Q3 2021 Manulife Financial Corp Earnings Call
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Good morning, and welcome to the Banyan Life's 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.
The earnings release.
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DNA Statistical information package and webcast for today's call are available on the congratulations, especially on our website.
I'll call 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.
President and Executive Officer.
Royce remarks.
Cheaper natural officer will discuss the company's financial and operating results.
After the prepared remarks, we will move onto the right person as a portion of the call.
We ask each participant adhere to a limit of two questions, including four questions.
Happy to do a question. Please re queue and we will do our best to respond to all questions before.
Before we start please refer to slide two for a caution on forward looking statements.
32.
On 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, a 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 marketing, 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.
Constraining, 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% 2022.
In September Global Wayne was accepted as a signatory to the UK stewardship code, which is regarded as one of the most comprehensive sustainable investment standards 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 Shanghai.
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 where climate playing with DBS Bank.
The product offer customers multiple flexible options to Tyler plan that best.
Financial and retirement needs.
And our global land business, our Asia online investment platform Manulife iphones continues to support a strong momentum and increasing sales.
Turning to slide eight.
I mentioned earlier that the growth in our highest potential businesses is outpacing all the businesses and you can see that in our year to date global Wham results.
Our global wind 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.
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 by 20 percentage points on a year to date basis, which 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 NPL market in Hong Kong and a number two ranking in the Canadian D. C market U S small case market and Indonesian D. P O 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.
Sufficiency 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've 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 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, they should've been September which provides dedicated time on the second part at 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.
Net fee income from higher average of UMH and a 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 in our 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.
Favorable impact of fixed income reinvestment activities and favorable credit experience.
$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 China.
These items were partially offset by widening corporate and swap spreads in the U S.
We completed our annual review of actuarial message into 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.
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 life sales 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.
Lower coli product sales in Japan.
The experience loss 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. It 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 premium persistency losses in Asia, as well as adverse mortality experience in U S life.
This was partially offset by favorable claims experience and 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 settings from a 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.
Our 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, MBV 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.
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, AP sales increased 12%, reflecting strong growth in our bank channel demand from mainland Chinese visitors through our Macau Brunch and then expanded agency force sales. However continued to be dampened by COVID-19 related restrictions on cross border travel between Hong Kong and mainland China.
No.
Asia other AP sales increased 8% as higher sales and bank assurance were partially offset by lower agency sales, which were adversely impacted by COVID-19 containment measures in markets, such as Vietnam and Indonesia.
But more than offset by a 50% decline in Japan AP sales.
In 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. <unk> sales increased by 58% due to higher customer demand for international domestic indexed universal life and variable Universal life solutions.
Turning to slide 16.
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 $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.
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 planned 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.
And our core EBITDA 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 line count 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 our 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 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 efficiency 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 get your handset before making your selection. If you have a question. Please press star one on your devices keypad to cancel the question. Please press Star two please press star one at this time, if you have a question.
A brief pause for participants register thank you for your patience.
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 the 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, particularly 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 sales 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've 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.
Business value.
Has increased by 15% in the quarter. Despite the incredibly challenging circumstances. It is a 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 lot.
<unk> months.
Obviously, we've seen COVID-19 cases, increasing 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 I know you might want to provide a little bit more flavor.
Thanks, Bryan Thanks, Don.
Before I provide comments on on Carrefour allow me to give you a little bit of color on correctly, because that will form the basis of our outlook in quarter. Four so we saw a significant impact on account of the resurgence of Covid in southeast Asian market and that had an impact on <unk>.
One we saw our sales volume get a.
Get impacted 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 year, what was different this time it out.
Was 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 of our fault Asia I don't want to underscore at this point that we remain the.
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 moving to China and just to provide you a little bit of color on China.
Ah Hong Kong, and Singapore, I'm muscular straight and emphasize had very strong performance Hong Kong as your heartfelt say double digit performance across salesmen business value code openings.
And again, Singapore continues to see very solid performance and again quietly was no different very sore strengths coming out of both our Bbs partnership as well as MSC.
With that as the background.
If I look at quarter for in terms of outlook, we believe that while the containment measures will relax and can't afford on account of the abatement of the Covid cases in southeast Asian market. We don't believe that be the Kobe is going to be immediate we believe that 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 and the containment measures do come back and have an impact on volumes are having sandwich as I said, we have experienced challengers now and 2019 and 2020.
And continue to win market share and bought 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 government Asia, we feel very confident ought to be able to address the growth opportunity that is.
Presents and stay committed to the 15% core earnings Stargate that we had committed on on our end.
In the recent Investor day Communique.
Communication and the medium term.
Oh sure.
Thank you. The next question is from many Grandma Some Scotia capital. Please go ahead.
Hi, good morning, we're likely to get announcing from Osophy later today on buybacks and.
Dividend increases and I just wanted to check in with you Roy in terms of updated thinking on on that and your intentions, specifically for the buyback in particular.
Good morning, many continue from you.
We intend to resume dividend increases when the regulatory restrictions are lifted we've said that in the past and we remain committed on that front and.
And we moved broadly remained committed to our dividend payout ratio of 30% to 40% something that we.
Very focused on over other 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 is 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.
You you show a slide 17 quite often in terms of capital over the supervisory target.
How much of that is actually deployable capital of that 25 billion that you're showing there what how much of that.
Is actually something that you can deploy.
Yeah. So let me start on that and I'll hand over to fill many.
Our focus on Capitol has been an agenda item for us for at least four years, we declared in 2017 now focus on portfolio optimization and alcohol to free up $5 billion worth of capital that's.
Being not only a an area of focus but since it's been an area of execution strength, where we actually exceeded our target. Three is ahead of the schedule that we had articulated in fact as a cue to Ah sorry, Q3 of this you are already up to $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 well.
Having excess $10 billion over and above are 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.
I think that would certainly helped us navigate the uncertainties of the pandemic and has 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 why I think we're in an enviable position in that we don't need M&A transactions to deliver against them medium term targets.
But we will transact if that's something that we believe we can create value from and I will just remind everyone that over the last 18 months, we have actually.
Ah deployed capital Inorganically, we've extended extended our bank agreement with banked on them on in Indonesia, We entered a 16 year partnership with B as in banking Vietnam, We acquired the Aviva portfolio, we pulled the JV with Mahindra in India. So again strong capital position is really certainly put us in a position of confidence as we navigated the answer.
In times of of the pandemic.
We've got plenty of opportunity to deploy out capital organically, but we weren't shy away from inorganic transactions, if that makes sense and if they're on target.
Thanks. Thanks Roy this is filled just to supplement the to narrow the $25 billion really made a key point that the capital, but we have in excess of the upper end of our internal pricing Orange is $10 billion, we provide that 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 ratios in a really strong position, 25.5% very close to a medium term target level and that does provide supplementary significant financial flexibility on top of what's in the line account ratio.
Thanks.
Thank you. The next question is some Gabriel Duchaine from National Bank Financial. Please go ahead.
Alright quick one on the.
L D C experience in the U S. There was an favorite poetry, you just give up.
More context on the nature of of what was happening again.
Claims to high mortality kinda of something like that.
And then on the <unk> 17 question last week, a couple of you U K banks provided disclosure on the impact.
To their insurance subsidiaries, it just B C and Lloyd they said their earnings and insurance could drop by about a third if not more one of them HSBC somewhat similar business profile, the yours, very new <unk> new business games heavy.
Wondering if you're putting me additional thought on you know impact for my first 17.
Thanks, Gabriel It says Steve here, all all tackled the LTC question and I'll pass it over to Phil on the I F. R. 17 are LTC experience in the quarter was actually positive. It was favorable yeah and I can describe what what we saw going on there.
Sure we continued to see the impact of mortality an elevated mortality on LTC on both are active lives and for those customers on claim not as significant as we have seen in some quarters during the pandemic, but still evident and then in terms of incidents.
Incidents.
And <unk>.
Going on claim we saw incidents levels that had been tracking back towards prepandemic levels that reversed a bit in Q3, but we also saw customers that have suspended care resuming care. So I 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 and we do and we do continue to hold significant IP in our four customers that we believe will seek care again, so weak we did not change the I P. N R. This quarter.
There was a negative experience policyholders very familiar with.
<unk> <unk> <unk> <unk>.
So the the overall policyholder experience right. Yeah. So I think gave if I give you I think I need to get the broad perspective on policyholder experience because I'm a claims broadly we continued to see offsets in our portfolio as we have done throughout the pandemic policyholder experience.
In 2020th total company was a positive and year to date in.
21 is less than $10 million loss. So we did have negative policyholder experienced in Q3 on the claims front. We saw the continued diversification. So we saw.
Losses in U S. Slice, we saw losses in on 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 a group experience. So claims work largely neutral, but with some moving parts and then lapse experience what we saw when when the pandemic started as Phil mentioned it is prepared remarks, we saw customers really valuing them.
[noise] insurance products, we saw drop and lapse rates and that has that has driven some losses that we're seeing come through.
About half for a little over half of those losses are economic impact on our North American protection products, but the other remaining almost half as 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 her on lapses is in the global financial crisis.
Different shock, but a shock to the system, we saw similar things happen where customers stop making decisions. We saw lapsed rates on protection products drop and those rates trended back to pre global financial crisis levels. After the the shock was over and that's.
My expectation of what we'll see you know as we come out of the pandemic that.
Lapsed experience will trend back to a more normal levels over time.
Great. Thank you Steven gave this is Phil I'll touch on the I first 17 question I just wanted to score upfront. A reminder, if something we said that invest today that I first 17 doesn't impact the fundamentals of our business. It it's really accounting that impacts when where and how items are recognized.
In the financial statements, but to a point on the development that we sort of the course of the last week with some of the UK banks have provided a bit of provided an indication of the impact of I have for a 17 on earnings I do want to highlight that the current accounting standard I for us accounting standard.
Insurance contracts I have for us for two minutes a continuation of prior practices until such time that I have for a 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 sheets and that results in.
In present value of enforce business, an intangible asset being recognized internally generated intangible asset being recognized with unbounded new business value flowing through the income statement, we don't do that it's a very different valuation basis to the the Canadian calm.
Mm valuation basis, and therefore, I don't believe that it's a good reference point in order to estimate the impact of first 17, four Manulife aswell.
As we continue the process of preparing for adoption of I first 17, we will continue to have dialogue with you. We started that process. It's invest today and we we intend to expand on that as we go through 2022.
Alright, so their their new bingo games or higher because they are on padded I think I got that.
That's one that's one of the key differences that tried our best estimates liabilities without pads got.
Got it thanks.
Thank you. The next question is somehow Philly from dialing in partnership. Please go ahead.
Oh, good morning, and thank you for taking my questions. My first question is whether they to use sales, especially.
<unk> we've.
Seeing a very strong demand, which just feel a little bit kind of surprising given D. D industrywide sales seems to be.
Seen recovery from the overview of basis does not particularly strong. So just wondering what are you seeing in terms of driving that strong demand for your own life insurance products.
And then my second question is April Steve just try to see if you can provide some more detail in terms of the assumption updates that have taken then you have on the top thanks.
So I'll get started Humphrey it's Marianne. Thank you for that question around the sales the market actually in the U S is quite strong in the quarter. The market was up about 17% we were up 24% so higher than the market as for I had talked about our market share rank in queue to actually improved as well from nine a year ago to seven this year.
We have I've seen a lot of strength a lot of it too relates to Covid I'm sure in terms that as people are looking at the impacts Covid has had has made people much more aware and I think that's been true for the whole industry, we've been stronger than the industry and a lot of our strength has to do with some of our differentiators like vitality I vitality sales are up 84 <unk>.
Sent 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 not really brings both of those two things together. So we seen strong sales as it relates to that.
So that was on our brokerage side International sounds just as a reminder, rose up into the U S. As well and we had a really strong corner, where I mentioned it we had a racket in Q3, we're on track to have a record year Ah Q3 record just didn't you know b R. A previous record by 22%. So very strong sales and we've probably had the most diversify proud.
Asked 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 have over 70% of our applications to come into the producer portal. So it is good to see that it that we've done a lot of things on the digital find what you're really helping sounds so overall sales have been strong.
My outlook has we look for it is to continue to see some of that you know we still have a healthy pipeline. So we're all thank you for is another strong quarter as well.
Thanks.
[noise], Thanks, Maryanne and thanks, I'm free I'll touch on the the assumption review and I'll 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 <unk>.
Modest not charge a $41 million, we reviewed a variety of assumptions as we normally do a comprehensive study variable annuities, we saw a modest charges. We updated all of the assumptions some of the drivers were laps rates as well as reflecting.
On on policies that move into effect effectively a 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.
<unk> experience for one particular block of R. R. U S business and reflected hire older age laps mortality rates, we 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 emerging experience up to the end of 2019, so pre COVID-19 and what we've seen narrow 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 experienced that we saw those lax rates they were below 1% and we'd lowered them. Further so that's some context for just how low these laps rates are and you know.
Over time as we've strengthened our laps assumptions, we have seen experience come more into line with with our assumptions.
Expenses we.
What we're seeing there is really a reflection of our the execution of our strategic priorities and the medium term targets that we set we've seen benefits from.
Scale benefits in our investment expenses and the benefits of of expense initiatives across our businesses are keeping us we've only reflected expense initiatives through 2021.
If I can 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 I'll pause there, but happy to drill in further on any of those.
That's very helpful. I guess just.
In the interest of time for the Ascension updates any kind of change it to kind of expected profits going forward.
At the total company level, no material change and 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 Matralia company level.
Got it thank you.
Thank you. The next question is from Scott can from Canaccord Genuity. Please go ahead.
Good morning, but maybe two questions for Neil on Asia first specifically on Japan thought earnings were relatively strong this quarter.
For the past quarter, but insurance sales and Queen Covid, we're down significantly so maybe I'll.
US reconcile those two teams in the quarter and going for it and just an overall age we've talked about sales being down with lockdowns in certain regions, but like how was competition then like in Asia in general during the pandemic and and has that affected pricing and that'd be it.
<unk>. Thanks.
Thanks for the question and let me start with Japan, So Ah before launching too talking about Japan, If you look at Asia.
At at the mall portfolio in our country portfolio level are good emphasis has been on Asia other add on Hong Kong and towards that for example, Asia either in 2020 contributed to 36% off or earnings as opposed to only 60.
10% in 2015 in Japan are primary focus as we've communicated earlier Israel has been on in force and unexpected efficiency an account of the measures that we have Ah daykin. Both of these fronts you can see that translate into the 6%.
On court earnings in in quarter 344, Japan. If you wanted to kind of look forward art focus again in Japan will be primarily on on in force and an expense efficiency that decline on sales that'd be witness was largely on account of golly.
And clearly has now seen successive attacks through changes that have impacted the quality value proposition and the latest one was introduced in quarter three off off off 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 experience in the past and just as an example quality was only 12% of our sales makes them three and almost too 50% plus Ah you're back same same same quarter do.
We are question around competition and pricing.
So I did mention in the outlook remarks that if I were to kind of even <unk> back to 2019, when we experience.
Significant disruptions for example in Hong Kong, and then transition into 2020, a baby found the full backlash off of Covid and even when we kind of transition into 2021 throughout these AB throughout these years, we have been able to gain market share in many of our geography then.
That's on account of a few reasons one we have made significant investments and going out agency. So if you go back to 2017 not agency force with approximately 70000 now we are at approximately 118000 agents at an exclusive bank partners I think that they add significant.
Level of strength and diversity to our to our sales make and as Roy alluded in his opening comments b have made specific investments in modernizing our technology, which has impact on board customer experience, but also on distribute it experience, enabling distribute us to become Ah.
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 gain market share gains that we have now witness for several several quarters on the pricing front I mean, this is part of our <unk>.
I'm in a disciplined and we have an experiencing on living in the low interest rate in modern men all for some time now and on the back of that we've taken a number of measures. We've been repricing of products. We had been driving a different product makes you know more towards a higher higher margin products as well.
It had been very disciplined on expense efficiency and all of these factors is kinda, resulting into the new business value margin growth that'd be a witnessing in Asia as I said, despite the pressure that'd be bitterness on sales encoded three we were still able to grow on new business value by a healthy 15 <unk>.
Sent year on year.
Thank you. The next question is from David <unk> modem, Adam from Evercore ISI. Please go ahead.
Hi, Thanks, Good morning, I had a question just in terms of you know the the potential V. A transaction that was discussed earlier.
I was wondering.
During maybe if 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 you know the need to reduce leverage after that if if that would be a potential use of use of the proceeds.
Yeah, Let me stop AIDS I would thank you for the question and I'll get the first comment I would make is that I still want to get too far ahead of ourselves on.
Regulating on what we would do we first priority sexually executed transaction that that's something that we're we're focused on obviously, we also feel that it's important.
Wait 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.
Buybacks will be certainly one opportunity for us, but we also see.
The opportunities to deploy capital Inorganically as well so it's sort of probably just leave it at that at this stage.
Oh.
And then I guess just another one on iron for a 17.
For Bill could you just remind me if this will have any impact on the cash flow generation of the of the business as a whole.
Oh, Thanks, David This is Phil So we're not expecting my first 17 to have significant impact on question or cash flow generation from our operating units. That's all the the the key thing on I have first 17, the accounting changes that of course as I said earlier.
Impact how and when were 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 neutral that is consistent with the messages that.
I'll see who's given.
And then as I said earlier from a an operating subsidiary perspective, I think Canada is somewhat distinctive in that I F. R. A strives the the basis for capital treatment and 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 you know does not utilized local accounting you know Hong Kong accounting in Japan, FSA accounting, it's on Canadian I a R. S. In Barbados and so my thought was Oh is is there a risk to capital generation because.
The impact of new business games will be going away.
And just to clarify that David I don't expect.
I don't expect an eye for a 17 two materially impact remittances from operating subsidiaries, including the the reinsurance structures that 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 day shopping capital markets. Please go ahead.
Good morning, just maybe back to Steve on the laps discussion in the annual review of actuarial assumptions I mean lapses Ben.
A headwind for most life goes for the last 10 plus years in terms of charges.
And so you took charge is up to experience at the end of 2019, but you had negative flops experience at the U S Division.
In the corridor and then you also mentioned in your remarks that you do expect that lapse will trend back more favorably as as conditions improve and we get out of what we're in today. So I'm just trying to kind of reconcile.
What we're seeing today and.
Did you not taken us in terms of blobs charge or is the labs experienced that you're seeing different than what you looked at within the assumption review.
And how you were thinking about that.
And thanks, Doug Yeah, I can clarify that so with with all of our studies, we reflected experience up to 2019 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 impac.
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 their 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.
In the news a risk item people valued their insurance coverage in this in this time. We also saw interest rates drop further which I think drove.
At the margin these laps rates as well this experience again is consistent with.
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.
Very much expect lapsed rates to trend back to levels before the.
The pandemic Cat you know what I think what it'll take to do that is the pandemic to be you know not in the news item every day 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 it is my expectation.
So you're assuming just to clarify that you are assuming that lobster, aged but then you're reserving there's an assumption that lance ready to go back to prepandemic levels to some degree.
Correct, we've reflected the experience through 2019, we reflected those lower lapse rates in our assumptions and the experienced prepandemic clients 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 comments 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 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 as I said I'd as we execute on the strategic priorities in terms of growing or 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 you know.
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 add 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.
[noise]. Thank you good morning have a couple of questions for you related to you you can I guess.
First cause I Wanna get a little bit of a better understanding around how V. A has impacted some of the non core earnings items over the last year. If at all if there's obviously been a lot of.
Quarterly volatility and market related impact for obvious reasons, and then also big swings and investment related experience outside of core. 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.
Yeah.
It's.
Can make a start on that and then Scott may want to chime in.
We've got a very effective hedging program on our on that USEPA business. So experience has been investment experience where market experience has been quite.
Quite well managed however, there is some quarterly noise that that we see.
Through with 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. It was a slight gain due to the underlying funds outperforming their benchmarks one of them.
Work with the volatility.
The other sorts of volatility as Steve mentioned is when markets move 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 underperforming of of the underlying funds as well as the 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, how how bad it you got.
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 and asset 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 way I'm segment.
Okay. Thank you.
Alright.
Thank you 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 core in a throat in Hong Kong, specifically and if that level of sustainable I guess tends to be a material step up this quarter over what we've seen over the past year and I'm, just a little bit surprised getting 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 area of significant strength, even as I said, if you go back to 2019 of N b, a and facing challenges and during during the Covid beat it and.
Certainly rebounded exceedingly strongly in the first half off.
21, we have continued to gain market share.
In Hong Kong and that is at the beautiful largely to the investments that we've 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 for Saturday.
We have we had the D. B S 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 strength on account of a number one position in the M. P S business and that.
That in combination with the distribution strength, the digital capabilities and a significant investments that we've made to modernize our technology has Abe has has been instrumental in Hong Kong gaining market share sequence Lee now as I said for multiple multiple quarters be Billy.
Leave and feel confident that this is sustainable and in fact O b as in Bender 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 shedding so that actually would go and complimented the strength that we have.
In the local Hong Kong market, and we had already kind of I, just said, making investments to be able to address that opportunity as and when the borders open up so we feel very confident and it just kind of as I said underpins 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 <unk> yourself back here to 48 million if I look at the prior four quarters, it's kind of round and call. It. The 215, there's one quarter of 230. So there's nothing one time in nature in Q3 21.
You 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 very disciplined on repricing very different discipline and driving product mix as well as Ah Hong Kong has done a superb job.
And 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 translate into the quote earnings jumped at your witnessing in Hong Kong.
Okay. Thanks. So then my next question is for sale I, just Wanna Circle back on.
And classy on the leverage ratios, 30% the right way to think about the top end of what you'd let that get too.
I I. Thanks him off the question. This is Phil I don't think that 30% is necessarily the cat, but I think it's a good indication of.
A good measure of flexibility that we have from twenty-five currently at 25.5%.
If you go back as recently as 12 months, you'll it's 12 18 months, you'll have seen the leverage ratio close to 30% quite comfortable to go with that and in fact, it sometimes it makes absolute sense to go to so that we can take advantage of a favourable markets in order to reposition.
<unk> that portfolio, so yeah <unk>.
A substantial flexibility above 25%, 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 Mariel Mendonca M. T V Securities. Please go ahead.
Good morning, right I'd like to kind of go right to them.
Why.
Why this stock just about work or hasn't worked in some time now and one of the first things that.
I wanted to address is.
You know 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, but it really can be sold like what makes you confident are are there.
Are there bidders are there real legitimate more than one bitter are there any meaningful impediment in Canada that would keep you from selling to be a business 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] morning, Mario Thanks for the question.
Uhm, 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 for one.
Hundred 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 with the third largest pan-asian player were growing at a much pay for many of a competitive gaining share growing margin growing profitability. So that opportunity is still hugely significant and we feel very excited about that and.
The 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 continuous executed get against that agenda has got a look a lot of value.
On the way and thought about business again, we see a lot of excitement and a lot of opportunity Ah you did 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.
Retail institutional in retirement and again al Wham business. This year has grown 35% earnings and Alcor EBITDA margin above 30%. It was only a few years back that we were looking at 25% consistently now where we've had five consecutive quarters, where we've delivered court EBITDA margin above 30, and this quarter was no exception. So we can.
We see that is a huge opportunity and one that will capitalized on the.
The growth in the balance sheet of Asian consumers, but 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 us 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.
But 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 in da businesses go from 25% contribution to core earnings to 15%.
Organically and this is not over 10 years. This is by 2025. So this is in the in the.
The not too distant future and we also articulated that we believe that we can get their contribution down to 10% or less.
When with supplementing our organic if it's with 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 boys that are willing to talk about transactions than they were.
Two three years ago, and again, we've 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 <unk>.
Tremendous opportunity with without franchise 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.
Feel very optimistic not just on inorganic ethics, but also organic efforts to really improve profitability buybacks. For example are another way that we're going to be able to reduce their contribution, but but that's a broader agenda, we're going to need to demonstrate progress on that too to unlock value in it.
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 at it ultimately what we're seeing here is the gap between many lives R. O E and your peers. Some life in particular, but the same is true forget was light 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 just talked about the mix of business. One one reason in particular that I've tried to address on a few occasions is justice unallocated overhead expense at 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 and the U S. There's no lifeful that I look at her bank frankly, with an an allocated overhead that'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 that high does it relate mostly to Asia like what is this big on allocated expense money.
Yeah. Thanks again for that question Mario Let me start and then I'll ask bill 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 Thursday.
Percent and.
And we still great progress on that front 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 seven per se row.
And I do feel the key drive is they're going to continue to help us drive our row improvement will be the growth agenda that articulated continuing to grow our high potential businesses, which are also our 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 that business as so as we grow Asia as we grow wham, which have significantly higher Ro di.
They are certainly going to help lift their row to a new plane at the same time really reducing the contribution of L legacy businesses, VLCC and getting them to less than 10% is also going to be a force multiplier with helping our our way 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've 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 at the same 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.
Roy 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% again this is being an area of focus through L. L strategic cost management if it.
Our efficiency either died this year is $48 nine which is lower than that target. We think that there's continuous areas for us to improve on our efficiencies to drive even greater improvement we've done a lot on the digital front.
That's ultimately translated not just into cost efficiency, but actually better experiences for customers Rmp's 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 the cost is 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 chime in specifically to talk about corporate expense.
Center and the costs that are that are included in those numbers.
Yeah, Thanks, Troy and thanks for the question Mario from.
I'm 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 gap is a cause for concern our approach for determining what to read.
Charge is really being informed by not just the absolute customer, but also sources of revenue components.
Components of cool runnings in the corporate some other segment and they're all contributors to earnings in the segment of course, we have the PNC reinsurance business, but we also have it's where we recognize the existence.
Excess investment games, the core investment games that flows through into Cooper's mother. 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 you Mr. <unk>.
Thank you operator, we 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.