Q3 2021 Manulife Financial Corp Earnings Call
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Good morning, and welcome to the Banyan life financial third quarter 2021 financial results Conference call. Your host for today will be Mr. Hong Kong. Please go ahead Mr. Cole.
Thank you and good morning, welcome to many of US earnings conference call to discuss our third quarter 2021 financial and operating results.
Earnings release financial statements and related MD&A Statistical information package and webcast slides for today's call are available on the congratulations, especially on our website.
Paul.
Turning to slide four we will begin today's presentation with an overview of our third quarter highlights an update on our strategic priorities by Roy Gori, Our President and Executive Officer.
Royce remarks, you're referring to.
Our Chief Financial Officer will discuss the company's financial and operating results.
After the prepared remark we move onto the line question as a portion of the call.
We ask each participant adhere to a limit of two questions, including four questions.
But you do have questions. Please re queue and we will do our best to respond to all questions.
Before we start please refer to slide two we caution on forward looking statements.
32.
The use of non-GAAP financial measures in this presentation.
Certain material factors or assumptions are quietly making forward looking statements and actual results may differ materially from what you stated.
I'd like to turn the call over to Roy Gori, Our President and Chief Executive Officer right.
Thanks, Tom Good morning, everyone and thank you for joining us today.
Yesterday, we announced our financial results for the third quarter of 2021.
The diversity and resilience of our franchise was evident once again as we continue to execute against our medium term targets and delivered core return on equity of 13.2% on a year to date basis.
Turning to slide six we delivered solid core earnings of $1 5 billion.
10% increase from the prior year with double digit growth in global wind and Canada and resilient core earnings growth in Asia.
And we reported net income of $1 6 billion.
Driven by strong investment related experience, which more than offset a charge related to updated ultimate reinvestment rate assumptions issued by the Canadian actuarial standards Board.
New business value increased 22% with contributions across all segments, including double digit growth in Asia.
This was a strong result, given some of the market in which we operate such as Vietnam, and Indonesia experienced further COVID-19 restrictions during the quarter.
In addition, MBV margin for Asia increased by 7.3 percentage points from the prior year.
Our global land business, we achieved strong net inflows of $9 $8 billion, reflecting double digit growth in retail across all geographies due to increased investor demand and solid investment performance.
With positive contributions from institutional and retirement.
Our financial leverage ratio improved by 1.2 percentage points compared with the prior year.
Illustrating our continued financial flexibility to execute on our strategic priorities.
Turning to slide seven and the progress we've made executing on our five priorities.
Our highest potential businesses accounted for 63% of total company core earnings year to date 2021.
And we're on track to achieve our target of 67% by 2022.
September Global Wayne was accepted as a signatory to the UK stewardship code, which is regarded as one of the most comprehensive sustainable investment standard in the industry.
This result is a testament to the strength of our investment approach and ability to pursue sustainable solutions for our clients.
In Asia, we continue to expand our footprint in China as Manulife Sonic opened its 15th provincial branch in Shanxi.
And in the U S. We experienced strong sales momentum, which was supported by two spot market ranking increasing brokerage as well as the highest quarterly sales of international Pax in the 17 year history of our high net worth business.
Our ambition is to be a leader in our industry. When it comes to digital capabilities and customer experience and we're executing on our strategy to attract engage and retain customers by delivering an outstanding experience.
During the third quarter, we continued to make progress on our digital journey across all our operating segments to better engage with our customers.
In Asia, We launched Singapore first flexible digital recliner, playing with DBS Bank.
The product offers customers multiple flexible options.
Tyler plan that best there.
Financial and retirement needs.
And our global land business, our Asia online investment platform Manulife iPhone continues to show strong momentum and increasing sales.
Turning to slide eight.
I mentioned earlier that the growth in our hospital businesses is outpacing other businesses and you can see that in our year to date global Wham results.
Our global <unk> franchise is the first of five across three business lines is that scale and has a long history of consistently generating positive net flows which are being supported by a proven track record of delivering solid investment performance.
As of the end of 2020, we were ranked the 27th largest global money manager by pensions and investments magazine.
And over the course of 2021, we've continued to deliver tremendous results, which demonstrates both the paragon global platform and the underlying potential of the business.
Core earnings growth has been very strong exceeding the 15% medium term growth rates discussed at Investor day, while 20 percentage points on a year to date basis.
This is being supported by strong revenue growth of 19%.
Our core EBITDA margin is about 30% for the fifth consecutive quarter.
And given that we're seeing further opportunities for topline growth and efficiencies, we are well positioned to drive margin expansion over the longer term.
I owe them a has also seen strong double digit growth of 19% year to date.
Well ahead of the five year annual growth rate of 9%.
We've also delivered strong growth of 30% year to date in our retail business, resulting in a more favorable business mix and creating a tailwind for core earnings and net fee income yield.
Finally, net inflows have been very strong driven by $21 $7 billion of positive flows in our retail business, which has helped us gain notable market share in the U S moving up seven spots and maintaining a very solid market ranking in Canada.
And we continue to be a market leader in the retirement space globally with a number one ranking in the NPS market in Hong Kong and a number two ranking in the Canadian D. C market U S small case market and Indonesian D. P. L K market.
We're very excited by the strong momentum of the business and the future growth outlook and we're confident that as we continue to execute on the strategic priorities of our global land business and continue to grow our highest potential businesses, we will unlock significant value for our shareholders.
Turning to slide nine.
Efficiency is deeply embedded in our culture and I'm pleased to see the benefits reflected in our expense efficiency ratio, which was 48, 9% on a year to date basis and 51, 3% in the third quarter.
The ratio improved by two four percentage points as year to date pretax core earnings growth of 27% exceeded core expense growth of 6%.
What do you remain committed towards meeting our goal of consistently achieving a ratio of less than 50%.
On accumulative basis, we freed up $6 $3 billion of capital through our portfolio optimization efforts across multiple legacy blocks.
Whilst we've exceeded our target of releasing $5 billion of capital commitment.
Our commitment to optimize menu last legacy portfolio, especially LTC MBIA remains and we continue to seek opportunities to reduce risk and unlock value.
Our final priority is focused on a high performing team.
We launched a few last Friday and it should have been September which provides dedicated time on the second part out of each month through the end of the year ballooning and refueling in ways that are personally meaningful to each about team members.
This helps us accelerate growth as we build a leading global culture distinguished by our values.
In addition, it's worth noting that in October Manulife was named a world's best employer by Forbes for the second year in a row.
Turning to slide 10 in summary, our business continued a strong track record of performance this quarter benefiting from diversification scale, digitization and profitable products as evidenced by strong momentum in global Wan and impressive resiliency in Asia.
Our global land business continues to deliver tremendous results and strong contributions to our growth agenda.
I believe the culture will be a sustainable long term competitive advantage and we continue to focus on enhancing our high performing team as one of our top priorities.
And finally, given our global footprint, we are uniquely positioned to capitalize on the mega trends that are shaping the global economy and remain confident in our ability to execute on the next phase of our strategy.
Thank you and I'll hand over to Phil Witherington, who will review the highlights of our financial results Phil. Thank you Roy and good morning, everyone.
Turning to slide 12, we generated core earnings of $1 $5 billion in the third quarter up 10% from the prior year on a constant exchange rate basis. This was driven by a number of factors the recognition of core investment gains in the quarter high in net fee income from higher average of UMH.
Global one business.
Hi on new business gains.
In force business growth in Canada, and Asia unfavorable policyholder experience in Canada.
These items were partially offset by a charge you know property and casualty reinsurance business for estimated losses related to hurricane Ida and the floods in Europe and unfavorable policyholder experience in Asia and the U S.
Net income attributed to shareholders was $1 $6 billion in the third quarter, reflecting favorable investment related experience largely offset by a charge related to the updated you are our assumptions issued by the Canadian actuarial standards Board, which is a component of the direct impact of markets.
Of note, we delivered strong investment related experience gains of $800 million in the quarter, reflecting higher than expected returns on older primarily driven by fair value gains on private equity investments the favorable impact of fixed income reinvestment activities and favorable credit experience.
<unk> $100 million of these gains were reported in core earnings as core investment gains with the remaining $700 million reported outside of core earnings.
The charge of $582 million from the direct impact of interest rates was the result of a $532 million charge related to changes to the U R O which is in line with the estimate we provided in the second quarter and impacts of Steepening of the yield curve in Canada and lower interest rates in <unk>.
China These.
These items were partially offset by widening corporate and swap spreads in the U S.
We completed our annual review of actuarial methods and assumptions, resulting in a net charge to net income attributed to shareholders of $41 million consistent with the estimate that we had provided in the second quarter. The net charge was primarily driven by a review of lapses and mortality assumptions.
For our U S insurance business as well as a review of investment return assumptions. This was largely offset by positive updates related to our company wide expense review and corporate bonds diesel study.
This year's review also included a complete study about variable annuity experience into assumptions in the U S.
Slide 13 shows our source of earnings analysis.
New business gains increased 14% from the prior year period, driven by higher sales volumes in the U S demonstrating favorable product mix, notably due to higher international Universal lifestyles, and higher sales volumes and favorable product mix shifts in Hong Kong and Singapore.
This was partially offset by lower critical illness sales and unfavorable product mix shifts in China lower volumes in Vietnam, reflecting the impact of COVID-19 containment measures and lower coli product sales in Japan.
The experienced losses in the quarter included a $155 million pre tax charge in our P&C reinsurance business for estimated losses related to hurricane Ida and floods in Europe.
Net policyholder experience in the third quarter was unfavorable driven by continued lower lapse rates on protection products in North America due to the prolonged low interest rates environment and consumers, placing high value on life insurance coverage during the pandemic and.
And premium persistency losses in Asia, as well as adverse mortality experience in U S life.
This was partially offset by favorable claims experience in Canadian insurance.
Long term care policyholder experience was a modest gain.
Turning to slide 14.
We delivered core earnings growth of 18% and a global one business, reflecting growth in net fee income driven by higher average AUR may from the favorable impacts of markets and net inflows and favorable business mix.
Core earnings in Asia increased by 1% as in force business growth and favorable product mix were offset by unfavorable policyholder experience and lower new business gains due to lower volumes in Japan, China and several emerging markets.
Core earnings in Canada increased by 11%, primarily reflecting favorable policyholder experience in individual insurance higher enforce earnings from our retail insurance products and the non recurrence of a number of smaller unfavorable experience related items from the prior year quarter, partially offset by <unk>.
Lower investment income on allocated capital Corp.
Core earnings in the U S increased by 4%, primarily driven by higher new business gains and favorable tax benefits, partially offset by lower investment income on allocated capital and less favorable LTC policyholder experience.
Core losses in corporate and other improved by $23 million, primarily driven by the recognition of core investment gains in the quarter compared with mill core investment gains in the prior year quarter.
Lower interest on external debt and gains on sales of F. S equities and lower interest on allocated capital two operating segments.
These gains were largely offset by the charge in our P&C reinsurance business and the unfavorable impact of markets on seed money investments and new segregated funds and mutual funds.
Slide 15 shows our new business value generation and APE sales.
Our insurance businesses delivered new business value of $539 million in the third quarter, an increase of 22% such as the prior year quarter.
In Asia, NPV increased 15% from the prior year quarter, driven by higher sales volumes in Hong Kong and Asia, other and favorable interest rates and product management actions in Hong Kong, partially offset by a decline in Japan coli product sales.
In Canada, <unk> increased 6% from the prior year quarter, primarily due to the impact of higher margins in annuities and continued growth in individual insurance, partially offset by lower sales volumes in group insurance.
And in the U S NPV more than doubled the level of the prior year quarter, reflecting increased customer demand driving higher sales volumes and favorable product mix.
In the third quarter, we delivered APE sales of $1 $4 billion, a 5% increase from the prior year quarter.
Asia sales remained resilient with a modest 2% decrease.
In Hong Kong, a P sales increased 12%, reflecting strong growth in our bank channel demand from mainland Chinese visitors through our Macau Brunch and expanded agency force sales. However continued to be dampened by COVID-19 related restrictions on cross border travel between Hong Kong and mainland China.
Yeah.
Asia other AP sales increased 8% as higher sales in bancassurance were partially offset by lower agency sales, which were adversely impacted by COVID-19 containment measures in markets, such as Vietnam and Indonesia.
Were more than offset by a 50% decline in Japan AP sales.
And Canada, AP sales increased by 5%, primarily driven by higher individual insurance sales and increased customer demand for our lower risk segregated fund products, partially offset by variability in the large case group insurance market.
In the U S sales increased by 58% due to higher customer demand for international domestic indexed universal life and variable Universal life solutions.
Turning to slide 16, our global land business delivered strong net inflows of $9 $8 billion and gross flows of $35 2 billion in the third quarter compared to the prior year.
In retail net inflows was $7 9 billion compared with net inflows of <unk> 7 billion in the prior year quarter.
The increase was driven by double digit growth in gross flows across all geographies due to increased investor demand solid investment performance and lower mutual fund redemption rates institutional asset management net inflows were $1 $3 billion compared with net outflows of $3 $9 billion in.
The prior year quarter, the increase was driven by the non recurrence of a $5 billion redemption in Europe in the third quarter of 2020 as well as higher sales of timberland mandates in the U S. Partially offset by lower gross flows of fixed income products in China.
In retirement net inflows were <unk> 6 billion compared with net inflows of $1 billion in the prior year quarter, reflecting higher upon redemptions, partially offset by growth in member contributions and new plant sales.
Overall global ones average <unk> increased by 20% compared with the prior year quarter, driven by the favorable impact of markets and higher net inflows.
Our core EBIT margin increased 110 basis points, driven by a combination of higher net fee income operational benefits from increased scale and disciplined expense management.
Turning to slide 17, we continue to maintain a strong balance sheet and capital position, we have $25 billion of capital above the supervisory target and our light cat ratio of 138% is strong.
The one percentage point increase from the prior quarter was mainly due to favorable impacts from market movements and portfolio optimization initiatives, partially offset by a modest net unfavorable capital impact related to the annual review of methods and assumptions.
Our financial leverage decreased <unk> four percentage points from the prior quarter to 25, 5% driven by an increase in retained earnings and the favorable impact of a weaker Canadian dollar.
The financial leverage ratio is now close to a 25% medium term target, but the ratio is subject to variation period over period due to the timing of financing activities.
Turning to slide 18, and our financial performance for the third quarter of 2021 as.
As mentioned the global diversity and resilience of our franchise is evident once again in the third quarter through double digit core earnings growth and global one in Canada and resilient core earnings in Asia, which resulted in core earnings of $1 $5 billion.
Solid growth in new business value and robust AP sales growth.
And our strong balance sheet as evidenced by a light cats and leverage ratios provides us with financial flexibility to deliver on our strategic and capital deployment priorities.
Slide 19 outlines our medium term financial targets and recent performance on a year to date basis core ROE and the expense sufficiency ratio met our medium term targets and our dividend payout ratio remains within our target range, we remain confident in our ability to deliver 10% to 12%.
Core EPS growth over the medium term.
This concludes our prepared remarks, operator, we will now open the call to questions.
Thank you.
We will now take questions from the telephone lines. If you have a question on using a speaker phone. Please lift your handset before making your selection. If you have a question. Please press star one on your devices keypad to capture the question. Please press Star two please press star one at this time if you have a question there'll be a brief pause of participants register thank you for.
Your patient.
And your first question is from Tom Mackinnon from BMO capital. Please go ahead.
Yes, thanks very much. Good morning, just wondering if you have any kind of update for us in terms of a potential variable annuity transaction I think you had made mention of that.
Your Investor day, and in the last quarter, saying that it might be possible by the end of 2021.
And then as a follow up.
Just outlook in terms of sales in Asia.
There was some just due to some containment measures with respect to Covid did impact some sales particular, I guess in China, and Vietnam, and Indonesia, and maybe you can tell us what youre seeing.
So far in the fourth quarter in that regard thanks.
Good morning, Tom Roy here I'll start with your first question and I'll provide a few comments on south and then hand over to Neil to provide more texture on the Asia sales story.
As it relates to VA, we continue to believe that a deal is possibly 2021, we said that in the past and we continue to feel confident that that is.
Transaction that we can get across obviously, well, let me do a transaction if it made sense, but our view.
Is remains that we still feel quite confident that we can execute transaction.
Year.
That would be it on the VA front on sales I would just highlight that.
The resilience of our business in Asia has been absolutely tremendous new business value.
Has increased by 15% in the quarter. Despite the incredibly challenging circumstances is testament to the diversity of our business, but also the assets all of our Asia team to really digitize our business, we've really done a lot on that front and we now have more than 80% of our new business digitally submitted 82.
Denny's auto underwritten.
And that has really helped us navigate a very difficult period over the last 18.
10 months, obviously, we've seen Covid cases increase in certain markets and thats affected outperformance in some of those jurisdictions, but in general I feel really good about the resilience of the team has demonstrated in our ability to navigate quite a top of mind, but.
You might want to provide a little bit more flavor.
Thanks, Brian Thanks, Tom So Tom before I provide comments on on Carnival allow me to give you a little bit of color on correctly, because that would form the basis of our outlook in quarter. Four so we saw a significant impact on account of the resurgence of COVID-19 in the southeast.
Asian market and that had an impact on two levels. One we saw our sales volume get a.
Getting back to it in the second we experienced adverse policyholder experience, specifically coming out of markets like Indonesia, and Philippines, but despite some of the significant challenges that we faced I do want to underscore the point that our core earnings continued to be resilient and we grew our new business value.
By 15% year on yet what was different this time it out.
Does that Vietnam that had not experienced any impact of COVID-19 in 'twenty 'twenty experienced the.
The impact of Covid in a big way in quarter, three and then again had an impact on volumes as well as on our quarter earnings.
Given the fact that Vietnam is a significant contributor to the quarter earnings of four four for Asia I don't want to underscore at this point that we remain.
The market leader in Vietnam, and given our market leading position and given just the potential that Vietnam has to offer we believe that we are in a very good position to be able to address the growth opportunity in that very important market.
And again, Singapore continues to see very solid performance and again quarter three was no different where we saw strength coming out of both our DBS partnership as well as MFC, but that as the background.
If I look at quarter four in terms of outlook, we believe that while the containment measures will relax in quarter four on account of the abatement of the Covid cases in southeast Asian market. We don't believe that the recovery is going to be immediate we believe the recovery is going to be gradual and again.
What we have experienced in Asia from time to time is that there is a resurgence of COVID-19 in the containment measures do come back and have an impact on volumes.
<unk> said, Mitch as I said, we have experienced challenges now in 2019 and 2020 and.
And continue to win market share in both 19, and 20 and pretty much through the first half of 2021 and again, given our marketing market, leading position and just the secular trends that go on Asia, we feel very confident to be able to address the growth opportunity there.
Asia presents and stay committed to the 15% core earnings target that we had committed on our in our in the recent Investor day, our communication in the medium term.
Thanks for that.
Thank you. The next question is from many Grommet from Scotia capital. Please go ahead.
Hi, good morning.
We to get announcement from a few later today on buybacks and dividend increases and I just wanted to.
Check them into your ROI in terms of our updated thinking on on that and your intentions are.
Pacifically for the buyback in particular.
Good morning, many good to hear from you.
We intend to resume dividend increases when the regulatory restrictions are lifted we have said that in the past and we remain committed on that front.
And we more broadly we remain committed to our dividend payout ratio of 30% to 40% something that we do.
Very focused on over quite some time I will just also remind everyone that we did have our most recent recent dividend increase in Q1 of 2020 and that was a 12% increase and we've regularly increased dividends over many many years and that's something that we feel is an important capital priority for us and one that we will continue I'll also say.
That if restrictions are lifted as it relates to dividends and buybacks. We also intend to look at share buybacks to continue to generate value for shareholders as we've done in the past.
Right you are.
Show, a slide 17 quite often in terms of capital over the supervisory target.
How much of that is actually deployable capital of about 25 billion that you're showing there.
How much of that.
It's actually something that you can deploy.
Yeah. So let me start on that and I'll hand over to Phil many.
Our focus on capital has been an agenda item for us for at least four years, we declared in 2017, our focus on portfolio optimization in our goal to free up $5 billion worth of capital that's.
Not only are an area of focus, but it's been an area of execution strength, where we actually exceeded our target three years ahead of the schedule that we had articulated in fact Q2, sorry Q3 of this year, we're already up $6 $3 billion that we freed up.
And we look at not only the amount of capital we have over and above the supervisory minimum but we also look at the capital that we have over and above our upper operating range and again, we articulated.
Last quarter that we see that as a.
Having excess $10 billion over and above our operating range and that continues to be the case in Q3 of this year I think it really pays to be in a strong capital position.
Think that would suddenly helped us navigate the uncertainties of the pandemic and its put us in a good position to really get on the front foot. We continue to believe that organic deployment of capital to our highest potential business is the best way to deploy capital.
But as I've also said.
We are open to looking at M&A transactions, if they make sense well I think we are in an enviable positioning that we don't need M&A transactions to deliver against our medium term targets.
But we will transact if that's something that we believe we can create value from and I'll just remind everyone that over the last 18 months, we have actually.
Deployed capital Inorganically, we've extended our extended our bank agreement with Bank Dynamo in Indonesia, We entered a 16 year partnership with via 10 banking Vietnam, We acquired the Aviva portfolio, we formed the JV with Mahindra in India.
So again, a strong capital position is really certainly put us in a position of confidence as we've navigated the uncertain times of of the pandemic.
We've got plenty of opportunity to deploy our capital organically, but we won't shy away from inorganic transactions, if they make sense and at their own targets.
Thanks, Roy and this is Phil just to supplement the.
To narrow the 25 billion down really made a key point that the capital that we have in excess of the upper end of our internal operating range is $10 billion, we provided that disclosure earlier in the year to provide some clarity on our overall financial flexibility, but I do want to highlight in addition to that the leverage ratio.
<unk> is in a really strong position 25, 5% very close to our medium term target level and that does provide supplementary significant financial flexibility on top of what's in the like kind of ratio.
Thanks, Joe.
Okay.
Thank you. The next question is from Gabriel to Shane from National Bank Financial. Please go ahead.
A quick one on the.
LTC experience in the U S. There was unfavorable to just give a bit more context on the nature of what was happening again.
Claims through high mortality, not calling off something like that.
And then on the IRA for 17 question last week, a couple of U S. U K banks are provided the disclosure on the impact.
Through their insurance subsidiaries HSBC Lloyds.
So their earnings and insurance could drop by about a third if not more one of 'em HSBC at a somewhat similar business profile, the yours, very new banks and new business gains heavy I'm.
I'm wondering if you've put any additional thought on impact.
Impact for ammonia for 17.
Thanks, Gabriel it's Steve here.
I'll tackle the LTC question and I'll pass it over to Phil on the Ifr 17, our LTC experience in the quarter. It was actually positive it was favorable.
Yeah, and I can describe what what we saw going on there.
We continue to see the impact of mortality on elevated mortality on LTC on both our active lives and for those customers on claim not as significant as we had seen in some quarters during the pandemic, but still evident and then in terms of.
Incidents.
And.
Going on claim we saw incidence levels that had been tracking back towards pre pandemic levels that reversed a bit in Q3, but we also saw customers that had suspended care resuming care. So.
I think we had favorable experience overall it was less favorable than we had last year that I think that's probably what.
You were looking at got it up and we do them and we do continue to hold a significant IP and are for customers that we believe will seek care again, so we did not change the IBM this quarter.
There was a negative experience in the policyholder experience in the U S.
Okay.
So the overall policyholder experience right yes.
I think gave if I give you I think I need to give the broad perspective on policyholder experience because on the claims broadly we continued to see offsets in our portfolio as we have done throughout the pandemic.
The holder experience in 2020 total company was a positive and year to date in <unk>.
'twenty, one is less than $10 million loss. So we did have negative policyholder experience in Q3 on the claims front.
We saw the continued diversification so we saw.
Losses in U S life, we saw.
Losses in our mortality in Indonesia, and the Philippines.
But that was offset by gains in annuities and gains in long term care that we just discussed and Canada bucked. The trend we saw gains in retail mortality experience as well as in our group experience. So claims were largely neutral, but with some moving parts and then <unk>.
App's experience what we saw.
<unk>.
When the pandemic started as Phil mentioned in his prepared remarks, we saw customers really valuing their insurance products, we saw a drop in lapse rates and that has that.
That has driven.
Some losses that we're seeing come through.
About half or a little over half of those losses are economic impacts on our north American protection products, but the other remaining almost half is a deferral of release of margins, which will come through in the future and the only other the other point of context I'd give here on lapses is in the global financial crisis.
Different shock, but a shock to the system, we saw similar things happen where customers stopped making decisions. We saw lapse rates on protection products dropped and those rates trended back to pre global financial crisis levels.
After the shock was over and that's my expectation of what we'll see as we come out of the pandemic that.
Lapse experience will trend back to more normal levels over time.
Great. Thank you, Steve and Gabe This is Phil.
Touch on the iPhone 17 question and just to underscore upfront a reminder, something we said at Investor day that I first 17 doesn't impact the fundamentals of our business, it's really accounting that impacts when where and how items are recognized in the financial statements, but to your point on the development that we sort of the core.
The last week with some of the U K banks have provided a bit of provided an indication of the impact of <unk> 17 on earnings I do want to highlight that the current accounting standard I for us accounting standard for insurance contracts I for us for permits a continuation of <unk>.
Practices until such time that I have for 17 is in place and what that means.
For some of the UK banks is the embedded value is the basis for accounting on the balance sheet and that results in present value of in force business and intangible asset being recognized internally generated intangible asset being recognized with an patented new business value flowing through the <unk>.
Income statement, we don't do that it's a very different valuation basis to the Canadian comp valuation basis, and therefore, I don't believe that it's a good reference point in order to estimate the impact of <unk> 17 for Manulife.
As we continue the process of preparing for adoption of <unk> 17, we will continue to have dialogue with you. We started that process at Investor day, and we intend to expand on that as we go through 2022.
Alright, so they their new business gains are higher because they are on pattern I think I got that I got it.
That's one that's one of the key differences that drive our best estimates.
Liabilities without pads.
Got it thanks.
Yeah.
The next question is from Humphrey Lee from Dowling and partners. Please go ahead.
Good morning, and thank you for taking my questions. My first question is whether they two U S sales.
Especially.
We've seen very strong demand, which has got a little bit kind of surprising given the industry wide sales seems to be seen.
Recovery from year over year basis does not particularly strong so just wondering what you see.
In terms of driving that strong demand for your own life insurance products in the U S. And then on my second question is maybe for Steve just try to see if you can provide some more detail in terms of the assumption updates that have taken that you have.
Thanks.
So I'll get started Humphrey it's maryann. Thank you for the question around the sales the market actually in the U S was quite strong in the quarter. The market was up about 17% we were up 24% so higher than the market as Roy had talked about our market share ranking Q2 actually improved as well from nine a year ago to seven this year.
And we have seen a lot of strength a lot of it relates to Covid I'm sure in terms of as people are looking at the impacts of Covid has had has made people much more aware and I think that's been true for the whole industry, we have been stronger than the industry and a lot of our strength has to do with some of our differentiators like vitality. Our vitality sales are up 84 <unk>.
<unk> on a year over year basis, and vitality has been great from a consumer perspective, because they're concerned about mortality, they're concerned about their health and that really brings both of those two things together. So we've seen strong sales as it relates to that.
So that was on our brokerage side International sales just as a reminder, rolls up into the U S. As well and we had a really strong quarter really mentioned it we had a record in Q3, we're on track to have a record year, a Q3 record just beat our previous record by 22%. So very strong sales and we've probably had the most diversified pre.
Adduct lineup that we've ever had in the international business right now and we're seeing a healthy pipeline and we've done quite a bit internationally as well to automate things we.
We have over 70% of our applications are coming through the finished your portal. So it is good to see that that we've done a lot of things on the digital front, what you're really helping sales. So overall sales have been strong outlook. As we look forward is to continue to see some of that we still have a healthy pipeline. So we're hoping Q4 is another strong quarter as well.
Yes.
Thanks, Marianne and thanks, Humphrey I'll touch on the.
The assumption review and I'll give a brief tour through it if there are areas that you want to drill down further we can we can certainly do that so as Phil noted.
Modest net charge of $41 million.
We reviewed a variety of assumptions as we normally do a comprehensive.
Study variable annuities, we saw a modest charge as we updated all of the assumptions.
Some of the drivers were lapse rates as well as reflecting on on policies that.
Move into effect effectively of payout annuity stage, reflecting the fact that we will earn some spread on our investment strategies.
Add mortality there were a few drivers there we updated mortality mortality experience for one particular block of our U S business and reflected.
Higher older age lapse mortality rates, we saw a modest strengthening in Indonesia on non medically underwritten business to reflect emerging experience.
As well as updating our assumptions on options around reinsurance, we took a modest charged through through the basis change, but saw capital benefits from from those changes.
Laps. The biggest driver was in U S insurance, where we reflected the emerging experience up to the end of 2019, so pre COVID-19 and what we've seen there over time is.
In this very prolonged interest rate environment, we've seen customers value the protection value of the guarantees in those products and we reflected the emerging experience that we saw those lapse rates.
We're below 1% and we lowered them further so that's some context for just how low these lapse rates are and you know over time as we've strengthened our lapse assumptions, we have seen experience come more into line with with our assumptions.
Expenses.
What we're seeing there is really a reflection of our the execution of our strategic priorities in the medium term targets that we've set we've seen benefits from.
Scale benefits in our investment expenses and the benefits of.
Of expense initiatives across our businesses a key thing as we've only reflected expense initiatives through 2021.
If you know as we execute on our on our strategy and drive further cost efficiency that would be a tailwind and we did not change our margins we hold.
Margins towards the high end of the range on our expenses and that could be further potential tailwind.
On the investment related updates.
We updated our corporate bond default study to reflect we respected Moody's experience our experience has been more favorable than Moody's data over time, but we did not go all the way, leaving prudence in our assumptions and we thought it was prudent to.
Reflect.
Current outlook and reduced our Canadian real estate return assumptions, so I'll pause, there, but happy to drill and further on any of those.
That's very helpful. I guess just in.
Interest of time for the assumption updates any kind of changes to kind of expected profits going forward.
At the total company level no material change in expected profits Asia saw a bit of a bump up in Canada saw a bit of a bump up and use a bit of a bump down but not overall terribly material and not at the company not at not material at the company level.
Got it thank you.
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go ahead.
Hi, good morning.
Maybe two questions for Neil on Asia first specifically on Japan saw earnings were relatively strong this quarter compared to past quarter, but insurance sales, including coli were down significantly. So maybe help us reconcile those two themes in the quarter and going forward and just an overall.
Asia, we've talked about sales being down with lockdowns in certain regions, but like how is competition then like in Asia in general during the pandemic and how has that affected pricing and any effect. Thanks.
Thanks for the question and let me start with Japan, So before launching too.
Talking about Japan, if we look at Asia.
At at a more portfolio or a country portfolio level or growth emphasis has been on Asia. Other add on Hong Kong and towards that for example, Asia either in 2020 contributed to 36% of core earnings as opposed to only 16.
Percent in 2015.
In Japan, our primary focus as we've communicated earlier as well has been on in force and on expense efficiency and account all the measures that we have taken.
Both these brands you can see that translate into the 6% growth on core earnings.
In quarter three four for Japan.
If you were to kind of look forward.
Our focus again in Japan will be primarily on an in force and on expense efficiency that decline on sales that we witnessed was largely on account of coli and Callie has now seen successive or tax law changes that have impacted the quality value proposition and the <unk>.
<unk> was introduced in quarter three of this year. So the product mix that we're gonna be driving in addition to our focus on enforcement expense efficiency in Japan is going to be very different from what we had experienced in the past and just as an example quality was only 12%.
Our sales mix in quarter, three and almost to <unk>.
50% plus a year back same same same quarter.
To your question around competition and pricing.
So I did mentioned in the outlook remarks that if I were to kind of inventories back to 2019, when we experience.
Significant disruptions for example in Hong Kong, and then transition into 2020, where we felt the full a backlash of COVID-19 and even when we kind of transition into 'twenty 'twenty. One throughout these throughout these years, we have been able to gain market share in many of our geographies.
And that's on account of a few reasons one we have made significant investments in growing our agency. So if you go back to 2017. Our agency force was approximately 70000 now we are at approximately 118000 agents at an exclusive bank partners I think that they add.
Level of strength and diversity to our to our sales mix and as Roy alluded in his opening comments, we have made specific investments in modernizing our technology, which has impact on both customer experience, but also on distributor experience, enabling distributors to become.
A lot more lot more productive and a lot more customer focused and a combination of these factors in my view have resulted into the market our market share gains that we have now witnessed for several several quarters on the pricing front.
This is part of our normal discipline and we have been experiencing on living in the low interest rate environment.
For sometime now and on the back of that we have taken a number of measures we had been repricing our products we had been driving.
A different product mix.
More towards a higher margin product as well as had been very disciplined on expense efficiency and all of these factors is kind of resulting into the new business value margin growth that we are witnessing in Asia and as I said, despite the pressure that we've witnessed on sales in quarter three.
We were still able to grow our new business value by a healthy 15% year on year.
Yeah.
Thank you. The next question is from David.
<unk> <unk> from Evercore ISI. Please go ahead.
Hi, Thanks, good morning.
I had a question.
In terms of.
The the potential V. A transaction that was discussed earlier.
I was wondering maybe if we could talk about what are some of the sources are what are some of the uses of the capital that could be potentially freed up from that from that transaction.
And specifically I'm wondering about.
The need to reduce leverage after that.
If that would be a potential use of our use of the proceeds.
Yes, let me stop there David Thank you for the question and I'll get the first comment I'd make is that I don't want to get too far ahead of ourselves on.
Speculating on what we would do we.
Priority, it's actually execute a transaction and that's something that where we're focused on obviously, we also feel that it's important wait.
We're executing a transaction that we'd be clear on the deployment of capital and obviously, we have various options available to us.
Once regulatory restrictions are lifted buyback.
Buybacks will be certainly one opportunity for us, but we also.
We see opportunities to deploy our capital Inorganically as well, so I'd sort of probably just leave it at that at this stage.
And then I guess just another one on <unk> 17.
For Bill could you just remind me if this will have any impact on the cash flow generation of the business as a whole.
Thanks, David This is Phil so we're not expecting our first 17 to have significant impact on cash general cash flow generation from our operating units.
The tool that the key thing on I have first 17, there are accounting changes that of course, as I said earlier impact, how and when and where we report the emergence of earnings but from a total consolidated capital position, we anticipate that the impact at the industry level.
Here in Canada will be neutralized consistent with the messages that.
I'll see is given.
And then as I said earlier from an operating subsidiary perspective, I think Canada is somewhat distinctive in that <unk> strives to be the basis for capital treatment in our other businesses around the world to a large extent the capital basis is.
A separate to the accounting basis.
Right and I guess, that's sort of my question, because I know that at least in Asia, which produces a lot of the new business gains I believe a lot of that business has been reinsured into Barbados, which utilizes a you know does not utilize local.
Accounting Hong Kong accounting in Japan, FSA accounting, it's on Canadian EIOPA Rs in Barbados and so my thought was is there a risk to capital generation because the impact of new business gains will be going away.
And just to clarify that David I don't expect.
I don't expect my first 17.
To materially impact remittances from operating subsidiaries, including the the reinsurance structures.
That you touch on the so that's not something that worries me and in fact, when I look at the underlying free surplus generation that supports remittances from operating subsidiaries around the world, including Asia I do actually feel good about the remittance profile both in the short term the medium and the long term.
Okay, great. Thank you.
Thank you. The next question is from Doug Young from Deutsche Bank Capital markets. Please go ahead.
Longer term implications of Covid are not entirely clear and as I've stated before we think we've got a lot of diversification in offsetting impact as we've seen coming through our results that approach is also consistent with how others in the industry, whether it's Canada U S or more globally are looking at there.
Assumption updates in terms of long term business.
What we saw to be more clear when the pandemic hit we saw lapse rates drop materially. It was very notable once the pandemic became a very clear you know in the news risk item you know people valued their insurance coverage in this in this time, we also saw interest rates drop.
Further, which I think drove you know at the margin these laps rates as well. This experience again is consistent with you know from talking to many in the industry consistent with what other industry players are saying and.
You know my point around the global financial crisis, and a shock to the system is that over time I would I I very much expect lab streets to trend back to levels before the the pandemic cats.
I think what it'll take to do that is the pandemic to be you know not in the news item everyday more in the rearview mirror and potentially if interest rates were to rise I think that would be another driver of laps rates moving back to prepandemic levels, which as I said is my ex.
Spectation.
So you're assuming just to clarify you are assuming that lobster. It's within your reserving there's an assumption that lots where would you go back to prepandemic levels to some degree.
Correct, we've reflected the experience through 2019, we reflected those low lapse rates in our assumptions and the experienced prepandemic lines up really well with those assumptions and that is the expectation of what the longterm will be.
Okay and then on the other side you made some interesting comes just around the expenses and one that I just caught was the margins on your expenses are more at the you know the high end of what you're required to hold and I don't know if you can do this or not but I figured I'd throw it out there, but if you were to change your margins on expenses to the mid point of the range I mean, <unk> would you be able to justify that.
But could you quantify what the implications would be so I'm just wondering if there is some Christian left and the expense side as well.
Sure Doug So the you know as I said as we execute on the strategic priorities in terms of growing our Asia franchise growing scale and on the cost efficiency targets that we've set what we'll see we would start to see maintenance expense gains.
You know as we move along that path I would certainly as the uncertainty around what could pan out merges that is a scenario where margins would be adjusted to be more midpoint of of the range and the expense margins that we hold in total.
Are are quite significant at a little bit under 2 billion Canadian.
Alright I appreciate it thank you.
Thank you. The next question is from Paul Holden from Civ feet. Please go ahead.
Thank you good morning, I have a couple of questions for you related to you.
The first is I want to get a little bit of a better understanding around [noise]. How V. A has impacted some of the non core earnings items over the last year. If at all there's obviously been a lot of.
Quarterly volatility and market related impact for obvious reasons, and then also big swings and undocumented related experience outside of course. So just you know maybe you can bring.
Bring some sense of how the U S. P. A business is impacted those items if at all.
It's it's if I can.
I can make a start on that and then Scott may want to chime in.
We we've got a very effective hedging program on our on that U S. VA business. So experience has been.
Best men experience, where market experience has been quite.
Quite well managed however, there is some quarterly noise that that we see.
Through modest amounts of hedge inefficiency or from basis risk between the underlying hedge assets and the and the investments that we hold.
I think I when the market has really moved and when there's a lot of volatility that's when we can see some dislocation.
Scott I'll I'll pass it over to you to see if you have any additional comments.
Sure that's exactly right we've been at this hedging business for a long time and really refined it so that it it does keep the volatility quite well, but you can't eliminate it and then a typical quarter there will be a little bit of noise. In this past quarter was a slight gain due to the underlying fund outperforming your benchmark one of them.
Work with the volatility.
The other sorts of volatility as Steve mentioned as Green markets moved dramatically. It does and you know, they're going up and down there volatile not necessarily directional that that is hard to hedge and does create some losses. So.
Our worst border in a long time was the first order of last year. The start of the pandemic. When we saw really extreme volatility in the markets and that did create in the quarter roughly a 300 million dollar charge and non-core we recovered.
Some of that because some of that was the underperformance of.
The underline fine as well as to volatility we did recover some of that over the balance of the year, but that's kind of maybe paint a picture for you in a very extreme quarter I'll, how bad it should.
Thank you for that that's helpful. And then the second question I have on T.
T U S. D. A is related to wear those earning flow into just trying to get offensive. If it's all going into the U S business segment or if the fees earned on the separate funds flow into the wealth enough management segment and.
If if I am crap, there is sort of.
It's going into the two segments, we can provide sort of a rough split that would be helpful.
It's Marianne here the I'm sorry.
Yeah earnings are flowing into the U S segment, not yeah, the Lamb segment.
Okay. Thank you.
Alright.
Thank you. The next question is from the Microsoft from Carmack Security. Please go ahead.
Thanks. So my first question, it's probably for Neil can you talk to what drove the positive <unk> wrote in Hong Kong, specifically and if that level of sustainable I guess seems to be a materials that this court overwhelmed we've seen over the past year and I'm, just a little bit surprised giving some of the travel restrictions on the country.
Thank you for your question So Hong Kong has been a consistent performer for us and has been an email significant strength, even as I said, if you go back to 2019 of N b, a and facing challenges and during during the call would be there then.
Certainly rebounded exceedingly strongly in the first half of.
2021, we have continued to gain market share in Hong Kong and that is at the mutable largely to the investments that we made in creating what we believe is a best in class Agency force in Hong Kong and the address the domestic demand in the domestic.
Customers quite effectively on account of the agency forced that'd be have we had the DBS relationship that adds to our channel makes as well as very strong broker relations in Hong Kong. In addition to that I do want to underscore the point that we derive significant brand.
Trent on account of a number one position in the M. P S business and that in combination with the distribution strength, the digital capabilities and a significant investments that we've made to modernize that technology has has has been instrumental in Hong Kong gaining market share sequence Lee.
Now as I said for multiple multiple quarters.
We believe and feel confident that this is sustainable and in fact O b as in Bend. The borders open up we believe that we can participate and captured a greater share of the MTV business, which historically, we haven't had such a large share. It so that actually would go and complimented the strength that'd be <unk>.
In the local Hong Kong market, and we had already kind of I, just said, making investments to be able to address that opportunity I haven't been the borders open up so we feel very confident and it just kind of in the stead underpinning the quality of the franchise that we have in Hong Kong.
Okay. So there's nothing specific to your 0.2 and Q3 is like one allocators yourself back here to 48 million if I look at the prior four quarters, it's kind of room.
I'd call. It B 215, there's one quarter of 230, so there's nothing one time in nature in Q3 21.
Said, it's 17% growth largely driven on the back of some strong sales of 12% growth and this was even before you account for the.
Borders opening up we've been bay discipline on repricing very different discipline, and driving product mix as well as Hong Kong has done a superb job in managing that expenses. So despite the growth that you're seeing the expense discipline in Hong Kong is being very very solid so a combination of these factors.
Is translated into the quote earnings jumped at your witnessing in Hong Kong.
Okay. Thanks. So then my next question is for sale I, just want to circle back on.
The capacity on the leverage ratios, 30% the right way to think about the top end of what you'd let that get too.
[noise]. Thanks him off the question. This is Phil I don't think that's 30% is necessarily the camp, but I think it's a good indication of a good measure of flexibility that we have from 25 currently at 25.5%.
If you go back as recently as 12 months.
12, 18 months, you'll have seen the leverage ratio close to 30% quite comfortable to go with that and in fact, sometimes it makes absolute sense to go to that so that we can take advantage of a favourable markets in order to reposition a rule that.
That portfolio so yeah.
Substantial flexibility above 25% and 30%. So good short term reference point to understand where we'd be prepared to go without being concerned about that.
Alright, thank you.
Thank you. The next question is from Marion Mendonca M. T V Securities. Please go ahead.
Good morning, Roy I'd like to kind of go right to them.
I.
Why this stock just doesn't work.
Works in some time now and one of the first things that.
I wanted to address is.
You've got a company with a big Asian business, a big wealth business you'd think.
You'd be looking at a much more valuable company, but ultimately what's happening as investors just aren't gonna move with all this legacy business sitting around so you've you've talked about the VA business and that you're confident that it can be sold can you talk put anything around that to give investors comfort that it really can be sold like what makes you confident are are there are.
Other bidders are there real legitimate more than one bidder are there any meaningful impediment in Canada that would keep you from selling to be a business I I just think the stuff doesn't work with all this baggage and I think it's important that the company address it.
Yeah [noise].
Mario Thanks for the question.
A couple of things that I would say firstly, we see incredible opportunity to unlock shareholder value from from two lenses. The first is the tremendous growth opportunity that we have and the enviable position that we have from a perspective of our footprint in our platform and we've talked about the fact that Asia is an incredible platform for us we've been in Asia per one.
Third 20 years.
We've demonstrated success and growth Baker several years back or Asia business was the sixth largest pan-asian play up and now we're the third largest pan-asian player were growing at a much fast paced. The many about competitive gaining share growing margin growing profitability. So that opportunity is still hugely significant and we feel very excited about that and.
A medium to longer term, obviously, there are going to be some periods of challenges, we navigate COVID-19, but we feel very optimistic about that we think continuing to execute a get against that agenda has got a local law value.
On the way and thought about business again, we see a lot of excitement and a lot of opportunity I needed that result of Wham I think are a testament to the tremendous platform that we have spanning three bro geography's, but also three business lines in retail institutional in retirement and again al <unk> business. This year has grown.
35% earnings and Alcor EBITDA margin above 30% was only a few years back that we were looking at 25% consistently now where we've had four consecutive quarters, where we delivered court EBITDA margin above 30, and this quarter was no exception. So again, we see that is a huge opportunity and one that will capitalized on the <unk>.
Growth in the balance sheet of Asian consumers also the aging population where people are looking for retirement. So there's certainly no shortage of opportunity for us and growth potential to unlock value, but the other side of that coin when you touched on this.
Is.
What's holding back.
And we specifically focused on legacy we focused our efforts through portfolio optimization to free up capital of a legacy businesses I think the team has done a tremendous job on that front.
We need to do a better job and we need to be sharper more specifically to focus on LPC MBA at our Investor day. This year, we talked about a new target for the company and that is to having our LTC da businesses go from 25% contribution to core earnings to 15% Ooh.
<unk> and this is not over 10 years. This is by 2025. So this is in the in the.
In the not too distant future.
And we also articulated that we believe that we can get their contribution down.
10% or less.
When we're supplementing our organic inorganic efforts. So we feel reasonably confident that we can see a path towards not just the 15%, but also the 10% we've articulated that in the current environment. There are many more buyers that are willing to talk about transactions then they.
Two three years ago.
And again, we have reiterated our confidence that a VA transaction as an example is suddenly possible in 2021, we wouldn't do anything that didn't create value and that will be disciplined approach that we follow but the short answer to your question. Mario is that there's there's a tremendous opportunity with without French.
Try to unlock value for shareholders and we think the two sides of that coin. One is the big opportunities that we have from a growth perspective and from a profitability and margin improvement perspective, but we also have to focusing on the legacy business is beyond the broader agenda to being more shop on LTC MBA and I feel very optimistic not just.
On an organic ethics, but also organic efforts to really improve profitability buybacks. For example are another way that we're going to be able to reduce that contribution, but but that's a broader agenda, we're going to need to demonstrate progress on that too to unlock value and again I feel confident about that.
The second thing I want to address is also related to sort of what's happening with the stock and why it's not working it ultimately what we're seeing here is the gap between Manulife R. O E and your peers some life in particular, but but the same is true forget it was like an industrial lines. The gap between nine lives are we in your peer row.
Has been widening meaningfully over the last little while and I think a lot of it relates to the issues. We've just talked about the mix of business, but one one reason in particular that I've tried to address on a few occasions is.
Justice on the allocated overhead expense that over $500 million likely this year, almost 9% of the company's pretax earnings.
That number is not something you see it any other lifestyle both in Canada into the U S. There's no lifeboat that I look at our bank frankly with an an allocated overhead.
It's like having an additional 9% tax rate on pretax earnings what it kind of feels like me. So could you talk about what's in the unallocated overhead and why it's not allocated what does it relate to like should that be a part of like should that be allocated to new business. So your new business gains aren't really the high does it relate mostly to Asia like what is this big on allocated X.
Mhm.
Yeah. Thanks again for that question Mario Let me start and then I'll ask filled to chime in as well I guess on the first point as it relates to Roy. This again has also been a really important area of focus for awesome. We reiterated several times out commitment to a medium term target of delivering it Roy north of.
It's 8%.
And we saw great progress on that front in.
In the in the years, leading up to the pandemic, we'd achieved actually 30% plus in 2018, and 2019, author consistently delivering less than 13% in the past.
What's very exciting for US is that if you look at a return on equity year to date. This year, we delivered 13.7% a row.
And I do feel the key drive is they're going to continue to help us drive off road improvement will be the growth agenda that articulated continuing to grow our high potential businesses, which are also a high profit and high margin businesses at a much faster pace than the rest of our business. In fact, you to date those business as a group.
Mon 21 percentage points faster than the rest of our businesses as so as we grow Asia as we grow wham, which have significantly higher row.
They are certainly going to help lift their row to a new plane at the same time really reducing the contribution of legacy businesses, VLCC and getting them to less than 10% is also going to be a force multiplier with helping are always so we'd see really clear path to continuing the pro.
Great that we've made on a rope and actually seeing further upside improvement there.
On cost again. This is an area that we have been very focused on and I think if I sort of take a step back and look at the total cost platform for the franchise.
I think really important to remember is that you've got to look at efficiency.
Cost containment for the sake of cost containment isn't necessarily a good thing if we grow expenses are zero percent, but then grow revenues of the top line of zero, that's not something we want to be celebrating we want to be growing they are top line at a much faster pace than our expenses and that's when you're going to get the real uptick in earnings are.
And so on so we don't have a problem with growing are expensive, but we want to make sure that we grow the top line at a much greater pace and that will actually contribute to an efficiency improvement the efficiency for the franchise.
We have a target of 50%.
Then this has been an area of focus throughout our strategic cost management effort.
Our efficiency year to date. This year is $48 nine which is lower than that target. We think that there is continuous areas for us to improve on our efficiencies to drive even greater improvement we've done a lot on the digital front.
Ultimately translated not just into cost efficiency, but actually better experiences for customers are NPS schools are actually up 19 points from where we were three years ago, which again really is a testament to the fact that that digitization is translated into benefits for the customer. So it cost is a focus for us we've driven.
I think tremendous improvements in efficiency.
That's not a journey. That's ended we're continuing to focus on expense efficiencies and we see further upside potential improvement on that front.
But I'll I'll ask maybe filter chiming, specifically to talk about corporate expense.
Center and the costs that are that are.
Included in those numbers.
Yeah, Thanks, Roy and thanks for the question Mario from.
Looking about corporate costs, we do take those into account when we complete our expense studies that then inform the assumptions that we make in each of our businesses around the world both for enforce and new business. So that's not a.
<unk> is a cause for concern our approach for determining what to recharge is really being informed by not just the absolute customer, but also sources of revenue.
Components of quarter earnings and the cool person other segment in the wrong contributors to earnings and the segments of course, we have the PMC reinsurance business.
But we also have it's where we recognize the extra.
Excess investment games, the core investment games that flows through into cool person. Other so it's something that we do review periodically, but we do have that historic practices looking at that it really on a cool runnings basis.
Thank you.
Thank you there are no further questions registered at this time I'd like to turn the meeting back over to Mr. Cola.
Thank you operator will be available after the call you. If there are any follow up questions.
Good morning, everyone.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.