Q3 2022 Manulife Financial Corp Earnings Call
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Good morning, and welcome to the Manulife financials third quarter 2020, do finance results conference call. Your host for today will be Mr. Hong Kong. Please go ahead Mr. Cole.
Thank you welcome to minimize earnings conference call to discuss our third quarter 2022 financial and operating results our 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 we will begin today's presentation with an overview of our third quarter highlights and an.
On the upstream priorities by wide, Corey, our president and Chief Executive Officer.
Boring voice remarks feel reddington, our chief financial Officer will discuss the company's financial and operating results and provide additional information on <unk> 17.
We will end today's presentation with Steve Finch, our chief Actuary, who will discuss the company's review of the true methods and assumptions.
After the prepared remarks, we will move to the Q&A portion of the call. We ask each participant to adhere to a limit of two questions, including follow ups. If you have 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 in slide 41, we note on a non-GAAP and other financial measures used in this presentation note that certain material factors or assumptions are applied in making forward looking statements and actual results may differ materially from what is stated with that I'd like to turn the call over to Roy Gori, our president and Chief Exec.
Officer right.
Thanks, Tom and thank you everyone for joining us today.
Yesterday, we announced our third quarter 2022 financial results.
I'm incredibly proud of the resilience that our business has demonstrated despite the ongoing challenging market and operating environment.
And the impact of hurricane in on our property and casualty reinsurance business this quarter.
Our financial strength diversified product offerings and geographical reach.
What is the focus on execution of our strategic priorities are instrumental for our continued success in making decisions easier and lives better for our customers.
We delivered core earnings of $1 $3 billion.
Primarily driven by strong contributions from Canada, and resilient results in Asia and global win.
And we reported net income attributable to shareholders of $1 3 billion.
Flipping positive investment related experience.
Partially offset by a modest net charge from the direct impact of markets during a period of volatile equity markets and rising interest rates.
We delivered new business value of $514 million.
The lower and be the compared to prior year quarter was primarily driven by lower sales in Hong Kong due to the impact of weaker customer sentiment and lingering pandemic effects in certain markets in Asia.
This was partially offset by strong MBV growth in North America, driven by improved margins.
In fact on a year to date basis, the U S and Canada achieved 30% and 22% increases compared to the same period last year.
Global Wham recorded its eighth consecutive quarter of positive net flows.
And the achievement that demonstrates the strength of our business given the challenging market environment.
A diversified portfolios generated positive net flows across all three business lines.
Our core EBITDA margin, a key performance indicator of profitability well global win.
Further increased to 32, 7% for the quarter.
And our capital remains strong with a light cat ratio of 136%.
Turning to slide seven.
Our highest potential businesses accounted for 66% of total company core earnings in the first three quarters of 2022.
Compared to 63% for the same period in 2021.
And global Wham, we seize the opportunity to meet increasing demand for sustainable investment solutions and expanded our ESG investment offerings with the launch of the global climate action strategy in Europe .
We also accelerated utilization of menu Academy, a regional digital learning platform.
We rolled out in Vietnam last quarter.
The platform has enabled the on boarding of over 11000 newly recruited insurance agents and delivered over 150000 training hours to approximately 45000 insurance agents since the rollout.
Our new training series Manulife Masterclass captures best practices from our million dollar round table agents and she isn't across all agents through the playful.
We are committed to helping our customers lead longer healthier better lives and through our behavioral insurance offerings, we are winning them for making healthy lifestyle choices.
We continued to rollout servicing features manulife move that.
Further in its position as a one stop health and servicing gateway for our customers.
In Canada, we announced the expansion of our Manulife vitality program, making it available to all new term and Universal life insurance policyholders effective November 2022.
In the U S. We continue to innovate our wellness offerings and announced the partnership with Grail, a health care company offering access to their leading edge multi cancer early detection tests to a pilot group of customers through John Hancock vitality.
As the first life insurance carrier to make this just available we're enabling eligible customers to take proactive steps to better understand and make more informed choices about their health.
We remain laser focused on executing a bold ambition to be the most digital customer centric global company in our industry.
In Asia, we continued to drive the adoption of epos, our proprietary digital onboarding app to enhance the distributor experience and enable basta error free new business application submissions with case adoption at 90%.
An increase of nine percentage points compared to the third quarter of 2021.
In the U S by automating the background check process, we reduced the amount of time to onboard producers within our traditional brokerage channel by 92%.
And in global when we made a number of enhancements to our digital platform in retirement, including Rolling out functionality that enables members in Canada to book one on one meetings with a Manulife plan right financial adviser directly in the mobile App.
We saw successful engagement in the third quarter with approximately 1400 advisors meeting requested.
Turning to slide eight.
Expense efficiency continues to be a key strategic priority and an important lever in the current operating environment.
We kept our year to date core of general expenses flat compared to the same period last year, providing an offset to topline pressure.
In October we closed the reinsurance transaction related to our variable annuity block of business written in New York.
This transaction completes the optimization of our legacy U S. P a business.
And is expected to release approximately $120 million of capital, including a one time after tax gain of approximately $30 million to be recognized in the fourth quarter.
Our team and culture is critical to our sustained success.
We recently completed our 2022 global employee engagement survey.
And we are delighted to share the 2022 marks our fourth straight year with an increase in engagement.
Our overall school puts us in the top 6%.
Pace of Galebs financial and insurance company benchmark, which is a tremendous accomplishment.
Turning to slide nine to summarize we have a diverse franchise, which continues to deliver resilient results despite market volatility and macroeconomic headwinds.
We strongly believe that culture is a long term competitive advantage for our company.
Alongside being recognized for the third consecutive year as one of Forbes' world's best employers. Our recent employee engagement results are a testament to the passion energy and tenacity of our global winning team to build an inclusive culture that promotes health and wellness connectivity and continuous learning.
We remain committed to generating shareholder value and have repurchased 3.1% of outstanding common shares so far this year.
And now like Cat ratio remains strong for <unk>.
<unk> continued capital deployment flexibility.
Despite the confluence of market and macro uncertainties impacting our industry. The long term fundamentals and trends underpinning our strategy are as strong as ever.
We are well positioned to win in an uncertain environment.
Thank you and I'll hand over to Phil Witherington, who will review the highlights about financial results Phil.
Thanks, Roy I'll start on slide 11.
We delivered resilient results in the third quarter, despite a challenging operating and macro environment.
We generated core earnings of $1 $3 billion, a year over year decrease of 14%, reflecting a number of factors including.
A $256 million charge in our P&C reinsurance business for estimated losses related to hurricane in compared with the $152 million charge in the prior year quarter.
As related to Hurricane Ida and the European floods.
Lower net gains on sales of F S equities and the unfavorable net impact of market some seed money investments.
Lower new business gains in Asia, and the U S.
Lower enforce earnings in U S and U S is due to the variable annuity reinsurance transaction that closed in the first quarter of this year as.
As well as net unfavorable U S policyholder experience.
Of note the unfavorable impact of markets on seed money investments was $56 million and consisted of approximately $37 million from equity funds and approximately $19 million from fixed income funds.
These were partially offset by higher yields on fixed income investments.
<unk> expenses in corporate and other and in force business growth in Asia and Canada.
Net income attributed to shareholders of $1 $3 billion decreased by $245 million from the prior year quarter, mainly due to the lower gains from investment related experience and lower core earnings partially offset by a smaller charge from the direct impact of markets.
Of note, we recognized a gain of $225 million from investment related experience $100 million of which was included in core earnings as core investment gains was the remaining $125 million reported outside of core earnings.
Investment related experience in the quarter reflected the favorable impact of fixed income reinvestment activities and favorable credit experience, partially offset by lower than expected returns on alternative long duration assets, primarily related to real estate.
Slide 12 shows our source of earnings analysis for the third quarter of 2022 compared with the prior year quarter.
Expected profit on in force decreased by 1% driven by lower U S annuities enforce settings due to the variable annuity reinsurance transaction.
Lastly, offset by in force business growth in Asia and Canada.
Excluding the impact of the reinsurance transaction, our enforce earnings would have increased 5% compared to the prior year quarter.
New business gains decreased by 19%, primarily driven by lower gains in Asia, and the U S and.
In Asia, lower new business gains reflect a decline in sales volumes in Hong Kong, primarily driven by the impacts of weaker customer sentiments on financial planning decisions and changes in product mix in Asia other.
This was partially offset by higher sales and improved margins in Japan.
Lower new business gains in the U S reflects lower brokerage sales and changes in product mix.
Policyholder experience was a net charge of $386 million on a pretax basis.
Our P&C reinsurance business incurred a $261 million pre tax charge for estimated losses related to hurricane in one of the largest ever insured loss events in the U S.
Net unfavorable experience in our U S segments was primarily driven by a small number of large claims in our life insurance business as well as modestly unfavorable LTC policyholder experience.
We completed our annual review of actuarial methods and assumptions, which resulted in a modest gain of $36 million to net income attributed to shareholders and had an approximately net neutral impact for LTC.
Steve Finch, who will provide more details on the results of the actuarial review in a moment.
Slide 13 shows our earnings by segment and return on equity.
Core earnings in our global one business decreased by 3%, primarily driven by a decrease in net fee income from lower average of U M age due to the unfavorable impact of markets, partially offset by lower variable incentive compensation expense and favorable tax items.
Core earnings in Asia decreased by 2% driven by lower new business volumes, primarily in Hong Kong, partially offset by changes in product mix and enforced business growth.
We delivered core earnings growth of 13% and Canada, reflecting more favorable experience gains and group insurance higher enforce earnings higher Manulife Bank earnings and several smaller favorable items, partially offset by unfavorable claims experience in individual insurance.
<unk>.
Core earnings in the U S decreased by 24% largely driven by reduced enforce earnings due to the variable annuity reinsurance transaction net unfavorable policyholder experience and lower new business gains.
The core loss in corporate and other increased by $102 million driven by the higher P&C reinsurance charge year over year and.
And we delivered core ROE of 10, 3%.
Turning to slide 14, which shows our <unk> sales and new business value generation in the third quarter, we generated a P E sales of $1.3 billion.
One 6% from the prior year quarter, driven by lower sales in Asia, and Canada, partially offset by a modest increase in the U S.
In Asia, a P E sales decreased 7%, reflecting a decline in Hong Kong driven by the impact of weaker customer sentiment and tighter COVID-19 containment measures in Macau during the quarter.
This was partially offset by higher sales in Japan and Asia other.
Asia other demonstrated positive momentum with 6% growth year over year.
A P E sales decreased 6% and Canada, mainly due to lower segregated fund sales and the non recurrence of a largest energy market sale in the prior year quarter, partially offset by higher large case group insurance sales.
We delivered new business value of $514 million, a decrease of 6% from the prior year quarter in Asia, New business value decreased due to the factors I noted earlier as well as changes in product mix, partially offset by higher sales in Japan.
In North America, new business value benefited from improved margins, resulting in a year over year increase of 27% and 25% respectively for the U S and Canada.
Turning to slide 15.
Our global wine business continued to benefit from our geographic and line of business diversification.
Despite a challenging macro environment, we delivered positive net flows of $3 billion.
Retail net inflows were $1 billion compared with net inflows of $7 $9 billion in the prior year quarter.
The decrease was mainly driven by lower investor demand amid equity market declines and higher interest rates.
Institutional asset management net inflows were $6 billion compared with net inflows of $1 $3 billion in the prior year quarter, driven by higher redemptions, partially offset by higher sales of equity and fixed income mandates.
In retirement net inflows were $1 $4 billion compared with net inflows of $6 billion in the prior year quarter, primarily driven by higher member contributions and lower planned redemptions.
Overall global Worms average AUR made decreased by 9% driven by the unfavorable impact of markets in 2022, partially offset by continued net inflows.
Net fee income yield was in line with prior year.
We delivered a core EBITDA margin of 32, 7% despite market headwinds, reflecting the impact of lower variable incentive compensation expense, partially offset by a decline in net fee income from lower average AUM.
Turning to slide 16.
We continue to maintain a strong balance sheet and capital position.
A light cat ratio of 136% is strong and represents $23 billion of capital above the supervisory target.
The one percentage point decrease compared to last quarter was driven by the impact of market movements on capital and the execution of the in CIB.
Our financial leverage ratio increased by <unk> three percentage points from the prior quarter, mainly driven by the reduction in the carrying value of I S. S debt securities due to higher interest rates and continued share buybacks, partially offset by the impact of a weaker Canadian dollar and growth in retained earnings.
It's worth noting that in October we announced our intention to redeem $1 billion of subordinated debentures of par on November 22nd 2022.
The impact of these redemptions will be reflected in the like absent the leverage ratios for the fourth quarter of this year, we've reflected these impacts and the pro forma metrics on this slide all else being equal.
We're committed to delivering value to shareholders and continue to execute our share buyback program.
We've repurchased approximately three 1% of our common shares so far this year.
Slide 17 shows the summary of our financial performance for the quarter.
While the performance of our profitability and growth metrics was impacted by a challenging macro environment.
Global strength and diversity continued to provide notable offsets.
Our balance sheet continues to remain strong and provides us with financial flexibility.
Deliver on our strategic and capital deployment priorities.
Slide 18 outlines our medium term financial targets and recent performance.
Our performance reflects the resilience of our business against the backdrop of a challenging macro and operating environment in the third quarter, we remain confident in our ability to continue to deliver on our targets over the medium term.
Turning to slide 19.
Before I hand over to Steve to discuss the results of our annual actuarial review I would like to provide additional information on <unk> 17, the new insurance contract accounting standard that will be effective January 1st 2023.
One of the key impacts of the new standard will be a new components of our insurance contract liabilities, the contractual service margin or C. S M for short.
Today under I first four we recognized new business gains immediately and income, whereas under Ifr 17, new business gains will be recorded in the CSM and released into income over the life of the contract.
Upon implementation, we will present, our financial position as though I have fresh 17 had always applied and we'll establish a C. S. M on our enforce business as a reminder, the C. S M will be treated as available capital and the like.
Upon transition and as previously communicated we expect an approximate 20% net reduction in equity.
The establishment of the CSN will be the main driver of the decrease in equity and we expect the transition CSM balance to be approximately $15 billion post tax.
Other net asset movements that will arise from the adoption of <unk> nine and 17 are expected to result in a post tax net increase in equity of approximately $3 billion upon transition, which is modest in the context of our total insurance contract liabilities.
Turning to slide 20, which provides an illustration of how the C. S. N balance is expected to evolve.
We expect to continue generating profitable new business, particularly in Asia, which will drive growth in the overall CSM bounds and translate into future core earnings.
Given the importance of CSN as previously announced we will be adding two medium term targets new.
New business C. S M growth of 15% a year.
And C S N balanced growth of 8% to 10% a year.
We expect to see S M amortization to be approximately 8% to 10% of the C. S N balance of year.
With strong contributions from new business and amortization of in force business. We expect the transition CSN balance to represent a progressively smaller portion of the total CSN balance overtime.
This illustrates why a growing CSM balance is important to future core earnings growth and why we've issued C. S M related medium term targets.
Turning to slide 21, which shows the composition of the transition C. S N balance.
Asia has been our fastest growing insurance segments supported by strong volume growth and attractive margins.
As you will have the largest transition C S N comprising well over half the total company balance.
We expect Asia to remain a major growth driver going forward and its share of the total CSN balance is expected to grow over time.
While Canada and U S segments are not expected to grow as quickly do you expect that CSN balances to grow, albeit representing a declining relative share of the total C. S N balance over time, given asia's higher growth rates.
We look forward to continuing the dialogue on <unk> 17, as we approach a life I have fresh 17 reporting environment from the first quarter of 2023.
I would now like to turn the call over to Steve Finch, who will discuss the results of our annual actuarial review Steve.
Thank you Phil and good morning, everyone.
On slide 23, we have summarized the impact of this year's annual actuarial review, which included our comprehensive Tri annual review of U S. Long term care business, we recorded a modest net gain of $36 million in total and the impact of the L. T. C study was approximately net neutral in.
In addition to the LTC study Ishares review included mortality morbidity and lapse assumptions in our Canadian insurance businesses as well as for certain Asia markets, including Vietnam and Singapore.
A review of our investment assumptions in North America, and although we did not make any changes to our long term returns we benefited from annual updates to our valuation models to reflect market movements during the year.
Overall, our actuarial valuation practices continue to be conservative and our reserves and margins are appropriately aligned with the risks in each of our businesses.
I'll now discuss the results of our comprehensive LTC experience study in more detail.
Turning to slide 24, which highlights the key drivers of our comprehensive L. P. C study that resulted in a $15 million post tax charge to net income attributed to shareholders of.
I'll be referencing results in U S dollars for the next two slides.
This year's review included all aspects of claim assumptions the impact of policyholder benefit reductions as well as the progress on future premium rate increases.
The review of our claim assumptions led to a strengthening of LTC reserves by approximately $2.2 billion on our older block of business. The claim cost assumptions established at the last Triennial review in 2019 remain appropriate in aggregate. This is notable as there are more developed claims experience for the older block of <unk>.
And it has been stable.
As the overall LTC block continues to mature the potential variability in claims experience will continue to narrow.
We strengthened reserves for claim costs on our newer block of business driven by active life mortality and utilization, reflecting impacts of inflation to current year.
This was partially offset by an update of incidents in claim termination assumptions, which on a net basis reduced reserves by point $5 billion as well as a point $2 billion decrease in reserves to reflect the fact that some policyholders have been electing to reduce their benefits rather than paying increased premiums on their policies.
Finally experience continues to support the assumptions of both future morbidity and mortality improvement, resulting in no changes to these assumptions.
Slide 25 highlights the progress we have made to date in obtaining regulatory approval for premium increases.
Since 2008 state regulators have approved rate increases amounting to approximately $10 billion on a present value basis to offset higher future claims costs.
As at the end of the third quarter, we achieved the entire $1.9 billion in premium increases embedded in our padded reserves at our last comprehensive LTC review in 2019.
Consistent with past practice, we continue to be conservative on how much future premium increases we reflect in reserves.
And this year's review, we embedded $2 billion of premium increases in our padded reserves, which is less than one third of the $6.5 billion of total ask.
Overall, our approach to premium increases embedded in reserves remains at the conservative end of industry practice with the amount reflected representing only 5% to 6% of our total reserves.
Turning to slide 26.
LTC experience study covers four years of experience from 2016 to 2019 with 2018 and 2019 being new since the last Triennial review.
The study and resulting assumptions are based on pre COVID-19 experience as any potential impacts related to COVID-19 are uncertain over the long term.
One notable exception is that we reflected the impact of higher inflation up to the current year.
Since the 2019 study there has been a significant increase in credible claims data as the block continues to mature.
To date over 200000 of our LTC policyholders have gone on claim.
Or roughly 15% of the original policyholders combined with those who lapsed or died close to half of original customers are no longer with us.
More importantly claims data at older Ages continues to accumulate.
For our older and more mature block the stability of experience reinforces the adequacy of current claim costs in our reserves.
For our newer block claims data has more than doubled for key assumptions since the last study providing increased credibility to update our assumptions.
Turning to slide 27, our LTC business is among the most conservatively reserved in the industry.
Our provisions for adverse deviation continued to represent a significant buffer of 42% over our best estimate reserves.
Are there more after for comprehensive reviews over the past decade, we had only one notable strengthening of reserves.
<unk> policyholder experience has closely aligned with our reserve assumptions, resulting in a modest average annual gain over the same period.
Finally, we have drawn from industry studies to supplement our analysis and engaged independent consultants for detailed reviews of our updated assumptions.
As a result, we remain confident in the prudence of our LTC reserves in aggregate.
Turning to slide 28 in summary, the impact of our actuarial review on net income in the third quarter was a modest net gain of $36 million in total and approximately net neutral for LTC.
For LTC, we have higher confidence in the prudence of our LTC reserves given the significant increase in credible claims data as the block matures.
After four comprehensive assumption reviews over the last decade, we have strengthened reserves only once.
Additionally, policyholder experience is closely aligned with our reserve assumptions, resulting in a modest average annual gain over the same period.
We also have a strong track record of obtaining approval for rate increases and our approach to embedding premium increases in LTC reserves remains conservative.
Overall, our LTC business is among the most conservatively reserved in the industry with a margin of 42% or $10 5 billion U S dollars over our best estimate reserves.
This concludes our prepared remarks before we move to the Q&A session I would like to remind each participant to adhere to a limit of two questions, including follow ups. This will help to ensure that everyone will have an opportunity to ask a question.
Operator, we will now open the call to questions.
Thank you, we'll now take questions from the telephone lines. If you have a question and using a speaker phone. Please lift your handset before making your selection. He should have a question. Please press star one on your device 50 pad to cancel the question. Please press star two.
Press Star one at this time, if you have a question there'll be a brief pause participants register thank you for your patience.
And the first question, Jim gave me able to shave from National Bank Financial. Please go ahead.
Hi, good morning.
Quick questions here.
How much does your cap.
The insurance business make per year, I guess, I mean, we've had big losses. This year last year and just wondering.
The size of the business relative to what we.
I've noticed lately.
Greg gave it's Phil Thanks for the question. So if we I think it's.
That's just a look back at the cat business over a period of time and I think that's what you're getting at if.
If we look at the track record over the past 10 years.
The the business has generated earnings well in excess of a half a billion U S dollars net of.
For the Oh, the claims over that period. So on average and this is quite precise but on average that's a that's 57 million U S dollars of profit per year now what one additional important points are that you might be getting at here is we have recognized a claim in the current.
Period, that's a 200 million U S dollars pretax or post tax numbers $256 million on a Canadian dollar basis.
That doesn't represent the actual.
Net income expected net income for the business. If we take into account the premiums that have been collected on that business, we're expecting a loss of $80 million. This year, all else remaining equal and so $80 million in the context of average earnings over the past 10 years at $57 million.
The claim year represents about a year and a half worth of profits.
Okay, so that greater than half a million 1 billion U S over the past.
10 years net of.
Claim.
Is this one of them.
I understand that.
Spots on the in terms of ROA and return on capital that's a 25% Roe.
Okay, Great and then my next question last question relates to the actuarial review I saw the lapse.
Component there are nearly $200 million reserve strengthening my mind immediately went to secondary guarantee UL, which is pretty topical these days.
Given some charges taken by peers, but it was explained that it was more of the.
<unk> product in Singapore.
But we're having some challenges I guess.
That's a pretty new business.
With regards to the Bbs that partnership I suspect it doesn't relate to those products, but maybe the older ones and maybe you can expand on what youre seeing in that market.
Related to lapse.
Sure Gabe It said, it's Steve here I'll, let I'll touch on that and to your point on secondary guarantee do you. All know the lab study did not include secondary guaranteed UL, we were fully up to date on those assumptions leading.
At the end of the pandemic and we've strengthened reserves on that business over time in terms of the.
What we saw in <unk> in this year's study was primarily related to Singapore, and Canada, and Singapore, We reviewed our index linked products and reviewed the emerging lapse experience on that business and effectively we increased our lapse rates I assumed in the reserve.
<unk>, which lowered future fee income that product is sold by our multiple distribution channels.
In Canada. It was on our term insurance business, where we reviewed the experience.
On a night on renewal so when customers get to the end of their premium paying period and Theres a change in premiums we reviewed the assumptions, there and dad and had a modest strengthening there as well.
Alright, thanks to.
Two questions.
Thank you. The next question is from many Grumman from Scotiabank. Please go ahead.
Hi, Good morning, Steve you talked about embedding.
$2 billion of assumed future premium rate increases.
And that's out of six 9 billion.
Six naphthalene asking I'm just wondering.
How do you get that 2 billion is there something different about that $2 billion more likely to to get that 2 billion versus the balance.
Sure, many and maybe a little bit of context as I explain what we decided to embed in the reserves you know we've been managing this business well over the past more than decade, we were early to recognize emerging experience challenges and.
Recognize the need to increase premiums and you can see in the in the slides that we have got a strong track record of success with achieving a close to $10 billion of present value of premium increases over time.
We do I you know, we do maintain a conservative position in terms of how much future increase we want to embed in reserves. So you saw in the last study in 2019, we embedded $1.9 billion out of 6 billion ask at the time and that was conservative we actually achieved that in three years, it's a lot.
<unk> time assumption, but we were able to achieve it in three years. So as we move forward to the the current study.
Based on what you know what we're seeing in terms of the claims costs. We reviewed the the premium increases that we expect to file we update for <unk>.
Outstanding approvals plus add on any new approvals that we're seeking and that gets.
It gets us to a total ask coming out of this review of $6 $5 billion, but we chose to only embed $2 billion, even though over time, we expect to achieve significantly more than that.
So it's not like that six 5 billion has different probabilities.
Buckets is that correct.
In terms of your ability to or your what do you think you'll be able to get.
You view at all in the same is that correct.
Yeah, I mean, we we look block by block, we look state by state very granular. The the thing I would note for you is that I E.
In the review the strengthening of claims cost was on the newer blocks of business, there's a longer runway on on that business to achieve a premium rate increases versus the older block.
And then just as a follow up in terms of <unk>.
<unk> risk to not being able to get some of those price increases.
The question is will recession impact your ability to get approval from states that have any impact.
Aye.
We've been we've had a consistent.
Ability to achieve.
Achieve these rate increases over time, we see that across the industry as well and you know the contracts do allow for it if we have strong actuarial justification for the rate increases the contracts allow us to.
To achieve those re rates and you know I got that question at the start of the pandemic with the pandemic actually impact our ability to achieve re rates and we have seen that we have continued to maintain very very consistent progress. So that's my expectation going forward, regardless of whether there's a recession or not.
I might just add this is Roy here that in addition to seeking price increases from the various regulatory bodies. We've also offered options to customers to have benefit reductions that suddenly makes getting approvals easier and it makes it also easier for engage with customers on the options that they have as it relates to the price increase so and from our perspective.
They are both equal from a reserving perspective, so we absolutely feel confident around our ability to get what we put into our reserving assumptions, we've demonstrated that over the years as Steve highlighted and and I think with al benefit reduction options that are available that gives us even more confidence around the conservatism that we've got in Arizona.
Thank you.
Thank you. The next question is from Paul Holden from CIBC. Please go ahead.
Thank you good morning.
So first question for you is maybe an update on the sales outlook for Asia, and I guess, Hong Kong specifically the results. This quarter I think we're a little bit weaker than we are.
Acting clearly.
Mobility flash pandemic appetite hangover stolen Hong Kong in Q3, but.
How are things trending Q4 to date and maybe just an outlook.
Things are opening up.
Yeah. Thanks, Paul.
I mean here firstly.
Let me just refer to the first part of your question on the sales outlook from Asia, and then I'll address specifically to how we see Hong Kong.
We're definitely cautious in the short term given the capital market volatility.
Dampened consumer sentiment in some of our markets in the Asia segment long term.
Fundamentals from our perspective remain positive and in many ways unparalleled based on demographics and expected economic growth trap that segment. So we continue to have conviction in our ability to deliver on our 15%.
Our core earnings growth target in the medium term.
We are focused on material opportunities across Hong Kong, China emerging markets, where we registered double digit growth.
Strong year on year double digit growth.
All key financial metrics in the third quarter and in Singapore.
Absolutely positioned economy, and we have an unrivaled distribution rates through bank assurance and independent advisory channels.
Just turning to Hong Kong they are unlikely.
I'd like to give you a flavor for what's happening here before giving you the sense of our outlook.
In Hong Kong, a year on year comparator is quite of a 2021, it's quite a challenge for US we delivered an outstanding performance in 2021 on top of a strong performance in 2020 and in fact exceeded pre pandemic growth levels in Hong Kong in that year. So in some ways. We are competing with ourselves on a year on year comparator having.
Outperformed the market considerably in that year now some of the headwinds that we faced earlier in the year in Hong Kong in the second quarter persist into the third quarter. We are seeing some relaxations and quarantine requirements. We are seeing some gradual reopening and certainly some signs of recovery in Hong Kong, which is policy.
And important.
However, the challenges remain driven by weakened macroeconomic environment and capital market volatility.
And as underscoring its in the third quarter of this year, we registered this the third consecutive quarter GDP decline in Hong Kong.
The same thing I guess, you've seen the wild gyrations in the hang Seng index as well in late October through to now.
But in terms of outlook in Hong Kong we.
Encouraged by the return of graduate business momentum that we currently see we registered quarter on quarter growth in core earnings.
In the third quarter sales are beginning to stabilize driven by quarter on quarter agency APE sales growth of 8%, which is pretty robust in this environment are.
Within that we saw successive month on month growth in Nike sales throughout the quarter.
And just to focus on value here in Hong Kong.
We refused to accept trading off a margin and value growth, even when the top lines under pressure, we think tightly focused around agency channel in Hong Kong on outstanding high value product mix around health and protection and we in fact grew our MBV margin.
In Hong Kong business Bye.
12 percentage points up to almost 83% up two two percentage points for the quarter as well or the third quarter, which is a record for us so by and large.
We remain cautious in the short term at both the segment level and in Hong Kong, given the uneven recovery that we're seeing across geographies in the pandemic and particularly the consumer sentiment on the maintenance side in Hong Kong, but we're seeing the signs of recovery and we have conviction on the long term brightcove opportunity. Thanks for the question.
Alright. Thanks, Thanks for that answer and then the second one is just going back to the long term care reserving.
And those embedded.
Right.
Our premium rate increases I guess first part of the question is can you clarify whether that $2 billion is the total amount. That's included in the current reserves or is there anything sort of left over from prior assumptions and then the <unk>.
Second point is Steve I think you mentioned that contractually youre allowed to.
Increased premiums what is it specifically I guess embedded within those contracts.
It allows you to trigger premium rate increases because I think obviously there can be some questions on your ability to achieve that and just maybe help to understand.
What contractually.
Is allowed.
Yeah. Thanks, Paul in terms of the the 2 billion embedded in the reserves and you were asking if there was any sort of true up versus prior it was a it it just so happened that the amount that we had embedded in the reserves previously is almost exactly what we had achieved.
As of this review so the 2 billion reflects an update forward looking going forward, but.
But yeah, no no meaningful true up based on the success that we had achieving that the increases and then contractually at the contracts are termed.
Term guarantee that renewable which means that they're they're not fully guaranteed that we can seek premium increases and that their requirement. You can think of it as we have to demonstrate to each individual state that.
Our projected claims costs, our actual actuarially justified. So that's why we talk so much about a focus on data understanding our experience and that's that's effectively how you should think about the requirement and the states to review our filings very closely.
Got it thanks, Steve.
Thank you. The next question is from Doug Young from Deutsche Bank capital markets.
Please go ahead.
Good morning, I'll stick with you Steve looking at slide 26 on long term care.
Insurance claims that I mean, how important is it to have more certainty and data on how claims are going to unfold.
To get out part I'd cite parties interested in this block because obviously this is part of the legacy block and you're looking at ways to.
Move that legacy block to reinsurance and and you know maybe within the same vein. If you can talk a bit about an update on <unk>.
Where we stand in terms of options to reinsure, all the more important parts of that block.
<unk>.
Sure Doug I'll start and then I'll pass it over to Mark Constantine He's had his thoughts.
You know from my perspective, I think the accumulation of additional claims data is really important you know we saw in variable annuities. We couldn't have done the transaction that we did three to five years ago, and we've talked about how as the block matured, we got past surrender charge period more data the range of outcomes narrowed and I expect the same thing.
But on long term care, which is.
Which is why I highlighted on the older business more mature block.
We've got a lot of claims data there and I you know we didn't need to strengthen reserves our claim costs in aggregate on that business I I fully expect that as and we are accumulating significant data on that newer block the range of outcomes will continue to narrow, which I think makes sense.
It makes it more more possible to transact, but mark I'll pass it over to you.
Yeah. Thank you, Steve and thanks for your question Doug.
The only thing I would add to Steve's comments I have to do with the interest rate environment that has been increasing which I think has a positive a.
Tailwind to transacting on a business like this but you know as Steve said in my perspective being here.
Here five months back it may life is that exactly what Steve said credible experience predictable experience our ability to push these are these rate increases that you guys had been asking questions on.
It is very very good in terms of looking at the ability to transact overtime on blocks that demonstrate all of those qualities.
Thank you and if I can just follow up Mark or Steve you know what is that magic number and maybe there isn't one but they get the older block is it do you have 50% of the policies that are unclaimed is that the magic number.
I think that was around what it was for the VA block.
Nick can you can you talk a bit about that and what.
How much of the role that block is unclaimed relative to what the general.
Total block.
Yeah.
Yes, Steve do you want me to take that one yeah, I'm I'm happy to to start on that one I think you know, it's what really matters and Mark I'll pass it back to you for additional comments, but what really matters is claims when people are in their eighties and 80, you know getting over 85, that's when people use these benefit so if you look at that.
The data that we provided at Investor Day, you can see on the older block of business you know our.
You know we're up to the those not on claim they are in their eighties and you know the the newer block more mid Seventy's. So you know over time as we get into the eighties I think that's when we start to get more certainty.
Hi, Mark.
Yeah, no. So I was going to say the exact same thing and and we have a number of the older blocks that are starting to demonstrate there was that experience and I think the key question is as we have discussions with various parties are how they see this and the other thing that I would say is is important here is that.
The blocks of business that have predictable cash flows in the short term, which is a typically with buyers are interested in so it all depends.
How you package the overall information to the markets and how they receive it in the current environment, but.
Feel over time that that there'll be a market for this business.
Okay. Thank you.
Yeah.
Thank you. The next question is from Tom Gallagher from Evercore ISI. Please go ahead.
Yeah.
Good morning.
Just a follow up on the review the.
The 1 billion a charge that you've taken I guess on a on a gross basis for inflation.
It sounds like.
That's a that's a true up to you.
<unk> to date can you talk about.
Oh, how much inflation, you've actually seen so far like what.
What the percentage change has been and also Uh huh.
Weather.
You've made any future changes to claim costs and inflation.
Okay.
Sure. Thanks, Tom It's Steve.
Yet you you caught that correctly, we are in the review the update to our utilization assumptions we reflected.
Experience that we're seeing which included we wanted to make sure that we were up to date in terms of what we've seen.
On cost of care inflation and over the past three years, we've seen roughly four to four 5% and was higher at the end of the period, but on average that's roughly what we saw in terms of our go forward outlook. We are you know I think.
It's important on LTC in particular to take a step back and look at this holistically. It's a very long term business, we do have.
Inflation assumptions in the reserves to reflect higher cost of care over time. So we do have that in our in our reserves of course, and there's I think there's a number of trends that could emerge here. We've seen during the pandemic you know some tailwind that we could see you know going forward and we didn't reflect I.
Consumers to seek care, we saw trends for customers, where they did seek care. They were more often seeking care at home versus facilities or nursing homes, which is a lower cost to us and then if you think inflationary environment, but overall, yes. It if there were higher than our valuation.
Assumptions in terms of inflation of cost of care that would be a headwind, but if you look more broadly in the company and also backing our long term care business, we would expect to see in a prolonged inflationary environment higher nominal returns on our ALDA portfolio. So.
The way we've been managing this business over time as refi really drill in on the data reflect the experience that we see manage our claims costs are seeking and achieve the actuarial just actuarially justified rate increases and that approach has served us very well.
Thanks.
Thanks, Steve So so it's been running around four to five and you're assuming that will that will fade as we get out of the pandemic or is that is that correct interpretation.
Our long term assumption is yes below.
What we've seen in the last died in the last couple of years.
Okay, and then just one follow up on the actual experience in the quarter for the unfavorable policyholder experience.
Was that on the long term care part in particular was that frequency or was that cost of claim or both.
Yeah. The LTC experience this quarter was a modest negative so there was nothing really to call out there.
The one thing we did see was.
We saw as we expected consumer our policyholders at seeking care again, so we saw higher incidents, but we had established during the pandemic.
And I b and our for that risk and and we released a portion of the IP and are we continue to hold a material IBM ER for the block of about 85 million U S.
Okay. Thanks.
Thank you. The next question is from Tom Mackinnon from.
BMO capital markets. Please go ahead.
Yeah, Thanks, very much and good morning, just a question on maybe an update on excess capital I think you used to say it was around 10 billion, but that was with a higher.
Light cat ratio I think it.
It was north of $1 40, maybe when you gave us that it's 136 now and the leverage than it was a lower somewhere around 25% and it's closer to 29% now so just not sure how you incorporate leverage with respect to this excess capital calculation and.
Any update there and any update on what you think you want to do with it I mean, even.
I'm back some stock but are there opportunities to.
To deploy this in other ways, what's the outlook there and then how would what's your thinking of how this excess capital will change as we move into I F. F 17. Thanks.
Hey, Tom Roy here. Thanks for the question, let me start and then I'll hand over to Phil.
I guess the first thing I'd say is as you rightly point out we are in a strong capital position like at ratios at 136%, which we feel very good about we were very purposeful about building capital over the last five years to put us in a position of strength and it's served us well, especially in the uncertain environment that we've been in over the last two and a half years and the uncertain environment that we're in.
Right now so I think that's certainly been a part of our strategy and we're very happy about that.
That 136% like cat ratio means that we've got about 23 billion above the supervisory minimum and it's about nine bill above the upper operating range. So I think that gives you a bit of a sense on where we're at versus the upper operating range, which is very significant.
We've been prudent with deployment of capital but.
But we feel that there's certainly a lot of value that we can create for shareholders throughout deployment and that's why we were very active with our N C. I b as Phil highlighted we've already deployed 1.4 billion. Thus far this year to buying back stock and that represents about three 1% of outstanding shares.
And we remain active.
Active in that space. So we're committed to continuing our N C I b and continuing to create value for shareholders, especially with the share price being as low as it is we think this is a great tool for us to create value for shareholders.
So that's going to definitely continue obviously dividend increases is something that we've always been focused on we've got an attractive dividend in Q4 of 2021 we'd increased our dividend, 19% as a again a way of creating value for shareholders and we've been selective in the M&A space over the years in 'twenty two in Q1 of 'twenty two in fact.
We did the 16 year banker deal in Vietnam with via 10 Bank 14 million customers, we we got access to through that transaction.
We acquired the lever Vietnam Port following in Q4 of 'twenty, one we extended Don them on in Q1 of 2020, and we entered a JV with Mahindra in India. In 2020. So you know I think what I would leave you with is that we are in a strong capital position. This does put us in a good position to create value for shareholders and we will continue.
Who are focused in that space.
But we're also going to be prudent we want to make sure that when we deploy capital we do it in a very sensible way.
Thanks, Roy and Tom This is Phil just tried to a couple of points to address a couple of elements of your question on the leverage ratio, 25% remains on medium term targets and really the main driver of variability that we've seen from quarter to quarter as being movements in book value in response to interest rate.
And that's something that we think largely goes away under Ifr 17, we expect to see a much more stable book value and an eye for a 17 environment.
The.
More generally to your point on I have first 17, we did disclosed last quarter that we expected to see stability of the Lai accounts in our capital strength on transition to I have for our 17 nothing has changed there. It continues to be the case and therefore in terms of our confidence in capital deployment.
I have first 17 is not something that is a concern for us.
And is there any movement to try to bring that twenty-nine leverage back down to 25 or.
Hum at what's your feeling with respect to that.
Yeah, Tom This is Phil Tighe question.
We actually have announced in the course of October that we we will redeem a billion dollars of subordinated securities on.
On the 22nd of November .
We have no need to refinance that.
That redemption in fact, we had proactively pre financed earlier this year when the rates environment was more favorable.
That.
That's something that will reduce the leverage ratio in the order of one percentage point and we continue to look at opportunities to mommy.
The leverage ratio to the 25% medium term target.
So generally it doesn't sound like there's any.
What would you look at doing anything transformational with respect all this excess capital. It just seems to be various tuck ins have would you look at our.
Isuppli increasing presence in Asia, what are your thoughts with respect to something along that as opposed to various smaller deals or is there anything immediately on the horizon with respect to our substantial bancassurance deal that could be coming or that you might be interested in.
Looking for something along.
Along those lines, if you could care to comment thanks.
Yeah. Thanks, Tom Roy here. So I think the first thing that I'd say is that given the footprint that we have I think we're really in a very strong and unique position to achieve our medium term targets and grow quite significantly through the footprint that we already have so I think the good news is that we don't need to do any transformational.
M&A to achieve our target that's true in Asia, and it's certainly true in a wham business because of the breadth and depth of our franchise. Both geographically, but also from a business line perspective, So I think that puts us in a position of strength and it means that we don't have to deploy capital to achieve our target. So so.
That's the first thing that I would say.
When we do deploy capital to M&A in particular, we want to make sure that we can deliver the returns that we are seeking so again, it's easy to do a transaction, but ensuring that you're executing against it is more difficult than quite frankly more important. So we're always open to looking at those transactions and.
Being in a strong capital position means that we can actually entertain them, which is great not having to do them means that we can be confident that when we do transact. We can do it in a way that is attractive and creates value with without much risk. So.
So we continue to look at those and there are opportunities and quite frankly in a more challenging environment as we're seeing in the mode at the moment, but perhaps we'll continue to see in the next year or so I suspect that they may be more opportunities to deploy capital Inorganically and we'll definitely look at those in the meantime, we think that you know dividend increases.
N T I D.
And are being very smart about arrow organic deployment will create a lot of value for shareholders.
Thank you. The next question is from Merrill Mendonca from TD Securities. Please go ahead good.
Good morning, Steve and we could go to the assumption review for a moment I'm looking at slide 23 the.
Number is modest.
Think about <unk> 17 <unk>.
<unk> the adjustment the net number would not have gone to earnings it would have gone to the CSM I suppose.
But is that the only change.
For assumption reviews under Ifr 17, what I'm getting at here is <unk>.
Are there any offsets like for example, the increase.
Higher prices and long term care is there anything about I have breasts 17 that would impact the offsets impact your capacity or ability to assumed price increases or any other updates like the other updates amount for $212 million to XIAFLEX 17 change that in anyway.
Thanks, Mario and debt.
At a high level, they're all I'll highlight one change, but the ifr 17 is principles base. So we will continue to sad best estimate assumptions and a risk adjustment. So the the one notable item is investment we will no longer link our assets and liabilities and the value.
Asian, So we won't see.
Changes in ALDA assumptions that kind of thing going through them.
But you know related to premium increases they would work the same the discount rates will be slightly different block by block, but not not that big a change so nothing nothing terribly notable there I and Youre correct that assumption changes will go through the C. S. M. As long as there is a C. S. M. A C S M on any.
A particular cohort of business, where zero. It would go to net income. So those are the key things to highlight I think that then that the investment return assumption of 157 under <unk> 17 wouldn't wouldn't be there.
And that is yes, I think that's that's right, but I also want to note that I I don't know yet what the assumption updates we haven't got all the results of the models that it under Ifr 17, there will be other noise like I said from discount rates and so on.
I don't want to guide to what that assumption review would be under half of 17.
Question, then on earnings on surplus I appreciate the seed capital discussion.
But could you talk a little bit about the.
The potential the earnings on surplus improves over time as the portfolio is reinvested.
Would I be correct in saying that some of the best book is extremely long term. So we may not see.
Any real improvement in earnings on surplus for some time or is there a portion of that that's sufficiently short term that we could see an improvement in earnings on surplus reflecting the increase in interest rates.
Yes, Mario this is Phil I'll take that one and Youre right. There is a D. E. F. S portfolio has a long portfolio, but there are also some short term instruments within the surplus portfolio as well.
Actually if we look at the run rates benefit that we've seen so far this year. So within Q3, we've seen a run rate benefit on earnings on surplus in the order of $19 million pretax.
And then about a third of that benefit a third of that uplift is come from high yield on short term instruments and two thirds about two thirds has come from.
Improved yield on the F S portfolio and that largely comes from a combination of natural turnover of the portfolio combined with some trading that has given rise to some realization of losses into net income, but it's something that as you can see from a total net income results for the full year has not.
<unk> impacted net income relative to core earnings in fact net income is higher on a year to date basis than core earnings. So I would anticipate that that run rate will stick with us and as interest rates rise and as we stay in this environment for a longer period of time, that's something that could well increase in the courses to.
Come.
Did you say 19 million around $90 million.
Sorry, 90 million excuse me 19 million.
Nine zero.
That's it from what period to what parent I didn't quite follow that.
So that if we if that's this year. So if you look at how much is accumulated into the run rate Q1 Q2 Q3.
Okay.
Thank you. The next question is from my per song from core Mark Securities. Please go ahead.
Thanks, Oliver to INR 17, so it probably most appropriate for fill and specifically what I'm talking about.
Looking at the CSM amortization.
8% to 10% per year can you talk about how that 10% amortization rate.
As we see the CSN mix shift over to Asia or are.
To remain static even is that that CSN balance shifts to Asia and outside of Canada and the U S. Thanks.
Yeah. Thanks for the question of the modest as Phil the.
Our modeling suggests that the 8% to 10% that we've guided to today will actually be very stable over time and that's because we are at scale. We do have a larger in force portfolio and to the extent that we write new business that that would have a longer expected were a longer life at the time that we write the business.
We would also see the enforce block maturing so at least for the foreseeable future, 8% to 10% is a good number.
I think what's also interesting along the lines of your question is that when we look at the 8% to 10% that we've guided to today, it's actually largely consistent between each of our insurance segments, Canada. The U S and Asia and what that represents is that although we have some.
Is this that you know how it does have a long life, particularly in the legacy portfolios of North America that business has been on the books for a long time, so it's not something that is material materially extending the.
That the amortization profile of CSN.
Okay. That's helpful. Thank you for that and then my second question on that.
Kind of circle back to wealth management and I'm wondering if you could help me understand the net flows and what's kind of driving that positive result resolved. Despite what we're seeing.
In terms of interest rates and weak markets like what's driving that.
Is that flows from the.
Managed on behalf of other segments.
You guys are scaling up in certain markets any color there would be helpful.
Yeah. Thanks for the question of are we have been really really pleased as you can tell from the flows considering the difficult markets across equity and fixed income in the 3 billion was we were we were positive not just in the core of a positive across all three business lines, our retail retirement and institutional and in retirement were seeing higher member contributions are amid the market people aren't.
Taking money out, but they continue to put money in and that's definitely helping across all of the platforms.
In retail, while we have seen kind of a shift there we feel really good about how well we're positioned our redemption rate in the U S. In particular is below industry average, we've got really strong market share across all of our markets.
And we've been able to drive sales and different different markets, particularly in Asia to help offset some of the market pullback that we were seeing so we feel really good about that and our long term and that's the investment performance is also strong but I think what's more important is that.
Our strategies are performing as expected in this difficult market and that bodes well in terms of just those that purchased our products understand how it should perform and it is performing and we have not seen redemptions spike up in this market, which really makes us feel confident that we're positioned well as this turns around and then on the institutional side institutional.
Investors tend to be longer term, so short term volatility typically doesn't get in the way of of Rfps and activity there and we're seeing some good activity. So when we look forward when we look at our investment performance, how well we fared.
And just our leading market share we feel on a relative basis well positioned.
Having said that we're not immune to market volatility.
And I think October September was the worst month of active flows in the U S. Since March of 'twenty 'twenty.
So we'll see what happens with markets, but again relatively Ah, we feel we're well positioned.
Thanks, I'll stick to two questions.
Thank you. The next question is from Nigel D'souza from Veritas investment Research. Please go ahead.
Thank you good morning, I wanted to follow up again on LTC in the claims data you highlighted on slide 26, when I look at the data for the older and newer block my understanding is the difference there.
It is being driven by differences in the average age of policyholders. So just trying to get a sense of if you normalized with differences.
H.
Across those blocks.
The current level of claim counts are tracking to match the holdup lock in more favorable or less favorable than in.
What are you seeing the older block.
I see.
Sure, Thanks, Nigel and and yes, you got it exactly right that it's the relative age or maturity average age of the block in terms of why there's less data over age 85 currently in that newer block <unk>.
And there will be a lot of similar characteristics in terms of what we see with the claims experience coming out but the there are nuances in that there were differences in product design benefits changed somewhat over the years. So it is incredibly valuable to have.
Data specific to a certain contract and that's you know that's what we're accumulating there is data specific to those contracts because I will be able to really hone in on that on those assumptions as we as we go forward and like I said I expect that sort of range. The fan of outcomes a range of outcomes to continue.
To narrow as we accumulate that experience.
Okay, but it sounds like you've already reserved based on your best estimates, but.
Yes.
Can you commit to whether those termination rates are going to be.
Sure.
Yeah. It's a good sort of question, we have confidence I have confidence in the reserves that we sat I have confidence that we've got enough data to set those reserves, but as you note I I I would love to I can't fully predict the future. So we will continue to track the data over time, but don't I I have confidence that.
We have the data to set those assumptions.
Thank you. The next question is from Darko <unk> from RBC capital markets. Please go ahead.
Hi, Thank you I wanted to focus on the the new medium term targets, new business CSM growth of 15% per year.
And the balanced growth of 8% to 10% per year. It sounds like good numbers I don't know I've never seen a CSM before so maybe one way you can help me understand how aggressive that is.
Combining slide 20 with 21 my assumption is Asia is a big proponent of that can you give me an idea of what kind of sales you would need next year too.
To achieve these goals and you know just assumed the sales mix is the same.
Thanks, Darko, it's Phil and I really appreciate Youre looking at the eye for 17 disclosures and asking questions about them. It means a lot to us in terms of our level of confidence in the new guidance at its high I feel it's appropriate we wouldn't release it unless we.
Felt this was achievable unless in terms of a reference point as to what you could look at.
New business C. S M generation Directionally I would expect to behave very similar to new business value.
There are some technical differences for example, new business value includes an allowance for cost of capital and new business CSM doesn't.
But I think a good indication of how achievable. This is or what the benchmark would be is whether or not we'd be expecting to grow new business new business value next year by 15%.
And you.
Given that we've suddenly seen a very challenging environment in 2022, there are potential stimuli on the horizon that could give rise to.
Notable improvements in new business momentum Damian touched on the potential for that earlier.
I think that gives us reasonable confidence that we'll see a similar level of growth in the new business CSM.
Now in terms of the C S imbalance.
Some think that naturally will grow over time from the the accretion of new business CSM, but also it will grow from the impact of accretion of interest that then is offset by the 8% to 10% amortization that was discussed a few moments on the call.
<unk> Roy here I, just might add a couple of other points.
One thing that we've said quite consistently is that I have for 17 is an accounting standard and doesn't impact the business fundamentals. So the targets that we've established and the guidance we've given around C. S N both balance growth and new business growth aren't you.
You ambition for our business in an eye for 17 world. They are what we would achieve given our current ambition. So ambition hasn't changed we're not getting more aggressive or less aggressive. This is what will translate in an eye for a 17 world.
As it relates to CSM, both balanced and new business growth and then the final thing I'd say is false.
Whilst it's new to everyone. It's really critical to appreciate the value of C. S. M, which is why we've provided these new targets as guidance in a in an eye for 17 World you can't just look at earnings to decide how well a company has performed because you can deliver really strongly needs in the short term, but then dilute or decrease you see ethane.
Which is obviously not a good thing for the future because that's future earnings that are not gonna be amortizing through so this is a really important part of how to look at companies like ALS in a new world, which is why we've given those targets because I think it's critical for us to establish targets and then to be held accountable to the weather way delivering against them as well.
Yeah. That's very helpful. Thank you both for that that's very useful very quickly for Steve on long term care I wanted to get back to the line of questioning that Mario was asking with respect to that.
The difference that I see with your long term care block is a significant amount of P fads or excess reserving over and above your best estimate another way to think of it is significantly better than statutory reserves and one of the things that you've had is the flexibility of ifr S. Four to build reserves over time and adjust.
Things as you go now clearly under Ifr 17, more or less the same thing except for the one thing that keeps coming up for me, which is adjustments happen to the contractual service margin until you don't have a contractual service margin.
So the concern or the thought process here is <unk>.
As experience, let's let's pretend it gets negative and negative in your contractual service margin keeps going down until it goes to zero and then you kind of look like a U S insurer, where you have to unlock and make big reserve changes or am I being too paranoid and so maybe the way to ask this question is how big of CSN.
Is it from the long term care block.
Relative to all the other CSN that you got from the U S business.
How hard would it be to deplete that.
Sure. Thanks, Thanks, Darko and.
In terms of your point about being able to reflect experience as we go that does not change. So it'll operate very very similar to under Iff's for and I actually just look at the C. S. M versus net income for this business is more geography, we will still reflect our premium increases.
Functions and if we got to the point where.
We're a C. S. M were depleted it would go through net income, but that doesn't change. The fact that we will continue to have very significant margin and our <unk> 17 reserves I I I can tell you I will disclose the details.
At an appropriate point, but LTC reserves won't decrease under eye for 17. So we will continue to be very prudently reserved we will continue our practice of reflecting our experience as we go along and and achieving the premium increases which is fundamental the rest that kind of U S geography.
Yeah.
Thank you there are no further questions registered at this time I'd like to turn the call back over to you Mr. <unk>.
Thank you operator will be available after the call. If there are any follow up questions have a good day everyone.
Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Please standby.
No man.
Hi, Donna I, just want to make sure we're.
Not life.
That's true when you are not life.
Okay. Thanks for your help.
Right.
This conference is no longer being recorded sets closely knit resolve as this thing.