Q3 2024 Manulife Financial Corp Earnings Call
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Speaker Change: Please stand by. Your meeting is about to begin. Please be advised that this conference call is being recorded. Good morning, ladies and gentlemen, and welcome to the Manulife Financial Third Quarter 2024 Financial Results Conference Call. I would now like to turn the meeting over to Mr. Koh. Please go ahead, sir.
Koh: Thank you. Welcome to Manualized Earnings Conference call to discuss our third quarter and year-to-date 2024 financial and operating results.
Mr. Koh: Before we start, please refer to slide 2 for a caution of forward-looking statements and slide 34 for notes on the 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.
Koh: Turning to slide four, Roy Gori, our President and Chief Executive Officer, will begin today's presentation with a highlight of our third quarter and year-to-date 2020 policy results and a strategic update. Following Roy's remarks, Colin Simpson, our Chief Financial Officer, will discuss the company's financial and operating results in more detail.
Koh: After their prepared remarks, we'll move to the live Q&A portion of the call. With that, I'd like to turn the call over to Roy Gori, our President and Chief Executive Officer. Roy. Thanks, Hung, and thank you, everyone, for joining us today.
Roy Gori: We are executing on our strategy and delivering strong financial performance while making great progress towards our goal of being the digital customer leader in our industry.
Roy Gori: In the third quarter of 2024, we delivered record financial and operating results, including core earnings, AP sales, new business CSM, new business value, our customer net promoter score, or MPS, and straight-through processing, or STP.
Koh: We generated significant top-line growth, including 40% growth in APE sales, led by broad-based growth in Asia, which delivered record levels of APE sales, new business CSM and new business value.
Koh: I'm also very pleased with the contributions from our businesses in North America.
Koh: Global Wham also delivered another strong quarter with over five billion dollars of net flows and positive contributions from each business line and geography.
Koh: We generated solid core earnings growth of 4% which was led by 17% growth in Asia and 37% growth in global WAM.
Koh: excluding the impact of Global Minimum Taxes or GMT, Kaur and his growth would have been 7%
Koh: On a per share basis, core EPS grew 7% year over year, or 11% if adjusted for the impact of GMT.
Koh: We delivered an attractive core ROE of 16.6%, demonstrating that we're on our path towards our 18% plus goal.
Koh: Finally, we maintained a strong balance sheet and ample financial flexibility with a strong LICAT ratio of 137% and leverage ratio of 23.5%.
Koh: As we made clear at our investor day in June, Manulife is well positioned to continue delivering strong results like these and outperform peers thanks to our unique geographic footprint and attractive business mix.
Koh: Our scale and ability to capture global megatrends and a clear path to deliver against our strategic priorities
Koh: Moving to slide 7, as you can see our disciplined execution continued to drive strong growth in key metrics on a year-to-date basis.
Koh: Asia and Global WAMP continue to demonstrate strong contributions to our year-to-date growth. In Asia we have a diversified high quality distribution platform and our ambition is to be the number one choice for customers.
Koh: In Global WAM our scale, unique footprint and business mix along with expense discipline is driving operating leverage with our year-to-date core EBITDA margin up 190 basis points.
Koh: We delivered 12% core EPS growth on a year-to-date basis at the top end of our medium-term target range, driven by sustained strong performance in our high-growth segments, coupled with share buybacks. This is an excellent result as year-to-date core EPS would have grown 14% without the impact of GMT.
Koh: Similarly, our core ROE continued to expand and improved 0.6 points year-over-year.
Koh: We've also delivered robust book value growth over this period with 14% growth in adjusted book value per share and 9% growth in book value per share.
Koh: It's worth noting that we've delivered this growth net of returning close to $5 billion of capital to shareholders over the past year.
Koh: We have repurchased 58 million common shares so far this year and as a reminder we're committed to fully executing the remaining 32 million shares of our current NCIB program which expires in February 2025.
Koh: Based on our current share price, our share buybacks have generated a benefit of more than $2.5 billion since 2021, and we continue to view these as a good tool to generate value for shareholders.
Koh: Turning to slide 8, in addition to capitalizing on our strong operating momentum, we remain focused on execution and on investing for the future, and we continue to make progress towards our goal of being the digital customer leader in our industry.
Koh: To that end, we're leveraging our advanced Gen-AI capabilities across the franchise.
Koh: We've already launched 11 use cases into production, with another 13 to be launched before year-end, and an additional 16 in development.
Koh: These encompass all areas of our business and are being ambitiously scaled to maximise business value.
Koh: For example, the Singapore GNAI sales tool that we showcased at Invest Today has achieved a successful pilot result of more than 5% higher repurchase rate, and we've since extended the tool to all agents in Singapore.
Koh: We plan to further expand the tool to other markets before year-end.
Koh: We've also extended AI-powered call summarisation and contract look-up tools to 15% of our North American Contact Centre agents in the past six months.
Koh: These are two significant drivers of efficiency and have already delivered a 12% reduction in average handle time so far this year. We plan to continue rapidly rolling this out globally and enhancing these capabilities to drive even greater efficiencies.
Koh: Our mission is decisions made easier, lives made better. And our digital priorities are all about optimising the customer experience.
Koh: We also continue to invest in helping our customers' health and well-being. We held our second Longevity Symposium in Boston in October, where we gathered over 500 industry leaders, distribution partners, academics, and government officials to discuss the latest developments to help our customers live longer, healthier, better lives.
Koh: This event generated overwhelming positive feedback from the participants and preliminary results of our post-event survey saw an MPS of over 92.
Koh: Our digital efforts have not only enhanced customer experience, but also drove improved financial outcomes.
Koh: To that end, we are well-positioned to extract maximum value from our digital investments and we're on track to exceed the $500 million in benefits we expected to generate in 2024, representing more than 2.5 times growth from 2023.
Koh: We have a clear line of sight to generating additional value and look forward to updating you on our progress going forward.
Koh: In summary, our strong execution this year is driving quality growth in new business and earnings, and generating significant value for shareholders.
We're delivering strong operating and customer satisfaction metrics.
Koh: And we are well positioned to deliver on the ambitious but achievable new targets that we announced at Investor Day.
Koh: With that, I'll hand it over to Colin to review the highlights of our financial results. Colin.
Colin Simpson: Thanks Roy. It has been another strong quarter for Manulife. Let me dive into a little more detail on the results before the Q&A.
Koh: I'll start with our top line on slide 10 where we delivered record levels of APE sales, new business CSM and new business value
Koh: Our APE sales increased 40% from the prior year, reflecting very strong growth in Asia, and despite the prior year results including a large Affinity Market sale in Canada.
Koh: Asia generated high volume across multiple markets, most notably in Hong Kong, supported by our high-quality diversified distribution capabilities and our differentiated product offerings.
Koh: Our strong sales contributed to substantial increases in new business CSM of 47% and new business value of 39%.
Koh: Global WAM saw solid net inflows of 5.2 billion dollars with contributions from all business lines and real strength in our retail business.
Koh: The continued strength in our top line is encouraging, particularly in our Asia and global WAM segments as we reshape our earnings profile towards higher return businesses.
Koh: On our core earnings results on slide 11, I'd like to call out some of the highlights of the drivers of earnings analysis presented relative to the prior year quarter.
Koh: The first point to highlight is that we continue to see the benefits of growth in our insurance businesses as well as an improved change in the ECL, but this was partially offset by lower investment spreads.
Koh: The Core Net Insurance Service result has once again grown faster than the Core Net Investment result and made up 48% of pre-tax core earnings in the quarter.
Koh: In the bottom half of the table, you'll see that Global WAN significantly increased its contribution to pre-tax earnings, supported by average AUMA growth and margin expansion.
Koh: The impact of GMT on our core earnings was a $61 million charge for the quarter, and, as Roy mentioned, this reduced our core earnings growth by approximately 3 percentage points.
Koh: In addition, the reinsurance transactions with Global Atlantic and RGA that closed earlier this year reduced core earnings by $23 million across multiple lines of the DOE.
Koh: On to slide 12. Core EPS increased 7% as we grew core earnings and continued buying back shares. If you normalize for the impact of GMT, core EPS would have grown 11% in line with our medium-term target of 10 to 12%.
Koh: Net income was higher than core earnings this quarter, with a few largely offsetting non-core items driving a modest net positive impact.
Let me expand on the notable items.
Koh: We reported an approximate $100 million realized gain from the disposal of fixed income assets this quarter, which included trading activity in mainland China, where we have seen interest rates decreasing, as well as core premiums on bond prepayments.
Koh: Our older portfolio resulted in a $167 million non-core charge. Our portfolio remains well diversified and reflects current valuations, and our experience this quarter marked a significant improvement from recent quarters, with commercial real estate contributing to the majority of this charge.
Koh: During the quarter, we also completed our annual review of actuarial models and assumptions, or basis change, which resulted in an overall reduction of $174 million in pre-tax fulfillment cash flows, which comprised of a net $816 million increase in OCI, partially offset by decreases in CSM, and a $199 million post-tax adverse impact to net income, shown here.
Koh: Overall, the net impact from the basis change was modest, and further illustrates the stability of our reserve development.
Koh: More information on the arterial review is available in the appendix of this presentation.
The
Speaker Change: Bringing you to our book value on slide 13, you can see we grew our adjusted book value per share by 14% from the prior quarter to $34.97, even after returning nearly $5 billion of capital to shareholders via dividends and our NCIB program over the past year.
Speaker Change: It's worth reiterating that we expected much steadier growth in adjusted book value under IFROS-17, and you can see from this chart that this is playing out.
Speaker Change: Now we'll cover the segment view of our results in the next few slides, starting with Asia on slide 14.
Speaker Change: Our Asia segment generated strong growth in both top and bottom line metrics.
Speaker Change: AP sales increased by 64% from the prior year quarter, driven by growth across most markets, led by Hong Kong, which saw growth across all sales channels, including from both MCB and domestic customers.
Speaker Change: The overall increase in sales contributed to 45% and 55% growth in our value metrics, New Business CSM and MBV respectively.
Speaker Change: Our three top-line metrics highlighted here reach record levels for the quarter.
Speaker Change: We delivered 17% core earnings growth in Asia as we benefited from higher expected earnings on insurance contracts and higher expected investment earnings, with notable growth from our largest enforced business, Hong Kong.
Speaker Change: These results demonstrate why we showcased Asia at our Investor Bay in June.
Speaker Change: Moving over to Global WAM's results on slide 15. It really was a fantastic quarter for Global WAM, delivering record core earnings for the quarter with growth of 37% supported by higher average AUMA, along with favorable tax drops and tax benefits of approximately 70 million dollars.
Speaker Change: Even excluding the impact of these tax items, the segment still generated record core earnings for the third quarter. We reported $5.2 billion of net inflows for the quarter, with positive flows across all business lines and regions.
Speaker Change: Notably, we generated strong net inflows in our retail business, benefiting from strong equity markets which helped drive investor demand, and we saw advisor growth in our Canada wealth business.
Speaker Change: We continue to generate positive operating leverage, driving another quarter of core EBITDA margin expansion, which increased 90 basis points from the prior year to 27.8%.
Speaker Change: Bringing you over to Canada on slide 16, we delivered solid results across our insurance businesses during the quarter.
Speaker Change: APE sales decreased 20% from the prior year quarter, but this was attributable to the non-recurrence of the large Affinity Market sale in the same quarter last year.
Speaker Change: Excluding this, we generated strong sales growth of 27%, driven by higher retail sales in individual insurance, mid and large case sales in group insurance, and segregated fund sales in our annuities business.
Speaker Change: Core earnings grew modestly in Canada, primarily driven by business growth and group insurance. Neutral ECL experience compared with the charge in the prior year, but this was mostly offset by positive, though less favourable claims experience in our group insurance business.
Speaker Change: On to slide 17, which shows our U.S. segment's results. In the U.S., we saw a rebound in demand for our accumulation insurance products from affluent customers, which drove up APE sales and contributed to the growth in new business CSM and new business value.
Speaker Change: Core earnings decreased 8% from the prior year quarter, as a lower charge in the ECL and more favorable claims experience in our U.S. life business was more than offset by lower investment spreads.
Speaker Change: Lower earnings from the Global Atlantic Reinsurance Transaction that closed earlier this year, as well as the net impact of the basis change.
Speaker Change: Let's now move to our balance sheet on slide 18. In the third quarter, our Likert Ratio remained strong at 137%, which was $23 billion above the supervisory target ratio.
Speaker Change: Our financial leverage ratio reduced further and continues to provide ample financial flexibility at 23.5% or 23% including the impact of the announced redemption of subordinated debentures. This puts us comfortably below our target ratio of 25%.
Speaker Change: During the third quarter, we accelerated the pace of our share buybacks, and together with dividends, we returned close to $1.7 billion of capital to shareholders.
Speaker Change: Our accelerated share buyback pace is reflective of our intention to fully execute our current NCIB program of 19 million shares.
as we announced last quarter.
And as Roy mentioned...
Speaker Change: As at October 31st, there remained approximately 32 million shares capacity until the expiry of the program in February 2025.
Speaker Change: And finally, moving to slide 19, which summarizes how we're tracking against our 2027 and medium-term targets.
Speaker Change: As you can see from our year-to-date results, we are showing momentum towards our new core ROE target, with an attractive 16.3%, reflecting strong business performance and disciplined capital allocation. The Discrete Quarters ROE was 16.6%.
Speaker Change: And, we are continuing to deliver on our remaining medium-term targets, which includes expense efficiency, where our disciplined expense management together with core earnings growth has brought our year-to-date ratio down to 45% in line with our target.
Speaker Change: 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, and to re-queue if they have additional questions.
Operator, we will now open the call to questions.
Speaker Change: Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1.
Speaker Change: You may cancel your question at any time by pressing star 2. There will be a brief pause while participants register for questions. We thank you for your patience.
Our first question is from Minnie Roman from Scotiabank.
Go ahead.
Minnie Roman: Hi, good morning. A question on ALDA, whether this is an inflection point for your PE portfolio? Obviously you mentioned the moderating impact from commercial real estate, but you didn't talk about PE. So I'm just wondering what the outlook is there based on what you saw in Q3.
Speaker Change: Hi Manny, thanks for the question. It's Trevor. So obviously very happy to see the stronghold of performance in the quarter Still a little bit below target But as you know that I think substantially better than we've seen recently and actually the best over the last nine nine quarters
Speaker Change: The main driver of the loss, as Colin mentioned, was real estate. The experience is actually similar to Q2 and just really reflected flat performance.
Speaker Change: for the asset class. In terms of the remaining classes, which I think was your question, it was really a mix of gains and losses. Infrastructure was substantially better than it had been in Q2 and private equity as well. It was also materially better than in the second quarter.
Speaker Change: In terms of the outlook, it's obviously difficult to say. We do expect, I think, a continued improvement in, I think, the overall portfolio and private equity as well.
Speaker Change: We do still think that we will get back to our long-term assumptions around the middle of 2025. And so remain confident in the long-term performance of the strategy and the portfolio.
Speaker Change: And then maybe just another question, maybe for Roy, we saw this talk react quite favorably to the U.S. election yesterday. Just wondering from your perspective how you see the impact.
Speaker Change: from the U.S. election across your business. Sometimes we get questions about people trying to think through the impact for your Asia business specifically, but more broadly, if you have any thoughts on that.
Good morning. Morning, Manny.
Speaker Change: Look, at a very macro level, I would say that we don't really see that the U.S. election would be a major factor on our performance or our business, and that's really a large function of the fact that we're a very diversified business across three broad geographies, which has really helped us weather a whole lot of different weathers and storms. If you look at yesterday's market reaction, obviously the U.S. dollar reacted very positively and we saw equities.
Speaker Change: rally. They are positives, but we wouldn't be banking those as big wins that we should be celebrating. We think that we're going to see a little bit of volatility off the back of the announcement, but that'll normalise. And really, the underlying performance of the business that you see come through in our Q3 results, we expect.
Speaker Change: to show the resilience of our business for not only the rest of the year but for the following year.
Great, thank you.
Thank you.
Speaker Change: Our following question is from Tom Gallagher from Evercore ISI. Please go ahead.
Tom Gallagher: Good morning. I had a few questions on the actuarial review.
Tom Gallagher: Given the S.U.L. charge, would you expect a related U.S. statutory impact?
Speaker Change: And did you expect this to impact your remittance plans for 2025?
Speaker Change: And I guess the same question in reverse for Asia. Does the positive release have any cash flow impacts when you think about Asian cash flows?
Speaker Change: Sure, Tom. Thanks, it's Steve here. So, with respect to the review, the impact in the U.S., we do not expect any negative impact, immediate impact on remittances. There's no impact on the RBC ratio. It remains very strong and does not impact our remittance for 2025.
Speaker Change: I'd say overall the results of the review don't have an impact in terms of our commitment to the new target remittances that we set out at Investor Day, so no significant impact there at all.
Tom Gallagher: Great, and then I guess my follow-up is, does taking this size of a reserve addition on SGL make it more affordable when you think about considering potential risk transfer? Is that a risk in a block that you're considering?
Speaker Change: Hey, good morning, Tom. It's Mark Costantini here. Thanks for the question.
Speaker Change: I guess I'll start by saying that if you look at our track record of execution on our legacy businesses and optimizing, I think you will see a very strong track record there of execution there in Delaving.
Speaker Change: Values our shareholders and I think last time we took a look at it was over 11 billion over the last number of years and Most notably obviously the last couple of transactions the last 12 months which were a very preferable and solidifying our balance sheets. So
Speaker Change: We will look to continue to manage and actively manage the legacy portfolio as we move forward.
Speaker Change: and obviously we have a focus on some of these US liabilities you mentioned including LTC as well so
Speaker Change: more to come as we as we work through all those files but I would say the basis change itself does not necessarily impact because any buyer counterpart would factor in you know some of the current experience so what Steve alluded to earlier does not necessarily impact you know how we would approach transacting on a block like this so
Thanks.
Thank you.
Speaker Change: Thank you. Our following question is from Gabriel Deschenes from National Bank Financial.
Thank you.
Gabriel Deschenes: Good morning, similar line of questioning I guess but more on the Asia business. I saw there was some negative experience there, insurance experience. I assume that's LAPS related and when I read the actuarial review details it says he did strengthen reserves for LAPS and the U.S. and in
Speaker Change: Asia, but not like the Vietnam stuff that's been a problem in the past. A, is that kind of dealt with now? And B, do you think that the actions they took this quarter will simmer down those lapse trends in the P&L?
Co.
Speaker Change: Thanks Gabriel. This is Phil. Maybe I make a start on that Asia question and hand over to Steve to supplement.
Speaker Change: What you see in the Drivers of Earnings analysis in terms of experience, an $18 U.S. dollar
when you look at it on a year-to-date basis.
Speaker Change: it's a negative six million dollars so there are positives there are negatives and it will move around from quarter to quarter there were a couple of uh larger claims this quarter relating to some of the high net worth business across our high net worth markets but nothing nothing beyond that that I
Speaker Change: would particularly highlight. You referenced Vietnam. I think it's important to note that some of the headwinds...
Speaker Change: that we had seen from an experience perspective in Vietnam flowing through the CSM in prior courses, that's now normalized, so substantially less, and you can see an approximately neutral experience in the CSM for Asia. Steve, is there anything you'd like to supplement?
Steve: Yeah, I would just add a little bit, Phil, that particularly the point on Vietnam, if you look at prior year, that was driving the negative experience, and as we said, we expected normalization there, and that's what we've seen in the quarter, which Phil highlighted.
Speaker Change: Okay, thanks, and my next question also a bit of a connecting dots here, but Just so I understand it the reinsurance Assumption you're assuming higher cost for old age mortality Reinsurance in the future, and that's where there was a reserve striking. That's the gist of it
Speaker Change: Yeah, thanks, Gabe. Maybe I'll start with reminding people that the point Colin said. So overall, the Assumption Review was a release of reserve of about $174 million. Moving on to the item that you're asking about specifically. Yeah, so as part of our review,
Speaker Change: the Reinsurance and Risk Adjustment Review. We recalibrated our risk adjustment in North America to a similar approach to what we did in Asia the prior year, and we also updated our
Speaker Change: our reinsurance reserves. It was a regular review that we did and really updated to reflect, true up our current views on current market conditions and it was, as you know, it's on older mortality reinsurance.
Speaker Change: I guess my point on this is not the labor or the details of the actuarial review. There's a lot of moving pieces is that if reinsurers are charging more for old age mortality risk
Speaker Change: More demand for products that benefit from higher mortality in the legacy business like like long-term care Does that is that does that make any sense at all that because that trends happening it might actually enhance the appeal of? You know your long-term care legacy blocks and make them easier to transact
Speaker Change: I'll start and I'll hand it over to Mark and just sort of re-emphasize what you said is
Speaker Change: We have seen, and you saw through the pandemic, that we had fantastic offsets between mortality and longevity, so you know, when when mortality is really low, we see gains in life, we see losses in LTC and vice versa, but Mark, you can add.
Speaker Change: Steve, you alluded to the strong point I was going to make is that we have a natural balance in our portfolio and as we look to transact on any type of business the counterparties obviously factor that in as well and it's a we try to aim and have achieved win-win outcomes for both ourselves and the counterparties which is the strength of the execution of this team and our counterparts.
All righty then.
Speaker Change: Thanks. Thank you. Our following question is from Alex Scott from Barclays Capital. Please go ahead.
Alex Scott: Hi, good morning. First one I'll ask is on the sales in Hong Kong. I was just hoping you could unpack some of the success you're having, you know, both in the domestic market and elsewhere. Thank you.
Speaker Change: Great, thank you Alex. Good morning, this is Phil. It has been a fantastic quarter in many respects across Asia including
Speaker Change: including sales as you highlight and Hong Kong's been an important part of that as have other markets and I'll come on to that in a moment but in Hong Kong we've seen an 83% increase in new business value that is a record level of NBV in Hong Kong and we're seeing strong growth.
Speaker Change: As Colin said in his remarks, across all of our distribution channels
Speaker Change: agency, bank and broker, but notably as well, strong demand from both the domestic customer segment in Hong Kong, which is our core business in Hong Kong, the majority of our business,
Speaker Change: as well as the Mainland Chinese visitor customer segment which is growing and reflecting the investments that we have
Speaker Change: made in MCV, the MCV segments, in order to, deliberate actions in order to increase our market share, although it does
Speaker Change: remain the, it's not the majority of our business, the domestic segment is. Now what's driving the demand in Hong Kong is a combination of things. One is we are seeing favorable macro conditions.
Speaker Change: and that is in particular driving customer interest and demand in savings solutions.
Speaker Change: And that's coincided with the fact that in the quarter, across Asia and in Hong Kong, we have taken certain management actions.
Speaker Change: that include, earlier this year we launched a new competitive participating savings product so the timing of that has worked well with the favorable macro conditions. We've also held a brand campaign across the region.
Speaker Change: And in Hong Kong, the third quarter is when we hold our annual sales campaign within our agency channel. So a lot of good things have happened at the same time.
Speaker Change: Now, of course, there can be variability, quarter to quarter, in sales levels, but I think the direction of travel is clear.
Speaker Change: that we are growing and fulfilling a greater share of customer needs. And I think that's consistent with the thesis that we had articulated at our Investor Day in June. And just to emphasize,
Speaker Change: We're not only seeing growth in Hong Kong. We've seen similar levels of growth in NBV across Japan, Singapore, strong growth in the Philippines, Indonesia, and other markets across Asia, including mainland China.
That's really helpful.
Speaker Change: In the follow-up, I wanted to come back to the conversation around the actuarial impacts and, you know, I know it was overall not favorable. I guess on the CSM margin specifically, it was a bit unfavorable overall.
Speaker Change: I think it was noted in the presentation that it was a net neutral impact on earnings. I would think the US segment probably has a headwind and I just wanted to see if you could help us out with how to think through
Speaker Change: you know, the impact on go-forward earnings in the U.S. and sort of where that's offset, you know, in Asia, if there's a little in Canada, and you know, just have a think about the mix and how it's changing there.
Steve: Sure Alex, it's Steve. Yeah, so the the way the basis change works under IFRS 17 is we calculate the change in reserves and then we have to record it in different places in our financial statements. And as you note,
There was a reduction in the CSM.
Speaker Change: you know, a reduction in in the U.S. and that was partially offset by an increase in Asia. So you're you're right in terms of...
Speaker Change: We expect a neutral impact overall in demand rate core earnings, and you're absolutely right, we'll see a reduction in the U.S. offset by an increase in Asia, so overall roughly neutral.
Speaker Change: Got it. But any way to think about like how much US comes down I guess is the crux of what I was wondering.
Speaker Change: Yeah, we've, broadly speaking, think of $15 million a quarter, roughly, post-tax Canadians.
Got it. Okay. Very helpful. Thank you.
Thank you.
Our following question is from Paul Holden from CIBC.
Please go ahead
Paul Holden: Thanks, good morning. Another question related to the ACMA update. I guess on the lapse assumption change, you highlighted that you changed sort of, let's call it near to medium term.
Paul Holden: assumptions only and left the terminal lapse assumption unchanged. So I guess first part of the question like why not change the terminal assumption so maybe you can explain that.
Paul Holden: and then two, if you had changed the terminal assumption by a similar magnitude.
Speaker Change: to the change in near medium-term lapse. How big would that impact of being relative to the 620 million charge you took? Thank you.
Speaker Change: Yeah, thanks, Paul. And just a bit of context. So our U.S. lapse rates, and all of our assumptions get trued up regularly, we were fully up-to-date heading into COVID, and then we, you'll recall, we saw disconnects in lapse rates as we got into COVID.
Speaker Change: across multiple product lines. In most of those product lines, including Canada, UL, SAG funds, lab traits have reverted back to pre-pandemic levels.
but
Speaker Change: In the U.S., we've seen some trend back, but not in all products, so part of this review was
Speaker Change: you know prudently we reflected the experience that we're seeing post-COVID including those trends and we looked closely at you know we've got additional data in the ultimate
Speaker Change: and the simple answer is the data confirmed that we're comfortable we do not need to change the the ultimate lapse rates we had already strengthened those materially in in prior reviews
Speaker Change: You know, your question about a little bit theoretical in terms, I don't have that handy in terms of what an assumption change would have done. In our annual disclosures, there are sensitivities provided on lapse rates, but I would tell you the data confirmed we don't need to change those assumptions.
Speaker Change: Okay, okay. I'm assuming based on the duration of the product, though, there's probably a little bit more sensitivity to the terminal lapse assumption. Is that fair?
Speaker Change: There is, but a little bit, but remember we, you know, about half the changes on Guaranteed UL, we stopped writing that business well over 10 years ago, so we're you know, we're into that, getting into that ultimate period.
Speaker Change: Okay, got it. Thank you. That's helpful. And then for Phil, I want to circle back to the Hong Kong sales. It's going to be a little bit of a challenge here just given how strong it was in the quarter. I looked historically going back a long way.
Speaker Change: guidance on what we should expect going forward relative to the really strong Q3 result in Hong Kong.
Speaker Change: Thanks Paul, this is Phil. You're right, it's been a really strong quarter and you know a lot of things have gone well as I referenced earlier. The timing of the management actions we had taken with
Speaker Change: I suppose the favorable macro conditions and specifically there I'm thinking about the fact that interest rates, short-term interest rates
Speaker Change: turned over the course of the last few months, and that has prompted customers to think more long-term rather than short-term in terms of their strategies. So while we are in that interest rate,
Speaker Change: that what's very clear from our results is that we're generating value and the CSM accretion that we're seeing and when you look at the CSM balance year on year it's up 10 percent.
that supports.
Speaker Change: stable earnings growth in the quarters and years to come and that really is our focus.
Speaker Change: In terms of sustainability, I do expect stable growth in new business from our exclusive channels, agency and bank.
Speaker Change: For our third party channels, and notably Broker, that can vary from quarter to quarter and we'll call that out as and when it happens.
Speaker Change: Thanks for the question. Paul, I just wanted to add a couple of comments to Phil's which I think were excellent summaries. The quota was really solid for sales in Asia, quite frankly across the entire business.
Speaker Change: But our year-to-date results are also really very strong and that's what gives me a lot of confidence, the momentum that we've got across our franchise.
Speaker Change: and the thing that's particularly exciting for me about our Asia momentum is that it's not any one particular market in isolation or any one particular channel. So we're seeing, as I think Phil noted, good broad-based growth across our channels, whether that's banker, agency, broker and affiliated.
Speaker Change: but we're also seeing our markets across Asia also performing really well so that momentum I think bodes well but again I'd caution folks to not expect you know 30 to 40 percent growth in sales
Speaker Change: across all of those metrics on an ongoing basis. We've got a good baseline here. We think that momentum is our friend, but obviously, you know, we wouldn't expect 30% growth every quarter. Got it. Got it. I agree. The diversification is a positive. So, anyways, thank you.
Speaker Change: Thank you. The following question is from Mario Mandonca from TD Securities. Please go ahead. Good morning. Roy, can I take you back a few years?
It was November...
Mario Mandonca: 2007, so 17 years ago, almost to the day, that Manulife was a $43 stock, and it's back there today. And when I look at...
Mario Mandonca: There's a great combination of growth and wealth in Asia, but also the company's been shrinking for some time now as you reinsure books and buy back stock. So when you meet with your board and you speak to your executive team,
Speaker Change: Is the company going to become a little more ambitious in its growth outlook? How would you describe that?
Speaker Change: Good morning, Mario. Thanks for the question. I think you're absolutely right. When we sort of looked at our performance over a number of years, and certainly looking back to where we were pre-global financial crisis, we really had to appreciate that
Mario Mandonca: For us to succeed in the long run, we needed sustainable growth, but also quality growth.
Mario Mandonca: So in 2018 when we established our transformation agenda We said that we clearly wanted to improve our returns, reduce our risk and volatility and then also focus much more on customer and digital
Speaker Change: And the progress that we've made is something that we're very proud of. But we think that we've really transformed the company in terms of fixing some of the things that were...
Speaker Change: less strong, but at the same time we feel like we've built a platform for sustainable future growth.
Speaker Change: and whilst Asia and GWAM are tremendous platforms and I think quite frankly if you stack up our businesses both Asia and GWAM across many of our competitors we would be quite enviable.
But it's not just
Speaker Change: Asia and G-WAN that really drives our success. I think we've got a really solid business in the U.S. that provides great remittances, great returns on our new business, as we highlighted at our invest today, and our Canada business, where we're a strong leader.
across individual insurance.
as well as group benefits really positions us well.
Speaker Change: To get to the crux of your question, in terms of ambition, at our investor day, we declared quite an ambitious agenda for where we want to go and, you know, our 10-12% earnings per share growth
Speaker Change: target is what we reaffirmed. We believe that we've got the footprint to continue to deliver that. Our 18% plus ROE, we think it's quite ambitious, but very achievable. So, you know, I think with a lot of the hard yards...
Speaker Change: to basically fix our platform and transform our business. We think that we've largely completed that chapter and now the next chapter is all about building on that platform and accelerating our growth momentum so that it can be sustainable and continuous.
So, that's helpful.
Speaker Change: Let me sort of push this a little further what I'm getting at is
Speaker Change: Does this company, like are you content with everything you've got now, and there's no need to add to capabilities and distribution through consolidations, through acquisitions, M&A? You just don't see a need for that because the business has got so much runway anyways. Is that right?
Speaker Change: What I would say is that we are very pleased with our platform. We don't think that we're lacking any key components that are going to allow us to deliver on the ambition that we have, certainly the ambition that we established at our invest today.
Speaker Change: And I think this is the crux of where you're getting to in your question. We're in a very, very strong capital position. We've got $10 billion of capital in excess of our upper operating range. Our leverage ratio now is at an all-time, well, almost an all-time low, certainly for many, many years at 23-plus percent.
Speaker Change: So we have at our disposal the opportunity to look at M&A.
Speaker Change: And clearly, you know, we will transact if we see opportunities that allow us to, you know, continue to expand our capabilities.
but at the same time give us further scale.
Speaker Change: But we're going to be very disciplined there Mario, you've seen as much as I have a whole lot of not so great M&A in our industry and we certainly don't want to do that. So yes, we're well capitalised.
Speaker Change: We believe that we can execute on M&A. We think that there are some key areas that would certainly be complementary to our business. But we're certainly not desperate and we're going to be very disciplined.
Clare, thank you.
Clare: Thank you. Our following question is from Lamar Persaud from Corn Rock Securities. Please go ahead.
Lamar Persaud: Yeah, hopefully two relatively quick modeling questions for me. There's a shard drop in the...
Speaker Change: impact of new business on the consolidated DOE. It looks like this is related to a lower charge from Asia. Is this really because of the change in sales mix in the quarter? I guess lower sales of owner's contract products. Is this something we can expect going forward?
Speaker Change: So you have seen a lowering of the impact of new business in the drivers of earnings analysis, and a reminder that this reflects a couple of things. It reflects what we call onerous losses.
Clare: as well as any acquisition expense variance. And so in the third quarter, that's fallen to $7 million and it's been at a run rate of around $20 million negative in prior quarters. And a couple of things happening there. One is that as part of the basis change,
Clare: The expense loadings were updated and that's had a favorable impact.
Clare: on this line, as well as it's been a particularly strong new business quarter. And when we have strong volumes, that reduces the expense per unit and has a favorable impact on this line item. At $7 million, this is US, $7 million, I think that's at the low end of the range of what you would typically expect.
Speaker Change: And it will vary from quarter to quarter, but Steve, is there anything that you'd like to supplement there? I'd just add that this has been an area of focus since we started reporting under IFRS 17. It's an opportunity. We directly see improvement in margins coming through this line, so it has been an area of focus.
Speaker Change: Okay, that's helpful. Then just my next question here, I'm looking at the negative impacts of the reinsurance transactions, so RGA and Globe. Looks like those are lower again this quarter. Can you guys talk about what's driving that and should we think of the negative impacts as being less than originally anticipated?
Speaker Change: sold on the old there completed the sale of the older Associated with the transactions, but almost there. There's a few things associated with experience that come into play on a one-off basis But when you strip those out the run rates the quarterly run rates is bang in line with the annual guidance that we gave which was 130 million for global Atlantic and 50 million for the RGA transaction in Canada
Thanks, that's it for me.
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Thank you.
Speaker Change: Our following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Speaker Change: Hi, good morning. Steve, maybe back to you, long-term, U.S. long-term care insurance, I think there was negative experience this quarter in both the P&L and the CSM.
Speaker Change: Can you talk a bit about what drove this? Because not too long ago, they were kind of offset and neutral. And I think the last two quarters, it's been net negative. And just wondering if it's the same as last quarter. How material? What is this? Is this a trend that's developing that we should keep an eye on?
Speaker Change: Sure Doug, thanks. Yeah, maybe I'll take a step back and just sort of remind people that, you know, if we look at the LTC experience over the last many years, so if we go back to even 2017,
In this quarter, the LTC did generate a loss.
We saw very low mortality.
Speaker Change: and that impacted the life business in terms of claims gains going through the P&L and LTC we saw losses. It was sort of it was at a very low level of mortality and as I had noted earlier we saw this during the pandemic this kind of this kind of dynamic. We also saw as we had in previous quarters
Speaker Change: higher costs for those on claim. We don't see this one quarter of experience as a trend. It's what I would say is normal variability.
Speaker Change: Was it the same as last quarter? Or is this a new locality?
Speaker Change: No the mortality was a very noticeable difference just this quarter. Okay.
Speaker Change: And then maybe Phil, just on Asia, on Hong Kong in particular, I mean, you know, group sales, new business value, CSM.
Speaker Change: new business, CSM growth was strong, but new business value margins are down over the last year and it's been a steady decline. And just, is this?
Speaker Change: mix that's going through is this not just product mix but distribution mix you know is the goal really you know just to drive sales and drive earnings growth and and focus maybe less on the margins going forward just trying to get a sense of how to think about that
Speaker Change: Doug, thanks for the questions. It's a good question. This is Phil.
Speaker Change: Our overall margin for Asia in the third quarter was 39%, and that's down 3 percentage points year on year and down 5 percentage points quarter on quarter. As you highlight in your question, Hong Kong is the driver of that. We've seen a margin in Hong Kong.
Speaker Change: 42% in Q3, and we would typically see in Hong Kong a margin of about 60%.
Speaker Change: So what's going on there is that, as I referenced earlier, we are seeing consumer demand for savings, savings solutions.
Speaker Change: And while we've seen growth in both savings and health and protection solutions
Speaker Change: The growth in savings has outpaced health and protection in the quarter.
Speaker Change: and that has given rise to an overall margin decline. However, the absolute value that's generated has been strongly accretive and you see the 83% increase in NBV in Hong Kong. Now to your point on whether we're just driving sales or whether we're managing to value, we're absolutely managing to value.
Speaker Change: and that will be achieved through a combination of sales volume growth as well as margin. And one thing we spoke about at our recent Investor Day was our ambition for margins on average across Asia and we spoke to a 50% ambition. That remains valid now as it did back in June. So it will vary from quarter to quarter but overall it's been a very strong NBV generation in the third quarter. Thanks for the question, Doug.
Speaker Change: And then just maybe a follow-up while I have you, Phil. You know, Asia, other coronains dropped versus Q2 and Q1.
Speaker Change: What region drove that and is there anything in particular to note in each other?
Speaker Change: So Asia other so year-on-year Asia other is up 9% core earnings, but there is some variability quarter-on-quarter
Speaker Change: What I would highlight with Azure Other is that this is a collection of smaller markets with less mature enforced portfolios, so you will see some variation between courses. Nothing in particular that I I'd like to call out on that, but just expect in those smaller markets variability quarter to quarter.
Okay, thanks for the call.
Speaker Change: Thank you. Our last question is from Tom McKinnon from BMO Capital. Please go ahead.
Tom McKinnon: Yeah, thanks and good morning. First question just on the CSM hit in the US. Was any of that, was it primarily SGUL? Was any of that related to any new business that you're writing? Was any of it related to Vitality?
Tom McKinnon: or any other kind of new business that you actually are still writing in the U.S.?
Yeah, thanks, Tom. It's Steve.
Speaker Change: Just a reminder for people where we book the basis changes in the financial statements because I'll come back to your CSM. So the financial related items or discount rates go through OCI.
Speaker Change: then the rest of our non-economic assumptions go through CSM, and if the CSM is depleted, it goes through P&L. So in terms of the U.S.
you know, the
Speaker Change: CSM move. That was really driven in part by the update to the lapse assumptions and the net impact of the risk adjustment and reinsurance reviews. It primarily related to older business, not on new business, not on Vitality.
Speaker Change: Follow-up questions with respect to the line that you have expected investment earnings I kind of think of that as being the yield on your invested asset portfolio including the all the less the You know the impact of the discount rate
Speaker Change: movements as well. So you'd think that thing would be generally kind of stable and would grow to some extent.
as your assets.
Thank you for joining us.
Speaker Change: That was sort of the case we saw in 2023, but in 2024, we haven't seen this number really grow. I assume some of it's due to the fact that you've transacted and businesses left the company through some of those reinsurance transactions.
Speaker Change: How should we be looking at that number when we go forward now? Should that kind of just not grow at the same level as the expected insurance earnings?
Speaker Change: So when you look at the US, that's where we've seen the biggest
Speaker Change: The two obvious ones are the transaction with Global Atlantic and actually the basis change has impacted this number going forward. The other item relates to a collection of small items that add up, but one of the examples of that is just the composition of assets backing our guaranteed fund.
Speaker Change: The important point, and this is really getting to the crux of your question, is I would use the third quarter number as a good basis from which to go from here, but you would expect us to grow with growth in our earnings.
Speaker Change: of that, of the reinsurance transactions you did, we would, in Canada, we should expect that number to sort of start to grow, almost consistent with what we would see growth in earnings or expected insurance earnings for those segments, is that right?
Speaker Change: Yeah, I wouldn't consider it too much of a lapping impact. As soon as the assets leave the organization, as they do with the transaction, then you should see lower expected investment earnings from those assets backing, that used to back the re-insurance liabilities.
Okay, all right. Okay. Thanks for that
All right. That's good. Good for me. Thanks.
Thank you.
Speaker Change: We have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Koh.
Mr. Koh: Thank you, Operator. We'll be available after the call if there are any follow-up questions. Have a good day, everyone.
Speaker Change: Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.