Q1 2022 Manulife Financial Corp Earnings Call
Please standby your meeting is about to begin.
Be advised that this conference call is being recorded.
Good morning, and welcome to the Manulife financial first quarter 2020 financial results Conference call. Your host for today will be Mr. Hong Kong. Please go ahead Mr Ko.
Thank you welcome to many life earnings conference call to discuss our first quarter 2022 financial and operating results call.
The earnings materials, including the webcast slides for today's call are available on the Investor Relations section of our website at Manulife Dot com.
Turning to slide four.
I'll begin today's presentation with an overview of our first quarter highlights and an update on our strategic priorities by Roy Gori.
And Chief Executive Officer.
Your wife's remarks feel Worthington, our chief financial Officer will discuss the company's financial and operating results and provide an update on our key implications.
17 on Manulife financial results and key performance indicators.
After their prepared remarks, we looked at our life as a portion of the call. We ask each participant to adhere to a limit of two questions, including four blocks.
Additional questions. Please re queue and we will do our best to respond to everyone.
Before we start please refer to slide two for a caution on forward looking statements and slide 39. We note are the non-GAAP and other financial measures used in this presentation.
Certain material factors or assumptions applied in making forward looking statements and actual results may differ materially from what is stated.
With that I'd like to turn the call over to Roy Gori, Our President and Chief Executive Officer.
Right.
Thanks, Tom Thank you everyone for joining us today.
Yesterday, we announced our first quarter 2022 financial results.
Our diversified footprint operational resilience and who's a digital capabilities enabled us to deliver solid results in the first quarter. Despite a challenging operating environment caused by the resurgence of COVID-19, and global market volatility.
You'll see on slide six we delivered solid core earnings of $1 $6 billion, a modest 1% decrease from the prior year quarter as we continued to benefit from the diversity of our businesses.
And we also reported net income of $3 billion, an increase of $2.2 billion over the prior year quarter, reflecting strong investment related experience and a gain from the closing of the U S variable annuity reinsurance transaction.
We achieved new business value of $513 million.
The resurgence of COVID-19, and its highly containment measures impacted many of our markets in Asia and more wood.
This was partially offset by double digit growth in both Canada and the U S exemplifying the benefit about business diversification.
While the rapid and unprecedented resurgence of COVID-19 disrupted new business activities in multiple markets in Asia.
Boyd digitally enabled and well established distribution channels delivered double digit growth did I T cell any disease relative to the average level. During the first wave of the pandemic in the first and second quarters of 2020.
And global lab had another quarter of strong net inflows generating 2.9 billion positive contributions.
<unk> and.
And business lines.
Finally, we reported embedded value of $64 $8 billion or $33.35 per share as of December 31 2021.
An increase of $3 $7 billion or seven 3% from the prior year.
We believe that embedded value is an important valuation metric.
Additional information on our embedded value can be found in the appendix and El <unk> 2021 embedded value report.
Turning to slide seven.
We are laser focused on delivering on our strategic priorities.
Highest potential businesses accounted for 63% of total company core earnings in the first quarter of 2022.
In Asia.
We come in offering insurance solutions to different banks 14 million customers as part of our exclusive 16 year Bancassurance partnership in Vietnam.
And in our global wind business, we announced the launch of the real asset investment strategy in Canada.
Would you provide the investors access to a mix of global private and public real estate investments.
The benefits of <unk>.
On the asset exposures with the liquidity benefits of allocating the public markets.
We continue to execute on our ambition to be the most digital customer centric global company in our industry.
In Asia more than 10% of IP sales resulted from leads generated using advanced analytics to identify additional needs from existing customers.
We launched an enhanced manulife vitality mobile app experience in Canada, or our individual insurance business, giving you a new look and feel with easier navigation.
The drive member engagement.
In the U S. We enhanced our E S by implementing automated background checks, which reduced onboarding cycles from three weeks to five days and reduced costs and call center volumes.
In our global Wham retirement business, we enable registration directly through the mobile App in Canada.
Solving and approximately 50000 Canadian customers using our mobile application by the end of the coil.
We've made tremendous progress on our digital journey.
Evidenced by the 'twenty 'twenty improvement in our net promoter score from plus one in 2017.
One in 2020 one.
In recent months, our service levels were impacted by temporary workforce capacity constraints.
And at the end of the first quarter. The rolling four quarter average M. P. S was tracking below out 2022 target.
We're taking actions to boost the average M. P S in 2022.
We are committed to continuing to execute on our strategy to attract engage and retain customers by delivering an outstanding experience for every interaction.
We remain on track to achieve our 2025 supplemental go.
37.
In line with our semi annual reporting of MTS, we will provide a more fulsome update without second quarter 2022 results.
Turning to slide eight.
We continued to drive progress on our expense efficiency portfolio optimization and high performing team priorities during the quarter.
We achieved an expense efficiency ratio of 50%. Despite a modest decrease in core earnings as we continued to proactively manage costs amidst a challenging environment.
We closed the variable annuity reinsurance transaction in the U S with a deal multiple.
All 11.8 times.
<unk> $2.4 billion of capital.
And we commenced share buybacks to deliver shareholder value and neutralize the impact of the transaction on core EPS.
Turning to slide nine.
During the first quarter, we witnessed a rapid and unprecedented resurgence of COVID-19 in Asia.
The spiking daily you confirmed cases.
Second we exceeded quite wide for many of our markets.
This resulted entirely containment measures, notably in Hong Kong mainland, China and Vietnam.
These containment measures I've challenged the broader economy, and the insurance industry as a whole.
We are encouraged to see recent signs of stronger customer demand returning payscale Aussie Clinton.
For example in Hong Kong, we saw confirmed cases decreased from the peak of 77000 daily to 300 daily as of May 1st.
In consignment mentioned have begun some relaxing in late April .
Turning to slide 10.
Despite the ongoing prevalence of COVID-19, we have.
Demonstrated a strong track record in managing the challenges over the past two years.
A clear example is our Hong Kong business will regain market share and increase that ranking by one spot to number five on insurance and retained our number one market condition and MTS in 2020 one.
We have delivered 19 consecutive quarters of year over year growth in core earnings.
We've also scaled and digitized out distributions, both growing agency head count by 7% and increasing our epos active agent adoption so over 80%.
R&D the margin improved three percentage points this quarter compared to the prior year as.
As we focused on increasing health and protection mix.
In scaling out move platform to help more customers become healthier.
Since the outbreak of COVID-19 in 2020, we delivered resilient results due to the investments that we've made into our talent digital and distribution channels.
As markets across Asia, and navigate the challenges of the pandemic.
We continue to be well positioned to serve our customers' needs.
The strong demand that we witnessed in North America, and ongoing attractive Megatrends in Asia give us optimism about the opportunity as those markets recover from the pandemic.
Turning to slide 11.
We delivered solid results in the first quarter of 2022, and I'm very proud of the performance of our business during the quarter. Despite a challenging operating environment caused by the resurgence of COVID-19, and global market volatility.
We closed the transaction to reinsure, the 75% of our U S variable annuity business with a deal multiple of 11.8 times and released $2 $4 billion of capital.
We remain committed to generating shareholder value as we commenced share buybacks and neutralize the impact of the transaction on core EPS.
Our solid foundation global presence diverse business and continued strong execution uniquely positions us to succeed and deliver on our growth targets.
Thank you and I'll hand over to Phil Witherington, who will review the highlights of our financial results and provide an update on line for 17.
Thanks, Troy, we're off to a solid start to the year, despite a challenging operating environment.
I'll now highlight the key drivers of our first quarter results.
Starting on slide 13, we generated solid core earnings of $1 $6 billion in the first quarter of 2022, a modest 4% decrease from the prior year quarter. This year over year change was driven by a number of factors lower new business gains in Asia.
And unfavorable impact of markets on seed money investments.
Hello of in force earnings in U S annuities due to the variable annuity reinsurance transaction that closed on February 1st.
These items were partially offset by experience gains in force business growth in Canada, and Asia higher fixed income yields and a lower cost of debt in corporate and other.
Higher new business gains in Canada, and the U S.
Note the unfavorable impact of markets on seed money investments was $63 million and consisted of approximately $37 million from equity funds and approximately $29 million from fixed income funds.
The overall amount was larger than I'll disclose sensitivity would imply mainly reflecting the impact of material interest rate moves not contemplated in our sensitivity.
Net income attributed to shareholders of $3 billion was up $2.2 billion from the prior year quarter, reflecting gains from the direct impact of markets again related to the U S variable annuity reinsurance transaction and larger gains from investment related experience.
Note, we recognized a gain of $658 million from investment related experience $100 million of which was included in core earnings as core investment gains with the remaining $558 million reported outside of core earnings.
We recognized other gains of $763 million largely driven by a onetime after tax gain of $842 million from the U S. C. A reinsurance transaction the cumulative net gain from this transaction is $802 million after including a one time after.
Tax loss of $40 million recognized in the fourth quarter of 2021.
The gain of $207 million from the direct impact of interest rates was due to the flattening of the yield curves and gains from widening corporate spreads partially offset by realized losses on sales of E. S. S bonds.
The impact of equity markets in the quarter was a loss of $110 million.
Slide 14 shows the recent history of our investment related experience over the past three years, including through the pandemic and related market volatility. We have continued to generate strong investment related experience.
While experience can vary period to period since 2019, our investment related experience gains have well exceeded $100 million on average each quarter.
The average quarterly gain of $212 million since the start of the pandemic. In early 2020 is also comparable to the average of $192 million, we reported during 2019.
Overall gains from fixed income reinvestment have been strong and steady and credit experience has been a reliable contributor.
<unk> has also been a contributor over this period, although the experience third significantly quarter to quarter due to its mark to market nature.
Through the cycle, our older portfolio has performed well and exceeded our long term return assumption as I noted in our fourth quarter 2021 results.
Slide 15 shows our source of earnings analysis for the first quarter of 2022 compared to the prior year quarter.
Expected profit on in force increased 3%, excluding the impact of the U S. C. A reinsurance transaction the increase was a strong 7% from the prior year.
New business gains decreased by 31% from the prior year period, primarily driven by lower critical illness sales in mainland China lower sales in Hong Kong and several markets in Asia other due to the strong COVID-19 wave.
Well as lower coli product sales in Japan.
Policyholder experience was a net favorable $50 million on a pretax basis, reflecting the diversified nature of our business.
Favorable experience in U S long term care more than offset losses in U S life.
And Canada recorded a net favorable experience, while Asia was largely neutral.
Slide 16 shows the recent history of our policyholder experience as we mentioned previously the pandemic and related macroeconomic environment impacted our policyholder experience differently across product lines and geographies.
The diversity of our businesses and our use of reinsurance provided an offset and on a cumulative basis since the start of the pandemic in early 2020, the net impact was close to neutral in fact slightly positive.
Slide 17 shows our earnings by segment and return on equity.
We delivered core earnings growth of 4% and our global wine business, reflecting growth in net fee income.
Core earnings in Asia decreased by 5% driven by lower new business volumes in Hong Kong in several markets in Asia other reflecting the adverse impact of COVID-19 containment measures lowest sales in Japan, and unfavorable product mix in mainland China.
Core earnings in Canada increased by 19%, reflecting higher enforce earnings more favorable policyholder experience and new business gains in the individual insurance business.
Core earnings in the U S decreased by 3% largely due to the V a reinsurance transaction excluding.
Excluding the impact of the transaction on enforce earnings core earnings would have increased 4% as compared to the prior year quarter.
The core loss in corporate and other increased by $91 million, primarily driven by the unfavorable impact of markets on seed money investments.
And we delivered a core ROE of 11, 8%.
Turning to slide 18, which shows our a P E sales and new business value generation.
In the first quarter, we generated AP sales of $1 $6 billion down 9% from the prior year as growth in North America was more than offset by a decline in Asia.
In Asia, a biggie sales decreased 17% due to adverse impacts from COVID-19 in Hong Kong and several markets in Asia other as well as lower coli product sales in Japan.
We delivered new business value of $513 million down 14% from the prior year quarter.
In Asia, New business value decreased due to the factors I noted earlier and unfavorable product mix in mainland China.
This was offset by double digit MBV growth in North America, as we continued to see strong customer demand in our Canada and U S insurance businesses.
Turning to slide 19, our global wine business continued to benefit from our geographic and line of business diversification as evidenced by strong net inflows of $6 $9 billion and gross flows of $38 $5 billion in the first quarter.
In retail net inflows with $4 billion compared with net inflows of $6 $5 billion in the prior year quarter.
The decrease was driven by lower gross flows mainly in fixed income products and higher mutual fund redemptions in Canada.
Institutional asset management net inflows were $9 billion compared with net outflows of $7 $2 billion in the prior year quarter.
The increase was driven by the non recurrence of a $9 4 billion dollar redemption by a large institutional client in the first quarter of 2021.
In retirement net inflows were $2 billion compared with the $2 $1 billion in the prior year quarter.
Overall global ones average AUM, a increased by 8% compared with the prior year quarter driven by market performance over the past 12 months and continued net inflows.
Net fee income yields decreased by half a basis point to $42 nine basis points, primarily driven by a modest decline in Z spreads and our core EBIT margin increased 20 basis points driven by growth in net fee income, reflecting higher average AUM a.
Turning to slide 20, we.
We continued to maintain a strong balance sheet and capital position we.
We have $25 billion of capital above the supervisory target and our light cat ratio of 140% is strong.
The two percentage point decrease compared with the fourth quarter was mainly due to the impact of higher interest rates, partially offset by capital released from the U S. C. A reinsurance transaction.
Our financial leverage ratio increased by <unk> six percentage points from the prior quarter driven by a net issuance of securities the impacts of higher interest rates on a F. S bonds, a stronger Canadian dollar and share buybacks, partially offset by growth in retained earnings.
We commenced share buybacks and purchased approximately three quarters of 1% of our common shares in the first two months following the U S. P. A reinsurance transaction demonstrating our commitment to deliver shareholder value and neutralize the impact of the transaction on core EPS.
Slide 21 shows the summary of our financial performance for the quarter.
The mixed performance of our profitability and growth metrics reflects the impact of a challenging operating environment without global strength and diversity being a notable michigan.
Balance sheet remains strong and provides us with financial flexibility to deliver on our strategic and capital deployment priorities.
Slide 22 outlines our medium term financial targets and recent performance.
While some of these metrics are tracking below our targets. This quarter, we're pleased with the performance and resilience of our business given the temporary disruption caused by the resurgence of COVID-19, and global market volatility.
We remain confident in our ability to continue to deliver on our targets over the medium term.
Turning to slide 23, I'm pleased to give an update on the key implications of iron for 17 of Manulife financial results and key performance indicators.
Before I start I want to remind you that the new accounting standard does not impact the fundamental economics of our business or our financial strength claims paying ability or dividend capacity, though it will impact where when and how specific items are recognized in the financial statements.
There are a few key items that I want to walk through with you.
First a contractual service margin or C. S. M for short will be established on our enforce business at transitioned representing unearned profits and will be treated as available capital under Leichhardt.
Overall, we expect a decrease in equity of approximately 20%, mainly driven by the establishment of C. S N at transition.
Second as we write profitable you insurance business our C. S N balance will grow since CSN will amortize into earnings in the future a growing CSN will be an important component of future earnings growth.
Third.
Recognition of new business gains and sets and investment related activities will be deferred under eye for 17, and therefore, we expect a reduction in core earnings of approximately 10% upon adoption.
Fourth we expect I fresh 17 to improve the stability of our earnings relative to I F Restful.
Fifth our.
Our capital position will remain strong and in Iff's 17 environments and we also expect a light cat ratio to be more stable than is currently the case under com and I for us full.
Finally, as a result of the adoption of the new standard some of our medium term financial and operating targets will be increased and we are confirming the remaining targets are unchanged by <unk> 17.
Slide 24 highlights the expected changes to our medium term financial and operating targets West some will be increased upon transition to <unk> 17.
Our core ROA target will be increased to 15% plus from the current 13% plus driven by expected changes in core earnings and equity.
And we do not expect material changes to our remittances or changes to our dividend per share or its trajectory.
As a result, the target dividend payout ratio range will be updated 235% to 45% from the current 30% 40%.
We are confirming our remaining medium term financial and operating targets under eye for 17, However, given the CSM represents unearned profit and available capital under Leichhardt, we intend to adjust out definition of financial leverage ratio to include the C. S N in the denominator.
And given the CSM is an intrinsic part of the value of the business and an objective metric that illustrates the growth and future earnings generation capability of our insurance businesses on transition, we will be adding two new medium term financial targets relating to the C. S N.
<unk> business CSM growth of 15% per year and C. S N balanced growth of 8% to 10% per year.
After this call we will release, a presentation and video which will provide additional information on the impacts of <unk> 17 adoption now financial reporting and targets. These materials will be available on our Investor Relations website.
This concludes our prepared remarks, operator, we will now open the call to questions.
Thank you.
We will now take questions from the telephone line. If you have a question and you're 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 there'll be a brief pause all participants register thank you for your patience.
And the first question is from many grauman from Scotiabank. Please go ahead.
Hi, good morning.
You referenced the unfavorable product mix in China I'm, just wondering if you could give us a little bit more detail on that.
Is that COVID-19 related or is that something else.
Thanks, Mehdi this is advani so.
If you recall, we had mentioned at.
Our previous earnings call that we are seeing regulatory changes at an industry level that are impacting the critical illness proposition and as a consequence of that we saw a very different product makes a year on year, we had a resounding.
First quarter 2021 in China and on account of some of the adjustments that we had been making in response to the regulatory changes the product makes a was significantly different in quarter. One of 2022, so that effectively kind of drove that defense I do want to kind of qualify that southeast James.
While it that's going to create a challenge for us in the short term our pharma medium to long term perspective that is good for the sustainable growth of our insurance business in China.
Thanks for that and then just more broadly on Covid.
I think Roy.
In your presentation about some of the case counts are coming down, especially in Hong Kong do you have a sense of when this is the million dollar question of when.
He's very restrictive measures will ease off is there any.
Since you have in terms of timing there when we'll actually see.
A more open sales environment and in Hong Kong, especially but more broadly as well.
Yeah. Thanks, Manny, let me start and I'll hand back to Aneel to provide a little bit more color and flavor.
The thing that I would say is that in Q1 of this year, we saw a really unprecedented resurgence of COVID-19 in <unk> in Hong Kong, but in other markets in Asia and really was dramatically anything we saw in prior lives and the example that I gave earlier was that of Hong Kong, where we saw a COVID-19 case.
Hi of 77000 on a given day in the quarter versus the previous high of about 150 cases per day.
The encouraging sign is that we're seeing COVID-19 case counts.
<unk> significantly which is what we saw in North America quite frankly other parts of the world in May for example, in Hong Kong type Count came down to about 300 and that is certainly a big positive. So in general we see that the situation. We saw in Q1 was more temporary in nature.
Case counts is suddenly improving and the containment measures are.
Being lifted.
So it's temporary in nature, we are encouraged by the movement and the momentum since the end of the first quarter, but it's not necessarily true that we'll see an immediate bounce back in one quarter.
But again, if I think about the medium term outlook for Asia. So we are just as excited today as we were.
Last year in any prior years, the Asia opportunity is undeniable is incredibly significant.
And quite frankly, we demonstrated the strength of our franchise through 2020 in 'twenty, one, but we saw a really significant growth momentum there, where we quite frankly gain market share as many of.
You might want to provide a little bit more flavor of what you're seeing on the ground.
Thanks Doyle so.
So Lloyd I've mentioned, a couple of times that our Hong Kong, obviously was a key recipient of the unprecedented so it's that we saw and we also kind of thought some of the lingering impact of Covid in many of our southeast Asia market, having said made if you look at our earnings profile Hong Kong did.
<unk> delivered a positive earnings growth despite the unprecedented challenges so did Japan.
Is this a positive earnings growth in Singapore, Philippines, and Indonesia. The market that was really challenged boss guide out for reasons that I've mentioned earlier.
And if I look at the outlook Manny what we are seeing is that the vaccination rates are improving.
And that is kind of leading to a greater confidence on relaxation measures as well as a positive impact on customer sentiment, having said made I also want to point out to the fact that we have again seen some.
Severe lockdowns in Shanghai on account of the thoughts that we have witnessed recently so the point being that we will in the short term have to navigate these challenges.
Roy alluded to are temporary in nature, but again medium term the secular trends in Asia quite undeniable and we are very uniquely positioned on account of our model our market leading positions in many of our geography to be able to address this opportunity.
Thank you I'll requeue.
Thank you. The next question is from Doug Young from <unk> capital markets. Please go ahead.
Hi, Good morning, just on the <unk> 17.
Or we do assume that you're planning on putting the interest rate volatility through the OCI and if it does.
That's the case is there any logistical issues, we should be considering with that with the choice of that option.
Thanks, Doug for the eye for 17 question. This is Phil.
We we have decided to elect the OCI option and the standard and let me provide a little bit of context for that one of the one of the key changes that comes with I have for 17 is that the direct linkage that exists between the expected return on.
On assets and the liability discount rate that goes away with I, a fresh 17 and that provides the potential for additional short term variability arising from the impact of interest rates on both assets and liabilities what the OCI option allows for and this is.
An option that the standard provides for is that movements arising from interest rates.
Both assets and liabilities are.
Offsets within OCI and therefore it provides this offsetting effect of short term variability that does arise from from those movements in rates and it provides that for more stable net income.
Now we are a global company and we do expect a number of our global peers to take the same approach and electing the OCI option and from a one of the things you referenced in your question is the logistical aspects I don't see any particular challenges from a logistical perspective.
Given that we'll be very transparent disclosure of.
The movements in assets and liabilities within OCI and so I feel that this is certainly no less transparent, possibly even more transparent and then adopting our fair value through P&L approach.
And just a follow up I guess, where I was going and I think if assets are a OCI.
And you can correct me because I'm probably are may be wrong, but you only recognize a return by selling an asset do I have that right and is that the mechanics, we have to think about it instead of generating returns on an ongoing basis you have to actually recognize that is there any issue with that.
But thanks for the follow up Doug, Let me clarify that what we're talking about with the Aoc I option is.
Where we record the impact of movements in interest rates. So with this with this election, our fixed income asset portfolio will be classified as fair value through OCI, which means movements in fair value of those assets will be recorded in OCI, but what.
Stays.
In that both core earnings and therefore net income is the effective yield on those assets and of course, we do a.
Bye to hold for the long term. So I think that's a sensible approach for our business and to the extent that there are realization of.
Gainesville losses over time, they would form a component of net income I'd stay would fall.
Smaller iff's portfolio in the current environment.
Okay, probably a follow up on a few things there, but the second.
Second question I guess for you as well Phil can you update us on what you consider to be excess capital.
And by that meaning what you would be willing to use for a transaction or what you think is available to be used for stock buybacks.
Yeah. Thanks for the question on capital Doug.
When I think about capital I think there's always an element of judgment and determining.
What is our excess and what is not the benchmark that we use as we look at our internal operating range, which is derived from a series of stress scenarios and above that operating range. We determine is.
Capital that is available for use depending upon you know judgments that management will make over a period of time, taking into account factors such as the external environment.
I don't in any way I apologize for the fact that we do take the approach of managing the balance sheet conservatively and when I when I look at the amount of capital that we have in excess of the upper end of our operating range. We set about a year ago that we hold $10 billion above the upper end of that range and it's it's still up.
<unk> $10 billion today, so there is financial flexibility for us to deploy capital we have been deploying capital in the quarter as a result, partly as of the completion of the U S variable annuity transaction and as I said in my remarks during the quarter, we repurchased approximately.
But the three quarters of 1% of our issued shares which is a deployment of capital in the order of $219 million from memory, but I think that that represents a really strong start to the NCI B of course remind you as well we increased the dividend by 18% in the fourth.
Third quarter.
Doug I might just add to bills comments, sorry, Doug I was just going to add that focusing on our financial strength financial flexibility and a capital strength Athena are really a significant priority for us over the last four five years, we articulated at our Investor day in 2018 portfolio optimization being.
Significant strategic priority for our franchise, we set a goal of bringing up 5 billion also the capital over five years, we achieved that goal three years ahead of schedule in fact.
Actually exceeded $6 billion.
At the same time out leverage has come down from circa 30% at that point to about 25, 26%. So I'm being in a strong financial position, obviously was a very important part of navigating the pandemic when we entered the pandemic with one of them.
And having that financial strength.
The source of value and we feel really good about the fact that we have $10 billion in excess of our upper operating range, which provides us the flexibility to do buybacks or inorganic transactions, but also gives us comfort in navigating challenging environments with that context might be helpful as well.
Doug This is Phil again, I should be careful at my age about recalling numbers for memory, I said $219 billion of capital through the NCI B in the quarter was $380 million of capital deployed.
Okay. Thank you.
Thank you. The next question is from Tom Mackinnon from BMO capital markets. Please go ahead.
Yes, good morning, and thanks for taking my question.
Just with respect to the impact of the new.
New business, particularly in Asia.
If I look at sales they were actually up.
Quarter over quarter nicely, but the impact.
The impact of new business was down and if I look at our.
The impact of new business was like down 30% quarter over quarter, and if I look year over year. You know the sales in Asia may have been down insurance sales may have been down 18%, but the impact of new business was down 50%. So you know I. Obviously this kind of shows up in the N V. The margin.
Maybe you can tell us as to.
What we saw in the in a in the first quarter just a strictly an anomaly is it a change in mix.
Is it a.
How should we be looking at this going forward.
Just in light of continued Lockdowns and is the mix of business that you're selling now kind of indicative of the mix of business Youre going to continue to sell and then I have a follow up thanks.
Thanks, Tom.
No.
They are a key factors that impacted new business gain as you rightly pointed out so one.
As we mentioned earlier the Covid impact in Hong Kong was quite significant and that had an impact on volumes.
Is that as new business gain in Hong Kong I do want to underscore the point that on account of the strong enforce management in Hong Kong was able to deliver a 1% earnings growth. Despite some unprecedented challenges. The second factor was Japan, So Japan as we have.
As we laid on previous earnings call as well, we have been focusing on a much more diversified set of product makes it almost stu focusing primarily on Cali and that.
In combination with the focus we have employed.
As well as expense efficiency actually has resulted in Japan are growing its core earnings throughout 2021, but also in the first quarter of 'twenty two and lost.
But certainly not the least of it.
Which is what I alluded to earlier was China.
And China had a couple a couple of factors that one.
China had a resounding quarter, one in 2021 and account all some of the regulatory changes that are impacted.
The product mix at an industry level we.
We have seen a very different product mix in quarter. One of 2022, so that obviously had a knock on impact on.
Volumes, but suddenly had a knock on impact on new business gain is that the second is that quarter. One has an element of seasonality that China has an oversized contribution on account of the door opening in quarter. One so that as we kind of get into quarter, two and beyond we'll start to normalize.
The contribution of China is going to be much lower in terms of sales as compared to what we witnessed in quarter. One. So those were the factors that in effect kind of led to the decline of new business gain versus the decline in sales.
Tom I'm just want to reinforce one point that Neil made earlier and that is that Q1 is 21 was a very strong quarter for us for Asia in particular in new business value in that quarter was up 39% on the prior year and earnings were up 21%. So the benchmark of last year is up.
Hi, benchmark now that's not to discount the challenges.
But it is a high benchmark from a priority perspective, the other thing that I'd sort of leave in your mind is that our international business. Currently gets reported under the U S segment.
Asia biggest significantly in the international segment and in Q1 of this year new business value growth of international was 25%, which we see as another encouraging sign as to the outlook for the coming quarters.
Okay. So I guess it kind of sounds as.
If China becomes a little less contributor to this in Hong Kong comes more then we would probably see the new business gains as a percentage of insurance sales go up.
In our in the future.
Is that a safe way of trying to characterize it.
That's correct and you would see that even in some of the past is with China I do want to qualify that as kind of combined with some of the product mix shifts that have happened. So you need to take both of those factors into account.
Okay. Thanks, and then the second question is just with respect to long term care experience I think it continues to be favorable I think when it was favorable through COVID-19.
I got the impression that you weren't necessarily.
Uh huh.
<unk> your reserving outlook in fact, I think we're adding some of that excess into reserves.
Going to mean revert any update on the thinking there.
Yeah.
Thanks, Tom It's Steve here and yes, as sad as Phil pointed out in his remarks, we continue to see very good diversification between mortality and longevity, particularly in the U S. So what we've seen and we saw this quarter were.
<unk>.
Continued offset so we saw gains in long term care, primarily from elevated mortality that were only partially offset by elevated mortality in the U S life business.
In terms of the reserving that you were referring to.
<unk>.
When when the pandemic started we saw a hesitancy for care so people the incidence rates dropped.
As well as some people that were receiving care stopped receiving care and we set up reserves for for that.
That situation, because we believe and continue to believe that people need the care and they will seek care when it's viewed as safe to do so we continue to hold a sizeable I b in our reserve for that event.
At approximately $130 million U S. So they're thinking hasnt changed there we do expect that people will seek the care, but we are well provided for that.
And just on that can you comment on any kind of inflation impact as it relates to long term care the nature of your product how that might.
I mean, everybody is getting good rate increases with respect to long term care, but some of that thanks.
Yeah sure Tom It and I'd start by saying you know overall in terms of the inflation Manulife is well positioned in the event that there is there continues to be higher inflation, we've got some.
Some pluses and some minuses on the liability side, you mentioned long term care, where there is.
There is a cost of care increases that will come through in terms of higher claims costs, but there are mitigates that we see in that line of business for instance, during the pandemic, we've seen and actually leading up to the pandemic as well as there's been a trend towards.
Home care away from particularly nursing home care and home care is materially less expensive than than nursing home care. So we've seen some offsetting trends in the business that we will continue to watch out for as you note.
The successful re rate program.
If there were a higher inflation the premium increases that we would seek would take that into account as well so theres net against and and the last thing I'd point out is on the asset side.
You know in the period in the situation of higher inflation, our ALDA portfolio, a significant part of the portfolio close to 75% is in real assets and we would expect higher nominal yields in an inflationary.
Canary environment over that the medium term, so conclude with where we're well positioned as a company overall in an inflationary environment.
Okay. Thanks for that.
Thank you. The next question is from David <unk> from Evercore ISI. Please go ahead.
Alright. Thanks. Good morning, just a follow up question on Hong Kong ROI I think you made some comments on promising signs of consumer demand returning.
And I know that they just are relaxed some restrictions last week.
But outside of case counts going down do you have any could you elaborate on some of the metrics that you have that are that give us some evidence that consumer demand is returning.
Yeah. Thanks, David I'll again, I'll start and I'll hand to Enel, who will have a much better feel for what's happening on the ground.
At the highest level actually one of the biggest trend that we're seeing globally is the pandemic is really forcing consumers in the general population too appreciate the importance of insurance. So we're seeing folks really look at how well cover they are and we would actually need to increase the coverage or not and quite frankly that was.
Suddenly a driving force in why we saw new business value in Canada increased by 30% in the quarter and for the U S. About 56%. So is a global phenomenon I think where we've just seen this pandemic just highlight the importance of the products that we offer and this is really driving a stimulation from a need perspective.
Obviously, the temporary headwind is just the Covid case counts and the containment measures and it's it's not just that the case counts are high obviously when the situation is challenging on the ground. It translates into the customer sentiment and whether people are actually thinking about going out and buying products or not.
But there is a correlation and again, we see that as more temporary in nature, but demand is really very strong across the board, where we see people.
The general population move back to more normalized methods.
I was actually managing the crisis, it's true not just in North America is definitely true in Asia, as well and again in Hong Kong, I always saying that you might be able to quantify either there.
Yeah.
Thanks, Troy and thanks, David So in Hong Kong, what we are witnessing is.
Obviously, the relaxation measures on account of the higher vaccination rates that you alluded to is.
Giving more opportunities for our distributor partners to connect with customers and as you can imagine one piece relaxation measures.
To force there is obviously a knock on impact on the customer sentiment as well so that should all go right now you're right that this is more a recent phenomenon. It only happened on April 21st. So we have obviously kind of watching that closely but a combination of factors and just kind of witnessing the activity on the ground gives us to believe.
That there will be more opportunities for our customer and distributor interaction I also wanted to point out a couple of other factors, we had a very strong quarter in all could probably add some comments on on MTF as well we saw record flows.
On our <unk> business as.
As well as continue to kind of consolidate our market position on the NPS side, we continue to grow our agent head count as you would have noted our agent had gone in Hong Kong was.
Up 7%.
Again, we have a quality franchise on the ground and have been investing in improving our digital capability and expanding our distribution.
Obviously investing in a balanced and that has resulted into the resiliency that Hong Kong has deliver with 19 consecutive quarters, including a four to 122 of year on year earnings growth. So we feel pretty optimistic.
As we kind of go along.
And as I said the relaxation measures is a positive indication in bad production, Paul any comments that you would like that.
No I think he covered and now we've just seen continued growth in the Hong Kong retirement business, and particularly in a year with difficult markets.
The best quarter ever in terms of flows so I think it just speaks to consumer sentiment and the importance of what we're offering.
Yeah I just wanted to add one more point David is that we are also kind of seeing some great demand on our <unk>.
Critical illness, and medical product and that should not surprise us given what we have witnessed on account of COVID-19 that it's simply gone and cemented the need for health and protection in the minds of our clients.
Got it and as a follow up there and thanks for that color is really helpful.
Just in terms of the impact of new business in Asia is sort of the cadence of that as we head forward just anything just sort of how you guys are thinking about it that you can help us as we think about the earnings power of the company or the segment in Asia, specifically going forward.
Yeah again, as I said, David Elliott that the fundamentals of our business haven't changed.
I think what is really been the constraining factor is that once the containment measures come into force.
Firstly, obviously it has an impact on customer sentiment as you would imagine but also it does kind of restrict the movement both of our customers and distribute a partner. So that's really been the constraining factor the fundamentals of our business out of AVR position the quality of our franchise on the Brown is only got better and that's very large trade it as I said.
By the market share gains that we've now got four consecutive years in Hong Kong as well as more broadly across Asia. So that is really the limiting factor for us that being both have to navigate in the short term and it's really hard for us to predict that as you can imagine.
But as I said, we feel given our track record of execution and the quality franchise that we have that we are in a very good position to be able to address the customer demand.
And this is Phil I would tell you maybe if I could just add one thing.
I'd just add one thing to that they've yet.
We haven't in the past provided guidance medium term guidance, specifically on new business and with the transition to Iff's 17, one of the things you may have noticed is that we've added.
Guidance with respect to generation of new business C. S. M that we expect to grow over the medium term at 15%. So we hope that that's something that you and the rest of the analyst community will find helpful. In terms of providing guidance on where we expect new business to be in the future.
Yeah, no that is helpful sort of like a value then of course Ah.
And then thinking about the CSM.
And then maybe if I can just sneak one more in for Phil Yeah. I E. I know you guys. You know when interest rates were going down you put some.
Put some capital into the Hong Kong are to help support the Hong Kong business, obviously rates have moved up pretty significantly.
Any plans to remit that out the capital that you put in.
Thanks, David for the question, we are expecting remittances from Hong Kong in this calendar year and you may recall I think I provided an update last quarter and said.
Remittances in 2021 from Asia, where in the old drove $900 million a good chunk of that was capital from Hong Kong as well so when I look at the outlook for remittances.
For the remainder of this year I do see it as being a stronger admittance, yeah, I think that that does reflect the favorable interest rates environment.
Thank you.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Thank you good morning, So first of all thanks for the additional disclosure on.
Our aircrafts 17 helpful and I'd say ball, putting those numbers out at this point in time.
Austin is.
What extent will the level of interest rates.
Fluent.
Book value.
Hmm.
Estimated book value impact.
20%, so you sort of.
Ran through some of the mechanics of how it works, but I guess on a net basis I'm just trying to understand.
What kind of influence we might see some moves in bond yields between now and the implementation of aircrafts 17.
Thanks, Paul for the question. This is Phil I'll make a start and Steve Finch may want to add as well given given the nature of the question, but one thing we expect as we transition to an eye for 17 environment is that our net income as well as our capital position I like cat ratio will be.
The most stable we were seeing from all of the work we've done so far less sensitivity to changes in interest rates on a net income basis, and leichhardt capital ratio basis than we see in the current environment. So we do certainly consider that element.
As well as many other elements of ire for 17 as a significant positive and it's not only the impact of interest rates that is creating a stabilizing force under ifr 17, as well there are other factors such as the new business accounting.
The investment accounting, whereby we don't capitalize our future investment returns upfront I think that that also factors that provides for greater stability of both core earnings and net income into the future. Steve I didn't know whether you wanted to comment further particularly on interest rates.
Yeah. Thanks, Thanks, Phil.
So it was commenting on what we see as a positive in terms of reduced sensitivity on our light cat ratio from interest rates under our 2017 as well as our book value, but also to your question.
We will establish an opening balance sheet at the start of 2022. So we're already past that point, obviously, so we know what interest rates are so we're factoring that in when we're when we're talking about the.
The impact to book value of our equity.
That fell covered thank you.
So I'm sorry.
And a follow up on that one so I understand so what you've done your mark to market book.
Value impact of the current rate.
Hoping to get any kind of characterization around helps them today that estimate as to potential changes in rates between now and then because the bond market's moving a lot just day to day.
Yes.
You don't have to quantify it for it because it's probably too early to do that.
Any kind of sense of magnitude I think would be.
Welcome.
Sure I'll start and so if you look at I'll start with our light cat ratio. If you look at the light cat ratio that we disclose the sensitivity under the current regime.
We have as we said at the end of Q1, a 50 basis point increase in interest rates would result in a light cat ratio declining by three points, we expect that to reduce materially under ifr 17. So that's the point about reduced sensitivity of.
The <unk> 17 regime with respect to interest rates.
Okay and is there any read through I can use on that sensitivity to how book value is impacted.
I I would directionally.
Directionally the same Phil I don't know if you have additional comments there.
I think the only thing I would emphasize is that through the information, we released yesterday and talked about today.
T D. We show unexpected impact on transition of.
20%, which will help.
And for them I think some of the book value calculations, but a couple of other things too to add when we look at future sensor.
Sensitivity to interest rates, Steve gave the lie. Kathy example, we would expect that to be much closer to neutral in the eye for a 17 environment. So I think that's one factor, but as well I think that CSN is very important the CSM represents future earnings that will emerge into income.
And that that really is in economic terms and assets that because it's being smoothed into earnings is accounted for as a liability and therefore.
Consistent with the the consultation that Oh see launched in on the like at 2023 guidelines are in June 2021, one element that that consultation included was a clear statement that the contractual service margin would be in <unk>.
<unk> back to available capital and therefore, we think it's a very important measure not only its future earnings, but also of financial strength and I think that's relevant to our book value considerations as well.
And just one additional point just in case I wasn't clear earlier, we are effectively passed the transition date, because the transition is for 'twenty.
'twenty.
'twenty two to start of the year. So we passed the date of the opening balance sheet. So that that's why we're saying the interest rates as of the opening balance sheet date are already known because they were in the past.
Okay.
Second question is.
Excuse me related to investment related experience, how that's a big positive.
In Q1.
As I look forward.
Ken.
I'll use a repricing pretty quickly here and most of them down just kind of wondering if you can help us walk through the potential puts and takes sort of maybe what happened what drove the gains in Q1, what you've seen post quarter and how that might influence investment.
<unk> going.
Going forward.
Sure Hey, Paul It's Scott. Thank you for the question and thanks for Noah.
Gains we saw on the ALDA portfolio in the first quarter 283 million and it was pretty broad based I would say.
The biggest drivers were our private equity and real estate, but really five of the six all the categories had returns above their long term expectations.
Obviously, we've seen public markets dropped a bit in the first quarter and more so far in the second quarter.
And that ultimately if it continues will weigh on private equity, which is the most correlated to that but.
If you look at the first quarter public markets in the U S were down about 5% and the read we're getting on on private equity as it has been up like 2% to 3%. So while there is some correlation they they certainly don't move in lockstep, but if public market is dropping off it will definitely impact private equity valuations.
For our portfolio just remind you that we intend.
Tend to get the data about a quarter in arrears for most of the private equity portfolio and for the first quarter, it's even worse than that we we don't get the year end statements for a lot of the funds to get in so we're.
In many cases lag two quarters. So the fourth quarter was a very good quarter for private equity so that that's going to provide a bit of a tailwind for the rest of the year, which will mitigate a little bit the headwind, we will likely see if public equity markets.
Continue to go down or stay down as much as they had been in the second quarter.
But beyond that private equity represents about 25% of our ALDA portfolio. The other 75% as referenced earlier by Steve is it real assets and real estate timber agriculture oil and gas and.
What's driving down the public equity markets as concerns about higher inflation higher interest rates and higher inflation will definitely be a positive for three quarters of the portfolio. So we're feeling pretty good about.
Our expectations for returns on the overall all the portfolio for the balance of the year.
That's great. Thank you.
Thank you.
The next question is from Gabriel <unk> from National Bank Financial. Please go ahead.
Good morning.
Might want to consider eliminating questions here because were going over an hour on each of these call them for.
Two years now.
Question I'll, just ask you to buyback question market very volatile and just wondering what your.
April filings.
Indicate that you bought back any stock or very little of that is just wondering what your view on buybacks are in the current environment.
Hey, Gabriel it's Phil.
So when we completed the in fact, when we announced the U S V. A transaction we made our intention very clear that we would repurchase a 3% of our issued stock in order to neutralize the impact of the transaction that remains our objective we have clearly.
Got off to a great start with the three quarters of 1%. That's been purchased in the first couple of months of the program I cant really provide guidance on.
How buybacks will continue into the future, but there's clearly more for us to do in order to get to that 3% and we remain committed to doing at least stopped by the end of the year such that as we get into 2023 the impact of the lost earnings from the transaction lost earnings from the block arising from.
The transaction will have a neutral impact on 2023 EPS and beyond.
Perfect.
Thank you.
Next question is from Darko <unk> from RBC capital markets. Please go ahead.
Hi, Thank you good morning, I'll try and be brief as well first question relates to inflation, but on a different level.
We are seeing some Canadian banks.
Suggests that they're going to pay their employees more.
A lot of your businesses in Canada, and U S with a lot of inflation so Phil.
How does this impact your expense efficiency.
And then secondarily have you how have you thought about your expense program under <unk> 17.
A great questions. Thank you Darko and thanks in particular for asking about expenses expenses does remain one of our highest strategic priorities. It's one of the five that we've laid out.
Okay.
Cause you I think we have lost connection, but still I think we would come back to that question Darko apologize that there maybe you have to accept that another one that you can ask that happened other speakers or respond to that first.
Sure I have a question for Aneel as well in Asia.
Specifically wanted to get back to the question that Tom had asked about D&B Marvin.
One of your main competitors in Asia suggested that outside of China and Hong Kong.
That there'd be N V is actually higher than pre pandemic levels I didn't sense that that was the case for you guys. You guys want me to be a highlight in Hong Kong. So can you talk to maybe some of the other places.
Indonesia, Malaysia, Vietnam, you name it.
Are you in fact, losing share out there.
And why would you not be in a position to have higher D&B versus pre pandemic levels.
Thanks for the question so our business in fact through the pandemic has been quite resilient and I did mention.
Australia that in many of our key geographies, we've actually kind of gain market share. Despite the onset of pandemic. That's something on account of a few factors b, we've expanded our distribution our digital capability.
At our followed through with a strong execution culture. So we have kind of seen market share gains.
Our 2020.
In quarter, one 2022, we obviously had an unprecedented impact of the resurgence and I would I would reckon. If you look at our results in Hong Kong or otherwise.
The results continued to be quite quite resilient.
The lingering impact that we saw in southeast Asia to my mind, we've already kind of seeing that subside and the vaccination rates going up as.
As well as the containment measures kind of coming down we believe that we are very well positioned to be able to kind of address that you mentioned Vietnam I do want to kind of emphasize that in quarter, one, but able to retain our market leading position in Vietnam, we have almost 60000.
<unk> three bank partners. So we are very well positioned to be able to kind of address. These these opportunities you would probably see some quarter on quarter variation on account of volume and product mix, but again, given the quality of our franchise and our market leading position, we feel very confident to be able to address the Asia opportunity.
Great. Thank you and then maybe just sticking with you I'm not sure if those back.
When you guys mentioned <unk> 17.
You say core earnings are expected to decline by 10% My suspicion is on a segmented basis that Asia would drop more can you give us any insight.
Yeah, I think Phil probably would be the best to kind of respond to that but the only thing I would kind of leave with you is that the fundamentals of our business and the way we would conduct our business doesn't change because of an accounting methodology change. So we believe that yes, while the new business gains with lobbying.
Recognized as part of the CSN.
The drivers as well as the growth opportunity in Asia as well as our strategy kind of remains kind of pretty intact, but I'll kind of turn into maybe Steve or maybe to fill if they have any additional comments.
Yes.
Thank you, Andy I think Oh I'm sorry.
Parts of the field.
I'm back on I apologize for the slight technical difficulty, we had that but but way back and I'll finish off on the new business question and as you know Darko you know Asia is one of our key growth opportunities and therefore is a key driver of the new business.
Value that is generated in the group and for that reason of course, when we transition to <unk> 17, we would expect a notable impact of the reclassification of new business with the deferral of new business gains as C. S N to be visible and the transition impact.
Our Asia segment.
We're not providing segmental level guidance at this point.
Clearly to come in and as we approach and in the months approaching transition. However, what I do want to add is that an important strategic target that we laid out at Investor day is that we see.
See that our Asia business will represent 50% of our core earnings and Thats Airasia segments in our global wine Asia business, 50% of our core earnings by 2025.
I first 17 doesn't change our strategic target that so I think that helps puts into context, the extent of the impact that the.
The <unk> 17 transition might have.
Now getting back to your question before I.
Lost connectivity.
Your question on expenses I think everything that we've seen in the higher inflationary environment does validate the close of action we have taken.
To date, the focus on expense efficiency, including automation and Digitization is paying off in the first quarter. Despite.
A period of higher inflation, we have reported flat core expenses and flat some front total expenses as well so I think that validates the approach it is paying off and so I look forward I think there are clearly inflationary headwinds and so I would expect our expenses.
To be higher than neutral and higher than we've seen in the past couple of years, but I also think our expense base will be more resilient than then.
And then would otherwise be the case and I suppose the peer group as a consequence of the actions that we've already taken when they think about the future of the expense program there'll be an even bigger focus on digitization and automation, which in many ways provide some level of greater resilience to inflation.
<unk>.
Thank you very much.
Thank you.
The next question is from Mario Mendonca from TD Securities. Please go ahead.
Good morning, I have a couple of questions. So I'd be happy with brief responses if it's appropriate.
Expenses, obviously are going to be higher and expenses are a very important assumption.
All reserves not just long term care, but every reserve so as we approach the end of the year and our pulp. Perhaps this is Steve when you get to Q3 I would imagine that one of the big Big assumption reviews, Youre going to have to do is on expenses as you sit there today could this be a large expense a large charge.
<unk> in Q3 to strengthen expense assumptions.
Thanks, Mario with respect to the basis change, we did do a fulsome review of expenses last year and and updated those assumptions.
That you know what I can tell you about how I think about expenses in the reserves is it's a long term assumption. So we're seeing some higher inflation now Phil covered.
What we're seeing with respect to.
Our our expense program are very strong continued focus there.
I think it's what I would tell you is it's it's premature for me to conclude on very long term trends here, it's something that we'll continue to watch really closely I talked earlier about some of the.
The offsets that we might see on the asset side, but overall I think with respect to the impact of inflation overall manulife is well positioned.
Now every every company of course used as long term averages what what over what period do you look at inflation assumptions is it like out five year 10 year do you look at the last five years or last 10 years, how do you how do you do that.
So when we're when we're looking at.
Things like interest rates long term interest rate assumptions and long term inflationary trends, we look over a longer period than that but we.
We do place additional weight on more recent periods and we also factor in what you know what the outlook is.
I think.
It.
It's a it's a fair, it's a volatile environment and I would.
The actions that the fed is taking and so on I don't think we would conclusions yet that inflation is higher for a long period of time in fact, some are calling for inflation to have peaked and coming back down. So we do take the long term view.
Okay.
You said that.
Given the way you're going to account the election, you made on liabilities and assets going through OCI that is the fixed income assets.
And you said the effective yield would of course there'll be reported in earnings that makes sense.
The value of owning these assets is more than just the effective yield. There is also the expected capital gains on those assets. So number one am I right in saying that net income like core earnings will include some estimate of the expected Mark they expect the depreciation of the assets and number two if I've got that right.
What sort of.
Expected return will you use for the purposes of core earnings.
Great Mario Thank you for the question.
So the first the first answer is no.
We're not taking into account any expected capital gains on our fixed income portfolio.
I expect the definition of core earnings it is an effective yield approach we.
First in bonds with the expectation, we typically hold them to maturity there is inherently some trading and to the extent there is some turnover of the portfolio that will show through as realized gains and losses in our in net income over time.
However, the there is another element, which is the rest of the portfolio. The non fixed income portfolio largely older that will be accounted for on a fair value through P&L approach under Ifr 17, and our core earnings definition will include the expected long term rate of return.
And to your question, how do we determine that we're making no changes to our expected long term rate of return.
For our non fixed income assets it will be the same assumptions that we have currently apply under com.
One other point that I should also highlight on the topic of the fixed income portfolio that would be fair value through sorry, 70 through OCI effective interest yield through core earnings. We will also record within core earnings the expected credit loss on those assets, which is <unk>.
Coach that is consistent with other global financial institutions that already adopted our first night.
Yes, that's all very clear and I understand that now real quickly on long term care mortality is good you're holding $130 million of IP in our that's good as well.
What are there any underlying negative trends right now in long term care, specifically around severity that are being somewhat masked by the positive we're seeing on mortality.
Thanks Mario.
I talked a little bit earlier about some of the trends that we're seeing and continue to see through the pandemic, which is hesitancy for care in all settings, which we expect will revert.
We have also seen more recently that.
While there is sort of inflation in unit costs. The actual amount of service being provided is is less than pre pandemic, so that could be due to staffing shortages et cetera.
And I mentioned earlier also the trend that is continuing to more home care, which would be a positive. So there is there are a number of things that are that we're seeing in the portfolio, but it's too early to say which of these if any are longer term trends.
Remind you that we've got.
Assistant we updated the assumptions and when we updated the assumptions in 2019, we saw experience that was consistent with those assumptions. So we are.
We'll be continuing to track this closely certainly expect that the diversification on mortality versus longevity in our portfolio more broadly will continue.
Okay, and then just finally, I know thats sort of caption of where there's smoke there's fire. Let me ask this on one of them one of the calls one of the U S insurance calls.
Several folks were asking questions about our long term care transaction not clearly they weren't asking about manulife, they're asking that of the other U S insurance company.
And it got just a ton of attention that it looked like long term care might be moving into that <unk> bucket.
And it was all done in the context of higher interest rates is that plausible now or is that still a pipe dream that there could be something happening in long term care for any of these companies that just manulife, but any U S company.
Hey, Mario it's Naveed here.
I would say that all things being considered certainly higher interest rates will create some tailwind on this but what were seeing is that bid ask spreads continue to be quite wide on LTC blocks and we are connected to the market on a regular basis to understand the potential opportunities and we look quite granular yet.
Different blocks and subhlok to assess transact ability.
I think the key thing here is ASIC.
That's a cute his experience accumulates counterparties will gain confidence in the assumptions with concurrent informs the evaluation of the blocks. That's what we saw on the VA side, we saw that as the experience emerged the bid ask spreads narrowed.
We see signs of that on long term care, but I think there's still quite a ways to go for those bid ask spreads to come in to a point, where a transaction would make.
Sense for our shareholders.
Thank you for your candor.
Martha.
Thank you.
Maybe last question is from Lamar Prasad from <unk> Securities. Please go ahead.
Thanks for taking my question I'll be really quick I, just wanted to come back to a comment that fell offered.
In response to monitor earlier questions and looking at the target for.
New business CSF growth, so just understanding that you.
<unk> 70 target for new business CSM growth of 50%. It's a medium term target I'm just wondering with some of the softness in Asia suggests that that 50% target is not likely to be achieved in 2023.
Just given the reliance on Asia for new business gains.
Yeah.
And so the modest as Phil and thanks for picking up on that set new elements of our guidance.
I think too it in Hill's enjoys earlier comments you know many of the headwinds. We are currently seeing in Asia do relate to the impact of the resurgence of Covid and the pandemic and the experience. We've had in North America is that the bounce back that can be very quick once the <unk>.
Days of the pandemic pass.
As we've seen.
With the fifth waves, if the if the pandemic cutting Hong Kong is a good example, it's very intense but it's also reasonably shorts and getting back to 300 cases per day in Hong Kong means that.
That is a good reason to be optimistic and Neil talked about the drivers of demand re emerging but we're also seeing that in other geographies as well and I think that the fact that mainland Chinese customer business is also being seen through our Macau.
Business as well I think that provides a.
A good illustration that the demand is certainly there it's a case of really accessing it as and when the board is fully reopen between mainland China and Hong Kong.
I would also highlight that 15% growth in CSM, new business CSN is not just Asia, we expect the U S and Canada to be important contributors to that and as Roy mentioned earlier within our U S segment is our international.
International business and Thats something that we have identified as a high opportunity growth business and something that will be accretive to our targets.
So tomorrow I would just add in closing one of the positive developments with <unk> for 17 and were quite excited about is the focused on CSM and CSM growth.
We think that this will be a critical way to assess insurance companies going forward and that's why we've introduced to you the <unk> targets.
<unk> balanced growth between 10% and the new business DSM growth of 15% as you articulated we think that that focus for a company like ours that is fast growing and has demonstrated diversity to grow through challenging times.
That will shine I think quite a positive light on.
On the growth outlook and the opportunity.
So again that the temporary challenges that we're seeing particularly in Asia, but they will be just temporary and that we will get back on track.
These reports.
Yeah.
Great Thanks for that.
Thank you.
There are no further questions registered at this time I'd like to turn the meeting back over to Mr. Kum.
Thank you operator, who will be available after the call. If there are any follow up questions have a good day everybody.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
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