Q1 2020 Earnings Call

[music].

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.

Host for today will be Adrian O'neil.

Go ahead this o'neil.

Thank you and good morning.

Welcome to me annualized earnings conference call to discuss our first quarter 2020 results.

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 fill with Brington, our chief financial Officer will discuss the Companys financial and operating results.

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

Following the prepared remarks, which were recorded earlier this week to ensure optimal sound quality, we will move to the lives question and answer a 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 questions.

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

Note 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 Andrea good morning, everyone. Thank you for joining us today.

Turning to slide.

Good luck thoughtful acknowledging the significance of the situation that we pointed out so.

It will community.

We'll update the sympathy so those would be directly impacted what caused the north sea.

And our image gratitude to frontline healthcare and other essential workers with a crucial contributions.

I believe that it's at times like these that we have a responsibility to step up and protect the health and welfare, although employees customers and communities and that's exactly what we're doing it manually.

So for safety by employees is a top priority as is our focus and commitment to supporting our customers around the world.

We're very proud that enacting a business continuity plants enabled 95% about global employees to work from home during the pandemic.

As of today, approximately 90% about employees are working for close.

As many of our colleagues have returned to the office in China and Hong Kong.

We had in short salary continuous and also flexible arrangement.

Employees clean Celtic because we've not seen related challenges with remote work.

This is a challenging type of many people with focused on ensuring that our customers are receiving the highest level of service and support possible.

We remain open in every market, but we have.

Continue software products and services.

In order to make things easier for customers as roles for employees advisors and I just.

We responded to the crisis by leveraging technology.

Rapidly deploying various client solutions.

In some instances things when you tools that we already had in the pipeline.

And in other cases, we move.

Existing technology to new markets.

Oh shift some examples later in my presentation.

In addition, we've dedicated over $20 million financially for customers who are experiencing hardship.

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

Mortgage payment deferrals three megawatt bank.

And waiting to see for one k. hardship with true in a global wealth and asset management business.

And with any follow the causes supporting healthcare workers at hospitals, providing co. This 19 Kay.

Programs that provide food security so vulnerable populations communities.

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

The countless examples of how out siem vendors have risen to the challenge and gone above and beyond to be the for our customers when they made us most.

Any of them all the call today and thank you.

Sure.

Slide six.

We're very pleased with how smoothly our employees.

Levels and functions were able to transition to working from home.

This is possible.

Good my key strategic investments in our network equipment and tools over the last few years.

Because we already had a mature work from home culture.

For example, menino I understand about North American employees have been working remotely since mid March resulting in VPN usage, increasing to 2.5 times the regular levels and yet during peak periods. Our average network utilization is less than 55 to fit all that total.

Capacity.

We are keeping team members up today by hosting enterprise wide tail holes posting regular video updates from senior executive and launching a speaker series to tackle various topics of interest including mental health.

Following our online learning tools, a well developed and as a result participation in training programs continued at pre crisis levels.

In addition, we leverage this expertise to pivot to online learning for outrageous 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 colson. The volumes talk you sign to enable called cyclist transactions and reinforcing our existing digital tools such as the applications for life insurance from Canada and the us.

And with enabled north face to face processes the sales in all markets in Asia.

Prior to the crisis, we've been using this technology in China as thanks, so that experience how capabilities will well developed.

When the cross hit at isolation measures will put in place around the world, we accelerated our play to rollout this technology more broadly in the region.

This enables that distribution partners in ages to engage with our customers according to their preferences.

It also positions us well to capitalize on any changes in customer sentiment post coated 19 and supports productivity and retention Although agency force.

The ultimate test as to whether these measures the working well do the school.

We're happy to report that Weve actually experienced a slight improvement transactional NPS score since the onset of co development team, which we see as the big wins, given the elevated coal volumes and the pivot to working remotely.

Turning to slide eight.

Megawatts 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.

Hit ratio improved to 155%.

Leverage ratio of 23% was considerably lower than it was two years ago and is now below our 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 was 98% of fixed income assets rated investment grade.

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

With diligently worked towards becoming a digital customer Lita head as you heard before this is serving us well in the current environment.

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

And our strong 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 this crisis and the associated economic downturn.

Turning to slide nine.

Yesterday, we announced our first quarter financial results.

As I noted the current of ours continues to disrupt economies 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 of our businesses.

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

And core earnings of $1 billion.

The relatively small variance between these two figures amid challenging macroeconomic conditions. He is a testament to the performance of our equity market and interest rate hedging programs.

Core ROE 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.

We also reported embedded value of $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.

As it attributes no value to future new business.

And only tangible book value throughout growing wealth and asset management businesses as well as our PNC reinsurance operations and manual at bank.

Turning to slide 10.

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

We successfully completed out twentytwenty two portfolio optimization target of $5 billion of capital in the fourth quarter of 29 seen three years ahead of schedule.

While we have achieved a target we generated an additional $265 million of capital benefit in the first quarter 2020 through a variety of initiatives.

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 of 2% in the first quarter of 2020, which is well below historic average.

Our third parties to accelerate growth in a hospital businesses and 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 bank Don them on Indonesia to 2036.

And in global when we launched a large case us retirement plans 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 code 19 pandemic.

A final priority is high performing team.

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

In February I was delighted to announce the appointment of Karen Leggett as Chief marketing Officer.

And the much we were named one of tenant is best the this the employees for the third year in a row by media equal.

Turning to slide 11.

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

We are in a position of strength and we remain focused on maintaining financial flexibility and operational resiliency.

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

On such as these reinforces the importance of insurance wealth management, and real time and 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 parts of the recovery remains to be seen but I'm confident that we are in a position of strength.

We remain committed to our dividend along with our medium term financial targets.

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

Thank you ROI 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.

I will highlight the key drivers of our first quarter performance with reference to the next few slides.

Turning to slide 14.

Core earnings in the first quarter Twentytwenty were $1 billion than 34% from the prior year quarter on a constant exchange rate 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 the business volumes in Japan, compared with a very strong quarter for Japan clearly in the prior year.

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, and our global wealth and asset management businesses.

We are pleased with the resilient performance of our businesses. During these challenging times and believes that Manulife 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 of $1.3 billion in the first quarter.

No we recognized losses of $608 million from investment related experience driven by lower than expected returns on Aruba, primarily due to the impact pump 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 as interest rates was primarily driven by wider corporate spreads and realized gains on the sale of fs phones, partially offset by the impact of lower risk free rates.

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

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

Slide 16 shows our source of earnings analysis.

Expected profit on enforce increased amount is 3% on a constant exchange rate basis, driven by 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 exceptional quarter for Japan Coty sales.

Overall policyholder experience in the first quarter was unfavorable primarily due to higher traveled claims in Canada related to cope with 19 travel interruption and cancellation and higher claims in our us life insurance business.

LPC 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 low new business volumes in Japan.

May recall within the first quarter of 29 team, we experienced a significant increase in Coty sales in Japan was customers anticipated the introduction of unfavorable tax changes.

In contrast, our businesses in Hong Kong and Asia, rather boost delivered double digit core earnings growth, which served as the partial offset.

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

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

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

Slide 17 shows our new business value generation and HPP sales.

In the first quarter of Twentytwenty, we delivered new business value of $469 million down 11% from the prior year quarter.

In Asia, new business value decreased by 14% compared with the first quarter of 2019 was growth in Hong Kong and A's. Your other was more than offset by a decline in Japan.

In Canada, new business value 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.

In the first quarter of Twentytwenty, we delivered APC sales of $1.6 billion down 9% from the prior year quarter.

The decline in sales 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 as 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. PE sales were largely inline with the prior year quarter as lower domestic universal life sales following regulatory changes in the fourth quarter of 29 team more than offset higher term and international sales.

Turning to slide 18.

Our global wealth and investment 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 us in Canada the mid.

Equity market declines in March.

In the US net outflows of point $2 billion in the first quarter of Twentytwenty improved compared to $4 billion of net outflows in the first quarter of 29 team.

This improvement was driven by higher retail gross flows primarily from strong institutional model allocations and intermediary 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.

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

In Asia net inflows of point $6 billion were inline with the prior year quarter. This hyannis inflows in retirement were offset by higher mainly institutional redemptions.

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

Our average a UN 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 above the supervisory target and down like cap ratio improved to 155%.

The 15 percentage point 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 of 25%.

The decrease in the leverage ratio was driven by the impact of lower interest rates, which increased the value of AFFO split securities.

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

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

These factors were partially offset by share buybacks.

Given the high levels off market volatility and overall uncertainty. We believe it is 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.

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 our appetite to deploy capital within the last few weeks, we have extended our exclusive bancassurance agreement with bank done them on Indonesia until 2036.

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

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

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

In light of the current environment, we would not expect to achieve our 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 with our medium term 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 and 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 risks on a best estimate economic basis, and our macro program hedges the remaining equity market risks not covered by the dynamics of rail.

Our VA 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.

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

This fund underperformance typically reverses when markets normalize.

Our interest rate hedging program uses a combination of long bonds and the cash market forward, starting interest rate swaps treasury forwards and Treasury futures.

We do also use interest rate for us to hedge minimum interest rates guarantees in our liabilities.

Our sensitivity 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 has largely offset each other.

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

During the first quarter of 2020, we saw the US 30 year risk free rate drop over 100 basis points. The S&P 500 dropped 20% the VIX increased to 80% and corporate spreads widened by roughly 150 basis points.

In 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.

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

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 to our reserve assumptions to credit experience, which compares the impact of downgrades in defaults to that assumed in our reserves.

And three all that another which compares have 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 included in our core earnings.

Gains from fixed income reinvestment have been strong and steady over this period and we're a significant contributor this quarter as 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.

All the was a significant drag this quarter.

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

We do expect variability in our 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.

Our invested assets, our diverse and of high quality.

Over 98% of our fixed income assets are investment grade, we hold a diverse mix with a focus on defensive asset classes I will expand on this way during my presentation.

The weakest category.

Are below investment grade holdings, which I previously mentioned her only 2% of are fixed income portfolio or well diversified by industry sectors and proportionally lower than or holdings at the time of the call financial crisis.

Turning to page 28, we show are fixed income for oil by sector.

Our portfolio is quite diverse and built to endorse significant economic stress.

Portfolios weighted most heavily in government and utility sectors, both of which are more defensive in nature.

Our energy holdings, which constitute eight per cent of our portfolio are currently under higher pressure given a significant demand destruction, where witness thing.

Cover 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 and complimentary component of our investment next backing long term liabilities.

In combination with fixed income assets, which back the first 20 to 30 years of liability Cashflows. We believe alternative assets has a potential to increase expected returns, while managing the level of risk.

We have strong in house 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 the supports participating in past two businesses.

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

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

Yeah, you can see the sub sector diversification within 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 but.

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 is 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 had been recognized and cute too.

Or conventional Canadian oil and gas properties are managed by her subsidiary any 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 was material this quarter. It was widely a mark to market fair value adjustment the ultimate loss will depend on realize price as well into the future.

And well 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 <unk>, 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 and diverse it 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 media insurer 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 and fast.

This conclude they're prepared remarks, operator, who will now open the call to questions.

Thank you.

We will now take questions from the telephone lines that you have a question and you are using a speakerphone. Please.

That's up 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 sign so please press star one at this time.

There will be a brief cause all the participants register.

We thank you for your patience.

<unk>. The first question is from Tom the came in from Vehement capital. Please go ahead you lines open.

Yeah. Thanks, very much can you hear me.

We can't.

Yeah, I I may I got caught a little bit on the call, but I'm not sure. If he talked at all about any kind of outlook in terms of sales in April you can take it through that by by division that would be helpful. I'm going to have one ball.

Yeah, let me check for that firstly, good morning, and great to see.

Oh, well at least remotely.

You know obviously you know the sales is going to be one area that in picks out business and were expecting to see a lot of volatility as quite frankly, you know different geography that just to the impacts all you know.

Relation and social distancing you know I'm quite pleased actually without first quarter results on your business value is still highlighted into prepared remarks, with both 69 mill and actually when you adjust the Japan or when you look at it on an x. two pain bases were all tool that stage.

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 of you know significant movement. So I'd hate to bore a trend lines from 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 please with the resilience of the reason resiliency about franchising quite frankly, how our organization is that.

Acted given the challenging circumstances to use new technologies to interact with customers and continue S. <unk>, we soaring Q1.

April results are encouraging.

But still much more work for doing that front.

<unk> is there any when you can elaborate at all as to what you're seeing and U.S. or candidate or in Asia with respect to that overall net 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.

Let me, let me pulls it off <unk>, you know, Mike Marianne and <unk> 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 they'll.

Sure. So Frank Thomas was Mike in in in Canada, as Roy said in April.

We didn't see any material changing the we we came out of two 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.

Cup of some of the tools that we have we've also been expanding that over the last six weeks. So electronic applications are up electronic contract delivery and recede, 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.

They significant slowdown is the social distancing and the effect that has had on paramedic close being able to visit homes to collect evidence. So at the larger into the market. We're seeing much more of a slowdown minute the smaller and at the market. I'd also just vastly comment on our group benefits business, we're definitely seeing that isn't it 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 pastor Marianne.

So high times 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> signatures e. delivery, it's been relatively smooth because we had those tools in place even though they're historically hadn't been allowed to take up on it. There certainly is now I already pro months is actually a pretty good month and and we are seeing business holding that we are seeing a change in next as you might expect.

<unk> that permanent more of the term just because of what Mike was talking about in terms of being able to do the Paramount exams. We can't do that until we have changed some of our underwriting standards as well and like 80 in above were not currently writing and and looking at some of the sub standard pretty closely just because of the fact that we can't get the pyramid status.

That's basically where we are in the U.S.O. for T.V. now.

Thanks.

So the question.

So in Asia.

Different depending upon each of the <unk> the <unk> the January and.

Of course emerging in China, quickie, followed by Hong Kong, Hong Kong and trying to stop started getting better.

The offering that kind of spread to Japan, and South Asian markets makes it nice you didn't say <unk> style and isolation measures.

The thing in China, I mean, almost 90% awful something back to work hand in Hong Kong, It's not an office, 70%. So that have bought it and I think it's only going to get back hair asked Florida progressive or whatever the customer activity, it's still not at all levels and that's on account of the economic uncertainty.

That's.

What I think is a again lineman.

I can marianne safe investments that we may not business of anything off so.

Now have an office <unk> looking to constantly blew off processing and thereby.

Namely distribute it <unk>.

There are going to be extended.

Ah Aw lost out and again, if you use that in agency Oh for tonight's standing progressive need to <unk>, it's kind of a mixed bag for us as you said <unk> <unk>.

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Last year, but again in other markets on a golf if at all costs are much more stuff. In fact, we believe that's why the <unk> eat the last autumn <unk> and sometimes machine as we go for the.

Pull it might be valuable for your also to give it a bit of a flies a four oh progressing g. ramble, what you're seeing from a G.U.N. perspective as well.

No. Thanks, Ryan Tom as Paul Here, just I'll, just add that to some of these settlements a offered by a and you know, making 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 is something.

Were expected and I guess the other one that's somewhat unique you're watching in Asia mid some of the market volatility we have seen a shift into more cash in 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.

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 <unk>.

Regions. We also entered the year with a stronger pipeline on the institutional side. Then we started last year, 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.

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

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

What do you sing in terms of your property Cat Retrocession covers or you see the 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 Cove at 19 out P.N.C. re 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 of a pandemic, that's not something that would fall within the scope about coverage.

Okay. Thank you.

Thank you.

The next question from Steve Cereal from eight capital. Please go ahead your mind is though.

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 Hey did about right. Our our losses were about 750 million this quarter and that was a mark to market.

Some of that <unk> undoubtably stick as some of our properties are currently drilling and producing oil and selling oil and they're selling it at 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 object 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 reliant 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 wagged, a quarter and sometimes even too, but given a precipitous dropping prices. We tried to estimate bass. It 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 losses 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 the first big initial mark down, but <unk> you know, we we have excel.

He did 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 it really is mark to market. It's just a question 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 we're done weighed on a private equity portfolio in in that you know so for small movements, we're not going to try to estimate what that is but when we see a big movement like that.

We do try to estimate and then it 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.

It's hard to restart, but 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 you know it prices get up prices need to get north and $50 to encourage you know a significant shell drilling.

Or taking off the shot ends and it it those kind of price levels, we would expect significant recovery in our portfolio.

Okay, and then able after 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 go it's a little more color.

Sure happy to do that and and page 30 of the slide back does show that break down and you have highlighted I would say 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 wired.

The investment grade a fair amount in triple be but most of that midstream 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 it's due to the single a range mostly in the top three service providers. So we probably will get some downgrades there, but it would or would expect to see those stay investment grade offshore drilling.

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 mix. 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 some downwards.

Thanks for that color.

Sure.

Thank you.

The next question.

Is from Hum freely from dialing and partners.

Please go ahead you line is open.

Good morning, and think of taking my questions in terms of cleans exposure to cope with 19 give us any sense intensive kind of the net more penalties sensitivity to the number of death, then you can share either based on the number of deaths in the U.S. or the number of death 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 manually overall, 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.

And in our life insurance business, but offsets in businesses with with longevity exposure such as the nudity 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 post tax for.

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

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

So for this 30 million 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 are you provided in terms of P.D. exposure and and and where you see the pressure points, but have you done any stress tests in terms. So maybe comparing to the previous crisis comes running through from a thumbs up approach, where you see or it could be.

Pretend show Council in Peniche from kind of containment than default.

Yeah sure.

Let me let me Yeah, let me start with that and Steve. So you can certainly ad.

You know every crisis is a little bit different and this one is is a bit different from the G.F.C. I guess what are the differences I call out is that in the G.F.C. We saw it was really focused in the financial sector and was really tough on the investment grade banks and other financial institutions in so.

We actually saw it defaults on investing.

Studies, 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 were acquitted d., 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.

Investment grade part of our portfolio being only 2% there the smaller weaker companies. They don't have access to a lot of the.

Stimulus coming out of the central banks is where we might expect experiments. So it's a little difficult compared to the T.F.C. and you know we do expect most of our experience this cycle to be hence more downgrade spend defaults and downgrades while they create.

Hits earnings says, we increase reserves in the current quarter. They get released in such a quarter sticks that we don't have the false.

And it just as 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 guide is if we sought 25% of our whole portfolio on a per rata basis be downgraded one notch by one notch I mean, if you know there's typically three notches in a in a raid.

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 about a 250 million dollar post tax reserve increase and hips earnings and the way we do it <unk> things have to move a full category you have an increase in reserve. So you would see the triple B. minus as being downgraded to below investment grade is what.

Rate that charge in about half of that overall charge, we would cheat does come out of a triple be portfolio. So that's a little context for you.

Steve I don't know if one huh.

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 then what we saw in a global financial crisis, and you know everything that we've been doing over the years building up or hedging programs.

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 strand withstand I very severe shocks and still be in a strong position and so we we are confident in the capital position of the company based on the stress testing that week.

Yeah.

Thank you.

Thank you.

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

Morning.

Perhaps.

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

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

Yes, the false 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 <unk>.

Sure. So what what I can do is describe our process. So as with other assumptions, we go through and detailed regular reviews.

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 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 and as you can imagine the default assumption is very by.

Ratings category by 10, or a et cetera, so it's quite 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 you want it's likely gone up a little that because of of the currency movements.

And about a 3rd% to 40% of that is peace out 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. dollar.

Yes, Yes, I watch.

Okay, and then started just real quickly.

<unk>, the hundred and $8 million you refer to for Moody's you, saying that the estimated or the expected losses, you you're not you're I think what you said there seems 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> decide National Bank Financial. Please go ahead you line is open.

Good morning couple of questions one on all the 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 to that extent.

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

You know credits <unk>, but that's 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 you know maybe walking through some some of the other issues that may have arisen.

Why this <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 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 in fixed income Rand.

<unk> and they do tend to.

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 will have seen in this first quarter here, we actually had 307.

Email you end up fixed income gains in in one quarter and that was due to the 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 370 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.

<unk> 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 channels.

Okay and then my question on manually bank.

Mute fill me you know the composition of the portfolio how much of its you know manually one how many of your.

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

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

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

91% of the assets are are are made up of the residential mortgage broken that 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.

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 banks and very good shape and just last week I'll. Just say, we you know we stress test this regularly.

And even under extreme stress as it's something that the company can handle.

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

How many customers at home, but 7000, good number but.

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

Yeah.

Nothing else for me.

Thank you.

The next question is from David both of my from Evercore I as I. Please go ahead your mind is open.

I the morning, I just had a questionnaire I mean, it's good to see the hundred 55% like can't ratio.

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

The the 155 like at 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.

[noise] thing save it for the question. This is so so as we said before in environments, where we see declining interest rates, we do expect to see lower maintenance is particularly from subsidiaries in Asia and we've noted on previous cools the home cool.

<unk>.

The regime that has sensitivity to interest rates in terms of it's set this capital levels and that for those heat to run it.

As we've reiterated a number of times remittances will bounce around from you have to yeah, but we do remain confident in our missions capacity for the medium to and combined with the strong <unk> positions that you highlighted 155% increase from 140% at the end of yeah.

And the strong liquidity position of the company that does enable us to continue to service that and dividends through times off market stress final point that all ideas that we are a diversified company and we're not exclusively dependent upon any of a segment so legal entities fool.

Generation Oh from instances.

Great and and maybe just on the the Hong Kong point that you just brought up Phil <unk>, 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 the levels.

[noise] so David we don't we don't sets out the individual levels of capital in each about jurisdictions. There is some information on structure to targets included in the end, but it's funny report, but the the <unk> position and the no leverage means that.

We do have the ability to deploy results is wherever they 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 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 sensitivities that means that we don't expect to inject for the material capital into into those overseas operations and just to be totally transparent in one of the.

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

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

All of the.

Subsidiaries in U.S. as well.

That's a number that is an aggregate number for all of our subsidies yours, but 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 a 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, David This is so they're getting so as as you may or may not be aware, how corporate structure is one web by a hold code. The listed company M.F.C. has one subsidiary analyze it on Subverticals structure and I'll practice is not to hold.

<unk> the in the holding company the listing company I'm not so that's where the possible because both M.F.C.M.B. wholly owned subsidiary M. a lie a both a entities here in Canada that a regulated by the same regulates oh see and during those special restrictions or approvals the the.

Would a constraint is from looting funds between those entities.

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

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

Great. Thank you.

Thank you.

The next question is from many Rahman from Cormark Securities. Please go ahead to line is open.

Like the morning, I'm, just wondering about explosion investing book to specifically aviation hotels restaurants, and leisure as a 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 Oh woe sector for us at 3% and within that hotels, but to answer your your specific questions hotels would be very small number wow.

And within their credit book of less than 150 million to Premier names within the commercial 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 we've 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 costs goes walmarts home depots of the world.

And then in we use your we you know we do we have a a 1.4 billion dollar a exposure to sports teams in there. It is is the case, you're getting kind of the theme.

<unk>, we tend to stick with the strongest company. So we do stick with the strongest commercially oriented teams. These would be stadium financings and all of these are underwritten assuming there will be a last season, we had assumed a strike 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 rental for barren.

<unk>.

In the quarter and then What'd you saw on April and 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 and 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 receive payments as scheduled on 98.5% of the books. 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 to it to be paid and the may. It's it's still early but in the numbers are tripping in a very similar directory.

I'm on the real estate own side again or exposure to retail is very small it's sweet 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 forth. So it's a little higher number it's about 10% of the we use payments. We're not made in April when we gave deferrals on on those and you know best Foreign May again, it's early but trends are watching similar.

Thank you.

Thank you.

The next question is from Dark home you know it's from RBC capital markets. Please go help 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.

What's your early read here on the long term care side in the last name from two different angles. One is just what you thing could happen here I'm, what I'm potentially concerned about is a premier rate increases may be difficult going forward, maybe lapses will change certainly interest.

And so so the from from your reserving perspective, which are already read and what you're seeing and secondarily.

You know we have seen some instances of.

Of a 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 it stays 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 report is gas there can be a lag in in long term care.

Eating all the data N. and we have seen some early indications of of lower.

Incidents work new claims occurring I, we will be tracking very close to 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.

We'll 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 movies and very very close attention to this and reporting on on what we're seeing as we're going forward.

Find 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 and the conversations that we'd been have.

The regulators have increased significantly the amount of information that they're looking for on long term care. There's 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 dialogue 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.

You know we as you know we went to a very comprehensive 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 processed 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 as he no evidence of that.

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

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

Capital.

It'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.

<unk> increase volatility, especially on asset prices make it difficult to trans arc in this environment.

In some cases getting bandwidth from regulators maybe challenging 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 about companies.

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.

Before 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 as customers or looking for the clarity.

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

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

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

Thank you very I, that's the that's helpful and what have you are you considering doing with some other your peers are doing in the U.S., which is dropping 30 year term product <unk> and reading significant changes in thought to the whole product why not given given interest written bargain.

Well, you probably know our our product line up is because I'm 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 have right now.

The bank.

Thank you.

The next question is from Doug Young from the show that capital markets. Please go ahead you're line is open.

Good morning, I guess this question is probably for Steve.

Huh.

As per your disclosure lower interest rates now positively impacts earnings by 300 million and a and I would guess, there's some nuances in 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, Yes.

Is 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 we edged too 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 assets sensitivity remember, we don't hedge corporate spreads we do them as.

Often a 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 revert revert back as well. So I would do it is more of a a temporary.

Situation.

So we should use a cute for sensitivities.

He has a base case, when we're thinking about interest rate impacts is that 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 point you to was in the embedded value disclosure where we.

Disclosed that a 50 basis point decline in.

In yields results in overtime, approximately 350 million hit two embedded value I think it's it's really demonstrates that the power of the hedging programs, but in place.

Okay I'm just a second follow up on your claims exposure to <unk> 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'd, a lotta people have been benchmarking I'm stressed scenario, saying, how many deaths would that mean and in the United States population. So that's 100000 U.S. population deaths and.

Currently does the same here the recorded figure it's on the order of 70000. The other thing that we're watching as well is that there may be under recording of there may be covert das that are not specifically identified this <unk>. So I'm really talking about all access mortality related to the U.S. population.

And so that they didn't really 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.

Maybe the 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 Andy insured population tends to be of of higher economic situation. So that's that's also factoring in.

To the results. We've also reflected the expected mortality rates by age as older age is our our also more impact it.

Okay, but that's great. Thank you very much.

Thank you.

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

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

Earnings in surplus. This this is not the first time, we've seen some reference to a seed capital markets 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 run 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 just awesome not than 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 doesn't include a mix of equity funds and balanced in bond funds.

<unk> Q1, twentytwenty the after tax impact of mocking those two mock it was $176 million, but that that that lost compares to actually I'm not to market gain in the first quarter of a 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.

If the what's happened is cool, which was the the not to mark his on 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 than you might expect the.

Portfolio mix, if you look at the whole portfolio, it's roughly 60% equity is 40% bones.

Is there anything school you'd like to add to that.

<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 by giving us an ocean fill there's really something we can we can think about how the trends last one is for no I'm sure I'm sure you'll be happy for the business that on a trend line basis. It's it's now been a full years since the the repositioning of the of the cool the product in Japan, I mean, you're.

Your insurance sales in in that country have sequentially move higher in in in every quarter since cue to your earnings have been in a in a reasonable range.

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 the with the broader economy.

In that country as opposed to where we are manual decision.

So that's a thanks for the question so from from according to speculate absolute right. So you know thrown in Aspen perspective, we saw that in or three and then sequencing we've seen our sales improve in fact in the car. While this year that you like it by now.

<unk> about 28% <unk> by 17, 17%. So I think we are pleased with the with the momentum to John is submitted that Japan continues to be <unk> is right now faced.

They a lot of restrictions around an <unk>, so the mobility or both.

As their ads are agents in fact, it doesn't have that the economic on so it then they would all this you know after the customer Sacrament as you get as you can imagine well we are focused on and just going to provide it a bit off on that.

<unk> if you look at our product makes right now only toward all I see <unk> to the overall sales happy generate all you have taught all what do U.C.L. sno, partly due to the overall sales that'd be January a in Japan. So we've got out in many ways <unk>.

Much more resilient brought up mix.

<unk> <unk>, if you what dependent face it back the part of why don't last year was was was quite high.

I guess, we save distribution is going to be better that as it always is that the what's stopping haven't investing in building up on M.F. eight channels on the success that we've got a scene in Singapore, <unk> <unk> and also inviting more M.G.A.'s Ah.

On a little bit.

Listen to that.

Oh, so I've been training on this thing energies to offer a knock on wood products, because again I think I see a starting to show some some some of his out the last but not for me I hadn't mentioned last time at all is that.

Looking at the expense efficiency measures in in Japan, given the given that you want him to Jeffrey that get experiencing that that yeah. So so I think what's your perspective, we are pretty pleased with what we have seen unfortunately on a <unk> that is a huge amount of uncertainty and it got.

It's hard to predict after watching you know what to look like.

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

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 that in Japan with thing there <unk>, we're just reliance on coli and.

50 acquisition channels as something that we're going to continue to focus area. It's on in a in in the course of this year and be on 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 as as well.

Appreciate your thoughts thanks for time.

Thank you.

The next question is from Paul Hogan from C.I.B.C. World Markets. Please go ahead you line is open.

Wow.

Related.

Huh.

Oh.

I guess, what I want to better understand of the contribution.

Or earning.

And given the impairment charge.

He is now.

Pack is going going forward.

Impact too.

Sure sure Paul It's it's Scott I'll I'll take that one so for a quarter earnings you may recall that we will put up to $100 million investment gains a quarter into call quarter earnings up to 400 annoying for for a 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 to the most of that all the really contribute some volatility but has been pretty much on our assumptions over the longer term. So within the all the oil and gas is a very small component it's 6%.

For all the portfolios so it it quite a very small role I would say unfortunately in the last five years, it's quite an outside his role in the wrong direction, but you know the <unk>. The nature of investing is that things do cycle around and actually in the first decade of the 2000 oil and gas was the straw.

Longest contributor to our all the returns and in the last decade in the lowest contribute here. So it's been a bit of a drag on our overall investment experience, but despite that we've you know on average been able to produce 400.

<unk>.

Okay.

What you're saying, here's despite impairment charge or or.

Down into one.

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

What I'm hearing.

I think I think for this year, it's going to be very difficult to get investment gains in the quarter earnings you know, we're starting at a minus 600 million we'd have to recruit all laugh before we could put it into core 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 business gains.

Huh.

Simple look of you over.

Total sales.

This gains were down now.

Let's do to lower interest rates.

Correct.

Maybe there's other factors at play as well.

You have time for the question. This this is I mean, you know let me let that day. This and this kind of you know taught at the fairly if he has a supplement comment.

But I mean, if we look at the quarter on order new business games, that's essential factors that in fact, it's a one.

From a proportionality perspective, we saw a.

A sales in Japan.

Just the margin makes <unk> cost effective secondly, we saw some very strong adore me in China. This was on the back of savings and we think it brought up Unfortunately, the call they hate us in the <unk>.

<unk> <unk>, what an art able to <unk> as get the right next to that I did all funding back as well I I'm. Just hard won was the product mix in Hong Kong <unk>, there was a bit of a few from a customer second managed to.

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

Once that I just articulated.

Okay.

<unk>.

<unk>, maybe I just supplement with a couple of points one is that new business games. One at the items that we've committed a few times do tend to bounce around from quarter to quarter, one year to year. There is naturally a correlation with the volume off new business that we rice as well as the Nixon is.

He had commented on earlier, we aren't as challenging environments and I think it. It is as we look forward, it's hard to predict exactly what volumes will be and that's that will be one at the drivers is new business games for the remainder of the.

Okay. Thank you.

Thank you.

The next question is from Scott Chan from kind of course <unk>. Please go ahead Juline is open.

Good morning.

Maybe just to 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 have to make up.

The difference in order for you to to book corn investment gain starting saying he won 2021.

<unk>, but he's fill it reset and so on the first of 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 or halted.

But emanate eliminate feasible in this environment or you are you looking at stuff more or are you more concerned about you know the first priority.

Yeah still thanks to the question you know again I I stopped by saying that you know we feel you know very confident about a capital position and again, we inserted into this cross remote position of strength. So that's really put us in good order and as mentioned earlier <unk> from a capital prioritization perspective really.

Doesn't change we've always talked about the fact that organically 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 were obviously very committed to the buttons and a tactical share buybacks. When we see the price the best book not reflected accurately all correctly on the <unk>.

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 some pockets.

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

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

Thank you.

Thank you.

There are no further questions registered at this time, we turn the meeting back to this will do.

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

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