Manulife Financial Corporation · TSX:MFC
Manulife Financial — Q3 2022 Earnings Presentation
45 slides from Manulife Financial's earnings presentation, Nov 10, 2022
Slide 1: Third Quarter 2022 Financial & Operating Results
Third Quarter 2022 Financial & Operating Results November 10, 2022 1 Highly Confidential
Slide 2: Caution regarding forward-looking statements
Caution regarding forward-looking statements From time to time, Manulife makes written and/or oral forward-looking statements, including in this presentation. In addition, estimates relating to morbidity, mortality and policyholder behaviour; the accuracy of other estimates used in applying our repr
Slide 3: Conference call participants
Conference call participants Roy Gori, Scott Hartz President & Chief Executive Officer. Chief Investment Officer Marc Costantini Rahim Hirji Global Head of Inforce Management. Chief Risk Officer. Damien Green, Naveed Irshad President & CEO, Manulife Asia President & CEO, Manulife Canada. Steve Finch
Slide 4: Agenda
Agenda Overview and strategic update Roy Gori, President & Chief Executive Officer Financial and operating results Phil Witherington, Chief Financial Officer Annual actuarial review update Steve Finch, Chief Actuary Question & Answer session 4
Slide 5: Overview and strategic update
Overview and strategic update Roy Gori President & Chief Executive Officer 5
Slide 6: 3Q22 financial highlights
3Q22 financial Net income attributed to shareholders Core earnings highlights $1.3B $1.3B -$245M -14% New Business Value Global WAM (NBV) net flows $514M $3.0B -6% -$6.8B Global WAM MLI’s LICAT ratio1 core EBITDA margin 136% 32.7% -2 pps +120 bps Note: Comparison to 3Q21. Core earnings is a non-GAAP
Slide 7: 3Q22 strategic update
3Q22 strategic update Accelerate Growth Digital, Customer Leader 2025 2022 Target 2022 Target 2025 Supplemental goal 2/3 of core earnings from highest potential businesses 66% 3Q22 YTD1 vs. 63% 3Q21 YTD1 NPS of +31 NPS of +37 • Launched Global Climate Action strategy in Europe to meet increasing • I
Slide 8: 3Q22 strategic update
3Q22 strategic update Expense Efficiency 2021 Portfolio Optimization High Performing Team 2022+ Target 2025 Supplemental Goal 2022+ Target <50% expense 51.0% 3Q22 YTD Core earnings contribution Top quartile employee efficiency ratio vs. 48.9% 3Q21 YTD from LTC & VA <15% engagement • Continued to pro
Slide 9: Key messages
Key messages • Delivered resilient results across operating segments despite market volatility and macroeconomic headwinds • Strongly believe that our team and culture is a long-term competitive advantage for our company; fourth straight year with an increase in employee engagement to rank in the to
Slide 10: Financial and operating results
Financial and operating results Phil Witherington Chief Financial Officer 10
Slide 11: Delivered solid core earnings of $1.3 billion despite P&C reinsurance charge
Delivered solid core earnings of $1.3 billion despite P&C reinsurance charge Core earnings Net income attributed Earnings reconciliation for the third quarter of 2022 (C$ millions) to shareholders (C$ millions, except per share amounts) (C$ millions) Post-Tax Per Share -14% Core earnings before core
Slide 12: Lower core earnings reflect a provision for Hurricane Ian and the impact of markets
Lower core earnings reflect a provision for Hurricane Ian and the impact of markets against a backdrop of stable EPIF Source of earnings1 Expected profit from in-force business (C$ millions) modestly decreased driven by lower in-force Core earnings Net income earnings in U.S. Annuities due to the Va
Slide 13: Strong core earnings growth in Canada, and resilient core earnings in Global WAM and Asia
Strong core earnings growth in Canada, and resilient core earnings in Global WAM and Asia Core earnings Core ROE1 (C$ millions) 3Q21 3Q22 (%) -1.7 pps -2% +13% -24% -3% 12.0 10.3 533 513 490 384 351 345 311 350 (168) (270) 3Q21 3Q22 Global WAM Asia Canada U.S. Corporate and Other Net income attribut
Slide 14: Lower APE Sales and NBV driven by impact of challenging market conditions in Asia
Lower APE Sales and NBV driven by impact of challenging market conditions in Asia APE sales New business value (C$ millions) (C$ millions) U.S. Canada Asia U.S. Canada Asia • Lower APE sales primarily due to decline in Hong Kong -6% -6% driven by the impact of weaker customer sentiment on 1,436 539
Slide 15: Delivered positive Global WAM net flows and higher core EBITDA margin
Delivered positive Global WAM net flows and higher core EBITDA margin despite challenging markets Net flows by business line Average AUMA Net fee income yield Core EBITDA margin (C$ billions) (C$ billions) (bps) (%) Retirement Institutional Retail +120 bps -9% -0.1bps 9.8 816 772 43.7 43.6 31.5 32.7
Slide 16: Manulife continued to maintain financial flexibility during 3Q22
Manulife continued to maintain financial flexibility during 3Q22 Capital metrics Financial leverage ratio (%) Capital over supervisory target LICAT Ratio1 (C$ billions) Medium-term (%) target of 25% 25 138% 137% 136% 134% 150 20 100 28.5% 28.8% 27.8% 15 25.5% $25 $23 $23 10 $22 50 5 0 0 3Q21 2Q22 3Q
Slide 17: 3Q22 financial summary
3Q22 financial summary (C$ millions, unless noted) 3Q21 3Q22 Change Net income attributed to shareholders $1,592 $1,347 ▼ 17% Core earnings $1,517 $1,322 ▼ 14% Profitability Core return on equity (annualized) 12.0% 10.3% ▼ 1.7 pps Expense efficiency ratio 51.3% 53.9% ▲ 2.6 pps APE sales (C$ billions
Slide 18: Financial targets summary
Financial targets summary 2019 2020 2021 3Q22 YTD Medium-Term Targets Core EPS growth1 +8% -7% +18% -8% 10% – 12% Core ROE 13.1% 10.9% 13.0% 11.4% 13%+ Leverage ratio 25.1% 26.6% 25.8% 28.8% 25% Dividend payout ratio 34% 41% 36% 45% 30% - 40% EPS growth1 +18% +6% +21% +8% ROE 12.2% 11.6% 14.2% 14.0%
Slide 19: At IFRS 17 transition, insurance liabilities will increase primarily due to establishing the CSM
At IFRS 17 transition, insurance liabilities will increase primarily due to establishing the CSM Transition impacts to Total Equity Equity decreased by ~20% at transition: (C$ billions, post-tax) ~20% • Establishing CSM – A liability representing unearned profits ~$3 • The CSM will be available capi
Slide 20: Strong CSM balance growth will be an important driver of core earnings growth
Strong CSM balance growth will be an important driver of core earnings growth post IFRS 17 transition Illustrative example of CSM balance growth1 • The transition CSM is expected to represent a progressively smaller portion of the total CSM balance CSM from business sold after transition each period
Slide 21: As our fastest growing segment, Asia will comprise the majority of the CSM balance
As our fastest growing segment, Asia will comprise the majority of the CSM balance CSM transition balance Asia segment will have the largest transition CSM (C$ billions, post-tax) • Reflects that Asia has been the largest driver of recent Asia insurance growth, driven by growing scale and attractive
Slide 22: Annual actuarial review update
Annual actuarial review update Steve Finch Chief Actuary 22
Slide 23: $36 million impact of annual review of actuarial methods and assumptions, including LTC
$36 million impact of annual review of actuarial methods and assumptions, including LTC (C$ millions, post-tax) Long-Term Care Triennial Review (15) Mortality & Morbidity Updates (126) Lapses & Policyholder Behaviour (192) Investment Return Assumptions 157 Other Updates 212 Total Impact of Changes i
Slide 24: Comprehensive LTC review had an approximately net neutral impact on reserves and net income
Comprehensive LTC review had an approximately net neutral impact on reserves and net income Impact of actuarial review on padded LTC reserves (US$ billions, pre-tax) 2Q22 Reserve 35.3 US$ billions Prior to Post Utilization (As of June 30, Assumption Assumption Change 1.8 2022) Update Update (includi
Slide 25: Continued progress in obtaining regulatory approval for LTC premium increases
Continued progress in obtaining regulatory approval for LTC premium increases 16.5 US$ billions 14.0 14 • As of the end of Q3 2022, we have received actual premium increase approvals of US$1.9 billion on a present value basis, which aligns with the full amount assumed on a padded basis in 12.0 12 th
Slide 26: Higher confidence in LTC reserve adequacy given credibility in claims data
Higher confidence in LTC reserve adequacy given credibility in claims data Increase in credible claims data since the … has reinforced our confidence in the adequacy of last review… our LTC reserves in aggregate Claim Counts (000s) • Over 200,000 policyholders have claimed since inception • Represen
Slide 27: Assumption reviews and annual policyholder experience demonstrate the prudence of LTC reserves
Assumption reviews and annual policyholder experience in the past decade demonstrate the prudence of LTC reserves Significant margins in reserves and modest gains in policyholder experience on average over the last decade … …demonstrate that our LTC reserves are appropriate in aggregate LTC Triennia
Slide 28: Annual actuarial review update - key messages
Annual actuarial review update - key messages • Impact of 3Q22 actuarial review was a modest net gain of $36 million in total and approximately neutral for LTC Long-Term Care • Claim cost assumptions were reviewed and updated to align with experience, which included reflecting the impact of higher i
Slide 29: Question & Answer session
{ Manulife Question & Answer session
Slide 30: Appendix
• Operating segment performance Appendix • Expense efficiency • Invested asset mix • Credit experience • Sensitivities • Non-GAAP and other financial measures 30
Slide 31: Global WAM: Core earnings impacted by market headwinds; net flows remained positive
Global WAM: Core earnings impacted by market headwinds; net flows remained positive Core earnings Net income Net flows Gross flows (C$ millions) (C$ millions) (C$ billions) (C$ billions) Retirement Retirement Retirement • Lower core earnings driven by a decrease Retail Retail Retail in net fee incom
Slide 32: Global WAM: Solid long-term investment performance
Global WAM: Solid long-term investment performance Public Asset class 1-Year 3-Year 5-Year % of total % of assets above peer/index 0-49% 50-69% 70-89% 90-100% Equity 37% 39% 63% 69% • Our strategies are performing in line with Fixed income1 30% 42% 82% 80% expectations given the current market condi
Slide 33: Asia: Resilient core earnings, amid a challenging market environment
Asia: Resilient core earnings, amid a challenging market environment impacting APE sales and NBV Core earnings Net income New business value APE sales (US$ millions) (US$ millions) (US$ millions) (US$ millions) • Modestly lower core earnings Asia Other Hong Kong Asia Other Asia Other driven by lower
Slide 34: Canada: Strong growth in core earnings and new business value
Canada: Strong growth in core earnings and new business value Core earnings Net income New business value APE sales • Higher core earnings primarily (C$ millions) (C$ millions) (C$ millions) (C$ millions) reflecting more favourable experience Manulife Bank Insurance Individual Insurance gains in Gro
Slide 35: U.S.: Core earnings impacted by reinsurance transaction and experience
U.S.: Core earnings impacted by reinsurance transaction and experience; strong NBV growth Core earnings Net income New business value APE sales (US$ millions) (US$ millions) (US$ millions) (US$ millions) U.S. Annuities U.S. Insurance • Lower core earnings primarily driven by reduced in-force earning
Slide 36: Disciplined expense management provides offset to topline pressure
Disciplined expense management provides offset to topline pressure Core general expenses1 Expense efficiency ratio (C$ millions) (%) 0% 5,580 5,579 -2% 53.9 51.0 51.3 1,904 1,859 48.9 3Q21 YTD 3Q22 YTD 3Q21 3Q22 General expenses (C$ millions) -3% 5,828 5,641 0% 1,904 1,900 3Q21 YTD 3Q22 YTD 3Q21 3Q2
Slide 37: Diversified high quality asset mix avoids risk concentrations
Diversified high quality asset mix avoids risk concentrations Total invested assets (C$411.3 billion, carrying values as of September 30, 2022) • High quality and diverse asset mix Fixed Income & Other Alternative Long-Duration Assets (ALDA) Public Equities • 97% of bonds are investment grade Privat
Slide 38: Credit experience
Credit experience Net credit experience (C$ millions, post-tax) 97 79 77 57 44 3Q21 4Q21 1Q22 2Q22 3Q22 (C$ millions) 3Q21 4Q21 1Q22 2Q22 3Q22 Change in ratings (2) 28 19 21 (5) Impairments, net of recoveries 3 12 3 6 (2) Release of best estimate credit 56 57 57 50 51 Net Credit Experience 57 97 79
Slide 39: Interest rate related sensitivities remain within our risk appetite limits
Interest rate related sensitivities remain within our risk appetite limits 2Q22 3Q22 Potential impact1 of an immediate parallel change in “all rates”: -50bps +50bps -50bps +50bps (C$ millions) Net income attributed to shareholders (200) 100 nil nil Changes in other comprehensive income from fair val
Slide 40: Potential impact on net income from a 10% change in public equity returns
Potential impact on net income attributed to shareholders arising from a 10% change in public equity returns1,2 3Q22 (C$ millions) -10% +10% Core earnings Non-Core Total Core earnings Non-Core Total S&P (20) (260) (280) 20 180 200 TSX – (140) (140) – 120 120 EAFE (Excluding Hong Kong)3 (20) (100) (1
Slide 41: Non-GAAP and other financial measures
Non-GAAP and other financial measures Manulife prepares its Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. We use a number of non-GAAP and other financial measures to evaluate overal
Slide 42: Reconciliation: Core EPS
Reconciliation: Core EPS (based on actual foreign exchange rates in effect in the applicable reporting period) 2019 2020 Core earnings available to common shareholders (C$ millions, post-tax) 5,832 5,345 Diluted weighted average common shares outstanding (millions) 1,962 1,943 Core earnings per shar
Slide 43: Reconciliation: Dividend Payout
Reconciliation: Dividend Payout (C$) 2019 2020 Per share dividend 1.00 1.12 Core EPS 2.97 2.75 Common share core dividend payout ratio 34% 41% Note: Common share core dividend payout ratio (“Dividend payout ratio”) is a non-GAAP ratio. For more information see “Non-GAAP and Other Financial Measures”
Slide 44: Investor Relations contact information
Investor Relations Hung Ko Jun Bu VP, Group Investor Relations AVP, Investor Relations contact information hung_ko@manulife.com jun_bu@manulife.com 416 806 9921 437 423 8267 200 Bloor Street East 200 Bloor Street East Toronto, ON M4W 1E5 Toronto, ON M4W 1E5 Craig Knight Fulin Liang AVP, Investor Rel
Slide 45: Manulife
11 Manulife