it was a significant drag this quarter.

Particularly due to the markdown of our oil and gas portfolio given the significant decline in energy prices.

We do expect variability in or all the portfolio quarter to quarter due to its mark to market nature, but we also expect significant recoveries month when market conditions improve.

Through the cycle are all the portfolio has largely performed as expected.

Now turning to slide 25.

I invested assets are diverse and of high quality.

Over 98% of our fixed income assets are investment grade.

Oh, the diverse mix with a focus on defensive asset classes.

Expanded on this weight or in my presentation.

We've relied on or all the portfolio to generate enhanced yields. This is removed the need for us to chase yield through riskier fixed income assets. For example, our exposure to blown investment grade is limited to only 2% of our portfolio and we do not have any exposure to collateralized loan obligations.

Finally, a key component of our risk management framework is our credits.

As a company, we take credit risk very seriously and manage it was in a highly experienced team which has been through many credit cycles.

Constitute eight per cent of our portfolio are currently under higher pressure given a significant demand destruction, where witness thing you know a couple of the details of that portfolio in a few slides.

I'd also point out that we have a modest three per cent weight in the more exposed to consumers cyclical sector.

On the slide 29, which shows the composition of our all the portfolio. We continue to believe all the represents an integral in complimentary component of our investment next backing long term liabilities.

Combination with fixed income assets switch back the first 20 to 30 years of liability cash flows. We believe alternative assets has the potential to increase expected returns, while managing the level of risk.

We have strong inhouse capabilities and experienced investment professionals in each of our alternative asset classes.

As you May recall, we recently sold over $5 billion of all the supporting our North American legacy businesses, which allowed us to release over $2.2 billion of capital.

This helped us reducer exposure in guaranteed SEC.

Currently more than one third of our all that supports participating in pass through a businesses.

We assess our actuarial assumptions every year, but have no reason to believe are all the return assumptions or unreasonable over the long term.

Yeah.

Slide 30 summarizes are fixed income energy exposure, which is topical considering current depressed oil prices.

You can see the sub sector diversification more than one third of our portfolio is in mid stream, such as pipelines, which largely transport natural gas and liquids and are less susceptible to changes in commodity prices.

It was portfolios high quality with 94% rated investment grade.

Given our limited exposure to high yield issuers, who do not expect widespread defaults, although given the significant pressure on oil prices, we would expect down breads.

Slide 31 summarizes our energy exposure through all the.

As noted earlier are all the oil and gas portfolio generated experience gloss this quarter.

Or private equity oil and gas holdings are in the U.S.N.R. value based on the foliage strip.

When prices fall, we might typically see it the way in the last recognition as we are dependent on evaluations from our fund managers.

In this case given the drastic price when we did not wait for fun valuations and estimated some of the loss that would normally have been recognized and cute too.

Or conventional Canadian oil and gas properties are managed fire subsidiary N.A.L. resource. It's these assets are valued by an independent appraiser, whose forward priced <unk> typically moves less than the forward market curve, but this quarter it moved from more than the market, which exacerbated the loss.

Well the last ones material this quarter. It was largely a mark to market fair value adjustment the ultimate loss will depend on realize price as well into the future.

And while in the short term prices will likely stay depressed you would expect a significant recovery when demand is restored as shut down production will be difficult to restart.

Fourth our Canadian the U.S. holdings are largely unlevered, so they should be able to manage the short term stress the industry's experience.

Moving on to slide 32.

In summary, I want to reiterate that are invested assets portfolio is high quality in diverse is designed to endorse significant economic stress.

We have a very strong history of favorable credit experience, which is a testament to our credit teams and underwriting processes.

Oh and gas prices are stressed we continue to believe these are high quality assets that are holdings will rebound in the medium term when markets improve.

Finally risk premiums have increased significantly and we have taken advantage of these as we continue to be cash flow positive in this environment and are putting that to work in attractive in bass.

This conclude that prepared remarks, operator, who will now opened the call to questions.

Thank you.

We will now take questions from the telephone lines and you have a question. Then you are using a speakerphone. Please lifter headsets before making your selection. If you have a question. Please press star one on your telephone keypad, but anytime you wish to cancel your question. Please press the pound funded so please.

<unk> at this time.

There will be a brief cause all the participants register.

We thank you for your patience.

Pretty cute the first question from Tom Mckinnon from via <unk> Capital. Please go ahead you lines open.

Yeah. Thanks, very much can you hear me.

We can't.

Yeah.

I may I got cut off a little bit on the call, but I'm not sure. He talked at all about any kind of outlook in terms of sales in April if you can take it through that by by division that would be helpful. I'm going to have one <unk>.

Yeah, let me check with that firstly, good morning, and Craig C.

Oh, well at least remotely.

You know obviously you know as the sales is gonna be one area that <unk>, how business and were expecting to see a lot of volatility as quite frankly, you know different geography the job.

To the impacts all you know.

<unk> and social distancing you know I'm quite pleased actually without first quarter results on you business value was still highlighting the prepared remarks were small 69 mill and actually when you adjusted you paint or when you look at it on an X., Japan bases were up 12%.

April 1st month of the quarter, where basically looking at a whole Joker fees, a net 10% off the same quarter of last year.

But again <unk>. This is obviously going to be an area <unk> you know significant movement. So I'd hate to bore a train lines phone that to conclude on halleck, what is going to end well, how we're going to look at the rest of the year. So it's something we're watching very closely but pleased with the resilience of V. resiliency about franchising quite frankly, how our organization is.

Acted given the challenging circumstances to use new technologies to interact with customers and continue ourselves momentum as we soaring Q1.

April results are encouraging.

But still much more work for doing that front.

Is there any is there any when you can elaborate at all as to what you're seeing in U.S. or Canada or in Asia with respect to that overall in that 10%.

Yeah. So the movement is obviously you know varies by by geography, and then even within Asia berries significantly by marketplaces, we've seen different markets come back at different places you know in China. For example, we're now seeing in our in operation, 80% about people back in the office environment.

But let me let me pose an off you know, Mike Marianne and Neil just provide some extra color on each of those geography <unk> you want to start off with tender then we'll go to U.S. and nil.

Sure. So thank Tom this is Mike in in in Canada was Roy said in April we didn't see any material changing the we we came out of C., one with very strong momentum I would say that we're looking at some some places very closely we've obviously done a lot of work.

Over a number of years to digitize a lot of our sales process. So we're seeing a lot more take up of some of the tools that we have we've also being expanding that over the last six weeks. So electronic applications are up electronic contract delivery in receipt or Rob electronic signatures are all up so none of that is really getting.

In the way now of us being able to continue to process business. The place that we are seeing a significant slowdown is the social distancing and the effect. It's had on paramedic was being able to visit homes to collect evidence. So at the larger end of the market. We're seeing much more of a slow down and then at the smaller and have them.

<unk> I'd also just vastly comment on our group benefits business, we're definitely seeing that didn't they certainly we're certainly seeing continued to see sales we've switched to a virtual finalist presentations et cetera.

But we are seeing a slowdown in in sort of small business quotes is as those business owners are really primarily have been really primarily focused on just making sure. They manage their business. So I'll stop there and maybe pasta Marianne.

Hi, Thomas Marianne in the U.S. very similar story to what might just said you know in terms of the capabilities that we have building then noting over the last couple of years.

<unk>, yeah publication, he signature e. delivery, it's been relatively smooth because we had those tools in place even though they're historically hadn't been a lot of take up on it. There certainly is now I already Perl month was actually a pretty good month and we are seen business holding that we are seeing a change in mix as you might expect.

So that permanent more of the term just because of what Mike was talking about in terms of being able to do the pair imagine Dan's, we can't do that and so we have changed our underwriting standards as well and like 18 about we're not currently writing and looking at some of the sub standard pretty closely just because of the fact that we can't get the pyramids done so.

That's basically where we are in the U.S. over to you in now.

Thanks, Thanks for the question <unk> So in Asia.

It's different depending upon each of the market kind of <unk> the outbreak since they taught the Oh January and.

<unk> quickie, followed by Hong Kong, Hong Kong, and trying to start start to get better all the all brings back a threat to Japan, and South Asian markets makes it nice insane basically allowed also lost all in isolation magic.

The thing in China, and almost 90% a whole set back to work and in Hong Kong, It's not the 70% of that have bought it and I think it's only going to get back hair, a at a quarter progressive however, the customer activity, it's still not I can all levels and that's on account of the economic times.

<unk>, that's a up on what I think is a again in line with what.

Save the investments that you may not business I really paying off so for example in Asia <unk> have a nor face to face enabled at all <unk> looking to possibly blew off processing and thereby enabling distribute a botanist to engage oh, we've got customers.

Lots of it if there are going to be extended view that <unk> off locked out and again, we could use that in our agency Oh for tonight's standing progressively do <unk>.

It's kind of a mixed bag for <unk> <unk> now I'm getting ready to.

Two levels of what we had experience in April last year, but again in other markets on a golf at all costs are they are much more severely impacted me believe that by the measures to the east.

The last autumn S. isn't really be with us in some solace shape as we go up to the point.

Pull it might be valuable feels so to give it a bit of a flavor for oh progressing g. way I'm, well, what you're seeing from a G.U.N. perspective as well.

Yeah. Thanks, Ryan Tom It's Paul here, just I'll, just add that to some of these settlements a offered by Neil Mike and Marianne were seen similar trends that relate to non face to face sales opportunities and particularly the impact on the small business owner on our on our retirement business. So that if something were expected and I guess the other one that's somewhat you need to Washington in Asia mid some of them.

Market volatility, we have seen a shift into more cash and bank deposits in Asia, which.

Which does have an impact but.

Having said that we we are confident our ability to generate a net foes or positive net flows over the long term and I think some encouraging signs from my perspective or that you know in Asia, we were able to live or positive net flows. This quarter. Despite you know covert 19 impacting Asia earlier than some of the other.

Regions. We also entered the year with a stronger pipeline on the institutional side. Then we started last year or so that set us up well for this year and then thirdly, we've been very proactive with customers and advisors in terms of engaging with them. During this period of time, whether it's support thought leadership et cetera, and it's been very appreciated by.

But I think it sets us as well as we navigate this crisis and come out of that too, but I, just really be a true partners for both our customers in our advisers moving forward.

Yeah, I think and just as a follow up is there any.

What are you seeing in terms of your property Cat Retrocession covers are using any you set up any provisions is there any claims activity.

How should we be thinking about that business.

<unk>. This is Phil I think that one's the best handled by me.

We're not seeing any interruption as the consequences cope with 19, L.P.N.C., we business reading shows I'll reinsurance clients, who off a property damage protection arising from natural perils, such as quakes and Hurricanes.

And well that may be business interruption claims associated with property damage claims arising from those natural parables in the case solved a pandemic, that's not something that would fall within the scope about coverage.

Okay. Thank you.

Thank you.

The next question from Steve Stereo from eight capital. Please go ahead you line is now.

Thanks, very much maybe I'll go with the question going to the all the oil and gas.

Exposures. So it's kinda I think what you're saying is that we should think of the the hit this quarter as more of a mark to market than what we've seen in the past trying to do more of trying to more fully reserved for the impairment that we've seen so.

<unk> is that right and is it correct that it's sort of in the 70 800 million dollar range this quarter and what would it take to see more losses from here I guess, how comfortable are you in a in the initial assessment.

Yes, David Scott. Thanks for the question and you pay did about right. Our losses were about 750 million this quarter and that was a mark to market.

Some of that <unk> undoubtedly stick as some of our properties are currently drilling in producing oil and selling oil and they're selling it up lower prices. Then we would have expected, but it is a mark to market based on you know 10, plus years of expected cash flow and marking at all sort of picked current current market levels.

And we we did as you pointed out and I pointed out my prepared remarks tried a fairly fully take that through on our any l. subsidiary, we have an an an outside appraiser and that is the way. It works. It's you know taken mark to market in the current quarter for our our bigger U.S. private equity.

Portfolio, we are relying on the private equity firms, who who manage a lot of those assets to give us marks and typically we don't get those in time and things tend to be wag, the quarter, and sometimes even too, but given that precipitous dropping prices. We tried to estimate bass that based on prior experience. The last time, we had a major.

Dropping prices, we tried to estimate where those marks would come out and put through an estimate doesn't mean, there won't be future watches as we get those marks in and I I would say the last time, we did see you know watches continued to dribbling a bit after that first big initial marked down but <unk> you know, we we have accelerate.

It had those and we feel like we've gotten a lot of it behind us.

I guess from here.

On the way back or things deteriorate further do you stick with that mark to market approach or was it sort of a mark to market approach on one time basis, and then it's more of a bit more of a smooth to progression from here.

Well it really is mark to market. It's just a question of when do we get them Mark and so for again for any we get the mark at quarter and a real time, Mark. It's just weird weighed on a private equity portfolio and that you know so for small movements were not going to try to estimate what that is but when we see a big movement like that.

We do try to estimate <unk> and I would again end with you know some of this undoubtedly will be real losses, given that you know the cash flows in the short term, but we would expect you know prices to recover we're we're going to see shut ins to production, which we really did not see the last time, we had prices go down and it'd be.

Becomes hard to restart we'll need to see much higher prices to try to restart and there's in in a lot of cases restarts or difficult to do and don't produce the same level. So.

No it prices get up prices need to get north of $50 to encourage you know a significant a shell drilling or taking off the shot ends and it at those kind of price levels, we would expect significant recovery in our portfolio.

Okay, and then they will ask the related question.

On.

Fixed income energy exposure, Scott can you give a bit more detail on say the E.M.P. and the oilfield services exposure what kind of risk do you think there is there and can you goes a little more color.

Sure happy to do that and page 30 of the slide back does show that break down and you have highlighted I would say the the two two sectors of most concerned for US. We we also have mid stream, which is much less of a concern and you can see the the quality distribution here is is wired.

The investment grade a fair amount in triple be but most of that mid stream would be triple be you know in the majors are high quality and <unk> you know we'd expect to be in good shape. The the oil pill services is probably the the one of most concern you know they make a lot of their money through growing activity.

She's going to pretty much cease here, but our portfolio. There is higher quality, it's more skewed to the single a range mostly in the top three service providers. So we probably will get some downgrades there, but it would would expect to see those stay investment grade offshore drilling.

<unk> sort of a sub component that we did spike that out it's a very small part of the portfolio, but that well that is below investment grade that is that is if we're going to see him elements here that is where we're going to see it but it is a very small part of the portfolio.

And then the E.M.P. exploration and production, which is a little bigger part of the portfolio. There's a real mixed there. We do have a couple of billions there have sort of national oil companies see no can China National oil company of Korea, and those will be well supported by the sovereign snow concern, but we do have a fair amount of independent producers who.

More and the triple be range and that is where we would expect to see some downgrades to belong investment grade, but you know they started investment grade they're strong we we do not expect impairments there, but we we do expect since outbreaks.

Thanks for that color.

Sure.

Thank you.

The next question.

Is from home freely from going partners.

Please go ahead you line is open.

Good morning, and think is taking my questions in terms of cleans exposure to cope with 19 give us any says intensive kind of the net mortality sensitivity to the number of death, then you can share.

Based on the number of deaths in the U.S. or the number of deaths in Canada.

Hi, Humphrey, it's essential I'll take that question and yes, we've done a fairly extensive stress testing on our portfolio.

And your question with respect to [noise] businesses that have either mortality or longevity exposure.

So manual life over all we've got a diversified mix of business and in a pandemic like this we would expect charges in some lines of business with offsets in other line so charges.

Nah in our life insurance business, but offsets in businesses with with longevity exposure, such as annuity and long term care. So in those businesses, where there's a direct exposure to mortality or longevity.

In a scenario, where there were 100000 U.S. Das we would expect to charge of approximately 30 million Canadian post tax with the caveat that we do insure large large policies, particularly in the U.S. or there could be lots of variability, but roughly 30 million posttax for.

100000, U.S. doubts we'll see other impact as well from claims you know to bully. They travel claims that that we bumped in Q1, and we're also closely watching our group businesses in in Canada for the effects that.

The impact to the economy could have fun now I'm claims there, but we're not observing any material trends at this point.

So for this 30 Millie is it just for the U.S. or is that contemplating for Canada as well.

[noise] that's total company.

Okay. That's helpful.

And then in terms of investment portfolio I appreciate all the colors and you provided in terms of the exposure and and and where you see the pressure points, but have you done any stress test in terms, so maybe comparing to the previous crisis running through from a thumbs up approach, where you see or it could be.

They pretend show council in packs from kind of containment than default.

Yeah sure.

Hi, I'm going let let me let me, let me start with that and Steve you can certainly ad.

You know every crisis is a little bit difference and this one is is a bit different from the G.F.C. I guess one of the differences I call out is that the G.F.C. we saw.

<unk> It was really folks in the financial sector and was really top on the investment grade banks and other financial institutions. In so we we actually saw it defaults on investment companies. It started out as investment grade.

Time around it it's very different and I think the central banks globally really reacted so much quicker and so much more than they did in the G.F.C. that they provided liquidity to those companies and you know it's liquidity that's really the big issue in the short run and given what we've seen.

I don't really expect much in the way of investment grade defaults, which is why we focus so much on you know the ball investment grade part of our portfolio being only 2% there the smaller weaker companies. They don't have access to a lot of the the.

Stimulus coming out of the central banks is beer, we might expect experiments. So it's a little difficult compared to the G.S.C. and you know we do expect most of our experience this cycle to be hence more downgrades, then defaults and downgrades, while they create a a hit to earnings as we.

Priests reserves in the current quarter, they get released and subsequent quarters to the extent, we don't have defaults and it just says we've looked at that and look at sort of stress testing and what might happen. One thing to give you a bit of a guy that is if we sought 25% of our whole portfolio on a per rata basis be downgraded one notch by one.

I mean, if you know there's typically three noxious in a in a rating category. So for triple be there would be triple B., plus triple be triple B. minus and so if they moved down one notch, we would expect about it about a 250 million dollar post tax reserve increase and hit to earnings.

And the way we do it <unk> things have to move a full category have an increase in reserve. So you would see the triple B. minus as being downgraded to blow investment grade is what would create that charge and about half of that overall charge. We would she does come out of out triple be portfolio. So that's.

Little context for you.

And Steve I don't know if you want.

Yeah, I'll just add in terms of our overall stress testing, we do routinely do a stress testing on the entire company on the balance sheet and we have stressed more severe scenarios than what we saw in the global financial crisis, and you know everything that we've been doing over the years building up or hedging program.

<unk> that portfolio optimization initiative, we we enter this time in a position of strength, where we wanted to make sure that the company can with <unk> withstand I very severe shocks and still be in a strong position and so we we're confident in the capital position of the company based on the stress test.

Thing that we've done.

Thank you.

Thank you.

Next question is from <unk> from P.D. Securities. Please go ahead of the lines open.

Morning.

It perhaps.

One thing I was looking for in the disclosure like couldn't find was the acid default assumption.

Steve is that something you'd you'd be comfortable disclose incident.

That's a default assumptions in the reserves at us.

Yeah, what I.

So I go ahead I was going to ask actually what the dollar amount of the reserve is in the the acid default reserves.

Sure. So what what I can do is describe our process. So as with other assumptions. We go through and detailed regular reviews Alfred worked closely with Scott's team, we look at the Moody's long term.

Salt averages and our experience has been over over a long period of time has been a better than what we've seen the Moody's studies, we have not gone all the way to our experience. So we've we've reflected some of our own experience in some of the industry experience.

As you can imagine the default assumptions vary by ratings category by 10, or a et cetera. So it's quite a a detail set of assumptions.

Overall, the the we've estimated that the the amount of provision for credit in our reserves, it's approximately three and a half billion that was at the end of of 2019, so as a cue one it's likely gone up a little that because of of the currency movements.

And about a 3rd% to 40% of that is a p. fat or margin.

Okay, and then just a quick clarification, Scotland, you referred to 50 dollar oil where are you talking W.T.I.U.S. dollars.

Yes, yes that was.

Okay, and then sorry, just real quickly.

See when the hundred and $8 million you refer to for Moody's you, saying that the estimated where they expected losses you you're not you're I think what you said there is that that's not what's in the reserve 108 million, that's just for information purposes.

That's correct, yes, okay. Thank you.

[laughter].

Thank you.

The next question is from <unk> National Bank Financial. Please go ahead you on his open.

Good morning couple of questions one on the older one on Monday like Bank.

On well I guess the investment experience, that's like 24, and a Scot you said you know there's no reason to believe you're all the return assumptions or unreasonable or something but <unk>.

And I understand that it's a long term returned assumption, but what I've seen on that chart is.

You know credit <unk>, but you know going away temporarily but four to five years, where the all the experience with negative I know, there's oil and gas affecting a couple of years, but.

Maybe walking through some some of the other issues that may have arisen.

Why the <unk> you know what I should interpret from that chart.

Sure Gabriel Thanks for the questions. So yeah, let me let me give you a little perspective on this week. We really think you know are are all the through the cycle will perform about what we would in our reserves. So when we talk about you know 400 million of expected performance, that's really coming out of a combination of credit fixed income.

<unk> and they do tend to be negatively correlated to each other so when when times are good and we're getting credit releases, it's very difficult to add value in our fixed income portfolio. We we do historically managed to to do some every year, but as you all obscene.

And in this first quarter here, we actually had 370 million up fixed income gains in in one quarter and that was due to the volatility in the market the wider spreads the opportunities. We saw accompanied by a 50 million dollar credit lost. So you know that was that was offset and I wouldn't I wouldn't assume.

170 million a quarter going forward, but we should expect elevated fixed income investment gains during this period, when we have credit credit losses.

So so that's how I see those to sort of upsetting each other and providing a reliable stream of investment games.

On the all the front you know it is the part of the port for that's sort of brutally mark to market and it's going to have you know volatility in the best of times and in these sort of times. You you you should expect losses, and we should expect you know more gains in in better times.

And you know frankly, a part of the losses due to a higher risk premiums being baked into those valuations and that would portend you know higher returns going forward. So we feel very comfortable with our long term assumption, we we'll revisit that this year as we do every year, but.

I have no reason to believe we would change those.

Okay and then my question on manual I think.

Can you tell me you know the composition of the portfolio how much of its no man your life one how many of your.

Mortgage customers have sought payment deferrals and and if you're seeing any behavioral basically your world.

Changes in terms of how the menu like one product to use because I think it's pretty flexible in terms of how you can access your money if you need it.

Yeah, Let me take that one it's Mike So just in terms of the the sort of make up of a bank portfolio. It is primarily a residential mortgages so about.

91% of the assets are are are made up of the residential mortgage but cannot is pretty pretty well distributed across the country. We have not seen any sort of material deterioration were obviously watching this very closely as are all financial institutions.

We have like a lot of the other banks, we did introduce a different program. We are at a boat. It changes every day, but we're about 7000 of our customers have deferred most of those on a three month basis. So again, we're we're watching this very closely we think the back.

Some very good shape and just last week I'll just say, we you know we stress test this regularly and even under extreme stress is it's something that the company can handle.

And manage fairly effectively I don't know free somebody wants to add anything to that.

Many customers at home, but 7000 the number but.

<unk> Yeah, it's about just it's about 100 and 200000 change.

Nothing else for me.

Thank you.

The next question is from David <unk> from Evercore I as I. Please go ahead you're lines open.

I the morning, I just had a questionnaire I mean, it's good to see the hundred 55% like at ratio.

But I wanted to drill in a little bit on fills statements that and still you expect a lower remittances this year.

The the 155 like Cat wouldn't suggest that you would need to you have lower remittances. This year than the 2.8 billion last year. So wondering wondering what the disconnect is there.

Thanks, David for the question this is Phil.

So as we said before in environments, where we see declining interest rates, we do expect to see lower remittances, particularly from subsidiaries in Asia and we've noted on previous cools that Hong Kong in particular is a regime that has sensitivity to.

Trust rates in terms of it's a surplus capital levels enough for it because he to remit.

That's we've reiterated a number of times remittances will bounce around from yeah to yeah, but we do remain confident you know remittance capacity for the medium to.

Bind with the strong blind camp positions that you highlighted 155% increase from 140% at the end, yeah, and the strong liquidity position of the company that does enable us to continue to service that and dividends through times of market stress.

No point that all ideas that we are a diversified company and we're not exclusively dependent upon any of our segments or legal entities fool generation Oh from instances.

Great and and maybe just on the the Hong Kong point that you just brought up Phil what what was the the H.K.I.A. capital ratio there.

And and what your target and <unk> I mean is that something where you think you need to inject capital with rate that these levels.

[noise] So David we don't we don't sets out the individual levels of capital in each by jurisdictions. There is some information on stuck through targets included in the embedded finally report, but the the strong like kind of position and the the low leverage means that.

We do have the ability to deploy resources, whereas a day on needed in the group and I I think in the interests of transparency I will tell you that this year as a result of the sensitivity to market interest rates a in a overseas some borrowed to see subsidy or is we have done streamed assets and that so.

Combined with some other measures that we have taken to mitigate the impact of those markets sensitivity is needs that we don't expect to inject for the material the capital into into those overseas operations and just to be totally transparent and one of the.

Reasons why in my remarks, we do have to an expectation of lower missing says by the end of April the aggregates amount that we have done streamed is in the order of two and a half billion Canadian dollars.

<unk> is that that you downstream two and a half million is that to Hong Kong, specifically or that's across all of the.

All of the the subsidiaries the U.S. as well.

That's a number that is an aggregate number for all of our <unk>. We the U.S. is a very stable capital regime staple liability evaluations and we've not not needed to downstream any money into the U.S.

Okay got it and then if I could just follow up I guess kind of related lay on that point just on on slide 20, what you talk about consolidated liquidity.

I I guess I'm more interested in terms of cash that you have at the parent at the hotel I'm wondering if we can get an update on where that stood at the end of the first quarter.

And also if you can size the cash need that the holdco for the rest of the year outside of the the common dividend.

Yeah. Thanks, Dave This is fill again, so as as you may or may not be aware.

Corporate structure is one web by a hold code. The listed company M.F.C. has one subsidiary and my life's about Subverticals structure and I'll practice is not to hold assets at the in the holding company that listing company I'm not so that's where the <unk>.

<unk>, both M.F.C.M.B. wholly owned subsidiary M.L.I., a both a entities here in Canada that are regulated by the same regulates oh see I'm doing those special restrictions or approvals. The the wood constrained is from moving funds between those entities.

The the reference to the slide where we do point out that approximately one cool to all of our invested assets held in I think cashel liquid government bonds, but is a consolidated number that I I can also say that it's it's a a number of this truth to Canada as well so in terms of the.

<unk> liquidity position I I, I I, something that I I really don't believe as a constraint.

Great. Thank you.

Thank you.

Next question from many Rahman from Cormark Securities. Please go ahead. Your line is open.

Hi, Good morning, I'm, just wondering about.

Exposure to invest in both two specifically it'd be Asian hotels restaurants and leisure.

Oh, the group what would the exposure be.

<unk>.

[noise] sure Mandy at Scott I'll I'll take that question. So as you mentioned you know consumer Cyclicals is is a a low sector for us at 3% and within that hotels that to answer your your specific questions hotels would be very small number with.

Then within their credit for less than 150 million to premier names within the.

From mortgage book, we have only 300 million, we typically don't window hotels and no two of those would be premiere hotels in Boston with with quite low into values. So yeah hotels are going to come under significant pressure, but we don't believe that's going to be a concern to our portfolio.

Restaurants, we have very little exposure to restaurants, and what will we have is too.

Mcdonald's and Starbucks or a strong strong companies that we do not have much concern on on retail we tend to stick to sort of things that are now considered essential service that are high quality, the sort of cosco as Wal Marts home depot, so the world.

And then in we use your we you know we do we have a a 1.4 billion dollar a exposure to a sports teams in there. It is is the case, you're getting kind of the theme for to portfolio, we tend to stick with the strongest company. So we do to stick with the strongest commercially oriented teams. These would be stadium financings and all these are under.

<unk>, assuming there will be a wasp season, we had assumed the strikes season, not what's going on now so we again don't see any issues, probably not even any downgrades there and with this really does extend out into probably the next calendar year. So we feel very good about that part of the football.

<unk> just in terms of the overall real estate exposure can just talk about <unk> experience.

In the quarter and then what did you saw on April and I guess, even even may now that is <unk> most rents are in.

Yeah. It's so there's two parts of the real estate portfolio, there's the mortgage portfolio and then the real estate on portfolio and in.

In both cases, it's retail where we're seeing the most pressure in in the commercial mortgage portfolio in April we we <unk>, we received payments as scheduled on 98.5% of the book So 1.5%. We did not that was focused in retail and in in those cases in almost all cases.

We just gave forbearance on principle not on interest although there were a couple of cases, where we we we did differ differ those as well and again. These are differed so they will differ typically for three months that to be paid and the may. It's it's still early but in the numbers are trend thing and a very similar direct.

<unk>.

On the real estate own side again or exposure to retail is very small it's three three per cent of a portfolio.

When you look at specifically retail if you include all the retail some office buildings have a little bit of retail and their podium it gets up to more like four and a half per cent and that's where we're seeing most of the issues. Although we are seeing some rents from Paul working space is.

Asking for her pearls and so far so it's a little higher number it's about 10% of the waste payments. We're not made in April when we gave deferrals on on those and you know thus far and May again, it's early but trends are watching some more.

Thank you.

Thank you.

The next question is from Dark home you know it's from RBC capital markets. Please go ahead of your line is open.

Hi, Thank you my questions for Steve We know that there's a neutral impact this quarter from long term care I was wondering what's your early read here on the long term care side and the last made from two different angles. One is just what you thing could happen here.

Potentially concerned about is a premier rate increases may be difficult going forward, maybe lapses will change certainly interest rates. So so the <unk> from your reserving perspective, which are already read and what you're saying then secondarily you know we have seen some instances of.

Statutory reserve being you know reopened and and and challenged I'm wondering if you can give us any update on that side as well.

Thanks, Darko Ydstie's here I'll take those in in order so.

As you can imagine we're tracking very closely a lot of emerging data on all of our businesses, but L.T.C. is one that weren't particularly focus on we did not see a lot of observable changes or trends in a in the first quarter. In April we are beginning to see a couple of trends.

You know it has been widely reported hi, fatality rates in nursing homes and assisted living facilities. So we have seen in April some trending out in in reported deaths. There can be a lag in in long term care, we're getting all the data n. and we.

We have seen some early indications of of lower incidents work new claims occurring I, we will be tracking very closely any laughs experience.

And all sorts of trends that we may I see on this business. It is a very long term business. So you know I think we may see some noise in in the short term and we will probably see some offsets to elevated claims in our life businesses, but I think it's too early to estimate.

You know long term trends, but as you can imagine we'll be paying very very close attention to this and reporting on on what we're seeing as we're going forward.

[noise] on your second question with respect to statutory reserves and regulators challenging companies. There was up here I think that you're referring to their what I <unk> I can't comment on on other companies, but I can talk to you about the regulatory process and the conversations that we've been.

Having the regulators have increased significantly the amount of information that they're looking for on long term care. There is a very detailed filing that we do it's bilateral between the companies in the states called Agey 51 filing where we provide very comprehensive information on our assumptions on <unk>.

<unk> and we've had follow up very indepth dialog with a a group of regulators that's been overseeing this and they had lots of questions. We engaged very constructively with them and they raise no concerns with the adequacy of our our reserves I you know we as you know we went through a very comprehend.

<unk> review of assumptions in the third quarter of last year, we have a professional third party peer review or their reports to our audit committee and those assumptions feed into our best estimate assumptions on our U.S. any I see adequacy testing on L.T.C.. So there's been a very robust process to go into.

Those assumptions.

And as part of acid adequacy testing in the U.S., even though we've got adequate margin in long term care. We also look broadly at the total margin in the company when assessing adequacy of reserve. So based on all the facts that I've just laid out I don't see a risk to us of having a state regulators.

Challenging R.R.L.P.C. reserves I see no evidence of that.

Thank you for that see that that's a good answer it and just very quick follow up.

Form of eat I think you know you manage to get $5 billion. It.

Of capital.

What's the outlook now and you know is it possible that we should think about your work in your activities being very muffled in the car environment.

[noise], Yeah, Hi, Darko I'd say, a short term it probably has delayed some transactions that we were working on I think the increased volatility, especially on asset prices make it difficult to tranzact in this environment in some cases getting bandwidth.

From regulator is maybe challenging this environment.

But actually in the medium to longer term I actually think it could create more opportunities I've talked to some third parties, putting private equity by companies and they they have indicated that they have a considerable amount of drypowder available.

An attractive yield opportunities. So I think those are things, we'll look at the appropriate time, but I think.

Tend to for that we've been focused on pivoting to organic enforce management, so things like repricings adjusting cutting rates.

And actually we think that as we get out of this crisis there'll be an opportunity to ramp up our bio programs, which can be a win win for customers and the company and its customers are looking for the clarity.

So I think it's pretty much influx, but I feel that there is still quite a bit of opportunity here.

Okay like high Tech always Marianne I was just going to answer that question on lots as he had a question for Steve Oh, Yeah, sorry, not lapses on the rate increases for L.D.C.. So we actually gotten a couple approved since the crisis has started and only Tuesday to actually said they were not to file a rate increases during this.

Time, so we are continuing to go and we still have American in terms of fine rate increases.

Thank you very I, that's the that's helpful.

Are you considering doing with some other your peers are doing in the U.S., which is dropping 30 year term product and really significant changes in thought to the old product lineup given given the interest rate bargain.

Well, you probably know our our product line happy.

Oh, 20 products and not product portfolio and they are very much adjustable already so I would say that we have done a lot of those changes over the years.

Versus where our care companies are so I think where I didn't get spot where we are right now.

Thanks.

Thank you.

The next question is from Doug Young from visual thing capital markets. Please go ahead, you align is open.

A good morning, and I guess this question is probably for Steve.

Yeah.

As for your disclosure lower interest rates now positively impacts earnings by 300 million and a and I would guess, there's some nuances in it to the extent that we can have a simple discussion as to what those nuances are that would be fantastic I'm, just hoping to get some color on that.

Sure Doug. Thanks, Yeah said that the first point to make is that we have not changed our hedging program. So there as a they have been designed and the change in that sensitivity. This quarter, it's primarily due to a divergence between the economics, the underlying economics, which.

<unk> and our accounting basis as a result of the market movements, specifically, it's corporate spreads. So the major spread widening that we saw means that are liability sensitivity changed by less than the asset sensitivity remember, we don't hedge corporate spreads we view them as you know I've often.

Nice offset to perhaps stressed equity markets, which is what we're seeing in in the first quarter and the key thing is that if corporate spreads word or revert back to two or towards your n. levels. We would expect that are sensitivities would rebirth revert back as well so I would view it as more of a temporary situation.

So we should use a cute for sensitivities really as a base case, when we're thinking about interest rate impacts is at a fair.

Yeah, and and the other yeah, a couple other comments I mean, when you look at these sensitivities relative to the size the balance sheet and our net income it's really quite modest we've we've really immunized for parallel moves on current period impacts and another place I'd point you to is in the embedded value disclosure where.

We disclose that a 50 basis point decline in in a in yields results in overtime, approximately 350 million hit two embedded value I think it it really demonstrates that the power of the hedging programs and put in place.

Okay.

Can follow up on your claims exposure to cope with 19, you said it was.

100000, that's is that 100000 deaths across your own book is that the way to think of it.

And the way that you stressed it.

No a good point for clarity I a lot of people have been benchmarking I'm stressed scenario, saying, how many deaths would that mean in the United States population. So that's 100000 U.S. population deaths and I currently the figure that reported figure it.

On the order of 70000.

The other thing there were watching as well is that there may be under recording of their maybe KOVA das that are not specifically identified this <unk>. So I'm really talking about all access mortality related to the U.S. population.

So that 30 million just for your U.S. book that you said that was actually cross your entire book is that.

That's across our entire book and I think it it there's offsets in there right I, Yeah, I commented that because of the diversify nature. We've got some businesses that have exposure to to claims experience to mortality rates and other businesses with exposure to longevity I made any I the other thing.

That I that is what we're seeing is I.D. and the pandemic is disproportionately hitting the lower income part of the the population and the insured population tends to be of of higher economic situation. So that's that's also factoring into the results. We've also reflect.

The expected mortality rates by age as side older age is our our also more impact it.

Okay.

That's great. Thank you very much.

Thank you.

The next question is from <unk> from Scotia Capital. Please go ahead you line is open.

Thanks, Good morning, I'll try to keep this brief firstly for Scott just in the.

Earnings on surplus. This this is not the first time, we've seen some reference to a seed capital marks for for many life. Obviously, it's a it's a larger number this quarter just hoping you can you can educate me here on what the the the total size of of this investment is for the for the company that runs through this.

And then.

Specifically, what what are you using to to Mark These investments on a quarterly basis.

So assume it this is filled I think it makes sense for me to starts on that and have Scott supplement with anything he'd like to supplement.

The the value of the seed capital investments and I'll surplus segment, it's approximately one and a half billion dollars and not does include a mix of equity funds and balanced and bond funds.

Q1, twentytwenty the after tax impact of mocking those to market was $176 million.

But that that that lost compares to actually I'm up to market gain in the first quarter of 2019 $98 million. So the year on year swing that we've seen here in terms of distortion to cool runnings isn't the order of $270 million now that impact is.

Greater than you might expect based on out disclosed equity sensitivities because if the what's happened is cool she was that the not to mark his own equities is being combined with.

Widening corporate spreads that has reduce the value of the the bomb the bond funds and also the bones within a balanced funds and so that's what's causing the slightly larger impact and you might expect the portfolio mix. If you look at the whole portfolio, it's roughly 60% equity is 40%.

Bones is there anything <unk> you'd like to add to that <unk>.

<unk> yeah, the only thing I'd add Phil is that these these are these are all public security. So they are you know absolutely mark to market to current levels.

Alright, So I think my giving us an ocean will fill there's at least something we can we can think about how the trends last one is for until I'm sure I'm sure you'll be happy for the business that on on a trend line basis. It's it's now been a full years since the the repositioning of the of the call the product in Japan, I mean, you're.

Your insurance sales in in that country have sequentially moved higher in in in every quarter. Since Q2 yearnings have been in a in a reasonable range.

If if I try to to separate the the outlook here between what's happening with the with the impact of the pandemic versus the positioning of the product as far as you're concerned has the take up of your your redesign coli product now reflected your expectations and it has more.

To do with what happens with with a broader economy in that country as opposed to where it where manual if his position.

So that thanks for the question so from from a going perspective, you're absolutely right. So you know some in Aspen perspective, we saw that included three and then sequencing we've seen ourselves improve in fact in the car while this year that you like it by now.

We have witnessed hundred and $64 million, which was a job with about a 98% our own ordered in our earnings jumped as out by 17, 17%. So I think we are pleased with the with the momentum to John is submit is that your phone continues to be an <unk> is writing off based.

The a lot of restrictions around an on off down so the mobility or both.

As a as their ads are agents is in fact, it doesn't have that the economic uncertainty with all this you know after the customer sentiment as you get as you can imagine what we are focused on I just going to provide you a little bit off color on that number one if you look at our product mix right now.

Only a toward all ourselves <unk> duly overall sales that we can't read only up toward all <unk>, who do the overall sales that'd be generated a in Japan. So we've got out in many ways being a much more resilient brought up mix I'd have moved up.

<unk> <unk>, if you what kind of trace it back for quite a lot of last year was was was quite high.

Second piece anyways distribution is going to be better to that as it always is afterwards that we haven't investing in building up on M.F. eight channels on the success that we've got a scene in Singapore optimum why don't insanity advises I'm in and and also inviting more energy is.

<unk>.

Listen to that you also have been creating existing M.D.A.'s to offer the knock on wood products, because again I think I see a starting to show some some some results and last but not to leave.

I had mentioned the last time at all is that we are looking at the expense efficiency measures in in Japan have given the given that a new one <unk> that that so so let's see quenches perspective, we are pretty pleased with what they're sea. Unfortunately on <unk>.

That is a huge amount of uncertainty and it kind of becomes hard to predict as to what the new normally wouldn't look like.

If <unk> if I could just jumping <unk> I think and he'll summary was was spot on and just to punctuate one of the key points that he made was around the best city one of the things that we've been really focused all over the last four to five years has been strengthening the diversity. The franchise, that's true for us globally, but it's absolutely true frosting and Asia, reducing their.

Reliance on any one model one product line is something that we've been gradually focused on and have seen improvements and success and again yeah. This in Japan with thing there <unk>, we're just reliance on coli and specific acquisition channels as something that we're going to continue to focus Eric it's on.

In a in in the cost of this year and beyond so that really is a big element of <unk> strategies, just that diversity of geography diversity, all channel and distribution as well as diversity of product is as well.

I appreciate your thoughts things for time.

Thank you.

The next question from Paul Holden from the C.I.B.C. warmer cuts. Please go ahead. Your line is open.

Morning.

Ask your question related.

Portfolio within a within the old.

I guess, what I want a better understanding.

<unk>.

Or earning.

Given the impairment charge.

Now what the impact is.

Potential impact too.

Sure sure Paul It's it's Scott I'll I'll take that one so precourt earnings you may recall that we will put up to $100 million that investment gains a quarter into call quarter earnings up to 400 going for the full year and that's a combination of.

The all the performance the fixed income and the credit and as I mentioned earlier, it's it's typically the fixed income in the credit that contributes the most of that all the really contribute some volatility but has been pretty much on our assumptions over the longer term. So within all the oil and gas is a very small component it's 6%.

We're all the portfolios so it it quite a very small role I would say unfortunately in the last five years. It's played an outside his role in the wrong direction.

But you know the Nate the nature of investing is that <unk> things do cycle around and actually in the first decade of the two thousands oil and gas was the strongest contributor to our all their returns and in the last decade, they and the lowest contributor so it's been a bit of a drag on our overall investment <unk>.

France, but despite that we've you know on average been able to produce 409 of investment games.

Okay, So what you're saying, here's despite the impairment charge or or maybe not.

Down into one.

That's not necessarily really going to be a drag on forward.

Yeah.

What I'm hearing.

I think <unk> I think for this year, it's going to be very difficult to get investment gains in the core earnings you know, we're starting at a minus 600 million we'd have to recruit all that before we could put it in decor and and frankly I do expect you know future credit losses, they will likely be offset by fixed income gains.

But will also probably see some additional all the losses I think it's unlike what you're going to see a contribution decor from investment games. This year, but we'll turn the page the next year and I would expect I would expect to be back on track.

I understand second question is related to.

And.

Huh.

Pick a simple look of.

And total sales.

Yeah.

His games were down now.

Let's do to lower interest rates, but is that correct and.

Maybe there's some other factors at play as well.

Yeah.

This is this is I mean, let me let the date. This this kind of you know don't have to fill if he has a supplement comments, but I think they say look at the quarter on order to do business games, that's pretty essential factors that in fact, it's a one from a proportionality perspective.

We saw a.

A sales in Japan.

Just the margin makes happening backed up <unk> quite a prospectus secondly, we saw some very strong adore me in China. This was on the back of savings that into a deep brought up unfortunately, the quality of hate dos in the <unk>.

So February or March we wouldn't aren't able to <unk> as get the right product mix of that I did all funding back as well I I'm. Just hard won was the product mix in in Hong Kong dog called the outbreak there was a bit of askew from a customer saving may have to.

<unk>, Oh products, which again in fact, it the product thinks I should I should however, underscored. The fact that didn't you business value marching in a phone call continues to be north of 60%, which we believe it's they they have the but the three things that really <unk>.

Wants just articulated.

Okay that sounds <unk>.

<unk>, maybe I just supplement with a couple of points one is the new business games. The one at the items that we've come is it a few times do tend to bounce around from quarter to quarter, one year to year. There is not truly a correlation with the volume of new business that we write as well as the mix and as as Roy had commented on earlier.

We are in a challenging environments and I think it it it as we look forward, it's hard to predict exactly what volumes will be announced that will be one at the drive buses you business games for the remainder of the.

Okay. Thank you.

Thank you.

Good morning, Scotch maybe just a follow up on on Paul's question on Encore investment games. The six away that that has to catch up does that you said at the end of the air or or does that have to does that does that and have to make up their friends in order for you to to book core investment gain starting thing keep one.

21.

<unk> this use fill it reset some with us to January and reset Okay. Maybe just the last question for for Roy you talked about the capital priorities organically and talked about the bank insurance agreement committed to the dividend, obviously buybacks her halted but emanates emanate feasible.

Are you are you looking at stuff more or are you more concerned about you know the first priority.

Yeah. So thanks to the question.

Again, I I stopped by saying that you know we feel you know very confident about a capital position again, we inserted into this cross from a position of strength. So that's really put us in good order and as mentioned earlier al focus from a capital prioritization perspective really hasn't changed we've always talked about the fact that <unk>.

Growing out businesses, where we see the greatest opportunity and that a game will continue to be the case for us as we look forward and then obviously, we will have to be very committed to the divisions and a tactical share buybacks. When we see the price the best talk not reflected accurately or correctly.

Oh, only an apron.

Wearing a fortunate position in that we don't feel we need haven't been able to deliver on out through the cycle will medium so pagans.

But opportunistically if there are opportunities that aligned to al strategy, and then allow us to accelerate our agenda growth. Then we would suddenly look at the so we again feel that the strength of our capital position position puts us in good stead to navigate the situation in the same time <unk>.

<unk> there are a great value opportunities on the <unk>, we would definitely consider them.

Thank you.

Thank you.

There are no further questions Register that this time, we turn the meeting back to this will deal.

Thank you operator will be available after the call. If there's any follow up question has a nice morning everybody.

Thank you the conferences now and then please disconnect your lines at this time.

Thank you for your participation.

This conference is no longer being recorded no.

<unk>.

[music].

<unk>.

Note that this conference call has ended please disconnect. Your line at this time. Thank you.

Guess at medical fan.

Okay.

Yeah.

No.

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Huh.

That this conference call has ended.

Q line at this time thank you.

Because at that.

Yeah cause she would painting.

Oh.

[music].

<unk>.

Please note at this conference call has ended please disconnected online at this time. Thank you.

<unk>.