C$ unless otherwise stated
TSX/NYSE/PSE: MFC
SEHK:945
Substantive progress made on growth strategies in the first quarter of
2014:
-
Developing our Asian opportunity to the fullest - Improved momentum in insurance sales1 with a significant increase in Japan and double digit growth in most
other territories supported by new product launches and marketing
efforts; and wealth sales continued to be at the levels seen in the
second half of last year, down from the first half of last year, as
rising interest rates and market uncertainty continued to impact some
markets.
-
Growing our wealth and asset management businesses around the world - Our 22nd consecutive quarter of record funds under management1; Manulife Asset Management reported strong results including: record
institutional advisory assets under management; new mandates in Asia
and North America; and with the majority of public asset classes
outperforming their benchmarks on a 1, 3, and 5-year basis.
-
Building on our balanced Canadian business - Continued momentum in mutual fund sales and strong group pension sales
drove record wealth sales; retail insurance sales increased due to our
actions to improve our competitive positioning; and Manulife Bank
lending volumes declined reflecting slowing consumer credit and
aggressive rate competition.
-
Continuing to drive sustainable earnings and opportunistic growth in the
U.S. - Record mutual fund sales and funds under management; 10th consecutive quarter of positive net mutual fund sales; Retirement Plan
Services sales declined reflecting competitive pressures, but reported
meaningful sales in the new mid-market product; and insurance sales
slowed reflecting prior year pricing actions, however recently
introduced product enhancements and more competitive prices are
expected to improve sales momentum2.
TORONTO, May 1, 2014 /CNW/ - Manulife Financial Corporation ("MFC")
announced today net income attributed to shareholders of $818 million
for the quarter ended March 31, 2014 ("1Q14"), fully diluted earnings
per common share of $0.42 and return on common shareholders' equity
("ROE") of 11.9%. In 1Q14, MFC generated core earnings1 of $719 million, fully diluted core earnings per common share1 of $0.37 and core return on common shareholders' equity ("Core ROE")1 of 10.4 %.
Donald Guloien, President and Chief Executive Officer, said, "We are
pleased with our solid start to 2014, which demonstrates measurable
progress against our longer-term objectives. We delivered strong core
earnings, most notably in Asia, net income, wealth sales, and a very
healthy capital ratio, as well as another quarter of record funds under
management."
Mr. Guloien added, "We have increased our momentum in life insurance
sales in Asia and Canada. While insurance sales in the U.S. were below
expectations in the first quarter, we recently introduced product
enhancements and more competitive pricing which we expect to improve
sales."
Steve Roder, Chief Financial Officer said, "We continue to make steady
progress on growing our core earnings. New business embedded value
improved relative to the first quarter last year, reaffirming that the
profitability of our new business continues to improve."
"We also generated strong investment-related experience reflecting our
high quality portfolio and disciplined approach to extending credit and
other investment activities," added Mr. Roder.
______________________
|
1
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
2
|
See "Caution regarding forward-looking statements" below.
|
Highlights for the First Quarter of 2014:
-
Reported net income attributed to shareholders of $818 million for 1Q14.
This compares with net income of $540 million for the quarter ended
March 31, 2013 ("1Q13"). Our 1Q14 net income benefited by $275 million
from strong investment-related experience which was partly offset by
the negative impact of market-related factors totalling $90 million.
-
Generated core earnings of $719 million in 1Q14, an improvement of $34
million from the quarter ended December 31, 2013 ("4Q13") and an
increase of $100 million from 1Q13.
-
Compared with 4Q13, core earnings increased by $34 million due to lower
expenses, the strengthening of the U.S. dollar and higher fee income,
which were partly offset by a $64 million swing in policyholder
experience. (In 4Q13 we reported overall favourable experience while in
1Q14 we reported overall losses, primarily due to a large insurance
claim in the U.S.). Notably, Asia Division core earnings increased 11%
over the same period after adjusting for increased dynamic hedging
costs, the impact of currency and the sale of our Taiwan insurance
business.
-
Compared with 1Q13, core earnings increased by $100 million driven by
higher fee income on increased assets under management, lower net
hedging costs and the strengthening of the U.S. dollar, partially
offset by lower favourable tax related items. Notably, Asia Division
core earnings increased 18% over the same period after adjusting for
increased dynamic hedging costs, the impact of currency and the sale of
our Taiwan insurance business.
-
Reported insurance sales of $537 million, down 15%3 from 1Q13, largely reflecting lower sales in Canada Group Benefits.
Excluding Canada Group Benefits, insurance sales were 4% higher than in
1Q13.
-
Insurance sales benefited from the successful launch of new corporate
products in Japan, double digit growth in most Asian territories, and
actions to improve our competitive positioning in retail insurance in
Canada. In the U.S., insurance sales declined 24% reflecting prior year
pricing actions. We expect that recent product enhancements and more
competitive pricing in the U.S. will increase sales in future quarters4. Sales in Canada Group Benefits declined compared with 1Q13 reflecting
our disciplined pricing approach and normal variability in the large
case group benefits market.
-
Achieved wealth sales of $13.8 billion, up 5% from 1Q13. Record mutual fund sales in North America and strong sales in the
large case pension market in Canada drove the increase. Partly
offsetting the sales growth were lower sales in Asia, as rising
interest rates and market uncertainty impacted some of our key markets,
lower 401(k) sales in the U.S. and lower bank loan volumes in Canada,
which continue to be impacted by competitive pressures.
-
Achieved record funds under management ("FUM") of $635 billion, the 22nd consecutive quarter of record FUM, driven by strong customer cash
flows.
-
Strengthened the Minimum Continuing Capital and Surplus Requirements
("MCCSR") ratio for The Manufacturers Life Insurance Company ("MLI") to
255%, up 7 points from December 31, 2013. Five points of the improvement
relate to a $500 million subordinated debt issuance and a $200 million
preferred share issuance during 1Q14. In the second quarter our ratio
will decline by approximately 8 points following the repayment of $1.0
billion of maturing debt. If the Company redeems, subject to regulatory
approval, $450 million of preferred shares which will become redeemable
at par in June, we would expect a further 3 point decline in the MCCSR
ratio.
-
Generated strong investment-related experience of $275 million, $50 million of which was included in core earnings. The favourable
investment-related experience was largely due to the redeployment of
government securities into higher yielding assets, investments in
various alternative long-duration assets, and continued strong credit
experience.
-
Generated new business embedded value ("NBEV")5 of $324 million, up 8% from 1Q13. The increase in NBEV reflects actions to improve profitability and
business mix in our insurance businesses, as well as higher mutual fund
sales.
-
Reported $2.2 billion of net income attributed to shareholders in
accordance with U.S. GAAP5. The primary difference between this and net income based on IFRS
relates to mark-to-market accounting.
______________________
|
3
|
Growth (declines) in sales, premiums and deposits and funds under
management are stated on a constant currency basis. Constant currency
basis is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
4
|
See "Caution regarding forward-looking statements" below.
|
5
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
Financial Highlights
|
|
|
|
Quarterly Results
|
(C$ millions, unless otherwise stated, unaudited)
|
|
|
|
|
1Q 2014
|
|
|
|
4Q 2013
|
|
|
|
1Q 2013
|
Net income attributed to shareholders
|
|
|
|
$
|
818
|
|
|
$
|
1,297
|
|
|
$
|
540
|
Preferred share dividends
|
|
|
|
|
(34)
|
|
|
|
(34)
|
|
|
|
(32)
|
Common shareholders' net income
|
|
|
|
$
|
784
|
|
|
$
|
1,263
|
|
|
$
|
508
|
Reconciliation of core earnings to net income attributed to
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core earnings(1)
|
|
|
|
$
|
719
|
|
|
$
|
685
|
|
|
$
|
619
|
|
Investment-related experience in excess of amounts included in core
earnings
|
|
|
|
|
225
|
|
|
|
215
|
|
|
|
97
|
Core earnings plus investment-related experience in excess of amounts
included in core earnings
|
|
|
|
$
|
944
|
|
|
$
|
900
|
|
|
$
|
716
|
Other items to reconcile core earnings to net income attributed to
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates and variable annuity
guarantee
liabilities that are dynamically hedged
|
|
|
|
|
(90)
|
|
|
|
(81)
|
|
|
|
(107)
|
|
Changes in actuarial methods and assumptions
|
|
|
|
|
(40)
|
|
|
|
(133)
|
|
|
|
(69)
|
|
Disposition of Taiwan insurance business
|
|
|
|
|
-
|
|
|
|
350
|
|
|
|
-
|
|
Other items
|
|
|
|
|
4
|
|
|
|
261
|
|
|
|
-
|
Net income attributed to shareholders
|
|
|
|
$
|
818
|
|
|
$
|
1,297
|
|
|
$
|
540
|
Basic earnings per common share (C$)
|
|
|
|
$
|
0.42
|
|
|
$
|
0.69
|
|
|
$
|
0.28
|
Diluted earnings per common share (C$)
|
|
|
|
$
|
0.42
|
|
|
$
|
0.68
|
|
|
$
|
0.28
|
Diluted core earnings per common share (C$)(1)
|
|
|
|
$
|
0.37
|
|
|
$
|
0.35
|
|
|
$
|
0.32
|
Return on common shareholders' equity ("ROE") (%)
|
|
|
|
|
11.9%
|
|
|
|
20.2%
|
|
|
|
9.1%
|
Core ROE (%)(1)
|
|
|
|
|
10.4%
|
|
|
|
10.4%
|
|
|
|
10.6%
|
Funds under management (C$ billions)(1)
|
|
|
|
$
|
635
|
|
|
$
|
599
|
|
|
$
|
555
|
(1)
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
SALES AND BUSINESS GROWTH
Asia Division
Robert Cook, Senior Executive Vice President and General Manager, Asia
Division, stated, "We are very encouraged that the improved momentum in
insurance sales that started in the last few months of 2013 has been
sustained this quarter. Supported by new product launches and
marketing efforts, we reported double digit year-over-year sales growth
in most of our insurance businesses. Our wealth sales continued to be
at the levels we saw in the second half of last year, down from the
first half of last year, as rising interest rates and market
uncertainty continued to impact some of our key markets."
Asia Division 1Q14 insurance sales of US$258 million were 23% higher than 1Q13. (Growth percentages
quoted below are for the period 1Q14 compared with 1Q13, unless stated
otherwise, and are on a constant currency basis).
-
Japan insurance sales of US$125 million increased by 43%, driven by our
enhanced corporate products launched during the quarter and the fact
that the first quarter falls in the last quarter of Japan's fiscal tax
year. The growth rate was also impacted by the fact that 1Q13 sales
were somewhat reduced after the higher than normal activity in 4Q12
related to announced price increases.
-
Hong Kong insurance sales increased 8% to US$54 million driven by the growth in
our agency force.
-
Indonesia insurance sales increased 34% to US$26 million driven by strong sales
through our bank distribution channel.
-
Asia Other (excludes Japan, Hong Kong and Indonesia) insurance sales of US$53
million were consistent with 1Q13 as increases in most of the
territories were offset by competitive pressures and fewer agents in
Singapore.
Wealth sales in 1Q14 were US$1.5 billion, a decrease of 37% compared with 1Q13.
(Growth percentages quoted below are for the period 1Q14 compared with
1Q13, unless stated otherwise, and are on a constant currency basis).
-
Japan wealth sales of US$296 million decreased 54% due to a change in
investor preference from bond funds to equities, partly offset by
higher fixed annuity product sales.
-
Hong Kong wealth sales of US$235 million decreased by 36% as 1Q13 benefited from
strong pension sales following the launch of the new Mandatory
Provident Fund Employee Choice Arrangement. In addition, mutual fund
sales were negatively impacted by volatile markets.
-
Indonesia wealth sales of US$92 million were down 62% as both rising local
interest rates and market uncertainty in advance of elections impacted
sales of single premium unit-linked and mutual fund products.
-
Asia Other wealth sales of US$846 million declined 20%, due to lower sales in China
and the timing of fund launches, partially offset by increased sales in
Taiwan and the contribution from our acquisition in Malaysia.
Canadian Division
Marianne Harrison, Senior Executive Vice President and General Manager,
Canadian Division stated, "Continued momentum in mutual funds and
strong sales in Group Retirement Solutions drove wealth sales to record
levels. As we anticipated, we also had modestly higher sales from our
repositioned segregated fund product portfolio. Manulife Bank growth
slowed in the challenging residential mortgage market with slowing
consumer credit and aggressive rate competition. Insurance sales in
Retail Markets were positively impacted by our actions to improve
competitive positioning, while Institutional Markets sales were down
reflecting our disciplined approach to pricing in the group benefits
large case segment."
Wealth sales in 1Q14 were a record $3.4 billion, 18% higher than 1Q13, driven by
continued strong momentum in mutual funds and group retirement, partly
offset by lower new bank loan volumes.
-
Mutual Funds gross deposits6,7 of $1.9 billion in 1Q14 increased 10% compared with 1Q13 and we
reported record net sales of $1.0 billion, an increase of 32% compared
with 1Q13. Assets under management were $29.6 billion at March 31,
2014, an increase of 30% from March 31, 2013, and significantly ahead
of the industry growth rate8.
-
Retail Segregated Fund Products9 sales were $453 million in 1Q14, an increase of 5% compared with 1Q13,
reflecting modest growth in our repositioned new business portfolio. Fixed Products sales of $89 million in 1Q14 were 7% below 1Q13 levels reflecting our
deliberate rate positioning in the immediate annuity market.
-
Group Retirement Solutions 1Q14 sales of $669 million increased 41% compared with 1Q13, reflecting
strong sales of large case defined contribution plans. In 2013,
Manulife continued to lead the defined contribution pension market in
sales for the fourth consecutive year, according to industry
information10.
-
Manulife Bank net lending assets grew 8% from March 31, 2013 to $19.1 billion at March
31, 2014, outpacing industry average growth11. The continuing industry-wide slowdown in the residential mortgage
market and an escalation of competitive rate positioning has slowed the
growth in new loan volumes; new loan volumes were $637 million in 1Q14,
14% lower than 1Q13.
Insurance sales in 1Q14 of $134 million were significantly lower than 1Q13 due to lower
sales in the large case group benefits market.
-
Retail Markets insurance sales of $38 million increased 9% compared with 1Q13,
reflecting actions to improve our competitive positioning.
-
Institutional Markets insurance sales of $96 million declined 54% from 1Q13 reflecting lower
sales in Group Benefits driven by our disciplined pricing approach and
normal variability in the large case segment. Manulife Group Benefits
led the market in sales in 2013 according to the most recently
published industry information12.
_________________________
|
6
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
7
|
Gross mutual fund deposits in 1Q14 include deposits from segregated fund
products of $349 million.
|
8
|
Based on publicly available information from Investor Economics and the
Investment Funds Institute of Canada as at March 31, 2014.
|
9
|
Segregated fund products include guarantees. These products are also
referred to as variable annuities.
|
10
|
As per LIMRA SRI Canadian Pension Market sales report as of December 31
for 2010-2013.
|
11
|
As per McVay and Associates, The Personal Banking Product Market Share,
January 2014.
|
12
|
As per LIMRA Canadian Group Life and Health Insurance sales report as of
December 31, 2013.
|
U.S. Division
Craig Bromley, Senior Executive Vice President and General Manager, U.S.
Division stated, "Record sales in John Hancock Investments contributed
to record funds under management in the Wealth Management businesses
this quarter. A strong product line-up, including 36 Four- or
Five-Star Morningstar rated mutual funds continues to drive favourable
results in this business13. On the insurance front, sales were muted this quarter as a result of
price increases implemented in 2013; however, we introduced product
enhancements and more competitive pricing this quarter that are
expected to increase future sales14."
Wealth Management sales in 1Q14 were US$7.9 billion, an increase of 13% compared with
1Q13, with increases in John Hancock Investments ("JH Investments")
sales being partially offset by a decrease in John Hancock Retirement
Plan Services ("JH RPS").
-
JH Investments achieved record first quarter sales of US$6.6 billion, an increase of
20% compared with 1Q13. Continued sales momentum was attributable to
broad-based distribution success, a strong product line-up and, in
part, to the run up of sales in response to the "soft close" of a top
selling fund. The strong sales contributed to our 10th consecutive quarter of positive net sales15 which propelled funds under management as of March 31, 2014 to a record
of US$65.7 billion, a 37% increase from March 31, 2013. We continued to
broaden our product portfolio and have recently introduced two
innovative mutual funds targeting lower-volatility alternative equity
strategies.
-
JH RPS reported record funds under management of US$83.2 billion as of March
31, 2014, an increase of 10% from March 31, 2013 and 1Q14 sales were
US$1.3 billion, a decrease of 7% compared with 1Q13. Sales in our
small case core market were poor in the quarter. However, the business
has strengthened its core 401(k) small case market presence through a
new program to drive future results. This comprehensive program,
Signature 2.0, focuses on delivering price competitiveness, fee
transparency, new investment options and exceptional customer service.
Sales of Enterprise continued to gain traction in the 401(k) mid-market
and we recorded meaningful sales in the quarter.
Overall U.S. Insurance sales of US$108 million for 1Q14 were 24% lower than 1Q13, driven by the
impact of pricing actions taken last year to increase margins. Updated
products with more competitive pricing were launched in late February
and are expected to improve sales in future quarters14.
-
John Hancock Life ("JH Life") 1Q14 sales of US$85 million were 35% lower than 1Q13. The decrease in sales
was largely in the Protection universal life ("UL") and International
UL products, due to the aforementioned price competitiveness issues.
Strong sales of Indexed UL products continued in 1Q14, with sales up
41% compared to 1Q13.
-
John Hancock Long-Term Care ("LTC") sales of US$23 million in 1Q14 were US$11 million higher than
1Q13, driven by expected bi-annual inflation buy-up activity on the
Federal LTC program. An updated retail LTC product will be launched in
2Q1414.
_____________________________
|
13
|
For each fund with at least a 3-year history, Morningstar calculates a
Morningstar Rating based on a Morningstar Risk-Adjusted Return that
accounts for variation in a fund's monthly performance (including
effects of sales charges, loads and redemption fees), placing more
emphasis on downward variations and rewarding consistent performance.
The top 10% of funds in each category, the next 22.5%, 35%, 22.5% and
bottom 10% receive 5, 4, 3, 2 or 1 star, respectively. The Overall
Morningstar Rating for a fund is derived from a weighted average of the
performance associated with its 3-, 5- and 10 year (if applicable)
Morningstar Rating metrics. Past performance is no guarantee of future
results. The overall rating includes the effects of sales charges,
loads and redemption fees, while the load-waived does not. Load-waived
rating for Class A shares should only be considered by investors who
are not subject to a front-end sales charge.
|
14
|
See "Caution regarding forward-looking statements" below.
|
15
|
Source: Strategic Insight SIMFUND. Net sales (net new flows) is
calculated using retail long-term open end mutual funds for managers in
the Intermediary-Sold channel. Figures exclude money market and 529
share classes.
|
Investment Division
Warren Thomson, Senior Executive Vice President and Chief Investment
Officer, said, "General Fund investment-related experience was strong
in the first quarter of 2014, largely driven by the redeployment of
government securities into higher yielding assets and investments in
real estate and other alternative long-duration assets. In addition,
we continue to benefit from favourable credit experience."
Mr. Thomson continued, "Manulife Asset Management's first quarter direct
net sales were strong, reflecting a variety of new mandates in both
Asia and North America. Long-term investment performance continues to
be a differentiator for Manulife Asset Management; we reported strong
results, with the majority of public asset classes once again
outperforming their benchmarks on a 1, 3, and 5-year basis."
External assets managed by Manulife Asset Management ("MAM") were $257
billion as at March 31, 2014, an increase of $14 billion from December
31, 2013. Including assets managed on behalf of the General Fund, MAM
managed a total of $298 billion in assets as at March 31, 2014. At
March 31, 2014, MAM had a total of 80 Four- and Five-Star Morningstar
rated funds, an increase of 10 funds since December 31, 2013.
CORPORATE ITEMS
In a separate news release today, MFC announced that the Board of
Directors approved a quarterly shareholders' dividend of $0.13 per
share on the common shares of MFC, payable on and after June 19, 2014
to shareholders of record at the close of business on May 13, 2014.
The Board of Directors approved that, in respect of MFC's June 19, 2014
common share dividend payment date, MFC will issue common shares in
connection with the reinvestment of dividends and optional cash
purchases pursuant to MFC's Canadian Dividend Reinvestment and Share
Purchase Plan and its U.S. Dividend Reinvestment and Share Purchase
Plan.
AWARDS & RECOGNITION
In the U.S., John Hancock Insurance was recognized as an industry leader in
implementing next-generation customer-centric solutions by iPipeline -
a leading provider of sales distribution software to the insurance and
financial markets through its on-demand service. Also in the U.S., two John Hancock Investments' funds were honored with
2014 Lipper Fund Awards. The John Hancock Retirement Living Through
2010 Portfolio, R5 ("JLAHX") won for 5-year performance in the
Mixed-Asset Target 2010 category, and the John Hancock Disciplined
Value Mid Cap Fund ("JVMIX") won for 10-year performance in the
Multi-Cap Core category. The Lipper Awards are part of the Thomson
Reuters Awards for Excellence.
In Vietnam, Manulife was awarded the Golden Dragon Award for the 5th straight year, recognizing foreign-invested companies which have
achieved outstanding business performance and have made a significant
contribution to Vietnam's economy. The recognition was awarded by the
Vietnam Economic Times, a leading business daily media outlet.
In Indonesia, Manulife has received the highest commendation of the 2014 Excellent
Service Experience Award in the Life and Health Insurance category for
the 2nd consecutive year. The award ceremony was held by Bisnis Indonesia
together with the Carre Center for Customer Satisfaction and Loyalty.
Notes:
Manulife Financial Corporation will host a First Quarter Earnings
Results Conference Call at 2:00 p.m. ET on May 1, 2014. For local and
international locations, please call 416-340-8530 and toll free in
North America please call 1-800-769-8320. Please call in ten minutes
before the call starts. You will be required to provide your name and
organization to the operator. A replay of this call will be available
by 6:00 p.m. ET on May 1, 2014 through May 15, 2014 by calling
905-694-9451 or 1-800-408-3053 (passcode: 1458053).
The conference call will also be webcast through Manulife Financial's
website at 2:00 p.m. ET on May 1, 2014. You may access the webcast at: www.manulife.com/quarterlyreports. An archived version of the webcast will be available at 4:30 p.m. ET on
the website at the same URL as above.
The First Quarter 2014 Statistical Information Package will also be
available on the Manulife Financial website at: www.manulife.com/quarterlyreports. The document may be downloaded before the webcast begins.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") is current as of May
1, 2014, unless otherwise noted. This MD&A should be read in
conjunction with the MD&A and audited Consolidated Financial Statements
contained in our 2013 Annual Report.
For further information relating to our risk management practices and
risk factors affecting the Company, see "Risk Factors" in our most
recent Annual Information Form, "Risk Management and Risk Factors" and
"Critical Accounting and Actuarial Policies" in the MD&A in our 2013
Annual Report, and the "Risk Management" note to the Consolidated
Financial Statements in our 2013 Annual Report.
In this MD&A, the terms "Company", "Manulife Financial" and "we" mean
Manulife Financial Corporation ("MFC") and its subsidiaries.
Contents
|
|
|
|
|
|
|
A
|
|
OVERVIEW
|
|
|
|
D
|
|
RISK MANAGEMENT AND RISK FACTORS UPDATE
|
1.
|
|
First quarter highlights
|
|
|
|
1.
|
|
Regulatory, actuarial and accounting risks
|
|
|
|
|
|
|
2.
|
|
Variable annuity and segregated fund guarantees
|
B
|
|
FINANCIAL HIGHLIGHTS
|
|
|
|
3.
|
|
Caution related to sensitivities
|
1.
|
|
First quarter earnings analysis
|
|
|
|
4.
|
|
Publicly traded equity performance risk
|
2.
|
|
Premiums and deposits
|
|
|
|
5.
|
|
Interest rate and spread risk
|
3.
|
|
Funds under management
|
|
|
|
|
|
|
4.
|
|
Capital
|
|
|
|
E
|
|
ACCOUNTING MATTERS AND CONTROLS
|
5.
|
|
Impact of fair value accounting
|
|
|
|
1.
|
|
Critical accounting and actuarial policies
|
|
|
|
|
|
|
2.
|
|
Sensitivity of policy liabilities to updates to assumptions
|
C
|
|
PERFORMANCE BY DIVISION
|
|
|
|
3.
|
|
Accounting and reporting changes
|
1.
|
|
Asia
|
|
|
|
4.
|
|
U.S. GAAP results
|
2.
|
|
Canadian
|
|
|
|
|
|
|
3.
|
|
U.S.
|
|
|
|
F
|
|
OTHER
|
4.
|
|
Corporate and Other
|
|
|
|
1.
|
|
Performance and Non-GAAP measures
|
|
|
|
|
|
|
2.
|
|
Key planning assumptions and uncertainties
|
|
|
|
|
|
|
3.
|
|
Caution regarding forward-looking statements
|
A OVERVIEW
A1 First quarter highlights
Manulife reported first quarter 2014 net income attributed to
shareholders of $818 million and core earnings16 of $719 million. Net income attributed to shareholders increased $278 million compared with 1Q13, of which $100 million was
driven by higher core earnings and $178 million related to other
items. The $100 million increase in core earnings was driven by fee
income on higher assets under management, lower hedging costs and the
strengthening of the U.S. dollar, partially offset by lower favourable
tax related items. Although tax items contributed to core earnings in
both periods, 1Q13 was more favourable in this regard.
Items excluded from core earnings increased by $178 million compared
with 1Q13 primarily related to the strong investment-related
experience, largely driven by the redeployment of government securities
into higher yielding assets and the impact on the measurement of
actuarial liabilities of investments in real estate and other
alternative long-duration assets, as well as favourable credit
experience. Favourable investment-related experience not reported in
core earnings was $225 million in 1Q14 and $97 million in 1Q13. In
both 1Q14 and 1Q13 we reported charges related to the direct impact of
interest rates and equity markets.
The Minimum Continuing Capital and Surplus Requirements ("MCCSR") ratio for The Manufacturers Life Insurance Company ("MLI") as at March 31,
2014 was 255%, an increase of 7 points from December 31, 2013. Five
points of the improvement relate to a $500 million subordinated debt
issuance and a $200 million preferred share issuance during 1Q14. In
the second quarter our ratio will decline by approximately 8 points
following the repayment of $1.0 billion of maturing debt. If the
Company redeems, subject to regulatory approval, $450 million of
preferred shares which will become redeemable at par in June, we would
expect a further 3 point decline in the MCCSR ratio.
Insurance sales16 of $537 million in 1Q14 decreased 15%17 compared with 1Q13. Excluding Canada Group Benefits sales which
normally show variability, insurance sales were 4% higher than a year
ago. Insurance sales in Asia rose 23% reflecting the successful launch
of new corporate products in Japan, double digit growth in most
territories and augmented by the unusually low 1Q13 sales, as a result
of above normal activity in 4Q12 due to announced price changes.
Retail Markets insurance sales increased 9% in Canada due to actions to
improve our competitive positioning. In the U.S., insurance sales
declined 24% as a result of price increases implemented in 2013; we
expect that the product enhancements and more competitive pricing
launched in the quarter will increase future sales18.
Wealth sales were $13.8 billion in 1Q14, up 5% from 1Q13. The continued strong mutual fund
sales in North America and strong pension sales in Canada were partly
offset by lower sales in Asia, lower 401(k) sales in the U.S. and lower
Manulife Bank loan volumes in Canada. In Asia, wealth sales continued
to be at the levels seen in the second half of last year, down from the
first half of last year, as rising interest rates and market
uncertainty continued to impact some markets.
_________________________
|
16
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
17
|
Growth (declines) in sales, premiums and deposits and funds under
management are stated on a constant currency basis. Constant currency
basis is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
18
|
See "Caution regarding forward-looking statements" below.
|
B FINANCIAL HIGHLIGHTS
|
|
|
|
Quarterly Results
|
(C$ millions, unless otherwise stated, unaudited)
|
|
|
|
|
1Q 2014
|
|
|
|
4Q 2013
|
|
|
|
1Q 2013
|
Net income attributed to shareholders
|
|
|
|
$
|
818
|
|
|
$
|
1,297
|
|
|
$
|
540
|
Preferred share dividends
|
|
|
|
|
(34)
|
|
|
|
(34)
|
|
|
|
(32)
|
Common shareholders' net income
|
|
|
|
$
|
784
|
|
|
$
|
1,263
|
|
|
$
|
508
|
Reconciliation of core earnings to net income attributed to
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core earnings(1)
|
|
|
|
$
|
719
|
|
|
$
|
685
|
|
|
$
|
619
|
|
Investment-related experience in excess of amounts included in core
earnings
|
|
|
|
|
225
|
|
|
|
215
|
|
|
|
97
|
Core earnings plus investment-related experience in excess of amounts
included in core earnings
|
|
|
|
$
|
944
|
|
|
$
|
900
|
|
|
$
|
716
|
Other items to reconcile core earnings to net income attributed to
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates and variable annuity
guarantee
liabilities that are dynamically hedged
|
|
|
|
|
(90)
|
|
|
|
(81)
|
|
|
|
(107)
|
|
Changes in actuarial methods and assumptions
|
|
|
|
|
(40)
|
|
|
|
(133)
|
|
|
|
(69)
|
|
Disposition of Taiwan insurance business
|
|
|
|
|
-
|
|
|
|
350
|
|
|
|
-
|
|
Other items(2)
|
|
|
|
|
4
|
|
|
|
261
|
|
|
|
-
|
Net income attributed to shareholders
|
|
|
|
$
|
818
|
|
|
$
|
1,297
|
|
|
$
|
540
|
Basic earnings per common share (C$)
|
|
|
|
$
|
0.42
|
|
|
$
|
0.69
|
|
|
$
|
0.28
|
Diluted earnings per common share (C$)
|
|
|
|
$
|
0.42
|
|
|
$
|
0.68
|
|
|
$
|
0.28
|
Diluted core earnings per common share (C$)(1)
|
|
|
|
$
|
0.37
|
|
|
$
|
0.35
|
|
|
$
|
0.32
|
Return on common shareholders' equity ("ROE") (%)
|
|
|
|
|
11.9%
|
|
|
|
20.2%
|
|
|
|
9.1%
|
Core ROE (%)(1)
|
|
|
|
|
10.4%
|
|
|
|
10.4%
|
|
|
|
10.6%
|
U.S. GAAP net income (loss) attributed to shareholders(1)
|
|
|
|
$
|
2,161
|
|
|
$
|
241
|
|
|
$
|
(345)
|
Sales(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance products(3)
|
|
|
|
$
|
537
|
|
|
$
|
617
|
|
|
$
|
613
|
|
Wealth products
|
|
|
|
$
|
13,778
|
|
|
$
|
12,241
|
|
|
$
|
12,423
|
Premiums and deposits(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance products
|
|
|
|
$
|
5,904
|
|
|
$
|
6,169
|
|
|
$
|
6,002
|
|
Wealth products
|
|
|
|
$
|
19,532
|
|
|
$
|
15,367
|
|
|
$
|
16,331
|
Funds under management (C$ billions)(1)
|
|
|
|
$
|
635
|
|
|
$
|
599
|
|
|
$
|
555
|
Capital (C$ billions)(1)
|
|
|
|
$
|
36.2
|
|
|
$
|
33.5
|
|
|
$
|
30.1
|
MLI's MCCSR ratio
|
|
|
|
|
255%
|
|
|
|
248%
|
|
|
|
217%
|
(1)
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
(2)
|
For a more detailed description see Section B1 below.
|
(3)
|
Insurance sales have been adjusted to exclude Taiwan for all periods.
|
B1 First quarter earnings analysis
The table below reconciles the 1Q14 core earnings of $719 million to the
reported net income attributed to shareholders of $818 million.
(C$ millions, unaudited)
|
|
|
|
|
1Q 2014
|
|
|
|
4Q 2013
|
|
|
|
1Q 2013
|
Core earnings(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Division(2)
|
|
|
|
$
|
244
|
|
|
$
|
227
|
|
|
$
|
226
|
Canadian Division(2)
|
|
|
|
|
228
|
|
|
|
233
|
|
|
|
179
|
U.S. Division(2)
|
|
|
|
|
374
|
|
|
|
366
|
|
|
|
440
|
Corporate and Other (excluding expected cost of macro hedges and core
investment gains)
|
|
|
|
|
(135)
|
|
|
|
(138)
|
|
|
|
(128)
|
Expected cost of macro hedges(2),(3)
|
|
|
|
|
(42)
|
|
|
|
(53)
|
|
|
|
(148)
|
Investment-related experience in core earnings(4)
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
50
|
Core earnings
|
|
|
|
$
|
719
|
|
|
$
|
685
|
|
|
$
|
619
|
Investment-related experience in excess of amounts included in core
earnings(4)
|
|
|
|
|
225
|
|
|
|
215
|
|
|
|
97
|
Core earnings plus investment-related experience in excess of
amounts included in core earnings
|
|
|
|
$
|
944
|
|
|
$
|
900
|
|
|
$
|
716
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities that are dynamically hedged (see table below)(4),(5)
|
|
|
|
|
(90)
|
|
|
|
(81)
|
|
|
|
(107)
|
Changes in actuarial methods and assumptions(6)
|
|
|
|
|
(40)
|
|
|
|
(133)
|
|
|
|
(69)
|
Disposition of Taiwan insurance business
|
|
|
|
|
-
|
|
|
|
350
|
|
|
|
-
|
Other items(7)
|
|
|
|
|
4
|
|
|
|
261
|
|
|
|
-
|
Net income attributed to shareholders
|
|
|
|
$
|
818
|
|
|
$
|
1,297
|
|
|
$
|
540
|
(1)
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
(2)
|
Of the $106 million decrease in expected macro hedging costs compared
with 1Q13, approximately half was offset by an increase in dynamic
hedging costs, primarily in Asia and the U.S.
|
(3)
|
The 1Q14 net loss from macro equity hedges was $69 million and consisted
of a $42 million charge related to the estimated expected cost of the
macro equity hedges relative to our long-term valuation assumptions and
a charge of $27 million as a result of macro hedge rebalancing costs
primarily in Japan. The $27 million charge is included in the direct
impact of equity markets and interest rates table below.
|
(4)
|
Net insurance contract liabilities under IFRS for Canadian insurers are
determined using the Canadian Asset Liability Method ("CALM"). Under
CALM, the measurement of policy liabilities includes estimates
regarding future expected investment income on assets supporting the
policies. Experience gains and losses are reported when current period
activity differs from what was assumed in the policy liabilities at the
beginning of the period. These gains and losses can relate to both the
investment returns earned in the period, as well as to the change in
our policy liabilities driven by the impact of current period investing
activities on future expected investment income assumptions. The direct
impact of markets is separately reported.
|
(5)
|
The direct impact of equity markets and interest rates is relative to
our policy liability valuation assumptions and includes changes to
interest rate assumptions, including a quarterly ultimate reinvestment
rate ("URR") update for North America and for Japan, as well as
experience gains and losses on derivatives associated with our macro
equity hedges. We also include gains and losses on the sale of
available-for-sale ("AFS") bonds and derivative positions in the
surplus segment. See table below for components of this item.
|
(6)
|
The $40 million charge in 1Q14 primarily relates to the impact of method
and modelling refinements in the projection of certain asset and
liability related cash flows across several business units.
|
(7)
|
The other item in 1Q14 relates to enacted tax rate changes in one of the
territories in Asia. The 4Q13 amount relates to policyholder approved
changes to the investment objectives of separate accounts that support
our Variable Annuity products in the U.S and the recapture of a
reinsurance treaty in Asia.
|
The gain (charge) related to the direct impact of equity markets and
interest rates and variable annuity guarantee liabilities that are
dynamically hedged in the table above is attributable to:
(C$ millions, unaudited)
|
|
|
|
|
1Q 2014
|
|
|
|
4Q 2013
|
|
|
|
1Q 2013
|
Variable annuity guarantee liabilities that are dynamically hedged(1)
|
|
|
|
$
|
2
|
|
|
$
|
101
|
|
|
$
|
101
|
Variable annuity guarantee liabilities that are not dynamically hedged
|
|
|
|
|
(32)
|
|
|
|
155
|
|
|
|
757
|
General fund equity investments supporting policy liabilities and on fee
income(2)
|
|
|
|
|
(14)
|
|
|
|
81
|
|
|
|
115
|
Macro equity hedges relative to expected costs(3)
|
|
|
|
|
(27)
|
|
|
|
(232)
|
|
|
|
(730)
|
Direct impact of equity markets and variable annuity guarantees that are
dynamically hedged(4)
|
|
|
|
$
|
(71)
|
|
|
$
|
105
|
|
|
$
|
243
|
Fixed income reinvestment rates assumed in the valuation of policy
liabilities(5)
|
|
|
|
|
9
|
|
|
|
(105)
|
|
|
|
(245)
|
Sale of AFS bonds and derivative positions in the Corporate and Other
segment
|
|
|
|
|
(3)
|
|
|
|
(55)
|
|
|
|
(8)
|
Charges due to lower fixed income URR assumptions used in the valuation
of policy liabilities
|
|
|
|
|
(25)
|
|
|
|
(26)
|
|
|
|
(97)
|
Direct impact of equity markets and interest rates and variable annuity
guarantees
that are dynamically hedged
|
|
|
|
$
|
(90)
|
|
|
$
|
(81)
|
|
|
$
|
(107)
|
Direct impact of equity markets and interest rates
|
|
|
|
$
|
(92)
|
|
|
$
|
(182)
|
|
|
$
|
(208)
|
(1)
|
Our variable annuity guarantee dynamic hedging strategy is not designed
to completely offset the sensitivity of policy liabilities to all risks
associated with the guarantees embedded in these products. See "Risk
Management and Risk Factors" in the MD&A in our 2013 Annual Report.
|
(2)
|
The impact on general fund equity investments supporting policy
liabilities and on fee income includes the capitalized impact on fees
for variable universal life policies.
|
(3)
|
As described in the previous table, we incurred a charge of $27 million
because the cost of rebalancing due to market volatility more than
offset the impact of actual markets underperforming our valuation
assumptions.
|
(4)
|
In 1Q14, gross equity exposure losses of $767 million and gross equity
hedging charges of $27 million from macro hedge experience were
partially offset by income of $723 million from dynamic hedging
experience which resulted in a charge of $71 million.
|
(5)
|
The gain in 1Q14 for fixed income reinvestment assumptions was driven by
a decrease in swap spreads in Japan and Canada.
|
B2 Premiums and deposits19
Premiums and deposits for insurance products were $5.9 billion in 1Q14,
a decrease of 5% on a constant currency basis compared with 1Q13.
Growth in Asia and Canada was offset by a decline in the U.S. as a
result of pricing actions in 2013.
Premiums and deposits for wealth products were $19.5 billion in 1Q14, an
increase of $3.2 billion, or 12% on a constant currency basis, compared
with 1Q13. Growth was driven by strong mutual fund sales in North
America and strong pension sales in Canada.
B3 Funds under management19
Funds under management as at March 31, 2014 were a record $635 billion,
an increase of $80 billion from March 31, 2013. The increase was due to
a combination of growth in our Asset Management businesses, strong
customer cash net inflows in all divisions, equity market growth over
the period and the strengthening of the U.S. dollar (all currency
impacts totaled $33 billion).
B4 Capital19
MFC's total capital as at March 31, 2014 was $36.2 billion, an increase of $2.7 billion from
December 31, 2013 and $6.1 billion from March 31, 2013. The increase
from March 31, 2013 was primarily driven by net earnings of $3.4
billion, the $1.8 billion impact from favourable currency movements on
translation of foreign operations and net capital issued of $1.2
billion, partially offset by cash dividends of $0.8 billion over the
period.
________________________
|
19
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
B5 Impact of fair value accounting
Fair value accounting policies affect the measurement of both our assets
and our liabilities. The impact on the measurement of both assets and
liabilities of investment activities and market movements are reported
as experience gains (losses) on investments, the direct impact of
equity markets and interest rates and variable annuity guarantees that
are dynamically hedged, each of which impacts net income (see section
A1 above for discussion of first quarter experience).
Net realized and unrealized gains reported in investment income were
$5.3 billion for 1Q14. This amount was primarily driven by the
mark-to-market impact of the decrease in interest rates on our bond and
fixed income derivative holdings and, to a lesser extent, the impact of
the increase in equity markets on our equity futures in our macro and
dynamic hedging program as well as other items.
As outlined in the "Critical Accounting and Actuarial Policies" in the
MD&A in the 2013 Annual Report, net insurance contract liabilities
under IFRS are determined using CALM, as required by the Canadian
Institute of Actuaries. The measurement of policy liabilities includes
the estimated value of future policyholder benefits and settlement
obligations to be paid over the term remaining on in-force policies,
including the costs of servicing the policies, reduced by the future
expected policy revenues and future expected investment income on
assets supporting the policies. Investment returns are projected using
the current asset portfolios and projected reinvestment strategies.
Experience gains and losses are reported when current period activity
differs from what was assumed in the policy liabilities at the
beginning of the period. We classify gains and losses by assumption
type. For example, current period investing activities that increase
(decrease) the future expected investment income on assets supporting
the policies will result in an investment-related experience gain
(loss).
C PERFORMANCE BY DIVISION
C1 Asia Division
($ millions, unless otherwise stated)
|
|
|
|
|
|
|
|
|
Quarterly Results
|
Canadian dollars
|
|
|
|
|
|
|
|
|
|
1Q 2014
|
|
|
|
4Q 2013
|
|
|
|
1Q 2013
|
Net income attributed to shareholders(1)
|
|
|
|
|
|
|
|
|
$
|
242
|
|
|
$
|
725
|
|
|
$
|
928
|
Core earnings(1)
|
|
|
|
|
|
|
|
|
|
244
|
|
|
|
227
|
|
|
|
226
|
Premiums and deposits
|
|
|
|
|
|
|
|
|
|
3,800
|
|
|
|
3,680
|
|
|
|
4,468
|
Funds under management (billions)
|
|
|
|
|
|
|
|
|
|
82.3
|
|
|
|
76.6
|
|
|
|
78.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to shareholders
|
|
|
|
|
|
|
|
|
$
|
219
|
|
|
$
|
690
|
|
|
$
|
920
|
Core earnings
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
216
|
|
|
|
224
|
Premiums and deposits
|
|
|
|
|
|
|
|
|
|
3,444
|
|
|
|
3,509
|
|
|
|
4,430
|
Funds under management (billions)
|
|
|
|
|
|
|
|
|
|
74.5
|
|
|
|
72.0
|
|
|
|
77.6
|
(1)
|
See "Performance and Non-GAAP Measures" for a reconciliation between
IFRS net income attributed to shareholders and core earnings.
|
Asia Division's net income attributed to shareholders was US$219 million in 1Q14 compared with US$920 million in 1Q13, and
core earnings in 1Q14 were US$221 million compared with US$224 million
in 1Q13. Core earnings increased US$37 million compared to 1Q13 after
adjusting for the increased dynamic hedging costs (there is a
corresponding decrease in macro hedging costs in the Corporate and
Other Division), the impact of changes in currency rates and the sale
of our Taiwan insurance business. This growth in core earnings was
driven by higher new business margins and improved policyholder
experience. The 1Q13 difference between net income and core earnings
of US$696 million was primarily related to the increase in equity
markets on unhedged variable annuities.
Premiums and deposits in 1Q14 were US$3.4 billion, a decrease of 18% on a constant currency
basis compared with 1Q13. Premiums and deposits for insurance products
were US$1.5 billion, an increase of 10% compared with 1Q13 (adjusted to
exclude the Taiwan Insurance business sold in 4Q13), driven by
increased in-force business growth across the region and strong
corporate product sales in Japan. Wealth management premiums and
deposits of US$1.9 billion decreased by 30% compared to 1Q13, but were
at levels consistent with the second half of 2013, as rising interest
rates and market uncertainty continued to impact wealth sales in some
of our key markets.
Funds under management as at March 31, 2014 were US$74.5 billion, an increase of 1% on a
constant currency basis compared with March 31, 2013. Net policyholder
cash inflow of US$3.6 billion and market returns in the past twelve
months were offset by the US$2.0 billion impact from the sale of our
Taiwan insurance business in December 2013.
C2 Canadian Division
($ millions, unless otherwise stated)
|
|
|
|
|
|
|
|
|
Quarterly Results
|
Canadian dollars
|
|
|
|
|
|
|
|
|
|
1Q 2014
|
|
|
|
4Q 2013
|
|
|
|
1Q 2013
|
Net income (loss) attributed to shareholders(1)
|
|
|
|
|
|
|
|
|
$
|
377
|
|
|
$
|
373
|
|
|
$
|
(62)
|
Core earnings(1)
|
|
|
|
|
|
|
|
|
|
228
|
|
|
|
233
|
|
|
|
179
|
Premiums and deposits
|
|
|
|
|
|
|
|
|
|
6,050
|
|
|
|
5,275
|
|
|
|
5,335
|
Funds under management (billions)
|
|
|
|
|
|
|
|
|
|
150.3
|
|
|
|
145.2
|
|
|
|
136.5
|
(1)
|
See "Performance and Non-GAAP Measures" for a reconciliation between
IFRS net income attributed to shareholders and core earnings.
|
Canadian Division's net income attributed to shareholders of $377 million in 1Q14 compared with the net loss of $62 million in
1Q13. Core earnings of $228 million in 1Q14 increased $49 million
compared with 1Q13. The increase in core earnings was driven by
in-force business growth, including higher fee income from our growing
wealth management businesses; higher new business margins due to
product changes and higher interest rates; and improved claims
experience. Included in net income but not in core earnings in 1Q14
were $149 million of market and investment-related gains (2013 - $241
million loss).
Premiums and deposits in 1Q14 were $6.1 billion, 13% higher than 1Q13, driven by continued
strong growth in Manulife Mutual Funds and Group Retirement Solutions.
Funds under management were a record $150.3 billion as at March 31, 2014, an increase of $13.8
billion, or 10%, from March 31, 2013, driven by growth in our wealth
management businesses and the net favourable impact of equity market
appreciation.
C3 U.S. Division
($ millions, unless otherwise stated)
|
|
|
|
|
|
|
|
|
Quarterly Results
|
Canadian dollars
|
|
|
|
|
|
|
|
|
|
1Q 2014
|
|
|
|
4Q 2013
|
|
|
|
1Q 2013
|
Net income attributed to shareholders(1)
|
|
|
|
|
|
|
|
|
$
|
403
|
|
|
$
|
825
|
|
|
$
|
726
|
Core earnings(1)
|
|
|
|
|
|
|
|
|
|
374
|
|
|
|
366
|
|
|
|
440
|
Premiums and deposits
|
|
|
|
|
|
|
|
|
|
13,399
|
|
|
|
11,608
|
|
|
|
11,725
|
Funds under management (billions)
|
|
|
|
|
|
|
|
|
|
360.5
|
|
|
|
340.4
|
|
|
|
307.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to shareholders
|
|
|
|
|
|
|
|
|
$
|
366
|
|
|
$
|
787
|
|
|
$
|
720
|
Core earnings
|
|
|
|
|
|
|
|
|
|
339
|
|
|
|
349
|
|
|
|
436
|
Premiums and deposits
|
|
|
|
|
|
|
|
|
|
12,146
|
|
|
|
11,061
|
|
|
|
11,629
|
Funds under management (billions)
|
|
|
|
|
|
|
|
|
|
326.2
|
|
|
|
320.1
|
|
|
|
302.6
|
(1)
|
See "Performance and Non-GAAP Measures" for a reconciliation between
IFRS net income attributed to shareholders and core earnings.
|
U.S. Division's net income attributed to shareholders was US$366 million for 1Q14 compared with US$720 million for 1Q13. Core
earnings for 1Q14 were US$339 million, a decrease of US$97 million
compared with 1Q13.
The decrease in core earnings was driven by costs associated with the
hedging of additional in-force variable annuity guarantees and
unfavourable policyholder experience primarily in JH Life, compared
with favourable experience in 1Q13. In addition, core earnings in 1Q13
benefited from a more favourable impact of tax related items. Partially
offsetting these items was the impact of the growth in our wealth
management assets on fee income and lower amortization of deferred
acquisition costs due to the natural run-off of variable annuity
business. Items reconciling core earnings to net income attributed to
shareholders in both 1Q14 and 1Q13 included favourable
investment-related experience and the impact of equity markets and
interest rates.
Premiums and deposits for 1Q14 were a record US$12.1 billion, an increase of 4% compared with
1Q13. The increase was driven by record sales in mutual funds
partially offset by lower life insurance premiums consistent with
dampened sales attributable to product management actions.
Funds under management as at March 31, 2014 were a record US$326.2 billion, up 8% from March
31, 2013 levels. The increase was due to positive investment returns
and strong net mutual fund sales in JH Investments partially offset by
surrender and benefit payments in John Hancock Annuities.
C4 Corporate and Other
($ millions, unless otherwise stated)
|
|
|
|
|
|
Quarterly Results
|
Canadian dollars
|
|
|
|
|
|
|
1Q 2014
|
|
|
|
4Q 2013
|
|
|
|
1Q 2013
|
Net loss attributed to shareholders(1)
|
|
|
|
|
|
$
|
(204)
|
|
|
$
|
(626)
|
|
|
$
|
(1,052)
|
|
Core losses (excl. macro hedges and core investment gains)(1)
|
|
|
|
|
|
$
|
(135)
|
|
|
$
|
(138)
|
|
|
$
|
(128)
|
|
Expected cost of macro hedges
|
|
|
|
|
|
|
(42)
|
|
|
|
(53)
|
|
|
|
(148)
|
|
Investment-related experience included in core earnings
|
|
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
50
|
Total core losses
|
|
|
|
|
|
$
|
(127)
|
|
|
$
|
(141)
|
|
|
$
|
(226)
|
Premiums and deposits
|
|
|
|
|
|
$
|
2,187
|
|
|
$
|
974
|
|
|
$
|
805
|
Funds under management (billions)
|
|
|
|
|
|
|
41. 8
|
|
|
|
36.7
|
|
|
|
32.7
|
(1)
|
See "Performance and Non-GAAP Measures" for a reconciliation between
IFRS net income attributed to shareholders and core earnings.
|
Corporate and Other is composed of: Investment performance on assets backing capital, net of amounts
allocated to operating divisions and financing costs; Investment
Division's external asset management business; Property and Casualty
("P&C") Reinsurance business; as well as run-off reinsurance operations
including variable annuities and accident and health.
For segment reporting purposes, the impact of updates to actuarial
assumptions, settlement costs for macro equity hedges and other
non-operating items are included in this segment's earnings.
Corporate and Other reported a net loss attributed to shareholders of $204 million for 1Q14 compared to a net loss of $1,052 million for
1Q13. Core losses were $127 million in 1Q14 compared to core losses of
$226 million in 1Q13.
Charges in 1Q14 not included in core earnings totaled $77 million (2013
- $826 million). These included: a $40 million charge for changes in
actuarial methods and assumptions (2013 - $69 million), $27 million of
net experience losses on macro hedges (2013 - $730 million), and $50
million related to the total company offset included in core
investment-related experience. Partially offsetting these losses was
$40 million related to other mark-to-market gains (2013 - $23 million).
Core losses declined by $99 million from 1Q13 reflecting a decrease of
$106 million in the expected cost of macro hedging due to reduced macro
hedging partially offset by lower core earnings of $6 million on the
P&C Reinsurance business primarily reflecting a decrease in volumes.
Premiums and deposits for 1Q14 of $2,187 million increased from $805 million in 1Q13 as a
result of higher deposits from institutional asset management clients.
Funds under management of $41.8 billion as at March 31, 2014 (March 31, 2013 - $32.7 billion)
included record assets managed by Manulife Asset Management on behalf
of institutional clients of $35.8 billion (2013 - $29.9 billion) and
$8.6 billion (2013 - $8.7 billion) of the Company's own funds,
partially offset by a $2.6 billion (2013 - $5.9 billion) total company
adjustment related to the reclassification of derivative positions from
invested assets to other assets and liabilities.
D RISK MANAGEMENT AND RISK FACTORS UPDATE
This section provides an update to our risk management practices and
risk factors outlined in the MD&A in our 2013 Annual Report. The
shaded text and tables in this section of the MD&A represent our
disclosure on market and liquidity risk in accordance with IFRS 7,
"Financial Instruments - Disclosures". Accordingly, the following
shaded text and tables represent an integral part of our unaudited
Interim Consolidated Financial Statements.
D1 Regulatory, actuarial and accounting risks
In April 2014, the Canadian Institute of Actuaries published guidance on
the calibration criteria for fixed income funds with respect to the
valuation of segregated fund guarantees. We plan to update our
calibration criteria to be in alignment with the published guidance as
part of our annual review of actuarial models and assumptions in the
third quarter. The impact is expected to be less than a $100 million
charge to net income20.
In the 2013 Annual Report we noted that we expect the Canadian Actuarial
Standards Board ("ASB") to revise the Standards of Practice related to
economic reinvestment assumptions used in the valuation of policy
liabilities in 2014. Our current understanding is that these revisions
will be published in May 2014. As noted in our 2013 Annual Report, we
do not anticipate the impact on net income in the quarter of
implementation will be significant20. However, the actual impact will vary based on the level of prevailing
interest rates at the time of implementation, changes to the Exposure
Draft between now and the effective date of the new Standards, or
changes to interpretation of the revised Standards. In addition, the
new Standards will impact our net income sensitivities to changes in
interest rates. The impact on our sensitivities could be positive or
negative and the direction will be influenced by the approach we take
to modeling interest rates under the new Standards as well as any risk
management actions taken. It should be noted that although
sensitivities may change, the nature of the risks related to the
business are unchanged.
_______________________
|
20
|
See "Caution regarding forward-looking statements" below.
|
D2 Variable annuity and segregated fund guarantees
As described in the MD&A in our 2013 Annual Report, guarantees on
variable and segregated fund products may include one or more of death,
maturity, income and withdrawal guarantees. Variable annuity and
segregated fund guarantees are contingent and only payable upon the
occurrence of the relevant event, if fund values at that time are below
guaranteed values. Depending on future equity market levels,
liabilities on current in-force business would be due primarily in the
period from 2015 to 2038.
We seek to mitigate a portion of the risks embedded in our retained
(i.e. net of reinsurance) variable annuity and segregated fund
guarantee business through the combination of our dynamic and macro
hedging strategies (see section D4 "Publicly traded equity performance
risk" below).
The table below shows selected information regarding the Company's
variable annuity and segregated fund guarantees gross and net of
reinsurance.
Variable annuity and segregated fund guarantees net of reinsurance
As at
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
(C$ millions)
|
|
|
|
|
Guarantee
value
|
|
|
|
Account
value
|
|
|
Amount
at risk(4)(5)
|
|
|
Guarantee
Value
|
|
|
|
Fund
value
|
|
|
Amount
at risk(4)(5)
|
Guaranteed minimum income benefit(1)
|
|
|
|
$
|
6,225
|
|
$
|
|
5,152
|
|
$
|
1,138
|
|
$
|
6,194
|
|
$
|
|
5,161
|
|
$
|
1,109
|
Guaranteed minimum withdrawal benefit
|
|
|
|
|
67,395
|
|
|
|
65,129
|
|
|
4,083
|
|
|
66,189
|
|
|
|
63,849
|
|
|
4,120
|
Guaranteed minimum accumulation benefit
|
|
|
|
|
17,057
|
|
|
|
20,761
|
|
|
108
|
|
|
16,942
|
|
|
|
20,581
|
|
|
94
|
Gross living benefits(2)
|
|
|
|
$
|
90,677
|
|
$
|
|
91,042
|
|
$
|
5,329
|
|
$
|
89,325
|
|
$
|
|
89,591
|
|
$
|
5,323
|
Gross death benefits(3)
|
|
|
|
|
12,681
|
|
|
|
11,428
|
|
|
1,389
|
|
|
12,490
|
|
|
|
11,230
|
|
|
1,413
|
Total gross of reinsurance
|
|
|
|
$
|
103,358
|
|
$
|
|
102,470
|
|
$
|
6,718
|
|
$
|
101,815
|
|
$
|
|
100,821
|
|
$
|
6,736
|
Living benefits reinsured
|
|
|
|
$
|
5,441
|
|
$
|
|
4,526
|
|
$
|
967
|
|
$
|
5,422
|
|
$
|
|
4,544
|
|
$
|
942
|
Death benefits reinsured
|
|
|
|
|
3,668
|
|
|
|
3,509
|
|
|
570
|
|
|
3,601
|
|
|
|
3,465
|
|
|
564
|
Total reinsured
|
|
|
|
$
|
9,109
|
|
$
|
|
8,035
|
|
$
|
1,537
|
|
$
|
9,023
|
|
$
|
|
8,009
|
|
$
|
1,506
|
Total net of reinsurance
|
|
|
|
$
|
94,249
|
|
$
|
|
94,435
|
|
$
|
5,181
|
|
$
|
92,792
|
|
$
|
|
92,812
|
|
$
|
5,230
|
(1)
|
Contracts with guaranteed long-term care benefits are included in this
category.
|
(2)
|
Where a policy includes both living and death benefits, the guarantee in
excess of the living benefit is included in the death benefit category.
|
(3)
|
Death benefits include stand-alone guarantees and guarantees in excess
of living benefit guarantees where both death and living benefits are
provided on a policy.
|
(4)
|
Amount at risk (in-the-money amount) is the excess of guarantee values
over fund values on all policies where the guarantee value exceeds the
fund value. This amount is not currently payable. For guaranteed
minimum death benefit, the amount at risk is defined as the current
guaranteed minimum death benefit in excess of the current account
balance. For guaranteed minimum income benefit, the amount at risk is
defined as the excess of the current annuitization income base over the
current account value. For all guarantees, the amount at risk is
floored at zero at the single contract level.
|
(5)
|
The amount at risk net of reinsurance at March 31, 2014 was $5,181
million (December 31, 2013 - $5,230 million) of which: US$3,125 million
(December 31, 2013 - US$3,124 million) was on our U.S. business, $998
million (December 31, 2013 - $1,248 million) was on our Canadian
business, US$383 million (December 31, 2013 - US$335 million) was on
our Japan business and US$277 million (December 31, 2013 - US$285
million) was related to Asia (other than Japan) and our run-off
reinsurance business.
|
The amount at risk on variable annuity contracts net of reinsurance was
$5.2 billion at March 31, 2014, the same level as at December 31, 2013.
The policy liabilities established for variable annuity and segregated
fund guarantees were $2,354 million at March 31, 2014 (December 31,
2013 - $1,197 million). For non-dynamically hedged business, policy
liabilities increased from $589 million at December 31, 2013 to $676
million at March 31, 2014. For the dynamically hedged business, the
policy liabilities increased from $608 million at December 31, 2013 to
$1,678 million at March 31, 2014. The increase in the total policy
liabilities for variable annuity and segregated fund guarantees during
the quarter is mainly due to the decrease in equity markets in Japan,
and in the case of dynamically hedged business, is also due to the
decrease in swap rates in North America.
D3 Caution related to sensitivities
In this document, we provide sensitivities and risk exposure measures
for certain risks. These include sensitivities due to specific changes
in market prices and interest rate levels projected using internal
models as at a specific date, and are measured relative to a starting
level reflecting the Company's assets and liabilities at that date and
the actuarial factors, investment activity and investment returns
assumed in the determination of policy liabilities. The risk exposures
measure the impact of changing one factor at a time and assume that all
other factors remain unchanged. Actual results can differ significantly
from these estimates for a variety of reasons including the interaction
among these factors when more than one changes; changes in actuarial
and investment return and future investment activity assumptions;
actual experience differing from the assumptions, changes in business
mix, effective tax rates and other market factors; and the general
limitations of our internal models. For these reasons, the
sensitivities should only be viewed as directional estimates of the
underlying sensitivities for the respective factors based on the
assumptions outlined below. Given the nature of these calculations, we
cannot provide assurance that the actual impact on net income
attributed to shareholders or on MLI's MCCSR ratio will be as
indicated.
D4 Publicly traded equity performance risk
As at March 31, 2014, we estimate that approximately 66% to 83% of our
underlying earnings sensitivity to a 10% decline in equity markets
would be offset by dynamic and macro hedges, compared with 64% to 82%
at December 31, 2013. The upper end of the range assumes the
performance of the dynamic hedging program would completely offset the
loss from the dynamically hedged variable annuity guarantee liabilities
and that the macro hedge assets are re-balanced in line with market
changes. The lower end of the range assumes that there is not a
complete offset due to our practices of not hedging the provisions for
adverse deviation and rebalancing equity hedges in the dynamic program
at 5% market intervals, and that the macro hedge assets are rebalanced
in line with market changes.
As outlined in our 2013 Annual Report, our macro hedging strategy is
designed to mitigate public equity risk arising from variable annuity
guarantees not dynamically hedged and from other products and fees. In
addition, our variable annuity guarantee dynamic hedging strategy is
not designed to completely offset the sensitivity of policy liabilities
to all risks associated with the guarantees embedded in these products
(see pages 48 and 49 of our 2013 Annual Report).
The tables below show the potential impact on net income attributed to
shareholders resulting from an immediate 10, 20 and 30% change in
market values of publicly traded equities followed by a return to the
expected level of growth assumed in the valuation of policy
liabilities. The potential impact is shown after taking into account
the impact of the change in markets on the hedge assets. While we
cannot reliably estimate the amount of the change in dynamically hedged
variable annuity guarantee liabilities that will not be offset by the
profit or loss on the dynamic hedge assets, we make certain assumptions
for the purposes of estimating the impact on shareholders' net income.
The potential impact is shown assuming:
(a)
|
First that the change in value of the hedge assets completely offsets
the change in the dynamically hedged variable annuity guarantee
liabilities including the provisions for adverse deviation; and
|
|
|
(b)
|
Second that the change in value of the dynamically hedged variable
annuity guarantee liabilities is not completely offset, including the
assumption that the provision for adverse deviation is not offset and
that the hedge assets are based on the actual position at the period
end. In addition, we assume that we increase our macro equity hedges in
negative market shock scenarios and reduce macro equity hedges in
positive market shock scenarios.
|
It is also important to note that these estimates are illustrative, and
that the hedging program may underperform these estimates, particularly
during periods of high realized volatility and/or periods where both
interest rates and equity market movements are unfavourable.
Potential impact on net income attributed to shareholders arising from
changes to public equity returns(1)
As at March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ millions)
|
|
|
|
|
-30%
|
|
|
-20%
|
|
|
-10%
|
|
|
|
10%
|
|
|
20%
|
|
|
30%
|
Underlying sensitivity to net income attributed to shareholders(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable annuity guarantees
|
|
|
|
$
|
(4,470)
|
|
$
|
(2,560)
|
|
$
|
(1,050)
|
|
$
|
|
680
|
|
$
|
1,130
|
|
$
|
1,470
|
Asset based fees
|
|
|
|
|
(300)
|
|
|
(200)
|
|
|
(100)
|
|
|
|
100
|
|
|
200
|
|
|
300
|
General fund equity investments(3)
|
|
|
|
|
(530)
|
|
|
(340)
|
|
|
(180)
|
|
|
|
170
|
|
|
350
|
|
|
520
|
Total underlying sensitivity
|
|
|
|
$
|
(5,300)
|
|
$
|
(3,100)
|
|
$
|
(1,330)
|
|
$
|
|
950
|
|
$
|
1,680
|
|
$
|
2,290
|
Impact of hedge assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of macro hedge assets(4)
|
|
|
|
$
|
950
|
|
$
|
520
|
|
$
|
220
|
|
$
|
|
(220)
|
|
$
|
(400)
|
|
$
|
(580)
|
Impact of dynamic hedge assets assuming the change in the value
of the hedge assets completely offsets the change in the dynamically
hedged variable annuity guarantee liabilities(4)
|
|
|
|
|
3,680
|
|
|
2,100
|
|
|
890
|
|
|
|
(590)
|
|
|
(1,020)
|
|
|
(1,320)
|
Total impact of hedge assets assuming the change in value of the dynamic
hedge assets completely offsets the change in the dynamically hedged
variable annuity guarantee liabilities(4)
|
|
|
|
$
|
4,630
|
|
$
|
2,620
|
|
$
|
1,110
|
|
$
|
|
(810)
|
|
$
|
(1,420)
|
|
$
|
(1,900)
|
Net impact assuming the change in the value of the hedged assets
completely offsets the change in the dynamically hedged variable
annuity guarantee liabilities(5)
|
|
|
|
$
|
(670)
|
|
$
|
(480)
|
|
$
|
(220)
|
|
$
|
|
140
|
|
$
|
260
|
|
$
|
390
|
Net impact of assuming that the provisions for adverse deviation
for dynamically hedged liabilities are not offset and that the
hedging program rebalances at 5% market intervals(6)
|
|
|
|
|
(900)
|
|
|
(560)
|
|
|
(230)
|
|
|
|
20
|
|
|
20
|
|
|
30
|
Net impact assuming the change in value of the dynamic hedge assets does
not completely offset the change in the dynamically hedged variable
annuity guarantee liabilities, as described above(6)
|
|
|
|
$
|
(1,570)
|
|
$
|
(1,040)
|
|
$
|
(450)
|
|
$
|
|
160
|
|
$
|
280
|
|
$
|
420
|
Percentage of underlying earnings sensitivity to movements in equity
markets that is offset by hedges if dynamic hedge assets completely
offset the change in the dynamically hedged variable annuity guarantee
liability
|
|
|
|
|
87%
|
|
|
85%
|
|
|
83%
|
|
|
|
85%
|
|
|
85%
|
|
|
83%
|
Percentage of underlying earnings sensitivity to movements in equity
markets that is offset by hedge assets if dynamic hedge assets do not
completely offset the change in the dynamically hedged variable annuity
guarantee liability(6)
|
|
|
|
|
70%
|
|
|
66%
|
|
|
66%
|
|
|
|
83%
|
|
|
83%
|
|
|
82%
|
(1)
|
See "Caution related to sensitivities" above.
|
(2)
|
Defined as earnings sensitivity to a change in public equity markets
including settlements on reinsurance contracts, but before the offset
of hedge assets or other risk mitigants.
|
(3)
|
This impact for general fund equities is calculated as at a
point-in-time and does not include: (i) any potential impact on public
equity weightings; (ii) any gains or losses on public equities held in
the Corporate and Other segment; or (iii) any gains or losses on public
equity investments held in Manulife Bank. The participating policy
funds are largely self-supporting and generate no material impact on
net income attributed to shareholders as a result of changes in equity
markets.
|
(4)
|
Includes the impact of rebalancing equity hedges in the macro hedging
program.
|
(5)
|
Variable annuity guarantee liabilities include the best estimate
liabilities and associated provisions for adverse deviation.
|
(6)
|
Represents the impact of re-balancing equity hedges for dynamically
hedged variable annuity guarantee liabilities at 5% market intervals.
Also represents the impact of changes in markets on provisions for
adverse deviation that are not hedged, but does not include any impact
in respect of other sources of hedge ineffectiveness e.g. fund
tracking, realized volatility and equity, interest rate correlations
different from expected among other factors.
|
Potential impact on net income attributed to shareholders arising from
changes to public equity returns(1)
As at December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ millions)
|
|
|
|
|
-30%
|
|
|
-20%
|
|
|
-10%
|
|
|
|
10%
|
|
|
20%
|
|
|
30%
|
Underlying sensitivity to net income attributed to shareholders(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable annuity guarantees
|
|
|
|
$
|
(4,120)
|
|
$
|
(2,310)
|
|
$
|
(960)
|
|
$
|
|
610
|
|
$
|
1,060
|
|
$
|
1,380
|
Asset based fees
|
|
|
|
|
(310)
|
|
|
(210)
|
|
|
(110)
|
|
|
|
110
|
|
|
210
|
|
|
310
|
General fund equity investments(3)
|
|
|
|
|
(420)
|
|
|
(280)
|
|
|
(130)
|
|
|
|
140
|
|
|
280
|
|
|
430
|
Total underlying sensitivity
|
|
|
|
$
|
(4,850)
|
|
$
|
(2,800)
|
|
$
|
(1,200)
|
|
$
|
|
860
|
|
$
|
1,550
|
|
$
|
2,120
|
Impact of hedge assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of macro hedge assets(4)
|
|
|
|
$
|
1,010
|
|
$
|
510
|
|
$
|
170
|
|
$
|
|
(170)
|
|
$
|
(250)
|
|
$
|
(330)
|
Impact of dynamic hedge assets assuming the change in the value
of the hedge assets completely offsets the change in the dynamically
hedged variable annuity guarantee liabilities(4)
|
|
|
|
|
3,370
|
|
|
1,900
|
|
|
810
|
|
|
|
(550)
|
|
|
(960)
|
|
|
(1,250)
|
Total impact of hedge assets assuming the change in value of the dynamic
hedge assets completely offsets the change in the dynamically hedged
variable annuity guarantee liabilities(4)
|
|
|
|
$
|
4,380
|
|
$
|
2,410
|
|
$
|
980
|
|
$
|
|
(720)
|
|
$
|
(1,210)
|
|
$
|
(1,580)
|
Net impact assuming the change in the value of the hedged assets
completely offsets the change in the dynamically hedged variable
annuity guarantee liabilities(5)
|
|
|
|
$
|
(470)
|
|
$
|
(390)
|
|
$
|
(220)
|
|
$
|
|
140
|
|
$
|
340
|
|
$
|
540
|
Net impact of assuming that the provisions for adverse deviation
for dynamically hedged liabilities are not offset and that the
hedging program rebalances at 5% market intervals(6)
|
|
|
|
|
(870)
|
|
|
(530)
|
|
|
(210)
|
|
|
|
40
|
|
|
50
|
|
|
70
|
Net impact assuming the change in value of the dynamic hedge assets does
not completely offset the change in the dynamically hedged variable
annuity guarantee liabilities, as described above(6)
|
|
|
|
$
|
(1,340)
|
|
$
|
(920)
|
|
$
|
(430)
|
|
$
|
|
180
|
|
$
|
390
|
|
$
|
610
|
Percentage of underlying earnings sensitivity to movements in equity
markets that is offset by hedges if dynamic hedge assets completely
offset the change in the dynamically hedged variable annuity guarantee
liability
|
|
|
|
|
90%
|
|
|
86%
|
|
|
82%
|
|
|
|
84%
|
|
|
78%
|
|
|
75%
|
Percentage of underlying earnings sensitivity to movements in equity
markets that is offset by hedge assets if dynamic hedge assets do not
completely offset the change in the dynamically hedged variable annuity
guarantee liability(6)
|
|
|
|
|
72%
|
|
|
67%
|
|
|
64%
|
|
|
|
79%
|
|
|
75%
|
|
|
71%
|
(1)
|
See "Caution related to sensitivities" above.
|
(2)
|
Defined as earnings sensitivity to a change in public equity markets
including settlements on reinsurance contracts, but before the offset
of hedge assets or other risk mitigants.
|
(3)
|
This impact for general fund equities is calculated as at a
point-in-time and does not include: (i) any potential impact on public
equity weightings; (ii) any gains or losses on public equities held in
the Corporate and Other segment; or (iii) any gains or losses on public
equity investments held in Manulife Bank. The participating policy
funds are largely self-supporting and generate no material impact on
net income attributed to shareholders as a result of changes in equity
markets.
|
(4)
|
Includes the impact of rebalancing equity hedges in the macro hedging
program.
|
(5)
|
Variable annuity guarantee liabilities include the best estimate
liabilities and associated provisions for adverse deviation.
|
(6)
|
Represents the impact of re-balancing equity hedges for dynamically
hedged variable annuity guarantee liabilities at 5% market intervals.
Also represents the impact of changes in markets on provisions for
adverse deviation that are not hedged, but does not include any impact
in respect of other sources of hedge ineffectiveness e.g. fund
tracking, realized volatility and equity, interest rate correlations
different from expected among other factors.
|
Potential impact on MLI's MCCSR ratio arising from public equity returns
different from the expected return for policy liability valuation(1),(2)
|
|
|
|
|
|
|
|
|
|
|
Impact on MLI MCCSR ratio
|
Percentage points
|
|
|
|
|
|
|
|
|
|
|
-30%
|
|
|
-20%
|
|
|
-10%
|
|
|
+10%
|
|
|
+20%
|
|
|
+30%
|
March 31, 2014
|
|
|
|
|
|
|
|
|
|
|
(20)
|
|
|
(11)
|
|
|
(4)
|
|
|
5
|
|
|
18
|
|
|
21
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
(14)
|
|
|
(8)
|
|
|
(4)
|
|
|
13
|
|
|
25
|
|
|
25
|
(1)
|
See "Caution related to sensitivities" above. In addition, estimates
exclude changes to the net actuarial gains/losses with respect to the
Company's pension obligations as a result of changes in equity markets,
as the impact on the quoted sensitivities is not considered to be
material.
|
(2)
|
The potential impact is shown assuming that the change in value of the
hedge assets does not completely offset the change in the dynamically
hedged variable annuity guarantee liabilities. The estimated amount
that would not be completely offset relates to our practices of not
hedging the provisions for adverse deviation and of rebalancing equity
hedges for dynamically hedged variable annuity liabilities at 5% market
intervals.
|
The following table shows the notional value of shorted equity futures
contracts utilized for our variable annuity guarantee dynamic hedging
and our macro equity risk hedging strategies.
As at
(C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
|
|
December 31,
2013
|
For variable annuity guarantee dynamic hedging strategy
|
|
|
|
|
|
|
|
|
$
|
|
|
8,200
|
|
|
$
|
7,500
|
For macro equity risk hedging strategy
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
|
|
2,000
|
Total
|
|
|
|
|
|
|
|
|
$
|
|
|
11,200
|
|
|
$
|
9,500
|
During 1Q14, the derivative notional value in our dynamic hedging
program increased by $0.7 billion due to normal rebalancing activities.
During 1Q14, the equity futures notional value required for the macro
hedging program increased by $1.0 billion as we added net notional to
the macro hedging program in order to maintain the equity market
sensitivity within Board approved limits.
D5 Interest rate and spread risk
At March 31, 2014, we estimated the sensitivity of our net income
attributed to shareholders to a 100 basis point parallel decline in
interest rates to be a charge of $600 million, and to a 100 basis point
increase in interest rates to be a benefit of $100 million. The $200
million increase in sensitivity to a 100 basis point decline in
interest rates from December 31, 2013 was primarily attributable to
interest rate movements in the quarter.
The 100 basis point parallel decline includes a change of 1% in current
government, swap and corporate rates for all maturities across all
markets with no change in credit spreads between government, swap and
corporate rates, and with a floor of zero on government rates and
corporate spreads, relative to the rates assumed in the valuation of
policy liabilities, including embedded derivatives. As the sensitivity
to a 100 basis point change in interest rates includes any associated
change in the applicable prescribed reinvestment scenario, the impact
of changes to interest rates for less than, or more than, the amounts
indicated are unlikely to be linear. Furthermore, the reinvestment
scenario changes tend to amplify the negative effects of a decrease in
interest rates, and dampen the positive effects of an increase in
interest rates. For variable annuity guarantee liabilities that are
dynamically hedged, it is assumed that interest rate hedges are
rebalanced at 20 basis point intervals.
The income impact does not allow for any future potential changes to the
URR assumptions or other potential impacts of lower interest rate
levels, for example, increased strain on the sale of new business or
lower interest earned on our surplus assets. It also does not reflect
potential management actions to realize gains or losses on AFS fixed
income assets held in the surplus segment in order to partially offset
changes in MLI's MCCSR ratio due to changes in interest rate levels.
Potential impact on net income attributed to shareholders and MLI's
MCCSR ratio of an immediate 1% parallel change in interest rates
relative to rates assumed in the valuation of policy liabilities(1),(2),(3),(4)
As at
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
|
|
|
|
|
- 100bp
|
|
|
|
+100bp
|
|
|
- 100bp
|
|
|
|
+100bp
|
Net income attributed to shareholders (C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding change in market value of AFS fixed income assets held in the
surplus segment
|
|
|
|
$
|
(600)
|
|
|
$
|
100
|
|
$
|
(400)
|
|
|
$
|
-
|
From fair value changes in AFS fixed income assets held in surplus, if
realized
|
|
|
|
|
700
|
|
|
|
(700)
|
|
|
600
|
|
|
|
(600)
|
MLI's MCCSR ratio (Percentage points)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before impact of change in market value of AFS fixed income assets held
in the surplus segment(5)
|
|
|
|
|
(16)
|
|
|
|
14
|
|
|
(13)
|
|
|
|
18
|
From fair value changes in AFS assets held in surplus, if realized
|
|
|
|
|
5
|
|
|
|
(5)
|
|
|
4
|
|
|
|
(5)
|
(1)
|
See "Caution related to sensitivities" above. In addition, estimates
exclude changes to the net actuarial gains/losses with respect to the
Company's pension obligations as a result of changes in interest rates,
as the impact on the quoted sensitivities is not considered to be
material.
|
(2)
|
Includes guaranteed insurance and annuity products, including variable
annuity contracts as well as adjustable benefit products where benefits
are generally adjusted as interest rates and investment returns change,
a portion of which have minimum credited rate guarantees. For
adjustable benefit products subject to minimum rate guarantees, the
sensitivities are based on the assumption that credited rates will be
floored at the minimum.
|
(3)
|
The amount of gain or loss that can be realized on AFS fixed income
assets held in the surplus segment will depend on the aggregate amount
of unrealized gain or loss.
|
(4)
|
Sensitivities are based on projected asset and liability cash flows at
the beginning of the quarter adjusted for the estimated impact of new
business, investment markets and asset trading during the quarter. Any
true-up to these estimates, as a result of the final asset and
liability cash flows to be used in the next quarter's projection, are
reflected in the next quarter's sensitivities. Impact of realizing fair
value changes in AFS fixed income assets held in surplus is as of the
end of the quarter.
|
(5)
|
The impact on MLI's MCCSR ratio includes both the impact of the change
in earnings on available capital as well as the change in required
capital that results from a change in interest rates. The potential
increase in required capital accounted for 10 of the 16 point impact of
a 100 bp decline in interest rates on MLI's MCCSR ratio this quarter.
|
The following table shows the potential impact on net income attributed
to shareholders resulting from a change in credit spreads and swap
spreads over government bond rates for all maturities across all
markets with a floor of zero on the total interest rate, relative to
the spreads assumed in the valuation of policy liabilities.
Potential impact on net income attributed to shareholders arising from
changes to corporate spreads and swap spreads(1),(2),(3)
As at
(C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2014
|
|
|
|
December 31,
2013
|
Corporate spreads(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase 50 basis points
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
400
|
|
|
$
|
400
|
|
Decrease 50 basis points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(400)
|
|
|
|
(400)
|
Swap spreads
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase 20 basis points
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
(500)
|
|
|
$
|
(400)
|
|
Decrease 20 basis points
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
400
|
(1)
|
See "Caution related to sensitivities" above.
|
(2)
|
The impact on net income attributed to shareholders assumes no gains or
losses are realized on our AFS fixed income assets held in the surplus
segment and excludes the impact arising from changes in off-balance
sheet bond fund value arising from changes in credit spreads. The
participating policy funds are largely self-supporting and generate no
material impact on net income attributed to shareholders as a result of
changes in corporate and swap spreads.
|
(3)
|
Sensitivities are based on projected asset and liability cash flows at
the beginning of the quarter adjusted for the estimated impact of new
business, investment markets and asset trading during the quarter. Any
true-up to these estimates, as a result of the final asset and
liability cash flows to be used in the next quarter's projection, are
reflected in the next quarter's sensitivities.
|
(4)
|
Corporate spreads are assumed to grade to an expected long-term average
over five years.
|
As the sensitivity to a 50 basis point decline in corporate spreads
includes the impact of a change in prescribed reinvestment scenarios
where applicable, the impact of changes to corporate spreads for less
than, or more than, the amounts indicated are unlikely to be linear.
The potential earnings impact of a 50 basis point decline in corporate
spreads related to the impact of the scenario change was not
significant at March 31, 2014 and was not significant at December 31,
2013.
Alternative Long-Duration Asset Performance Risk
The following table shows the potential impact on net income attributed
to shareholders resulting from changes in market values of alternative
long-duration assets different than the expected levels assumed in the
valuation of policy liabilities.
Potential impact on net income attributed to shareholders arising from
changes in alternative long-duration asset returns(1),(2),(3),(4)
As at
|
|
|
|
|
|
March 31, 2014
|
|
|
December 31, 2013
|
(C$ millions)
|
|
|
|
|
|
|
|
-10%
|
|
|
|
|
+10%
|
|
|
|
|
-10%
|
|
|
|
|
+10%
|
Real estate, agriculture and timber assets
|
|
|
|
|
|
$
|
|
(1,100)
|
|
|
$
|
|
1,100
|
|
|
$
|
|
(1,000)
|
|
|
$
|
|
1,000
|
Private equities and other alternative long-duration assets
|
|
|
|
|
|
|
|
(1,000)
|
|
|
|
|
900
|
|
|
|
|
(900)
|
|
|
|
|
800
|
Alternative long-duration assets
|
|
|
|
|
|
$
|
|
(2,100)
|
|
|
$
|
|
2,000
|
|
|
$
|
|
(1,900)
|
|
|
$
|
|
1,800
|
(1)
|
See "Caution Related to Sensitivities" above.
|
(2)
|
This impact is calculated as at a point-in-time impact and does not
include: (i) any potential impact on alternative long-duration asset
weightings; (ii) any gains or losses on alternative
long-duration assets held in the Corporate and Other segment; or (iii)
any gains or losses on alternative long-duration assets held in
Manulife Bank.
|
(3)
|
The participating policy funds are largely self-supporting and generate
no material impact on net income attributed to shareholders as a result
of changes in alternative long-duration asset returns.
|
(4)
|
Net income impact does not consider any impact of the market correction
on assumed future return assumptions.
|
The increased sensitivity from December 31, 2013 to March 31, 2014 is
primarily related to the impact of the decrease in risk free rates in
some jurisdictions during the period, decreasing the rate at which
funds can be reinvested.
E ACCOUNTING MATTERS AND CONTROLS
E1 Critical accounting and actuarial policies
Our significant accounting policies under IFRS are described in note 1
to our Consolidated Financial Statements for the year ended December
31, 2013. The critical accounting policies and the estimation processes
related to the determination of insurance contract liabilities, fair
values of financial instruments, the application of derivative and
hedge accounting, the determination of pension and other
post-employment benefit obligations and expenses, and accounting for
income taxes and uncertain tax positions are described on pages 67 to
75 of our 2013 Annual Report.
E2 Sensitivity of policy liabilities to updates to assumptions
When the assumptions underlying our determination of policy liabilities
are updated to reflect recent and emerging experience or change in
outlook, the result is a change in the value of policy liabilities
which in turn affects income. The sensitivity of after-tax income to
updates to asset related assumptions underlying policy liabilities is
shown below, assuming that there is a simultaneous update to the
assumption across all business units.
For updates to asset related assumptions, the sensitivity is shown net
of the corresponding impact on income of the change in the value of the
assets supporting policy liabilities. In practice, experience for each
assumption will frequently vary by business and geographic market and
assumption updates are made on a business/geographic specific basis.
Actual results can differ materially from these estimates for a variety
of reasons including the interaction among these factors when more than
one changes; changes in actuarial and investment return and future
investment activity assumptions; actual experience differing from the
assumptions; changes in business mix, effective tax rates and other
market factors; and the general limitations of our internal models.
Most participating business is excluded from this analysis because of
the ability to pass both favourable and adverse experience to the
policyholders through the participating dividend adjustment. As the
estimated potential impact on net income for the next five years and
the following five years from changes in the fixed income URR driven by
changes in risk free rates has not changed materially from that
disclosed in our 2013 Annual Report, it is not shown here.
Potential impact on net income attributed to shareholders arising from
changes to asset related assumptions supporting actuarial liabilities,
excluding the fixed income ultimate reinvestment rate discussed above
C$ millions
|
|
|
|
|
|
Increase (decrease) in after-tax income
|
As at
|
|
|
|
|
|
March 31, 2014
|
|
December 31, 2013
|
Asset related assumptions updated periodically in valuation basis
changes
|
|
|
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
Increase
|
|
|
Decrease
|
100 basis point change in future annual returns for public equities(1)
|
|
|
|
|
|
$
|
400
|
|
$
|
(400)
|
|
$
|
400
|
|
$
|
(400)
|
100 basis point change in future annual returns for alternative
long-duration assets(2)
|
|
|
|
|
|
|
4,200
|
|
|
(4,100)
|
|
|
3,800
|
|
|
(3,700)
|
100 basis point change in equity volatility assumption for stochastic
segregated fund modeling(3)
|
|
|
|
|
|
|
(200)
|
|
|
200
|
|
|
(200)
|
|
|
200
|
(1)
|
The sensitivity to public equity returns above includes the impact on
both segregated fund guarantee reserves and on other policy
liabilities. For a 100 basis point increase in expected growth rates,
the impact from segregated fund guarantee reserves is a $200 million
increase (December 31, 2013 - $200 million increase). For a 100 basis
point decrease in expected growth rates, the impact from segregated
fund guarantee reserves is a $200 million decrease (December 31, 2013 -
$200 million decrease). Expected long-term annual market growth
assumptions for public equities pre-dividends for key markets are based
on long-term historical observed experience and compliance with
actuarial standards. The growth rates for returns in the major markets
used in the stochastic valuation models for valuing segregated fund
guarantees are 7.6% per annum in Canada, 7.6% per annum in the U.S. and
5.2% per annum in Japan. Growth assumptions for European equity funds
are market-specific and vary between 5.8% and 7.85%.
|
(2)
|
Alternative long-duration assets include commercial real estate, timber
and agricultural real estate, oil and gas, and private equities. The
increase of $400 million in sensitivity from December 31, 2013 to March
31, 2014 is primarily related to the impact of the decrease in risk
free rates in some jurisdictions during the period, decreasing the rate
at which funds can be reinvested.
|
(3)
|
Volatility assumptions for public equities are based on long-term
historic observed experience and compliance with actuarial standards.
The resulting volatility assumptions are 17.15% per annum in Canada and
17.15% per annum in the U.S. for large cap public equities, and 19% per
annum in Japan. For European equity funds, the volatility assumptions
vary between 16.15% and 18.4%.
|
E3 Accounting and reporting changes
|
|
|
|
|
|
|
|
|
|
|
|
|
Topic
|
|
|
|
Effective
date
|
|
|
|
Recognition/
Measurement /
Presentation
|
|
|
|
Impact / Expected
impact
|
Changes Adopted
|
|
|
|
|
|
|
|
|
|
|
|
|
IAS 32 "Financial Instruments: Presentation"
|
|
|
|
Jan 1, 2014
|
|
|
|
Presentation
|
|
|
|
Not significant
|
IFRS 10, IFRS 12, and IAS 27 "Investment
Entities"
|
|
|
|
Jan 1, 2014
|
|
|
|
Measurement
|
|
|
|
Not significant
|
IFRIC 21 "Levies"
|
|
|
|
Jan 1, 2014
|
|
|
|
Recognition
|
|
|
|
Not significant
|
IAS 39 "Financial Instruments: Recognition
and Measurement"
|
|
|
|
Jan 1, 2014
|
|
|
|
Recognition and
Measurement
|
|
|
|
Not significant
|
Future Accounting Changes
|
|
|
|
|
|
|
|
|
|
|
|
|
IFRS 9 "Financial Instruments"
|
|
|
|
Jan 1, 2018
|
|
|
|
Measurement
|
|
|
|
Currently assessing
|
E4 U.S. GAAP results
Net income attributed to shareholders in accordance with U.S. GAAP21 for the first quarter of 2014 was $2,161 million, compared with net
income attributed to shareholders of $818 million under IFRS. The net
income in accordance with U.S. GAAP in 1Q14 included $854 million of
gains related to the dedesignation of interest rate derivatives in
hedge accounting supporting our general fund liabilities and $243
million of gains with respect to our variable annuity business and
macro hedges. The U.S. GAAP gains on derivatives did not impact our
IFRS results as under IFRS, realized gains and losses on derivatives
supporting our policy liabilities also impact the measurement of
liabilities. In addition, under U.S. GAAP, not all of the variable
annuity business is accounted for on a mark-to-market basis and
therefore, when markets are unfavourable, the gains on dynamic and
macro hedges exceed the increase in variable annuity policy liabilities
and other equity exposures.
As we are no longer reconciling our financial results under IFRS and
U.S. GAAP within our Consolidated Financial Statements, net income
attributed to shareholders in accordance with U.S. GAAP is considered a
non-GAAP financial measure. The reconciliation of the major differences
between net income attributed to shareholders in accordance with IFRS
and the net income attributed to shareholders in accordance with U.S.
GAAP for 1Q14 follows, with major differences expanded upon below:
__________________________
|
21
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
For the quarters ended March 31,
|
|
|
|
|
|
Quarterly Results
|
(C$ millions, unaudited)
|
|
|
|
|
|
|
|
2014
|
|
|
|
|
2013
|
Net income attributed to shareholders in accordance with IFRS
|
|
|
|
|
|
$
|
|
818
|
|
|
$
|
|
540
|
Key earnings differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable annuity guarantee liabilities and related dynamic hedges(1)
|
|
|
|
|
|
$
|
|
342
|
|
|
$
|
|
(784)
|
Impact of mark-to-market accounting and investing activities on
investment
income and policy liabilities(2)
|
|
|
|
|
|
|
|
402
|
|
|
|
|
(111)
|
Impact of hedge accounting dedesignation under U.S. GAAP(3)
|
|
|
|
|
|
|
|
854
|
|
|
|
|
-
|
New business differences including acquisition costs(4)
|
|
|
|
|
|
|
|
(211)
|
|
|
|
|
(188)
|
Changes in actuarial methods and assumptions(5)
|
|
|
|
|
|
|
|
41
|
|
|
|
|
79
|
Other differences
|
|
|
|
|
|
|
|
(85)
|
|
|
|
|
119
|
Total earnings differences
|
|
|
|
|
|
$
|
|
1,343
|
|
|
$
|
|
(885)
|
Net income (loss) attributed to shareholders in accordance with U.S.
GAAP
|
|
|
|
|
|
$
|
|
2,161
|
|
|
$
|
|
(345)
|
(1)
|
IFRS follows a predominantly "mark-to-market" accounting approach to
measure variable annuity guarantee liabilities while U.S. GAAP only
uses "mark-to-market" accounting for certain benefit guarantees. The
U.S. GAAP accounting results in an accounting mismatch between the
hedge assets supporting the dynamically hedged guarantees and the
guarantees not accounted for on a mark-to-market basis. Another
difference is that U.S. GAAP reflects the Company's own credit standing
in the measurement of the liability. In 1Q14, we reported a net gain of
$312 million (2013 - $74 million) in our total variable annuity
businesses under U.S. GAAP compared with a charge of $30 million under
IFRS (2013 - gain of $858 million). Under both accounting bases we
reported charges on our macro hedging program of $69 million in 1Q14
(2013 - $878 million).
|
(2)
|
Under IFRS, accumulated unrealized gains and losses arising from fixed
income investments and interest rate derivatives supporting policy
liabilities are largely offset in the valuation of the policy
liabilities. The 1Q14 IFRS impacts of fixed income reinvestment
assumptions, general fund equity investments, fixed income and
alternative long-duration asset investing totaled a net gain of $242
million (2013 - net charge of $88 million) compared with U.S. GAAP net
realized gains and other investment-related gains of $644 million (2013
- losses of $199 million), excluding the transition impact on the new
hedge accounting program under U.S. GAAP.
|
(3)
|
During 1Q14, the Company transitioned to a new interest rate risk hedge
accounting program under U.S. GAAP whereby interest rate risk
derivatives previously in a cash flow hedge accounting relationship
were dedesignated resulting in the gains in earnings. These gains did
not impact IFRS earnings.
|
(4)
|
Acquisition costs that are related to and vary with the production of
new business are explicitly deferred and amortized under U.S. GAAP but
are recognized as an implicit reduction in insurance liabilities along
with other new business gains and losses under IFRS.
|
(5)
|
The charge recognized under IFRS from changes in actuarial methods and
assumptions of $40 million in 1Q14 (2013 - $69 million) compared to a
gain of $1 million (2013 - gain of $10 million) on a U.S. GAAP basis.
|
Total equity in accordance with U.S. GAAP22 as at March 31, 2014 was approximately $11 billion higher than under
IFRS. Of this difference, approximately $7 billion was attributable to
the higher cumulative net income on a U.S. GAAP basis. The remaining
difference was primarily attributable to the recording of net
unrealized gains on fixed income investments and derivatives in a cash
flow hedging relationship in accumulated other comprehensive income
under U.S. GAAP partially offset by the impact of currency translation
on net foreign operations.
__________________________
|
22
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
F OTHER
F1 Performance and Non-GAAP Measures
We use a number of non-GAAP financial measures to measure overall
performance and to assess each of our businesses. A financial measure
is considered a non-GAAP measure for Canadian securities law purposes
if it is presented other than in accordance with generally accepted
accounting principles used for the Company's audited financial
statements. Non-GAAP measures include: Core Earnings; Net Income
Attributed to Shareholders in Accordance with U.S. GAAP; Total Equity
in Accordance with U.S. GAAP; Core ROE; Diluted Core Earnings Per
Common Share; Constant Currency Basis; Premiums and Deposits; Funds
under Management; Capital; New Business Embedded Value and Sales.
Non-GAAP financial measures are not defined terms under GAAP and,
therefore, with the exception of Net Income Attributed to Shareholders
in Accordance with U.S. GAAP and Total Equity in Accordance with U.S.
GAAP (which are comparable to the equivalent measures of issuers whose
financial statements are prepared in accordance with U.S. GAAP), are
unlikely to be comparable to similar terms used by other issuers.
Therefore, they should not be considered in isolation or as a
substitute for any other financial information prepared in accordance
with GAAP.
Core earnings (losses) is a non-GAAP measure which we use to better understand the long-term
earnings capacity and valuation of the business. Core earnings excludes
the direct impact of changes in equity markets and interest rates as
well as a number of other items, outlined below, that are considered
material and exceptional in nature. While this metric is relevant to
how we manage our business and offers a consistent methodology, it is
not insulated from macro-economic factors, which can have a significant
impact.
Any future changes to the core earnings definition referred to below,
will be disclosed.
Items that are included in core earnings are:
-
Expected earnings on in-force, including expected release of provisions
for adverse deviation, fee income, margins on group business and spread
business such as Manulife Bank and asset fund management.
-
Macro hedging costs based on expected market returns.
-
New business strain.
-
Policyholder experience gains or losses.
-
Acquisition and operating expenses compared to expense assumptions used
in the measurement of insurance and investment contract liabilities.
-
Up to $200 million of favourable investment-related experience reported
in a single year which is referred to as "core investment gains".
-
Earnings on surplus other than mark-to-market items. Gains on
available-for-sale ("AFS") equities and seed money investments are
included in core earnings.
-
Routine or non-material legal settlements.
-
All other items not specifically excluded.
-
Tax on the above items.
-
All tax related items except the impact of enacted or substantially
enacted income tax rate changes.
Items excluded from core earnings are:
-
The direct impact of equity markets and interest rates, consisting of:
-
Gains (charges) on variable annuity guarantee liabilities not
dynamically hedged.
-
Gains (charges) on general fund equity investments supporting insurance
and investment contract liabilities and on fee income.
-
Gains (charges) on macro equity hedges relative to expected costs. The
expected cost of macro hedges is calculated using the equity
assumptions used in the valuation of insurance and investment contract
liabilities.
-
Gains (charges) on higher (lower) fixed income reinvestment rates
assumed in the valuation of insurance and investment contract
liabilities, including the impact on the fixed income ultimate
reinvestment rate ("URR").
-
Gains (charges) on sale of AFS bonds and open derivatives not in hedging
relationships in the Corporate and Other segment.
The earnings impact of the difference between the net increase
(decrease) in variable annuity liabilities that are dynamically hedged
and the performance of the related hedge assets. Our variable annuity
dynamic hedging strategy is not designed to completely offset the
sensitivity of insurance and investment contract liabilities to all
risks or measurements associated with the guarantees embedded in these
products for a number of reasons, including: provisions for adverse
deviation, fund performance, the portion of the interest rate risk that
is not dynamically hedged, realized equity and interest rate
volatilities and changes to policyholder behaviour.
Net favourable investment-related experience in excess of $200 million
per annum or net unfavourable investment-related experience on a
year-to-date basis. Investment-related experience relates to fixed
income trading, alternative long-duration asset returns, credit
experience and asset mix changes. This favourable and unfavourable
investment-related experience is a combination of reported investment
experience as well as the impact of investing activities on the
measurement of our insurance and investment contract liabilities. The
maximum of $200 million per annum to be reported in core earnings
compares with an average of over $80 million per quarter of favourable
investment-related experience reported since first quarter 2007.
Mark-to-market gains or losses on assets held in the Corporate and Other
segment other than gains on AFS equities and seed money investments in
new segregated or mutual funds.
Changes in actuarial methods and assumptions, excluding URR.
The impact on the measurement of insurance and investment contract
liabilities of changes in product features or new reinsurance
transactions, if material.
Goodwill impairment charges.
Gains or losses on disposition of a business.
Material one-time only adjustments, including highly
unusual/extraordinary and material legal settlements or other items
that are material and exceptional in nature.
Tax on the above items.
Impact of enacted or substantially enacted income tax rate changes.
The following tables summarize for the past eight quarters core earnings
and net income (loss) attributed to shareholders.
Total Company
|
|
|
|
Quarterly Results
|
(C$ millions, unaudited)
|
|
|
|
|
|
1Q
|
|
|
|
4Q
|
|
|
|
3Q
|
|
|
|
2Q
|
|
|
|
1Q
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
|
|
|
|
2014
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
2012(1)
|
|
|
2012(1)
|
|
|
2012(1)
|
Core earnings (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Division
|
|
|
|
$
|
|
244
|
|
$
|
|
227
|
|
$
|
|
242
|
|
$
|
|
226
|
|
$
|
|
226
|
|
$
|
180
|
|
$
|
230
|
|
$
|
286
|
Canadian Division
|
|
|
|
|
|
228
|
|
|
|
233
|
|
|
|
268
|
|
|
|
225
|
|
|
|
179
|
|
|
233
|
|
|
229
|
|
|
201
|
U.S. Division
|
|
|
|
|
|
374
|
|
|
|
366
|
|
|
|
361
|
|
|
|
343
|
|
|
|
440
|
|
|
293
|
|
|
288
|
|
|
247
|
Corporate and Other (excluding expected cost of macro hedges and core
investment gains)
|
|
|
|
|
|
(135)
|
|
|
|
(138)
|
|
|
|
(135)
|
|
|
|
(105)
|
|
|
|
(128)
|
|
|
(62)
|
|
|
(103)
|
|
|
(67)
|
Expected cost of macro hedges
|
|
|
|
|
|
(42)
|
|
|
|
(53)
|
|
|
|
(84)
|
|
|
|
(128)
|
|
|
|
(148)
|
|
|
(140)
|
|
|
(124)
|
|
|
(118)
|
Investment-related experience included in core earnings
|
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
52
|
|
|
|
48
|
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
50
|
Total core earnings
|
|
|
|
$
|
|
719
|
|
$
|
|
685
|
|
$
|
|
704
|
|
$
|
|
609
|
|
$
|
|
619
|
|
$
|
554
|
|
$
|
570
|
|
$
|
599
|
Investment-related experience in excess of
amounts included in core earnings
|
|
|
|
|
|
225
|
|
|
|
215
|
|
|
|
491
|
|
|
|
(97)
|
|
|
|
97
|
|
|
321
|
|
|
365
|
|
|
54
|
Core earnings plus investment-related experience in excess of amounts
included in core earnings
|
|
|
|
$
|
|
944
|
|
$
|
|
900
|
|
$
|
|
1,195
|
|
$
|
|
512
|
|
$
|
|
716
|
|
$
|
875
|
|
$
|
935
|
|
$
|
653
|
Other items to reconcile core earnings to net income (loss) attributed
to shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities that are
dynamically hedged
|
|
|
|
|
|
(90)
|
|
|
|
(81)
|
|
|
|
94
|
|
|
|
(242)
|
|
|
|
(107)
|
|
|
82
|
|
|
34
|
|
|
(996)
|
|
Impact of in-force product changes and recapture of reinsurance treaties
|
|
|
|
|
|
-
|
|
|
|
261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
26
|
|
|
112
|
|
Change in actuarial methods and assumptions, excluding URR
|
|
|
|
|
|
(40)
|
|
|
|
(133)
|
|
|
|
(252)
|
|
|
|
(35)
|
|
|
|
(69)
|
|
|
(87)
|
|
|
(1,006)
|
|
|
-
|
|
Goodwill impairment charge
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
(200)
|
|
|
-
|
|
Disposition of Taiwan insurance business in 2013(2)
|
|
|
|
|
|
-
|
|
|
|
350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(50)
|
|
Tax items and restructuring charge related to organizational design
|
|
|
|
|
|
4
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
24
|
|
|
|
-
|
|
|
207
|
|
|
-
|
|
|
-
|
Net income (loss) attributed to shareholders
|
|
|
|
$
|
|
818
|
|
$
|
|
1,297
|
|
$
|
|
1,034
|
|
$
|
|
259
|
|
$
|
|
540
|
|
$
|
1,077
|
|
$
|
(211)
|
|
$
|
(281)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity market and interest rates and variable annuity
guarantee liabilities that are dynamically hedged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable annuity guarantee liabilities that are dynamically hedged
|
|
|
|
$
|
|
2
|
|
$
|
|
101
|
|
$
|
|
160
|
|
$
|
|
30
|
|
$
|
|
101
|
|
$
|
100
|
|
$
|
122
|
|
$
|
(269)
|
Gains (charges) on variable annuity liabilities that are not dynamically
hedged
|
|
|
|
|
|
(32)
|
|
|
|
155
|
|
|
|
306
|
|
|
|
75
|
|
|
|
757
|
|
|
556
|
|
|
298
|
|
|
(758)
|
Gains (charges) on general fund equity investments supporting policy
liabilities and on fee income
|
|
|
|
|
|
(14)
|
|
|
|
81
|
|
|
|
85
|
|
|
|
(70)
|
|
|
|
115
|
|
|
48
|
|
|
55
|
|
|
(116)
|
Gains (charges) on macro equity hedges relative to expected costs
|
|
|
|
|
|
(27)
|
|
|
|
(232)
|
|
|
|
(245)
|
|
|
|
(231)
|
|
|
|
(730)
|
|
|
(292)
|
|
|
(86)
|
|
|
423
|
Gains (charges) on higher (lower) fixed income reinvestment rates
assumed in the valuation of policy liabilities
|
|
|
|
|
|
9
|
|
|
|
(105)
|
|
|
|
(77)
|
|
|
|
151
|
|
|
|
(245)
|
|
|
(290)
|
|
|
(330)
|
|
|
305
|
Gains (charges) on sale of AFS bonds and derivative positions in the
Corporate segment
|
|
|
|
|
|
(3)
|
|
|
|
(55)
|
|
|
|
(72)
|
|
|
|
(127)
|
|
|
|
(8)
|
|
|
(40)
|
|
|
(25)
|
|
|
96
|
Charges due to lower fixed income URR assumptions used in the valuation
of policy liabilities
|
|
|
|
|
|
(25)
|
|
|
|
(26)
|
|
|
|
(63)
|
|
|
|
(70)
|
|
|
|
(97)
|
|
|
-
|
|
|
-
|
|
|
(677)
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities that are dynamically hedged
|
|
|
|
$
|
|
(90)
|
|
$
|
|
(81)
|
|
$
|
|
94
|
|
$
|
|
(242)
|
|
$
|
|
(107)
|
|
$
|
82
|
|
$
|
34
|
|
$
|
(996)
|
(1)
|
The 2012 results were restated to reflect the retrospective application
of new IFRS accounting standards effective January 1, 2013. For a
detailed description of the change see note 2 to our 2013 Annual
Consolidated Financial Statements.
|
(2)
|
The $50 million charge in 2012 represents closing adjustments to the
2011 disposition of our Life Retrocession business.
|
Asia Division
|
|
|
|
Quarterly Results
|
(C$ millions, unaudited)
|
|
|
|
|
|
1Q
|
|
|
|
4Q
|
|
|
|
3Q
|
|
|
|
2Q
|
|
|
|
1Q
|
|
|
|
4Q
|
|
|
|
3Q
|
|
|
2Q
|
|
|
|
|
|
|
2014
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2012
|
|
|
2012
|
Asia Division core earnings
|
|
|
|
$
|
|
244
|
|
$
|
|
227
|
|
$
|
|
242
|
|
$
|
|
226
|
|
$
|
|
226
|
|
$
|
|
180
|
|
$
|
|
230
|
|
$
|
286
|
Investment-related experience in excess of amounts included in core
earnings
|
|
|
|
|
|
19
|
|
|
|
(5)
|
|
|
|
(4)
|
|
|
|
(18)
|
|
|
|
43
|
|
|
|
33
|
|
|
|
12
|
|
|
28
|
Core earnings plus investment-related experience in excess of amounts
included in core earnings
|
|
|
|
$
|
|
263
|
|
$
|
|
222
|
|
$
|
|
238
|
|
$
|
|
208
|
|
$
|
|
269
|
|
$
|
|
213
|
|
$
|
|
242
|
|
$
|
314
|
Other items to reconcile core earnings to net income (loss) attributable
to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities that are dynamically hedged
|
|
|
|
|
|
(25)
|
|
|
|
85
|
|
|
|
242
|
|
|
|
178
|
|
|
|
659
|
|
|
|
469
|
|
|
|
249
|
|
|
(629)
|
|
Recapture of reinsurance treaty
|
|
|
|
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Disposition of Taiwan insurance business
|
|
|
|
|
|
-
|
|
|
|
350
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Tax gains due to rate changes
|
|
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
Net income (loss) attributed to shareholders
|
|
|
|
$
|
|
242
|
|
$
|
|
725
|
|
$
|
|
480
|
|
$
|
|
386
|
|
$
|
|
928
|
|
$
|
|
682
|
|
$
|
|
491
|
|
$
|
(315)
|
Canadian Division
|
|
|
|
Quarterly Results
|
(C$ millions, unaudited)
|
|
|
|
|
|
1Q
|
|
|
|
4Q
|
|
|
|
3Q
|
|
|
|
2Q
|
|
|
|
1Q
|
|
|
|
4Q
|
|
|
|
3Q
|
|
|
|
2Q
|
|
|
|
|
|
|
2014
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2012
|
|
|
|
2012
|
|
|
|
2012
|
Canadian Division core earnings
|
|
|
|
$
|
|
228
|
|
$
|
|
233
|
|
$
|
|
268
|
|
$
|
|
225
|
|
$
|
|
179
|
|
$
|
|
233
|
|
$
|
|
229
|
|
$
|
|
201
|
Investment-related experience in excess of amounts included in core
earnings
|
|
|
|
|
|
135
|
|
|
|
106
|
|
|
|
135
|
|
|
|
(88)
|
|
|
|
(187)
|
|
|
|
(31)
|
|
|
|
20
|
|
|
|
(115)
|
Core earnings plus investment-related experience in excess of amounts
included in core earnings
|
|
|
|
$
|
|
363
|
|
$
|
|
339
|
|
$
|
|
403
|
|
$
|
|
137
|
|
$
|
|
(8)
|
|
$
|
|
202
|
|
$
|
|
249
|
|
$
|
|
86
|
Other items to reconcile core earnings to net income (loss) attributable
to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities that are dynamically hedged
|
|
|
|
|
|
14
|
|
|
|
34
|
|
|
|
14
|
|
|
|
(34)
|
|
|
|
(54)
|
|
|
|
49
|
|
|
|
129
|
|
|
|
-
|
|
Recapture of reinsurance treaty and impact of tax related changes
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
137
|
Net income (loss) attributed to shareholders
|
|
|
|
$
|
|
377
|
|
$
|
|
373
|
|
$
|
|
414
|
|
$
|
|
103
|
|
$
|
|
(62)
|
|
$
|
|
251
|
|
$
|
|
378
|
|
$
|
|
223
|
U.S. Division
|
|
|
|
Quarterly Results
|
(C$ millions, unaudited)
|
|
|
|
|
|
1Q
|
|
|
|
4Q
|
|
|
|
3Q
|
|
|
|
2Q
|
|
|
|
1Q
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
|
|
|
|
2014
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
2012(1)
|
|
|
2012(1)
|
|
|
2012(1)
|
U.S. Division core earnings
|
|
|
|
$
|
|
374
|
|
$
|
|
366
|
|
$
|
|
361
|
|
$
|
|
343
|
|
$
|
|
440
|
|
$
|
293
|
|
$
|
288
|
|
$
|
247
|
Investment-related experience in excess of amounts included in core
earnings
|
|
|
|
|
|
111
|
|
|
|
161
|
|
|
|
404
|
|
|
|
65
|
|
|
|
263
|
|
|
367
|
|
|
348
|
|
|
156
|
Core earnings plus investment-related experience in excess of amounts
included in core earnings
|
|
|
|
$
|
|
485
|
|
$
|
|
527
|
|
$
|
|
765
|
|
$
|
|
408
|
|
$
|
|
703
|
|
$
|
660
|
|
$
|
636
|
|
$
|
403
|
Other items to reconcile core earnings to net income (loss) attributable
to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities that are dynamically hedged
|
|
|
|
|
|
(82)
|
|
|
|
105
|
|
|
|
163
|
|
|
|
21
|
|
|
|
23
|
|
|
(104)
|
|
|
(224)
|
|
|
(199)
|
|
Impact of in-force product changes and recapture of reinsurance treaties
|
|
|
|
|
|
-
|
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
26
|
|
|
(25)
|
|
Tax items
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
170
|
|
|
-
|
|
|
-
|
Net income attributed to shareholders
|
|
|
|
$
|
|
403
|
|
$
|
|
825
|
|
$
|
|
928
|
|
$
|
|
429
|
|
$
|
|
726
|
|
$
|
726
|
|
$
|
438
|
|
$
|
179
|
(1)
|
The 2012 results were restated to reflect the retrospective application
of new IFRS accounting standards effective January 1, 2013. For a
detailed description of the change see note 2 to our 2013 Annual
Consolidated Financial Statements.
|
Corporate and Other
|
|
|
Quarterly Results
|
(C$ millions, unaudited)
|
|
|
|
|
1Q
|
|
|
|
4Q
|
|
|
|
3Q
|
|
|
|
2Q
|
|
|
1Q
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
|
|
|
2014
|
|
|
|
2013
|
|
|
|
2013
|
|
|
|
2013
|
|
|
2013
|
|
|
2012(1)
|
|
|
2012(1)
|
|
|
2012(1)
|
Corporate and Other core losses (excluding expected cost of macro hedges
and core investment gains)
|
|
|
$
|
|
(135)
|
|
$
|
|
(138)
|
|
$
|
|
(135)
|
|
$
|
|
(105)
|
|
$
|
(128)
|
|
$
|
(62)
|
|
$
|
(103)
|
|
$
|
(67)
|
Expected cost of macro hedges
|
|
|
|
|
(42)
|
|
|
|
(53)
|
|
|
|
(84)
|
|
|
|
(128)
|
|
|
(148)
|
|
|
(140)
|
|
|
(124)
|
|
|
(118)
|
Investment-related experience included in core earnings
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
52
|
|
|
|
48
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
50
|
Total core losses
|
|
|
$
|
|
(127)
|
|
$
|
|
(141)
|
|
$
|
|
(167)
|
|
$
|
|
(185)
|
|
$
|
(226)
|
|
$
|
(152)
|
|
$
|
(177)
|
|
$
|
(135)
|
Investment-related experience in excess of amounts included in core
earnings
|
|
|
|
|
(40)
|
|
|
|
(47)
|
|
|
|
(44)
|
|
|
|
(56)
|
|
|
(22)
|
|
|
(48)
|
|
|
(15)
|
|
|
(15)
|
Core losses plus investment-related experience in excess of amounts
included in core earnings
|
|
|
$
|
|
(167)
|
|
$
|
|
(188)
|
|
$
|
|
(211)
|
|
$
|
|
(241)
|
|
$
|
(248)
|
|
$
|
(200)
|
|
$
|
(192)
|
|
$
|
(150)
|
Other items to reconcile core earnings to net income (loss) attributed
to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates
|
|
|
|
|
3
|
|
|
|
(305)
|
|
|
|
(325)
|
|
|
|
(407)
|
|
|
(735)
|
|
|
(332)
|
|
|
(120)
|
|
|
(168)
|
|
Changes in actuarial methods and assumptions, excluding URR
|
|
|
|
|
(40)
|
|
|
|
(133)
|
|
|
|
(252)
|
|
|
|
(35)
|
|
|
(69)
|
|
|
(87)
|
|
|
(1,006)
|
|
|
-
|
|
Goodwill impairment charge
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(200)
|
|
|
-
|
|
Closing adjustments on 2011 disposition of Life Retrocession Business
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(50)
|
|
Tax items and restructuring charge related to organizational design
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24
|
|
|
-
|
|
|
37
|
|
|
-
|
|
|
-
|
Net loss attributed to shareholders
|
|
|
$
|
|
(204)
|
|
$
|
|
(626)
|
|
$
|
|
(788)
|
|
$
|
|
(659)
|
|
$
|
(1,052)
|
|
$
|
(582)
|
|
$
|
(1,518)
|
|
$
|
(368)
|
(1)
|
The 2012 results were restated to reflect the retrospective application
of new IFRS accounting standards effective January 1, 2013. For a
detailed description of the change see note 2 to our 2013 Annual
Consolidated Financial Statements.
|
Net income (loss) attributed to shareholders in accordance with U.S.
GAAP is a non-GAAP profitability measure. It shows what the net income would
have been if the Company had applied U.S. GAAP as its primary financial
reporting basis. We consider this to be a relevant profitability
measure given our large U.S. domiciled investor base and for
comparability to our U.S. peers who report under U.S. GAAP.
Total equity in accordance with U.S. GAAP is a non-GAAP measure. It shows what the total equity would have been if
the Company had applied U.S. GAAP as its primary financial reporting
basis. We consider this to be a relevant measure given our large U.S.
domiciled investor base and for comparability to our U.S. peers who
report under U.S. GAAP.
Core return on common shareholders' equity ("Core ROE") is a non-GAAP profitability measure that presents core
earnings available to common shareholders as a percentage of the
capital deployed to earn the core earnings. The Company calculates Core
ROE using average common shareholders' equity.
Diluted core earnings per common share is core earnings available to common shareholders expressed per diluted
weighted average common share outstanding.
The Company also uses financial performance measures that are prepared
on a constant currency basis, which exclude the impact of currency fluctuations and which are
non-GAAP measures. Quarterly amounts stated on a constant currency
basis in this report are calculated, as appropriate, using the income
statement and balance sheet exchange rates effective for the first
quarter of 2014.
Premiums and deposits is a non-GAAP measure of top line growth. The Company calculates
premiums and deposits as the aggregate of (i) general fund premiums,
net of reinsurance, reported as premiums on the Consolidated Statements
of Income, (ii) segregated fund deposits, excluding seed money,
("deposits from policyholders"), (iii) investment contract deposits,
(iv) mutual fund deposits, (v) deposits into institutional advisory
accounts, (vi) premium equivalents for "administration services only"
group benefit contracts ("ASO premium equivalents"), (vii) premiums in
the Canadian Group Benefits reinsurance ceded agreement, and (viii)
other deposits in other managed funds.
Premiums and deposits
|
Quarterly Results
|
(C$ millions)
|
|
1Q 2014
|
|
4Q 2013
|
|
1Q 2013
|
Net premium income
|
$
|
4,161
|
$
|
4,548
|
$
|
4,417
|
Deposits from policyholders
|
|
6,776
|
|
5,756
|
|
6,466
|
Premiums and deposits per financial statements
|
$
|
10,937
|
$
|
10,304
|
$
|
10,883
|
Investment contract deposits
|
|
16
|
|
15
|
|
19
|
Mutual fund deposits
|
|
10,440
|
|
8,400
|
|
8,834
|
Institutional advisory account deposits
|
|
2,167
|
|
957
|
|
782
|
ASO premium equivalents
|
|
764
|
|
746
|
|
710
|
Group benefits ceded premiums
|
|
984
|
|
1,000
|
|
996
|
Other fund deposits
|
|
128
|
|
114
|
|
109
|
Total premiums and deposits
|
$
|
25,436
|
$
|
21,536
|
$
|
22,333
|
Currency impact
|
|
-
|
|
788
|
|
1,340
|
Constant currency premiums and deposits
|
$
|
25,436
|
$
|
22,324
|
$
|
23,673
|
Funds under management is a non-GAAP measure of the size of the Company. It represents the
total of the invested asset base that the Company and its customers
invest in.
Funds under management
|
|
|
|
As at
|
Quarterly Results
|
(C$ millions)
|
|
March 31,
2014
|
|
Dec 31,
2013
|
|
March 31,
2013
|
Total invested assets
|
$
|
244,970
|
$
|
232,709
|
$
|
229,868
|
Segregated funds net assets
|
|
249,724
|
|
239,871
|
|
220,854
|
Funds under management per financial statements
|
$
|
494,694
|
$
|
472,580
|
$
|
450,722
|
Mutual funds
|
|
101,093
|
|
91,118
|
|
68,996
|
Institutional advisory accounts (excluding segregated funds)
|
|
33,505
|
|
30,284
|
|
27,736
|
Other funds
|
|
5,666
|
|
4,951
|
|
7,774
|
Total funds under management
|
$
|
634,958
|
$
|
598,933
|
$
|
555,228
|
Currency impact
|
|
-
|
|
18,142
|
|
32,852
|
Constant currency funds under management
|
$
|
634,958
|
$
|
617,075
|
$
|
588,080
|
Capital The definition we use for capital, a non-GAAP measure, serves as a
foundation of our capital management activities at the MFC level. For
regulatory reporting purposes, the numbers are further adjusted for
various additions or deductions to capital as mandated by the
guidelines used by OSFI. Capital is calculated as the sum of (i) total
equity excluding accumulated other comprehensive income ("AOCI") on
cash flow hedges and (ii) liabilities for preferred shares and capital
instruments.
Capital
|
|
|
|
As at
|
Quarterly Results
|
(C$ millions)
|
|
March 31,
2014
|
|
Dec 31,
2013
|
|
March 31,
2013
|
Total equity
|
$
|
31,187
|
$
|
29,033
|
$
|
25,791
|
Add AOCI loss on cash flow hedges
|
|
139
|
|
84
|
|
177
|
Add liabilities for preferred shares and capital instruments
|
|
4,902
|
|
4,385
|
|
4,113
|
Total capital
|
$
|
36,228
|
$
|
33,502
|
$
|
30,081
|
New business embedded value ("NBEV") is the change in shareholders' economic value as a result of
sales in the reporting period. NBEV is calculated as the present value
of expected future earnings, after the cost of capital, on actual new
business sold in the period using future mortality, morbidity,
policyholder behaviour, expense and investment assumptions that are
consistent with the assumptions used in the valuation of our policy
liabilities.
The principal economic assumptions used in the NBEV calculations in 1Q14
were as follows:
|
|
Canada
|
|
U.S.
|
|
Hong Kong
|
|
Japan
|
MCCSR ratio
|
|
150%
|
|
150%
|
|
150%
|
|
150%
|
Discount rate
|
|
8.25%
|
|
8.50%
|
|
9.00%
|
|
6.25%
|
Jurisdictional income tax rate
|
|
26.5%
|
|
35%
|
|
16.5%
|
|
31%
|
Foreign exchange rate
|
|
n/a
|
|
1.103109
|
|
0.142165
|
|
0.010733
|
Yield on surplus assets
|
|
4.50%
|
|
4.50%
|
|
4.50%
|
|
2.00%
|
Sales are measured according to product type:
For total individual insurance, sales include 100% of new annualized
premiums and 10% of both excess and single premiums. For individual
insurance, new annualized premiums reflect the annualized premium
expected in the first year of a policy that requires premium payments
for more than one year. Sales are reported gross before the impact of
reinsurance. Single premium is the lump sum premium from the sale of a
single premium product, e.g., travel insurance.
For group insurance, sales include new annualized premiums and
administrative services only premium equivalents on new cases, as well
as the addition of new coverages and amendments to contracts, excluding
rate increases.
For individual wealth management contracts, all new deposits are
reported as sales. This includes individual annuities, both fixed and
variable; mutual funds; college savings 529 plans; and authorized bank
loans and mortgages. As we have discontinued sales of new VA contracts
in the U.S., beginning in the first quarter of 2013, subsequent
deposits into existing U.S. VA contracts will not be considered sales.
For group pensions/retirement savings, sales of new regular premiums and
deposits reflect an estimate of expected deposits in the first year of
the plan with the Company. Single premium sales reflect the assets
transferred from the previous plan provider. Sales include the impact
of the addition of a new division or of a new product to an existing
client. Total sales include both new regular and single premiums and
deposits.
F2 Key Planning assumptions and uncertainties
Manulife's 2016 management objectives23 do not constitute guidance and are based on certain key planning
assumptions, including: current accounting and regulatory capital
standards; no acquisitions; equity market and interest rate assumptions
consistent with our long term assumptions, and favourable
investment-related experience included in core earnings.
_______________________________
23 See "Caution regarding forward-looking statements" below.
F3 Caution regarding forward-looking statements
From time to time, MFC makes written and/or oral forward-looking
statements, including in this document. In addition, our
representatives may make forward-looking statements orally to analysts,
investors, the media and others. All such statements are made pursuant
to the "safe harbour" provisions of Canadian provincial securities laws
and the U.S. Private Securities Litigation Reform Act of 1995. The
forward-looking statements in this document include, but are not
limited to, statements with respect to our 2016 management objectives
for core earnings and core ROE and the potential impact on net income
of a new Canadian Actuarial Standards Board standard related to
economic reinvestment assumptions used in the valuation of policy
liabilities and recently published guidance by the Canadian Institute
of Actuaries on the calibration criteria for fixed income funds with
respect to the valuation of segregated fund guarantees.
The forward-looking statements in this document also relate to, among
other things, our objectives, goals, strategies, intentions, plans,
beliefs, expectations and estimates, and can generally be identified by
the use of words such as "may", "will", "could", "should", "would",
"likely", "outlook", "expect", "intend", "estimate", "anticipate",
"believe", "plan", "forecast", "objective", "seek", "continue" and
"goal" (or the negative thereof) and words and expressions of similar
import, and include statements concerning possible or assumed future
results. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, such statements involve
risks and uncertainties, and undue reliance should not be placed on
such statements and they should not be interpreted as confirming market
or analysts' expectations in any way.
Certain material factors or assumptions are applied in making
forward-looking statements, including in the case of our 2016
management objectives for core earnings and core ROE, the assumptions
described under "Key Planning Assumptions and Uncertainties" in our
2013 Annual Report and in this document, and actual results may differ
materially from those expressed or implied in such statements.
Important factors that could cause actual results to differ materially
from expectations include but are not limited to: the factors
identified in "Key Planning Assumptions and Uncertainties" in our 2013
Annual Report and in this document; general business and economic
conditions (including but not limited to the performance, volatility
and correlation of equity markets, interest rates, credit and swap
spreads, currency rates, investment losses and defaults, market
liquidity and creditworthiness of guarantors, reinsurers and
counterparties); changes in laws and regulations; changes in accounting
standards; our ability to execute strategic plans and changes to
strategic plans; downgrades in our financial strength or credit
ratings; our ability to maintain our reputation; impairments of
goodwill or intangible assets or the establishment of provisions
against future tax assets; the accuracy of estimates relating to
morbidity, mortality and policyholder behaviour; the accuracy of other
estimates used in applying accounting policies and actuarial methods;
our ability to implement effective hedging strategies and unforeseen
consequences arising from such strategies; our ability to source
appropriate assets to back our long dated liabilities; level of
competition and consolidation; our ability to market and distribute
products through current and future distribution channels; unforeseen
liabilities or asset impairments arising from acquisitions and
dispositions of businesses; the realization of losses arising from the
sale of investments classified as available-for-sale; our liquidity,
including the availability of financing to satisfy existing financial
liabilities on expected maturity dates when required; obligations to
pledge additional collateral; the availability of letters of credit to
provide capital management flexibility; accuracy of information
received from counterparties and the ability of counterparties to meet
their obligations; the availability, affordability and adequacy of
reinsurance; legal and regulatory proceedings, including tax audits,
tax litigation or similar proceedings; our ability to adapt products
and services to the changing market; our ability to attract and retain
key executives, employees and agents; the appropriate use and
interpretation of complex models or deficiencies in models used;
political, legal, operational and other risks associated with our
non-North American operations; acquisitions and our ability to complete
acquisitions including the availability of equity and debt financing
for this purpose; the disruption of or changes to key elements of the
Company's or public infrastructure systems; environmental concerns; and
our ability to protect our intellectual property and exposure to claims
of infringement. Additional information about material risk factors
that could cause actual results to differ materially from expectations
and about material factors or assumptions applied in making
forward-looking statements may be found in the body of this document as
well as under "Risk Factors" in our most recent Annual Information
Form, under "Risk Management", "Risk Management and Risk Factors" and
"Critical Accounting and Actuarial Policies" in the Management's
Discussion and Analysis in our most recent annual report, under "Risk
Management and Risk Factors Update" and "Critical Accounting and
Actuarial Policies" in the Management's Discussion and Analysis in our
most recent interim report, in the "Risk Management" note to
consolidated financial statements in our most recent annual and interim
reports and elsewhere in our filings with Canadian and U.S. securities
regulators. The forward-looking statements in this document are, unless
otherwise indicated, stated as of the date hereof and are presented for
the purpose of assisting investors and others in understanding our
financial position and results of operations as well as our objectives
and strategic priorities, and may not be appropriate for other
purposes. We do not undertake to update any forward-looking statements,
except as required by law.
Consolidated Statements of Income
|
|
|
For the three months ended March 31,
|
|
|
|
|
|
(Canadian $ in millions, except per share amounts, unaudited)
|
|
2014
|
|
2013
|
Revenue
|
|
|
|
|
Net premiums
|
$
|
4,161
|
$
|
4,417
|
Investment income
|
|
|
|
|
|
Investment income (loss)
|
|
2,684
|
|
2,405
|
|
Realized and unrealized gains (losses) on assets supporting insurance
and investment contract liabilities and on the macro hedge program(1)
|
|
5,256
|
|
(2,961)
|
Other revenue
|
|
2,135
|
|
1,974
|
Total revenue
|
$
|
14,236
|
$
|
5,835
|
Contract benefits and expenses
|
|
|
|
|
To contract holders and beneficiaries
|
|
|
|
|
|
Death, disability and other claims
|
$
|
2,708
|
$
|
2,546
|
|
Maturity and surrender benefits
|
|
1,445
|
|
1,157
|
|
Annuity payments
|
|
862
|
|
862
|
|
Policyholder dividends and experience rating refunds
|
|
214
|
|
236
|
|
Net transfers from segregated funds
|
|
(79)
|
|
(85)
|
|
Change in insurance contract liabilities
|
|
6,827
|
|
(765)
|
|
Change in investment contract liabilities
|
|
(11)
|
|
19
|
|
Ceded benefits and expenses
|
|
(1,664)
|
|
(1,538)
|
|
Change in reinsurance assets
|
|
131
|
|
125
|
Net benefits and claims
|
$
|
10,433
|
$
|
2,557
|
General expenses
|
|
1,149
|
|
1,121
|
Investment expenses
|
|
330
|
|
269
|
Commissions
|
|
1,021
|
|
951
|
Interest expense
|
|
294
|
|
295
|
Net premium taxes
|
|
72
|
|
72
|
Total contract benefits and expenses
|
$
|
13,299
|
$
|
5,265
|
Income before income taxes
|
$
|
937
|
$
|
570
|
Income tax expense
|
|
(133)
|
|
(15)
|
Net income
|
$
|
804
|
$
|
555
|
Net income (loss) attributed to:
|
|
|
|
|
|
Non-controlling interests
|
$
|
12
|
$
|
7
|
|
Participating policyholders
|
|
(26)
|
|
8
|
|
Shareholders
|
|
818
|
|
540
|
|
$
|
804
|
$
|
555
|
Net income attributed to shareholders
|
$
|
818
|
$
|
540
|
Preferred share dividends
|
|
(34)
|
|
(32)
|
Common shareholders' net income
|
$
|
784
|
$
|
508
|
Earnings per share
|
|
|
|
|
Basic earnings per common share
|
$
|
0.42
|
$
|
0.28
|
Diluted earnings per common share
|
$
|
0.42
|
$
|
0.28
|
(1)
|
The realized and unrealized gains (losses) on assets supporting
insurance and investment contract liabilities are mostly offset by
changes in the measurement of our policy obligations. For fixed income
assets supporting insurance and investment contracts, equities
supporting pass through products and derivatives related to variable
annuity hedging programs, the impact of realized/unrealized gains
(losses) on the assets is largely offset in the change in insurance and
investment contract liabilities. The realized/unrealized gains (losses)
on assets supporting insurance and investment contract liabilities
relate primarily to the impact of interest rate changes on bond and
fixed income derivative positions as well as interest rate swaps
supporting the dynamic hedge program. See Section B5 above.
|
Consolidated Statements of Financial Position
|
|
|
As at
|
|
|
(Canadian $ in millions, unaudited)
|
|
March
31, 2014
|
|
December
31, 2013
|
ASSETS
|
|
|
|
|
Cash and short-term securities
|
$
|
14,035
|
$
|
13,630
|
Debt securities
|
|
123,435
|
|
114,957
|
Public equities
|
|
13,521
|
|
13,075
|
Mortgages
|
|
38,337
|
|
37,558
|
Private placements
|
|
21,788
|
|
21,015
|
Policy loans
|
|
7,599
|
|
7,370
|
Bank loans
|
|
1,861
|
|
1,901
|
Real estate
|
|
9,645
|
|
9,708
|
Other invested assets
|
|
14,749
|
|
13,495
|
Total invested assets
|
$
|
244,970
|
$
|
232,709
|
Other assets
|
|
|
|
|
Accrued investment income
|
$
|
1,924
|
$
|
1,813
|
Outstanding premiums
|
|
828
|
|
734
|
Derivatives
|
|
10,812
|
|
9,673
|
Reinsurance assets
|
|
17,882
|
|
17,443
|
Deferred tax assets
|
|
2,763
|
|
2,763
|
Goodwill and intangible assets
|
|
5,446
|
|
5,298
|
Miscellaneous
|
|
4,524
|
|
3,324
|
Total other assets
|
$
|
44,179
|
$
|
41,048
|
Segregated funds net assets
|
$
|
249,724
|
$
|
239,871
|
Total assets
|
$
|
538,873
|
$
|
513,628
|
LIABILITIES and EQUITY
|
|
|
|
|
Liabilities
|
|
|
|
|
Insurance contract liabilities
|
$
|
205,775
|
$
|
193,242
|
Investment contract liabilities
|
|
2,527
|
|
2,524
|
Bank deposits
|
|
20,092
|
|
19,869
|
Derivatives
|
|
8,150
|
|
8,929
|
Deferred tax liabilities
|
|
944
|
|
617
|
Other liabilities
|
|
10,747
|
|
10,383
|
|
$
|
248,235
|
$
|
235,564
|
Long-term debt
|
|
4,825
|
|
4,775
|
Liabilities for preferred shares and capital instruments
|
|
4,902
|
|
4,385
|
Segregated funds net liabilities
|
|
249,724
|
|
239,871
|
Total liabilities
|
$
|
507,686
|
$
|
484,595
|
Equity
|
|
|
|
|
Preferred shares
|
$
|
2,888
|
$
|
2,693
|
Common shares
|
|
20,339
|
|
20,234
|
Contributed surplus
|
|
260
|
|
256
|
Shareholders' retained earnings
|
|
5,870
|
|
5,294
|
Shareholders' accumulated other comprehensive income (loss) on
|
|
|
|
|
|
Pension and other post-employment plans
|
|
(459)
|
|
(452)
|
|
Available-for-sale securities
|
|
478
|
|
324
|
|
Cash flow hedges
|
|
(139)
|
|
(84)
|
|
Translation of foreign operations
|
|
1,380
|
|
258
|
Total shareholders' equity
|
$
|
30,617
|
$
|
28,523
|
Participating policyholders' equity
|
|
109
|
|
134
|
Non-controlling interests
|
|
461
|
|
376
|
Total equity
|
$
|
31,187
|
$
|
29,033
|
Total liabilities and equity
|
$
|
538,873
|
$
|
513,628
|
SOURCE Manulife Financial Corporation