Q4 2024 Manulife Financial Corp Earnings Call
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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. Welcome to the Manulife Financial fourth quarter 2024 results conference call.
Speaker Change: I would like to turn the meeting over to Mr. Han Ko. Please go ahead, Mr. Ko.
Speaker Change: Thank you. Welcome to Mayweather'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 Invest 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 notes on non-GAAP and other financial measures used in this presentation. Please note that 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.
Speaker Change: and 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, Hong, and thank you everyone for joining us today.
Speaker Change: Yesterday, we announced our fourth quarter and full year 2024 financial results.
Speaker Change: 2024 was a banner year for Manulife on many fronts, and we continued the momentum and finished the year with very strong results.
Speaker Change: During 2024, we further accelerated the growth of our highest potential businesses, led by Asia and Global Wham, which contributed to 70% of our record core earnings that exceeded $7 billion for the first time. This is a 10 percentage point increase since 2023.
Speaker Change: These results were supported by strong, top-line metrics with record APE sales, new business CSM and new business value in Asia, and $13.3 billion of net inflows generated by our global WAN 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, which was instrumental in establishing an active LTC reinsurance market.
Speaker Change: And then in April, we closed the largest ever Canadian universal life or insurance 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 in November on a younger block.
This deal recently closed in early January.
Speaker Change: In addition to further validating the prudence of our reserves and assumptions, these transactions will unlock significant value for our shareholders with an expected capital release of $2.8 billion.
Speaker Change: as well as a 0.4 percentage point accretion to our core ROE on a cumulative basis.
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 AI sales tool in Asia and the implementation of a new retail wealth platform in Canada for advisors.
Speaker Change: These efforts contributed to our record high relationship NPS of 27, a four point increase from the prior year, and an SCP of 89% that has exceeded our 2025 target of 88%.
Speaker Change: In addition, we remain focused on investing in our future by rolling out our advanced Gen AI capabilities across the company.
Speaker Change: By the end of 2024, 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: We've now generated over $600 million of benefits from our digital initiatives globally in 2024, 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 billion dollars between 2023 and 2025.
Speaker Change: As of the end of 2024, we've deployed 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%.
As I've said many times before
Speaker Change: None of these achievements would have been possible without our world-class team, who have time and time again demonstrated strong execution against our targets.
Speaker Change: As shown on slide 8, I'm proud to see our winning and high-performing team, together with the strong culture that we've built, recognized by many leading organizations.
Speaker Change: For the fifth consecutive year, we also achieved top quartile employee engagement scores.
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: 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 our 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. And based on our current share price, our share buybacks since 2021 have generated a benefit of approximately $3 billion as at the end of 2024.
Speaker Change: On to slide 9, where you'll see a snapshot of our strong financial and operating results in 2024.
Speaker Change: We've delivered record AP sales, new business CSM and new business value in 2024, reflecting growth of 30% and higher. In fact, we achieved our four best quarters ever for all three metrics.
Speaker Change: Global WAM 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 WAM businesses. Excluding the impact of global minimum taxes, core EPS growth would have been 14%.
well above our medium-term target of 10 to 12 percent.
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 returning over $6 billion of capital to our shareholders.
Speaker Change: and we maintain a strong balance sheet with significant financial flexibility supported by a strong like a 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've built, I could not be prouder to have led such a high-performing organisation.
Speaker Change: We've transformed Manulife and positioned 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 ROE by 5.1 percentage points.
from 11.3 percent to 16.4 percent.
Speaker Change: From a book value perspective, we generated substantial growth of 96%, or $18.13 per share, while returning nearly $25 billion of capital through dividends and share buybacks over this period.
Speaker Change: This includes a cumulative growth of 95% on our annual dividend per common share from $0.82 per share to $1.40 per share.
Speaker Change: With these results as our foundation, we've delivered top quartile total shareholder return of 137% over the last seven years.
Speaker Change: And we're set 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, our diverse footprint and businesses, supported by our strong balance sheet and financial flexibility, position us well to navigate such environment.
Speaker Change: I'm confident that we will continue to capitalise on the strong momentum, and as I've said before, I can't think of a better incoming CEO to lead us into the next chapter than Phil Witherington.
Speaker Change: With that, before we have Colin provide highlights on the financial results...
Colin Simpson: I'd like to pass it over to Phil for a few words. Phil, over to you.
Thanks Roy, and good day to you all.
Speaker Change: Before I start, I'd like to recognize Roy for his exemplary leadership, including setting and delivering on our strategic priorities, steering Manulife through the pandemic, accelerating growth in our highest potential businesses globally, reshaping our portfolio and optimizing returns, as well as establishing Manulife as a digital customer leader.
Speaker Change: These are just a few of his many contributions to transforming manulife into the company it is today. 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 growth 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 targets we've set ourselves.
Speaker Change: We've seen strong momentum in Asia and global WAM, 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 US.
Speaker Change: to provide differentiated solutions 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 contribute to the delivery of our growth ambitions.
Speaker Change: Meanwhile and until May 8th, 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 segment and I look forward to sharing more on that with you in due course.
Speaker Change: Lastly, executing a seamless transition with Roy, providing for continued momentum for Manulife.
Speaker Change: 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 37,000 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 Colin to review the highlights of our financial results. Colin.
Colin Simpson: Thanks Will and welcome back to Canada. As I reflect on 2024, I'm proud of what we have achieved and the momentum we've built over the course of a fantastic year at Manulife.
Colin Simpson: Let me dive into more detail on the fourth course's results before the Q&A.
Colin Simpson: Starting with our new business metrics on slide 13, once again we delivered very strong growth of over 30% across APE sales, new business CSM and new business value. Our APE sales increased 42% from the prior year with contributions from all our segments led by the continued momentum in Asia with broad-based growth across the region.
Colin Simpson: Our strong sales also drove substantial increases in new business CSM and new business value of 32% and 31% respectively.
Colin Simpson: Global WAM delivered another quarter of positive net flows of 1.2 billion dollars with solid contributions from our institutional and retail businesses.
Colin Simpson: It's been a tremendous year for our top-line growth, particularly in our Asia and global WAM segments, which bodes well for the continued earnings growth for these higher-return businesses.
Colin Simpson: 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.
Colin Simpson: The first point to note is that the continued growth in our insurance businesses has contributed to higher insurance service results, but that was partially offset by the impacts from the two reinsurance transactions completed in 2024.
Colin Simpson: also contributing to the increase was a net favorable insurance experience across all segments which notably improved year-over-year
Colin Simpson: The impact of GMT on our core earnings was a 57 million dollar charge for the quarter which dampened our core earnings growth by approximately three percentage points
Colin Simpson: On to slide 15. Core EPS increased 9% year-on-year as we grew core earnings and continued buying back shares. The growth would have been 13%, which is above our medium-term target range of 10 to 12% if normalized for the impact of GMT.
Colin Simpson: Now, let me expand on the notable non-Ko items for the quarter. First, lower than expected public equity returns during the quarter resulted in a $113 million charge.
Colin Simpson: We also reported a charge of $97 million in our older portfolio, driven by a lower than expected return on commercial real estate investments.
Colin Simpson: While still below our expected long-term rate of return, we saw sequential improvement in returns.
Colin Simpson: As an update, we have completed the sale of all the portfolios related to the two reinsurance transactions that, in aggregate, are valued at slightly above the most recent fair value. This is a testament to the strength of our well-diversified portfolio and our up-to-date valuations.
Colin Simpson: I would also note that we reported a restructuring charge of $52 million, mostly in Global WAM, which is a part of our continued focus on expense efficiency. The vast majority of this charge relates to severance and should result in an improved efficiency ratio going forward.
Colin Simpson: Moving to the segment results, starting with slide 16. Our Asia segment continued to generate substantial growth in both top and bottom line metrics. APE 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.
Colin Simpson: We also delivered strong growth in New Business TSM and MBV of 38% and 37% respectively.
Colin Simpson: and we delivered 16% core earnings growth in Asia, mainly driven by the continued business growth momentum.
On to our global WAMS results on slide 17.
Colin Simpson: We maintained our momentum in Global WAM with an increase of 34% in core earnings.
Colin Simpson: This strong growth was supported by higher average third-party AUMA Crossing the trillion dollar mark during the fourth quarter for the first time performance fees from CQS
Colin Simpson: and continued focus on managing expenses, as well as certain non-recurring tax true-ups and benefits of approximately $23 million.
Colin Simpson: 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.
Colin Simpson: These are moderated by net outflows from our retirement business due to pension plan redemptions.
Colin Simpson: bring you over to Canada on slide 18 which also delivered strong results during the quarter.
Colin Simpson: APE sales increased 4% from the prior year quarter, driven by higher participating life insurance and segregated fund sales, though partially offset by lower sales and group insurance, which also modestly impacted MBV growth.
Colin Simpson: 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.
Moving to slide 19 on our U.S. segment's results.
Colin Simpson: In the U.S., we continue to see an increase in demand for our accumulation insurance products from affluent customers, which drove up APE sales by 7% and contributed to the growth in new business value of 17%.
Colin Simpson: The higher sales volume also contributed to our new business CSM, but it was more than offset by the impacts of product mix and higher interest rates, resulting in a modest 5% decline year over year.
Colin Simpson: Core earnings decreased 16% from the prior quarter as a result of lower investment spreads and earnings foregone due to the global Atlantic reinsurance transaction as well as the net impact of the basis change.
Colin Simpson: Moving on to cash generation and capital allocation on slide 20.
Colin Simpson: Back in our investor day in June 2024, we introduced a new cumulative remittance target of $22 billion plus by 2027.
Colin Simpson: We started off this journey strong, generating record remittances of $7 billion in 2024. This result benefited from capital optimization initiatives, including our first LTC reinsurance transaction with Global Atlantic, as well as strong cash generation from our underlying businesses.
Colin Simpson: As a reminder, we expect 60-70% of core earnings to materialize as cash remittances on a go-forward basis.
Colin Simpson: On the back of this strong cash and capital generating capability, we returned over $6 billion to shareholders in 2024 through dividends and share buybacks.
Colin Simpson: As Roy mentioned, we will initiate a new buyback program in late February 2025 to repurchase up to 3% of our outstanding common shares.
Colin Simpson: This includes returning the $800 million of capital expected to be freed up as part of the LTC reinsurance transaction announced with RGA in November 2024.
Colin Simpson: In addition, our board has approved a 10% increase in our quarterly common share dividend, continuing the trend of increasing dividends to our shareholders.
Colin Simpson: We will maintain our disciplined capital allocation approach, investing in our 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 capital optimization activity.
Colin Simpson: Bring you to our balance sheet, and you can see our book value growth on slide 21. We grew our adjusted book value per share by 15% from the prior year to $37.02, even after returning over $6 billion of capital to shareholders, as I mentioned earlier.
Colin Simpson: Our LIHC capital ratio has remained stable over the quarter at 137%, and our financial leverage ratio of 23.7% remains below our 25% medium-term target.
Colin Simpson: Changes in the Likert guideline, mostly relating to the revised guidance for segregated funds, are effective January 1st 2025. We expect the impact of these changes to be modest, reducing our Likert ratio by approximately one percentage point.
Colin Simpson: Moving to slide 22 which summarizes how we're tracking against our 2027 and medium-term targets.
Colin Simpson: In addition to the strong remittances and core EPS growth I mentioned earlier, we expanded our core ROE by half a percentage point in 2024 to 16.4%, which reflects our strong business performance and disciplined capital allocation.
Colin Simpson: and with our continued expense discipline limiting core expense growth at 5% together with higher pre-tax core earnings growth, we reduced our expense efficiency ratio to 44.8% achieving our medium-term target of less than 45%.
Colin Simpson: Our CSM balance growth was below our target range on a constant exchange rate basis, but the continued strong growth momentum in our top line results, which contributed to organic CSM 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.
Colin Simpson: And finally, on slide 23, we wanted to show you a snapshot of the progress we made on our core ROE, including our segments results, demonstrating that we're well on our way to achieving our 18% plus target by 2027.
Colin Simpson: 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 requeue if they have additional questions.
Operator, we will now open the call to questions.
Thank you.
Colin Simpson: We will now take questions from the telephone lines. If you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2. Please press star 1 at this time if you have a question. There will be a brief pause while participants register. Thank you for your patience.
Speaker Change: and the first question is from Manny Groffman from Scotiabank. Please go ahead.
Manny Groffman: Hi, good morning. I wanted to ask about ALDA, that drag is definitely shrinking, including in Q4, and I just wanted to better understand what drove that. Is that primarily PE or is there some dynamic on the real estate side? What's the key driver for the improvement in the quarter there?
Manny Groffman: Hi Manny, it's Trevor. Thanks for the question. So, yes, obviously happy to see the better, older 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 offset by income.
Manny Groffman: The remaining classes were a mix of gains and losses, with infrastructure quite strong and private equity much better than Q3, to your point.
Manny Groffman: supported 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 path will, 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 office continues to underperform, is it still realistic, could we still see positive experience next year, or would that preclude that outcome?
Speaker Change: Yeah, thanks for the follow-up. No, I think we're still reasonably comfortable that we will get back to our long-term assumptions around the middle of this year. It is, 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, you know, confident.
Thanks so much.
Thank you.
Speaker Change: The next question is from Gabriel Deschenes from National Bank Financial. Please, go ahead.
Speaker Change: or Unwind, whatever you want to call it, went up. The net of the two is positive. So next year, 2025, we're going to be apple to apple. So that tailwind.
won't be there to the same degree.
Speaker Change: And then on the global minimum tax, I assume you're applying it, you know, as if it was effective across all your regions.
Speaker Change: And it hasn't been adopted, I don't think, in all of Eurasia footprint. So if it were to be adopted and applied to all of Eurasia footprint, what would, you know, the impact be on profits there? I suspect the GMT impact is mostly in Asia. And that's just a more of a geographic
Thank you very much.
Speaker Change: Great. Well, this is Phil. Thank you for the question, Gabriel. I'll start on the first question on Outlook and probably touch briefly on GMT, but I'll hand over to Colin.
to elaborate on that.
Speaker Change: 2024 has certainly been a strong year for Asia. Tremendous business momentum, that's absolutely continued.
into the fourth quarter.
37% growth in new business value
Speaker Change: and that that's high quality growth coming as Colin said in his remarks coming from all of our distribution channels we've seen strong double-digit growth agency bank assurance as well as third-party channels including broker and I think it is notable that of course we've made very uh notable investments in Asia we walked through some of those
Speaker Change: and that's part of what's driving the growth, but the growth is broad-based. We've seen seven markets growing double-digit year-on-year in the fourth quarter.
Speaker Change: but you were specifically asking about Outlook and 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 2024
Speaker Change: The components of that that came from the methodology change was in the order of...
Speaker Change: 10 percent. So it's the majority of the growth we're seeing is from
Speaker Change: normal activity. And that's a combination of, of course, the higher CSM build from higher sales, continued disciplined expense management, and notably, improvements in policyholder experience that I believe are sustainable.
Speaker Change: Q4 is an interesting benchmark when it comes to earnings growth. There is no distortion in Q4 from the methodology change. It's been a full year since that methodology change happened. And so the 16% core earnings growth is sustainable.
Speaker Change: Now on GMT, I will hand over to Colin, but I just want to highlight that during 2024 when we did start providing for GMT,
It's we provided for all markets where we would expect
Colin Simpson: GMT to bite so all markets where the average tax rate was below 15% the top up tax was recognized in the corpus and other segment but I'll hand over to Colin to elaborate on that
the charge of the corporate segment.
Colin Simpson: Once Hong Kong enacts, and they are enacting in 2025, we will incur the tax where it is earned. As far as how much has come from Asia, out of the $57 million, 80% came from Asia, and we would expect that to be a good run rate going forward, so you can use that for your models. I will say that is shared between both our insurance and our asset management segments.
Colin Simpson: Okay, so the numbers as we see them consolidated, it's the GMTs in effect, and next year if it's applied to the segments, it's just a...
Colin Simpson: I call it a geographic issue That's right. We'll push it down from the segment from the center into the each business. All right, last question. Is this Roy's last call?
Speaker Change: It is not Gabriel, thank you for asking. Well, I'll save my best wishes for next quarter then.
I'll look forward to that. Alright, have a good one.
Thank you for watching. Bye.
Speaker Change: Thank you. The next question is from Alex Scott from Barclays. Please go ahead.
Speaker Change: Hey, good morning. First one I have for you all is on GWAM and I was just interested if you could talk about the margins in the business and, you know, as you look, I think when you take out some of the more one-time-in-nature things.
Speaker Change: They were talked about, you know, the margins looked really strong this quarter, and I know markets are up, so it sort of makes sense, but I just wanted to see if you could add any additional color around, you know, expense, discipline, margins, and, you know, what you anticipate going forward there.
Speaker Change: Great. Thanks, Alex. It's Paul here. I'll take your question. Yeah, thanks for recognizing the strong results and the margin. And as Colin mentioned in his slide, there is 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.
Speaker Change: 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 top line perspective.
Speaker Change: 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 top line growth and really strong disciplined expense management.
Speaker Change: volatility and and if you look at our global retirement business this year we surpassed 1 billion in quarantines 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
Speaker Change: 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 will continue over the long term and with the management team continuing to focus on expenses we would expect that to continue over time.
PNC, I guess, catastrophe reinsurance operation that you guys have.
Speaker Change: Can you talk about your exposure to the California wildfires and I guess, you know, even beyond like what we might see next quarter if there is anything, can you talk about how this maybe changes the risk profile of your aggregate exposure going into hurricane season?
and just because, you know, we're, we're only
Speaker Change: You know a couple months into the year and some of these aggregates are already, you know
Speaker Change: Pretty filled up, and I think some of the primaries that I cover look like they will attach at some point this year, even in the normal hurricane season. So I'd just be interested in, you know, if it changes the profile of sort of the PML exposure you all have there.
Speaker Change: Yeah, Alex, it's Mark Costantini here. Thanks for your questions. So you've got a couple questions embedded there. The first, I'll start by saying that
Speaker Change: When you see wildfires and natural catastrophes like that, you know, our heart goes out to obviously everybody affected and
Speaker Change: it's terrible to see. So that being said, as you say, we do have obviously a PNC retro business.
Speaker Change: and our exposure to the wildfires and events such as that has a limit of about 90 million U.S. dollars.
Speaker Change: and I would say Ben. We don't have reporting. Obviously, we are a retrocessionary, right? So it's got to go to a fair bit of reporting before it gets to us, so.
Speaker Change: But based on the industry 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 U.S. limit. So, and, you know, obviously as we get more reporting through Q1, we'll obviously reflect all of this in our Q1 financials when we close our books in a couple months.
Speaker Change: So, your broader question about, you know, our exposure to hurricane season, I would go back to, obviously Ian was a big hurricane and we are affected, but I would say if you look at the past two years.
Speaker Change: We adjusted terms and conditions across our portfolio, and you saw the benefit of that coming in 2023 and 2024. And the actual exposure that we saw to E in the final analysis, which is not complete yet, was much lower than what we had reserved for back in 2022. So positive developments, and you saw some of that in Q4, Filter 2.
Speaker Change: The key renewal season is behind us already. It's Jan 1, 2025.
Speaker Change: and I would tell you that 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 people's balance sheets when there's catastrophes that exceed 50 plus billion dollars, right? So if there's such an event coming up later in 2025, which is highly unknown, and it depends a lot as well where it hits, then obviously our portfolio may be affected.
Speaker Change: 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 exceeded 20 or 25% return on capital so we're quite proud and it provides a lot of very hard cash every year, year in, year out when we do well. So, thank you.
Thank you for all the details.
Speaker Change: Thank you. The next question is from Paul Holden from CIBC.
Go ahead.
Speaker Change: the drivers of that and maybe more importantly a lot of movements and interest rates across geographies and What that kind of implies for earnings and surplus going forward. Thank you
Colin Simpson: Thanks Paul, it's Colin here. So we invest our surplus long, so you would expect a very stable result on our earnings on surplus. However, as you pointed out, we did actually see some increase. It's 20 million year-on-year and 37 million quarter-on-quarter.
Colin Simpson: The yield curve moved down by 50 basis points, which would only have a $25-$30 million impact on earnings on surplus. So you can expect a fairly stable number in this line going forward.
Speaker Change: Well, the only thing I'd add to Colin's comments is that the surplus bond portfolio for us today is about $40 billion.
Speaker Change: And the average yield is about 2.85 on that portfolio and as we talked about in the past obviously higher rates are a positive tailwind to our business and if you look at U.S. Treasuries at the moment, 30 year, U.S. Treasuries around 4.8 as that.
Speaker Change: 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 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, Paul. All right. Thank you. Thank you.
Speaker Change: Okay. Second question is related to the Asia business. As you're probably aware, one of your competitors took a fairly sizable write-down in Vietnam. Now, Manulife has obviously been exposed to the same challenging industry conditions, so maybe you can walk us through your review of the Vietnamese business and why Manulife did not need to take a similar write-down.
Thank you.
Speaker Change: Hey Paul, this is Phil. Thank you for the question and I think it's important to to note that Manulife in Vietnam is one of the leading life insurers in the market. We're without doubt a scale player with a very large in-force portfolio and that's
Speaker Change: That strong enforced portfolio and those strong roots does make us resilient to changes that may arise, you know, the regulatory environment, the macro environment, that can impact
sales from quarter to quarter, year on year.
Speaker Change: With respect to your specific question on intangible assets that are capitalized for bank insurance partnerships
Speaker Change: 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 build in protections for ourselves.
such that there are
financial clawbacks or other protections in the event of
Speaker Change: Sales falling below targets and one of those common protections is an automatic extension of the term of an agreement if sales fall below our agreed business plans
Speaker Change: So, taking into account those protections, as well as our expectations for the future, we have reviewed...
Speaker Change: 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 as well to capture the rebound from Vietnam that I believe is inevitable. It's been a tough couple of years but the market shows substantial promise over the median term in line with the rest of the ASEAN markets.
Speaker Change: I just have to quickly then follow up, have any of your bank assurance agreements been being extended in Vietnam?
Speaker Change: actually what we've actually done to be very transparent over the course of the fourth quarter
we mutually agreed to exit.
Speaker Change: and that 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.
Very helpful. Thanks for the time. Appreciate it.
Speaker Change: Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Doug Young: Good morning, hopefully this will be relatively quick, but on the remittances, Colin, $7 billion, I think there was mention of, you know, positive impact from the reinsurance transactions. I apologize if it's somewhere in your...
Speaker Change: details here but can you quantify what that 7 billion would have been if you say what the impact was from the reinsurance deals
Speaker Change: and Roy Gori. And I'm Colin Simpson. We'll see you next time.
Doug Young: Hey Doug, yeah sure. We took 750 million dollars from the reinsurance transaction through into remittances and actually that 750 million dollars 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 into your four-year plan of getting to 22 billion in cumulative but it looks like you're well ahead of plan is that what we should be taking away from this in terms of remittances or is there what was 2024 just an abnormally really good year
Speaker Change: It's a combination of both, Doug. So, sure, $7 billion into a $22 billion four-year target is a great start, and we're really pleased.
Speaker Change: with the remittances. Certainly the LTC one-off remittance wasn't a surprise when we set the target but we've had some good tailwinds from markets.
Speaker Change: and a lot of that comes through the centre. I talked about our surplus account and so interest does have an impact on the surplus at the centre. But we've also been working on some optimisation activity. We took a dividend out of our P&C business.
Speaker Change: We had tax settlement which we 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 and you'll see that but going forward you would expect 60 to 70 percent of our earnings to come through as remittances and that's largely because we're a really cash generative business.
Speaker Change: with a great asset management contribution. Doug, when we highlighted remittances at our investor day, it was very specifically focused on highlighting the power of the organic capital generation of the franchise.
Speaker Change: and as well the strong remitability 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
Speaker Change: Like all of the other targets that we established at Investor Day, our goal is to not just achieve them, but to exceed them. This is a good starting point for that one.
Speaker Change: And just one another follow-up on the remittance that's 60 to 70 percent that's on core
and Jim.
Speaker Change: That's right, yeah. Yeah, perfect. And a second, just expected investment earnings, you know, it was low this quarter. And I know there's so many things that go into that, and so modeling it is real tough. But, you know, is this 670, like what drove it down?
Speaker Change: that 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?
Speaker Change: Hi Doug, it's Trevor. Thanks for the question. So yes, in terms of expected investment spread, you're right. I think we would normally expect this to grow as our balance sheet grows and you see this happening in Asia, you know, right fairly consistently.
Speaker Change: The quarter over quarter decline was largely driven by some older sales in the US. We did some sales in anticipation of the recent agreement with RGA, and so that obviously had an impact as well. So I think quarter to quarter, to your point, there is some variability, but we do think that Q4 is an appropriate base.
to model total company quarterly expected investment spread going forward.
Perfect. Appreciate the color. Thanks.
Speaker Change: Thank you. The next question is from Mario Mandonca from TD Securities. Please go ahead. Good morning. I thought this might be best for you. In response to that first question from Gabriel, you talked about, we were talking about Asian growth, and there was a little more going on in Asia than just the CSM allocation that Gabriel referred to. There was just a lower tax rate, there was an allocation.
Speaker Change: of investment income into Asia as well. So when you think about 2025, have you provided an outlook for growth as you have in the past for Asia? Is it still something around that 15% growth rate? And if so, does that contemplate the significant increase in the tax rate we'd expect in Asia in 2025?
Thank you for watching!
Thanks Mario, great question.
Speaker Change: When I think about the outlook from a core earnings perspective for Asia, I do expect mid...
Speaker Change: Now, in terms of the impact of global minimum tax, that...
sort of mid-teens.
Speaker Change: during 2024 taken the charge that we would expect to incur in 2024 from the Canadian overlay of global minimum tax.
So when we look at the
Speaker Change: you know, the allocation of that comparative down to our segments, operating segments, both Asia and GWAM.
Speaker Change: That distortion should be removed when you look at the comparative year on year and I'd expect to see sort of the mid-teens.
and all
Some of the trends we're seeing in Asia, which is
that the emergence of new...
Speaker Change: our traditional agency channels and bank assurance channels and I think that's relevant because broker third-party channels does have
Speaker Change: 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, about a third is coming from agency, a third is coming from bank insurance, and a third is coming from third-party channels.
Speaker Change: As a quick follow-up, do you anticipate, I know it's hard to do this, but do you anticipate any changes in 2025 related to CSM?
Speaker Change: allocation of investment income into a segment like Asia or wealth management for other segments.
Speaker Change: There's nothing that I'm aware of, Mario, that we anticipate on changing in 2025.
Thank you.
Speaker Change: Thank you. The next question is from Amar Prasad from Cormark. Please go ahead.
Speaker Change: Yeah, thanks. One quick question here just on the tax rate. Like what's the core tax rate we should assume for 2025? And, you know, do you foresee more of these tax gains in wealth because, you know, two quarters in a row now?
Hi, Lamar. It's Colin here. Yeah, it's...
Speaker Change: that the tax when we set the new tax range of 17 to 23 percent we did that because we expected GMT to add
Colin Simpson, Roy Gori
Speaker Change: Okay, that's helpful. And then my more fulsome question here, just...
Speaker Change: credit loss is very low this quarter, kind of as expected, just given the timing of the end of Q4. But obviously, you know, as we start this year, there's all these talks about the impacts of tariffs and, you know, increased macroeconomic volatility. So I'm just wondering, can you talk to us about what we should expect as we look forward into
Speaker Change: Q1, like could there perhaps be a bigger Stage 1 and 2 build as we look forward into Q1?
Speaker Change: Yeah thanks for the question Lamar. I'll start and then I'll hand it to Trevor and you're right you know the macroeconomic environment continues to be volatile. I would say that 24...
more to say.
Trevor: What I would say is that I believe we are really well positioned to navigate a challenging environment in 25 as we did in 24. You could see from our results that we were able to deliver.
Trevor: significantly reducing our equity market sensitivity as well as our interest rate sensitivity.
Speaker Change: 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 that, quite honestly, I think has come through in our 2024 results for not only Q4, but the full year. But Trevor, you might want to elaborate a little bit more on credit in particular.
Trevor: Thanks for the question. I would basically reiterate what Roy said. I think we've had strong credit experience for many years. The portfolio remains 96% investment grade, but credit losses are, by their nature, variable and lumpy.
Trevor: Right, it wouldn't be a surprise to see some quarterly volatility depending on how this all actually plays out I think to your question around Q1, I think it's probably too early to say And so we would I think I think stick with the guidance that you know Our 30 to 50 million a quarter remains inappropriate through the cycle run rates to use in your modeling
Okay, I appreciate the time. Thank you.
Thank you.
The next question is from Tom MacKinnon from...
Tom McKinnon from BMO Capital Markets. Please go ahead.
Tom Mackinnon: Yeah, thanks, good morning. First question is for Colin here. I think you said the seven billion remittances.
Tom Mackinnon: included 750 million from the Global Atlantic reinsurance transaction. How much did it include from the Canadian Universal Life Reinsurance Transaction that you did in 2024?
Colin Simpson: Hey Tom, so we take a fairly conservative approach to remittance definition in Canada because we operate our liquidity out of our MLI 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.
Tom Mackinnon: Okay, thanks. Even though there was $800 million in potential capital release, it wasn't reflected in that $7.3 billion.
and Sven.
Tom Mackinnon: Is that right? It was capital relief, but not surplus creation. Okay, great. Thanks for that.
Speaker Change: Second question is with respect to improved insurance experience. How sustainable is it? Phil made comments earlier in the call that he sees it improvement there in Asia as being sustainable. Maybe we can have
Speaker Change: Canada and the U.S. talk about the sustainability of the good insurance experience that we saw in the fourth quarter. A little bit of color on that and what we should be thinking about going forward for that. Thanks.
Speaker Change: Sure Tom, it's Steve, thanks for the question and you know first off we were very pleased with the experience that we saw in the quarter, positive experience both through the P&L and CSM in every insurance segment, so strong results overall.
Speaker Change: you know in terms of maybe some of the drivers in terms of why we've seen the improved experience Phil 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 so the past couple of quarters we've been overall neutral in Vietnam experience so that is sustainable.
Speaker Change: and then US life that was another source of headwinds from the lapse experience and as you recall we had strengthened our our lapse assumptions in the US in Q3 and that's we've seen as expected a material improvement in ongoing experience from that.
Speaker Change: In the quarter, we did have a release of P&C provisions, which we would not expect to be an ongoing event. That was about just over $45 million in the quarter. And then in Canada, we've seen...
Speaker Change: Ongoing, it varies a bit quarter to quarter, but very strong experience in our Canadian group benefits in the long-term disability business.
Speaker Change: We've got a very, very strong team that oversees the claims and cautious in terms of calling ongoing performance, but the team continues to do a very good job. So that's really the big picture.
Speaker Change: Okay, thanks. And if I could just squeeze one more in. The 3% NCIB, I think the RGA deal, the loss of earnings there is $70 million. That would be about one-third of that 3% NCIB.
Speaker Change: I think 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 the good, you know...
cash and capital generation that you're seeing.
Speaker Change: Since 2021, we've deployed about $8.8 billion towards buybacks, and that's generated an economic benefit of approximately $3 billion. In 2024, we bought back $3.5 billion, and we've always...
committed through the transactions that we've done.
Speaker Change: to deploy the excess capital that we've generated towards buybacks at a minimum, and we've continued to do that. And in 2025, we've just announced a 3% repurchase of outstanding common shares. And you're right, about a third of that
Speaker Change: is the RGA transaction, and the rest of that approximately 2% is what?
We will see you next week.
Speaker Change: means that we've got $24 billion of capital in excess of our supervisory target and more than $10 billion above our internal operating range, and that's despite the buyback. So yes, we are very positive about the fact that we can continue to deploy.
capital towards buybacks whilst maintaining significant financial flexibility.
Okay, thanks.
Thank you.
Speaker Change: And the next question is from Lamar Persaud from Cormark. Please go ahead.
Speaker Change: I appreciate you taking my follow-up just but in response to The answer to Tom's question on insurance experience here. I appreciate the very tough question to answer, but I might try it anyways
Speaker Change: It sounds like, based on your response, it sounds like we should expect positive experience moving forward. Is that fair? If I look at and exclude Q4 and look at the average experience over the past two years, it was pretty much dead neutral. So
Speaker Change: Should we be modeling out positive experience moving forward? Is that kind of the take away 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 the P&C benefit that we got in Q4, we're roughly neutral.
Slight positive
Speaker Change: I'm really giving you my sort of expectations that, you know, it's running pretty close to expectations with variability by business and, you know, the caveat that we're in the very large case market in the U.S. on mortality, so you'll expect variations. But I look at that last half of the year as roughly neutral as, you know, as a good run rate.
I appreciate it. Thank you.
Speaker Change: Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Ko.
Mr. Ko: Thank you, Operator. We 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: This conference is no longer being recorded. Cette conférence n'est plus enregistrée.