Q4 2024 Manulife Financial Corp Earnings Call
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Please stand by, your meeting is about to begin. Please be advised that this conference call is being recorded. Good morning ladies and gentlemen, welcome to the Manulife Financial Fourth Quarter 2024 Results Conference Call.
Speaker Change: I would like to turn the meeting over to Mr. Hung Ko. Please go ahead, Mr. Ko.
Speaker Change: Thank you. Welcome to Manulife's earnings conference call to discuss our fourth quarter and full year 2024 financial and operating results.
Speaker Change: Our audience materials, including the webcast slides for today's call, are available on the Investor Relations section of our website at maylife.com.
Speaker Change: Before we start, please refer to Slide 2 for a caution on forward-looking statements and Slide 42 for a note on non-GAAP and other financial measures used in this presentation.
Speaker Change: Please note there are certain material factors or assumptions applied in making forward-looking statements and actual results may differ materially from what is stated.
Speaker Change: Turning to slide four, we'll begin today's presentation with Roy Gori, our President and Chief Executive Officer, who will provide a highlight of our full year 2024 results and a strategic update. Following Roy's, Phil Whittington, our incoming President and Chief Executive Officer will also provide some remarks before we hand it over to Colin Simpson, our Chief Financial Officer, who will discuss the company's financial and operating results in more detail. After their prepared remarks, we'll 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.
Speaker Change: Yesterday we announced our fourth quarter and full year 2024 financial results.
Speaker Change: 2020 full was a banner year for Manulife on many fronts and we continue the momentum and finished the year with very strong results.
Speaker Change: During 2024, we further accelerated the growth about highest potential businesses led by Asia and global win which contributed to 70% about record core earnings that exceeded $7 billion for the first time.
Speaker Change: This is a 10 percentage point increase since 2023.
Speaker Change: These results were supported by strong top line metrics with record I P cells you.
Speaker Change: New business, CSN, and new business value in Asia, and $13 $3 billion of net inflows generated by our global land business.
Speaker Change: We also executed several milestone transactions to reshape our portfolio towards higher return and lower risk.
Speaker Change: You'll recall that in February of 2024, we closed the largest ever LTC reinsurance transaction at attractive terms with global Atlantic.
Speaker Change: Which was instrumental in establishing an active L. P C reinsurance market.
Speaker Change: And then in April we closed the largest ever Canadian Universal life reinsurance transaction with another highly experienced strategic partner RGA.
Speaker Change: This was followed by another LTC deal in less than 12 months, when we announced a reinsurance transaction with RGA November on a younger block.
Speaker Change: This deal recently closed in early January.
Speaker Change: In addition to further validating the prudence about reserves and assumptions. These transactions will unlock significant value for our shareholders with an expected capital release of $2 $8 billion.
Speaker Change: As long as the 0.4 percentage point accretion to our core are we on accumulative basis.
Speaker Change: Moving to slide seven.
Speaker Change: To support our strong operating momentum we've been driving relentlessly towards our ambition of becoming the most digital customer centric company in our industry.
Speaker Change: Throughout 2024, we've been raising the bar for our customers and continue to enhance their experience through our digital initiatives, including the launch of a generative II sales tool in Asia and the implementation of the new retail wealth platform in Canada for advisors.
Speaker Change: These efforts contributed to a record high relationship M. P. S. At 27 are.
Speaker Change: A full point increase from the prior year.
Speaker Change: And then S E T of 89%, but it's exceeded our 2025 target of 88%.
Speaker Change: In addition, we remain focused on investing in our future by rolling out our advanced G&A capabilities across the company.
Speaker Change: By the end of 'twenty 'twenty four we've launched 27 use cases into production with another 32 in development.
Speaker Change: And as we continue to scale. These use cases across all areas of our business.
Speaker Change: Now generated over $600 million of benefits from our digital initiatives globally in 2024.
Speaker Change: Which was more than three and a half times the level, we achieved in 2023.
Speaker Change: These successes are underpinned by continued investment in our digital capabilities.
Speaker Change: In addition to the $1 billion, we've invested prior to 2023 as mentioned at our Investor Day, we are committed to invest another $1 billion between 2023 and 2025.
Speaker Change: As of the end of 'twenty 'twenty four.
Speaker Change: Employed nearly $600 million to improve our digital capabilities and efficiency.
Speaker Change: While we accelerate our digital transformation. We also remain disciplined in our overall expense management across the franchise and achieved an efficiency ratio of 44, 8%.
Speaker Change: Which is already in line with our medium term target of below 45%.
Speaker Change: As I've said many times before.
Speaker Change: None of these achievements would have been possible without a world class team, who has time and time again demonstrated strong execution against our targets.
Speaker Change: As shown on slide eight.
Speaker Change: I'm proud to see our winning and high performing team together with the strong culture that we built recognized by many leading organizations.
Speaker Change: The fifth consecutive year, we also achieved top quartile employee engagement schools.
Speaker Change: As highlighted at our Investor day, we have a portfolio that is not only high growth and high return, but also highly cash generative.
Speaker Change: In 2020 for a global business generated strong remittances of $7 billion, which was a record and we've been diligently returning capital to shareholders through dividends and share buybacks totaling over $6 billion.
Speaker Change: To continue this momentum I'm pleased to note that yesterday, our board approved another 10% increase in our common share dividend.
Speaker Change: In addition, we announced yesterday the launch of a new buyback program to repurchase up to 3% of outstanding common shares commencing in late February 2025.
Speaker Change: We continue to view buybacks as a good tool to deploy our capital to generate shareholder value.
Speaker Change: And based on our current share price or share buybacks. Since 2021 had generated a benefit of approximately $3 billion as at the end of 2024.
Speaker Change: Onto slide nine where you'll see a snapshot of our strong financial and operating results in 2024.
Speaker Change: We delivered record IP sales, new business, CSM and new business value in 2024.
Speaker Change: Reflecting growth of 30% and higher in.
Speaker Change: In fact, we achieved our full best quarters ever for all three metrics.
Speaker Change: Mobile win also generated another year of net inflows and this adds to the impressive record of positive net inflows in 14 out of the last 15 years.
Speaker Change: We generated strong core EPS growth of 11% supported by our Asia and global land businesses.
Speaker Change: Excluding the impact of global minimum taxes core EPS growth would have been 14%.
Speaker Change: Well above our medium term target of 10% to 12%.
Speaker Change: The strong earnings growth contributed to the continued expansion of our core ROE to 16, 4% for the full year.
Speaker Change: Clearly demonstrates that we're well on track to deliver on our 2027 target of 18% plus.
Speaker Change: We've also delivered robust book value growth over the year at 15% in both adjusted book value and book value per share while.
Speaker Change: While returning or the $6 billion of capital to our shareholders.
Speaker Change: And we maintained a strong balance sheet with significant financial flexibility supported by our strong like cat ratio of 137% and leverage ratio of 23, 7%.
Speaker Change: As I reflect on the successes that we've achieved and the momentum that we built.
Speaker Change: I could not be proud to have led such a high performing organization.
Speaker Change: We transform manulife and positioning our franchise to reach even greater heights.
Speaker Change: I'm going to touch on just a few of these highlights in the next slide.
Speaker Change: Over the span of seven years, we've significantly grown the earnings contribution from our highest potential businesses by 16 percentage points from 54% to 70%.
Speaker Change: As we changed our business mix over time, we also significantly expanded our core Ottawa by five one percentage points from 11, 3% to 16, 4%.
Speaker Change: From a book value perspective, we generated substantial growth of 96% or $18.13 per share.
Speaker Change: While returning nearly $25 billion of capital through dividends and share buybacks over this period.
Speaker Change: This includes accumulative growth of 19, 5% on our annual dividend per common share from 82 cents per share to $1 40 per share.
Speaker Change: With these results as our foundation, we have delivered top quartile total shareholder return of 137% over the last seven years.
Speaker Change: And we sit to reach even greater heights in the next phase of our journey.
Speaker Change: While we expect to see continued macroeconomic volatility and geopolitical uncertainty in 2025.
Speaker Change: Our diverse footprint and businesses supported by a strong balance sheet and financial flexibility position us well to navigate such environment.
Speaker Change: I'm confident that we will continue to capitalize on the strong momentum and as I've said before I cant think of a better incoming CEO to lead us into the next chapter and Phil Witherington.
Speaker Change: With that before we have called and provide highlights on the financial results.
Phil Witherington: I'd like to pass it over to Phil for a few words, Phil over to you.
Phil: Thanks, Roy and good day to you all.
Phil: Before I start I'd like to recognize ROI for his exemplary leadership, including searching and delivering on our strategic priorities steering manulife through the pandemic accelerating growth in our highest potential businesses globally.
Phil: Shaping our portfolio and optimizing returns as well as establishing manulife as a digital customer leader.
Phil: These are just a few of his many contributions to transforming manulife into the company. It is today.
Phil: And on a more personal note over the course of the past decade, I've truly enjoyed working closely with Roy and I'm very grateful for his partnership Mentorship and friendship.
Speaker Change: Now with the incredible foundation that we've built together under Roy's tenure as CEO I'm thrilled and excited by the opportunity to lead the next chapter of quotes for Manulife globally and deliver on the bold ambitions that we set out at our Investor Day in June 2024.
Speaker Change: We will continue to focus on the execution of our strategy and delivering on the raise the bar on targets we've set ourselves.
Speaker Change: We've seen strong momentum in Asia, and global wine and I'm committed to continuing to invest to sustain this momentum and deliver on the compelling growth opportunity. These businesses have while maintaining our market leadership in Canada and continuing to focus on our unique offerings in the U S to provide differentiation.
Speaker Change: <unk> to the financial and life stage needs of our customers.
Speaker Change: We will also continue to invest in advancing our digital and customer leadership priorities, which will further improve our customer service capabilities enhance our efficiency and contributes to the delivery of our growth ambitions.
Speaker Change: Meanwhile, until May eight I have three key priorities first I will be laser focused on executing in Asia to deliver high quality sustainable growth.
Speaker Change: Second selecting and transitioning a successor to lead our Asia segments, and I look forward to sharing more on that with you in due course.
Speaker Change: Lastly, executing a seamless transition with Roy providing full continued momentum for manulife.
I'm excited for the future for Manulife, we have strong foundations and a roadmap to deliver on our ambitious yet achievable targets and I truly believe that we're well positioned to build on our momentum to reach even greater heights and continue to generate shareholder value.
Speaker Change: And finally I'd like to take a moment to thank our business partners and other stakeholders around the world as well as our global leadership team and every single one of our over 37000 employees for the support that you've extended I'm very much looking forward to working with you even more closely in this next chapter for Manulife.
Colin Simpson: And with that I'll hand, it over to Collin to review the highlights of our financial results Colin.
Thanks, Phil and welcome back to Canada.
Speaker Change: As I reflect some 2024 I'm proud of what we've achieved and the momentum we've built over the course of a fantastic year at Manulife let.
Speaker Change: Let me dive into more detail on the fourth quarter's results before the Q&A.
Speaker Change: Starting with our new business metrics on slide 13, once again, we delivered very strong growth of over 30% across AP sales, new business, CSM and new business value. Our AP sales increased 42% from the prior year with contributions from all our segments led by the continued momentum in Asia with <unk>.
Speaker Change: Base growth across the region.
Our strong sales also drove substantial increases in new business, CSM and new business value of 32% from 31% respectively.
Speaker Change: <unk> delivered another quarter of positive net flows of $1 2 billion.
Speaker Change: With solid contributions from both institutional and retail businesses.
Speaker Change: It's been a tremendous year for our top line growth, particularly in our Asia and global wealth segments, which bodes well for continued earnings growth for these higher return businesses.
Speaker Change: It was a record year and quarter for our core earnings on slide 14, I'd like to call out some of the highlights of the drivers of earnings analysis presented relative to the prior year quarter.
Speaker Change: The first point to note is that the continued growth in our insurance businesses has contributed to higher insurance service results.
That was partially offset by the impacts from the two reinsurance transactions completed in 2024.
Speaker Change: Also contributing to the increase was a net favorable insurance experience across all segments, which notably improved year over year.
Speaker Change: Moving down on the Doa table, you will see that global web once again generated strong growth the fifth consecutive quarter of 20% plus growth in pretax core earnings and it is now the second largest contributor to core earnings.
Speaker Change: The impact of <unk> on a core earnings was a $57 million charge for the quarter, which dampened our core earnings growth by approximately three percentage points.
Speaker Change: Onto slide 15, full EPS increased 9% year on year as we grew core earnings and continued buying back shares the growth would've been 13%, which is above our medium term target range of 10% to 12% if normalized for the impacts of GMT.
Speaker Change: Now let me expand on the notable non core items for the quarter first lower than expected public equity returns during the quarter resulted in a $113 million charge.
Speaker Change: We also reported a charge of $97 million in all the portfolio driven by lower than expected return on commercial real estate investments.
Speaker Change: Well, it's still below our expected long term rates of return we saw sequential improvement in returns.
Speaker Change: As an update we have completed the sale of all of the portfolio is related to the two reinsurance transactions that in aggregate are valued at slightly above the most recent fair value.
Speaker Change: This is a testament to the strength of our well diversified portfolio and all up to date valuations.
Speaker Change: I would also note that we reported a restructuring charge of $52 million, mostly in global lab, which is a part of our continued focus on expense efficiency.
Speaker Change: Majority of this charge relates to severance and should result in an improved efficiency ratio going forward.
Speaker Change: Moving to the segment results starting with slide 16.
Speaker Change: This segment continued to generate substantial growth in both top and bottom line metrics.
Speaker Change: Sales increased by 63% from the prior year quarter, driven by broad based growth across the region led by Hong Kong, which saw growth across all sales channels.
Speaker Change: We also delivered strong growth in new business, CSM, and NPV of 38% and 37% respectively.
Speaker Change: And we delivered 16% core earnings growth in Asia.
Speaker Change: Driven by the continued business growth momentum.
Speaker Change: Also our global one's results on slide 17.
Speaker Change: We maintained our momentum in global one with an increase of 34% and core earnings. This strong growth was supported by higher average third Point's U M. A crossing the trillion dollar mark during the fourth quarter for the first time performance fees from <unk> and continued focus on managing expenses as well as certain nonrecurring tax true.
Speaker Change: <unk> and benefits of approximately $23 million.
Speaker Change: Net inflows were $1 $2 billion for the quarter with positive flows from our institutional business driven by fixed income and equity mandates as well as our retail business benefiting from strong equity markets and investor demand season.
Speaker Change: Moderates it by net outflows from our retirement business due to pension plan redemptions.
Speaker Change: We continued to generate positive operating leverage through core EBITDA margin expansion of 290 basis points from the prior year quarter to 28, 6%.
Speaker Change: Bringing all of it to Canada on Slide 18, which also delivered strong results during the quarter.
Speaker Change: Sales increased 4% from the prior year quarter, driven by higher participating life insurance and segregated fund sales, but partially offset by lower sales in group insurance, which also modestly impacted MBV growth.
Speaker Change: Canada generated strong growth in core earnings at 11%, primarily driven by more favorable insurance experience overall as well as business growth in our group insurance business.
Speaker Change: Moving to slide 19 on our U S segment's results.
Speaker Change: In the U S. We continue to see an increase in demand for all accumulation insurance products from affluent customers, which drove up AP sales by 7% and contributed to the growth in new business value of 17%.
Speaker Change: The highest sales volume also contributed 12, new business CSN, but it was more than offset by the impacts of product mix, some higher interest rates, resulting in a modest 5% decline year over year.
Speaker Change: Core earnings decreased 16% from the prior quarter as a result of lower investment spreads and earnings forgone due to the global Atlantic reinsurance transaction as well as the net impact of the basis change.
Speaker Change: Moving on to cash generation and capital allocation on slide 20.
Speaker Change: Backing out Investor day in June 'twenty 'twenty, four we introduced a new accumulative remittance targets of $22 billion plus by 2027, we.
Speaker Change: We started off this journey strong generating record remittances of $7 billion in 2020 for this result benefited from counsel optimization initiatives, including our first LTC reinsurance transaction with global Atlantic as well as strong cash generation from our underlying businesses.
Speaker Change: As a reminder, we expect 60% to 70% of core earnings to materialize as cash remittances on a go forward basis.
Speaker Change: On the back of the strong cash and capital generation capability, we returned over $6 billion to shareholders in 2024 through dividends and share buybacks.
Speaker Change: Already mentioned, we will initiate a new buyback program in late February 2025 to repurchase up to 3% of our outstanding common shares. This.
Speaker Change: This includes returning the $800 million of capital are expected to be freed up as part of the LTC reinsurance transaction announced with RJ in November 2024.
Speaker Change: In addition, our board has approved a 10% increase in our quarterly common share dividend continuing the trend of increasing dividends to our shareholders.
Speaker Change: We will maintain our disciplined capital allocation approach investing in an attractive new business opportunities systems and capabilities as well as maintaining an attractive dividend payout ratio. We will continue to look for inorganic growth, where it makes sense and use share buybacks as part of our council optimization activity.
Speaker Change: Bringing you to a balance sheet and you can see our book value quotes on slide 21, we grew our adjusted book value per share by 15% from the prior year to $37 in two sense, even after returning over $6 billion of capital to shareholders as I mentioned earlier.
Speaker Change: <unk> capital ratios remain stable as the courts at 137% and our financial leverage ratio of 23, 7% remains below a 25% medium term target.
Speaker Change: Changes in the Lakehead guideline, mostly relating to the revised guidance for segregated funds are effective January one 2025, we expect the impact of these changes to be modest reducing unlike cat ratio by approximately one percentage point.
Speaker Change: Moving to slide 22, which summarizes how we're tracking against our 2027, our medium term targets.
Speaker Change: In addition to the strong remittances and core EPS growth I mentioned earlier, we expanded our core ROE by half a percentage points in 2024 to 16, 4%, which reflects our strong business performance and disciplined capital allocation.
Speaker Change: And with our continued expense discipline limits and core expense growth of 5% together with higher pre tax core earnings right, we reduced our expense efficiency ratio to 44, 8%, achieving our medium term target of less than 45%.
Speaker Change: I'll CSN balanced growth was below our target range on a constant exchange rate basis, but the continued strong growth momentum in our topline results, which contributed to organic <unk> growth of 6% in 2024, and 10% annualized in the fourth quarter alone gives me confidence that we will achieve our target over the medium term.
Speaker Change: And finally on slide 23, we wanted to show you a snapshot of the progress we've made on our core ROE, including all segments results demonstrating that we are well on our way to achieving an 18% plus target by 2027.
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.
Speaker Change: Operator, we will now open the call to questions.
Speaker Change: We will now take questions from the telephone lines. If you have a question. Please press star one on your devices Keypad you may cast your question at any time by pressing star queue. Please press star one at this time, if you have a question there'll be a brief pause all participants register thank you for your patience.
Speaker Change: And your first question is from.
Speaker Change: From Scotiabank. Please go ahead.
Speaker Change: Hi, Good morning, I wanted to ask about all of that drag is definitely shrinking.
Speaker Change: In Q4, and I just wanted to better understand what drove that is that.
Speaker Change: Primarily P E R.
Speaker Change: Some dynamic on the real estate side, what's the key.
Speaker Change: Driver for the improvement in the quarter, though.
Speaker Change: Hi, Manny it's it's Trevor thanks for the question. So yeah. So obviously happy to see the better all the experience for the quarter consistent with our expectations for a steady improvement over time. The main driver of the non core loss was again real estate return was largely flat with small declines in external appraisals.
Speaker Change: By income.
Speaker Change: The remaining classes, where it makes some gains and losses with infrastructure quite strong.
Speaker Change: And private equity is much better than Q3 two points.
Speaker Change: By some lumpy gains I think in terms of the outlook, we do expect a broad improvement across the portfolio, but do expect office real estate to continue to underperform for a period. So the possible I think to some degree be dependent on the economic environment, but we do expect a continued improvement.
Speaker Change: Just as a follow up if if all states continues to underperform.
Speaker Change: Is it still realistic could we still see positive experience next year, where would that preclude that outcome.
Speaker Change: Oh, yeah, thanks for the follow up.
Speaker Change: I think we're still reasonably comfortable that we will get back to our long term assumptions around the middle of this you know it is as I as I said I think subject to the economic environment, but I think while office has been a little bit challenged I think industrial and multifamily has actually performed quite well and so we remain I think.
Speaker Change: Confidence.
Speaker Change: Got it thanks, so much.
Speaker Change: Thank you.
Gabriel: Next question is from Gabriel <unk> from National Bank Financial Please go ahead.
Gabriel: Good morning, just wanted to ask about the Asia segment, a good quarter. Good year. Both in terms of profit growth in sale I'm just wondering about the outlook, though are two from it from two perspectives here.
Gabriel: First you know it seems like a there was a substantial boost.
Gabriel: Just from a as a result of the actuarial assumption review in 2023. So your risk adjustment went in went down this year, but your CFM amortization or unwind whatever you want call. It went up the net of the two was positive. So next year 25, we're gonna be apples to apples so that tailwind.
Gabriel: Be there to the same degree and then on the global minimum tax Ah I assume you're applying.
Speaker Change: Applying it you know as if it was effective across all your regions Ah and it hasn't had been adopted I don't think in all of your Asia footprint. So if it were to be adopted and applied to all of your Asia footprint, what would the impact be on profits and respect the gym to you and talk to us most.
Speaker Change: Three in Asia, and I'm, not just a more of a geographic.
Speaker Change: A thing from a segmentation standpoint, not it wouldn't change your consolidated performance with it.
Speaker Change: Right well this is Phil. Thank you for the question Gabriel I'll start on the first question on outlook I haven't probably touched briefly on GMT, and but I'll hand over to Colin.
Speaker Change: Elaborates on that 2024, it's certainly been a strong year for Asia tremendous business momentum that's absolutely continued into the fourth quarter, 37% growth in new business value and that that's high quality gross coming as Colin said in his remarks coming from all of our distribution channels, which sue.
Speaker Change: Strong double digit growth agency bank assurance as well as third party channels, including broker and I think it is notable but of course, we've made very notable investments in Asia, we walked through some of those as part of Investor Day in June it's noticeable that Hong Kong and Singapore continue to.
Speaker Change: <unk> strongly as regional hubs with regional wealth management and financial services hubs and that's part of what's driving the growth, but the growth is broad based we've seen certain market is growing double digits year on year in the fourth quarter.
Speaker Change: But you are specifically asking about outlook and.
Speaker Change: You talked about the methodology change that was put in place a year ago I do want to highlight that of the 27% core earnings growth that we have seen in 2020 for the components of that that came from the methodology change was in the order of 10%. So it's the majority of the.
Speaker Change: The growth we're seeing is from normal.
Speaker Change: Normal activity in that that's a combination of of course, the highest CSM builds from higher sales continued disciplined expense expense management, notably improvements in policyholder experience that I believe are sustainable.
Speaker Change: Q4 is an interesting benchmark when it comes to earnings growth. There was no distortion in Q4 from the methodology change it's been a full years since that methodology change happened and so the 16% core earnings growth is sustainable now.
Colin Simpson: On G. M. G M T I will hand over to Collin, but I just wanted to highlight the Gwen.
Colin Simpson: And during 'twenty four 'twenty 'twenty four when we did.
Colin Simpson: <unk> stopped providing for G M T.
Colin Simpson: We provided for all markets, where we would expect GMT to bite. So all markets, where the average tax rate was below 15%. The top up tax was recognized in the cold person to other segment, but I'll hand over to call him to elaborate on that.
Colin Simpson: Hi, David Yeah, So absolutely right so not all the countries and not just in 2020 full so we kept the charge of the corporate segments.
Speaker Change: Once Hong Kong of Nox and they are in 19 and 2025, we will incur a tax where it is where.
Speaker Change: Where it is and as far as how much of it comes from Asia out of the $57 million 80 per cent.
Speaker Change: Came from Asia, and we would expect that to be a good run rate going forward. So you can use it for your models I will say that is shared between both our insurance and asset management segments. Okay. So the numbers as we see them consolidated.
Speaker Change: Jim do you have an effect in next year, if it's applied to the segments. It's just.
Speaker Change: Oh, what I call it a geographic issue.
Speaker Change: That will push it down from the segment from the center into the each business right right and then last question does this ROI is last call.
Speaker Change: It is not the neighborhood are asking well I'll save my goal my mind.
Speaker Change: Best wishes for next time next quarter then.
Speaker Change: I'll look forward to that alright have a good one.
Speaker Change: Thank you.
Speaker Change: Question is from Alex Scott from Barclays. Please go ahead.
Alex Scott: Hey, Good morning, first one I had for you all it's on.
Alex Scott: I was just interested if you could talk about the margins in the business and.
Alex Scott: Okay.
Alex Scott: Take out some of the more onetime in nature things that they were talked about and the margins looked really strong this quarter and I know market drops it sort of makes sense, but.
Alex Scott: Just wanted to add any additional color around.
Alex Scott: Expense discipline in margins.
Alex Scott: You know what we anticipated.
Alex Scott: Going forward there.
Alex Scott: Great. Thanks, Alex its Paul here I'll take your question Yeah. Thanks for recognizing the strong results in the margin and as Colin mentioned in his slides. There is some some really strong momentum in the business and while there was some one time tax items. It is our fifth consecutive quarter of over 20% growth on a pre tax earnings basis.
Alex Scott: And that's really driven by just the fundamentals of the business. We have a great diversified franchise, we've got access to higher margin geographies and product lines and we've got some really good momentum from a from a topline perspective.
Alex Scott: And kind of looking forward I guess, if you actually look at this year you've seen the combination of not just strong markets, but strong topline growth and really strong disciplined expense management. We do expect that to continue we did take some actions this quarter that will generate run rate savings going forward and that's a nice tailwind for us to kind of keep the momentum of a.
Alex Scott: <unk> growth on the expense line.
Alex Scott: But when we couple that with just the strong top line growth that we're seeing.
Alex Scott: And if you just look at our business I guess, one of the things that differentiates US is about 50% of our core earnings come from outside the U S. About two thirds of that come from outside of retail both retirement institutional tend to be longer term focus. So they don't have the same.
Alex Scott: Volatility in and if you look at our global retirement business. This year, we surpassed $1 billion in core earnings for that business and if you look at the earnings power of that business per dollar of AUM relative to some of our peers, it's driving some fantastic.
Alex Scott: Our margins and results on a more diversified platform. So we feel really good about the outlook, we think our ability to continue to drive strong top line growth and positive net flows.
Alex Scott: We'll continue over the long term and with the management team continue to focus on expenses, we would expect that to continue over time.
Speaker Change: So Paul Thank you a follow up question is on the P&C I guess catastrophe reinsurance operation that you guys have can you talk about your exposure to the California, wildfires and I guess, even beyond what we might see next quarter. If there is anything.
Speaker Change: Yeah could you talk about how this maybe changes the risk profile of your aggregate exposure going into hurricane season, just because you never really.
Speaker Change: A couple of months into the year and yesterday's aggregates are already you know.
Speaker Change: Pretty filled up.
Speaker Change: Some of the primaries that I cover it looked like they will attach at some point in this year, even in a normal hurricane seasons I'd just be interested in.
Speaker Change: You know if it changes the profile of sort of the P&L exposure you got you'll have there.
Speaker Change: Yeah, Alex it's Mark Constantine here and thanks for your question So you've got a.
Speaker Change: A couple of questions embedded there to the first.
Speaker Change: I'll start by saying that when you see wildfires of natural catastrophes like that.
Speaker Change: Our heart goes out to obviously, everybody affected and it Sam it's terrible to see.
Speaker Change: So that being said as you say, we do have that obviously at PNC, a retro business said and our exposure to the wildfires and the events such as Dan has a limit of about $90 million.
Speaker Change: And I would say bad we don't have reporting obviously, we are a retrocessionary right. So I started to go into a fair bit of reporting before it gets to us so but.
Speaker Change: But based on the industry.
Speaker Change: And estimates that are coming out in terms of insured losses.
Speaker Change: We would expect our exposure to these wildfires to be less than half of that $90 million in the U S. A.
Speaker Change: So and you know obviously as we get more reporting through Q1 and will obviously reflect that all of this in our Q1 financials. When we close our books in a couple of months. So your broader question about and you know our exposure to a hurricane season, I would I would go back to obviously and was there a big hurricanes.
Speaker Change: And we are affected but I would say if you look at the past two years and we adjusted our underwriting and very strongly and we increased our attachment points, we tightened our pricing and we adjust the terms and conditions across all of our portfolio and you saw the benefit of that coming in 2023.
Speaker Change: And 2024 and the actual exposure and then we saw it to end in the final assets, which is not complete yet and it was much lower than what we had reserved for back in 2022, So positive developments and you saw some of that in Q4 and filter true.
Speaker Change: The key renewal season is behind US already it's Jan one 2025, and I would tell you that and our approach to that renewal season was very much in line with what I just mentioned about the last couple of years and we feel good about our portfolio having said so.
Speaker Change: We take volatility out of fine art of People's balance sheets, when theres catastrophes that exceed $50 plus billion dollars right. So if there is such an event coming up later in 'twenty 'twenty find which is highly unknown and it depends a lot as well where it hits and then obviously outperformed maybe affected but the last thing I'll leave you with is that when you look through the course of time and cycles. This business has by far exceed.
Speaker Change: At 20% to 25% return on capital. So we're quite proud of and it provides a lot of very hard cash every year year in year out when we do well so thank you.
Speaker Change: Got it thank you probably do yourself.
Speaker Change: Thank you.
Speaker Change: The next question is from Paul Holden from CIBC.
Speaker Change: Please go ahead.
Paul Holden: Thank you good morning, I want to ask a question on earnings and earnings.
Paul Holden: Earnings on surplus in the corporate segment and increased quite a bit quarter over quarter. So maybe you can address that.
Paul Holden: The drivers of that and maybe even more importantly, a lot of movements in interest rates across geographies and what that kind of implies for earnings on surplus going forward. Thank you.
Paul Holden: Thanks, Paul is calling you know so we invest our surplus long. So you would expect a very stable results in our earnings on surplus. However, as you pointed out we did actually see some increase its 20 million year on year, and 37 million quarter on quarter couple of issues going on one is the currency has had a favorable impact we do.
Paul Holden: Hold some of our surplus in U S dollars in the second issue is just as part of normal course business. We did have some fund rebalancing in that trades at a positive contribution which is one off for the quarter, but if you look at the ongoing run rates I would take the average of the possible coaches as a goods forward looking estimate for earnings.
Paul Holden: Surplus.
Paul Holden: To my first point on investing surplus quite long. It does mean, we failure immune from movements in the short term rates and so you wouldn't expect a lot of variability in our earnings on surplus in fact, if the yield curve moved down by 50 basis points, we would only have a $25 million to $30 million impact on earnings and surplus. So you can expect to fade.
Paul Holden: Stable number in this line going forward.
Paul Holden: The only thing I'd add to Collins comments are that the surplus bond portfolio for us today, it's about $40 billion and the average yield is about 2.85 on that portfolio and as we've talked about in the past obviously higher rates are a positive tailwind to our business and if you look at U S. Treasuries. This amendment 30 year U S Treasury.
Paul Holden: Around 4.8 as bad.
Paul Holden: Portfolio matures and we reinvest those maturities that will be a certainly a tailwind so long as rates continue to stay elevated and that's something that obviously, we will continue to flow through our results.
Speaker Change: That extra color is helpful. Then of that $40 billion, roughly how much would be U S dollars.
Speaker Change: It's roughly about a quarter to a third pool.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Second question is related to the Asia business as you're probably aware one of your competitors took a fairly sizable.
Down in Vietnam, now Manulife has obviously been exposed to say in challenging industry conditions. So maybe you can walk us through.
Speaker Change: Your review of the Vietnamese business and why Manulife did not pay to take a similar right now.
Speaker Change: Yes.
Phil Witherington: Hey, Paul This is Phil Thank you for the question and I.
Speaker Change: I think it's important to note the manulife in Vietnam is one of the leading life insurers in the market with.
Phil Witherington: Without doubt a scaled player with a very large bill.
Speaker Change: False portfolio and that's it.
Speaker Change: That's a strong enforced portfolio and those strong roots does make us resilient to changes that may arise due to the regulatory environment. The macro environment that can impact sales from courses of course, a year on year.
Speaker Change: With respect to your specific question on intangible assets that are capitalized for bancassurance partnerships. Our approach for all bank assurance partnerships and this is true across the region is very much to take a partnership approach whereby our interests are aligned with our bank partners and we routinely building.
Speaker Change: And protections for ourselves such that.
Speaker Change: The.
Speaker Change: Financial pullbacks or other protections in the event of sales falling below targets in one of those common protections as an automatic extension of the term of an agreement if sales fall below our agreed business ponds, so taking into account those protections as well as the <unk>.
Speaker Change: Our expectations for the future we have reviewed the recoverability of our intangible assets and our conclusion is that our intangible assets are recoverable and I think it's really important to note that the strength of our distribution across all of our channels does position us well to capture the rebound from Vietnam that I believe is.
Inevitable, it's been a tough couple of years that the market shows substantial promise over the medium term in line with the rest of the ASEAN markets.
Speaker Change: I just have to act quickly then follow up how many of your bancassurance agreement being extended in Vietnam.
Speaker Change: Actually what we've actually done it should be very transparent over the course of the fourth quarter, we mutually agreed to exit one of our bancassurance partnerships in Vietnam.
Speaker Change: That's a mutual agreement to exits combined with the protections that we had built into our agreement resulted in us recovering substantially all of our unamortized intangible asset relating to that agreement.
Speaker Change: Very helpful. Thanks for the time appreciate it.
Speaker Change: Thank you. The next question is from Doug Young from Deutsche Bank Capital markets. Please go ahead.
Doug Young: Good morning, and hopefully this will be relatively quick but on the remittances collyn.
Speaker Change: $7 billion I think there was mention of.
Speaker Change: Positive impact from the reinsurance transaction, but I apologize if it's somewhere in your in your.
Speaker Change: Details here, but can you quantify what that $7 billion would've been if you say what the impact was from the reinsurance deals.
Speaker Change: Hey, Doug Yes, sure we took $750 million from the reinsurance transaction through to remittances and actually about $750 million is relative to the $1 2 billion that we said at the time of the transaction. So you can expect a bit more coming from that LTC transaction.
Speaker Change: And so just I mean, I know, it's one year end to year four year plan of getting to 22 billion.
Speaker Change: <unk> laid out but.
Speaker Change: It looks like you're well ahead of plan.
Speaker Change: Is that what we should be taking away from this in terms of the remittances or is there.
Speaker Change: As 2020 for just an abnormally really good year.
Speaker Change: It's it's a combination of both Doug So short $7 billion into a 22 billion full year target is a great start and we're really pleased with the remittances suddenly the LTC one off remittance wasn't a surprise when we set the target, but we've had some good tailwind from markets and a lot of that comes through the sense of you know I talked to.
Speaker Change: All surplus accountant. So interests interest does have an impact on the surplus of the center, but we've also been working on some optimization activity. We took a dividend out of our P&C business, we had tax settlement, which we record recorded last year and so the cash earnings of that was received so all those come together to create a little bit of a one off in the sense.
Speaker Change: And you'll see that but going forward, you would expect 60% to 70% of our earnings to come through as remittances and that's mostly because we were really cash generative business with a great asset management contribution Doug when we when we highlighted remittances at our Investor day. It was very specifically focused on highlighting the power of the organic capital generation.
Speaker Change: And of the franchise and us as well the strong remit ability of that cash generation. So we thought that target was an important one and obviously getting out off the bat in the first year with a very strong start is something we're very proud of but we also think that that will continue and like what would the other targets that we established at Investor Day Al.
al: Gold is to not just achieve them, but to exceed them. This is a good starting point for that one.
Speaker Change: And just.
al: Another follow up on the remittance that six.
Speaker Change: 60% to 70% that's non core.
al: I assume.
al: That's right yeah, yeah yeah.
al: Yeah, perfect and second just expected investment earnings Yeah. It was low this quarter.
al: And I know, there's so many things that go into that and that's how I'm modeling it is real tough, but yes I mean.
al: This is the sixth that maybe like what drove it down.
al: There's one or two things and then is this the new run rate that we should be thinking about in terms of expected investment earnings.
al: Hi, Doug its a its trevor thanks for the question. So yes in terms of expected investment spread.
Doug Young: All right I think we would normally expect us to grow as our balance sheet grows and you see this happening in Asia.
al: Fairly consistently.
Doug Young: In terms of the total company the yellow.
Doug Young: Your over year decline was largely driven by the reinsurance transactions in the U S and Canada as well as the U S basis change.
Doug Young: Hum.
Doug Young: The quarter over quarter decline was largely driven by some older sales in the U S. We we did.
Some sales in anticipation of the recent agreement with RGA and so that obviously had an impact as well. So I think you know COTA to quota to your point there is some variability, but we do think that Q4 isn't appropriate base.
Doug Young: Two module total company quarterly expected investment spread going forward.
Doug Young: Perfect I appreciate the color. Thanks.
Mario Mendonca: Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.
Mario Mendonca: I felt like the best for you in response to the first question from Gabriel you talked about we're talking about Asia growth and there was a little more going on in Asia than just the CSM. The allegation that gave you referred to that was just a lower tax rate there was an allocation of.
Mario Mendonca: Investment income into Asia as well so when you think about 2025.
Mario Mendonca: You provided an outlook for growth as you have in the past ratios, it's still something around that 15% growth rate.
Mario Mendonca: And if so does that contemplate.
Mario Mendonca: The significant increase in the tax rate, we would expect in Asia in 2025.
Mario Mendonca: Thanks, Mario Great Great question.
Mario Mendonca: When I think about the outlook from a core earnings perspective for Asia, I do expect mids mid teens to be the sustainable rates of growth that's consistent with the message. We have provided at Investor day, and there's nothing for me to believe that 2025 would be any different to that medium term expectation not insensitive to the impact.
Speaker Change: A global minimum tax that sort of mid teens growth rate would be normalizing for the impact of global minimum taxes, but as Colin referenced earlier, we had already taken.
Speaker Change: During 2020 for taken the charge that we would expect to incur in 2020 full from the Canadian overlay of global minimum tax so when we look at the.
Speaker Change: So the allocation of that comparative down to our segments operating segments.
Speaker Change: <unk> that distortion, which should be removed when you look at the comparison year on year and I'd expect to see sort of the mid teens earnings growth. Its really important under Ifr 17, and this is one of the reasons I like the earnings basis under Ifr 17, regardless of variability in sales that can happen from quarter to.
Speaker Change: Quarter and year to year or do you expect earnings to be stable and growing.
Speaker Change: That's important in the context solves some of the trends, we're seeing in Asia, which is the emergence of new or new distribution channels is a stronger relevance of fed policy triangles broker channels to supplement our traditional agency channels and bancassurance channels and I think that's.
Speaker Change: Relevant because brokers third party channels does have the potential to be more variable to factors such as the competitive environment as well as regulatory changes and if I look at our overall distribution mix across the region are about a third is coming from agency a third is coming from bancassurance and a third is coming from.
Speaker Change: Third party channels.
Speaker Change: Just as a quick follow up did you anticipate that it is hard to do this but do you anticipate any changes in 2025 related to CSM.
Speaker Change: Allocation of investment income.
Speaker Change: Into a segment like Asia or wealth management from other segments.
Speaker Change: There's nothing that I'm aware of Mario that said, we anticipate on changing in 2025.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question from Microsoft for core Mark. Please go ahead.
Yeah. Thanks.
Speaker Change: One quick question here just on the the.
Speaker Change: The tax rate like what's the core tax rate, we should assume for 2025 and.
Speaker Change: Do you foresee more of these tax gains in wealth, because two quarters in a row now.
Speaker Change: Kind of moms, calling here yeah. It's.
Speaker Change: But the times when you set the new tax range of 17% to 23% we did that because we expect the GMT to add two percentage points to our historic 15 to 22 to three percentage points of historic 15 to 20 range. So what we're finding now in GMT is relatively new is that there are some permanent differences we can appeal.
Speaker Change: The pre tax income before we apply the GMT charge. So that is pushing our tax rate down towards more of a 15% rates, which is below the 17% to 23% that we guided you to of course also more earnings coming out of Hong Kong. This is helpful for the overall effective tax rates and we see that continuing so.
Speaker Change: We're going to we're going to continue seeing how GMT goes for the next few quarters and come back to you when and if our guidance changes at the at the moment, we don't have any update for you, but there's no reason to believe that the 15% is a one off our effective tax rate.
Speaker Change: Okay. That's helpful and then my more fulsome question here.
Speaker Change: Credit losses very low.
Speaker Change: This quarter kind of as expected just given the timing of the end of Q4, but obviously.
Speaker Change: As we start this year there's a.
Speaker Change: All of these talks about the impacts of tariffs and increased macroeconomic volatility.
Speaker Change: I'm just wondering can you talk to us about what we should expect as we look forward into Q1 like cut there perhaps be a bigger a stage one and two are built.
Speaker Change: As we look forward into Q Q1.
Speaker Change: Yeah. Thanks for the question Lamar I'll start and then I'll hand, it to Trevor and Youre right. You know the macroeconomic environment continues to be volatile I would say that 24 was the year of macroeconomic volatility and were therefore, not expecting 25 to be any different.
Speaker Change: There's a lot of discussion around trade wars, and what the impact of that will be probably was not good for anyone obviously, there will be an impact to GDP inflation and unemployment, but it's hard to predict how that's going to unfold. What I would say is that I believe we are really well positioned to navigate a challenging environment in 'twenty five as we did in 'twenty four you could see.
Speaker Change: See from our results that we were able to deliver.
Speaker Change: Our record earnings and sales despite the volatility in the uncertain markets. We've done a lot over the last seven years to reduce our sensitivity to market movements significantly, reducing our equity market sensitivity as well as our interest rate sensitivity.
Speaker Change: But obviously, we're not going to be immune to any of the negative impacts that you see from <unk>.
Speaker Change: Unemployment and inflation creeping up but again I would say that our portfolio really positions us well to navigate that from a relative perspective, which is a source of strength to quite honestly I think it's come through in 2024 results for not only Q4, but the full year. The trevi you might want to elaborate a little bit more on credit in particular, yeah. Thanks Ryan.
Speaker Change: Yeah. Thanks, Martin Thanks for the question. So I would basically reiterate what Roy said I think you know we've had strong credit experience for many years the portfolio remains 96% investment grade, but no credit losses are by their nature are variable and lumpy and so.
Speaker Change: Brian It wouldn't be a surprise to see some quarterly volatility depending on how the sole actually plays out I think to your question around Q1, I think it's probably too early to say.
Speaker Change: And so we would I think I think stick with the guidance that you know, how our $30 million to $50 million a quarter remains an appropriate through the cycle run rates.
Speaker Change: To use in your modeling.
Speaker Change: Okay I appreciate the time thank.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from Tom Mackinnon from.
Tom Mackinnon from BMO capital markets. Please go ahead.
Speaker Change: Yeah. Thanks, good morning.
Speaker Change: First question is just for calling here I think you said the $7 billion remittances included 750 million from the global Atlantic.
Speaker Change: The reinsurance transaction how much did it include from the Canadian Universal life reinsurance transaction that you did in 2024.
Speaker Change: Hey, Tom So we take a fairly conservative approach to remittance definition in Canada, because we operate.
Speaker Change: Liquidity at about MLR entity, where that transaction emanated. So the short answer is we didn't include any there was no contribution to remittances from the Canadian Universal life transaction.
Speaker Change: Okay. Thanks, even though there was a 800 million in potential capital release, it wasn't reflected in that 7 billion remittance than.
Speaker Change: That right it was comp sort of capital relief, but not surplus creation.
Speaker Change: Great Thanks for that and.
Speaker Change: Second question is with respect to improved insurance experience, how sustainable is it to Phil made the comments earlier in the call that he sees an improvement there in Asia as being sustainable.
Speaker Change: Maybe we can have a.
Speaker Change: Canada and the U S talk about.
Speaker Change: Staying ability of the good insurance experience that we saw in the fourth quarter.
Speaker Change: A little bit of color on that and what we should be thinking about going forward for that thanks.
Steve: Sure Tom It's Steve Thanks for the question and.
Steve: First off we were very pleased with the experience that we saw in the quarter.
Steve: Positive experience both through the P&L and see them. Some in every our insurance segment. So strong results overall.
Steve: In terms of maybe some of the drivers in terms of why we've seen the improved experience.
Steve: <unk> noted sustainability of the improvement in Asia, we had in the first half of the year and prior year, some ongoing headwinds from Vietnam, persistency, which we expected to normalize and it has over the past couple of quarters. We've been overall neutral in Vietnam experience. So that is sustainable and then U S life that was another source.
Steve: <unk> of headwinds from the lapse experience and as you recall we.
Steve: Had strengthened our our lapse assumptions in the U S. In Q3, and that's what we've seen as expected a material improvement in ongoing experience from that in.
Steve: In the quarter, we did have a release of P&C provisions, which we would not expect to be an ongoing.
Steve: Event that was about just over $45 million in the in the quarter and then in Canada, we've seen.
Steve: We've seen.
Steve: Ongoing it varies a bit quarter to quarter, but very strong experience in our Canadian group benefits in the long term disability business. We've got a very very strong team that oversees.
Steve: Overseas the claims and cautious in terms of calling ongoing performance, but the team continues to do a very good job. So that's that's really the big picture.
Steve: Okay, Thanks, and if I could just squeeze one more in the.
Steve: The 3% N CIB I think.
Steve: The RGA deal the loss of earnings there is $70 million that would be about one third of that 3% and CIB.
Speaker Change: Thank you have used the term business as usual share buybacks and maybe you can provide us what that might necessarily mean and how we should be thinking about share buybacks going forward, especially good you know.
Steve: Cash and capital generation that you're saying.
Speaker Change: Yeah. Thanks, Tom you're right you know buybacks have been a key part of our strategy over the many years and we've created a lot of shareholder value through the buybacks. In fact since 2021, we've deployed about $8 $8 billion towards buybacks and that's generated an economic benefit of approximately $3 billion in 2024.
Speaker Change: We bought back $3 $5 billion and we've always committed through the transactions that we've done to deploy the excess capital that we generated two towards buybacks at a minimum and we've continued to do that in in 'twenty five we just announced a 3%.
Speaker Change: Repurchase of up to Oh about standing common shares then you're right about a third of that.
Speaker Change: Is the <unk> transaction and the rest of that approximately 2% is what we would say is is the incremental I don't know if I'd use the would be a U because it assumes that it's given every year, but the strong capital generation of the franchise and the strong remit ability really does talk to the fact that we have this effective tool.
Speaker Change: To create shareholder value, while maintaining very strong capital ratios that are like that ratio of that 137% means.
Speaker Change: Means that we've got $24 billion of capital in excess of S&P, Missouri target and more than 10 billion above our internal operating range and that's despite the buybacks. So yes. We are very positive about the fact that we can continue to deploy.
Speaker Change: Capital towards buybacks, while maintaining significant financial flexibility.
Speaker Change: Okay. Thanks.
Speaker Change: Thank you.
Speaker Change: And the next question is from Lamar per site per Saad from Carmike. Please go ahead.
Speaker Change: I appreciate you taking my follow up just in response to the answer to Toms question on insurance experience here I. Appreciate it's a very tough question to answer, but I might try it anyway.
Speaker Change: It sounds like based on your response it sounds like we should expect positive experience moving forward is that fair if I, if I look at and exclude Q4 and look at the average experience over the past two years it was pretty much a debt neutral so.
Speaker Change: Should we be modeling out positive experience moving forward is that kind of be the.
Speaker Change: The takeaway there.
Speaker Change: Thanks, Lamar I'd be cautious to promise a positive experience on a run rate basis. If you look at the past two quarters after the assumption update and you back out.
Speaker Change: The P&C benefit that we got in Q4 were roughly neutral slight positive so I'm I'm.
Speaker Change: I'm really giving you might sort of expectations that you know it it's running pretty close to expectations with variability by business and.
Speaker Change: The caveat that we're in the very large case market in the U S. On mortality. So youll expect variations, but I look at that last half of the year as roughly neutral as you know.
Speaker Change: <unk> is a good run rate.
Speaker Change: I appreciate it thank you.
Thank you no further questions registered at this time I'd like to turn the meeting back over to Mr. Carl.
Thank you operator will 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.
Speaker Change: Please standby.
Speaker Change: This conference is no longer being recorded so it causes me to resolve as this thing.