C$ unless otherwise stated
TSX/NYSE/PSE: MFC
SEHK:945
Made substantive progress on growth strategies in 2014:
-
Developing our Asian opportunity to the fullest - Achieved record insurance sales on a constant currency basis with new
product launches and channel expansion accelerating our growth, notably
in Japan (+60%), China (+28%) and Hong Kong (+15%); delivered record
wealth sales on a constant currency basis, in line with the levels set
in 2013; strengthened our bancassurance footprint by entering into nine
new insurance distribution agreements, two of which are exclusive.
-
Growing our wealth and asset management businesses around the world - Achieved our 25th consecutive quarter of record assets under management; delivered record
institutional sales at Manulife Asset Management across a broad variety
of mandates, including $1.1 billion in mandates from our Private
Markets business in its inaugural year; generated over $18 billion of
net flows into our asset management and group retirement businesses.
-
Building on our balanced Canadian business - Announced the acquisition of the Canadian-based operations of Standard
Life plc, which closed on January 30, 2015; delivered solid Group
Retirement Solutions and mutual fund sales; generated Retail Insurance
sales growth, driven by the successful launch of a simplified universal
life product; reported lower lending volumes at Manulife Bank and a
decline in Group Benefits sales amid competitive pressures.
-
Continuing to drive sustainable earnings and opportunistic growth in the
U.S. - Announced our agreement to acquire New York Life's Retirement Plan
Services ("RPS") business; delivered record wealth sales with strong
mutual fund volumes outweighing the negative impact of intensified
competitive pressures in the RPS market; continued to build momentum in
insurance sales over the course of the year, driven by product changes.
TORONTO, Feb. 12, 2015 /CNW/ - Manulife Financial Corporation ("MFC")
announced today net income attributed to shareholders of $640 million
for the fourth quarter of 2014 ("4Q14") and $3,501 million in the full
year of 2014. This compares to $1,297 million and $3,130 million for
the corresponding periods in 2013. In 4Q14, fully diluted earnings per
common share ("EPS") was $0.33 and return on common shareholders'
equity ("ROE") was 8.1%. For the full year of 2014, MFC generated $1.80
of fully diluted EPS and ROE of 11.9%.
Core earnings1 in 4Q14 and in 2014 were $713 million and $2,888 million, respectively.
This compares to $685 million and $2,617 million in the corresponding
periods in 2013. In 4Q14, fully diluted core earnings per common share
("Core EPS")1 was $0.36 and core return on common shareholders' equity ("Core ROE")1 was 9.0%. For the full year of 2014, MFC generated $1.48 of fully
diluted Core EPS and a Core ROE of 9.8%.
Donald Guloien, President and Chief Executive Officer, stated, "In 2014,
we delivered strong growth in both net income and core earnings,
announced two important acquisitions, and increased our dividend 19%.
It was a very strong year."
"In the fourth quarter, we continued the very strong momentum in life
insurance sales and delivered record assets under management. But core
earnings, due to a variety of experience factors, were below our plan.
Also, the macro environment, including low interest rates, produces
headwinds for 2015. But for the year as a whole, we dramatically
overachieved our goal on net income, delivering $3.5 billion, and we
completed the year just $12 million shy of our goal for core earnings,
delivering $2.888 billion," added Mr. Guloien.
Steve Roder, Chief Financial Officer, said, "In 2014, we made
substantial progress on our Efficiency and Effectiveness initiative,
taking full advantage of our global scale and capabilities. Projects
are being completed at a faster pace than originally anticipated and,
as a result, we have exceeded our 2014 savings target which enabled us
to fund new initiatives to accelerate our long-term earnings growth."
"New business embedded value improved in 2014, thanks to fast-growing
sales in Asia and our success at redesigning insurance products to be
profitable in this challenging interest rate environment," added Mr.
Roder.
|
____________________________
|
|
1
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
Highlights for the Fourth Quarter of 2014 and Full Year 2014:
-
Reported net income attributed to shareholders of $640 million in 4Q14,
down $657 million from the fourth quarter of 2013 ("4Q13"), and $3,501
million in 2014, up $371 million from 2013:
-
In 4Q14, net income attributed to shareholders included core earnings of
$713 million and items excluded from core earnings which netted to a
charge of $73 million. Items excluded from core earnings included
charges resulting from adjustments to the fair value of alternative
long-duration assets and changes in actuarial methods and assumptions,
which were largely offset by the favourable impact of interest rates.
-
In 2014, net income attributed to shareholders included core earnings of
$2,888 million as well as a number of items excluded from core earnings
totaling $613 million. These items included gains from market-related
factors and favourable investment-related experience, partly offset by
charges related to changes in actuarial methods and assumptions.
-
Generated core earnings of $713 million in 4Q14, down $42 million from
the third quarter of 2014 ("3Q14"), and $2,888 million in 2014, up $271
million from 2013:
-
In 4Q14, core earnings declined $42 million compared with 3Q14 due to
unfavourable policyholder experience and the timing of certain
expenses, partly offset by the favourable impact of higher new business
volumes.
-
In 2014, core earnings increased $271 million from 2013, driven by
higher fee income on higher asset levels in our wealth management
businesses, lower equity hedging costs and the favourable impact of a
stronger U.S. dollar, partially offset by unfavourable policyholder
experience.
-
Achieved insurance sales2 of $760 million in 4Q14, up 20%3 from 4Q13, and $2.5 billion in 2014, down 10% from 2013. Excluding
Group Benefits, insurance sales grew by 13% in 2014:
-
In 4Q14, all three geographies delivered strong growth in insurance
sales compared with 4Q13. In Asia, we achieved record sales, with most
territories growing at a double digit pace. In Canada, we had a strong
fourth quarter in large case Group Benefits sales. In the U.S., we
continued to build momentum in life insurance sales as product
enhancements and targeted pricing changes implemented earlier in the
year continued to make an impact.
-
In 2014, insurance sales declined 10% from 2013 largely due to a
decrease in Group Benefit sales reflecting our disciplined pricing
approach in the very competitive market. Excluding Group Benefits,
insurance sales increased 13% in 2014 over the prior year. In Asia, we
achieved record insurance sales on a constant currency basis, up 31%
compared with 2013, driven by continued momentum in corporate products
in Japan, successful sales campaigns and product launches in Hong Kong,
and double digit sales growth in our Asia Other businesses. In Canada,
retail insurance sales grew reflecting the successful launch of a
simplified universal life solution. In the U.S., insurance sales
increased sequentially in each quarter of the year, but decreased
compared with 2013 amid a sluggish estate planning market.
|
_________________________________________
|
|
2
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
|
3
|
Growth (declines) in sales, premiums and deposits and assets under
management are stated on a constant currency basis. Constant currency
basis is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
-
Generated wealth sales of $13.8 billion in 4Q14 and achieved record
sales of $52.6 billion in 2014, reflecting 6% and 1% increases from
4Q13 and 2013, respectively. Excluding Manulife Bank, wealth sales grew
by 3% in 2014:
-
In 4Q14, wealth sales increased 6% compared with 4Q13. New bank loan
volumes (which we include in wealth sales) declined due to competitive
rate pressures in a slowing residential mortgage market. Excluding bank
loan volumes, wealth sales increased 9% compared with 4Q13. In Asia,
wealth sales continued to demonstrate strong momentum, growing 64% from
4Q13, benefiting from new product launches, marketing campaigns and
improved market sentiment. In Canada, group retirement sales increased
with strong sales of defined contribution plans. In the U.S., wealth
sales were in line with the prior year, reflecting continued strong
mutual fund sales.
-
In 2014, we delivered record full year wealth sales, with solid
contributions from all three geographies. In Asia, sales trended upward
throughout the year as a result of new product launches, marketing
campaigns, and improved market sentiment. In Canada, wealth sales
excluding bank loan volumes rose, led by our second highest annual
group retirement sales. In the U.S., mutual fund sales continued to be
strong and outpaced the industry4, outweighing the negative impact of intensified competitive pressures
in the group retirement market.
-
Achieved 25th consecutive quarter of record assets under management5 of $691 billion at December 31, 2014, an increase of $92 billion, or 9% on a constant
currency basis, compared with the prior year.
|
_______________________________________
|
|
4
|
Strategic Insight: ICI Confidential. Direct Sold mutual funds,
fund-of-funds and ETF's are excluded. Organic sales growth rate is
calculated as: net new flows divided by beginning period assets.
Industry data through December 2014.
|
|
5
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
-
Announced two acquisitions in 2014 that will accelerate our strategy to
grow our wealth and asset management businesses around the world:
-
In Canada, we announced an agreement to acquire the Canadian-based
operations of Standard Life plc, which will increase our presence in
Quebec and accelerate our growth strategy in Canada, particularly for
our wealth and asset management businesses. The transaction closed on
January 30, 2015.
-
In the U.S., we announced an agreement to acquire New York Life
Insurance Company's RPS business. By joining New York Life's strength
and expertise in the mid- and large-plan segments with our leadership
in the small-plan segment, we will significantly expand our market
presence and become one of the major group retirement plan providers in
the U.S. This transaction is expected to close in the first half of
2015, subject to regulatory approvals and other customary closing
conditions.
-
Reported a Minimum Continuing Capital and Surplus Requirements ("MCCSR")
ratio for The Manufacturers Life Insurance Company ("MLI") of 248% at
the end of 2014, the same ratio as at September 30, 2014 and December 31, 2013. MFC's
financial leverage ratio was 27.8% at December 31, 2014 compared with
27.1% at September 30, 2014 and 31.0% at the end of 2013.
-
In 2014, we issued $2.26 billion of subscription receipts that were
exchanged for common shares on January 30, 2015 as a result of the
closing of the acquisition of the Canadian-based operations of Standard
Life plc. On a pro forma basis, had the transaction closed on December
31, 2014, the MCCSR ratio would have been in the range of 235% to 240%
and our leverage ratio would have been approximately 27.1%.
-
Delivered $2.4 billion in remittances6 from operating divisions to the group in 2014, in line with 2013. Our Asia, Canadian and U.S. Divisions were able to
remit a high proportion of their earnings.
-
Achieved run rate Efficiency and Effectiveness savings in excess of $300
million pre-tax as at December 31, 2014, up from approximately $200
million pre-tax run rate savings7 at the end of 2013. We continued to make substantial progress with our Efficiency and
Effectiveness ("E&E") initiative, with projects being completed at a
faster pace than originally anticipated. In 2014, we achieved
approximately $200 million in net pre-tax savings, which enabled us to
fund new strategic initiatives to accelerate our long-term earnings
growth. We remain on track to achieve $400 million in pre-tax E&E
savings in 20168.
-
Generated new business embedded value ("NBEV")9 of $355 million in 4Q14 and $1,274 million in 2014, reflecting 12% and
6% increases from 4Q13 and 2013, respectively. The growth in NBEV in 4Q14 and in the full year of 2014 compared with
prior year periods was primarily driven by the growth in our insurance
sales in Asia and a more favourable business mix.
|
_____________________________________
|
|
6
|
Remittances are defined as cash remitted by operating subsidiaries and
excess capital generated by stand-alone Canadian operations, and
available for deployment by Manulife.
|
|
7
|
Pre-tax run-rate savings represent cumulative annualized savings from
the E&E initiative.
|
|
8
|
See "Caution regarding forward-looking statements" below.
|
|
9
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
|
|
|
Financial Highlights
|
|
Quarterly Results
|
|
Full Year Results
|
|
(C$ millions, unless otherwise stated, unaudited)
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
|
2014
|
|
|
2013
|
|
Net income attributed to shareholders
|
|
$
|
640
|
|
$
|
1,100
|
|
$
|
1,297
|
|
$
|
3,501
|
|
$
|
3,130
|
|
Preferred share dividends
|
|
|
(28)
|
|
|
(28)
|
|
|
(34)
|
|
|
(126)
|
|
|
(131)
|
|
Common shareholders' net income
|
|
$
|
612
|
|
$
|
1,072
|
|
$
|
1,263
|
|
$
|
3,375
|
|
$
|
2,999
|
|
Reconciliation of core earnings to net income attributed to
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core earnings(1)
|
|
$
|
713
|
|
$
|
755
|
|
$
|
685
|
|
$
|
2,888
|
|
$
|
2,617
|
|
|
Investment-related experience in excess of amounts included in core
earnings
|
|
|
(403)
|
|
|
320
|
|
|
215
|
|
|
359
|
|
|
706
|
|
Core earnings and investment-related experience in excess of amounts
included in core earnings
|
|
$
|
310
|
|
$
|
1,075
|
|
$
|
900
|
|
$
|
3,247
|
|
$
|
3,323
|
|
|
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
|
|
|
377
|
|
|
70
|
|
|
(81)
|
|
|
412
|
|
|
(336)
|
|
|
Changes in actuarial methods and assumptions
|
|
|
(59)
|
|
|
(69)
|
|
|
(133)
|
|
|
(198)
|
|
|
(489)
|
|
|
Disposition of Taiwan insurance business
|
|
|
12
|
|
|
-
|
|
|
350
|
|
|
12
|
|
|
350
|
|
|
Other items(2)
|
|
|
-
|
|
|
24
|
|
|
261
|
|
|
28
|
|
|
282
|
|
Net income attributed to shareholders
|
|
$
|
640
|
|
$
|
1,100
|
|
$
|
1,297
|
|
$
|
3,501
|
|
$
|
3,130
|
|
|
Basic earnings per common share (C$)
|
|
$
|
0.33
|
|
$
|
0.58
|
|
$
|
0.69
|
|
$
|
1.82
|
|
$
|
1.63
|
|
|
Diluted earnings per common share (C$)
|
|
$
|
0.33
|
|
$
|
0.57
|
|
$
|
0.68
|
|
$
|
1.80
|
|
$
|
1.62
|
|
|
Diluted core earnings per common share (C$)(1)
|
|
$
|
0.36
|
|
$
|
0.39
|
|
$
|
0.35
|
|
$
|
1.48
|
|
$
|
1.34
|
|
|
Return on common shareholders' equity ("ROE")
|
|
|
8.1%
|
|
|
14.8%
|
|
|
20.2%
|
|
|
11.9%
|
|
|
12.8%
|
|
|
Core ROE (1)
|
|
|
9.0%
|
|
|
10.1%
|
|
|
10.4%
|
|
|
9.8%
|
|
|
10.6%
|
|
|
Assets under management (C$ billions)(1)
|
|
$
|
691
|
|
$
|
663
|
|
$
|
599
|
|
$
|
691
|
|
$
|
599
|
|
|
|
|
(1)
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
|
(2)
|
The 4Q13 gain of $261 million includes the impact on the measurement of
policy liabilities of policyholder-approved changes to the investment
objectives of separate accounts that support our variable annuity
products in the U.S. and a recapture of a reinsurance treaty in Asia.
|
SALES AND BUSINESS GROWTH
Asia Division
Robert Cook, Senior Executive Vice President and General Manager, Asia
Division stated, "We started the year strong, with improvement in each
subsequent quarter, leading to record high results in both insurance
and wealth sales on a constant currency basis. New product launches and
successful marketing campaigns have contributed to the uplift in growth
across the division. We have continued to diversify our distribution
footprint, including nine new insurance distribution agreements with
banks and the introduction of new point-of-sale technology."
Insurance sales of US$364 million in 4Q14 were 30% higher compared with 4Q13 and full
year 2014 sales of US$1.3 billion were 31% higher compared with full
year 2013. Both 4Q14 and full year 2014 sales reached record levels on
a constant currency basis. (Percentages quoted below are for the period 4Q14 compared with 4Q13,
unless stated otherwise.)
-
Japan insurance sales of US$141 million increased 46% driven by the continued
momentum of corporate products augmented by growth in retail sales
across all distribution channels. Full year 2014 insurance sales of
US$589 million increased 60% compared with 2013.
-
Hong Kong insurance sales of US$98 million increased 12% driven by successful
sales campaigns and product launches, including a first-in-market
multiple critical illness product. Full year 2014 insurance sales of
US$293 million increased 15% compared with 2013.
-
Indonesia insurance sales of US$34 million were slightly lower than last year as
strong growth in our bancassurance business did not fully offset lower
agency sales. Full year 2014 insurance sales of US$114 million
increased 8% compared with 2013.
-
Asia Other (excludes Japan, Hong Kong and Indonesia) insurance sales of US$91
million increased 52%. We delivered double digit growth in all markets,
except for Thailand. Singapore and China grew 81% and 55%,
respectively. Full year 2014 insurance sales of US$282 million
increased 17% compared with 2013.
Wealth sales of US$2.5 billion in 4Q14 were 64% higher compared with 4Q13. The
strong sales momentum we noted in 3Q14 continued in 4Q14 with full year
2014 sales setting a new record of US$8.0 billion on a constant
currency basis, 2% higher than the previous record level set in full
year 2013.
-
Japan wealth sales of US$453 million almost doubled, driven by the continued
success of our single premium product as bank distribution reach
expanded together with strong momentum in captive and independent
agency channels. Full year wealth sales of US$1.5 billion decreased 11%
in 2014 compared with 2013 as strong sales of the Strategic Income Fund
in the first half of 2013 did not recur due to a shift in investor
preference from bonds to equities.
-
Hong Kong wealth sales of US$334 million increased 18% driven by pension sales,
reflecting successful sales campaigns. Full year wealth sales of US$1.2
billion increased 6% in 2014 compared with 2013.
-
Indonesia wealth sales of US$269 million increased 246% as a result of improved
market sentiment. Full year wealth sales of US$851 million increased
4% in 2014 compared with 2013.
-
Asia Other wealth sales of US$1.4 billion increased 56%. We delivered double digit
growth in all markets, except for Thailand and Taiwan, driven by higher
mutual fund sales in China and Malaysia and improved single premium
unit-linked sales in the Philippines. Full year wealth sales of US$4.4
billion in 2014 increased 5% compared with 2013.
Canadian Division
Marianne Harrison, Senior Executive Vice President and General Manager,
Canadian Division stated, "Our recently completed acquisition of the
Canadian-based operations of Standard Life plc will significantly
contribute to our growth strategy and will enhance our presence in
Quebec. In 2014, we launched a number of other customer facing
initiatives, including: a group benefits specialty drug program and the
industry's first Mental Health Specialist team; enhanced investment
options for smaller pension plans and a Quebec Voluntary Retirement
Savings Plan; a simplified universal life product; and, our RED lab
partnership with Communitech to create new customer-facing technologies
and applications for financial services."
"We ended the year with record mutual funds assets under management10 and 25 Four- or Five-Star Morningstar rated mutual funds.11 Excluding new bank loan volumes, our 2014 wealth sales increased 3%
compared with full year 2013, and our 2014 Retail Insurance sales
increased 4% while Institutional insurance sales declined 57%
reflecting strong competitive pressures and our disciplined pricing
approach."
Wealth sales of $2.9 billion in 4Q14 and full year 2014 sales of $11.5 billion were
8% and 5% lower than the corresponding periods in 2013, respectively,
primarily due to reduced new bank loan volumes (which we include in
wealth sales) as a result of competitive pressures in a slowing
residential mortgage market. Excluding new bank loan volumes, wealth
sales increased 2% and 3% compared with 4Q13 and full year 2013,
respectively.
-
Mutual Funds assets under management were a record $33.4 billion at December 31,
2014, increasing 21% year-over-year reflecting positive net sales and
equity market appreciation. Gross deposits11,12 of $6.3 billion in 2014 and $1.6 billion in 4Q14 were 5% and 4% lower
than comparative periods in 2013, respectively, as investor preference
shifted toward equities where we continue to build our presence with a
growing suite of equity funds.
-
Segregated Fund Products13 sales of $1.6 billion for the year and $400 million in 4Q14 were 7% and
3% higher than the comparative periods in 2013, respectively. Fixed Products sales of $297 million for the year and $67 million in 4Q14 were 22% and 27%
lower than comparative periods in 2013, respectively, reflecting our
deliberate rate positioning in this market.
-
Group Retirement Solutions delivered our second highest annual sales on record with 2014 sales of
$1.6 billion, 16% higher than 2013, reflecting strong growth in the
defined contribution market. Sales of $529 million in 4Q14 increased
33% compared with 4Q13.
-
Manulife Bank new lending volumes continued to reflect the impact of intense rate
competition in a slowing residential mortgage market. New loan volumes
were $770 million in 4Q14 and $3.2 billion for the year, 26% and 22%
below the comparative 2013 periods, respectively. Net lending assets
were $19.4 billion as at December 31, 2014 a 2% increase compared with
2013.
Insurance sales in 4Q14 of $172 million increased 6% compared with 4Q13 and were 20%
above 3Q14 driven by large case Group Benefits sales. Insurance sales
for 2014 were $578 million, 49% lower than 2013 levels reflecting our
disciplined pricing approach in the highly competitive group benefits
market. Excluding Group Benefits, 2014 insurance sales were 3% higher
than in 2013.
-
Retail Markets full year 2014 insurance sales were $167 million, 4% higher than 2013
reflecting the success of our simplified universal life product,
Manulife UL, in the second half of the year. Sales in 4Q14 of $49
million increased 20% compared with 3Q14 and were 4% higher than 4Q13.
-
Institutional Markets 4Q14 insurance sales of $123 million increased 7% compared with 4Q13 due
to sales in the large case group benefits segment. Full year 2014 sales
of $411 million were 57% lower than 2013, reflecting strong competitive
pressures and our disciplined pricing approach in the large case group
benefits segment.
|
________________________________________
|
|
10
|
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
|
|
11
|
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.
|
|
12
|
Gross mutual fund deposits include deposits from segregated fund
products of $477 million in 4Q14 and $1.5 billion for full year 2014.
|
|
13
|
Segregated fund products include guarantees. These products are also
referred to as variable annuities.
|
U.S. Division
Craig Bromley, Senior Executive Vice President and General Manager, U.S.
Division stated, "We had another record year of sales in our Wealth
Asset Management business and are seeing strong momentum in our
Insurance sales. In addition, a strong product line-up, including 38
Four- or Five-Star Morningstar rated mutual funds, helped drive strong
retention and net flows contributing to record assets under management
in JH Investments. Building on positive impacts from product
enhancements and targeted pricing changes, John Hancock Insurance sales
increased sequentially in each quarter of the year. 2014 was a
challenging sales year for JH Retirement Plan Services as competitive
pressures intensified. The recently announced agreement to acquire New
York Life's retirement plan services business will combine its strength
and expertise in the mid- and large-plan segments with our leadership
in the small-plan segment to significantly expand John Hancock's market
presence as we become one of the major plan providers in the United
States.''
Wealth sales were US$7.1 billion in 4Q14, consistent with 4Q13 and full year
2014 sales were US$29.2 billion, an increase of 3% compared with the
prior year.
-
JH Investments 4Q14 sales of US$5.8 billion and full year 2014 sales of US$24.7 billion
represented increases of 4% and 6%, respectively, compared with
comparative periods in 2013. Record full year sales were aided by
strong fund performance and the ability to get products on to
recommended lists and into wirehouse firms' investment allocation
models. Our results continue to outpace the industry as our 12-month
trailing organic growth rate through December 2014 (calculated as net
new flows as percentage of beginning assets) was 18.9% versus the
industry rate of 1.0%, placing us 3rd in the industry in terms of growth.14 JH Investments redemption rates continue to outperform the industry
with a favourable downward trend, while industry redemptions continue
to trend upward.15 Assets under management reached a record US$74.8 billion at December
31, 2014, a 23% increase from the prior year end.
-
JH Retirement Plan Services ("JH RPS") 4Q14 sales were US$1.4 billion and US$4.5 billion for the full year,
representing decreases of 14% and 8%, respectively, compared with
comparative periods in 2013. Our mid-market product, Enterprise,
contributed full year sales of US$209 million compared with US$41
million in 2013. Continued repricing initiatives are underway to regain
share in an intensely competitive market while we continue to garner
significant attention in the industry with our fee transparency
initiative.
-
At the end of 2014, John Hancock announced an agreement to acquire New
York Life's retirement plan services business and New York Life net
reinsuring 60% of the legacy John Hancock par life insurance block.
While the transaction is subject to regulatory approvals and other
customary closing conditions, it is expected to close in the first half
of 2015. When completed, our 401(k) assets under administration will
increase by approximately 60% to some US$135 billion, representing
55,000 plans and over 2.5 million participants. This transaction is
expected to provide a significant positive impact to JH RPS sales and
retention efforts in 2015.16
Insurance sales were US$154 million in 4Q14, an increase of 12% compared with 4Q13
and full year 2014 sales were US$501 million, a decrease of 11%
compared with full year 2013.
-
John Hancock Life ("JH Life") 4Q14 sales of US$140 million were 13% higher than 4Q13 as
product enhancements implemented in early 2014 continued to make an
impact. Full year 2014 sales of US$439 million were 14% below full
year 2013, driven by a challenging 1Q14 and a sluggish estate planning
market. Sales have increased sequentially in each quarter of the year,
led by continued sales momentum in our flagship protection universal
life product as well as from new offerings including variable universal
life and international products.
-
John Hancock Long-Term Care 4Q14 sales of US$14 million were 8% higher than 4Q13 and full year 2014
sales of US$62 million were 17% higher than 2013, driven by group
inflation buy-up offerings in 4Q14 and bi-annual buy-up activity on
Federal plans in 1Q14.
|
____________________________
|
|
14
|
Strategic Insight: ICI Confidential. Direct Sold mutual funds,
fund-of-funds and ETF's are excluded. Organic sales growth rate is
calculated as net new flows divided by beginning period assets.
Industry data through December 2014.
|
|
15
|
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.
|
|
16
|
See "Caution regarding forward-looking statements" below.
|
Investment Division
Warren Thomson, Senior Executive Vice President and Chief Investment
Officer, said, "This year saw several important milestones for our
asset management business. Notably Manulife Asset Management ("MAM")
is now ranked 30th among the world's largest money managers, according to Pensions & Investments' 2014 rankings, based on worldwide institutional assets under
management. MAM's growth as a premier asset manager was bolstered by
record net sales, excellent investment management performance, expanded
investment capabilities and operations, and a diverse global client
base. Long-term investment performance continues to be a
differentiator for MAM, with the majority of public asset classes
outperforming their benchmarks on a 3- and 5-year basis. MAM Private
Markets had a tremendous inaugural year, producing solid institutional
sales including a substantial U.S. commercial real estate mandate with
a large European insurance company. We continue to leverage our
longstanding experience in private markets to work with investors to
provide unique opportunities to meet their investment goals."
Mr. Thomson continued, "We delivered General Fund investment-related
experience of $559 million on a full year basis, supporting our
decision to increase the annual core earnings contribution to $400
million beginning in 2015. Strong full year results were driven by the
redeployment of government securities into higher yielding fixed income
assets, favourable credit experience, and the positive impact of
additional investments in a wide variety of alternative long-duration
assets. While strong credit experience and fixed income trading gains
continued in the fourth quarter, we reported an investment-related
experience loss of $353 million, primarily as a result of the impact of
the sharp decline in oil prices on investments held in Canada and the
U.S. We view this period of volatility and depressed asset valuation as
an opportune time to acquire additional oil and gas properties, while
ensuring that we maintain our rigorous risk management practices and a
diversified investment portfolio. During 2014, we originated over $1
billion in alternative long-duration assets, on a net basis, across
various asset classes including real estate, oil and gas, timberland,
private equities and infrastructure. Our acquisitions continue to be
high quality, good relative value alternative long-duration assets."
At December 31, 2014 total assets managed by MAM were $321 billion (2013
- $280 billion), including $278 billion managed for external clients.
Assets managed for external clients increased $11 billion from
September 30, 2014 and $35 billion from December 31, 2013. At December
31, 2014, MAM had a total of 72 Four- or Five-Star Morningstar rated
funds, an increase of 2 funds since December 31, 2013.
CORPORATE ITEMS
In a separate news release today, the Company announced that the Board
of Directors approved a quarterly shareholders' dividend of $0.155 per
share on the common shares of the Company, payable on and after March
19, 2015 to shareholders of record at the close of business on February
25, 2015.
The Board of Directors also approved that, in respect of MFC's March 19,
2015 common share dividend payment date and pursuant to MFC's Canadian
Dividend Reinvestment and Share Purchase Plan and its U.S. Dividend
Reinvestment and Share Purchase Plan, the required common shares be
purchased on the open market. The purchase price of such shares will
be based on the average of the actual cost to purchase such common
shares. There are no applicable discounts because the common shares are
being purchased on the open market and are not being issued from
treasury.
Awards & Recognition
In Canada, Manulife's Monthly High Income Fund received a 2014 Morningstar Award
for "Best Canadian Balanced Fund", as well as Manulife Investments
being nominated for its Global Infrastructure Fund in the "Best
Specialty Equity Fund".
In Hong Kong, Manulife Hong Kong received two top honours at the annual SCMP/IFPHK
Financial Planner Awards, including "Company for Financial Planning
Excellence of the Year 2014" in the Insurance sector for the 8th consecutive year, and "Outstanding Company of the Year 2014" for
Excellence in Practice.
In China, Manulife-Sinochem was awarded the "Most Trusted Consumer Insurance
Product Annual Award' for its critical illness product, and the "Most
Competitive Children's Product Annual Award" for its juvenile wealth
planning product, at the 2014 Shanghai Insurance Industry Annual
Awards, which is organized by Money Weekly, one of China's leading financial magazines.
In the U.S., John Hancock Investments received five STAR awards from the Mutual
Fund Education Alliance ("MFEAA"), including the prestigious "Overall
Advisor Communications Award". John Hancock was also honoured in the
categories of: Electronic Newsletter, Communications Campaign, Special
Communications, and in the Retirement category for Digital
Communications.
Notes:
Manulife Financial Corporation will host a Fourth Quarter Earnings
Results Conference Call at 2:00 p.m. ET on February 12, 2015. For local
and international locations, please call 416-340-8530 and toll free in
North America please call 1-866-769-8320. 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 February 12, 2015 through February 26, 2015 by
calling 905-694-9451 or 1-800-408-3053 (passcode: 6718073).
The conference call will also be webcast through Manulife Financial's
website at 2:00 p.m. ET on February 12, 2015. 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 Fourth Quarter 2014 Statistical Information Package is also
available on the Manulife Financial website at: www.manulife.com/quarterlyreports.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") is current as of
February 12, 2015, 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 most recent annual and interim reports.
In this MD&A, the terms "Company", "Manulife", "we" and "our" mean
Manulife Financial Corporation ("MFC") and its subsidiaries.
|
Contents
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A
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OVERVIEW
|
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D
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RISK MANAGEMENT AND RISK FACTORS UPDATE
|
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1.
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Earnings
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1.
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Potential Impact of current macro environment
|
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2.
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Sales
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2.
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Variable annuity and segregated fund guarantees
|
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3.
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Capital
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3.
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Caution related to sensitivities
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4.
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Efficiency and Effectiveness initiative
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4.
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Publicly traded equity performance risk
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5.
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Standard Life transaction
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5.
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Interest rate and spread risk
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6.
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Alternative long-duration asset performance risk
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B
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FINANCIAL PERFORMANCE
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|
|
1.
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Fourth quarter earnings analysis
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E
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ACCOUNTING MATTERS AND CONTROLS
|
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2.
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Full year earnings analysis
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1.
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Critical accounting and actuarial policies
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3.
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Revenue
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2.
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Sensitivity of policy liabilities to updates to assumptions
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4.
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Premiums and deposits
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3.
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Accounting and reporting changes
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5.
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Assets under management
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6.
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Capital
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F
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OTHER
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7.
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Impact of fair value accounting
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|
1.
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Performance and Non-GAAP measures
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8.
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Impact of foreign exchange rates
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2.
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Key planning assumptions and uncertainties
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3.
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Caution regarding forward-looking statements
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C
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PERFORMANCE BY DIVISION
|
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1.
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Asia
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|
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2.
|
Canadian
|
|
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|
|
3.
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U.S.
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|
4.
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Corporate and Other
|
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A OVERVIEW
A1 Earnings
Manulife's 4Q14 net income attributed to shareholders was $640 million
compared with $1,297 million in 4Q13. Net income attributed to shareholders is comprised of core earnings
(consisting of items we believe reflect the underlying earnings
capacity of the business) which amounted to $713 million in 4Q14
compared with $685 million in 4Q13, and items excluded from core
earnings, which netted to a loss of $73 million in 4Q14 compared with a
net gain of $612 million in 4Q13.
The $28 million increase in core earnings was the result of higher fee
income due to higher asset levels in our wealth management businesses,
increases in new business volumes, lower expenses and the strengthening
of the U.S. dollar, partially offset by policyholder experience losses
in North America. On a divisional basis, Asia core earnings increased
19% compared with 4Q13, after adjusting for increased dynamic hedging
costs (there is a corresponding decrease in macro hedging costs in the
Corporate and Other segment), changes in currency rates and the sale of
our Taiwan insurance business at the end of 2013. Canadian core
earnings decreased 4% and U.S. core earnings decreased 15%, both
divisions reported policyholder experience losses in 4Q14.
With respect to items excluded from 4Q14 core earnings, fair value
losses related to the impact of the sharp decline in oil prices on
investments held in Canada and the U.S. were mostly offset by the
favourable impact on the measurement of policy liabilities of changes
in yield curves. The investment-related experience losses were $353
million (of which gains of $50 million were included in core earnings
and $403 million of losses were excluded from core earnings) and gains
related to the direct impact of interest rates and equity markets were
$377 million. Charges related to actuarial methods and assumptions and
policy changes netted to $59 million and included a net gain of $65
million upon the implementation of the Canadian Actuarial Standards
Board's revisions to the Canadian Actuarial Standards of Practice
related to economic reinvestment assumptions. A gain from changes to
fixed income reinvestment assumptions (an allowance for the use of
credit spread assets for all durations, a change from deterministic to
stochastically generated scenarios for most North American businesses,
and changes to risk free interest rate scenarios) was partly offset by
a new margin for adverse deviation for alternative long-duration assets
and public equities.
Items excluded from core earnings in 4Q13 included strong
investment-related experience and the one-time gains related to the
sale of our Taiwan insurance business and to changes to investment
objectives of separate accounts that support our U.S. variable annuity
products.
Manulife's full year 2014 net income attributed to shareholders was $3.5
billion compared with $3.1 billion for full year 2013. Net income attributed to shareholders is comprised of core earnings
which amounted to $2.9 billion in 2014 compared with $2.6 billion in
2013, and items excluded from core earnings, which amounted to $0.6
billion in 2014 compared with $0.5 billion in 2013.
The $271 million increase in core earnings was driven by higher fee
income due to higher asset levels in our wealth management businesses,
lower net hedging costs and the favourable impact of a stronger U.S.
dollar, partially offset by unfavourable policyholder experience in
2014. On a divisional basis, Asia core earnings increased 16% after
adjusting for increased dynamic hedging costs (there is a corresponding
decrease in macro hedging costs in the Corporate and Other segment),
changes in currency rates and the sale of our Taiwan insurance business
at the end of 2013. Core earnings increased by 2% in Canada and
declined by 15% in the U.S. primarily due to the second order impact of
market factors along with risk management activities and unfavourable
policyholder experience. The second order impact of market factors
included the unfavourable impact that declines in the yield curve and
corporate spreads had on the release of provisions for adverse
deviation margins in the insurance business and the impact that higher
equity markets and risk management activities had on releases of
margins in the variable annuity business. The first order impact of
market factors is included in the direct impact of equity markets and
interest rates and is excluded from core earnings.
The $100 million year-over-year increase in items excluded from core
earnings was primarily due to a $291 million reduction in charges
related to changes in actuarial methods and assumptions and a $748
million increase from the direct impact of equity markets and interest
rates and variable annuity guarantee liabilities, partially offset by
one-time items in 2013 and lower investment-related experience gains in
2014. In addition, while investment-related experience was strong in
both years, the $359 million gain reported in 2014 (in excess of the
$200 million of investment-related gains included in core earnings) was
$347 million lower than in 2013.
The investment-related experience gains are a combination of reported
investment experience as well as the impact of investing activities on
the measurement of our policy liabilities. Investment-related
experience gains in 2014 of $559 million (2013 - $906 million),
including the $200 million reported in core earnings, were composed of:
$667 million (2013 - $571 million) primarily related to the impact of
investing activities (both fixed income and alternative long-duration
assets) on the measurement of our policy liabilities; and $103 million
(2013 - $162 million) due to favourable credit experience relative to
our long-term assumptions, partly offset by the $211 million (2013 -
$55 million) impact of fair value related losses on alternative long
duration assets. Investment-related experience gains in 2013 also
included $228 million related to asset allocation activities that
enhanced surplus liquidity and resulted in higher yielding assets in
the respective liability segments.
A2 Sales
Insurance sales17 were $760 million in 4Q14, an increase of 20%18 compared with 4Q13 and Asia, Canada and U.S. divisions all reported
strong growth. Full year 2014 insurance sales were $2.5 billion, a
decrease of 10% compared with 2013. Excluding Group Benefits, full
year 2014 insurance sales increased 13% compared with 2013.
In 4Q14, all three geographies delivered strong growth in insurance
sales compared with 4Q13. In Asia, we achieved record sales, with most
territories growing at a double digit pace. In Canada, we had a strong
fourth quarter in large case Group Benefits sales. In the U.S., we
continued to build momentum in life insurance sales as product
enhancements and targeted pricing changes implemented earlier in the
year continued to make an impact.
In 2014, insurance sales declined 10% compared with 2013 largely due to
a decrease in Group Benefits sales reflecting our disciplined approach
to pricing in the very competitive market. Excluding Group Benefits,
insurance sales increased 13% in 2014. In Asia, we achieved record
insurance sales, up 31% over 2013, driven by continued momentum in
corporate products in Japan, successful sales campaigns and product
launches in Hong Kong, and double digit growth in our Asia Other
businesses. In Canada, retail insurance sales grew, reflecting the
successful launch of a simplified universal life solution. In the
U.S., insurance sales increased sequentially in each quarter of the
year, but decreased compared with 2013 amid a sluggish estate planning
market.
Wealth sales were $13.8 billion in 4Q14, an increase of 6% compared with 4Q13. Full
year 2014 wealth sales were a record $52.6 billion, a 1% increase from
the previous record reported in 2013. Excluding new bank loan volumes
(which we include in wealth sales), 4Q14 and full year 2014 wealth
sales increased 9% and 3%, respectively, from the prior year
comparative amounts.
In 4Q14, wealth sales increased 6% compared with 4Q13. New bank loan
volumes (which we include in wealth sales) declined due to competitive
rate pressures in a slowing residential mortgage market. Excluding new
bank loan volumes, wealth sales increased 9% from 4Q13. In Asia, wealth
sales continued to demonstrate outstanding momentum, growing 64% from
4Q13, benefiting from new product launches, marketing campaigns and
improved market sentiment. In Canada, group retirement sales increased
with strong sales of defined contribution plans. In the U.S., wealth
sales were in line with the prior year, reflecting continued strong
mutual fund sales.
In 2014, we delivered record full year wealth sales, with solid
contributions from all three geographies. In Asia, we achieved record
wealth sales that trended upward throughout the year as a result of new
product launches, marketing campaigns, and improved market sentiment.
In Canada, wealth sales excluding new bank loan volumes increased, led
by our second highest annual group retirement sales. In the U.S.,
mutual fund sales continued to be strong and outpaced the industry,
outweighing the negative impact of intensified competitive pressures in
the group retirement market.
|
____________________________
|
|
17
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
|
18
|
Growth (declines) in sales, premiums and deposits and assets under
management are stated on a constant currency basis. Constant currency
basis is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
A3 MCCSR and financial leverage ratio
The Minimum Continuing Capital and Surplus Requirements ("MCCSR") ratio for The Manufacturers Life Insurance Company ("MLI") was 248% at the end
of 2014, the same ratio as at September 30, 2014 and December 31,
2013. MFC's financial leverage ratio was 27.8% at December 31, 2014
compared with 27.1% at September 30, 2014 and 31.0% at the end of 2013.
During 2014 we raised $1.8 billion (4Q14 - $0.75 billion) of new
financing and $1.8 billion (4Q14 - nil) matured or was redeemed,
including $1.0 billion of senior debt.
We also issued $2.26 billion of subscription receipts that were
exchanged for common shares on January 30, 2015, as a result of the
closing of the acquisition of the Canadian-based operations of Standard
Life plc. On a pro forma basis, had the transaction closed on December
31, 2014, the MCCSR ratio would have been in the range of 235% to 240%
and our financial leverage ratio would have been approximately 27.1%.
The impact on the MCCSR ratio will be partially offset by the
favourable impact of changes in the MCSSR guidelines effective January
1, 2015.
A4 Update on Efficiency and Effectiveness initiative
Our Efficiency and Effectiveness ("E&E") initiative, announced November
2012, is aimed at leveraging our global scale and capabilities to
achieve operational excellence throughout the organization. In 2013, we
achieved pre-tax run rate savings of approximately $200 million. In
2014, we continued to make substantial progress and have now achieved
pre-tax run rate savings in excess of $300 million related to
operations, information services, procurement, workplace
transformation, as well as organizational design. This translated into
approximately $200 million in net pre-tax savings in 2014, which
enabled us to fund new initiatives to accelerate our long-term earnings
growth. We remain on track to achieve $400 million in pre-tax E&E
savings in 2016.
Over the next four years, we also plan to invest a significant amount in
projects in order to realize our strategic vision. The amount of that
investment is subject to change as our strategy unfolds. In particular,
we intend to ensure that projects are appropriately sequenced and
prioritized given recent headwinds.
A5 Acquisition of Canadian-based operations of Standard Life plc
On September 3, 2014, MLI entered into an agreement with Standard Life
Oversea Holdings Limited, a subsidiary of Standard Life plc, and
Standard Life plc to acquire the shares of Standard Life Financial Inc.
and of Standard Life Investments Inc., collectively the Canadian-based
operations of Standard Life plc.
On January 30, 2015, the Company completed its purchase of the
Canadian-based operations of Standard Life plc for cash consideration
of $4.0 billion. Upon closing, the Company's outstanding subscription
receipts were automatically exchanged on a one-for-one basis for
105,647,334 MFC common shares with a stated value of approximately $2.2
billion. In addition, pursuant to the terms of the subscription receipts, a
dividend equivalent payment of $0.155 per subscription receipt ($16.4
million in the aggregate) was also paid to holders of subscription
receipts, which is an amount equal to the cash dividends declared on
MFC common shares for which record dates occurred during the period
from September 15, 2014 to January 29, 2015.
The following table summarizes the unaudited assets and liabilities of
the Canadian-based operations of Standard Life plc as at December 31,
2014.
|
(C$ millions, unaudited)
|
|
As at December 31, 2014
|
|
Assets
|
|
|
|
|
|
Invested assets
|
|
|
$
|
18,670
|
|
Other assets
|
|
|
|
970
|
|
Segregated funds' net assets
|
|
|
|
31,251
|
|
Total assets
|
|
|
$
|
50,891
|
|
Liabilities
|
|
|
|
|
|
Insurance and investment contract liabilities
|
|
|
$
|
16,271
|
|
Other liabilities
|
|
|
|
771
|
|
Subordinated debentures
|
|
|
|
403
|
|
Segregated funds' net liabilities
|
|
|
|
31,251
|
|
Total liabilities
|
|
|
$
|
48,696
|
|
Net assets acquired
|
|
|
$
|
2,195
|
The difference between the purchase price and the determination of the
final fair value of tangible net assets acquired as of January 30, 2015
represents goodwill and intangible assets. Due to the recent closing
of the acquisition, the fair value determination and the initial
purchase price accounting for the business combination have not been
completed, and certain disclosures have not been provided. The final
allocation of the purchase price as at January 30, 2015 will be
determined after completing a comprehensive evaluation of the fair
value of assets (including intangibles) and liabilities acquired at
that date.
This transaction significantly builds the Company's capability to serve
customers in all of Canada, and elsewhere in the world, from Quebec.
On a pro forma basis as of December 31, 2014 after giving effect to the
transaction, the acquisition:
-
Adds $20.9 billion in assets under administration19 in capital accumulation plans to our group retirement business in
Canada, bringing our total group retirement assets under administration
in capital accumulation plans in Canada to $46.1 billion;
-
adds $6.5 billion in assets under management to our mutual funds
business in Canada, bringing our total mutual fund assets under
management19 in Canada to $39.6 billion20; and,
-
adds $0.7 billion in premiums and deposits to our Canadian group
benefits business, bringing our total Canadian group benefits premiums
and deposits in Canada to $7.8 billion.
Transaction highlights21:
-
Excluding transition and integration costs, after the first year we
expect the transaction to be accretive by approximately $0.03 to
earnings per common share ("EPS") per year over each of the next 3
years. It will also increase our earnings capacity beyond our 2016
core earnings objective of $4 billion.
-
The transaction, and the financing, maintain our strong capital position
and financial flexibility, and in no way inhibit our ability to pay
dividends. In fact, it will enhance our ability to increase dividends
in the future.
-
We believe the transaction will improve core earnings, however the
transition costs reported in core earnings will create a modest,
temporary headwind on our core return on common shareholders' equity
("Core ROE") 2016 objective of 13%.
-
Excluding transition and integration costs, the transaction is expected
to be marginally accretive to EPS in the 1st year.
-
The transaction increases earnings contributions from less capital
intensive, fee-based businesses.
-
Integration costs totaling $150 million post-tax are expected to be
incurred in the first 3 years and we expect revenue synergies which
will build over time.
-
Annual cost savings of $100 million post-tax are expected to be largely
achieved by the 3rd year.
-
At the time of announcement, we indicated we were targeting an MCCSR
ratio in the range of 235% to 240% at close. The pro forma ratio
assuming we had closed on December 31, 2014 would have been in that
range.
-
We also indicated that we were targeting a financial leverage ratio of
approximately 28% at close. The pro forma ratio assuming we had closed
on December 31, 2014 would have been approximately 27.1%.
-
We continue to target a 25% financial leverage ratio over the long-term.
|
____________________________
|
|
19
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
|
20
|
Based on Investment Funds Institute of Canada data as at December 31,
2014.
|
|
21
|
See "Caution regarding forward-looking statements" and "Performance and
Non-GAAP Measures" below.
|
B FINANCIAL HIGHLIGHTS
|
|
Quarterly Results
|
|
Full Year Results
|
|
(C$ millions, unless otherwise stated, unaudited)
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
|
|
2014
|
|
|
2013
|
|
Net income attributed to shareholders
|
|
$
|
640
|
|
$
|
1,100
|
|
$
|
1,297
|
|
|
$
|
3,501
|
|
$
|
3,130
|
|
Preferred share dividends
|
|
|
(28)
|
|
|
(28)
|
|
|
(34)
|
|
|
|
(126)
|
|
|
(131)
|
|
Common shareholders' net income
|
|
$
|
612
|
|
|
1,072
|
|
$
|
1,263
|
|
|
$
|
3,375
|
|
$
|
2,999
|
Reconciliation of core earnings to net income
attributed to shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core earnings(1)
|
|
$
|
713
|
|
$
|
755
|
|
$
|
685
|
|
|
$
|
2,888
|
|
$
|
2,617
|
|
|
Investment-related experience in excess of
amounts included in core earnings
|
|
|
(403)
|
|
|
320
|
|
|
215
|
|
|
|
359
|
|
|
706
|
Core earnings and investment-related
experience in excess of amounts included in
core earnings
|
|
$
|
310
|
|
$
|
1,075
|
|
$
|
900
|
|
|
$
|
3,247
|
|
$
|
3,323
|
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
|
|
|
377
|
|
|
70
|
|
|
(81)
|
|
|
|
412
|
|
|
(336)
|
|
|
Changes in actuarial methods and assumptions
|
|
|
(59)
|
|
|
(69)
|
|
|
(133)
|
|
|
|
(198)
|
|
|
(489)
|
|
|
Disposition of Taiwan insurance business
|
|
|
12
|
|
|
-
|
|
|
350
|
|
|
|
12
|
|
|
350
|
|
|
Impact of in-force product changes and other (2)
|
|
|
-
|
|
|
24
|
|
|
261
|
|
|
|
28
|
|
|
282
|
|
Net income attributed to shareholders
|
|
$
|
640
|
|
$
|
1,100
|
|
$
|
1,297
|
|
|
$
|
3,501
|
|
$
|
3,130
|
|
Basic earnings per common share (C$)
|
|
$
|
0.33
|
|
$
|
0.58
|
|
$
|
0.69
|
|
|
$
|
1.82
|
|
$
|
1.63
|
|
Diluted earnings per common share (C$)
|
|
$
|
0.33
|
|
$
|
0.57
|
|
$
|
0.68
|
|
|
$
|
1.80
|
|
$
|
1.62
|
|
Diluted core earnings per common share (C$)(1)
|
|
$
|
0.36
|
|
$
|
0.39
|
|
$
|
0.35
|
|
|
$
|
1.48
|
|
$
|
1.34
|
|
Return on common shareholders' equity ("ROE")
|
|
|
8.1%
|
|
|
14.8%
|
|
|
20.2%
|
|
|
|
11.9%
|
|
|
12.8%
|
|
Core ROE (1)
|
|
|
9.0%
|
|
|
10.1%
|
|
|
10.4%
|
|
|
|
9.8%
|
|
|
10.6%
|
|
Sales(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance products(3)
|
|
$
|
760
|
|
$
|
660
|
|
$
|
617
|
|
|
$
|
2,544
|
|
$
|
2,757
|
|
|
Wealth products
|
|
$
|
13,762
|
|
$
|
11,742
|
|
$
|
12,241
|
|
|
$
|
52,604
|
|
$
|
49,681
|
|
Premiums and deposits(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance products
|
|
$
|
6,649
|
|
$
|
6,455
|
|
$
|
6,169
|
|
|
$
|
25,015
|
|
$
|
24,549
|
|
|
Wealth products
|
|
$
|
18,863
|
|
$
|
15,632
|
|
$
|
15,367
|
|
|
$
|
72,986
|
|
$
|
63,701
|
|
Assets under management (C$ billions)(1)
|
|
$
|
691
|
|
$
|
663
|
|
$
|
599
|
|
|
$
|
691
|
|
$
|
599
|
|
Capital (C$ billions)(1)
|
|
$
|
39.6
|
|
$
|
37.7
|
|
$
|
33.5
|
|
|
$
|
39.6
|
|
$
|
33.5
|
|
MLI's MCCSR ratio
|
|
|
248%
|
|
|
248%
|
|
|
248%
|
|
|
|
248%
|
|
|
248%
|
|
|
|
|
(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 Fourth quarter earnings analysis
The table below reconciles 4Q14 net income attributed to shareholders of
$640 million to core earnings of $713 million.
|
(C$ millions, unaudited)
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
Core earnings(1)
|
|
|
|
|
|
|
|
|
|
|
Asia Division(2)
|
|
$
|
260
|
|
$
|
273
|
|
$
|
227
|
|
Canadian Division(2)
|
|
|
224
|
|
|
243
|
|
|
233
|
|
U.S. Division(2)
|
|
|
338
|
|
|
342
|
|
|
366
|
Corporate and Other (excluding expected cost of macro hedges and core
investment gains)
|
|
|
(112)
|
|
|
(107)
|
|
|
(138)
|
|
Expected cost of macro hedges(2),(3)
|
|
|
(47)
|
|
|
(46)
|
|
|
(53)
|
|
Investment-related experience in core earnings(4)
|
|
|
50
|
|
|
50
|
|
|
50
|
|
Core earnings
|
|
$
|
713
|
|
$
|
755
|
|
$
|
685
|
|
Investment-related experience in excess of amounts included in core
earnings(4)
|
|
|
(403)
|
|
|
320
|
|
|
215
|
Core earnings and investment-related experience in excess of amounts
included in core earnings
|
|
$
|
310
|
|
$
|
1,075
|
|
$
|
900
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities (see table below)(4),(5)
|
|
|
377
|
|
|
70
|
|
|
(81)
|
|
Changes in actuarial methods and assumptions(6)
|
|
|
(59)
|
|
|
(69)
|
|
|
(133)
|
|
Disposition of Taiwan insurance business
|
|
|
12
|
|
|
-
|
|
|
350
|
|
Impact of in-force product changes and other items(7)
|
|
|
-
|
|
|
24
|
|
|
261
|
|
Net income attributed to shareholders
|
|
$
|
640
|
|
$
|
1,100
|
|
$
|
1,297
|
|
|
|
|
(1)
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
|
(2)
|
The decrease in expected macro hedge cost in 4Q14 compared with 4Q13 was
partially offset by an increase in dynamic hedging costs included in
Asia, Canada and U.S. divisional core earnings.
|
|
(3)
|
The 4Q14 net loss from macro equity hedges was $107 million and
consisted of a $47 million charge related to the estimated expected
cost of the macro equity hedges relative to our long-term valuation
assumptions and a charge of $60 million because actual markets
outperformed our valuation assumptions (included in direct impact of
equity markets and interest rates and variable annuity guarantee
liabilities below).
|
|
(4)
|
As outlined under "Critical Accounting and Actuarial Policies" below,
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 equity markets and interest rates is separately reported. The
inclusion of up to $200 million per annum of favourable investment
experience will be increasing to $400 million per annum commencing
1Q15. See section F1 "Performance and Non-GAAP Measures" below for more
information.
|
|
(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 experience gains and losses on
derivatives associated with our macro equity hedges. We also include
gains and losses on derivative positions and the sale of
available-for-sale ("AFS") bonds in the Corporate and Other segment.
See table below for components of this item. Until 3Q14 this also
included a quarterly ultimate reinvestment rate ("URR") update.
|
|
(6)
|
The 4Q14 charge of $59 million is primarily attributable to method and
modeling refinements, partially offset by a gain of $65 million due to
the implementation of the Canadian Actuarial Standards Board's
revisions to the Canadian Actuarial Standards of Practice related to
economic reinvestment assumptions.
|
|
(7)
|
The 4Q13 gain of $261 million includes the impact on the measurement of
policy liabilities of policyholder-approved changes to the investment
objectives of separate accounts that support our variable annuity
products in the U.S. and a recapture of a reinsurance treaty in Asia.
|
The gain (charge) related to the direct impact of equity markets and
interest rates and variable annuity guarantee liabilities in the table
above is attributable to:
|
C$ millions, unaudited
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
Direct impact of equity markets and variable annuity guarantee
liabilities(1)
|
|
$
|
(142)
|
|
$
|
(35)
|
|
$
|
105
|
|
Fixed income reinvestment rates assumed in the valuation of policy
liabilities(2)
|
|
|
533
|
|
|
165
|
|
|
(105)
|
|
Sale of AFS bonds and derivative positions in the Corporate and Other
segment
|
|
|
(14)
|
|
|
(15)
|
|
|
(55)
|
Charges due to lower fixed income URR assumptions used in the valuation
of
policy liabilities(3)
|
|
|
-
|
|
|
(45)
|
|
|
(26)
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities
|
|
$
|
377
|
|
$
|
70
|
|
$
|
(81)
|
|
|
|
|
(1)
|
In 4Q14, gross equity exposure losses of $881 million and gross equity
hedging charges of $60 million from macro hedge experience were
partially offset by gains of $799 million from dynamic hedging
experience which resulted in a loss of $142 million.
|
|
(2)
|
The gain in 4Q14 for fixed income reinvestment assumptions was driven by
the favourable impact on the measurement of policy liabilities of
changes in yield curves and spreads primarily in the U.S. and Canada.
|
|
(3)
|
The periodic URR charges have ceased effective 4Q14 due to revisions to
the Canadian Actuarial Standards of Practice related to economic
reinvestment assumptions.
|
B2 Full year earnings analysis
The table below reconciles the full year 2014 net income attributed to
shareholders of $3,501 million to core earnings of $2,888 million.
|
(C$ millions, unaudited)
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
2014
|
|
|
|
2013
|
|
Core earnings(1)
|
|
|
|
|
|
|
|
|
|
Asia Division(2)
|
|
$
|
|
1,008
|
|
$
|
|
921
|
|
Canadian Division(2)
|
|
|
|
927
|
|
|
|
905
|
|
U.S. Division(2)
|
|
|
|
1,383
|
|
|
|
1,510
|
Corporate and Other (excluding expected cost of macro hedges and core
investment
gains)
|
|
|
|
(446)
|
|
|
|
(506)
|
|
Expected cost of macro hedges(2),(3)
|
|
|
|
(184)
|
|
|
|
(413)
|
|
Investment-related experience in core earnings(4)
|
|
|
|
200
|
|
|
|
200
|
|
Total Core earnings
|
|
$
|
|
2,888
|
|
$
|
|
2,617
|
|
Investment-related experience in excess of amounts included in core
investment gains(4)
|
|
|
|
359
|
|
|
|
706
|
Core earnings and investment-related experience in excess of amounts
included
in core earnings
|
|
$
|
|
3,247
|
|
$
|
|
3,323
|
|
Changes in actuarial methods and assumptions(5)
|
|
|
|
(198)
|
|
|
|
(489)
|
Direct impact of equity markets and interest rates and variable annuity
guarantee
liabilities(4),(6) (see table below)
|
|
|
|
412
|
|
|
|
(336)
|
|
Disposition of Taiwan insurance business
|
|
|
|
12
|
|
|
|
350
|
|
Impact of in-force product changes and other items(7)
|
|
|
|
24
|
|
|
|
261
|
|
Material and exceptional tax related items(8)
|
|
|
|
4
|
|
|
|
47
|
|
Restructuring charge related to organizational design
|
|
|
|
-
|
|
|
|
(26)
|
|
Net income attributed to shareholders
|
|
$
|
|
3,501
|
|
$
|
|
3,130
|
|
|
|
|
(1)
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
|
(2)
|
The decrease in expected macro hedge cost in 2014 compared with 2013 was
partially offset by an increase in dynamic hedging costs included in
Asia, Canada and U.S. divisional core earnings.
|
|
(3)
|
The 2014 net loss from macro equity hedges was $304 million and
consisted of a $184 million charge related to the estimated expected
cost of the macro equity hedges relative to our long-term valuation
assumptions and a $120 million charge because actual markets
outperformed our valuation assumptions (included in the direct impact
of equity markets and interest rates and variable annuity guarantee
liabilities below).
|
|
(4)
|
As outlined under Critical Accounting and Actuarial Policies, net
insurance contract liabilities under IFRS for Canadian insurers are
determined using 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 reported
separately. The inclusion of up to $200 million per annum of favourable
investment experience will be increasing to $400 million per annum
commencing 1Q15. See section F1 "Performance and Non-GAAP measures"
below for more information.
|
|
(5)
|
Of the $198 million charge for change in actuarial methods and
assumptions in 2014, $69 million was reported in the third quarter as
part of the comprehensive annual review of valuation assumptions. Over
the full year, charges due to lapse assumption changes, and updates to
actuarial standards related to segregated fund bond calibration
criteria, were partially offset by benefits due to refinements related
to the projection of asset and liability cash flows, including an in
depth review of the modelling of future tax cash flows for our U.S.
Insurance business, updates to mortality and morbidity assumptions, and
updates to actuarial standards related to economic reinvestment
assumptions.
|
|
(6)
|
The direct impact of equity markets and interest rates is relative to
our policy liability valuation assumptions and includes changes to
interest rate assumptions, as well as experience gains and losses on
derivatives associated with our macro equity hedges. We also include
gains and losses on derivative positions and the sale of AFS bonds in
the Corporate and Other segment. See table below for components of this
item.
|
|
(7)
|
The 2014 the amount relates to the recapture of a reinsurance treaty in
Canada. The 2013 gain of $261 million includes the impact on the
measurement of policy liabilities of policyholder-approved changes to
the investment objectives of separate accounts that support our
variable annuity products in the U.S. as well as a recapture of a
reinsurance treaty in Asia.
|
|
(8)
|
The $4 million gain in 2014 relates to tax rate changes in Asia. The
2013 tax item primarily reflects the impact on our deferred tax asset
position of Canadian provincial tax rate changes.
|
|
|
|
The gain (loss) related to the direct impact of equity markets and
interest rates and variable annuity guarantee liabilities included in
the table above is attributable to:
|
(C$ millions, unaudited)
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
2014
|
|
|
2013
|
|
Direct impact of equity markets and variable annuity guarantee
liabilities(1)
|
|
$
|
(182)
|
|
$
|
458
|
|
Fixed income reinvestment rates assumed in the valuation of policy
liabilities(2)
|
|
|
729
|
|
|
(276)
|
|
Sale of AFS bonds and derivative positions in the Corporate and Other
segment
|
|
|
(40)
|
|
|
(262)
|
|
Charges due to lower fixed income URR assumptions used in the valuation
of policy liabilities(3)
|
|
|
(95)
|
|
|
(256)
|
|
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities
|
|
$
|
412
|
|
$
|
(336)
|
|
|
|
|
(1)
|
In 2014, gross equity exposure losses of $2,179 million and gross equity
hedging charges of $120 million from macro hedge experience were
partially offset by gains of $2,117 million from dynamic hedging
experience which resulted in a loss of $182 million.
|
|
(2)
|
The gain in 2014 for fixed income reinvestment assumptions was driven by
the favourable impact on the measurement of policy liabilities of
changes in yield curves and spreads primarily in the U.S. and Canada.
|
|
(3)
|
The periodic URR charges have ceased effective 4Q14 due to revisions to
the Canadian Actuarial Standards of Practice related to economic
reinvestment assumptions.
|
|
|
|
B3 Revenue
|
|
Quarterly Results
|
|
Full Year Results
|
|
(C$ millions, unaudited)
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
|
2014
|
|
|
2013
|
|
Net premium income
|
|
$
|
4,849
|
|
$
|
4,641
|
|
$
|
4,548
|
|
$
|
17,883
|
|
$
|
17,510
|
|
Investment income
|
|
|
2,681
|
|
|
2,618
|
|
|
2,632
|
|
|
10,808
|
|
|
9,860
|
|
Other revenue (1)
|
|
|
2,301
|
|
|
2,207
|
|
|
2,633
|
|
|
8,739
|
|
|
8,876
|
|
Revenue before realized and unrealized gains (losses) on assets
supporting insurance and investment contract liabilities and on macro
hedging program
|
|
|
9,831
|
|
|
9,466
|
|
|
9,813
|
|
|
37,430
|
|
|
36,246
|
Realized and unrealized gains (losses) on
assets supporting insurance and investment
contract liabilities and on macro hedging
program
|
|
|
6,182
|
|
|
1,561
|
|
|
(2,783)
|
|
|
17,092
|
|
|
(17,607)
|
|
Total revenue
|
|
$
|
16,013
|
|
$
|
11,027
|
|
$
|
7,030
|
|
$
|
54,522
|
|
$
|
18,639
|
|
|
|
|
(1)
|
Other revenue in 4Q13 and full year 2013 includes a pre-tax gain of $476
million on the sale of our Taiwan insurance business.
|
|
|
|
For the full year 2014, revenue before realized and unrealized gains
(losses) was $37.4 billion, an increase of 5% over full year 2013,
after adjusting for the one-time gain on the sale of our Taiwan
insurance business in 4Q13. The increase was driven by higher fee
income due to higher asset levels in our wealth management businesses
and the strengthening of the U.S dollar. Net premium income on a
constant currency basis increased in Asia by 12% and declined in Canada
and the U.S. by 2% and 13%, respectively.
The change in net unrealized and realized gains (losses) on assets
supporting insurance and investment contract liabilities and on the
macro hedging program primarily related to the impact of movements in
interest rates on the fair value of our bond and fixed income
derivative holdings. In 2014, the general decrease in interest rates
resulted in an increase in revenue while in 2013 the general increase
in interest rates resulted in a decrease in revenue.
Please see discussion below in section B7 "Impact of fair value
accounting".
B4 Premiums and deposits22
Premiums and deposits is used as an alternate measure of our top line
growth, as it includes all new policyholder cash flows and unlike
total revenue is not impacted by the volatility created by fair value
accounting. Premiums and deposits for insurance products were $6.6
billion in 4Q14, an increase of 4% on a constant currency basis
compared with 4Q13. For the full year, insurance premiums and deposits
were $25.0 billion, down 1% on a constant currency basis compared with
2013.
Premiums and deposits for wealth products were $18.9 billion in 4Q14, an
increase of $3.5 billion, or 15% on a constant currency basis, compared
with 4Q13. For the full year, wealth premiums and deposits were $73.0
billion, an increase of 9% on a constant currency basis over 2013.
B5 Assets under management22
Assets under management as at December 31, 2014 were a record $691
billion, an increase of $92.2 billion, or 9% on a constant currency
basis, compared with December 31, 2013. The increase was largely
attributable to growth in our asset management business, favourable
equity markets, and the fair value accounting impact of the reduction
in interest rates on fixed income investments.
B6 Capital22
MFC's total capital as at December 31, 2014 was $39.6 billion, an increase of $1.9 billion
from September 30, 2014 and of $6.1 billion from December 31, 2013. The
increase from December 31, 2013 was primarily driven by net income of
$3.5 billion, currency impacts of $1.9 billion and net capital issued
of $1 billion (excludes $1.0 billion redemption of senior debt as it is
not included in the definition of capital), partially offset by cash
dividends of $0.9 billion over the period. As noted in section A3
above, MLI's MCCSR ratio was 248% at December 31, 2014, the same level
as at September 30, 2014 and as at December 31, 2013.
|
____________________________
|
|
22
|
This item is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below.
|
B7 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, each
of which impacts net income (see sections A1 and A2 above for
discussion of fourth quarter and full year experience).
Net realized and unrealized gains reported in investment income were
$17.1 billion for full year 2014 and $6.2 billion for 4Q14. This
amount was primarily driven by the mark-to-market impact of decreases
in interest rates on our bond and fixed income derivative holdings.
As outlined in the "Critical Accounting and Actuarial Policies" in our
2013 Annual Report MD&A, 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 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 policies will result in
an investment-related experience gain (loss).
B8 Impact of foreign exchange rates
Changes in foreign exchange rates, primarily due to the strengthening of
the U.S. dollar compared to the Canadian dollar, increased core
earnings by $35 million in 4Q14 compared with 4Q13 and by $129 million
for full year 2014 compared with full year 2013. The impact of foreign
currency on items excluded from core earnings is not relevant given the
nature of these items.
C PERFORMANCE BY DIVISION
C1 Asia Division
|
($ millions, unless otherwise stated)
|
Quarterly results
|
|
Full year results
|
|
Canadian dollars
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
|
2014
|
|
|
2013
|
|
Net income attributed to shareholders
|
|
$
|
336
|
|
$
|
332
|
|
$
|
725
|
|
$
|
1,247
|
|
$
|
2,519
|
|
Core earnings(1)
|
|
|
260
|
|
|
273
|
|
|
227
|
|
|
1,008
|
|
|
921
|
|
Premiums and deposits
|
|
|
5,256
|
|
|
4,691
|
|
|
3,680
|
|
|
17,897
|
|
|
16,504
|
|
Assets under management (billions)
|
|
|
87.1
|
|
|
84.5
|
|
|
76.6
|
|
|
87.1
|
|
|
76.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to shareholders
|
|
$
|
297
|
|
$
|
305
|
|
$
|
690
|
|
$
|
1,129
|
|
$
|
2,451
|
|
Core earnings
|
|
|
229
|
|
|
251
|
|
|
216
|
|
|
913
|
|
|
893
|
|
Premiums and deposits
|
|
|
4,627
|
|
|
4,308
|
|
|
3,509
|
|
|
16,185
|
|
|
16,062
|
|
Assets under management (billions)
|
|
|
75.1
|
|
|
75.4
|
|
|
72.0
|
|
|
75.1
|
|
|
72.0
|
|
|
|
|
(1)
|
See "Performance and Non-GAAP Measures" for a reconciliation between
IFRS net income attributed to shareholders and core earnings.
|
|
|
|
Asia Division's 4Q14 net income attributed to shareholders was $336 million compared with $725 million in 4Q13. Net income
attributed to shareholders is comprised of core earnings, which was
$260 million in 4Q14 compared with $227 million in 4Q13, and items
excluded from core earnings, which amounted to $76 million in 4Q14
compared with $498 million in 4Q13.
Expressed in U.S. dollars, the presentation currency of the division,
net income attributed to shareholders was US$297 million compared with
US$690 million for Q413 and core earnings of US$229 million in 4Q14
compared with US$216 million in 4Q13. Items excluded from core earnings
were US$68 million for 4Q14 compared with US$474 million in 4Q13.
Core earnings increased US$39 million, or 19%, compared with 4Q13 after
adjusting for the increased dynamic hedging costs (there is a
corresponding decrease in macro hedging costs in the Corporate and
Other segment), the impact of changes in currency rates and the sale of
our Taiwan insurance business in 4Q13. The growth in core earnings was
driven by favourable policyholder experience, notably in Hong Kong,
improved new business margins and higher fee income. The US$406 million
decrease in items excluded from core earnings was driven by the
non-recurrence of two one-time gains in 4Q13; the gain on sale of our
Taiwan insurance business and the gain on the recapture of a reinsurance treaty.
Asia Division's full year 2014 net income attributed to shareholders of
US$1,129 million decreased US$1,322 million compared with US$2,451
million for 2013. While core earnings increased by US$20 million, items
excluded from core earnings decreased by US$1,342 million. Core
earnings in 2014 increased US$138 million, an increase of 16% after
adjusting for the same items as in the paragraph above, driven by new
business and in-force growth, improved new business margins and
favourable policyholder experience. The US$1,342 million decrease in
items excluded from core earnings was driven by the same factors as in
the paragraph above as well as the non-recurrence of large gains
reported in 2013 related to the direct impact of equity markets and
interest rates on variable annuity guarantee liabilities not
dynamically hedged.
Premiums and deposits for 4Q14 were US$4.6 billion, an increase of 38% on a constant currency
basis compared with 4Q13. Premiums and deposits for insurance products
of US$1.6 billion increased 15% (adjusted to exclude the Taiwan
insurance business sold in 4Q13), driven by double digit sales growth
in most Asian markets, led by strong corporate product sales in Japan,
and solid in-force business growth across the region. Wealth management
premiums and deposits of US$3.0 billion increased by 60% due to
improved market sentiment, marketing campaigns and a new fund launch in
China, higher mutual fund sales in Indonesia and expanded distribution
of wealth products in Japan.
Premiums and deposits for the full year 2014 of US$16.2 billion
increased 5% on a constant currency basis compared with 2013. Of this,
premiums and deposits for insurance products of US$6.4 billion
increased 13% compared with 2013 (adjusted to exclude the Taiwan
insurance business sold in 2013). Premiums and deposits for wealth
products of US$9.8 billion increased by 3% compared with 2013.
Assets under management as at December 31, 2014 were US$75.1 billion, an increase of 10% on a
constant currency basis from December 31, 2013 driven by net
policyholder cash inflows of US$2.0 billion and the impact of equity
market appreciation and lower interest rates over the last 12 months.
C2 Canadian Division
|
($ millions, unless otherwise stated)
|
Quarterly results
|
|
Full year results
|
|
Canadian dollars
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
|
2014
|
|
|
2013
|
|
Net income attributed to shareholders
|
|
$
|
73
|
|
$
|
286
|
|
$
|
373
|
|
$
|
1,003
|
|
$
|
828
|
|
Core earnings(1)
|
|
|
224
|
|
|
243
|
|
|
233
|
|
|
927
|
|
|
905
|
|
Premiums and deposits
|
|
|
5,427
|
|
|
5,073
|
|
|
5,275
|
|
|
21,619
|
|
|
21,172
|
|
Assets under management (billions)
|
|
|
158.9
|
|
|
156.0
|
|
|
145.2
|
|
|
158.9
|
|
|
145.2
|
|
|
|
|
(1)
|
See "Performance and Non-GAAP Measures" for a reconciliation between
IFRS net income attributed to shareholders and core earnings.
|
|
|
|
Canadian Division's 4Q14 net income attributed to shareholders was $c73 million compared with $373 million in 4Q13. Net income
attributed to shareholders is comprised of core earnings, which was
$224 million in 4Q14 compared with $233 million in 4Q13, and items
excluded from core earnings, which were a loss of $151 million in 4Q14
compared with a gain of $140 million in 4Q13. Increases in core
earnings driven by in-force business growth, including higher fee
income from our growing wealth management businesses, were more than
offset by unfavourable policyholder experience and lower new business
margins. The loss in items excluded from core earnings in the quarter
reflected unfavourable investment-related experience driven by
significant declines in oil prices.
Canadian Division's full year 2014 net income attributed to shareholders
of $1,003 million compared with $828 million in 2013. Core earnings was
$927 million, an increase of $22 million from 2013 and items excluded
from core earnings were a gain of $76 million compared to a loss of $77
million in 2013. The increase in core earnings reflected in-force
business growth, including higher fee income from our growing wealth
management businesses and improved policyholder experience, partially
offset by the impact of changes in new business product mix. In
addition, 2013 core earnings benefited from a release of tax provisions
related to the closure of prior year' tax filings. Year-over-year, the
increase in items excluded from core earnings was driven by more
favourable market and investment-related experience.
Premiums and deposits in 4Q14 were $5.4 billion, 3% higher than 4Q13 levels. The increase was
driven by sales and a growing in-force block of plan participants in
our group retirement business. Full year 2014 premiums and deposits
were $21.6 billion, 2% higher than 2013 levels.
Assets under management were a record $158.9 billion as at December 31, 2014, an increase of
$13.7 billion, or 9%, from December 31, 2013 driven by growth in our
wealth management businesses and the impact of equity market
appreciation and lower interest rates.
C3 U.S. Division
|
($ millions, unless otherwise stated)
|
Quarterly results
|
|
Full year results
|
|
Canadian dollars
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
|
2014
|
|
|
2013
|
|
Net income attributed to shareholders
|
|
$
|
506
|
|
$
|
679
|
|
$
|
825
|
|
$
|
2,147
|
|
$
|
2,908
|
|
Core earnings(1)
|
|
|
338
|
|
|
342
|
|
|
366
|
|
|
1,383
|
|
|
1,510
|
|
Premiums and deposits
|
|
|
12,535
|
|
|
11,342
|
|
|
11,608
|
|
|
50,223
|
|
|
46,519
|
|
Assets under management (billions)
|
|
|
398.5
|
|
|
376.9
|
|
|
340.4
|
|
|
398.5
|
|
|
340.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to shareholders
|
|
$
|
444
|
|
$
|
623
|
|
$
|
787
|
|
$
|
1,946
|
|
$
|
2,820
|
|
Core earnings
|
|
|
297
|
|
|
314
|
|
|
349
|
|
|
1,252
|
|
|
1,469
|
|
Premiums and deposits
|
|
|
11,040
|
|
|
10,415
|
|
|
11,061
|
|
|
45,474
|
|
|
45,186
|
|
Assets under management (billions)
|
|
|
343.5
|
|
|
336.3
|
|
|
320.1
|
|
|
343.5
|
|
|
320.1
|
|
|
|
|
(1)
|
See "Performance and Non-GAAP Measures" for a reconciliation between
IFRS net income attributed to shareholders and core earnings.
|
|
|
|
U.S. Division's 4Q14 net income attributed to shareholders was $506 million compared with $825 million in 4Q13. Net income
attributed to shareholders is comprised of core earnings, which
amounted to $338 million in 4Q14 compared with $366 million in 4Q13,
and items excluded from core earnings, which amounted to $168 million
in 4Q14 compared with $459 million in 4Q13.
Expressed in U.S. dollars, the functional currency of the division, 4Q14
net income attributed to shareholders was US$444 million compared with
US$787 million in 4Q13, core earnings was US$297 million compared with
US$349 million in 4Q13, and items excluded from core earnings were
US$147 million in 4Q14 compared with US$438 million in 4Q13. The US$52
million decrease in core earnings was driven by unfavourable insurance
policyholder experience compared with favourable experience in 4Q13 and
the unfavourable impact of declines in interest rates and spreads on
the release of insurance margins. Partially offsetting these items were
the impact of higher Insurance new business gains, lower deferred
acquisition amortization costs due to the run-off of variable annuity
business and higher wealth management fee income due to higher asset
levels. The US$291 million decrease in items excluded from core
earnings was primarily due to the non-recurrence of gains in 2013
related to policyholder-approved in-force product changes as well as
4Q14 other investment-related losses on private equity oil and gas
holdings, partially offset by more favorable direct impacts of equity
markets and interest rates.
U.S. Division's full year 2014 net income attributed to shareholders was
US$1,946 million compared with US$2,820 million for full year 2013,
core earnings was US$1,252 million compared with US$1,469 million in
2013, and items excluded from core earnings were US$694 million
compared with US$1,351 million in 2013. The US$217 million decrease in
core earnings was driven by unfavourable policyholder experience in JH
insurance including higher long-term care claims, compared with
favourable experience in 2013, increased dynamic hedging costs (there
is a corresponding decrease in macro hedging costs in the Corporate and
Other segment), the unfavourable impact of market factors on Insurance
and Annuity expected earnings, and lower favourable tax related items.
Partially offsetting these items were higher wealth management fee
income due to higher asset levels and lower deferred acquisition
amortization costs. The US$657 million decrease in items excluded from
core earnings related to lower investment-related experience gains and
the non-recurrence of a gain in 2013 related to policyholder-approved
in-force product changes. Note, the direct impact of interest rates and
equity markets was not materially different in total; however, the
gains in 2013 were due to equity markets and in 2014 were due to
interest rates.
Premiums and deposits for 4Q14 were US$11.0 billion, consistent with 4Q13 as higher mutual
fund sales were offset by lower deposits on in-force annuity business.
Premiums and deposits for the full year 2014 were US$45.5 billion, an
increase of US$0.3 billion or 1% compared with full year 2013. Of this,
premiums and deposits for insurance products were US$6.7 billion, a
decrease of US$0.7 billion compared with full year 2013. The decrease
was due to lower universal life sales. Premiums and deposits for
wealth management products were US$38.8 billion for full year 2014, an
increase of US$1.0 billion compared with full year 2013, and included a
US$1.4 billion increase in mutual fund sales partially offset by lower
deposits on in-force annuity business.
Assets under management as at December 31, 2014 were a record US$343.5 billion, up 7% from
December 31, 2013. This increase was due to market factors, including
the impact of a decline in interest rates and higher equity markets,
and strong net mutual fund sales, partially offset by variable and
fixed annuity payments.
C4 Corporate and Other
|
($ millions, unless otherwise stated)
|
Quarterly Results
|
|
Full year results
|
|
Canadian dollars
|
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
|
2014
|
|
|
2013
|
|
Net loss attributed to shareholders
|
|
$
|
(275)
|
|
$
|
(197)
|
|
$
|
(626)
|
|
$
|
(896)
|
|
$
|
(3,125)
|
|
|
Core loss (excluding macro hedges and core
investment gains)(1)
|
|
$
|
(112)
|
|
$
|
(107)
|
|
$
|
(138)
|
|
$
|
(446)
|
|
$
|
(506)
|
|
|
Expected cost of macro hedges
|
|
|
(47)
|
|
|
(46)
|
|
|
(53)
|
|
|
(184)
|
|
|
(413)
|
|
|
Investment-related experience included in
core earnings
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
200
|
|
|
200
|
|
Total core loss
|
|
$
|
(109)
|
|
$
|
(103)
|
|
$
|
(141)
|
|
$
|
(430)
|
|
$
|
(719)
|
|
Premiums and deposits
|
|
$
|
2,294
|
|
$
|
981
|
|
$
|
974
|
|
$
|
8,262
|
|
$
|
4,056
|
|
Assets under management (billions)
|
|
|
46.6
|
|
|
45.1
|
|
|
36.7
|
|
|
46.6
|
|
|
36.7
|
|
|
|
|
(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 $275 million for the 4Q14 compared with a net loss of $626 million
for 4Q13. The net loss attributed to shareholder is comprised of core
loss and items excluded from core loss. The core loss of $109 million
in 4Q14 compared with a core loss of $141 million in 4Q13, and items
excluded from core loss amounted to charges of $166 million in 4Q14
compared with charges of $485 million in 4Q13.
The $32 million decrease in core loss as compared with 4Q13 was driven
by lower expenses and higher gains on AFS equities partially offset by
lower fixed income yields and the non-recurrence of commutation gains
reported in 4Q13 on our run-off accident and health reinsurance
business. The $319 million reduction from 4Q13 in items excluded from
core loss was primarily due to lower macro hedging losses and lower
charges for changes in actuarial methods and assumptions.
For the full year 2014, Corporate and Other reported a net loss
attributed to shareholders of $896 million compared with a net loss of
$3,125 million for full year 2013. The core loss was $430 million for
full year 2014 compared with $719 million for full year 2013 and items
excluded from the core loss were charges of $466 million for full year
2014 compared with $2,406 million for full year 2013.
The $289 million year-over-year decrease in the core loss was driven by
a reduction in macro hedging activity in the year (note this is mostly
offset by increased dynamic hedge costs in the operating divisions),
lower expenses, and the non-recurrence of tax charges. Partially
offsetting these items were lower net investment yields as well as the
non-recurrence of P&C Reinsurance claims provision releases. The
$1,940 million reduction in items excluded from core loss primarily
related to lower macro hedge costs (see section A1 - "Earnings" above)
and $291 million of lower charges related to changes in actuarial
methods and assumptions.
Premiums and deposits for 4Q14 were $2,294 million compared with $974 million in 4Q13, and
were $8.3 billion for full year 2014 compared with $4.1 billion for
full year 2013. These amounts primarily relate to Investment
Division's external asset management business.
Assets under management of $46.6 billion as at December 31, 2014 (December 31, 2013 - $36.7
billion) included assets managed by Manulife Asset Management on behalf
of third-party institutional clients of $41.2 billion (2013 - $32.5
billion) and the Company's own funds of $13.4 billion (2013 - $4.9
billion), partially offset by a $8.0 billion (2013 - $0.7 billion)
total Company adjustment related to the reclassification of derivative
positions from invested assets to other assets and liabilities. The
increase in the Company's own funds includes $2.2 billion of net cash
proceeds in escrow from the issuance of subscription receipts, net
income earned over the period and the impact of a stronger U.S. dollar.
D RISK MANAGEMENT AND RISK FACTORS UPDATE
This section provides an update to our risk management practices and
risk factors outlined in the MD&A in our 2013 Annual Report.
D1 Potential Impact of current macro environment
The current macro environment, including low interest rates and
declining oil and gas prices, produces headwinds for 2015 earnings.
Lower interest rates may reduce new business margins, reduce the income
reported in our Corporate and Other segment and reduce the amount of
provisions for adverse deviation released into earnings each period.
We may experience investment-related experience charges if oil and gas
prices persist at current levels or decline further.
D2 Variable annuity and segregated fund guarantees
As described in the MD&A in our 2013 Annual Report, guarantees on
variable products and segregated funds may include one or more of
death, maturity, income and withdrawal guarantees. Variable annuity and
segregated fund guarantees are contingent and only payable upon the
occurrence of the relevant event, if fund values at that time are below
guaranteed values. Depending on future equity market levels,
liabilities on current in-force business would be due primarily in the
period from 2015 to 2038.
We seek to mitigate a portion of the risks embedded in our retained
(i.e. net of reinsurance) variable annuity and segregated fund
guarantee business through the combination of our dynamic and macro
hedging strategies (see section D4 "Publicly traded equity performance
risk" below).
The table below shows selected information regarding the Company's
variable annuity and segregated fund guarantees gross and net of
reinsurance.
Variable annuity and segregated fund guarantees, net of reinsurance
|
As at
|
December 31, 2014
|
|
December 31, 2013
|
|
(C$ millions)
|
|
|
Guarantee
value
|
|
|
Fund
value
|
|
|
Amount at
risk(4),(5)
|
|
|
Guarantee
value
|
|
|
Fund
value
|
|
|
Amount at
risk(4),(5)
|
|
Guaranteed minimum income benefit(1)
|
|
$
|
6,014
|
|
$
|
4,846
|
|
$
|
1,203
|
|
$
|
6,194
|
|
$
|
5,161
|
|
$
|
1,109
|
|
Guaranteed minimum withdrawal benefit
|
|
|
66,950
|
|
|
64,016
|
|
|
4,570
|
|
|
66,189
|
|
|
63,849
|
|
|
4,120
|
|
Guaranteed minimum accumulation benefit
|
|
|
14,514
|
|
|
18,670
|
|
|
23
|
|
|
16,942
|
|
|
20,581
|
|
|
94
|
|
Gross living benefits(2)
|
|
$
|
87,478
|
|
$
|
87,532
|
|
$
|
5,796
|
|
$
|
89,325
|
|
$
|
89,591
|
|
$
|
5,323
|
|
Gross death benefits(3)
|
|
|
12,178
|
|
|
11,036
|
|
|
1,312
|
|
|
12,490
|
|
|
11,230
|
|
|
1,413
|
|
Total gross of reinsurance and hedging
|
|
$
|
99,656
|
|
$
|
98,568
|
|
$
|
7,108
|
|
$
|
101,815
|
|
$
|
100,821
|
|
$
|
6,736
|
|
Living benefits reinsured
|
|
$
|
5,242
|
|
$
|
4,249
|
|
$
|
1,020
|
|
$
|
5,422
|
|
$
|
4,544
|
|
$
|
942
|
|
Death benefits reinsured
|
|
|
3,598
|
|
|
3,398
|
|
|
560
|
|
|
3,601
|
|
|
3,465
|
|
|
564
|
|
Total reinsured
|
|
$
|
8,840
|
|
$
|
7,647
|
|
$
|
1,580
|
|
$
|
9,023
|
|
$
|
8,009
|
|
$
|
1,506
|
|
Total, net of reinsurance
|
|
$
|
90,816
|
|
$
|
90,921
|
|
$
|
5,528
|
|
$
|
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 December 31, 2014 was $5,528
million (December 31, 2013 - $5,230 million) of which: US$3,616 million
(December 31, 2013 - US$3,124 million) was on our U.S. business, $912
million (December 31, 2013 - $1,248 million) was on our Canadian
business, US$99 million (December 31, 2013 - US$335 million) was on our
Japan business and US$264 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
$5.5 billion at December 31, 2014, compared with $5.2 billion at
December 31, 2013.
Policy liabilities established for variable annuity and segregated fund
guarantees were $4,862 million at December 31, 2014 (December 31, 2013
- $1,197 million). For non-dynamically hedged business, policy
liabilities increased from $589 million at December 31, 2013 to $684
million at December 31, 2014. For the dynamically hedged business,
policy liabilities increased from $608 million at December 31, 2013 to
$4,178 million at December 31, 2014.
The increase in total policy liabilities for variable annuity and
segregated fund guarantees since December 31, 2013 is mainly due to the
decline in yield curves 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 will be as indicated or on MLI's MCCSR ratio
will be as indicated.
D4 Publicly traded equity performance risk
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.
This estimate assumes that the performance of the dynamic hedging
program would not completely offset the gain/loss from the dynamically
hedged variable annuity guarantee liabilities. It assumes that the
hedge assets are based on the actual position at the period end, and
that equity hedges in the dynamic program are rebalanced at 5%
intervals. In addition, we assume that the macro hedge assets are
rebalanced in line with market changes.
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.
This disclosure has been simplified in 2014 to exclude the impact of
assuming that the change in the value of dynamic hedge assets
completely offsets the change in dynamically hedged variable annuity
guarantees, and now shows the impact of macro and dynamic hedge assets
in aggregate.
Potential impact on net income attributed to shareholders arising from
changes to public equities (1)
|
As at December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(C$ millions)
|
|
|
-30%
|
|
|
-20%
|
|
|
-10%
|
|
|
10%
|
|
|
20%
|
|
|
30%
|
|
Underlying sensitivity to net income attributed to shareholders(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable annuity guarantees
|
|
$
|
(4,480)
|
|
$
|
(2,570)
|
|
$
|
(1,100)
|
|
$
|
740
|
|
$
|
1,210
|
|
$
|
1,510
|
|
Asset based fees
|
|
|
(360)
|
|
|
(240)
|
|
|
(120)
|
|
|
120
|
|
|
240
|
|
|
360
|
|
General fund equity investments(3)
|
|
|
(650)
|
|
|
(440)
|
|
|
(210)
|
|
|
220
|
|
|
450
|
|
|
680
|
|
Total underlying sensitivity before hedging
|
|
$
|
(5,490)
|
|
$
|
(3,250)
|
|
$
|
(1,430)
|
|
$
|
1,080
|
|
$
|
1,900
|
|
$
|
2,550
|
|
Impact of macro and dynamic hedge assets(4)
|
|
$
|
3,770
|
|
$
|
2,150
|
|
$
|
950
|
|
$
|
(850)
|
|
$
|
(1,460)
|
|
$
|
(1,940)
|
|
Net potential impact on net income after impact of hedging
|
|
$
|
(1,720)
|
|
$
|
(1,100)
|
|
$
|
(480)
|
|
$
|
230
|
|
$
|
440
|
|
$
|
610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 before hedging
|
|
$
|
(4,850)
|
|
$
|
(2,800)
|
|
$
|
(1,200)
|
|
$
|
860
|
|
$
|
1,550
|
|
$
|
2,120
|
|
Impact of macro and dynamic hedge assets(4)
|
|
$
|
3,510
|
|
$
|
1,880
|
|
$
|
770
|
|
$
|
(680)
|
|
$
|
(1,160)
|
|
$
|
(1,510)
|
|
Net potential impact on net income after impact of hedging
|
|
$
|
(1,340)
|
|
$
|
(920)
|
|
$
|
(430)
|
|
$
|
180
|
|
$
|
390
|
|
$
|
610
|
|
|
|
|
(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 AFS 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 and
dynamic hedging program. The impact of dynamic hedge rebalancing
represents the impact of rebalancing equity hedges for dynamically
hedged variable annuity guarantee best estimate liabilities at 5%
intervals, 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%
|
|
December 31, 2014
|
|
|
(20)
|
|
|
(10)
|
|
|
(4)
|
|
|
1
|
|
|
7
|
|
|
11
|
|
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%
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
|
|
|
December 31,
|
|
|
December 31,
|
|
(C$ millions)
|
|
|
2014
|
|
|
2013
|
|
For variable annuity guarantee dynamic hedging strategy
|
|
$
|
10,700
|
|
$
|
7,500
|
|
For macro equity risk hedging strategy
|
|
|
3,000
|
|
|
2,000
|
|
Total
|
|
$
|
13,700
|
|
$
|
9,500
|
The equity futures notional amount required for the macro hedging
program increased due to normal rebalancing and market movements, and
for the dynamic hedging program the increase was related to changes in
actuarial methods and assumptions and market movements.
D5 Interest rate and spread risk
Effective December 31, 2014, as a result of decreases in interest rates
we changed our disclosure on the potential impact of a parallel change
in interest rates from a change of 100 basis points to a change of 50
points. At December 31, 2014, we estimated the sensitivity of our net
income attributed to shareholders to a 50 basis point parallel decline
in interest rates to be a charge of $100 million, and to a 50 basis
point increase in interest rates to be a benefit of $100 million. The
$100 million decrease in sensitivity to a 50 basis point decline in
interest rates from December 31, 2013 was primarily attributable to the
implementation of the revised Canadian Actuarial Standards of Practice
related to economic reinvestment assumptions and resulting changes to
the methodology used to develop the risk free interest rate scenarios
used in our policy liability calculations and to normal rebalancing as
part of our interest rate risk hedging program.
The 50 basis point parallel decline includes a change of 50 basis points
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,
relative to the rates assumed in the valuation of policy liabilities,
including embedded derivatives. For variable annuity guarantee
liabilities that are dynamically hedged, it is assumed that interest
rate hedges are rebalanced at 20 basis point intervals.
As the sensitivity to a 50 basis point change in interest rates includes
any associated change in the reinvestment scenarios used to calculate
our actuarial liabilities, the impact of changes to interest rates for
less than, or more than 50 basis points is unlikely to be linear. 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. Furthermore, the actual impact on net
income of non-parallel interest rate movements may differ from the
estimated impact of parallel movements because our exposure to interest
rate movements is not uniform across all durations.
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 50 basis point parallel change in interest
rates relative to rates assumed in the valuation of policy liabilities(1),(2),(3),(4)
|
As at
|
December 31, 2014
|
|
December 31, 2013
|
|
|
|
|
-50bp
|
|
|
+50bp
|
|
|
-50bp
|
|
|
+50bp
|
|
Net income attributed to shareholders (C$ millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding change in market value of AFS fixed income assets
held in the surplus segment
|
|
$
|
(100)
|
|
$
|
100
|
|
$
|
(200)
|
|
$
|
100
|
From fair value changes in AFS fixed income assets held in
surplus, if realized
|
|
|
500
|
|
|
(400)
|
|
|
300
|
|
|
(300)
|
|
MLI's MCCSR ratio (Percentage points)
|
|
|
|
|
|
|
|
|
|
|
|
|
Before impact of change in market value of AFS fixed income
assets held in the Corporate and Other segment(5)
|
|
|
(7)
|
|
|
5
|
|
|
(7)
|
|
|
8
|
From fair value changes in AFS fixed income assets held in
surplus, if realized
|
|
|
3
|
|
|
(3)
|
|
|
2
|
|
|
(2)
|
|
|
|
|
(1)
|
See "Caution related to sensitivities" above. 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 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 6 of the 7 point impact of a
50 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)
|
|
December 31,
2014
|
|
December 31,
2013
|
|
Corporate spreads(4)
|
|
|
|
|
|
|
|
|
Increase 50 basis points
|
|
$
|
500
|
|
$
|
400
|
|
|
Decrease 50 basis points
|
|
|
(500)
|
|
|
(400)
|
|
Swap spreads
|
|
|
|
|
|
|
|
|
Increase 20 basis points
|
|
$
|
(500)
|
|
$
|
(400)
|
|
|
Decrease 20 basis points
|
|
|
500
|
|
|
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 $100 million increase in sensitivity to corporate spreads was
primarily attributable to interest rate and corporate spread movements
during 2014 and the impact of the revised Canadian Actuarial Standards
of Practice related to economic reinvestment assumptions. The $100
million increase in sensitivity to swap spreads was primarily
attributable to interest rate and swap spread movements during 2014 and
to normal rebalancing as part of our interest rate risk hedging
program.
D6 Alternative long-duration asset ("ALDA") performance risk
The following table shows the potential impact on net income attributed
to shareholders resulting from changes in market values of ALDA that
differ from the expected levels assumed in the valuation of policy
liabilities.
Potential impact on net income attributed to shareholders arising from
changes in ALDA returns(1),(2),(3),(4)
|
As at
|
December 31, 2014
|
|
December 31, 2013
|
|
(C$ millions)
|
|
|
-10%
|
|
|
10%
|
|
|
-10%
|
|
|
10%
|
|
Real estate, agriculture and timber assets
|
|
$
|
(1,000)
|
|
$
|
1,000
|
|
$
|
(1,000)
|
|
$
|
1,000
|
|
Private equities and other alternative long-duration assets
|
|
|
(1,000)
|
|
|
900
|
|
|
(900)
|
|
|
800
|
|
Alternative long-duration assets
|
|
$
|
(2,000)
|
|
$
|
1,900
|
|
$
|
(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 ALDA, weightings; (ii) any gains
or losses on ALDA held in the Corporate and Other segment; or (iii)
any gains or losses on ALDA 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 December 31, 2014 is
primarily due to the decrease in risk free rates in some jurisdictions
during the period, decreasing the rate at which funds can be
reinvested, as well as the increase in market value of the ALDA, due to
investment activities. This was partially offset by the implementation
of the revised Canadian Actuarial Standards of Practice related to
economic reinvestment assumptions and the resulting introduction of a
new margin for adverse deviation where policy liabilities are supported
by alternative long-duration assets or public equities.
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 and 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. The
estimated potential impact on net income for the next 5 years and the
following 5 years from changes in the fixed income URR driven by
changes in risk free rates is not shown here. After the implementation
of the revised Canadian Actuarial Standards of Practice relating to
reinvestment assumptions in 4Q14 we do not anticipate that there will
be any further impact on net income due to changes in fixed income URR.23
|
____________________________
|
|
23
|
See "Caution related to forward-looking statements" below.
|
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
|
As at
|
Increase (decrease) in after-tax income
|
|
(C$ millions)
|
December 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)
|
|
$
|
300
|
|
$
|
(300)
|
|
$
|
400
|
|
$
|
(400)
|
100 basis point change in future annual returns for alternative long-
duration assets(2)
|
|
|
2,500
|
|
|
(3,100)
|
|
|
3,800
|
|
|
(3,700)
|
100 basis point change in equity volatility assumption for stochastic
segregated fund modelling(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 $100 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 $100 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)
|
ALDA include commercial real estate, timber and agricultural real
estate, oil and gas, and private equities. The reduction of $600
million in sensitivity to a decrease from December 31, 2013 to December
31, 2014 is primarily related to the implementation of the revised
Canadian Actuarial Standards of Practice related to economic
reinvestment assumptions.
|
|
(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 16.25% and 18.4%.
|
E3 Accounting and reporting changes
|
Topic
|
|
Effective
Date
|
|
Recognition / Measurement /
Presentation
|
|
Impact / Expected
Impact
|
|
Amendments to IAS 19 "Employee Benefits"
|
|
Jan 1, 2015
|
|
Measurement
|
|
Not significant
|
|
Annual Improvements 2010-2012 and 2011-2013 cycle
|
|
Jan 1, 2015
|
|
Measurement and
Presentation
|
|
Not significant
|
IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible
Assets"
|
|
Jan 1, 2016
|
|
Measurement
|
|
Currently
assessing
|
|
IFRS 11 "Joint Arrangements"
|
|
Jan 1, 2016
|
|
Recognition and Measurement
|
|
Not significant
|
|
IAS 41 "Agriculture" and IAS 16 "Property, Plant and Equipment"
|
|
Jan 1, 2016
|
|
Recognition and Measurement
|
|
Not significant
|
IFRS 10 "Consolidated Financial Statements" and IAS 28
"Investments in Associates and Joint Ventures"
|
|
Jan 1, 2016
|
|
Recognition
|
|
Not significant
|
|
Annual Improvements 2012-2014 cycle
|
|
Jan 1, 2016
|
|
Measurement and
Presentation
|
|
Not significant
|
|
Amendments to IAS 1 "Presentation of Financial Statements"
|
|
Jan 1, 2016
|
|
Presentation
|
|
Not significant
|
|
IFRS 15 "Revenue from Contracts with Customers"
|
|
Jan 1, 2017
|
|
Recognition and Measurement
|
|
Currently
assessing
|
IFRS 9 "Financial Instruments: Impairment" and "Financial
Instrument: Classification and Measurement"
|
|
Jan 1, 2018
|
|
Recognition, Measurement
and Presentation
|
|
Currently
assessing
|
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 (Loss); Core ROE;
Diluted Core Earnings Per Common Share; Constant Currency Basis;
Earnings Per Share ("EPS") excluding Transition and Integration Costs;
Mutual Funds Assets under Management ("MF AUM"); Assets under
Administration ("AUA"); Premiums and Deposits; Assets under Management
("AUM"); Capital; New Business Embedded Value; and Sales. Non-GAAP
financial measures are not defined terms under GAAP and, therefore, 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.
As disclosed last quarter, we no longer disclose U.S. GAAP measures. In
the past, we elected to report consolidated U.S. GAAP information
because of our large U.S. domiciled investor base and for comparison
purposes with our U.S. peers. In the aftermath of the financial crisis,
presenting U.S. GAAP measures highlighted the significant impact of
fair value accounting on our financial statements under International
Financial Reporting Standards ("IFRS"). In 2012, we introduced a core
earnings metric which also highlights such impact. This metric has
gained acceptance with our stakeholders and, therefore, we discontinued
the use of consolidated U.S. GAAP information starting in 4Q14.
Core earnings (loss) 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.
Since we introduced this measure in 2012, we have included up to $200
million of favourable investment-related experience in core earnings
per year. Recent investment-related experience has trended higher than
the amount currently included in core earnings and, accordingly, we
intend to increase the maximum annual amount included in core earnings
to $400 million per year beginning in 2015. Any other 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 with expense assumptions
used in the measurement of insurance and investment contract
liabilities.
-
Up to $200 million ($400 million beginning in 2015) 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 and variable
annuity guarantee liabilities, consisting of:
-
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.
-
Gains (charges) on variable annuity guarantee liabilities that are 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.
Net favourable investment-related experience in excess of $200 million
($400 million beginning in 2015) per annum or net unfavourable
investment-related experience on a year-to-date basis.
Investment-related experience relates to fixed income trading,
alternative long-duration asset returns, credit experience and asset
mix changes. This favourable and unfavourable investment-related
experience is a combination of reported investment experience as well
as the impact of investing activities on the measurement of our
insurance and investment contract liabilities.
Mark-to-market gains or losses on assets held in the Corporate and Other
segment other than gains on AFS equities and seed money investments in
new segregated or mutual funds.
Changes in actuarial methods and assumptions.
The impact on the measurement of insurance and investment contract
liabilities of changes in product features or new reinsurance
transactions, if material.
Goodwill impairment charges.
Gains or losses on disposition of a business.
Material one-time only adjustments, including highly
unusual/extraordinary and material legal settlements or other items
that are material and exceptional in nature.
Tax on the above items.
Impact of enacted or substantially enacted income tax rate changes.
The following table summarizes for the past eight quarters net income
(loss) attributed to shareholders and core earnings.
Total Company
|
|
Quarterly Results
|
|
(C$ millions, unaudited)
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
Core earnings (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Division
|
|
$
|
260
|
|
$
|
273
|
|
$
|
231
|
|
$
|
244
|
|
$
|
227
|
|
$
|
242
|
|
$
|
226
|
|
$
|
226
|
|
Canadian Division
|
|
|
224
|
|
|
243
|
|
|
232
|
|
|
228
|
|
|
233
|
|
|
268
|
|
|
225
|
|
|
179
|
|
U.S. Division
|
|
|
338
|
|
|
342
|
|
|
329
|
|
|
374
|
|
|
366
|
|
|
361
|
|
|
343
|
|
|
440
|
Corporate and Other (excluding expected cost of
macro hedges and core investment gains)
|
|
|
(112)
|
|
|
(107)
|
|
|
(92)
|
|
|
(135)
|
|
|
(138)
|
|
|
(135)
|
|
|
(105)
|
|
|
(128)
|
|
Expected cost of macro hedges
|
|
|
(47)
|
|
|
(46)
|
|
|
(49)
|
|
|
(42)
|
|
|
(53)
|
|
|
(84)
|
|
|
(128)
|
|
|
(148)
|
Investment-related experience included in
core earnings
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
52
|
|
|
48
|
|
|
50
|
|
Total core earnings
|
|
$
|
713
|
|
$
|
755
|
|
$
|
701
|
|
$
|
719
|
|
$
|
685
|
|
$
|
704
|
|
$
|
609
|
|
$
|
619
|
Investment-related experience in excess of
amounts included in core earnings
|
|
|
(403)
|
|
|
320
|
|
|
217
|
|
|
225
|
|
|
215
|
|
|
491
|
|
|
(97)
|
|
|
97
|
Core earnings and investment-related
experience in excess of amounts included in
core earnings
|
|
$
|
310
|
|
$
|
1,075
|
|
$
|
918
|
|
$
|
944
|
|
$
|
900
|
|
$
|
1,195
|
|
$
|
512
|
|
$
|
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 (details below)
|
|
|
377
|
|
|
70
|
|
|
55
|
|
|
(90)
|
|
|
(81)
|
|
|
94
|
|
|
(242)
|
|
|
(107)
|
|
|
Impact of major reinsurance transactions, in-force
product changes and recapture of reinsurance
treaties
|
|
|
-
|
|
|
24
|
|
|
-
|
|
|
-
|
|
|
261
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Change in actuarial methods and assumptions
|
|
|
(59)
|
|
|
(69)
|
|
|
(30)
|
|
|
(40)
|
|
|
(133)
|
|
|
(252)
|
|
|
(35)
|
|
|
(69)
|
|
|
Net impact of acquisitions and divestitures
|
|
|
12
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
350
|
|
|
-
|
|
|
-
|
|
|
-
|
Tax items and restructuring charge related to
organizational design
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
-
|
|
|
(3)
|
|
|
24
|
|
|
-
|
|
Net income attributed to shareholders
|
|
$
|
640
|
|
$
|
1,100
|
|
$
|
943
|
|
$
|
818
|
|
$
|
1,297
|
|
$
|
1,034
|
|
$
|
259
|
|
$
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other market-related factors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and variable annuity
guarantee liabilities
|
|
$
|
(142)
|
|
$
|
(35)
|
|
$
|
66
|
|
$
|
(71)
|
|
$
|
105
|
|
$
|
306
|
|
$
|
(196)
|
|
$
|
243
|
Gains (charges) on higher (lower) fixed income
reinvestment rates assumed in the valuation of
policy liabilities
|
|
|
533
|
|
|
165
|
|
|
22
|
|
|
9
|
|
|
(105)
|
|
|
(77)
|
|
|
151
|
|
|
(245)
|
Gains (charges) on sale of AFS bonds and derivative
positions in the Corporate segment
|
|
|
(14)
|
|
|
(15)
|
|
|
(8)
|
|
|
(3)
|
|
|
(55)
|
|
|
(72)
|
|
|
(127)
|
|
|
(8)
|
Charges due to lower fixed income URR assumptions
used in the valuation of policy liabilities
|
|
|
-
|
|
|
(45)
|
|
|
(25)
|
|
|
(25)
|
|
|
(26)
|
|
|
(63)
|
|
|
(70)
|
|
|
(97)
|
Direct impact of equity markets and interest
rates and variable annuity guarantee liabilities
|
|
$
|
377
|
|
$
|
70
|
|
$
|
55
|
|
$
|
(90)
|
|
$
|
(81)
|
|
$
|
94
|
|
$
|
(242)
|
|
$
|
(107)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Division
|
|
Quarterly Results
|
|
(C$ millions, unaudited)
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
Asia Division core earnings
|
|
$
|
260
|
|
$
|
273
|
|
$
|
231
|
|
$
|
244
|
|
$
|
227
|
|
$
|
242
|
|
$
|
226
|
|
$
|
226
|
Investment-related experience in excess of amounts
included in core earnings
|
|
|
(2)
|
|
|
27
|
|
|
18
|
|
|
19
|
|
|
(5)
|
|
|
(4)
|
|
|
(18)
|
|
|
43
|
Core earnings and investment-related experience
in excess of amounts included in core
earnings
|
|
$
|
258
|
|
$
|
300
|
|
$
|
249
|
|
$
|
263
|
|
$
|
222
|
|
$
|
238
|
|
$
|
208
|
|
$
|
269
|
Other items to reconcile core earnings to net income
attributable to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates
and variable annuity guarantee liabilities
|
|
|
78
|
|
|
32
|
|
|
88
|
|
|
(25)
|
|
|
85
|
|
|
242
|
|
|
178
|
|
|
659
|
|
Recapture of reinsurance treaty and tax items
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4
|
|
|
68
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Disposition of Taiwan insurance business
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
350
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net income attributed to shareholders
|
|
$
|
336
|
|
$
|
332
|
|
$
|
337
|
|
$
|
242
|
|
$
|
725
|
|
$
|
480
|
|
$
|
386
|
|
$
|
928
|
Canadian Division
|
|
Quarterly Results
|
|
(C$ millions, unaudited)
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
Canadian Division core earnings
|
|
$
|
224
|
|
$
|
243
|
|
$
|
232
|
|
$
|
228
|
|
$
|
233
|
|
$
|
268
|
|
$
|
225
|
|
$
|
179
|
Investment-related experience in excess of amounts
included in core earnings
|
|
|
(199)
|
|
|
19
|
|
|
46
|
|
|
135
|
|
|
106
|
|
|
135
|
|
|
(88)
|
|
|
(187)
|
Core earnings and investment-related experience
in excess of amounts included in core
earnings
|
|
$
|
25
|
|
$
|
262
|
|
$
|
278
|
|
$
|
363
|
|
$
|
339
|
|
$
|
403
|
|
$
|
137
|
|
$
|
(8)
|
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
|
|
|
48
|
|
|
-
|
|
|
(11)
|
|
|
14
|
|
|
34
|
|
|
14
|
|
|
(34)
|
|
|
(54)
|
|
Recapture of reinsurance treaty and tax items
|
|
|
-
|
|
|
24
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3)
|
|
|
-
|
|
|
-
|
|
Net income (loss) attributed to shareholders
|
|
$
|
73
|
|
$
|
286
|
|
$
|
267
|
|
$
|
377
|
|
$
|
373
|
|
$
|
414
|
|
$
|
103
|
|
$
|
(62)
|
U.S. Division
|
|
Quarterly Results
|
|
(C$ millions, unaudited)
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
U.S. Division core earnings
|
|
$
|
338
|
|
$
|
342
|
|
$
|
329
|
|
$
|
374
|
|
$
|
366
|
|
$
|
361
|
|
$
|
343
|
|
$
|
440
|
Investment-related experience in excess of amounts
included in core earnings
|
|
|
(154)
|
|
|
319
|
|
|
206
|
|
|
111
|
|
|
161
|
|
|
404
|
|
|
65
|
|
|
263
|
Core earnings and investment-related
experience in excess of amounts included in
core earnings
|
|
$
|
184
|
|
$
|
661
|
|
$
|
535
|
|
$
|
485
|
|
$
|
527
|
|
$
|
765
|
|
$
|
408
|
|
$
|
703
|
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
|
|
|
322
|
|
|
18
|
|
|
24
|
|
|
(82)
|
|
|
105
|
|
|
163
|
|
|
21
|
|
|
23
|
Impact of in-force product changes and recapture of
reinsurance treaties
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
193
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net income attributed to shareholders
|
|
$
|
506
|
|
$
|
679
|
|
$
|
559
|
|
$
|
403
|
|
$
|
825
|
|
$
|
928
|
|
$
|
429
|
|
$
|
726
|
Corporate and Other
|
|
Quarterly Results
|
|
(C$ millions, unaudited)
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
4Q
|
|
|
3Q
|
|
|
2Q
|
|
|
1Q
|
|
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
|
|
2013
|
Corporate and Other core loss
(excluding expected cost of macro hedges
and core investment gains)
|
|
$
|
(112)
|
|
$
|
(107)
|
|
$
|
(92)
|
|
$
|
(135)
|
|
$
|
(138)
|
|
$
|
(135)
|
|
$
|
(105)
|
|
$
|
(128)
|
|
Expected cost of macro hedges
|
|
|
(47)
|
|
|
(46)
|
|
|
(49)
|
|
|
(42)
|
|
|
(53)
|
|
|
(84)
|
|
|
(128)
|
|
|
(148)
|
Investment-related experience included in core
earnings
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
50
|
|
|
52
|
|
|
48
|
|
|
50
|
|
Total core loss
|
|
$
|
(109)
|
|
$
|
(103)
|
|
$
|
(91)
|
|
$
|
(127)
|
|
$
|
(141)
|
|
$
|
(167)
|
|
$
|
(185)
|
|
$
|
(226)
|
Investment-related experience in excess of
amounts included in core earnings
|
|
|
(48)
|
|
|
(45)
|
|
|
(53)
|
|
|
(40)
|
|
|
(47)
|
|
|
(44)
|
|
|
(56)
|
|
|
(22)
|
Core loss and investment-related experience
in excess of amounts included in core
earnings
|
|
$
|
(157)
|
|
$
|
(148)
|
|
$
|
(144)
|
|
$
|
(167)
|
|
$
|
(188)
|
|
$
|
(211)
|
|
$
|
(241)
|
|
$
|
(248)
|
Other items to reconcile core earnings (losses) to
net income (loss) attributed to shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct impact of equity markets and interest rates
and variable annuity guarantee liabilities
|
|
|
(71)
|
|
|
20
|
|
|
(46)
|
|
|
3
|
|
|
(305)
|
|
|
(325)
|
|
|
(407)
|
|
|
(735)
|
|
Changes in actuarial methods and assumptions
|
|
|
(59)
|
|
|
(69)
|
|
|
(30)
|
|
|
(40)
|
|
|
(133)
|
|
|
(252)
|
|
|
(35)
|
|
|
(69)
|
|
Net impact of acquisitions and divestitures
|
|
|
12
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Tax items and restructuring charge related to
organizational design
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24
|
|
|
-
|
|
Net loss attributed to shareholders
|
|
$
|
(275)
|
|
$
|
(197)
|
|
$
|
(220)
|
|
$
|
(204)
|
|
$
|
(626)
|
|
$
|
(788)
|
|
$
|
(659)
|
|
$
|
(1,052)
|
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 (from local currency
to Canadian dollars at a total company level and from local currency to
U.S. dollars in Asia) 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 4Q14.
Earnings Per Share ("EPS") excluding Transition and Integration Costs is a non-GAAP measure of the Company's profitability. It shows what the
earnings per common share would be excluding transition and integration
costs which are one-time costs.
Mutual Funds' assets under management ("MF AUM") is a non-GAAP measure of the size of the Company's Canadian mutual fund
business. It represents the assets managed by the Company, on behalf
of mutual fund clients, on a discretionary basis for which the Company
earns investment management fees.
Assets under administration ("AUA") is a non-GAAP measure of the size of the Company's Canadian group
pension business. It represents the asset base on which the Company
provides administrative services such as recordkeeping, custodial and
customer reporting services.
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 and investment contract deposits, (ii) segregated fund
deposits, excluding seed money, ("deposits from policyholders"), (iii)
mutual fund deposits, (iv) deposits into institutional advisory
accounts, (v) premium equivalents for "administration services only"
group benefits contracts ("ASO premium equivalents"), (vi) premiums in
the Canadian Group Benefits reinsurance ceded agreement, and (vii)
other deposits in other managed funds.
|
Premiums and deposits
|
|
Quarterly Results
|
|
|
Full Year
|
|
(C$ millions)
|
|
4Q 2014
|
|
|
3Q 2014
|
|
|
4Q 2013
|
|
|
2014
|
|
2013
|
|
Net premium income and investment contract deposits
|
$
|
4,948
|
|
$
|
4,656
|
|
$
|
4,563
|
|
|
$
|
18,022
|
|
$
|
17,569
|
|
Deposits from policyholders
|
|
6,240
|
|
|
5,509
|
|
|
5,756
|
|
|
|
24,112
|
|
|
23,059
|
|
Mutual fund deposits
|
|
10,120
|
|
|
8,982
|
|
|
8,400
|
|
|
|
40,066
|
|
|
35,890
|
|
Institutional advisory account deposits
|
|
2,276
|
|
|
962
|
|
|
957
|
|
|
|
8,148
|
|
|
3,974
|
|
ASO premium equivalents
|
|
773
|
|
|
736
|
|
|
746
|
|
|
|
3,048
|
|
|
2,935
|
|
Group Benefits ceded premiums
|
|
1,023
|
|
|
1,132
|
|
|
1,000
|
|
|
|
4,130
|
|
|
4,404
|
|
Other fund deposits
|
|
132
|
|
|
110
|
|
|
114
|
|
|
|
475
|
|
|
419
|
|
Total premiums and deposits
|
$
|
25,512
|
|
$
|
22,087
|
|
$
|
21,536
|
|
|
$
|
98,001
|
|
$
|
88,250
|
|
Currency impact
|
|
-
|
|
|
557
|
|
|
1,179
|
|
|
|
1,667
|
|
|
5,781
|
|
Constant currency premiums and deposits
|
$
|
25,512
|
|
$
|
22,644
|
|
$
|
22,715
|
|
|
$
|
99,668
|
|
$
|
94,031
|
Assets under management ("AUM") 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
invested in.
|
Assets under management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
(C$ millions)
|
December
31, 2014
|
|
|
September
30, 2014
|
|
|
December
31, 2013
|
|
Total invested assets
|
$
|
269,310
|
|
|
$
|
257,842
|
|
|
$
|
232,709
|
|
Segregated funds net assets
|
|
256,532
|
|
|
|
250,406
|
|
|
|
239,871
|
|
Assets under management per financial statements
|
$
|
525,842
|
|
|
$
|
508,248
|
|
|
$
|
472,580
|
|
Mutual funds
|
|
119,593
|
|
|
|
111,600
|
|
|
|
91,118
|
|
Institutional advisory accounts (excluding segregated funds)
|
|
38,864
|
|
|
|
36,498
|
|
|
|
30,284
|
|
Other funds
|
|
6,830
|
|
|
|
6,185
|
|
|
|
4,951
|
|
Total assets under management
|
$
|
691,129
|
|
|
$
|
662,531
|
|
|
$
|
598,933
|
|
Currency impact
|
|
-
|
|
|
|
13,712
|
|
|
|
34,523
|
|
Constant currency assets under management
|
$
|
691,129
|
|
|
$
|
676,243
|
|
|
$
|
633,456
|
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 AOCI on cash flow hedges and (ii) liabilities for
preferred shares and capital instruments.
|
Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at
(C$ millions)
|
December
31, 2014
|
|
September
30, 2014
|
|
|
December
31, 2013
|
|
Total equity
|
$
|
33,926
|
|
$
|
32,596
|
|
$
|
29,033
|
|
Add AOCI loss on cash flow hedges
|
|
211
|
|
|
159
|
|
|
84
|
|
Add liabilities for preferred shares and capital instruments
|
|
5,426
|
|
|
4,909
|
|
|
4,385
|
|
Total capital
|
$
|
39,563
|
|
$
|
37,664
|
|
$
|
33,502
|
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 4Q14
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%
|
|
|
30.78%
|
|
Foreign exchange rate
|
|
|
n/a
|
|
|
1.135572
|
|
|
0.146422
|
|
|
0.009939
|
|
Yield on surplus assets
|
|
|
4.50%
|
|
|
4.50%
|
|
|
4.50%
|
|
|
2.00%
|
Sales are measured according to product type:
For 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. Single premium is the lump sum premium from the sale of a single
premium product, e.g. travel insurance. Sales are reported gross
before the impact of reinsurance.
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; and, college savings 529 plans. Sales also
include bank loans and mortgages authorized in the period. As we have
discontinued sales of new VA contracts in the U.S., beginning in 1Q13,
subsequent deposits into existing U.S. VA contracts are not reported as
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. Total sales include both
new regular and single premiums and deposits. Sales include the impact
of the addition of a new division or of a new product to an existing
client.
F2 Key planning assumptions and uncertainties
Manulife's 2016 management objectives24 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.
|
____________________________
|
|
24
|
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 long-term leverage as disclosed in
our 2012 Investor Day press release, our 2016 goal for pre-tax savings
related to our Efficiency and Effectiveness initiative, statements with
respect to the anticipated benefits and the completion of and timing
for completion of the acquisition of New York Life's retirement plan
services business, the benefits and costs of the acquisition of the
Canadian-based operations of Standard Life plc, the anticipated effect
of the acquisition on Manulife's strategy, operations and financial
performance, including its EPS, earnings capacity, capital and MCCSR
ratio, dividends, financial leverage, 2016 management objectives for
core earnings and Core ROE, products, services and capabilities,
earnings contributions, cost savings and transition and integration
costs, revenue synergies.
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", "suspect", "outlook", "expect", "intend", "estimate",
"anticipate", "believe", "plan", "forecast", "objective", "seek",
"aim", "continue", "goal", "restore", "embark" and "endeavour" (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 that: the acquisition of New York
Life's retirement plan services business will be completed in the first
half of 2015; in respect of the acquisition of the Canadian-based
operations of Standard Life plc, estimates for 2015 and 2016 EPS;
estimated after-tax cost savings, including estimated savings as a
result of synergies from areas such as information technology, real
estate and personnel costs; estimated integration costs; revenue
synergies increasing over time; and, in the case of MFC's 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 insurance subsidiaries 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, including through our proposed collaboration arrangements
with Standard Life plc; unforeseen liabilities or asset impairments
arising from acquisitions and dispositions of businesses, including
with respect to the acquisition of the Canadian-based operations of
Standard Life plc; 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 failure to realize some or all of the expected
benefits of the acquisition of New York Life's retirement plan services
business and the Canadian-based operations of Standard Life plc; 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.
There can be no assurance that the anticipated benefits and effects of
the acquisition of New York Life's retirement plan services business or
the Canadian-based operations of Standard Life plc will be realized.
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, our future operations if
the acquisition is completed, 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.
The pro forma financial information set forth in this document should
not be considered to be what the actual financial position or other
results of operations would have necessarily been had MFC, Standard
Life Financial Inc. and Standard Life Investments Inc. operated as a
single combined company as at, or for, the periods stated.
|
Consolidated Statements of Income
|
|
|
|
|
|
For the three months
ended December 31,
|
|
For the years ended
December 31,
|
|
(Canadian $ in millions except per share amounts, unaudited)
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
|
$
|
4,849
|
|
$
|
4,548
|
|
$
|
17,883
|
|
$
|
17,510
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
2,681
|
|
|
2,632
|
|
|
10,808
|
|
|
9,860
|
|
|
Realized and unrealized gains (losses) on assets supporting insurance
and investment contract liabilities and on the macro hedge program(1)
|
|
6,182
|
|
|
(2,783)
|
|
|
17,092
|
|
|
(17,607)
|
|
Other revenue
|
|
2,301
|
|
|
2,633
|
|
|
8,739
|
|
|
8,876
|
|
Total revenue
|
$
|
16,013
|
|
$
|
7,030
|
|
$
|
54,522
|
|
$
|
18,639
|
|
Contract benefits and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
To contract holders and beneficiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross claims and benefits
|
$
|
5,408
|
|
$
|
4,642
|
|
$
|
20,452
|
|
$
|
18,671
|
|
|
Change in insurance contract liabilities
|
|
8,123
|
|
|
(1,363)
|
|
|
24,185
|
|
|
(10,130)
|
|
|
Change in investment contract liabilities
|
|
(15)
|
|
|
41
|
|
|
65
|
|
|
162
|
|
|
Benefits and expenses ceded to reinsurers
|
|
(1,730)
|
|
|
(1,568)
|
|
|
(6,709)
|
|
|
(6,376)
|
|
|
Change in reinsurance assets
|
|
262
|
|
|
525
|
|
|
506
|
|
|
1,526
|
|
Net benefits and claims
|
$
|
12,048
|
|
$
|
2,277
|
|
$
|
38,499
|
|
$
|
3,853
|
|
General expenses
|
|
1,345
|
|
|
1,282
|
|
|
4,772
|
|
|
4,618
|
|
Investment expenses
|
|
358
|
|
|
325
|
|
|
1,319
|
|
|
1,154
|
|
Commissions
|
|
1,160
|
|
|
1,041
|
|
|
4,250
|
|
|
3,911
|
|
Interest expense
|
|
309
|
|
|
177
|
|
|
1,131
|
|
|
1,045
|
|
Net premium taxes
|
|
69
|
|
|
74
|
|
|
287
|
|
|
311
|
|
Total contract benefits and expenses
|
$
|
15,289
|
|
$
|
5,176
|
|
$
|
50,258
|
|
$
|
14,892
|
|
Income before income taxes
|
$
|
724
|
|
$
|
1,854
|
|
$
|
4,264
|
|
$
|
3,747
|
|
Income tax expense
|
|
(17)
|
|
|
(497)
|
|
|
(671)
|
|
|
(581)
|
|
Net income
|
$
|
707
|
|
$
|
1,357
|
|
$
|
3,593
|
|
$
|
3,166
|
|
Net income (loss) attributed to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interests
|
$
|
7
|
|
$
|
12
|
|
$
|
71
|
|
$
|
48
|
|
|
Participating policyholders
|
|
60
|
|
|
48
|
|
|
21
|
|
|
(12)
|
|
|
Shareholders
|
|
640
|
|
|
1,297
|
|
|
3,501
|
|
|
3,130
|
|
|
$
|
707
|
|
$
|
1,357
|
|
$
|
3,593
|
|
$
|
3,166
|
|
Net income attributed to shareholders
|
$
|
640
|
|
$
|
1,297
|
|
$
|
3,501
|
|
$
|
3,130
|
|
Preferred share dividends
|
|
(28)
|
|
|
(34)
|
|
|
(126)
|
|
|
(131)
|
|
Common shareholders' net income
|
$
|
612
|
|
$
|
1,263
|
|
$
|
3,375
|
|
$
|
2,999
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.33
|
|
$
|
0.69
|
|
$
|
1.82
|
|
$
|
1.63
|
|
Diluted earnings per common share
|
|
0.33
|
|
|
0.68
|
|
|
1.80
|
|
|
1.62
|
|
|
|
|
(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 related 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 B7 -
"impact of fair value accounting" above.
|
|
Consolidated Statements of Financial Position
|
|
|
|
As at December 31,
|
|
|
|
(Canadian $ in millions)
|
2014
|
2013
|
|
Assets
|
|
|
|
|
|
Cash and short-term securities
|
$
|
21,079
|
$
|
13,630
|
|
Debt securities
|
|
134,446
|
|
114,957
|
|
Public equities
|
|
14,543
|
|
13,075
|
|
Mortgages
|
|
39,458
|
|
37,558
|
|
Private placements
|
|
23,284
|
|
21,015
|
|
Policy loans
|
|
7,876
|
|
7,370
|
|
Loans to bank clients
|
|
1,772
|
|
1,901
|
|
Real estate
|
|
10,101
|
|
9,708
|
|
Other invested assets
|
|
16,751
|
|
13,495
|
|
Total invested assets
|
$
|
269,310
|
$
|
232,709
|
|
Other assets
|
|
|
|
|
|
Accrued investment income
|
$
|
2,003
|
$
|
1,813
|
|
Outstanding premiums
|
|
737
|
|
734
|
|
Derivatives
|
|
19,315
|
|
9,673
|
|
Reinsurance assets
|
|
18,525
|
|
17,443
|
|
Deferred tax assets
|
|
3,329
|
|
2,763
|
|
Goodwill and intangible assets
|
|
5,461
|
|
5,298
|
|
Miscellaneous
|
|
4,194
|
|
3,324
|
|
Total other assets
|
$
|
53,564
|
$
|
41,048
|
|
Segregated funds net assets
|
$
|
256,532
|
$
|
239,871
|
|
Total assets
|
$
|
579,406
|
$
|
513,628
|
|
Liabilities and Equity
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Insurance contract liabilities
|
$
|
229,513
|
$
|
193,242
|
|
Investment contract liabilities
|
|
2,644
|
|
2,524
|
|
Deposits from bank clients
|
|
18,384
|
|
19,869
|
|
Derivatives
|
|
11,283
|
|
8,929
|
|
Deferred tax liabilities
|
|
1,228
|
|
617
|
|
Other liabilities
|
|
14,365
|
|
10,383
|
|
|
$
|
277,417
|
$
|
235,564
|
|
Long-term debt
|
|
3,885
|
|
4,775
|
|
Liabilities for preferred shares and capital instruments
|
|
5,426
|
|
4,385
|
|
Liabilities for subscription receipts
|
|
2,220
|
|
-
|
|
Segregated funds net liabilities
|
|
256,532
|
|
239,871
|
|
Total liabilities
|
$
|
545,480
|
$
|
484,595
|
|
Equity
|
|
|
|
|
|
Preferred shares
|
$
|
2,693
|
$
|
2,693
|
|
Common shares
|
|
20,556
|
|
20,234
|
|
Contributed surplus
|
|
267
|
|
256
|
|
Shareholders' retained earnings
|
|
7,624
|
|
5,294
|
|
Shareholders' accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
Pension and other post-employment plans
|
|
(529)
|
|
(452)
|
|
|
Available-for-sale securities
|
|
794
|
|
324
|
|
|
Cash flow hedges
|
|
(211)
|
|
(84)
|
|
|
Translation of foreign operations
|
|
2,112
|
|
258
|
|
Total shareholders' equity
|
$
|
33,306
|
$
|
28,523
|
|
Participating policyholders' equity
|
|
156
|
|
134
|
|
Non-controlling interests
|
|
464
|
|
376
|
|
Total equity
|
$
|
33,926
|
$
|
29,033
|
|
Total liabilities and equity
|
$
|
579,406
|
$
|
513,628
|
SOURCE Manulife Financial Corporation
