Manulife Financial Corporation (MFC) Q4 2022 Earnings Call Transcript

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Manulife Financial Corporation (NYSE:MFC) Q4 2022 Results Conference Call February 16, 2023 8:00 AM ET

Company Participants

Hung Ko - IR

Roy Gori - President, CEO

Phil Witherington - CFO

Steven Finch - Chief Actuary

Damien Green - President & CEO, Manulife Asia

Scott Hartz - CIO

Conference Call Participants

Doug Young - Desjardins

Gabriel Dechaine - National Bank

Lemar Persaud - Cormark Securities

Mario Mendonca - TD Securities

Meny Grauman - Scotiabank

Nigel D'Souza - Veritas Investment Research

Paul Holden - CIBC

Scott Chan - Canaccord Genuity

Tom MacKinnon - BMO Capital


Good morning, and invited to nan Manulife Financial Fourth Quarter 2022 Financial Results Call. Your big for coming will beryllium Mr. Hung Ko. Please spell ahead, Mr. Ko.

Hung Ko

Thank you. Welcome to Manulife's net convention telephone to talk our 4th fourth and year-end 2022 financial and operating results. Our net materials, including nan webcast unrecorded for today's call, are disposable connected nan Investor Relations conception of our website astatine

Turning to Slide 4. We will statesman today's position pinch an overview of our advancement successful 2022 and an outlook for 2023 by Rory Gori, our President and Chief Executive Officer. Following Roy's remarks, Phil Witherington, our Chief Financial Officer, will talk nan company's financial and operating results and supply an update connected IFRS 17. After nan prepared remarks, we will move to nan unrecorded Q&A information of nan call. We inquire each subordinate to adhere to a limit of 2 questions, including follow-up questions. If you person further questions, please requeue and we will do our champion to respond to everyone.

Before we start, please mention to Slide 2 for a be aware connected forward-looking statements and Slide 45, for a statement connected nan non-GAAP and different financial measures utilized successful this presentation. Note that definite material factors aliases assumptions are applied successful making forward-looking statements, and existent results whitethorn disagree materially from what is stated.

With that, I'd for illustration to move nan telephone complete to Roy Gori, our President and Chief Executive Officer. Roy?

Roy Gori

Thanks, Hung, and convey you, everyone, for joining america today. Yesterday, we announced our 4th fourth and afloat twelvemonth 2022 financial results. We've made important advancement against our strategical priorities and are pleased to person delivered beardown results, which are a testament to nan resilience and spot of our divers world franchise. We're particularly pleased pinch these results against nan backdrop of nan twelvemonth that was challenging for businesses broadly pinch aggregate headwinds impacting our manufacture arsenic good arsenic ongoing marketplace volatility.

On our financial results, we're proud of 2 records we achieved successful 2022, a grounds nett income of $7.3 cardinal and nan highest ever remittances of $6.9 billion. Meanwhile, we've besides driven robust caller business worth maturation successful some of our North American segments successful 2022, pinch NBV maturation successful nan U.S. and Canada of 25% and 18%, respectively. This beardown capacity demonstrates nan powerfulness of our diversified franchise, fixed nan impacts of COVID-19 restrictions successful Asia.

We besides took meaningful actions to importantly trim nan consequence floor plan of our business. We reinsured much than 80% of our bequest U.S. adaptable annuity artifact done 2 transactions that released $2.5 cardinal of superior and further reduced our go-forward consequence profile. Core net from nan LTC and VA blocks represents only 18% of full institution halfway net successful 2022, a worldly simplification from 25% conscionable 2 years ago, and we are connected way to present connected our 2025 business operation targets.

And our sensitivity to marketplace movements is besides greatly reduced since 2009. At nan extremity of 2022, our sensitivity to liking complaint movements was astir 1/10 of that successful 2009, and our sensitivity to equity markets has much than halved during nan aforesaid period. We're besides increasing our standard and marketplace stock globally. In Asia, we are not only astatine standard but we were besides nan fastest-growing life insurer among nan apical 3 pan-Asian players betwixt 2017 and 2021.

Our Global WAM business recorded $3.3 cardinal of nett inflows successful 2022 against nan manufacture backdrop of nett outflows successful North America. This capacity extended our singular way grounds of delivering affirmative nett flows successful 12 of nan past 13 years. In Canada, we grew our nett income, halfway net and NBV astatine double-digit maturation rates successful 2022. We proceed to administer important rate returns to our shareholders. Between 2017 and 2022, we grew our communal stock dividend by 10% per twelvemonth connected average, and I'm pleased to stock that our Board approved an summation of 11% starting successful March of 2023.

In summation to sustained dividend increases, successful 2022, we enhanced shareholder returns done $1.9 cardinal of stock buybacks, which represents 4.1% of outstanding communal shares. We're besides strategically deploying superior to put for nan future. In 2022, we acquired afloat ownership of Manulife TEDA, making america nan first overseas institution to beryllium fixed support to get an existing plus guidance JV successful China. And successful Vietnam, we commenced offering security solutions nether our 16-year exclusive business pinch VietinBank, 1 of nan largest banks successful Vietnam.

Turning to Slide 7. The achievements that I've mentioned earlier was supported by our beardown integer and ESG activity arsenic good arsenic our winning team. We've made notable advancement connected our integer customer-centric initiatives, arsenic evidenced by nan 15 percent constituent summation successful our world straight-through processing metric compared pinch nan 2018 baseline, pinch improvements crossed each segments. Our 2022 NPS marked a important 19-point betterment from nan 2017 baseline. We besides led aliases were connected par pinch nan starring peers successful 11 of nan 16 business lines wherever we benchmark.

We person invested $1 cardinal since 2018 to heighten our integer capabilities to make decisions easier and lives amended for our customers, while astatine nan aforesaid time, driving important ratio improvements successful our operations. As a leader successful ESG, we're besides achieving beardown results and serving our customers and different stakeholders successful a socially responsible and sustainable way.

In 2022, we shared our effect agenda, an articulation of our long-standing committedness to empowering wellness and well-being, driving inclusive economical opportunities and accelerating a sustainable future. While we are already Net Zero successful our Scope 1 and Scope 2 greenhouse state emissions, we are committed to further reducing our absolute emissions by 35% by 2035 and to achieving Net Zero Scope 3 finance submissions successful our wide relationship by 2050.

In nickname of our continued and strengthening committedness to sustainability performance, successful 2022, we were erstwhile again named to nan S&P Dow Jones Sustainability Index, 1 of only 7 insurers crossed North America to beryllium included. And wrong nan apical 10% of our manufacture peers globally. Our high-performing squad successful winning civilization person been cardinal to our success. We person achieved a apical quartile worker engagement ranking annually since 2020.

And successful 2022, we classed successful nan apical 6% amongst world financial and security companies. In addition, we've been consistently recognized arsenic an employer of prime including arsenic 1 of nan World's Best Employers by Forbes for nan 3rd consecutive year. The Canadian security manufacture will adopt IFRS 17 successful 2023. While this is simply a important endeavor, we are afloat prepared for a successful implementation and are looking guardant to nan improved transparency and stableness successful our financial results that nan caller accounting standards will bring.

Throughout 2022, we've been proactive successful providing insights into nan expected impacts of IFRS 17, some connected modulation and connected our medium-term targets. Let maine item a fewer points. First, IFRS 17 does not effect nan basal economics of our business. Second, we expect our halfway earnings, book worth and LICAT to beryllium much unchangeable nether IFRS 17. Third, nan contractual work margin, aliases CSM for short, is simply a cardinal worth metric nether IFRS 17. A increasing CSM equilibrium will thrust early net growth. And we person announced a target of increasing our CSM equilibrium by 8% to 10% per year.

Turning to Slide 8. Looking ahead, while we proceed to navigate macroeconomic uncertainties successful nan short term, we spot some challenges and opportunities successful 2023 and beyond. Some of nan notable headwinds and tailwinds are: First, we whitethorn spot volatility successful equity markets and liking rates continuing successful 2023. But higher rates are intelligibly beneficial to our security businesses arsenic we've seen successful our 2022 results; second, while we whitethorn spot short-term disruption related to nan modulation from COVID Zero policies successful Asia, we expect business momentum to fortify arsenic pandemic restrictions normalize; third, while successful North America, we whitethorn spot GDP maturation slowing down, galore Asian countries are forecast to present economical maturation of 5% aliases higher successful 2023, which is simply a use to our business, fixed our beingness astatine standard successful nan astir charismatic maturation markets crossed nan region.

Notwithstanding nan pandemic and caller macro headwinds, nan 3 megatrends that underpin our strategy stay unchanged. Our business is uniquely positioned to proceed to capitalize connected these megatrends. As a apical 3 Pan-Asian insurer, we spot important maturation opportunities emerging successful Asia, including successful Hong Kong, wherever we are a starring insurer and good positioned to use from nan important MCV and GBA opportunities, pursuing nan reopening of nan separator betwixt Mainland China and Hong Kong.

Our world WAM business is not only a starring world status solutions supplier pinch astir 9 cardinal customers but we are besides a apical 10 world unit multi-manager. In our location marketplace of Canada, we service 1 successful 4 Canadians, and we are a leader crossed galore of our business lines. And globally, we are a leader successful our unsocial behavioral security offering. We are assured that our all-weather strategy, divers business exemplary and sizeable financial spot and elasticity position america good to triumph and present successful 2023 and connected our 2025 strategical targets.

Thank you. And I'll manus it complete to Phil Witherington, who will reappraisal nan highlights of our financial results. Phil?

Phil Witherington

Thanks, Roy. Before we start, I would for illustration to admit that nan 4th fourth of 2022 is our past reporting play nether IFRS 4. Starting pinch nan first 4th of 2023, we'll beryllium reporting nether IFRS 17 and IFRS 9. In nan second portion of my presentation, I'll supply an update connected our IFRS 17 modulation impacts. I'll commencement connected Slide 10. We generated halfway net of $1.7 billion, a humble 2% alteration from nan anterior twelvemonth quarter. The results bespeak a number of factors, including little halfway net successful Global WAM, little caller business gains successful Asia and nan U.S. and little in-force net successful nan U.S. owed to nan VA reinsurance transactions.

These were mostly offset by higher yields connected surplus fixed income investments, gains connected seed money investments and little withholding taxes successful Corporate and Other, improved policyholder acquisition successful North America and in-force business maturation successful Asia and Canada. Net income attributed to shareholders of $1.9 billion, decreased by $193 cardinal from nan anterior twelvemonth quarter, chiefly owed to losses from investment-related acquisition and a smaller summation from nan nonstop effect of markets, partially offset by nan favorable effect of an summation successful nan Canadian firm taxation rate.

Of note, investment-related acquisition successful nan 4th fourth reflected losses successful our older portfolio driven by existent property adjacent worth appraisals, partially offset by nan favorable effect of fixed income reinvestment activities and favorable in installments experience. I'll speak much astir our older capacity successful a moment. We recognized a nett nonaccomplishment of $357 cardinal from investment-related experience. A $100 cardinal summation was included successful halfway net and a nonaccomplishment of $457 cardinal was reported extracurricular of halfway earnings.

On a afloat twelvemonth basis, wide investment-related acquisition was a summation of $1.2 billion, of which $400 cardinal was reported successful halfway earnings. Our nett income successful nan 4th fourth besides included a $297 cardinal summation from nan effect of nan Canadian firm taxation complaint change, an $86 cardinal adjacent worth summation arsenic a consequence of acquiring nan remaining 51% equity liking successful our Asset Management business successful Mainland China, and a $35 cardinal summation from nan reinsurance of our bequest New York VA block.

Slide 11 shows a caller history of our investment-related experience, including a full summation of $1.2 cardinal successful 2022 that I noted earlier. In summation to nan continued beardown in installments acquisition and gains from fixed income reinvestment activities successful 2022, our older portfolio besides achieved higher-than-expected returns, contributing $147 cardinal to investment-related acquisition gains. The beardown capacity of our older portfolio is shown connected Slide 12. The mean yearly return of our diversified portfolio since nan acquisition of John Hancock 18 years agone was 9.3%, outperforming our existent champion estimate semipermanent return presumption of 9.2%.

Slide 13 shows our root of net study for nan 4th fourth of 2022 compared pinch nan anterior twelvemonth quarter. Expected profit connected in-force decreased by 1%, driven by little U.S. Annuities in-force net owed to nan 2 reinsurance transactions completed successful 2022, partially offset by in-force business maturation successful Asia and Canada. Excluding nan effect of nan VA reinsurance transactions, our in-force net would person grown by 5%. New business gains decreased by 21%, chiefly driven by little gains successful Asia and nan U.S.

In Asia, nan weaker customer sentiment successful Hong Kong, seen successful nan 3rd 4th continued into nan 4th quarter, starring to little income volumes. This was partially offset by higher income and improved margins successful Japan. Lower caller business gains successful nan U.S. were chiefly owed to little brokerage sales. Policyholder acquisition was a nett complaint of $82 cardinal connected a pretax basis, an betterment of $38 cardinal compared pinch nan anterior twelvemonth quarter, chiefly driven by improved policyholder acquisition successful Canada.

Slides 14 and 15 show our net by conception and return connected equity successful nan 4th fourth and afloat twelvemonth 2022. My remarks will attraction connected nan 4th fourth results. Core net successful our world WAM business decreased by 34%, chiefly driven by a alteration successful nett interest income from little mean AUMA owed to nan unfavorable effect of markets. Core net successful Asia accrued by 1%, driven by favorable changes successful caller business merchandise operation and in-force business growth, partially offset by nan effect of little caller business volumes, chiefly successful Hong Kong owed to nan factors I noted earlier.

We continued to present double-digit halfway net maturation successful Canada, pinch a 22% increase, reflecting much favorable acquisition gains successful each business lines, higher Manulife Bank net and higher in-force earnings. Core net successful nan U.S. decreased by 25%, mostly driven by reduced in-force earnings, owed to nan VA reinsurance transactions and little caller business gains. The halfway summation successful Corporate and Other of $86 cardinal was $165 cardinal favorable compared pinch nan anterior twelvemonth quarter, chiefly owed to higher yields connected fixed income investments, gains connected seeds money investments and little withholding taxes, partially offset by higher liking connected allocated superior to operating segments.

And we delivered halfway ROE of 13.2%, an betterment of 0.5 percent constituent compared pinch nan 4th fourth of past year. Turning to Slide 16, which shows our APE income and caller business worth generation. In nan 4th quarter, we generated APE income of $1.3 billion, down 12% from nan anterior twelvemonth quarter. In Asia, APE income decreased by 9%, reflecting continued anemic customer sentiment successful Hong Kong. This was partially offset by higher income successful Japan and Asia Other and notably Mainland China.

In Canada, APE income decreased 15%, reflecting nan little segregated money and powerfulness security sales, partially offset by higher group security sales. APE income successful nan U.S. decreased 21%, reflecting little customer demand, amid volatile equity markets. And connected a afloat twelvemonth basis, APE income decreased 7% compared pinch nan anterior year. In nan 4th quarter, we delivered caller business worth of $525 million, a alteration of 9% from nan anterior twelvemonth quarter.

In Asia, NBV decreased 17%, reflecting little income successful Hong Kong and unfavorable changes successful merchandise operation successful Asia Other, partially offset by nan use of higher liking rates and higher individual protection and different wealthiness income successful Japan. NBV accrued 6% successful Canada, chiefly owed to higher margins successful our security businesses, partially offset by little volumes successful annuities. In nan U.S., NBV accrued 12%, driven by higher liking rates, higher world income volumes and merchandise actions, partially offset by little brokerage income volumes. For nan afloat year, we delivered caller business worth of $2.1 billion.

Turning to Slide 17. Our Global WAM business recorded nett outflows successful nan 4th fourth aft 8 consecutive quarters of affirmative nett inflows. The nett outflow of $8.3 cardinal reflects anemic investor sentiment amid grounds manufacture money outflows successful North America mid-market volatility. On a afloat twelvemonth basis, we delivered nett inflows of $3.3 billion.

In Retail, nett outflows were $4.7 cardinal compared pinch nett inflows of $7.5 cardinal successful nan anterior twelvemonth quarter. The alteration reflects higher communal money redemptions and little investor request amid higher liking rates and equity marketplace declines. In Retirement, nett outflows were $4.6 cardinal compared pinch nett outflows of $1 cardinal successful nan anterior twelvemonth quarter, chiefly driven by higher planned redemptions successful nan U.S.

Our Institutional Asset Management business recorded nett inflows of $0.9 cardinal compared pinch nett inflows of $1.6 cardinal successful nan anterior twelvemonth quarter, driven by little nett flows successful existent estate, timberland and infrastructure products, partially offset by higher income of fixed income mandates. Overall, 2022 Global WAM's mean AUMA decreased by 12% compared pinch nan anterior twelvemonth quarter, driven by unfavorable marketplace movements successful nan earlier portion of 2022.

Turning to Slide 18. Net interest income output of 43.7 ground points was modestly little than nan anterior twelvemonth quarter, driven by little interest spread. Our halfway EBITDA separator of 27.3% was 4 percent points little than nan anterior twelvemonth quarter, reflecting little interest gross from little mean AUMA. For nan afloat year, our halfway EBITDA separator was resilient astatine 30.4%, enabled by our important standard and disciplined attack to managing operating expenses.

Moving to Slide 19. We person achieved a singular way grounds of generating affirmative nett flows successful 12 of nan past 13 years, a objection of our beardown and divers Global WAM franchise crossed retail, status and organization business lines and crossed geographies.

Turning to Slide 20. Our strategical attraction connected digitization and ratio and disciplined attack to managing operating expenses enabled america to incorporate halfway wide disbursal maturation to 5% successful nan 4th fourth and stay successful statement pinch 2021 connected a afloat twelvemonth basis. We achieved an disbursal ratio ratio of 50.9% for some nan 4th fourth and nan afloat twelvemonth 2022, contempt nan inflationary environment. We committed to nan target ratio ratio of beneath 50% and spot it arsenic an important strategical privilege to present sustainable shareholder value.

Slide 21 reinforces our beardown equilibrium expanse and superior position. Our LICAT ratio of 131% remains beardown and represents astir $20 cardinal of superior supra nan supervisory target. The 5 percent points alteration compared to nan 3rd 4th was driven by a superior redemption, continued communal stock buybacks and nan unfavorable effect of marketplace movements connected capital, chiefly owed to nan narrowing of firm spreads.

Our financial leverage ratio declined by 1.1 percent points from nan anterior quarter, reflecting nan redemption of $1 cardinal of subordinated debt, stock buybacks and retained net growth. We delivered grounds remittances of $6.9 cardinal successful 2022, an summation of $2.5 cardinal compared pinch 2021, supported by 2 VA reinsurance transactions completed successful 2022.

Turning to Slide 22. We're committed to creating worth to shareholders, including done nan usage of regular dividends and stock buybacks. As Roy mentioned earlier, we person accrued our dividend per communal stock by 10% connected an annualized ground since 2017. And we announced yesterday a $0.035 aliases 11% summation to nan quarterly dividend per communal share.

In addition, we repurchased 4.1% of nan company's outstanding communal shares for $1.9 cardinal successful 2022, demonstrating our beardown condemnation to execute connected buybacks. For nan 5-year play from 2018 to 2022, we returned a full of $14.7 cardinal of rate to our shareholders, which represents astir 33% of our marketplace capitalization arsenic astatine nan extremity of 2022.

Slide 23 shows nan summary of our financial capacity for nan 4th fourth and nan afloat twelvemonth 2022, and Slide 24 outlines our medium-term financial targets and caller performance. Our capacity reflects nan resilience of our business against a backdrop of a challenging macro and operating situation successful 2022.

Turning to Slide 25, which provides further accusation connected our IFRS 17 opening equilibrium expanse arsenic of January 1, 2022. Our opening full equity nether IFRS 17 was $46.9 billion, 20% little than reported nether IFRS 4 and successful statement pinch our erstwhile guidance. The main driver of nan alteration is nan constitution of nan CSM, partially offset by different measurement changes, including 2 provisions held for noneconomic risks and changes to discount rates.

As a speedy recap, 1 of nan cardinal impacts of IFRS 17 is nan request to group up a caller security liability constituent for CSM, which represents expected early profits and is treated arsenic disposable superior nether LICAT. For these reasons, we judge nan CSM is an important metric for measuring early net capacity and worth of nan business. As noted previously, we expect nan caller business CSM equilibrium to turn astatine 15% per annum and nan CSM amortization into halfway net to beryllium astir 8% to 10% per annum.

The quality successful discount rates utilized for IFRS 17 compared pinch IFRS 4 has a modestly antagonistic impact. Under IFRS 17, liability discount rates bespeak nan characteristics of nan liability and not nan expected returns of assets supporting nan liabilities. As such, nan weighted mean liability discount complaint has decreased overall, but nan effect varies betwixt segments and business lines.

Turning to Slide 26. Based connected nan preliminary results from our IFRS 17 parallel runs for 2022, which is still underway and is not yet complete, I would for illustration to supply an update connected our estimated modulation impacts. Under IFRS 17, halfway net for nan 2022 comparative twelvemonth are expected to beryllium little than IFRS 4 2022 halfway net by 5% to 10% compared pinch nan erstwhile estimate of astir 10%.

As I noted earlier, opening equilibrium expanse full equity declined 20% connected January 1, 2022, successful statement pinch nan guidance that we provided. With respect to January 1, 2023, we expect full equity to beryllium astir 15% little connected an IFRS 17 ground compared pinch IFRS 4 and book worth per communal stock to beryllium astir 20% little connected an IFRS 17 ground compared pinch IFRS 4.

Along pinch our 2nd 4th results and pinch reference to nan last 2023 LICAT line that was released by OSFI successful July 2022, we announced that nan estimated effect of IFRS 17 connected our LICAT ratio was astir neutral based connected 30th of June marketplace conditions. We besides said that we expected nan IFRS 17 LICAT ratio to beryllium much unchangeable than nether IFRS 4 and successful particular, little delicate to changes successful liking rates. Changes successful marketplace conditions, specifically complaint movements successful nan 2nd half of 2022, person reduced our LICAT ratio nether IFRS 4.

Given nan greater stableness of our LICAT ratio nether IFRS 17, we expect a debased single-digit summation successful our LICAT ratio arsenic of January 1, 2023. There is nary alteration to our medium-term financial targets, including nan caller CSM-related targets that were communicated past year. This concludes our prepared remarks. Before we move to nan Q&A session, I would for illustration to punctual each subordinate to adhere to a limit of 2 questions, including follow-ups.

Operator, we will now unfastened nan telephone to questions.

Question-and-Answer Session


[Operator Instructions] And nan first mobility is from Meny Grauman from Scotiabank.

Meny Grauman

Just wanted to inquire astir investment-related returns. Phil, you referenced adjacent worth changes connected existent estate. Just wanted to get immoderate much specifications connected that successful position of nan plus people geographies? Is it thing concentrated? So I'll commencement there, please.

Scott Hartz

Sure, Meny. This is Scott Hartz. Thanks for nan question. So yes, erstwhile we look astatine investment-related returns, arsenic Phil pointed out, it's been a very beardown twelvemonth pinch $1.2 cardinal of finance gains, $800 cardinal supra what we would person put into halfway earnings. And for nan -- each nan portfolio, successful particular, we had gains of $147 cardinal for nan year, meaning we somewhat exceeded our semipermanent return expectations. But those returns will alteration quarter-to-quarter, peculiarly each nan returns, fixed nan mark-to-market flows done earnings.

And successful nan 4th quarter, we did spot little finance returns. That was mostly driven by our existent property portfolio. Most of our different 5, each nan categories performed successful statement pinch our semipermanent expectations. So nan nonaccomplishment you see, nan $357 cardinal for full finance gains, was driven by nan existent property portfolio. Now it's important to statement that our existent property portfolio is almost wholly mark-to-market by outer appraisers each quarter, complete 95% of nan portfolio. So only a fewer mini properties that are not.

And what we saw successful nan 4th fourth is that outer appraisers raised their discount rates connected existent estate, and that was really crossed nan board. So it really deed each categories, not conscionable office, which agency has been weaker complete nan past mates of years. But successful nan 4th fourth we saw that weakness widen crossed each categories, peculiarly successful North America. Asia held up a small spot better. It's important to statement that these were mark-to-market losses based connected higher discount rates. And fixed nan higher discount rates, we would expect to retrieve those losses successful nan early done higher returns. So that was really nan driver, Meny.

Meny Grauman

Okay. Yes. I guess, it answers nan question. I mean everyone is worried astir agency values successful particular. So nan mobility is, are we seeing nan commencement of that downward revaluation of agency properties? But you're saying it's much broad-based than that successful position of what we're seeing this quarter?

Scott Hartz

Yes, that's correct. I deliberation we've seen weakness successful agency for a mates of years now. And we've sewage a highly diversified each nan portfolio, different things we're doing well. So that didn't really show much. But successful nan 4th quarter, it really did widen to each categories of existent estate.


The adjacent mobility is from Gabriel Dechaine from National Bank Financial.

Gabriel Dechaine

I've sewage a mates of questions. One is connected nan reopening successful Asia, specifically Hong Kong. I cognize these things don't move connected a dime. I'm conscionable wondering what benignant of lag you expect from now until your income hit? What you see their normal tally complaint aliases thing supra wherever they are today?

Damien Green

Gabriel. It's Damien here. I admit nan question. We are seeing -- truthful firstly, we saw an uptick successful MCV, Mainland Chinese visitant income successful nan 4th fourth of 2022, which is very positive. We registered beardown double-digit maturation successful Mainland China for quarter-on-quarter and year-on-year successful Macau, which was a very affirmative sign.

As we spell into nan first quarter, we are seeing a measurement alteration successful Mainland Chinese visitant income into Hong Kong, albeit disconnected a debased base, Gabriel, but very affirmative signs. So whilst clearly, nan betterment is happening here. Clearly, nan inflows are there. The gait of that betterment complete coming months is intelligibly sewage to beryllium determined. But affirmative motion truthful far.

And nan past point I'd opportunity present is we're very good positioned to capitalize connected nan Mainland Chinese visitant opportunity arsenic it returns to Hong Kong. We've sewage 12,000 agents. We've been focusing very, very difficult complete nan people of nan pandemic successful beefing up our Mainland Chinese visitant income capabilities arsenic good arsenic business channels, including DBS Bank.

Gabriel Dechaine

Somewhere it's much for illustration backmost half wherever you expect it to ramp up?

Damien Green

Definitely. What I would opportunity is we're expecting a important betterment complete nan people of 2023, pinch a ramp-up successful Q1, but that's nan measurement I spot it. Thanks.

Gabriel Dechaine

Okay. And past my 2nd mobility connected the. policyholder experience. I don't cognize if you tin break that number down for us. We conscionable sewage nan 1 number, which successful and of itself is fine. But really overmuch of it was mortality gains successful LTV? How overmuch of it was, I'm assuming group successful Canada, was positive? And past connected nan different side, really overmuch of it was antagonistic lapse and mortality successful nan U.S.? And if that lapse rumor was -- acquisition was tied to nan no-lapse guarantee business?

Steven Finch

Thanks, Gabriel. It's Steve here. I'll tackle that. And I guess, I'll speak broadly astir what we saw and past effort to reply your questions connected immoderate of nan specifics. So Q4 policyholder acquisition successful total, arsenic Phil noted, was conscionable complete $80 cardinal pretax, an betterment from Q3 and from Q4 anterior year. I would categorize it arsenic nan wide driver of nan consequence was unfavorable lapse acquisition successful our U.S. Life business.

In position of mortality and morbidity, truthful claims results, that varied crossed businesses and geographies, but it was neutral wide for nan quarter. And that was driven by a mates of nan things that you noted. We had favorable acquisition successful Group Benefits successful Canada, which has been a inclination for nan afloat year, very affirmative results location successful nan Canadian Group Benefits. We saw a summation successful LTC. We saw successful Q4 what I would see normal large-case variability that was a complaint successful nan U.S. So that's benignant of nan claims broadside of things.

In position of lapse, a small spot of context. So what we're seeing successful position of nan lapse results, we had updated our acquisition successful nan U.S., updated nan assumptions successful 2021 afloat reflecting pre-pandemic experience. And what we're seeing now is really a daze to nan strategy caused by wellness concerns from nan pandemic arsenic good arsenic much recently, nan variability successful markets and nan uncertain economical outlook. That's impacting much than conscionable nan guaranteed UL merchandise line. So it's crossed a number of merchandise lines.

But my anticipation is that these impacts are expected to mean going guardant and revert backmost to pre-pandemic levels arsenic nan pandemic subsides and nan economical uncertainty abates. And what really matters is our semipermanent assumptions. And I proceed to person assurance successful our -- successful nan prudence of our semipermanent assumptions and reserves. And immoderate of what is informing that, that position and that anticipation is looking backmost to different daze to nan system, which we saw successful nan world financial crisis.

And I lived done that successful nan U.S. Life business. And we saw a akin phenomenon, discontinuities crossed aggregate merchandise lines, and that acquisition did -- it took immoderate time, but it did revert backmost to pre-pandemic levels, and that's informing my views. On nan NLG, those lapse rates bottomed retired successful nan mediate of 2021, and we person seen immoderate inclination aliases reversion back, but not afloat astatine this point. So I'll extremity there.


The adjacent mobility is from Doug Young from Desjardins Capital Markets.

Doug Young

Phil, I wanted to spell backmost to Slide 26 and conscionable a fewer things I wanted to explain here. You opportunity nan equity deed from transitioning to IFRS 17 was 13%, but nan book worth deed is 20%. Just trying to understand nan quality betwixt nan moves, 15% to 20% betwixt those 2? Why nan quality successful equity and nan book worth hit? And past tin you besides benignant of delve into a small spot connected why nan effect connected halfway net 2022 comp went down from astir 10% to 5% to 10%? If you tin springiness possibly a small spot of item arsenic to what drove that.

Phil Witherington

Sure. Thank you, Doug, for nan question. I'm happy to elaborate there. So I'll commencement pinch nan first constituent of your mobility connected nan equilibrium expanse impact. The guidance we provided; it was -- on pinch our Q1 results successful 2022 was a 20% effect to an estimated 20% effect to full equity. That's really what has happened. We published our opening equilibrium sheet, on pinch our results yesterday, nan effect is 20%. But nan further guidance we provided yesterday was complete nan people of 2022, what we person seen is simply a much unchangeable IFRS 17 book worth comparative to IFRS 4. And therefore, by nan extremity of 2022, we expect nan full equity effect to beryllium little and astir 15%.

Your mobility connected why nan book worth -- communal shareholder book worth per stock is astir 20% effect by nan extremity of 2022. That's really nan -- what I would picture arsenic nan denominator impact. When you portion retired nan penchant shares [indiscernible] arsenic good arsenic argumentation -- participating policyholder impacts, nan effect is astir 20% by nan extremity of 2022.

The -- your 2nd mobility relating to nan expected effect connected 2022 halfway earnings. When we provided nan guidance earlier past year, we were expecting 2022 to beryllium a much normal year, a emblematic year, I think, is nan connection we utilized astatine nan time. What's really transpired successful 2022, it's a very challenging backdrop. And for that reason, caller business gains connected an IFRS 4 ground were little than we had anticipated. In fact, astir 20% little year-on-year. And that's really nan cardinal driver of nan reduced effect that we're now expecting location betwixt 5% and 10%.

Doug Young

Okay. So conscionable to clarify, nan full equity includes par, includes possibly each of those things, that's different than nan book worth per share. Is that -- aliases is that see shareholder equity?

Phil Witherington

Spot on.


The adjacent mobility is from Paul Holden from CIBC.

Paul Holden

So sticking pinch nan IFRS 17 theme. One of your peers highlighted that there's much of an liking complaint use nether IFRS 17 versus IFRS 4, i.e., it flows done into halfway results faster nether IFRS 17. Wondering if that's besides existent successful your case, you propose that there's little complaint sensitivity. So possibly you tin conscionable reside that and thief america out.

Phil Witherington

Sure. Thanks, Paul. This is Phil. The main use that we spot from liking rates connected an IFRS 17 ground is really nan person matching of nan economics of nan assets and liabilities. So what we person observed during nan 2022 ongoing parallel runs is that nan greater stableness successful our book worth arsenic a consequence of nan mostly offsetting movements successful assets and liabilities arsenic a consequence of movements successful liking rates.

And that really reflects nan truth that erstwhile we negociate our plus portfolio, we hedge our liability movements connected an economical ground and IFRS 17 is simply a person practice of nan economics. So erstwhile you construe each that to nan -- what we spot successful an IFRS 17 environment, we spot greater stableness successful book worth And erstwhile you comparison that greater stableness connected an IFRS 17 ground to IFRS 4, during nan people of 2022, we've seen rising liking rates that has had a lowering effect aliases an adverse effect connected IFRS 4 equity, but very unchangeable IFRS 17 equity, including a much unchangeable LICAT ratio, which I deliberation is simply a very affirmative facet for nan future.

Steven Finch

And Phil, I'll conscionable jump successful location successful position of liking -- nan effect of liking rates flowing into earnings, immoderate of -- nan aforesaid benefits that we've seen nether IFRS 4 successful 2022 from higher rates, peculiarly net connected surplus, that will travel done arsenic good nether IFRS 17.

Paul Holden

Okay. That's helpful. And that benignant of leads maine into nan 2nd question, which is nan net connected surplus was evidently very affirmative this quarter. I mean a important outlier versus caller quarters and moreover going backmost complete history. So conscionable wondering if you tin thief america break down to what grade that's attributable to higher enslaved yields? And really overmuch mightiness beryllium benignant of, to abnormal gains connected seed superior and different factors?

Phil Witherington

Got it. Thanks, Paul. Great question. And earlier this year, for nan first 3 quarters, I deliberation immoderate of nan benefits of higher liking rates person been little visible because of declines successful seed superior and nan absence of AFS equity gains being recognized successful halfway net because of marketplace conditions. But erstwhile we look astatine Q4, a much normal marketplace environment, we do spot nan benefits of higher liking rates showing done successful net connected surplus.

And to springiness you a consciousness of nan magnitude there, erstwhile you look astatine our after-tax net connected surplus successful nan 4th quarter, $295 million, $260 cardinal of that is coming from output connected fixed income instruments. That's an $80 cardinal summation aft taxation compared to nan 4th fourth of past year. And what that reflects is nan sustainable effect of higher liking rates that presently prevail. So if rates enactment wherever they are, we would expect not only that to stay stable, but besides to summation complete clip arsenic we proceed to put successful higher-yielding instruments.

Now nan -- to your constituent connected to what grade is nan seed superior gains and gains from AFS equities included wrong that? That's -- nan dollar magnitude successful nan 4th fourth successful aggregate for AFS equity gains and seed superior is conscionable complete $100 million. Typically, I would expect location betwixt $80 cardinal and $100 cardinal a quarter. So this is -- I'd opportunity conscionable supra nan emblematic scope that we would expect possibly successful nan bid of $10 cardinal aliases so.

But I would stress this is simply a normalization, I think, successful nan 4th fourth of what we would typically expect to spot connected an IFRS 4 basis. And nan first 3 quarters of nan twelvemonth were not what I would typically expect to person experienced.

Steven Finch

Well, I mightiness conscionable adhd a mates of different points, if I may. And I deliberation Phil covered nan mobility rather well, but if you deliberation astir higher rates, we person been successful an situation of little rates for much than a decade, which has been a headwind for our manufacture and, rather frankly, for us. And per our disclosures, we've shared that a 50 ground constituent summation successful rates equates to a $1.6 cardinal PV of early earnings.

So higher rates is surely thing which is simply a affirmative and a tailwind for us. In '22, we saw rates up astir about 150 points. And nan tally complaint use to net of those higher rates are astir $170 cardinal per year. That's pretax. And that doesn't see different benefits specified arsenic separator improvements successful our Group Benefits business aliases caller business worth improvements arsenic well.

And connected apical of that, obviously, if rates enactment higher astatine nan tail end, past location are perchance URR benefits arsenic well. So I would conscionable benignant of adhd that whilst '22 was an situation pinch a batch of volatility, we person seen higher rates. We do expect that arsenic cardinal banks astir nan world proceed to raise rates contempt ostentation that we are going to beryllium successful an situation of higher rates and we spot that arsenic a affirmative clearly.


The adjacent mobility is from Tom MacKinnon from BMO Capital.

Tom MacKinnon

Just continuing connected this seed superior AFS gains guideline that you gave, Phil. It was complete $100 cardinal successful nan 4th and you expect benignant of a tally complaint of $80 cardinal to $100 million. Seed superior gains successful AFS equity gains are mostly driven by increases successful nan equity markets. The 4th quarter, nan equity marketplace was up 7% from September 30 to December 31. So I deliberation you mostly presume nan marketplace would beryllium up astir 2% each quarter. So why would nan number not beryllium like, 2/7 of that complete $100 million? Why wouldn't nan guideline beryllium for illustration importantly little than nan $100 cardinal going forward? And past I person a follow-up.

Phil Witherington

Thanks, Tom. So successful a emblematic quarter, normal environment, we'd expect location betwixt $50 cardinal and $100 cardinal of aggregate seed superior and AFS equity gains. There's intelligibly immoderate discretion arsenic to nan timing of AFS equity gains. So it's not wholly limited upon what happens successful immoderate peculiar quarter. What happened successful nan 4th quarter, nan aggregate summation was $110 cardinal station tax. So I would opportunity that's successful nan bid of $10 cardinal supra nan benignant of emblematic scope that you could expect successful immoderate peculiar quarter, Tom.

Scott Hartz

Yes. It's Scott. I mightiness adhd to that. I deliberation you're right. So that mathematics doesn't activity because of nan AFS timing arsenic good arsenic successful nan seed capital, location are a bunch of enslaved costs and rates were up successful nan 4th quarter. So that did not create nan gains you mightiness person different expect.

Tom MacKinnon

Okay. So nan chaotic paper seems to beryllium nan timing of nan AFS gains. But -- okay. Question pinch respect to nan Global Wealth and Asset Management business. Even if I conscionable look quarter-over-quarter, nan assets were higher, but nan halfway net were importantly little and nan margins were importantly less. Now is location thing peculiar to nan 4th quarter, for illustration successful position of higher OpEx, immoderate different benignant of expenses that would deem to beryllium 1 timers?

How should we beryllium looking astatine halfway net and separator imaginable for this business going forward? Because I deliberation nan 4th fourth GWAM disappointed successful position of margins and successful position of flows. But if you tin springiness america immoderate benignant of guideline arsenic to really we should beryllium reasoning astir this business going forward? And really -- thing that was unsocial to nan 4th fourth that drove that separator down?

Paul Lorentz

Yes. Thanks, Tom. It's Paul here. So you're right. We did person immoderate onetime items successful Q4 arsenic good arsenic Q3. And truthful quarter-over-quarter, I'll benignant of conscionable spell done that pinch you and past springiness you benignant of a position of really to possibly look astatine it. In Q3, location were 2 items that were favorable to nan halfway earnings. One was a taxation benefit. We thin to spot each Q3, peculiarly successful our U.S. Retirement business. And past we besides had an accommodation to our compensation disbursal successful Q3 that was lower, truthful a antagonistic adjustment.

The operation of those 2 successful Q3 was astir $37 cardinal of halfway earnings. If I look astatine Q4, location was besides immoderate onetime items successful Q4, but they were going nan different way. We thin to spot seasonal -- higher seasonal expenses successful our Retirement business arsenic we cogwheel up for nan adjacent year. And again, that typically happens each Q4. But we besides had incurred a restructuring complaint successful nan 4th arsenic we made immoderate changes pinch nan GWAM to thrust efficiencies spell forward. The operation of those 2 was astir $34 million.

So if you look astatine nan quarter-over-quarter, that's astir $71 cardinal of nan $86 cardinal change. The remainder is really nan mean AUMA activity and nan interest income connected that. So nan measurement I would look astatine it is, is really look astatine afloat twelvemonth 2022 versus 2021. That will automatically set for nan seasonality of nan taxation use successful Q3 and nan seasonality of expenses successful Q4. And conscionable soft retired immoderate onetime that whitethorn hap from quarter-to-quarter.

If you look astatine that, I would really look to nan wide AUMA arsenic nan driver, nan halfway EBITDA margin. And past nan stableness of our nett liking interest output connected nan assets arsenic good arsenic our disbursal guidance complete time. So if you look astatine nan EBITDA margin, an illustration '22, location was a small spot of compression from 2021. And that's really nan mean AUMA activity and interest income. And while we were capable to negociate expenses and support them flat, including that restructuring charge, we can't wholly offset nan full diminution successful down markets, but nan other is existent successful up markets.

And you would person seen that historically complete nan past 3 years arsenic we've driven separator description arsenic markets amended and we negociate our expenses. So that's really I would deliberation astir nan business. And I wouldn't look to Q4 arsenic really an denotation of immoderate alteration successful position of nan underlying net powerfulness of nan franchise.

Tom MacKinnon

So we had 30% successful 2022 aliases 29.9% and that was a down market, if you will. And past 2021, up market, we had 31.5% successful position of halfway EBITDA margin. Should we beryllium reasoning that, going forward, it would beryllium location betwixt those 2 if we sewage much unchangeable markets?

Paul Lorentz

Yes. It's really limited connected nan markets and mean AUMA. What I tin opportunity what I reiterated earlier is we effort and negociate our expenses to astir 50% of gross maturation complete nan agelong word to thief thrust that description . So I would conscionable look astatine what's typically happened. And again, you would person thought astir 110-basis-point past twelvemonth diminution based connected that market. And again, we would spot nan opposite. If we saw markets amended arsenic we would expect immoderate leverage connected our fixed disbursal base.


The adjacent mobility is from Scott Chan from Canaccord Genuity.

Scott Chan

Maybe going backmost to Asia, Damien. I spot that halfway expenses were up successful Q4, and I presume that's because of nan ramp-up and you called retired agents. And I noticed your agents were accrued a lot, and I spot that pinch peers. But arsenic you caput into 2023, for illustration from nan crushed level, tin you springiness america a consciousness of title that you spot is benignant of much aliases little aliases if there's immoderate definite Asia regions that you could mention to that mightiness person that dynamic?

Damien Green

Yes. Thanks, Scott, for nan question. Firstly, connected nan mobility of expenses, fto maine screen that briefly. We stay tightly focused connected disbursal subject and proceed to way wrong our superior disbursal ratio ratio target of 50% and did truthful for nan afloat twelvemonth of 2022 and for nan 4th quarter. You will spot immoderate seasonality there, which we did spot successful nan 4th fourth associated pinch america driving immoderate business maturation there. But generally, we're hanging connected reasonably good there.

In position of title crossed markets, nan first point I'd opportunity is, I mean, conscionable a macro position connected our competitory capacity done nan pandemic. We've demonstrated sizeable resilience done nan pandemic successful comparison to peers, increasing our halfway net astatine a CAGR of 4% betwixt 2019 being nan contiguous pre-pandemic twelvemonth and to nan extremity of past year's reporting play 2022, beautiful positive. We stay nan apical 3 Pan-Asian insurer, and we're a scaled subordinate location operating successful 11 markets.

So typically, successful position of competitory dynamics, I'd person to opportunity broadly, each marketplace successful Asia, whether it's an emerging marketplace aliases a much mature marketplace for illustration Hong Kong aliases Japan, has sizeable title and rather aggravated competition. But our scaled franchise, peculiarly successful cornerstone markets for illustration Hong Kong, wherever we're a leader; Singapore, wherever we're #2 successful nan market; Vietnam, wherever we person nan starring franchise by far, gives america standard advantages and comparative standard advantages. So I deliberation we're very good equipped to proceed to compete for nan stock of maturation and value.

Scott Chan

And possibly 1 follow-up for Roy. Just connected superior deployment. You benignant of talked astir 100% ownership. But I saw that you did a number liking successful a backstage equity patient successful Asia. So it seems for illustration nan taxable of deployment successful Asia, arsenic you talked astir successful nan past, is important. I'm conscionable funny wrong your possibly existent JV ownerships aliases extracurricular of that looking astatine different plus guidance and slope insurance. And possibly if you tin benignant of possibly talk astir nan pipeline now that Asia is reopening there?

Roy Gori

Yes. Thanks for nan question. Scott, a mates of thoughts I'd time off you with. Firstly, we are successful a beardown superior position pinch a LICAT ratio of 1.31. We person $20 cardinal successful excess of nan supervisory minimum. So that really gives america surely a batch of confidence, particularly arsenic we've navigated 3 challenging years done nan pandemic and still an uncertain economical situation arsenic we look to '23 and beyond. But contempt that, I deliberation that superior spot has put america successful a position to create worth done nan deployment of capital.

In '22, we fundamentally bought backmost 4.1% of our outstanding shares aliases deployed $1.9 cardinal to stock buybacks, which, again, we felt was a very prudent measurement to create worth for shareholders. And our dividend increase, nan CAGR of 10% from 2017 to '22, again, was a root of value, and we're proud to denote that nan Board approved an 11% summation effective March of '23.

So dividend buybacks -- sorry, dividend increases and stock buybacks person been really a ample portion of our attraction from a superior deployment perspective. We deliberation that, opportunistically, location whitethorn beryllium M&A opportunities for america to consider. Although 1 of our unsocial opportunities is that we tin turn and present against our targets without M&A, which I deliberation has really meant that we tin beryllium much judicious and little reckless, rather honestly, pinch a deployment of superior to M&A.

But contempt that, we person deployed to various initiatives, including nan MTEDA JV acquisition that you referenced, which is thing we're really excited about. In fact, we were nan first overseas institution to person support to get afloat ownership of a JV plus guidance company. We've been pinch our JV partner for 10 years. It's performed incredibly well, and that opportunity successful China is simply a phenomenal one. It's a $3.8 trillion market, fundamentally opportunity pinch incredibly debased penetration rates.

And it's a marketplace that's grown astatine a CAGR of 20% complete nan past 10 years. So that evidently is very breathtaking for us. We did nan JV pinch Mahindra successful India. Again, we deliberation that's a tremendous opportunity, fixed nan maturation and standard of nan India market. We started our slope business pinch VietinBank successful Q1 of '22, which, again, gives america entree to 14 cardinal customers. So we're emotion beautiful bully astir nan superior that we've deployed.

We do judge that location whitethorn beryllium much opportunities that whitethorn emerge, and our beardown superior position will really equip america pinch nan opportunity to perchance opportunistically look astatine those. And we precocious revenge for a caller NCIB for 2023 pinch nan TSX. So again, superior strength, I think, is thing that's been forte for our company, and it's allowed america to create shareholder value. And rather frankly, we'll proceed to let america to create shareholder worth successful '23.


The adjacent mobility is from Mario Mendonca from TD Securities.

Mario Mendonca

First, we could spell to nan CSM balance. That balance, tin you springiness america an denotation of really -- you're clear that nan equilibrium grows astatine 8% to 10%. Would it beryllium adjacent to opportunity that nan amortization would besides turn by 8% to 10%? And benignant of related to that, really quickly does that CSM amortize? Is it complete 10 years, 20 years? Can you springiness america an outlook connected those 2?

Phil Witherington

Sure. Mario, acknowledgment for nan question. This is Phil. Your presumption is correct there. We expect nan amortization of nan CSM to beryllium astir 8% to 10% per year. So complete a 12-year period, it would look into income based connected that math. But nan reality is that we expect nan CSM equilibrium to not only stay unchangeable arsenic a consequence of nan caller business procreation but turn by a akin magnitude astatine 8% to 10%. And that really reflects nan maturation opportunity successful our world franchise, successful particular, successful Asia.

Mario Mendonca

Okay. So nan 8% to 10% you said successful your opening comments, that was nan 12 years you were referring to. I thought you said that was nan maturation successful nan balance?

Phil Witherington

It's both. So 8% to 10% of maturation successful nan balance, but besides 8% to 10% amortization of that equilibrium per year.

Mario Mendonca

I understand. Okay. And past my 2nd question, and this mightiness beryllium much due for Steve. Looking astatine nan changes successful assumptions, and I'm not talking astir nan noneconomics, I'm talking astir nan economical assumptions. Changes successful assumptions for nationalist equities and each of nan -- going forward. Under IFRS 4, that would person been instantly reflected successful your LICAT, would person been instantly reflected successful nett income, possibly taken retired of core. It would person been reflected instantly successful book worth and book worth excluding OCI.

But nether IFRS 17, my knowing is that changes successful things for illustration nationalist equity assumptions and ALDA will travel done each of those things, nett income, core, book value, LICAT. First, do I person that right?

Steven Finch

Mario, yes, you person that right. Under IFRS 4, we capitalized nan afloat coming worth of each nan early impacts arsenic -- if we alteration successful ALDA assumption. Under IFRS 17 because of nan delinking betwixt nan assets and nan liabilities, it does not effect nan valuation. And if nan presumption has changed, presumably that reflects what will really occur, that will travel successful complete time.

Mario Mendonca

And now because it's going to travel successful overtime successful each areas, halfway earnings, nett income, book value, LICAT, does that alteration your position connected making changes to assumptions because it was specified a -- it could person specified a melodramatic effect nether IFRS 4, it's overmuch more, I'm going to telephone it, sensible nether IFRS 17, does that alteration your position connected making changes to those assumptions? .

Steven Finch

It -- I deliberation it changes nan magnitude of attraction it gets successful nan spotlight because nan capitalized impacts could beryllium rather large, arsenic you've seen from our sensitivities. But successful position of nan rigor that we use those assumptions are important for pricing, they're important for mounting nan correct expectations for projections of net and for embedded value. And it will proceed to get nan aforesaid level of rigor and attraction from Scott's group and my group.

And you saw successful nan -- successful Phil's prepared remarks that complete nan past 18 years since nan acquisition, we've been bang connected efficaciously conscionable a small higher than nan existent assumptions. So it will proceed to get nan aforesaid focus, but astir apt little of a spotlight.


The adjacent mobility is from Lemar Persaud from Cormark Securities.

Lemar Persaud

I'll beryllium really speedy because astir of my questions person been asked and answered. But conscionable starting disconnected here, I want to travel backmost to Paul and Tom's questioning connected net connected surplus. So I conscionable want to beryllium clear present bottommost line. Are you guys suggesting that this 4th is complete $300 cardinal successful net connected surplus is suggestive of what we should expect moving guardant aliases possibly moreover immoderate upside from that number from higher rates?

Phil Witherington

Thanks, Lemar, for nan question. This is Phil. I deliberation what we're seeing this 4th is simply a reasonable baseline. The benefits that are included this 4th from nan seed superior and available-for-sale equity gains are astatine nan higher extremity of our emblematic range. In fact, conscionable complete nan higher extremity of a emblematic range, but only by astir $10 cardinal station tax. As I said earlier, nan main use is really nan effect of higher liking rates, which is showing done connected our fixed income portfolio wrong surplus.

And erstwhile we break that down arsenic to what's driving that summation successful nan fixed income yield, location are a mates of things. One is nan effect of higher rates connected nan shorter-term instruments that we see successful that portfolio, but past besides nan effect of trading wrong nan portfolio. And Roy earlier referenced $170 cardinal a pretax of use that we person seen successful 2022 from higher rates. So that's nan use done nan twelvemonth connected our liking connected surplus -- aliases nan fixed income constituent of our net connected surplus.

About $80 cardinal of that $170 cardinal was coming from nan impacts of higher rates connected nan shorter-term instruments. And past $120 cardinal of it was coming from trading longer-term instruments, therefore, locking successful a higher yield. And offsetting that was a flimsy summation people successful nan costs of indebtedness successful a higher liking complaint environment, and that each nets disconnected to nan $170 cardinal pretax that Roy referenced.

Lemar Persaud

Okay. Great. And past conscionable my 2nd mobility here. You guys talk astir really Manulife has returned a important magnitude of superior to shareholders complete time. I conscionable want to effort this 1 again because I deliberation it's travel up successful nan past. How should we deliberation astir excess superior for deployment nether IFRS 17, possibly successful position of dollars and directionally, is it higher than nether IFRS 4? I cognize you guys had referenced nan $20 cardinal complete nan supervisory target. But presumably, not each of that is deployable. So really should we deliberation astir that?

Roy Gori

Yes. So Lemar, a mates of thoughts. I mean, again, I would conscionable spell backmost to my earlier point, and that is that we're intelligibly successful a very beardown superior position. This has been a large attraction for nan institution complete nan past 5 years. We've freed up $9 cardinal worthy of capital, and that's put america successful a position of strength, which has fixed america a batch of elasticity and optionality, which is why we've deployed capital, not only organically but inorganically arsenic good arsenic against dividend increases and stock buybacks.

Obviously, arsenic we modulation to IFRS 17, we've been intimately looking astatine what that intends to our LICAT ratios and our surplus. And arsenic we've shared successful our presentation, we spot that our LICAT ratio, based connected rates arsenic astatine nan extremity of nan year, look to beryllium -- putting america successful a position wherever we'll person a higher LICAT ratio -- somewhat higher LICAT ratio of a mates of percent points.

So we're not really going to stock overmuch much than that astatine this point. I'd benignant of clasp retired until we are capable to really stock overmuch much specifications astatine our adjacent net telephone connected much information connected that front.


The adjacent mobility is from Nigel D'Souza from Veritas Investment Research.

Nigel D'Souza

I wanted to circle backmost connected Asia and get a amended consciousness of nan underlying trends there. When I look astatine nan past 4 quarters, premiums person conscionable lowered, but it looks for illustration that's offset by higher profitability. I was wondering if you could speak to really overmuch of nan inclination we spot successful 2023, you could property to mobility restrictions, really overmuch you property to sentiment from marketplace volatility and economical uncertainty? And really overmuch you property to conscionable changes successful merchandise mix? And really do you spot those factors spinning retired successful 2023?

Damien Green

Nigel, acknowledgment for nan question. I deliberation it's each of those things. I mean apportioning is not needfully easy to do. But I would opportunity predominantly what's impacted our results successful Asia complete nan people of 2022 was nan extended aliases lingering COVID containment measures successful China and Hong Kong. These are some halfway businesses for us. And I deliberation we saw those containment measures linger connected good into 2022 successful some Hong Kong and China. And that impacted user sentiment, economical maturation and further constrained our maturation opportunity successful those markets successful nan year.

Generally, though, I'd opportunity that we did -- done our attraction connected execution and resilience, we were capable to post, arsenic you know, year-on-year and quarter-on-quarter halfway net maturation successful nan 4th quarter, contempt nan uneven benignant of post-pandemic betterment there. Underpinning that momentum was Hong Kong, wherever we saw quarter-on-quarter betterment successful each cardinal metrics successful nan 4th quarter; APE, halfway net and NBV. Japan continues its terrific turnaround, delivering precocious double-digit maturation successful halfway net quarter-on-quarter and for nan afloat year.

And nan Asia Other grouping, we delivered a robust halfway net maturation consequence also. So conscionable to circle backmost and summarize, I deliberation it very overmuch -- nan constraints past twelvemonth were driven by sentiment -- outer facet sentiment, superior marketplace volatility And truthful acold arsenic merchandise operation is concerned, astir apt only successful China, that was a applicable facet wherever you tin spot our halfway net and NBV results successful China. Whilst we've sewage immoderate resilience coming done and we registered 4% maturation successful APE for nan afloat twelvemonth successful China, which was bonzer fixed nan difficulties crossed nan economy, what constrained america successful position of merchandise operation were immoderate one-off changes to nan regulatory situation astir captious unwellness products.

Key constituent location is those changes are astir apt bully for nan agelong word of nan manufacture successful position of sustainability successful China. They do not preclude america from undertaking separator enhancement. And indeed, that's underway for us, and we consciousness rather optimistic astir that successful nan first 4th and nan first half of 2023. Thanks, Nigel.

Roy Gori

I mightiness conscionable adhd a mates of points. '22 was a challenging twelvemonth for Asia, specifically arsenic it relates to COVID pinch nan restrictions that Damien referenced and referred to. And we saw successful North America, Canada and nan U.S., really much of a normalization, a return to normal from a income position arsenic it relates to COVID. There are intelligibly still immoderate lingering impacts. But we had really beardown maturation from a income position successful North America pinch 25% and 18% NBV growth, respectively.

But dial backmost to '21, it was almost nan opposite. In '21, we saw North America -- really importantly negatively impacted by COVID restrictions. And Asia really did rather good there. So we did spot nan equilibrium of our portfolio really whether those environments rather well, and that was nan spot of our diversity. And again, arsenic we look to '23, we're really rather optimistic, notwithstanding nan comments that Damien mentioned astir will return immoderate clip for that Zero COVID argumentation to really modulation and unfold.

But we're emotion rather optimistic astir '23 being a twelvemonth wherever we will spot much of a return to normalization specifically arsenic it relates to COVID restrictions and nan effect connected sentiment and therefore, connected sales.

Nigel D'Souza

Okay. That's a very adjuvant answer. And my 2nd mobility was connected your LICAT sensitivity. When I look astatine your liking complaint sensitivity disclosure, nan dollar magnitude from a 50-basis-point summation is nan same, but nan percentage-point effect went down to 2 percent points. I presume that's rounding. But I wanted to get a consciousness of nan complexity of that portfolio. Is location a level of rates wherever nan percent constituent effect could autumn to 1%? And does immoderate of nan liking complaint sensitivity alteration nether IFRS 17?

Steven Finch

Yes. Thanks, Nigel. It's Steve. And you sewage that right, that what we've seen is immoderate complexity here. As rates person risen, we've seen little sensitivity successful nan LICAT ratio nether IFRS 4. And that aforesaid arena will beryllium location nether IFRS 17. But arsenic Phil pointed retired earlier, overall, nan LICAT ratio nether IFRS 17 will beryllium little delicate to liking rates, which we position arsenic a positive. It increases nan stability. So we'll spot that sensitivity driblet further nether IFRS 17. Thanks.


There are nary further questions registered astatine this time. I'd for illustration to move nan telephone backmost complete to you, Mr. Ko.

Hung Ko

Thank you, operator. We'll beryllium disposable aft nan telephone if location are immoderate follow-up questions. Have a bully day, everyone.


Thank you. The convention has now ended. Please disconnect your lines astatine this time, and we convey you for your participation.

Editor: Naga

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