Q3 2024 Manulife Financial Corp Earnings Call

This conference is being recorded.

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.

Mr. Koh: Thank you. Welcome to Manulife's earnings conference call to discuss our third quarter and year-to-date 2024 financial and operating results.

Mr. Koh: Our earnings materials, including the webcast slide for today's call, are available on the Investor Relations section of our website at ManyLife.com.

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.

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 2024 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.

Mr. Koh: After their prepared remarks, we will move to the live Q&A portion of the call.

Speaker Change: 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.

Yesterday we announced our third quarter 2024 financial results.

These strong results are a testament to the benefits of our unique business mix and geographic footprint and the tremendous momentum that we have in the franchise.

Speaker Change: 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.

Speaker Change: 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 NPS, and straight-through processing, or STP.

Speaker Change: 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.

Speaker Change: I'm also very pleased with the contributions from our businesses in North America.

Speaker Change: Global Wham also delivered another strong quarter with over $5 billion of net flows and positive contributions from each business line and geography.

Speaker Change: We've now generated positive net flows in 13 of the past 14 calendar years, and on a year-to-date basis we've delivered over $12 billion of net flows in 2024.

Speaker Change: We generated solid core earnings growth of 4%, which was led by 17% growth in Asia and 37% growth in global WAM.

Speaker Change: Excluding the impact of Global Minimum Taxes, or GMT, core earnings growth would have been 7%.

Speaker Change: On a per share basis, core EPS grew 7% year over year, or 11% if adjusted for the impact of GMT.

Speaker Change: We delivered an attractive core ROE of 16.6%, demonstrating that we're on our path towards our 18% plus goal.

Speaker Change: Finally, we maintained a strong balance sheet and ample financial flexibility with a strong LICAT ratio of 137% and leverage ratio of 23.5%.

Speaker Change: 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.

Speaker Change: our scale and ability to capture global megatrends and a clear path to deliver against our strategic priorities.

Speaker Change: 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.

Speaker Change: Asia and Global Wind continue to demonstrate strong contributions to our year-to-date growth.

Speaker Change: In Asia, we have a diversified high-quality distribution platform and our ambition is to be the number one choice for customers.

Speaker Change: We generated strong sales throughout the year, driven by growth across distribution channels.

Speaker Change: In Global Wham, 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.

Speaker Change: 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.

Speaker Change: This is an excellent result as year-to-date core EPS would have grown 14% without the impact of GMT.

Speaker Change: Similarly, our core ROE continued to expand and improved 0.6 points year over year.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: To that end, we're leveraging our advanced Gen AI capabilities across the franchise.

Speaker Change: We've already launched 11 use cases into production, with another 13 to be launched before year-end, and an additional 16 in development.

Speaker Change: These encompass all areas of our business and are being ambitiously scaled to maximise business value.

Speaker Change: 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.

Speaker Change: We plan to further expand the tool to other markets before year-end.

Speaker Change: We've also extended AI-powered call summarization and contract look-up tools to 15% of our North American Contact Center agents in the past six months.

Speaker Change: These are two significant drivers of efficiency and have already delivered a 12% reduction in average handle time so far this year.

Speaker Change: We plan to continue rapidly rolling this out globally and enhancing these capabilities to drive even greater efficiencies.

Speaker Change: Our mission is decisions made easier, lives made better, and our digital priorities are all about optimizing the customer experience.

Speaker Change: Our Relationship NPS score is now at an all-time high of 25, and our STP has now exceeded our 2025 target of 88%.

Speaker Change: We also continue to invest in helping our customers' health and well-being.

Speaker Change: 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.

Speaker Change: This event generated overwhelming positive feedback from the participants and preliminary results of our post-event survey saw an NPS of over 92.

Speaker Change: Our digital efforts have not only enhanced customer experience, but also drove improved financial outcomes.

Speaker Change: 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.

Speaker Change: We have a clear line of sight to generating additional value and look forward to updating you on our progress going forward.

Speaker Change: 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.

Speaker Change: And, we are well positioned to deliver on the ambitious but achievable new targets that we announced at Investiday.

Speaker Change: 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.

Speaker Change: 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

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Our strong sales contributed to substantial increases in new business CSM of 47% and new business value of 39%.

Speaker Change: Global WAM saw solid net inflows of 5.2 billion dollars with contributions from all business lines and real strength in our retail business.

Speaker Change: 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.

Speaker Change: On our core earnings results on slide 11, I'd like to call out some of the highlights the drivers of earnings analysis presented relative to the prior year quarter.

Speaker Change: 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.

Speaker Change: The core net insurance service result has once again grown faster than the core net investment results and made up 48% of pre-tax core earnings in the quarter

Speaker Change: 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.

Speaker Change: The impact of GMT on our core earnings was a $61 million charge for the quarter.

Speaker Change: And, as Roy mentioned, this reduced our core earnings growth by approximately 3 percentage points. 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.

On to slide 12.

Speaker Change: 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 10-12%.

Thank you for watching!

Speaker Change: Net income was higher than core earnings this quarter, with a few largely offsetting non-core items driving a modest net positive impact.

Speaker Change: Let me expand on the notable items. 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: Overall, the net impact from the basis change was modest and further illustrates the stability of our reserve development. More information on the actuarial review is available in the appendix of this presentation.

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, 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 IFRS 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 MCV 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 noticeable growth from our largest enforced business Hong Kong

Speaker Change: These results demonstrate why we showcased Asia at our Investor Day 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 impacts of these tax items the segment still generated record core earnings for the third quarter.

Speaker Change: Even excluding the impact of these tax items, the segment still generated record core earnings for the third quarter.

Speaker Change: We reported $5 2 billion of net inflows for the quarter with positive flows across all business lines and regions.

Speaker Change: We reported 5.2 billion dollars 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 continued 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.

Excluding this, we generated strong sales growth of 27%.

Speaker Change: driven by higher retail sales and individual insurance, mid and large case sales and 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 favorable claims experience in our group insurance business.

On to slide 17, which shows our U.S. segment's results.

Speaker Change: 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 like-hat ratio remained strong at 137 percent, which was 23 billion dollars 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.

Speaker Change: And as Roy mentioned, 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. 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're 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.