Q4 2020 Manulife Financial Corp Earnings Call

All participants please standby your meeting is ready to begin please be advised that this conference call is being recorded.

Good morning, and welcome to the Manulife financial fourth quarter 2020 financial results Conference call. Your host for today will be Ms. Adrienne O'neill. Please go ahead Ms O'neill.

Thank you and good morning, welcome to Manulife earnings conference call to discuss our fourth quarter and year end of 'twenty 'twenty result.

We are conducting this call virtually.

Our earnings release financial statements and related MD&A Statistical information package and webcast slides for today's call are available on the Investor Relations section of our website at Manulife Dot com.

Turning to slide four well.

We'll begin today's presentation with an overview of our fourth quarter and year end highlights and an update on our strategic priorities by Roy Gori, Our president and Chief Executive Officer.

The following Roy's remarks, Phil Witherington, our Chief Financial Officer will discuss the company's financial and operating results.

After the prepared remarks, which were recorded earlier this week to ensure optimal sound quality, we'll move on to the live 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'll 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 40 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.

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

Thanks, Adrian good morning, everyone and thank you for joining us today two.

2020 was an incredibly challenging year in many respects cash.

It was people were affected by illness and loss as well as the isolation from loved ones, putting stress on the physical and mental health and creating anxiety for the financial wellbeing.

Net for our deepest sympathies for those who've been directly impacted by illness of loss and our immense gratitude to all frontline workers globally for their incredible efforts through this unprecedented time.

I also want to thank every colleague along with our agents and business partners.

All of that though to make decisions easier and lives better for our customers over the past year.

Turning to slide six and our 2020 financial highlights.

In 2020, we delivered net income of $5 9 billion.

An increase of $269 million from 2019.

Core earnings of $5 $5 billion declined 9% from the prior year. Despite positive for earnings growth in three of our four operating segments, including Asia and global weighted.

The decline was primarily due to the absence of $400 million of core investment gains in the current year.

I T cells with $5 $6 billion from 2020 Don.

The only 8% from the prior year, reflecting our ability to leverage digital capabilities to engage customers. Despite the constraints selling environment.

Our capital position remains strong with the light cat ratio of 149 at the same and we continue the had substantial financial flexibility.

And finally Manulife total our UA light reached one three trillion the highest in our company's history.

In global Wham delivered net inflows of $8.9 billion in 2020 and outstanding results in the current environment.

Turning to slide seven as you've heard me say in the past Manulife Global diversity is one of the greatest strength and I'm very pleased with the resilience of the franchise exhibited throughout 2020 and the results that we delivered despite significant headwinds.

Into 2020 in a position of strength.

Thanks for the hard work that we've done over the east to the risk out product offerings reduced the company's sensitivity to market movements optimize our legacy portfolio and strengthen the company's capital position.

Is that leverage and last but definitely not least make meaningful investments in digital capabilities, while fostering a culture of expense discipline and efficiency.

Our continued momentum and strong financial performance have resulted in the history of progressive dividend increases over the last five years.

The market, we're extremely volatile throughout 2020, and the relatively small variance between Manulife net income and core earnings is a testament to the effectiveness of our equity and fixed income hedging programs.

We had a spread of record of delivering robust growth and new business value and.

And while they speak of decline versus the prior year the.

The fact that we generated you did in the value of $1 $8 billion in 2020, despite significant headwinds exemplifies the strength and diversity of Manulife global business.

I'd like to take a few minutes the comment on the outstanding results that our two growth engines global women Asia delivered in 2020.

Turning to slide eight our.

The global wealth and asset management businesses performed very well in 2020.

Oh, and they reached a record high of 754 billion.

An increase of 12 per se from 2019 benefiting from favorable markets and positive net flows.

For EBITDA margin has improved considerably over the last five years of 470 basis points, which reflects the healthy top line growth and resilient fees, coupled with additional scale and a disciplined approach to expense management.

That's all of the retirement business delivered strong growth in 2020 fueled by record gross flows in Indonesia, and capturing 35 per cent of Hong Kong M. P. Ethnic flows as well as the top of market share position for a new business in our target markets in Canada and in the I'll call the small business market in the U S.

And in Canada, resell, our mutual fund business ranked number three in terms of net flows on accumulative three year basis with bank of pump companies, taking the top two positions.

Our success was driven by superior investment performance and the impact of the menu of securities. The second largest the investment deal up in the financial adviser channel in Canada.

Turning to slide nine, which showcases the diversity and resilience of our businesses in Asia.

The strong diversified presence across the 11 markets in Asia was a key factor in delivering solid 2020 results in the region despite significant headwinds.

You will notice of that as your other which includes many of Asia's fastest growing emerging market economies the law.

The exceptional results, including record core earnings an M D. The along with impressive margin expansion as we continued to build Scott.

The prominence of Asia. Other has grown considerably in the last few years with age of all of that contributing 43 per cent of Asia Zambezi in 2020, compared with 29 per se in 2016.

Strong execution was another crucial driver about success.

Could not be more proud of how the team stepped up to quickly adapt to the changing needs of our customers throughout the region.

Turning to slide 10, which displays in the market rankings in the distribution capability.

Our Asia franchise, the most from 2020 in the stronger position with higher market rankings in six markets.

And Manulife ranked in the top spot in the southern markets in Asia.

Maybe you want to have the well established agency for which is reflected in our pulp ranking for agency sales in Hong Kong, China, Vietnam, Indonesia and Cambodia.

Through the organic deployment of capital we continued to recruit high quality agents throughout 2020 and increase the arrogant people by 21% two out of 115000 agents.

Okay.

It's just the agency and non exclusive bancassurance partnership and more than 100 Bank partners have been key drivers of that success.

During 2020, we exited the 20 exclusive bancassurance partnership with B of 10 Bank one of the largest banks in Vietnam.

And we renewed our exclusive agreement we thank Don I'm on Indonesia, extending our partnership the 2036.

The deal would be sent back is pending approval and once the causes will have access to over 30 million customers through exclusive partnerships cementing our position as one of the leading insurers and bancassurance distribution in Asia.

Outstanding distribution capabilities are the backbone of success for an Asian insurer and serve as the leading indicator of growth potential.

Based on the quality of the menu lots of distribution capability as the.

Well of the increasing scale and improving market rankings I'm confident that we will achieve that 2022 target of <unk>.

Two thirds of core earnings generated from our highest potential businesses.

Turning to slide 11 <unk>.

Our strategy is sound and we continue to execute on our strategic priorities throughout 2020.

We generated $790 million of additional capital benefits from the legacy businesses in 2020.

The portfolio optimization initiatives the announced to date have resulted in cumulative capital benefit of $5 9 billion.

And we will continue to pursue opportunities to further optimize the legacy portfolio.

This will include both organic and inorganic initiatives and we will execute the fire in the best interest of our shareholders.

We have of mature expense efficiency program with processes in place that enable us to be responsive to the headwinds such as those in count the throughout the pandemic.

As the result of core expenses declined by 3% in 2020, and our expenses efficiency ratio of 52 point not the same exhibited resilience when compared with 52% from 2019.

I'm pleased to announce that we have successfully completed of 'twenty 'twenty two target of delivering $1 billion for the expense efficiencies to use the ahead of schedule, which bill will discuss in more detail.

Also the priority is to accelerate growth in our highest potential businesses.

And we just thought of how these businesses generate two thirds of total company core earnings by 2022.

At the highest potential businesses accounted for 66 per cent of public company core earnings in 2020.

However, it's worth noting that the speak of benefits from the absence of core investment gains in the denominator.

Normalizing for these items are the highest potential businesses would've contributed 62 per cent of total company core earnings which is a five percentage point increase over the 2019.

Our full of parties about our customers and how we're using technology to attract engage and retain customers by delivering an outstanding experience.

We've invested over $650 million in digital capabilities since 2018.

And the impact of these investments on the operations yeah. The visible on slide 29, which shows our digital kpis.

At the start of 2020, I mentioned that our M. P of school will be the ultimate test as to whether our digital capabilities of working.

I'm happy to report that we achieved a net promoter score of plus 12 in 2020, which is an 11 point improvement from the 2017 baseline and a full point of improvement from 2019.

This is the reflection of our ability to quickly adapt for the current environment listened to our customers and leverage our digital capabilities to better serve our customers.

Our farm of priorities around building, a high performing team and culture.

The target is to achieve top quartile employee engagement compared to the global financial services and insurance peers by 2022.

And I'm proud to say that we made significant progress on this front in 2020.

We rank in the 18th percentile amongst global financial services and insurance peers on our employee engagement survey.

Top quartile position and a significant improvement compared to 2019.

And many of life was the voted one of the world's best employers by Forbes ranking in the top 100 globally and one of the only three financial services companies ranked in the top 100.

Finally, we are committed to invest more than $3 $5 million to promote diversity equity and inclusion through expanding hiring commitments education and community support for organizations, helping black indigenous and people of color.

Moving to slide 12 to conclude I'm pleased with our fourth quarter and full year 2020 performance, which continues to showcase our consistent track record of execution.

We delivered strong results in 2020, despite significant headwinds and remain committed to both the dividend and medium term financial targets.

The continues to be a high degree of uncertainty as we enter 2021, however, the long term fundamentals and demographics underpinning our strategy remain unchanged and I'm optimistic for Manulife future.

Well I believe that we will unlock significant shareholder value by continuing to deliver strong results executing against the five strategic priorities and making progress against the targets that we've established.

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

Thank you Roy and good morning, everyone.

Turning to slide 14, and our financial performance for the fourth quarter and full year.

I just wanted discussed in 2020, we delivered solid operating results I made consistent progress against our five priorities demonstrating our resilience amid a challenging environment.

The highlight the key drivers of our fourth quarter and full year performance with reference to the next few slides.

Turning to slide 15.

Core earnings remained solid at $1.5 billion from the fourth quarter of 2020, largely in line with the prior year quarter on a constant exchange rate basis, reflecting the absence of core investment gains in the quarter and lower investment income in corporate on the other.

These items were offset by the favorable impact of in force business growth in Asia, and the U S higher average of UMH and a global one business and lower general expenses.

Net income attributed to shareholders of $1 $7 billion from the fourth quarter was up $6 billion from the prior year quarter on a constant exchange rate basis, primarily due to higher investment related experience gains.

Range from reinsurance transactions compared with losses in the fourth quarter of 2019.

And a lower charge from the direct impact of markets.

Of note, we recognized a gain of $585 million from investment related experience from the fourth quarter of 2020, reflecting the favorable impact of fixed income reinvestment activities.

Higher than expected returns on our older portfolio, primarily driven by fair value gains on private equity and the value of proceeds from the sale of Nal and favorable credit experience, partially offset by lower than expected returns on real estate.

The loss of $674 million in the fourth quarter from the direct impact of interest rates was driven by narrowing corporate spreads primarily in the U S. Partially offset by realized gains on available for sale of bonds.

The gain of $351 million from the direct impact of equity markets reflects the strong performance of global equity markets in the fourth quarter of 2020.

Slide 16 shows our source of earnings analysis.

Expected profit on in force increased by 7% on a constant exchange rate basis, driven by in force business growth across Asia and the U S.

As I mentioned last quarter, we continue to view, 6% is a reasonable annual growth rate for all of our expected profit on the in force.

New business gains were in line with the prior year quarter, reflecting favorable product mix in Hong Kong, and Vietnam offset by lower sales volumes in our international high net worth business related to COVID-19, and the lower sales from both group and individual insurance in Canada.

As a reminder, our.

The international high net worth business rolls up to the U S segment.

Overall policyholder experience in the fourth quarter was unfavorable reflecting mortality losses from excess deaths in the U S life, partially offset by the impact of higher claims terminations and long term cash and favorable claims experience in long term disability in Canada.

Core earnings on surplus declined compared with the prior year quarter, largely due to lower yields and changing that mix, partially offset by higher average asset levels and the favorable impact of markets on the seed money investments.

Turning to slide 17, what I will comment on fourth quarter results compared with the prior year quarter.

Core earnings increased by 15% and a global one business, reflecting higher average of U N E and continued disciplined expense management.

Core earnings in Asia increased by 16% driven by in force business growth from across the Asia.

And the schemes relating to more favorable product mix in Hong Kong and Vietnam.

The disciplined expense management.

Partially offset by lower new business volumes in Hong Kong.

Core earnings in Canada increased by 10% driven by favorable policyholder experience.

Sure.

In the U S core earnings, whereas the similar level for the prior year, reflecting higher in for studies and lower expenses offset by unfavorable policyholder experience and the non recurrence of tax benefits from the fourth quarter of 2019.

Core losses in all of corporate and other segment increased by $137 million compared with the prior year quarter, reflecting the absence of core investment gains and lower investment income, partially offset by the favorable impact of markets on the seed money investments.

Slide 18 shows our new business value generation and a P E sales or.

N D C and a pea results improved in the fourth quarter of 2020 relative to the earlier in the year and while much of uncertainty persists regarding how and when global economies will emerge from COVID-19 containment.

Nonetheless encouraged by this trend.

In the fourth quarter of 2020, we delivered new business value of $489 million down 7% from the prior year quarter.

In Asia, New business value decreased 5% from the prior year of course, there due to lower sales volumes in Hong Kong and the less favorable product mix in Japan, partially offset by higher sales and the more favorable product mix in Asia other.

In Canada, new business value increased 10% from the prior year of course are primarily driven by higher margins across all business lines, partially offset by lower volumes in both group and individual insurance.

And in the U S new business value decreased 26 per cent from the prior year quarter, reflecting the lower sales in our international business.

In the fourth quarter of 2020, we delivered eight the sales of $1 $4 billion down 5% from the prior year quarter.

In Asia, a P E sales increased by 2% from the prior year of course, it as growth in Japan from coli and growth in Vietnam, and Singapore was partially offset by lower sales in Hong Kong due to the tightening of COVID-19 containment measures.

In Canada, a P E sales decreased by 10 per cent from the prior year quarter, primarily driven by lower group and individual insurance sales due to the adverse impact of COVID-19, partially offset by higher sales and a lower risk segregated funds.

In the U S. A P E sales declined by 28 per cent from the prior year quarter of sales in our international high net worth business were adversely impacted by COVID-19, and domestic universal life sales decreased compared with the strong prior year quarter, which benefited from higher sales in advance of anti.

Dissipated regulatory changes.

The modest decline in NPV and a P E sales from compared to the prior year of course that reflects our digital capabilities, which has enabled us to continue to engage with our customers in this challenging environment and we stand ready to capture growth from demand as COVID-19 impacts to me.

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Turning to slide 19.

The benefits of our geographic and line of business diversification of evidence in our results. Despite the challenging backdrop in 2020.

Our global wealth and asset management business generated net inflows of $2 $8 billion in the fourth quarter compared with net inflows of $4 $9 billion in the plenty of quarter.

In Canada, net inflows were $2 $2 billion compared with net inflows of $1 billion in the fourth quarter of 2019.

The improvement was driven by load of upon the redemptions in retirement and higher gross flows across the product line up in retail.

In Asia, net inflows of $2 $2 billion, while higher than net inflows of <unk> $2 billion in the prior year quarter, driven by lower redemptions in the institutional asset management.

Gross flows of retail money market funds in Indonesia.

In the U S. Net outflows were $1 $6 billion in the fourth quarter of 2020, compared with net inflows of $3 $7 billion in the fourth quarter of 2019.

This decrease was driven by higher redemptions across all business lines load of new pump sales in retirement and the non recurrence of central launch sales in institutional asset management in the fourth quarter of 2019, partially offset by higher net inflows in retail from strong intermediaries.

Sales.

Turning to slide 20.

The average global one of U M eight increased by 10% compared with the prior year quarter and 6% on a full year basis, driven by the favorable impact of markets and higher net inflows.

And our core EBITDA margin was 37% in the fourth quarter up 340 basis points from the prior year quarter, reflecting our scale and commitment to expense efficiency.

Turning to slide 21, we.

We delivered over $300 million of incremental expense efficiencies in 2020, and $1 billion program to date. Thanks to the success of previously announced expense initiatives, including Digitization vendor management employee costs and real estate optimization.

Turning to slides 22 and core expenses.

Our expense efficiency program is mature and efficiency is now embedded in our culture.

We continue to take action to drive efficiencies and successfully reduced core expenses by 4% from the fourth quarter and 3% on a full year basis.

As a result, our 2020 expense efficiency ratio was resilient at 52, 9% Despite core earnings declining 9% year over year.

Despite the headwinds related to the global pandemic, we remain committed to achieving our expense efficiency ratio target of less than 50 per cent by 'twenty 'twenty two.

Turning to slide 23, our capital position remained strong throughout 2020, and we ended the year with a light cat ratio of 114, 9% representing $29 billion of capital above the supervisory target.

Compared with 2019, the ratio increased by nine points driven by market movements, primarily from lower interest rates net capital issuances and the capital benefit from the reinsurance of the block of U S Bank owned life insurance business.

Slide 24 outlines our medium term financial operating targets and recent performance.

As expected we felt short of our medium term targets from 2020 as a result of unprecedented levels of disruption related to COVID-19.

While it's reasonable to expect COVID-19 related headwinds to persist for the foreseeable future, we believe that sort of medium term financial targets remain appropriate.

This is well supported by both geographic and line of business diversification in.

In addition, we anticipate continued contributions from our well established expense efficiency program and robust digital capabilities.

Before we open the call to questions I will turn it over to Adrian for some brief remarks on Investor Day Adrian.

Turning to slide 25 prior.

Prior to concluding our prepared remarks I wanted to let you know those debt we will be hosting an investor day on Tuesday June 29th 'twenty 'twenty one yes.

The event will be conducted virtually.

And please save the date and registration details will follow later this month.

Operator, we will now open the call to questions.

Certainly thank you if you have a question and you're using a speaker phone. Please lift your handset prior to making a selection if.

If you have a question. Please press star one on your devices keypad. If at any time you wish to cancel your question. Please press the pound sign. Please press star one at this time if you have a question it will be a brief possible of the participants register for questions. Thank you for your patience.

The first question is from Gabriel the Shane with National Bank Financial. Please go ahead.

Hi, Good morning, first one on mortality the the losses in the U S life block can you tell me, what you're seeing there and Oh, if that's the trend that the you know.

Could result from a reserve charge later Oh in Q3 typically.

Because you don't book, we're hearing from other insurers that are you know, there's excess mortality, but not necessarily of the insured population. So I'm wondering what your experience with the.

Thanks, Gabriel it's Steve here, I'll I'll take that one and.

I'll get to your question I think it's important to remember the context of what we're seeing from the impact of Covid on claims across the company.

We we are benefiting from the diversification that we've got so we're seeing as you know we're seeing losses in our life insurance business, particularly in the U S. On claims, but we're seeing gains in other lines of business and that's coming through the overall company experience.

With respect to the U S life, just a reminder that day in 2019, our claims experience was in line with expectations. So in line with our evaluation best estimate assumptions. We also did a deep dive and true up our mortality last year and we strengthened our mortality assumptions on older Ages. So.

Feel good about our mortality assumptions.

You know in the U S life business, what we've seen in 2020 is COVID-19 related claims so.

We have seen Covid claims experience come through we've also seen some variability in large cases, but I would chalk that up to normal experience.

And as you've noted we've as you've seen we've had.

Very meaningful offsets in our long term care business one of one of the points of diversification. So we will continue to watch the U S life claims experience.

But I think that's the context and I feel good about our assumptions.

Okay.

The other question I have the as the.

Our expense reduction of of Europe, the $1 billion now that's great.

But then if I look at your notes the financials I'd cards generally are about the various assumptions in how the business performed favorable unfavorable in the expense has been unfavorable.

Oh from I guess for several years now, including Korea 20, I'm wondering.

Is there another.

Out of cost cutting you need to do or what needs to happen for that the expense experience across the company the turn in our favor board in order for neutral.

Thanks, Gabriel this is Phil.

I'll make a start and then I might just turn over to Steve to talk about the experience. So when it comes to expense assumptions.

You're absolutely right, we've made substantial progress and as Roy said in his remarks that we have achieved the billion dollar target that we set ourselves, but we are not done.

The recall very clearly at the Investor day in 2018, when we stood up.

And said that we have two targets since about the $1 billion, the $1 billion cost target as well as the expense efficiency ratio target and we do remain committed to achieving that 50% or less expense efficiency ratio consistently by 2022 and that means there is work to be done the.

The ratio of if you look at 2020 was 52, 9%, which I think is good in the environment. It was really resilience.

The backdrop of revenue challenges, but as we look forward you know there are a couple of ways to achieve that 50% cost efficiency ratio target one is to lower expenses and for every $150 million of expenses. We can the saves that does take a percentage points all of that ratio the other way too.

The two achieves the ratio of of course is growing our revenues and $300 million of revenues would have of 1% impact on the ratio.

Specifically with respect to experience I'll hand over to Steve to comment.

Thanks, Bill and Gabriel one place that debt you can see where the expense actions are coming through our experience. If you look at the total company core experience on our source of earnings in the supplement on page four.

What's in that core experience its policyholder experience that was neutral relative to Q4 of last year. So that's not explaining the significant improvement that we're seeing in core experience. The primary driver is our expenses and expense actions that we've taken that debt is showing up in that line ex the prime.

The driver.

Alright, thank you.

Thank you. The next question is from Tom Mackinnon with BMO capital markets. Please go ahead.

Yeah. Thanks, very much a question about the remittances one 6 billion in 2020, and I believe you had downstream tune of huh.

The billion into Asia in the first four months of the 2020 are due in part to the unusually low interest rate environment.

So does that mean like in more normal times it would be the remittance since it would be if we add back that two and a half would be the.

For nearly 4 billion of where above maybe.

Maybe you can just comment on the outlook for remittances.

Kind of going forward, just given that little of arithmetic that I did and I have a follow up thanks.

Yeah.

Thanks, Tom This is Phil and I can confirm your memory is correct. We did say I did say in may that we had the injected approximately $2 $5 billion into our operations in Asia.

I think on the topic of remittances one relevant point to note is that if I look at average remittances in the five years prior to 2020, the average level of remittance was $2 $5 billion and so looking at 2020, we have generated $1 6 billion.

[noise] of remittances, that's below what we would normally expect and the the main driver of that is the injection that we had made in the first half of the year into our Asia businesses.

When I think about you know.

Thinking about where the rest of the remittances came from is largely coming from the U S and Canada, who both you know both of those businesses made substantial remittance contributions in 2020.

But when I step back and look at the overall remittance generation and remittance power of the organization I think it is the story of diversification.

And you know going back to what I said at the beginning but on average we've generated $2 $5 billion per year. When I look at that period 2015 to 2019, where the the remittances were coming from the of course 2.5 of the five years is 12 in the half billion of that $6 nine came from.

The U S $3 7 billion came from Canada, and Asia contributed $2 billion from that gives me some confidence that we have the historic track record of remittance generation, but I'm also confident in the medium term remittance of our organization.

This is all supported by strong earnings generation on a Canadian basis, but also on a local basis and while there may be variation in timing of remittances from quarter to quarter end of year to year, we have sufficient flexibility was within MLR to compensate for that so I think the outlook is favorable.

I don't have particular concerns when it comes to emissions generation Tom.

Okay, and then the follow up we've seen.

Lots of transactions with the private equity firms or even the reinsurers.

Just with respect to annuity blocks, albeit it's probably more related to fixed in the equity index annuity blocks, but.

It maybe you can comment on some of the dialogues that you may have had them with respect to reinsurers what the outlook is for transactions in this environment and the yeah.

And I'll leave it there maybe you can just put some some color on that thanks.

Yeah. Thanks, Tom Let me start and then the van hint of it and indeed.

Portfolio optimization has been a huge priority for us as we declared at our Investor day.

And we set a target of freeing up $5 billion of the capital by 2022, and we were really delighted that by the end of 2019 were able to achieve that goal and actually further make progress in 2020. So this has been a big party for us focusing on transacting, obviously are the only doing that when it's in the bag.

The interest of shareholders and I think I'd say that in the current environment with the excess liquidity, where we're certainly seeing a lot of interest.

And that will continue to be the case I believe in 2021 and beyond but let me handover, the Nevada, who will provide a little bit more color and context.

Yeah, I think you're right.

We're we're we're still exploring reinsurance transactions. So I think there's still some runway there for us as well.

He said well trends are different in the best interest of shareholders I think the bully transaction from Q3 is a good example of this was a considerable reduction of interest rate risk as a result of that transaction.

As we talked about debt there is definitely a lot of activity in the market and a lot of capital chasing deals.

We especially closely monitor the risk transfer of market.

For V. A L T C and probably more robust for V eight than it is for LTC.

But.

To reiterate.

We're also heavily focused on organic work on all of our legacy blocks. This includes the V rates buyout and transfer of programs claims management and other enforce management initiatives. So really pleased with our success there, but again regularly monitoring the market.

Yes.

Okay. Thank you.

Thank you. The next question is from many Grumman with Scotiabank. Please go ahead.

Hi, Good morning, just following up on the remittances discussion.

Memory's correct the.

For the downstream ing was tied to rate. So I'm wondering you know if you look out two of.

'twenty one is there any chance that the the rate environment could reverse.

What we saw in 2020 and could you see that have a very positive impact on Rubens just in 'twenty and 'twenty one.

Thanks Manny. This is this is Phil you're right that the driver of the injections that I commented on in May into Asia was market conditions in particular interest rates, reflecting the very sensitive local basis in Hong Kong and sensitive to interest rates, but also that the one of the dry.

So there was equity markets as well.

And I think it's fair to say that as the macroeconomic environment improves and if we do see of sustained improvement in interest rates that does become a tailwind for remittances and I would expect to get some of that capital back.

Thanks for that and then I'm on the subject of capital you continue to show of builds in your capital over the supervisory target, but I think there's definitely some question marks about exactly what's your deployable excess capital is out in the market. So I'm just wondering if you could maybe help clarify how we should think about.

It's and sort of related point is just the centrality of buybacks in your capital plans for 'twenty one.

Yeah, I think let me start and then I'll hand over to Phil.

As you rightly point out of it as Phil commented in the opening remarks, where we're in a very strong capital position and I like that ratio of 149 is where we ended the year and that basically translates into $29 billion worth of excess capital of around suite. The visit for a minute limit. The this is you know has been a strong focus for our organization.

As we've been really driving that agenda of the strong capital position, which provides us the significant financial flexibility at the same time over the last three years, we've reduced our leverage ratio average leverage ratio was north of 30% and now we've seen that come down quite significantly. So we really do feel good about the strong capital position.

That we're in.

In terms of deployment of capital I think one of the things that I believe with his debt.

Our geographic footprint puts us in a bit of an enviable position that we don't need M&A to deliver on our medium term goals of 10% to 12% core earnings per share growth. So I think that really is the source of strength, which ultimately means that when we do deploy capital for any M&A, we will do that Opportunistically and we'll do that when we've got a high degree of <unk>.

Confidence that we can execute against that agenda.

And we will be very very disciplined on that from our priorities from a capital deployment perspective, as we've said in the past is clearly organic growth now of continuing our strong track record of dividend increases and buybacks.

The buybacks have been a key source of value enablement for us in fact.

We returned $1 2 billion worth of capital to shareholders by buybacks, that's net of the drip and when the Oh speed of restrictions are released that will be again, another priority for for us.

I was sort of a pause of that and see if bill wants it of supplement with any thoughts.

I'm happy to add a couple of points in the road, where I talked about capital deployment priorities given the financial flexibility.

And you know dividend as is very high on the list. The 2017 through 2020 out of dividend CAGR has been the 11% a year ago on the the coal last year, we announced the 12% increase to the dividend.

And I think it's also worth recognizing that from an NCI deepest perspective, you specifically mentioned this many of the we.

We had through the program and this is the net capital deployments of net of the drip that we had in place we deployed $1 $2 billion of capital on the NCI B and we were actually in the market buying back shares until the 13th of March when all the puts in place the restrictions on dividend increases and.

CIB programs, so ultimately the dividends.

For the NC idea of decisions that the the board the Manulife Board will make but I can assure you that it's something that is considered on a quarterly basis, we sit down with the board and discuss capital deployment and the level of the dividend and I think that Fortunately.

The course of the routine that we are in puts us in a position to respond in a timely manner to changes in the external environment.

Thank you.

Thank you the.

The next question is from Paul Holden with CIBC. Please go ahead.

Thank you. Good morning first question is with respect to the book for individual insurance sales and I guess.

Sort of across geographies, namely Hong Kong, Canada, and Asia the reason.

Can I ask is you've put a lot of effort and focus on improving digital sales channels as well as making it easier for people to.

To buy insurance for the lack of a medical exams, but we continue to see sales down year over year. So just wondering like what is the catalyst for sales broadly to go higher or is it just the simple as you know with the lifting of social distancing restrictions or are there other catalysts that could take.

Sales higher on a year over year basis.

Yes, Paul Thanks for the question Roy Here, Let me start and then I'll hand over the O'neill and Mike to provide a little bit more color and texture as it relates to Asia business and in our Canada business.

I guess as we said in the opening remarks.

At the onset of the pandemic Yao of.

Businesses demonstrated I think really strong resilience and the fact that our IP sales are only down eight the thing given the headwinds that we saw in 2020 I think is quite remarkable and I think that's a function of three key things. The first of all our global diversity I think we're really benefited in 2020 from the <unk>.

Global diversity of our franchise, that's not just across the three broad geographies all of Canada, The U S and Asia, but even within Asia, the geography or the geographic the diversification that we have across the different markets, there, which really meant the when we saw some markets entering more restrictive.

Conditions and environments. We saw other that were loosening of relaxing and that diversity really was a source of strength and bode well for us and quite frankly will I think continue to be the case in 2021 as we see it.

Still marketed in varying degrees of lockdown in and easy the second keep active for us on the sales front was the digital infrastructure. We've invested heavily in the last three years in fact more than $650 million.

And seeing our digital infrastructure it wasn't because we knew of Covid was coming but we knew that there was going to be a big shift and push towards engaging with consumers in the digital way and that's the reason why we made those investments and we saw our agenda of digitally engaging with customers accelerate significantly in 2020.

And thankfully that was a function of the tool that we had in place.

Which would sort of it was suddenly supported that.

And again I think that's going to continue to be the theme and the flavor for 'twenty. One we'll certainly one of capitalized on that momentum and we want to make sure that we leverage that infrastructure that we have the for I don't think I'd say is that we're benefiting significantly from the strength of our sales channels, the but just sort of highlight Asia and then it will talk.

This we've been very focused on growing our agency pools, but also making sure that we had the most professional agency force in Asia in Asia, We grew our agency by 21% of 115000.

And at the same time, we've also invested significantly in out of bank of distribution were certainly one of the leaders in Bangkok.

The Asia and that was started many many years ago and with the as can be bank.

Transaction closing, we have we'll have 10 exclusive bank partnerships over 100 of partners.

Partners the in general and the 10 exclusive gives us access the 30 million clients. So I really feel the 2020 was a really important year for us and it was a demonstration of the resilience of the business. The demonstrate the results that we have and I feel that's going to continue in 'twenty, one, but let me hand of it to Aneel and then Mike to provide a little.

More color and fictional thousand of income.

Okay.

Thanks Joanne.

The only rightly pointed out I think the diversified nature of the geography of our channel mix of our products has led to the significant resiliency that we've been able to show during the during the crisis I think the investments that we are continuing to make in expanding.

Our footprint both on the agency as well as a bank as shown in the channel that allows us a great mix and diversified.

Our diversification strength to what channel it was absolutely pivotal in kind of driving the kind of success that we saw in 2020 again just to kind of illustrate that point by by digging one market and that Hong Kong and you referenced that in your question.

So again challenges have not been new to Hong Kong B. If you go back to kind of two of 2019 vivo the nursing challenges due to the disruptions on the town of protests rifle debt on and I think one of the things that we have been able to do well is showed the execution rigor.

It has helped us win through some of the prices of the challenges that we have witnessed in fact in Hong Kong a YTD part of through 2020, our market share actually grew by 50% and this was on top of the fact that we have been enforcing.

Our strong focus on enforce management.

Being very disciplined about expenses very disciplined about about our product pricing and kind of responding pretty much instantly to some of the macro conditions, specifically the lower interest rate environment. So that we continue to protect value and do much of that as you can tell the Hong Kong core earnings both in part of for <unk>.

As well as for the full year of registered a double digit the double digit growth. So on many towns and you said a basis of the investments that we've made in our technology platform and our distribution in our people, we feel very confident to be able to seize.

Seize the opportunity in Asia, and again Rod mentioned in his opening remarks that we were able to gain market share in six of our geographies and I think that was a great evidence as to how have you been able to outperform and outpaced our key competitors.

Okay, Dan it's Mike here I'll, just add a few comments I won't hit on a lot of the similar themes that are impacting the Canadian business I mean at a high level, we do know the coming out of the Sars crisis. We did see an increase in interest in life insurance and I think that is one trend that we'll see around the globe frankly is as we can.

<unk> certainly seen it already.

From a Canadian perspective I'll just.

We're certainly we certainly have also taken advantage of the pandemic to digitize a lot of our processes and I think that will help with the ability to process sales and make it easier for both customers and the advisors going forward. That's similar to some of the themes that Roy mentioned I'll, just remind you in Canada, we actually of a quite a diverse product shelf. So we saw.

The individual health and dental that was actually up.

This year, our affinity business with all of our mortgage credit or business was up we had a very strong first half in our sort of traditional individual life sales that suffered.

We're not our pipeline really got depleted at the first part of the pandemic. When there was the locked down in terms of being able to get paramedical testing, we've seen that pipeline building backup you would've seen in our results.

A nice increase from Q3 up about 17%. So we do expect that business is going to come back as that pipeline builds up.

Over the over the next couple of quarters.

Okay. That's helpful. Thank you second question is also a big picture one.

And going back to the earlier discussion regarding the transaction activity in the U S.

A lot of folks are also talking about the Prudential Jackson national pending transaction.

Part of your answer has been talking about doing what's best for shareholders I think it would be helpful for everyone to understand.

With the little bit more granularity, how you view that lens like how are you viewing this.

Balancing act between engaging in transactions and what is best for shareholders like what are the key metrics or items that youre considering.

Yeah. Thanks, Paul Let me, let me answer that and the short answer on the metrics is that we look at a wide variety of lenses or metrics and financials as well as non financial to determine what's in the best interest of shareholders and the keep philosophy that we've employed.

Quite frankly since we embarked on the new strategy was that we wouldn't take anything off the table and you've seen through the portfolio optimization focused on activity that we've achieved a lot of.

The great results from that that focus and attention.

At the same time, what I will say is and we saw this in 2021 of the core strength of our franchise is our global diversity and the fact that we have business operations that of globally diverse across U S, Canada and Asia.

Really put us in a very strong position in 2020 of them quite frankly I.

That will continue to be the case in 'twenty, one and beyond so we we've said all along the we'd never rule out anything or any transaction.

But what I would say is specifically as it relates to the potential of transaction, that's not a high priority for us.

We really do believe that the global diversity of our business is a key strength.

And there is a incredible opportunity for us the unlock through the agenda that we're executing today be it oh inorganic transactions and as <unk> mentioned earlier, the tremendous opportunity through organically managing our business for greater outcomes and results.

Yeah.

Thank you.

The next question is from Mario Mendonca with TD Securities. Please go ahead.

Good morning, if I could go to the Asia business for another obviously.

Im sorry, not net Asia wealth management, obviously, the last couple of quarters have been very good market strong and the margin continues to improve what I observe though is that the.

The expense level in the wealth business really hasnt changed in almost two years. So obviously the company has done good job of keeping the lid on the expenses and benefiting.

From a better environment.

I'm going with the says is there any reason why.

Would it be appropriate to suggest that many of us does not need to make any big investments in the wealth business as you continue to grow assets.

Or could we see sort of a step up in expenses. Once you cross over say the 800 billion dollar of line of our 901 billion of Trillium do you see in the horizon any real need to invest more aggressively in the watch business and take it to the next level.

Great. Thanks barrel of this is Paul speaking.

I'll just start by saying, we actually did make a quite a big investment in the global infrastructure through our go program years ago, which moved all of our business on a global platform and we're really seeing the benefits of that as we scale what youre starting to see in our results. We've also as we brought the organization together a couple of years ago really found opportunities.

For efficiency to run the business better to get better collaboration and we've had a lot of the early wins I would say is showing up in the results. We still think theres tremendous opportunity in the business to drive out efficiencies as we look at our global scale and make sure we leverage that for our local businesses I mean, one of the things we do try and watches just start expense growth realm.

<unk> to revenue growth and I think I've said this historically, you try and try and live within a half of half of our revenue growth with expenses to make sure we can manage fee compression.

Continue to expand the margin et cetera.

But we do today in our expense line already significantly invest in the business.

Every year and it's really a question of priorities and so for us.

We would expect that we'll see growth in expenses as the business grows we won't be able to keep it flat forever, but we do expect we're going to be able to do that in the context of the revenue growth and continuing to move the other metrics forward yes.

Yes, Mario if I.

If I could just add.

I think you've touched on perhaps one of the biggest opportunities that we see in our global wealth and asset management business and that is that we've got an infrastructure.

And the foundation that can support a business that's much larger without having to make significant investments beyond the ones that we've already made so we feel that this is the key driver of not just the improving our margin, but improving our profitability trajectory for our global wealth and asset management business going forward Paul highlighted some of the system investments that we've made we've also of.

The investing significantly on the Digitization front as well in terms of the way we interact with customers. So this is one of the reasons that we're most excited about the prospects of we see and have in the wealth and asset management business as we continue to grow and build out our global footprint there.

Okay.

Now go back to your answer the Paul's question.

It probably was asking about the sort of the lens of the goalposts you look at it.

And and assessing.

The transaction that would free up capital now without providing any numbers, but I know you can't negotiate a sale for a reinsurance transaction on a call like this but would I be correct in saying that on the one hand. The company has to look at what kind of earnings would be given up and what sort of book value charge might arise that would be one one.

One part of the scale and on the other side, what kind of capital relief would be achieved in what that capital could be put to use is that.

And of very simplistic way the decision and the balancing act that the company faces when making decisions like this.

Yeah. Thanks Maria.

It's somewhat simplistic the way you have mapped it out but I think you've just touched on some of the different.

The components as it relates to making an assessment of whether we would make we would transact or not.

And the two aspects that you've highlighted of suddenly front of incentive for us as we look at whether we would transact or not and again the lanes for US is the best interest of the shareholder and that will include.

The value that is placed by the street in relation to each of our businesses and the capital that is being consumed by them. So certainly not a single dimensional decision point and you touched on at least two of the key aspects. The we are we always consider when we decide on whether it's the transact or not there are of.

All of this but you're you're broadly right.

Thank you.

Okay.

Thank you and the next question is from John Aiken with Barclays. Please go ahead.

Good morning, Phil.

Don't want it with my line of question I don't want to downplay the success you've had on on the expense efficiency and the reduction of our expenses, but when I take a look at what happened in 2020, you did have the expense reductions and all of the operating segments, we actually have seen inflation in our corporate and the other I was wondering if you could talk about what's driving the.

Is this the cost of digital initiatives being absorbed by corporate or is there just some change in terms of how the cost allocations have been of being made.

Thanks, John that's a good question and a good observation from our results.

What you're seeing in corporate and other on the expense line is an increase in expenses in the order of $50 million and what's driving that is the one time.

Charge relating to the write down of some I T assets on the balance sheet and really that's it's nothing to be alarmed about in the context of everything that's going on in the the bank.

Backdrop of the pandemic.

I was looking very hard of our digital strategy and pivoting projects in certain ways as we prioritize them.

Certain digital investments in this environment, we've looked hard at everything we've got capitalized on the balance sheet.

Britain certain items down.

But that's the onetime exercise so not something that you should project forward I think just touching on the question of core personnel of the one point that I do want to be transparent about is I referenced. This in my remarks that we are in a lower interest rate environment and that does impact the yield that we can generate on the surplus.

The surplus assets portfolio not the compare the Q for 2020 with Q4 2019, the headwind there is in the order of $50 million.

Thanks, Sean and when we take a look at the write down of these assets when you're talking about the speed of one time. This is then still included in your definition of what your core earnings are.

Correct, Yes, yes, we are very disciplined about what we include in core earnings.

Transparent what we decided to do in this cases report them in aggregate and corporate and other so that we don't distort the underlying operating results of our businesses, but absolutely it's part of cool.

Understood. Thanks, I'll re queue.

Thank you for the next question is from Doug Young with Desjardin capital markets. Please go ahead.

Hi, good morning.

<unk> net.

Think it was fell.

And I think it's in the the report as well, but you're all day experience. You know you mentioned that real estate returns fell short of expectations and maybe Scott can touch on.

Was this related to the office real estate book I think that's something that you mentioned you have some concerns with on a go forward basis, just trying to get a bit of an update on that.

Sure. Thanks, Doug It is Scott.

And yeah, we can.

We didn't have of what's in that portfolio, but as you know if we don't achieve our assumed returns and they fall below that.

<unk> does show up for.

For our income statement and that that's what happened in in the fourth quarter and for the full year effect, our real estate returns were about a half a percent in the fourth quarter. So it's still positive but below the the assumed return and you're also correct.

This is the biggest driver of that office is two thirds of our portfolio and we're just not seeing sort of the appraisal gains that we have historically seen and would need to see to get to those assumed the turns the income returns are still.

There are still.

Where they were so it is something that we're watching going forward I think it's still to be determined how this will play out.

I would say of protection on that part of the portfolio was that <unk> 25 per cent of our real estate portfolio.

In Asia.

We're not seeing the same dynamics of the work from home in the Asia. So less concerned there and then in North America I mean, it is still the play out there are the folks that believe that there will be more spacing, which will create more demand.

And we just have to see once we can all get back from the office, where the demand will settle out we do have a little over a six year average remaining lease term and 92% occupancy in the portfolio. So those should help us weather sort of the the <unk>.

Short term here.

But yes, it's basically we're not seeing the appraisal gains we need and on the office portfolio, even slight appraised of watches that give us that half a percent of total return in the fourth quarter.

And just can you remind us how much of your office portfolio Manulife actually occupies.

Yeah of the.

Of the about two thirds of the portfolio is in office about just under 50% is non.

Occupied and and I should add that the rest of the portfolio is largely in the industrial warehouses and in multifamily where we have much less concern. There is only about 3% of retail which would obviously be a much bigger concern if we had significant net retail.

Okay, and then just second Steve.

The team there was negative lapse experience again in the U S that offset some of the gains in long term care insurance and my right and can you quantify and can you talk a bit about what you're seeing if he could talk of reserve charge for lapse loss.

Last year or sorry, the last Q3, I think in Q3 of had some negative lots of experience just hoping to get an update on that front.

Sure Doug.

Yes, so one of the things that we're seeing in the U S and again in the context of we've seen diversification in terms of business results. So some of the sort of more second order impacts of the pandemic we've seen.

In our medical and health businesses, we've seen people not going to receive care and we've seen gains there in the U S life business. What we've seen is that in our protection oriented products. Our customers are hanging on to their they the value of the coverage that they've got their hanging onto it longer than what we saw.

The pre pandemic and we've seen that day or lapse rates on that business is 20% to 25% lower than pre pandemic trends.

And that's roughly a 25 million of impacting the quarter from what we saw we do anticipate that these trends will revert back towards pre pandemic levels over time I'll watch those trends very closely but it's you're pointing out one of the things that we're seeing is what we consider short term.

Operations as a result of the pandemic.

Okay I'll leave it there thank you very much.

Thank you. The next question is from Darko <unk> with RBC capital markets. Please go ahead.

Hi, Thank you I have two questions. The first one I think is for Phil maybe Steve not sure, but it should be relatively straightforward.

I think Phil in your prepared remarks, you mentioned, 6% EBIT growth is still reasonable, but I did see it fall in Canada. So I wonder if you could talk and the quarter over quarter and I Wonder if you could talk a little bit of boat.

EPS growth by segment really Asia, Canada and U S.

The kind of help there would be would be much appreciated.

Sure I can take that Darko. Thanks, So Phil commented in his remarks that debt.

We expect roughly 6% growth in earnings on in force on an annual basis.

We expect higher growth close eight 8% to 9% in Asia, and then lower expected growth in our in Canada and the U S.

We've got higher proportion of legacy business.

We what we saw in the in the quarter, specifically in Canada, you mentioned quarter over quarter, we do see some seasonality, we see stronger expected profit intergroup business in Q3, so the the drop from Q3 was really seasonality.

The other thing that it's not a big driver of the trends but.

As you talk about by segment in the basis change last year as we pushed through all the changes mechanically we saw a modest increase in our earnings on in force in Asia, and the U S and a modest decline in Canada total company. It was not a material change. So those are some of the drivers in ex.

Spectation that we're seeing on earnings on in force.

Yes.

Okay. Thank you for that and my second question.

Related to portfolio optimization.

It was good to hear <unk> talk about transactions and the organic opportunities.

But when I sit back now and I think about other things apart from lower in long term care exposure of variable annuities, one thing that pops out in this kind of market environment is perhaps is it time to revisit all of the.

I'm sitting here reading about Wall Street batch I've got crypto currencies going Crazy Ive got equity market's going nuts.

Youre all of the portfolio is Don I acknowledge it's a nine 5% now think of 2000 1920 inches of our 10%, but is it possible that we could perhaps free up capital.

And reduce all debt and is that something that you would be considering.

Going forward given.

You mentioned the excess liquidity in the market place whatever it is is there a chance here that manulife might consider.

Once again, reducing all the as a proportion of investments and if not why not.

Yes, Doug let me start and then I'll hand over to Scott.

As you know we did take some actions to reduce our older Raton assumptions and I'll remind everyone that the all in padded assumption for us of six 1% annual return of.

And again, we wouldn't rule anything out, but one thing that we will say is that older is an incredibly valuable asset class for us and that's I think suddenly the case, even maybe more so now in an environment of lower interest rates, so having a diversified investment portfolio and having the experience and knowledge of alternatives I think as bina.

A huge source of strength for us other several decades, and I think actually that'll come to the for even more so in the decade ahead with the lower interest rate environment. So for US diversification is really critical having assets. They can back out of long term liabilities and delivered through the cycle is the is certainly a huge priority for us, but let me hand over to Scott.

Some of other commentary.

Yeah. Thanks for it and that's really well said I mean, it's really the right way to invest for long term viability of speaking as an investment person and you'll see that at the pension pension funds that we have very long liabilities that don't have liquidity issues. So backing them with all of the mix of lot more sense and as Rob points out in the current.

The environment, where fixed income returning that much lower it makes that much more sense and we're starting to see peers talk about doing doing more of it.

So you know unfortunately, it comes with accounting noise as we saw this year you know we saw it in the financial crisis. We saw at this time, so periodically we're going to have some bad quarters.

When when markets are upset but relative to our fixed income strategy. You know the big long term earnings are much higher and and cure of embarks on you know gamestop in bitcoin Theyre definitely bubbles out there, but we're not seeing Budd.

<unk> in our all of the portfolio. So it's not like we feel like this is a good time to be liquidating. The all of the portfolio. We think there's still you know.

Rick.

Relatively reasonably valued and expect we'll be able to achieve our or expect the returns going forward.

I guess, where I was going with that is if we get to see bubbles in the all the portfolio would you consider.

Redo I mean, when I think of the pushback I get on Manulife as long term care of variable annuities at all of the so the question is we are seeing bubbles.

If we start to see stuff and all of that wouldn't this be an opportunity to reduce and ore.

The answer it sounds like a little almost flat out now is that the way I would interpret your end of it.

No the way I would put it more is you know we value diversification significant way. So we were in the six different all of the categories and we're always looking at new opportunities. So if we were to see bubbles in in one particular category.

Wood.

Deemphasize that we would look to sell down now it's not the most liquid portfolio. So it takes time to do that but we are always evaluating the value in each of the categories. You know as you saw we sold.

And that was for other reasons not because it was in the bubble, but we're constantly looking at the portfolio and determining where the best value of it and focusing on that.

Thank you.

Thank you for the next question is from David mode of Madden with Evercore ISI. Please go ahead.

Hi, Thanks. Good morning, Thanks for fitting me in here just a question for Phil and the need.

I was just one excuse me I was just wondering if you can just update us on the amount of.

Excuse me the amount of capital and earnings are you still have tied up in the legacy businesses that can be unlocked.

You guys of obviously made good progress.

So I you know I think you said in 2018. It was around 23 billion of capital and I think 2 billion of earnings.

I'm, just wondering where that stands today.

I can take that question, yes, the here.

So so David Thanks for the question.

You can see.

Taking the considerable action on the capital front.

On the legacy side.

The I don't know the exact number but the the.

Total capital allocated to the legacy business is a bit lower than what we showed in 2018.

And the earnings despite the the give up on some of them of the transactions is sort of in line with where it was in 2018.

So the.

So that gives you some reasonable guidance.

And just to just to add to that when we regrouped for the Investor Day later in the year I think that's the good time for us to provide a more holistic update on execution of each of our strategies, including portfolio optimization.

Okay great.

And then I guess just another question for Phil.

Just circling back on the 6% growth in expected profit on in force.

I I guess I'm kind of scratching my head because that's the largest component of core earnings.

70 to 75 per cent of core earnings if I assume that you guys have 400 million of investment gains.

So I'm just trying to bridge between 6%.

And you guys getting to the 10% to 12% medium term EPS growth target if the.

I guess I'm, just wondering how to bridge that 6% growth on <unk> 75 per cent of your core earnings.

And how you guys plan to get to that 10 to 12 per cent EPS growth target. If that's that's the case.

Yeah, Thanks, David and it's a good question to ask and we are committed to the 10% to 12% target and with the EPS.

Jeff growing consistently with our expectations, we would expect 6% over the medium term the.

The components that will be accretive to that.

Got the impact of new business in our insurance businesses around the world in particular.

In Asia, where we're seeing a substantial growth as well as the opportunity to generate value through.

The the impact of scale, but in addition to new business, we've got well for an asset management, which we anticipate being accretive to our overall level of earnings growth. We have expenses expense efficiency as you've seen of over the past three years expense efficiency is something that is accretive.

To the bottom line and just the highlights as well.

When we talk about 10 to 12 per cent that is growth in earnings core earnings per share and so to the extent that we are permitted to do so and that it's appropriate given the external environment. We.

We would also consider.

Lying back shares in order to increase the per share component.

Thanks, you push a contribution.

To that 10% to 12% growth rate.

Yeah.

Got it thank you.

Thank you and the next question is from Humphrey Lee with Dowling and partners. Please go ahead.

Good morning, and thank you for taking my questions just to stay on the topic of EPS growth I know the the the medium term target of 10% to 12%, but looking for 'twenty 'twenty, one kind of versus 2020 I feel it.

It looks like you are kind of positioned to see a little bit stronger growth given.

Given the the income.

For a positive of inclusion of for core earnings.

Our core investment gains and then some of the E. The COVID-19 related headwinds.

Abate like any reason why 2021.

The higher than the the longer term target.

Yeah. Thanks, Humphrey, let me start and then I'll hand over to Phil who could supplement.

Again, we obviously spend a lot of time thinking about 2021, and the first thing I'd say is that there is obviously a lot to be optimistic about when we think about the the year ahead, but theres still a lot of uncertainty and I think we're going to see a tail of.

Certainly two halves and it may be even more challenging in the second half than what many of our expecting and I think that uncertainty is really going to come from a couple of things.

The first is the vaccine deployment of the speed of the vaccine deployment. That's the key critical enablers for lockdown restrictions being eased and I think the other big factor and everyone is the cross. This is really a big question Mark around the effectiveness of the vaccine against the various mutations so the other thing I'd say as debt there.

Is certainly a lot to be optimistic about but there is still of lot of uncertainty as to how 2021 will unfold and that level of caution is something that we're absolutely focused on having said that.

We are feeling incredibly optimistic about our future and I highlighted a few things earlier.

But I'll reinforce the first is around the fact that we have a very globally diverse franchise and we've demonstrated in 2020 of the resilience of our business of.

The state and overcome headwinds the second was around our efforts to digitize. The I think that again will be a critical enabler for us in 2021.

In the third and Mike highlighted this we're seeing.

The increase in value and importance being placed on the insurance protection and wealth that obviously those are all businesses of that I think is going to be an incredible driver for us.

And the lots of them I'd say is that we do have as you know quite frankly, one of the core competencies of our franchise.

An incredibly strong presence the many of the fastest growing economies of the world, which had one of the way the lowest insurance and wealth penetration I, usually we've described the jewel in the crown.

<unk> has become a really big part of our franchise. When you think about Asia Asia, geography, and there I am grouping, both insurance and wealth.

And when you normalize fiscal core investment gains in 2016 Asia represented about 35% of our earnings in 2020.

They represented 41% and our expectation is the by 2025, the Asia geography, again insurance and wealth.

We will represent 50% about branch on it so it is summer.

That we're incredibly optimistic about but at the same time. There is a degree of uncertainty that makes us somewhat cautious around putting down a firm commitment on how earnings per share will unfold and we think of we think of that more through the medium term and through the cycle, but let me hand, the Bill C weather.

He has any of the other supplements that.

I think you've covered it really well that ROI and I'd just reinforce I think there is lots of be optimistic about we've seen a lot of.

The challenges of the course of the last 12 months, but.

Since the last time, we spoke the fact that there is now a number of vaccines, having being developed and put to market and being rapidly manufactured and deployed I think that's one just one example of the many things that ought to be optimistic about but given the overall backdrop of uncertainty I think it is hard.

To call the central scenario for the next 12 months, which is absolutely why we're looking at it from a medium term perspective.

Got it appreciate that color I'm looking at kind of the the the <unk>.

Growth aspiration for Asia, and then, especially thinking about how Asia other has grown over the past few years.

Given the the opening of the regulations to our in China for a for an own come our insurers do you have any appetite to take on a higher stake in your China, JV or even take it take.

Take a full ownership.

And if you were to do so like how much kind of core earnings contribution from Asia. Other would go up.

Thanks for the question Humphrey So I guess the short answer is yes, we would but we.

Have two joint ventures.

And China, So let me kind of start with talking about the joint venture on the insurance side, but Siloed, Kevin and I will then ask all the chime in on the on the data side. So as you know on the on the insurance side, we have a joint venture with sign of kind of maybe have management control day.

<unk> been an excellent partner and really.

Really a big contributor to the success of the trajectory that we've kind of set for ourselves.

In China as you know in China, we have extensive access in terms of distribution. So we have.

Now with the approval of the recent Shanghai branch 52 cities and across 15 15 provinces in terms of access so that.

We would begin to increase the share of holding Humphrey, but as I said, we have to necessarily kind of a line of our objectives of debt.

Without the das shareholder the just before I hand, it over to Paul in terms of all of Asia. Other again Asia. Other is the fastest growing part of our business and again no surprises there right. You mentioned, the fact that as Roy alluded to that as well we have markets like China, Singapore, Vietnam, Although we have a market leadership position of Indonesia.

Yeah.

They are all growing at a fast clip and have huge runway for us given the underpenetrated in.

On insurance and towards that we have been doubling down in terms of increasing our distribution in fact that agency growth in in Asia. Other is even faster than what you kind of see at an overall Asia.

And again, no surprises debt and importantly of the odd also experiencing of 17% growth in active agent call a lot of our bank partnerships, including the one that we signed recently the Viet Dinh.

Bank.

Is the in Asia other of the early renewal of Don them on again, a key force for us to kind of grow our business in Indonesia. So there's a lot going on for us in in Asia. Other and as you can tell in part of for Asia. Other contributed to an excess of 35% of our quarter.

So is it likely to be an even bigger growth engine for us as we look into into the future of another 100 over to Paul for his comments on data, yes. Thanks, Aneel in very similar themes to it and you'll just share it in the China from of wealth and asset management perspective is the very important market for us.

And we do operate with our own.

Wholly owned foreign entity, there will for you that does allow us to bring in some international capabilities as well as private market capabilities, but our partnership with <unk> is also really important pillar for our growth there in terms of the ability to bring domestic equity and fixed income capabilities to both local investors and foreign investors and we've had a great partnership.

A very committed to that market and really look forward to continuing to grow China by leveraging that relationship and all of the other aspects we have in the region.

And this is Phil if I could just add you know when we look at some of our businesses in China I think the future is more relevant than the current state and you you asked the question about earnings the Humphrey.

And in.

In the ballpark of $140 million.

The comp came from China in 2020.

Full year 2020 earnings.

But I think it's not really about the $140 million, it's about what that could grow to in the years to come.

Appreciate that thank you.

Thank you.

For the next question is from Nigel D'souza with Veritas investments. Please go ahead.

Thank you good morning, I wanted to touch on core investment gains and the when I look at the last challenging here you had for co investment gains in 2015.

Those gains and fully recover or recapture of until 2017. So I wanted to get a sense of your expectations for 2021 do you expect to fully recapture of the 100 million in per quarter core investment gains.

Yes, Thanks, Nigel it's Scott Thanks for the question.

You know our core investment gains as an assumption over the cycle and it's really difficult to predict in any given year. So as Roy highlighted.

The 21 of its still going to be a very uncertain year. The trajectory looks good at this point, but who knows there there's lots of risk out there. So.

We are going to have periods, where we will underperform largely driven by all the which is mark to market as you know.

But as we look at last year, we saw underperformance in the first two quarters and then I.

Feel like we got a lot of that behind us and in the third quarter and fourth quarter, we achieved an over achieved our $100 million per quarter run rate. So you know my best estimate at this point is that we will but there continues to remain a lot of uncertainty and it is really a number we expect to achieve.

Through the cycle not necessarily in any given quarter of any given year.

And the nature of it this is Phil if I could just add the the methodology that we apply it does reset at the beginning of the calendar year. So the reason in Q3 and Q4, we didn't recognize the.

The investment gains through core earnings is because we were behind from Q1 and Q2.

As we know the new calendar year of if we generate.

Favorable investment experience up to a $100 million would flow through core earnings per share.

Water.

Thanks, That's helpful. And then the second question I had if I could touch on earnings on surplus funds and I wanted to get your sense on what the pathway is to getting that number of back to 2019 levels. In other words is the only way you get there through higher yields or can you get there through changes in asset mix of asset levels.

Yeah.

Thanks, Nigel let me make a start Scott my wish to comment on this as well I touched on it earlier there is a there was a headwind that exists when it comes to an income earnings on surplus and that is the interest rates have fallen and we do take a conservative view quite rightly on how the surplus investment portfolio is.

The managed.

A large proportion of it is held in the U S treasuries.

Which is part of our overall interest rate risk management strategy.

And that does give rise to a very real headwind in the order of $50 million of quarter. If we compare Q for 2020 compared to the fourth quarter of 2019.

There's not really a way of getting that back without interest rates coming back and the impact of that flowing through to yields over time. So I think that is one of the headwinds that we need to accept and we don't really have an awful lot of appetite for materially increasing the risk of the investments in our surplus portfolio the <unk>.

Reason, the borrowers to provide stability and resilience.

In times of uncertainty and that's exactly what we saw happen in 2020, Scott I don't know whether you have anything to add.

I really don't that was the very very good and complete answer.

Obviously, what will turn it around as if we get higher yields.

And that will grow the earnings on surplus but absent that.

We do hold those long liquid government bonds as a hedge against the market risk and well continue to do that.

Thanks, that's very helpful. I appreciate the color.

Thank you.

No further questions registered at this time I will turn the meeting back over to Ms O'neill.

Thank you operator will be available after the call. If there are any follow up how the nice morning, everyone.

Thank you the car.

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