C$ unless otherwise stated
TSX/NYSE/PSE: MFC
SEHK:945
- Delivered net income attributed to shareholders of $1,206 million.
- Strengthened underlying earnings from 4Q11.
- Grew total Company insurance sales1,2 35
per cent. Record insurance sales in Asia.
- Achieved record level of $512
billion in funds under management1 as at
March 31, 2012.
- Reduced strain through improved business mix and lower new
business expenses.
TORONTO,
May 3, 2012 /PRNewswire/ - Manulife
Financial Corporation ("MFC") reported today net income attributed
to shareholders of $1,206 million for
the first quarter ended March 31,
2012. The quarter's performance reflects strong markets,
growth in insurance sales and strengthened underlying earnings
compared to the fourth quarter of 2011. Fully diluted
earnings per share, excluding convertible instruments1,
were $0.66 and return on common
shareholders' equity1 was 21 per cent.
First Quarter 2012
Highlights2:
- Delivered net income attributed to shareholders of
$1,206 million. Net income
was $1,131 million excluding the
direct impact of equity markets and interest rates. There
were a number of other notable items totaling $592 million that contributed to earnings.
- Grew total Company insurance sales 35 per cent:
-
- In Asia, record insurance sales were up 26 per cent, driven by
a 16 per cent growth in contracted agents, and solid performances
in Hong Kong and the ASEAN region,
up 31 and 26 per cent, respectively.
- In Canada, insurance sales
were up 80 per cent, driven by record sales in Group Benefits.
- In the U.S., insurance sales decreased three per cent despite
continued momentum in life insurance sales. Lower sales in
Long-Term Care reflected new business price increases in 2011
intended to decrease our risk profile.
- Strengthened underlying earnings from 4Q11, driven by
key strategic actions:
-
- Achieved a record level of $512
billion in funds under management as at March 31, 2012, resulting in increased fee
income. This reflects our efforts to grow our
non-guarantee-dependent wealth and asset management
businesses.
- Reduced strain through a desirable business mix achieved
by selling higher ROE, lower risk products, and improved pricing to
address the drop in interest rates in the second half of 2011.
- Continued to generate strong investment gains,
which contributed $243 million to
earnings. Major drivers included gains from fixed income
trading, real estate appraisals, and origination gains from private
equity, infrastructure and real estate acquisitions.
- Improved North American mutual fund
sales3 versus the fourth quarter 2011,
however mutual fund sales decreased over the prior year which
resulted in a decrease of total Company wealth sales by eight per
cent:
- In Asia, wealth sales were up seven per cent driven by strong
fixed annuity sales in Japan and
solid sales in the ASEAN region.
- In Canada, wealth sales were
down five per cent, as the competitive environment and continuing
low interest rates negatively impacted sales. Cross selling efforts
by Group Benefits and Group Retirement Solutions were a significant
contributor to strong sales in Group Retirement Solutions.
- In the U.S., wealth sales were down 12 per cent due to lower
mutual funds sales reflecting low retail investor confidence at the
start of the quarter which more than offset favourable sales and
record funds under management in the 401(k) business.
- Experienced poor policyholder experience, primarily due
to higher claims in JH Life, JH Long-Term Care and unfavourable
disability and life insurance claims in Canada.
- Added modestly to our effective hedging program with
additional dynamic and macro hedging implemented in the
quarter.
- Improved our strong capital ratio. The MCCSR ratio for
The Manufacturers Life Insurance Company ("MLI") was 225 per cent
as at March 31, 2012, benefitting
from strong earnings and issuances of $250
million of preferred shares and $500
million of subordinated debentures during the quarter. These
issuances reflect our prudent market approach when faced with
uncertain economic conditions and take into account expected
refinancing requirements.
- Received three additional state approvals on Long-Term
Care price increases on in-force retail business bringing the
total to 32 states.
- Received eight Lipper Awards around the world for funds
managed by Manulife Asset Management.
- Continued to have a substantially higher shareholders'
equity in accordance with U.S. GAAP3, $12 billion higher than under the Canadian
version of IFRS (C-IFRS)4, despite the quarter's net
loss of $359 million in accordance
with U.S. GAAP3. The primary driver of this
quarter's lower U.S. GAAP earnings compared to C-IFRS earnings
relates to variable annuity accounting differences.
_____________________________
1 |
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below. |
2 |
Comparative percentages refer to the 3 month period ending
March 31, 2012 versus the 3 month period ended March 31, 2011. |
3 |
This item is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below. |
4 |
The Canadian version of IFRS uses IFRS as issued by the
International Accounting Standards Board. However because IFRS does
not have an insurance contract measurement standard, we continue to
use the Canadian Asset Liability Method (CALM). |
C$ millions |
|
|
|
For the quarter ended |
1Q 2012 |
4Q 2011 |
1Q 2011 |
Net income (loss) attributed to shareholders |
1,206 |
(69) |
985 |
Diluted earnings (loss) per share, excluding
convertible instruments3 (C$) |
0.66 |
(0.05) |
0.54 |
Return on common shareholders' equity3
(percentage, annualized) |
21.0% |
(1.6)% |
17.4% |
Net income (loss) excluding the direct impact of
equity markets & interest rates3 |
1,131 |
(222) |
874 |
Total notable items excluding the direct impact of
equity markets and interest rates3,5 |
592 |
(577) |
281 |
Net income (loss) in accordance with U.S.
GAAP |
(359) |
342 |
155 |
President and Chief Executive Officer
Donald Guloien stated, "We entered
2012 with a solid foundation for growth. Our first quarter
reflects strong markets, positive hedging results, 35 per cent
higher insurance sales, and stronger underlying earnings relative
to the fourth quarter of 2011. The strength of our underlying
earnings reflects our healthier business mix, with the emphasis on
wealth management and insurance products with less risk, higher
margins and higher returns."
"The first quarter was not without its
challenges, as we experienced poor policyholder experience, which
we expect is largely a random fluctuation and mutual fund sales
slightly lower than last year," Mr. Guloien said. "That being said,
we reported record funds under management of $512 billion, which fuels current and future fee
revenue."
Mr. Guloien added, "Our record insurance sales
in Asia demonstrate that, among
other things, our investments in our brand and distribution are
paying off. In Canada, our
broad-based, diversified financial services strategy has resulted
in strong insurance sales led by record sales in our Group Benefits
business. In the U.S., we continued to leverage our distribution
strengths to deliver solid insurance, mutual fund and 401(k) sales.
On the investment side, mutual funds managed by Manulife Asset
Management received eight Lipper Awards and general account asset
performance continued to be a strength."
Chief Financial Officer Michael Bell commented, "We were encouraged to
see the rebound in our underlying earnings in the first quarter of
2012 relative to the fourth quarter of 2011. Efforts to expand and
diversify our revenue sources and price increases have been key
contributors to our improved performance. We added modestly
to our effective hedging program with additional dynamic and macro
hedging implemented in the quarter. We ended the first
quarter of 2012 with a strong financial position and a capital
ratio for MLI at a comfortable 225 per cent. During the quarter, we
raised $250 million of preferred
shares and $500 million of
subordinated debentures, reflecting our prudent market approach to
capital management that takes into account our expected refinancing
requirements."
_____________________________
5 |
See table "Other Notable Items"
below. |
SALES AND BUSINESS GROWTH
Asia Division
"Our strategic efforts to expand and diversify
our distribution capability delivered outstanding results in the
first quarter," said Robert Cook,
President and Chief Executive Officer of Manulife Financial Asia
Limited.
Asia Division posted record insurance
sales6 for the first quarter. Compared to the
first quarter of 2011, sales of US$365
million were 26 per cent higher on a constant currency
basis7 driven by growth in all regions. Highlights for
the first quarter of 2012 include:
- Hong Kong insurance sales of
US$56 million were up 31 per cent
over the first quarter of 2011 primarily driven by a successful
campaign promoting investment linked products, an expanded agency
force and higher sales through the bank channel.
- Asia Other posted record sales
of US$116 million, 72 per cent higher
than the first quarter of 2011. The sales success reflected
an increased number of agents, continued strong bank sales from
Indonesia and the launch of two
new par endowment products in China. In addition, Taiwan sales benefited substantially from
sales through the bank channel prior to a price increase on a
popular U.S. dollar par product.
- Japan insurance sales of
US$193 million were seven per cent
higher than the first quarter of 2011. Strong cancer product
sales prior to an announced proposed tax treatment change and
continued sales growth of the increasing term product more than
offset lower sales of our New Whole Life Product, a result of
pricing actions in 2011 to increase margins.
First quarter wealth sales were US$1.1 billion, an increase of seven per cent
over the first quarter of 2011 on a constant currency basis.
Highlights include:
- Japan sales of US$478 million were more than three times higher
than the first quarter of 2011 driven by the continued success of
our foreign currency fixed annuity product through the bank
channel.
- Asia Other sales of US$472 million were 22 per cent lower than the
first quarter of 2011 due to the non-recurrence of the 2011 fund
launches in Manulife TEDA. This was partially offset by
higher sales in Indonesia,
Taiwan and the Philippines.
- Hong Kong wealth sales of
US$142 million were 49 per cent lower
than the first quarter of 2011. Wealth sales in 2011 benefited from
the launch of the Chinese currency denominated endowment
product. The impact of volatile markets also contributed to
the decline in wealth sales.
A key driver of our Asia growth strategy is
successfully building distribution capacity in both the agency and
bank channels. Distribution highlights include:
- Insurance sales through the bank channels grew more than three
times first quarter 2011 levels in Hong
Kong and by nearly five times in Asia Other. In Indonesia, our insurance and wealth sales
through the bank channel increased by 61 per cent compared with
first quarter 2011.
- Our agency force included close to 50,000 contracted agents at
March 31, 2012, an increase of 16 per
cent over March 31, 2011. Eight
of the 10 territories experienced double-digit growth in the number
of contracted agents.
- Manulife-Sinochem received pre-approval to operate in
Shijiazhuang, thereby expanding
our national platform in China to
50 cities.
_____________________________
6 |
Sales is a non-GAAP measure. See
"Performance and Non-GAAP Measures" below. |
7 |
Sales growth (declines) are stated on
a constant currency basis; constant currency is a non-GAAP measure.
See "Performance and Non-GAAP Measures" below. |
Canada Division
"We continue to see success across our
diversified Canadian franchise," said Paul
Rooney, President and CEO, Manulife Canada. "We capitalized
on increased activity in the group market with a record sales
quarter for Group Benefits and the second highest sales quarter on
record for Group Retirement Solutions. Once again we had record
travel sales, and we are seeing the desired shift in the mix of our
new business in Individual Insurance. Competitive conditions and
the continuing low interest rate environment dampened the quarter's
sales results in our individual wealth management businesses
relative to a strong first quarter of 2011. We continue to focus on
enhancing our retail wealth business platform with 11 funds added
to broker-dealers' recommended lists in the quarter and the
introduction of seven new fund mandates."
First quarter 2012 sales in our Group businesses
were very strong, reflecting success in the large case segment
where market activity increased significantly from 2011.
Cross-selling contributed to our sales success with a significant
portion of sales in each business coming through an existing
relationship with the other group business. Group Benefits reported
record quarterly sales of $248
million, more than twice those of first quarter 2011, while
Group Retirement Solutions sales of $556
million were the second highest on record with 40 per cent
growth over the same period in 2011.
Individual Insurance sales aligned with our
strategy to reduce new business risk with a significantly lower
proportion of sales with guaranteed long duration features as
compared to the same period a year ago. As expected with this shift
in mix, total annualized regular premium sales of $62 million were down 13 per cent from first
quarter 2011 levels. Single premium sales increased 40 per cent
from the first quarter of 2011 driven by record travel sales from
continued expansion through our travel partners.
Individual Wealth Management funds under
management8 were a record $67.3
billion as at March 31, 2012,
up five per cent from March 31, 2011.
First quarter 2012 sales were 13 per cent below the first quarter
of 2011, dampened by the competitive environment and continued low
interest rates.
- Manulife Mutual Funds (MMF) assets under management increased
by six per cent outpacing industry growth of one per cent
year-over-year. On both a year-over-year and year-to-date basis,
MMF ranked 2nd in the top 10 fund management companies
reporting to IFIC for growth in assets under management. Overall
mutual fund industry sales decreased marginally as compared to the
first quarter of 2011, however sales through advisor-based channels
declined significantly more than the industry average9.
Consistent with the industry trend, MMF sales declined and retail
gross deposits of $478 million were
down 20 per cent from first quarter 2011 in the face of strong
competition. We continue to focus on expanding our product
shelf with 11 MMF funds added to broker-dealers' recommended lists
in the first quarter and actively promoting our suite of funds,
including our recently launched seven new fund mandates.
- Manulife Bank reported record assets of almost $21 billion at March 31,
2012, an increase of 12 per cent over March 31, 2011, driven by strong growth in net
lending assets from strong client retention and loan origination
volumes. New loan volumes of $1.1
billion were marginally less than first quarter 2011
levels.
- Consistent with our expectations, variable annuity (VA) sales
in first quarter 2012 of $618 million
were down 18 per cent from the same period last year and sales of
fixed rate products also continued at lower levels, reflecting the
continued low interest rate environment.
_____________________________
8 |
Funds under management is a non-GAAP measure. See "Performance
and Non-GAAP Measures" below. |
9 |
Based on IFIC report of Mutual fund assets for top 30 Fund
Companies in Canada as at March 31, 2012. |
U.S. Division
Jim Boyle,
President, John Hancock Financial Services, reported, "We are very
pleased with the results in a number of our businesses in the
quarter. We made good progress in our Retirement Plan
Services sales results and we continue to expand our Mutual Fund
product offerings at a number of large broker-dealers as a result
of our focus on growing our higher return, fee based wealth
management products and services. In addition, life insurance
sales increased slightly over first quarter 2011, driven by
increased sales of products with reduced risk and higher return
potential."
Wealth management ended the first quarter with
record levels of funds under management of US$196.7 billion, an increase of two per cent
over March 31, 2011. First quarter
sales of wealth products declined 12 per cent to US$4.8 billion compared to the first quarter of
2011 while increasing eight per cent compared to fourth quarter
2011.
- John Hancock Retirement Plan Services ("JH RPS") achieved
record funds under management as of March
31, 2012 of US$68.7 billion,
an increase of four per cent over March 31,
2011, driven by favourable investment returns and positive
net sales. Sales of US$1.3
billion in the first quarter increased 12 per cent compared
to the first quarter of 2011. Increases in the average size
per case, the number of cases sold, and the average recurring
deposit per participant all contributed to the increase in sales
compared to the first quarter of 2011.
- John Hancock Mutual Funds ("JH Funds") also achieved record
funds under management as of March 31,
2012 of US$38.2 billion, a
seven per cent increase from March 31,
2011, due primarily to positive net sales. First quarter
sales decreased 10 per cent to US$3.1
billion compared to first quarter of 2011 while increasing
29 per cent compared to fourth quarter 2011. Sales in the
first quarter were impacted by low retail investor confidence at
the start of the quarter. JH Funds was successful in
expanding its product offering with approvals at a number of large
broker-dealers. JH Funds experienced positive net
sales10 of US$0.9 billion
in the non-proprietary market segment, while the overall industry
incurred net redemptions year-to-date through March 31, 2012. As of March 31, 2012, JH Funds offered 19 Four- or
Five-Star Morningstar11 rated mutual funds.
- The John Hancock Lifestyle and Target Date portfolios offered
through our mutual fund, 401(k), variable annuity and variable life
products had assets under management of US$77.2 billion as of March 31, 2012, a three per cent increase over
the first quarter of 2011. Lifestyle and Target Date portfolios
offered through our 401(k) products continued to be the most
attractive offerings, with US$2.4
billion or 67 per cent of premiums and deposits12
in the first quarter of 2012, an increase of 32 per cent over the
first quarter of 2011. As of March 31,
2012, John Hancock was the
third largest manager of assets for Lifestyle and Target Date funds
offered through retail mutual funds and variable insurance
products13.
- John Hancock Annuities ("JH Annuities") sales declined
consistent with expectations reflecting the continued low interest
rate environment and the actions taken to de-risk products.
Insurance sales in the U.S. for the first
quarter of 2012 declined three per cent compared to the first
quarter of 2011 but with a more favourable mix of business.
New products with favourable risk characteristics are contributing
positively to the results while the businesses continued to execute
on strategies to reduce risk and raise margins including price
increases.
- Sales of John Hancock Life ("JH
Life") products excluding the universal life with lifetime no-lapse
guarantees and guaranteed non-par whole life products were up 28
per cent over first quarter 2011. Newly launched products
continue to contribute to the sales success, including the indexed
Universal Life product, launched in the fourth quarter of 2011 and
an improved offering of the business' top selling Universal Life
product in the first quarter of 2012. The business continues
to show market leadership with further price increases introduced
on universal life products with lifetime no-lapse guarantees in the
first quarter of 2012, reflecting the current interest rate
environment.
- John Hancock Long-Term Care ("JH LTC") sales of US$20 million in the first quarter declined 23
per cent compared to the first quarter of 2011. Excluding the
Federal plan sales, JH LTC sales declined by 53 per cent compared
to the first quarter of 2011, reflecting the impact of new business
price increases implemented in 2011. In 2010, JH LTC filed with 50
state regulators for premium rate increases averaging approximately
40 per cent on the majority of our in-force retail and group
business. To date, approvals of in-force price increases on retail
business have been received from 32 states.
------------------------------------
10 |
Source: Strategic Insight SIMFUND. Net sales (net
new flows) is calculated using retail long-term open end mutual
funds for managers in the non proprietary channel. Figures exclude
money market and 529 share classes. |
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 |
Premiums and deposits is a non-GAAP measure. See
"Performance and Non-GAAP Measures" below. |
13 |
Source: Strategic Insight. Includes Lifestyle and
Lifecycle (Target Date) mutual fund assets and fund-of-funds
variable insurance product assets (variable annuity and variable
life). |
MANULIFE ASSET MANAGEMENT
Assets managed by Manulife Asset Management grew
by $6.1 billion to $186.6 billion and including assets managed for
Manulife's general account increased by $9.3
billion to $219.8 billion as
at March 31, 2012 compared to
March 31, 2011.
At March 31, 2012,
Manulife Asset Management had seven Five-Star and 61 Four-Star
Morningstar14 rated funds for a total of 68 Four- and
Five-Star Funds. This represents an increase of ten from
December 31, 2011.
CORPORATE ITEMS
In a separate news release today, the Company
announced that the Board of Directors approved a quarterly
shareholders' dividend of $0.13 per
share on the common shares of the Company, payable on and after
June 19, 2012 to shareholders of
record at the close of business on May 15,
2012.
The Board of Directors also decided that, in
respect of the Company's June 19,
2012 common share dividend payment date, the Company will
issue common shares in connection with the reinvestment of
dividends and optional cash purchases pursuant to the Company's
Canadian Dividend Reinvestment and Share Purchase Plan and its U.S.
Dividend Reinvestment and Share Purchase Plan.
_____________________________
|
14 |
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. |
AWARDS & RECOGNITION
Eight funds managed by Manulife Asset
Management won Lipper Awards. The Manulife European Equity Fund
and the International Bond Fund topped the Hong Kong Mandatory
Provident Fund category. The Manulife Structured Bond Class
Advisor Series and the Manulife International Dividend Income Fund
Advisor Series were recognized in Canada. In the U.S., John Hancock Funds won
four awards, including a Group Award Trophy in the Mixed Assets,
Large Company category. Honoured funds were the John Hancock
Lifecycle 2010, the John Hancock Lifecycle 2015 Portfolios, R5
shares, and the John Hancock Active Bond Fund, NAV.
In Hong
Kong, Manulife captured its sixth consecutive Sing Tao
Excellent Services Brand Award, winning in the MPF Services
Provider category for the third year running. The awards recognize
organizations' commitment to customer service.
In Vietnam, Manulife received the 2011 Golden
Dragon Award for "Best Life Insurance Service" by the Vietnam
Economic Times, the country's leading business magazine. The award
recognizes foreign-invested companies that have achieved
outstanding business performance and made significant contributions
to the development of the Vietnam
economy.
Manulife's enterprise risk management was
assigned a Strong score by Standard & Poor's Ratings
Services. Their report commented on the success of Manulife's
efforts to reduce its risk profile, our strong risk management
culture and notable strength in credit and insurance risk
management as well as risk models.
Notes:
Manulife Financial Corporation will host a First
Quarter Earnings Results Conference Call at 2:00 p.m. ET on May 3,
2012. For local and international locations, please
call 416-340-2216 and toll free in North
America please call 1-866-898-9626. Please call in ten
minutes before the call starts. You will be required to provide
your name and organization to the operator. A playback of
this call will be available by 6:00 p.m.
EDT on May 3, 2012 until
May 17, 2012 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.
EDT on May 3, 2012. You may
access the webcast at:
www.manulife.com/quarterlyreports. An archived version
of the webcast will be available at 4:30
p.m. EDT on the website at the same URL as above.
The First Quarter 2012 Statistical Information
Package is also available on the Manulife website at:
www.manulife.com/quarterlyreports. The document may be
downloaded before the webcast begins.
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis
("MD&A") is current as of May 3,
2012. This MD&A should be read in conjunction with the
MD&A and audited consolidated financial statements contained in
our 2011 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 "Critical Accounting and Actuarial Policies" in the
MD&A in our 2011 Annual Report and the "Risk Management" note
to the consolidated financial statements in our most recent annual
and interim reports.
Contents |
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A |
OVERVIEW |
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D |
RISK MANAGEMENT AND RISK FACTORS
UPDATE |
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1 |
General macro-economic risk
factors |
B |
FINANCIAL HIGHLIGHTS |
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2 |
Regulatory capital, actuarial and
accounting risks |
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3 |
Additional risks - Entities within the MFC Group are |
1 |
Net income attributed to shareholders |
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interconnected which may make
separation difficult |
2 |
U.S. GAAP results |
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4 |
Variable annuity and segregated fund
guarantees |
3 |
Sales, premiums and deposits |
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5 |
Publicly traded equity performance
risk |
4 |
Funds under management |
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6 |
Interest rate and spread risk |
5 |
Capital |
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E |
ACCOUNTING MATTERS AND
CONTROLS |
C |
PERFORMANCE BY DIVISION |
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1 |
Critical accounting and actuarial
policies |
1 |
Asia |
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2 |
Sensitivity of policy liabilities to
changes in assumptions |
2 |
Canada |
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3 |
Future accounting and reporting
changes |
3 |
U.S. |
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4 |
Corporate and Other |
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F |
OTHER |
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1 |
Performance and non-GAAP
measures |
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2 |
Caution regarding forward-looking
statements |
A OVERVIEW
Earnings in the quarter were $1.2 billion:
- The direct impact of equity markets and interest rates, gains
on our variable annuity hedge block and strong investment
performance contributed $541 million
to earnings in the quarter.
- New business strain was $52
million, an improvement of $83
million from the fourth quarter of 2011.
- Poor policyholder experience, primarily due to higher claims in
JH Life, JH Long-Term Care and unfavourable disability and life
insurance experience in Canada
reduced earnings by $66
million. The higher life insurance claims in JH Life
and Canada are attributable to
normal volatility of claims and in Long-Term Care include the
impact of normal seasonality. It is too early to tell if the
increased group disability claims represent a trend.
- We reported gains of $180 million
related to changes to in-force product features in Canada and the enactment of new tax rates in
Japan.
Minimum Continuing Capital and Surplus
Requirements ("MCCSR") capital ratio for The Manufacturers Life
Insurance Company ("MLI") closed the quarter at 225 per
cent.
- The ratio increased nine points compared to December 31, 2011, of which six points related to
the $750 million of capital raised in
the first quarter. If the Company elects to redeem, subject to
regulatory approval, up to $1 billion
of capital units issued by Manulife Financial Capital Trust that
currently qualify as regulatory capital, we would expect a decline
in the MCCSR ratio.
Top line growth:
- Insurance sales were $823 million
for first quarter 2012, an increase of 35 per cent over the first
quarter of 2011. Asia Division set a new quarterly insurance
sales record and achieved growth in all regions.
- Wealth sales were $8.7 billion
for first quarter 2012, a decrease of eight per cent from the first
quarter of 2011. The decline was driven by lower mutual funds
sales in both the U.S. and Canada.
Other items of note:
- Based on interest rates at March 31,
2012, our expectation is that the update to the fixed income
ultimate reinvestment rates ("URRs") in the second quarter 2012
could result in a charge that we estimate could be in the range of
up to $700 million to $800 million.
This amount is an estimate only and the actual amount will be based
on information available at the time the review is completed.
- The Canadian Institute of Actuaries (CIA) published new equity
calibration parameters in February for guaranteed variable annuity
and segregated funds which are expected to be adopted by the
Actuarial Standards Board and required for valuation of
policyholder liabilities on or after October
15, 2012. The new equity calibration standards will
apply to both the determination of actuarial liabilities and
required capital. Our current estimate, based on equity markets and
interest rates at March 31, 2012, is
that the resultant charge to earnings could be approximately
$250 million to $300 million. The
corresponding reduction in available capital would reduce MLI's
MCCSR ratio by approximately two points. A further approximate four
point reduction would be incorporated in the required capital
formula for variable annuities and be recognized over time. These
amounts are estimates only and will be updated for future market
and interest rate levels. If adopted by the Actuarial
Standards Board, we would reflect this change as part of the annual
review of actuarial methods and assumptions in the third quarter of
this year.
- As part of the 2012 annual review of actuarial assumptions and
methods, we are conducting our triennial in-depth review of
policyholder lapse and withdrawal benefit utilization behaviour
related to our U.S. variable annuity business. While the
study is in preliminary stages, initial findings indicate that the
impact of the financial crisis on policyholder behaviour has had a
sustained impact that could result in lower assumed lapses and
higher withdrawal benefit utilization that would lead to an
increase in our policy liabilities and a charge to earnings.
No estimate of the potential impact is available at this
time. In addition, there may be other factors, both positive
and negative that could impact the annual review of actuarial
assumptions and methods.
- In 2010, JH LTC filed with 50 state regulators for premium rate
increases averaging approximately 40 per cent on the majority of
our in-force retail and group business. To date, approvals of
in-force price increases on retail business have been received from
32 states.
B FINANCIAL HIGHLIGHTS
C$ millions unless otherwise stated,
unaudited |
Quarterly Results |
|
|
1Q 2012 |
|
4Q 2011 |
|
1Q 2011 |
Net income (loss) attributed to
shareholders |
$ |
1,206 |
$ |
(69) |
$ |
985 |
Net income (loss) available to common
shareholders |
$ |
1,182 |
$ |
(90) |
$ |
965 |
Net income (loss)
excluding the direct impact of equity markets and interest
rates(1) |
$ |
1,131 |
$ |
(222) |
$ |
874 |
Earnings (loss) per common share
(C$) |
|
|
|
|
|
|
|
Basic |
$ |
0.66 |
$ |
(0.05) |
$ |
0.54 |
|
Diluted, excluding convertible
instruments(1) |
$ |
0.66 |
$ |
(0.05) |
$ |
0.54 |
|
Diluted |
$ |
0.62 |
$ |
(0.05) |
$ |
0.53 |
Return on common shareholders'
equity(1) (annualized) |
|
21.0% |
|
(1.6)% |
|
17.4% |
U.S. GAAP net income(1)
(loss) |
$ |
(359) |
$ |
342 |
$ |
155 |
Sales(1) |
|
|
|
|
|
|
|
Insurance products |
$ |
823 |
$ |
640 |
$ |
598 |
|
Wealth products |
$ |
8,724 |
$ |
8,141 |
$ |
9,355 |
Premiums and deposits(1) |
|
|
|
|
|
|
|
Insurance products |
$ |
5,687 |
$ |
5,749 |
$ |
5,597 |
|
Wealth products |
$ |
11,453 |
$ |
10,168 |
$ |
12,065 |
Funds under management(1)
(C$ billions) |
$ |
512 |
$ |
500 |
$ |
478 |
Capital(1) (C$
billions) |
$ |
30.4 |
$ |
29.0 |
$ |
28.6 |
MLI's MCCSR ratio |
|
225% |
|
216% |
|
243% |
(1) |
This item is a non-GAAP measure. For
a discussion of our use of non-GAAP measures, see "Performance
and
Non-GAAP Measures" below. |
B1 Net income attributed to
shareholders
In the first quarter of 2012, we reported
net income attributed to shareholders of $1.2 billion and net income excluding the direct
impact of equity markets and interest rates of $1.1 billion.
- The direct impact from the improvement in equity markets was
largely offset by movements in interest spreads resulting in a net
gain of $75 million.
- The impact of markets on our variable annuity guarantee
liabilities not dynamically hedged, public equity positions
supporting our policy liabilities and fee income on asset based fee
products, net of the impact of our macro equity hedges was
$547 million.
- The impact of interest rate movements totaled $472 million and included a charge of
$425 million largely from changes to
fixed income reinvestment rates assumed in the valuation of policy
liabilities and a $47 million charge
in the Corporate and Other segment from the sale of bonds
classified as Available-for-Sale ("AFS") and from derivative
positions.
- We reported a net gain of $223
million on our dynamically hedged variable annuity business.
While the hedge program operated as designed, we experienced gains
largely related to the fund managers out-performing the index,
gains on funds that are not hedged and a reduction in the provision
for adverse deviation.
- We reported investment related gains of $243 million including $161 million of gains from real estate
appraisals, non fixed income origination gains, fixed income
trading activities and actions taken to reduce interest rate
sensitivity. Net credit experience continues to be
favourable. We also reported $82
million of gains related to lower risk margins required in
the valuation of policy liabilities as a result of the improved
match between the asset and liability cash flows.
- We reported a gain of $122
million as a result of variable annuity product changes and
$58 million related to changes to tax
rates in Japan.
- The $66 million charge for
policyholder experience was primarily due to higher claims in JH
Life, JH Long-Term Care and unfavourable disability and life
insurance experience in Canada. The higher life insurance claims
in JH Life and Canada are
attributable to normal volatility of claims and in Long-Term Care
include the impact of normal seasonality. It is too early to
tell if the increased group disability claims represent a
trend.
In the first quarter of 2011, we reported net
income attributed to shareholders of $985
million which included $111
million of gains related to the direct impact of equity
markets and interest rates. Other notable items included:
- Gains of $254 million on
activities to reduce interest rate exposures.
- Gains of $256 million primarily
from fair value increases on oil and gas and real estate
investments as well as from fixed income trading activities and
favourable credit experience.
- A net claims charge of $151
million related to the earthquake in Japan and a charge of $70 million for changes in actuarial methods and
assumptions.
Notable items are outlined in the table
below:
C$ millions, unaudited |
|
|
|
|
|
|
For the quarter |
|
1Q 2012 |
|
4Q 2011 |
|
1Q 2011 |
Net income (loss) attributed to
shareholders |
$ |
1,206 |
$ |
(69) |
$ |
985 |
Less the direct impact of equity markets and
interest rates(1): |
|
|
|
|
|
|
Income on variable annuity guarantee liabilities
not dynamically hedged |
|
982 |
|
234 |
|
102 |
Income on general fund equity investments
supporting policy liabilities
and on fee income |
|
121 |
|
56 |
|
30 |
Losses on macro equity hedges relative to expected
costs(2) |
|
(556) |
|
(250) |
|
(138) |
Gains (charges) on higher (lower) fixed income
reinvestment rates
assumed in the valuation of policy liabilities |
|
(425) |
|
122 |
|
192 |
Losses on sale of AFS bonds |
|
(47) |
|
(9) |
|
(75) |
Direct impact of equity markets and
interest rates(1) |
$ |
75 |
$ |
153 |
$ |
111 |
Net income (loss) excluding the direct
impact of equity markets
and interest rates(3) |
$ |
1,131 |
$ |
(222) |
$ |
874 |
Other notable items: |
|
|
|
|
|
|
Income (charges) on variable annuity guarantee
liabilities that are
dynamically hedged(4) |
|
223 |
|
(193) |
|
(8) |
Investment gains related to fixed income trading,
market value increases
in excess of expected non-fixed income investment returns, asset
mix
changes and credit experience |
|
161 |
|
279 |
|
256 |
Favourable impact on policy liabilities resulting
from actions to reduce
interest rate exposures |
|
82 |
|
- |
|
254 |
Favourable impact on policy liabilities of
variable annuity product changes |
|
122 |
|
- |
|
- |
Favourable impact of the enactment of tax rate
changes in Japan |
|
58 |
|
- |
|
- |
Change in actuarial methods and assumptions |
|
12 |
|
2 |
|
(70) |
Unfavourable policyholder experience |
|
(66) |
|
- |
|
- |
Goodwill impairment charge |
|
- |
|
(665) |
|
- |
Net impact of P&C reinsurance claims related
to the earthquake in Japan |
|
- |
|
- |
|
(151) |
(1) |
The direct impact of equity markets and interest rates is
relative to our policy liability valuation assumptions and
includes
changes to the interest rate assumptions. We also include
gains and losses on the sale of AFS bonds as management may
have the ability to partially offset the direct impacts of changes
in interest rates reported in the liability segments. |
(2) |
The first quarter 2012 net charge from macro equity hedges was
$663 million and consisted of a $107 million charge related
to the estimated expected cost of the macro equity hedges relative
to our long-term valuation assumptions and a charge of
$556 million because actual markets outperformed our valuation
assumptions. The estimated expected cost is not included
as a notable item because it has not materially changed over the
previous four quarters. |
(3) |
Net income (loss) excluding the direct impact of equity markets
and interest rates is a non-GAAP measure. See "Performance
and Non-GAAP Measures" below. |
(4) |
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 the Risk Management section of our 2011 Annual
MD&A. |
B2 U.S. GAAP results
Net loss in accordance with U.S.
GAAP15 for the first quarter of 2012 was $359 million or $1.6
billion lower than our results under the Canadian version of
IFRS (C-IFRS)16. The primary driver of this
quarter's lower U.S. GAAP earnings compared to C-IFRS earnings
relates to variable annuity accounting differences. Not all
variable annuity guarantees are marked to market under U.S. GAAP.
Because our hedging strategy is more closely aligned with C-IFRS,
we are over hedged on a U.S. GAAP accounting basis. Therefore
on a U.S. GAAP basis, in rising equity markets the Company will
likely incur losses on its variable annuity book and conversely in
declining equity markets will likely report gains.
A reconciliation of the major differences in net
income (loss) attributed to shareholders for the first quarter is
as follows:
C$ millions,
unaudited |
Quarterly results |
For the quarter
ended March 31, |
|
2012 |
|
2011(3) |
|
Net income attributed to
shareholders in accordance with IFRS |
$ |
1,206 |
$ |
985 |
|
Non-controlling interest and
participating policyholders' income under IFRS |
|
24 |
|
4 |
Net
income in accordance with IFRS |
$ |
1,230 |
$ |
989 |
Key earnings
differences: |
|
|
|
|
|
For variable annuity guarantee
liabilities |
$ |
(1,397) |
$ |
(126) |
|
Related to the impact of
mark-to-market accounting and investing activities on
investment income and policy liabilities under IFRS(1)
compared to net realized gains
on investments supporting policy liabilities and derivatives in the
surplus segment
under U.S. GAAP(2) |
|
(204) |
|
(710) |
|
New business differences including
acquisition costs |
|
(160) |
|
(144) |
|
Changes in actuarial methods and
assumptions |
|
(21) |
|
57 |
|
Other
differences(2) |
|
193 |
|
89 |
Total
earnings differences |
$ |
(1,589) |
$ |
(834) |
Net
income (loss) in accordance with U.S. GAAP |
$ |
(359) |
$ |
155 |
(1) |
Until the new IFRS standard for
insurance contracts is effective, the requirements under prior
Canadian
GAAP for the valuation of insurance liabilities (CALM) will be
maintained. Under CALM, the measurement
of insurance liabilities is based on projected liability cash
flows, together with estimated future premiums
and net investment income generated from assets held to support
those liabilities. |
(2) |
Certain comparative amounts have been
reclassified to conform to the current quarter's presentation. |
(3) |
Restated as a result of adopting
Accounting Standards Update # 2010-26, "Accounting for Costs
Associated with Acquiring or Renewing Insurance Contracts" ("ASU
2010-26") effective January 1, 2012
but requiring application to 2011. The impact for first
quarter 2011 was a net reduction in earnings of
$49 million, all of which is included in "New business differences
including acquisition costs". The lower
income reflects higher non-deferrable expenses, partially offset by
a reduction in the amortization on a
lower deferred acquisition costs ("DAC") balance. |
The primary earnings differences in accounting bases relate
to:
Accounting for variable annuity guarantee
liabilities -
- IFRS follows a predominantly mark-to-market accounting approach
to measure variable annuity guarantee liabilities whereas U.S. GAAP
only uses mark-to-market accounting for certain benefit guarantees,
and reflects the Company's own credit standing in the measurement
of the liability. As noted above, because our hedging
strategies for equity risk are more closely aligned with C-IFRS, we
are over hedged on a U.S. GAAP accounting basis. In the first
quarter of 2012, we reported a net loss in accordance with U.S.
GAAP of $192 million (2011 -
$32 million loss) in our total
variable annuity businesses and a loss of $556 million on macro hedges. On an IFRS basis,
we reported a net gain of $1,205
million (2011 - $94 million)
in our total variable annuity businesses and a loss of $556 million on macro hedges.
Investment income and policy liabilities
-
- Under IFRS, accumulated unrealized gains and losses arising
from investments and derivatives supporting policy liabilities are
largely offset in the valuation of the policy liabilities. The
first quarter 2012 IFRS impacts on insurance liabilities of fixed
income reinvestment assumptions, general fund equity investments,
activities to reduce interest rate exposures and certain market and
trading activities of $61 million
loss (2011 - $732 million gain)
compared to U.S. GAAP net realized losses of $265 million on investments supporting policy
liabilities and derivatives in the surplus segment not in a hedge
accounting relationship (2011 - gain of $22
million).
Differences in the treatment of acquisition
costs and other new business items -
- Acquisition costs that are related to and vary with the
production of new business are explicitly deferred and amortized
under U.S. GAAP but are recognized as an implicit reduction in
insurance liabilities along with other new business gains and
losses under IFRS.
- The Company's adoption of new U.S. GAAP DAC accounting rules
(ASU 2010-26) effective January 1,
2012 was applied retrospectively. The new guidance
specifies that only costs related directly to the successful
acquisition of new or renewal contracts can be capitalized as DAC;
all other acquisition-related costs must be expensed as
incurred. Under the new guidance, advertising costs may only
be included in DAC if the capitalization criteria in the
direct-response advertising guidance in Subtopic 340-20, "Other
Assets and Deferred Costs - Capitalized Advertising Costs", are
met. As a result, certain direct marketing, sales manager
compensation and administrative costs previously capitalized by the
Company will no longer be deferred. The retrospective
adoption of this guidance resulted in a reduction of the DAC asset
of $1.8 billion as at January 1, 2011 and a cumulative adjustment to
the 2011 opening balance of total equity of $1.2 billion, on an after-tax basis. In
addition, first quarter 2011 earnings were reduced by $49 million reflecting higher non-deferrable
expenses partly offset by reduced amortization as a result of the
lower DAC asset balance.
Changes in actuarial methods and assumptions
-
- The gains recognized under IFRS from the review of actuarial
methods and assumptions of $12
million in the first quarter of 2012 (2011 - charge of
$70 million), compared to charges of
$9 million (2011 - $13 million) on a U.S. GAAP basis.
Total equity in accordance with U.S.
GAAP17 as at March 31,
2012 was approximately $12
billion higher than under IFRS. Of this difference,
approximately $7 billion is
attributable to the higher cumulative net income in accordance with
U.S. GAAP. The remaining difference is primarily attributable
to the treatment of unrealized gains on fixed income investments
and derivatives in a cash flow hedging relationship. These
are reported in equity under U.S. GAAP, but where the investments
and derivatives are supporting policy liabilities, these
accumulated unrealized gains are largely offset in the valuation of
the policy liabilities under IFRS. The fixed income
investments and derivatives have significant unrealized gains as a
result of the current low levels of interest rates. The
majority of the difference in equity between the two accounting
bases as at March 31, 2012 arises
from our U.S. businesses.
A reconciliation of the major differences in
total equity is as follows:
C$ millions, unaudited |
|
|
|
|
As at March
31, |
|
2012 |
|
2011(1) |
Total equity in accordance with
IFRS |
$ |
25,824 |
$ |
25,112 |
Differences in shareholders' retained
earnings and participating policyholders' equity |
|
7,247 |
|
4,546 |
Difference in Accumulated Other Comprehensive
Income attributable to: |
|
|
|
|
(i) |
Available-for-sale securities and
others; |
|
3,875 |
|
1,427 |
(ii) |
Cash flow hedges; and |
|
2,226 |
|
261 |
(iii) |
Translation of net foreign
operations |
|
(1,277) |
|
(1,432) |
Differences in share
capital, contributed surplus and non-controlling interest in
subsidiaries |
|
118 |
|
104 |
Total equity in accordance
with U.S. GAAP |
$ |
38,013 |
$ |
30,018 |
(1) Equity has been restated to
reflect the adoption of ASU # 2010-26 on a retrospective basis.
_____________________________
15 |
Net income (loss) in accordance with
U.S. GAAP is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below. |
16 |
The Canadian version of IFRS uses
IFRS as issued by the International Accounting Standards Board.
However because IFRS does not have an insurance contract
measurement standard, we continue to use the Canadian Asset
Liability method (CALM). |
17 |
Total equity in accordance with U.S.
GAAP is a non-GAAP measure. See "Performance and Non-GAAP Measures"
below. |
B3 Total Company sales and total
Company premiums and deposits18
Insurance sales results:
- Insurance sales were $823 million
for the first quarter of 2012, an increase of 35 per cent over the
first quarter of 2011.
- Asia Division set a new quarterly insurance sales record and
achieved growth in all regions. In total, sales were 26 per
cent higher than in the first quarter of 2011.
- In Canada, insurance sales
results reflect a record quarter for Group Benefits with sales more
than twice those of the first quarter of 2011. Our individual
insurance sales were aligned with our strategy - up from a year ago
in products we want to grow and down for products with guaranteed
long duration features.
- In the U.S., our total insurance sales were slightly lower than
first quarter 2011, but the mix was more favourable. JH Life sales
excluding the universal life with lifetime no-lapse guarantees and
guaranteed non-par whole life products were up 28 per cent over
first quarter 2011.
Wealth sales results:
- Wealth sales were $8.7 billion
for the first quarter of 2012, a decrease of eight per cent from
the first quarter of 2011. The decline was driven by lower mutual
funds sales in both the U.S. and Canada.
- In Asia, wealth sales increased by seven per cent over the
first quarter of 2011. The growth was driven by the foreign
currency fixed annuity product launched in Japan in 2011 and the single premium unit
linked product in Indonesia.
In Hong Kong, sales were down from the first quarter of 2011 due to
the non-recurrence of the short-term Chinese currency denominated
endowment product sold through the bank channel in 2011 and the
government's deferral of the launch of Employee Choice where
members can move their account balances to a provider of their
choice.
- In Canada, overall wealth
sales decreased five per cent compared to the first quarter of
2011. While Group Retirement Solutions' sales increased by 40
per cent, competitive pressures dampened sales of mutual funds and
variable annuities which declined by approximately 20 per cent from
the first quarter of 2011. Manulife Bank sales were down marginally
(two per cent) from the first quarter of 2011. The solid
performance in loan origination, coupled with strong client
retention, drove a 12 per cent increase in net lending assets
year-over-year.
- U.S. sales accounted for over 50 per cent of the Company's
wealth sales in the first quarter of 2012. In the U.S.,
overall wealth sales declined 12 per cent compared to the first
quarter of 2011, while increasing eight per cent compared to the
fourth quarter of 2011. Compared to the first quarter of 2011,
sales in Retirement Plan Services increased 12 per cent, sales of
mutual funds declined by ten per cent and sales of annuities (fixed
and variable) declined by 54 per cent.
Premiums and deposits measures:
- Total Company first quarter insurance premiums and deposits of
$5.7 billion were in line with the
first quarter of 2011 on a constant currency basis. Very strong
growth across Asia was offset by lower premiums in Reinsurance
following the sale of the Life Retrocession business and by modest
declines in North America due to
the actions taken over the last year to increase prices on longer
term guaranteed products.
- Total Company premiums and deposits for wealth businesses were
$11.5 billion for the first quarter
of 2011, a decline of six per cent on a constant currency basis
compared to the same quarter in the prior year. Growth was
strong in Japan, ASEAN and the
North American retirement savings businesses. However, mutual fund
sales slowed in North America and
annuity sales fell as a result of both the low interest rate
environment and product actions.
_____________________________
18 |
Growth (declines) in sales and
premiums and deposits is stated on a constant currency basis.
Constant currency basis is a non-GAAP measure. See "Performance and
Non-GAAP Measures" below. |
B4 Funds under
management19
Total funds under management as at March 31, 2012 were a record $512 billion, an increase of $12 billion from December
31, 2011 and an increase of $33
billion over March 31,
2011. The 12 month increase over March 31, 2011 was driven by $21 billion of investment returns, $7 billion of net positive policyholder cash
flows and $10 billion due to the
weaker Canadian dollar. These increases were partially offset by
$5 billion of expenses, commissions,
taxes and other items.
B5 Capital20
MFC's total capital as at March 31, 2012 was $30.4
billion, an increase of $1.4
billion from December 31, 2011
and an increase of $1.8 billion over
March 31, 2011. Contributions
to the increase over March 31, 2011
included: $0.5 billion of
preferred shares issued, $1.1 billion
of subordinated debt issued, $0.4
billion of earnings, partially offset by cash dividends of
$0.7 billion and a $0.1 billion decrease in unrealized gains on AFS
securities. In addition, capital increased $0.6 billion as a result of the weaker Canadian
dollar.
As at March 31,
2012 MLI reported a MCCSR ratio of 225 per cent compared to
216 per cent at December 31, 2011 and
243 per cent at March 31, 2011.
The key drivers of the nine point increase from
December 31, 2011 were:
- We raised $750 million of capital
that increased the ratio by six points.
- Earnings, net of shareholders' dividends, outpaced the growth
in required capital, resulting in a three point improvement in the
ratio.
- The impact of IFRS adoption on MCCSR has been largely completed
and is only expected to reduce MLI's MCCSR ratio by a further one
point throughout 2012.
The key drivers of the 18 point decrease from
March 31, 2011 were largely the same
as those outlined in our Annual Report for the full year 2011 plus
the items discussed above for the first quarter of 2012.
- In 2011 approximately 30 points of the decline was the result
of changes in accounting policies, clarifications of regulatory
capital policies and the impact of lower interest rates on the
amount of regulatory required capital.
- In addition, during 2011 the sale of our Life Retrocession
business and additional third party reinsurance added ten points to
our ratio and offset the impact of declines in the ratio from
growth in the business and dividends paid to MFC in excess of MLI's
net income.
The ratio should also be considered in context
of the significantly reduced earnings sensitivity to changes in
interest rates and equity markets.
_____________________________
19 |
Funds under management is a non-GAAP measure. See "Performance
and Non-GAAP Measures" below. |
20 |
Capital is a non-GAAP measure. See "Performance and
Non-GAAP Measures" below. |
C PERFORMANCE BY DIVISION
C1 Asia Division
$ millions unless otherwise
stated |
Quarterly
results |
Canadian dollars |
1Q
2012 |
4Q 2011 |
1Q 2011 |
Net income |
|
|
|
|
|
|
|
attributed to shareholders |
$ |
1,111 |
$ |
285 |
$ |
351 |
|
excluding the direct impact of equity markets and
interest rates |
|
292 |
|
244 |
|
275 |
Premiums and deposits |
|
2,866 |
|
2,625 |
|
2,371 |
Funds under management (billions) |
|
72.0 |
|
71.4 |
|
67.4 |
U.S. dollars |
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
attributed to shareholders |
$ |
1,110 |
$ |
279 |
$ |
357 |
|
excluding the direct impact of equity markets and
interest rates |
|
292 |
|
239 |
|
280 |
Premiums and deposits |
|
2,862 |
|
2,567 |
|
2,406 |
Funds under management (billions) |
|
72.1 |
|
70.2 |
|
69.4 |
Asia Division recorded net income attributed
to shareholders of US$1.1 billion
for the first quarter of 2012 compared to net income of
US$357 million for the first quarter
of 2011. Excluding the direct impact of equity markets and interest
rates net income increased by US$12
million relative to the first quarter of 2011. The increase
includes US$4 million related to
experience on variable annuity guarantee liabilities that are
dynamically hedged and other investment experience losses of
US$42 million. Also contributing to
the increase was the impact of the reduction to Japan's tax rates on our deferred tax
liability, business growth and the impact of higher sales
volumes.
Premiums and deposits21
for the first quarter of 2012 were US$2.9
billion, up 17 per cent from the first quarter of
2011. Premiums and deposits for insurance products of
US$1.5 billion were 23 per cent
higher driven by in-force and sales growth with contributions from
all of our insurance businesses. Wealth management premiums and
deposits of US$1.4 billion were 11
per cent higher. The increase in wealth management premiums
and deposits was slightly higher than the increase in sales
discussed in section B3, as a result of the increase in deposits on
in-force business.
Funds under management as at March 31, 2012 were US$72.1 billion, an increase of four per cent
from US$69.4 billion at March 31, 2011 on a constant currency basis. Net
policyholder cash inflows contributed US$4.5
billion of the increase.
_____________________________
21 |
All premium and deposit growth (declines) are stated on a
constant currency basis. |
C2 Canadian Division
$ millions unless
otherwise stated |
Quarterly
results(1) |
Canadian
dollars |
1Q 2012 |
4Q 2011 |
1Q 2011 |
Net income |
|
|
|
|
|
|
|
attributed to shareholders |
$ |
317 |
$ |
246 |
$ |
509 |
|
excluding the direct impact of equity markets and
interest rates |
|
451 |
|
147 |
|
460 |
Premiums and deposits |
|
4,726 |
|
4,393 |
|
4,857 |
Funds under management (billions) |
|
125.6 |
|
122.1 |
|
117.0 |
(1) |
The Company moved the reporting of its International Group
Program business unit from U.S. Division to
Canadian Division in 2012. Prior period results have been restated
to reflect this change. |
Canadian Division's net income attributed to
shareholders was $317 million for
the first quarter of 2012 compared to net income of $509 million for the first quarter of 2011. First
quarter earnings included net experience losses of $134 million (2011 - $49
million gain) related to the direct impact of equity markets
and interest rates.
Excluding the direct impact of equity markets
and interest rates, net income attributed to shareholders for the
quarter was $451 million, down
$9 million from the first quarter of
2011. First quarter 2012 earnings included a gain of
$122 million reflecting reserve
releases in the quarter related to in-force variable annuity
product changes. Relative to a year ago, earnings were negatively
impacted by less favourable investment gains than the strong
results of a year ago, unfavourable claims experience, and lower
interest rates.
Premiums and deposits in the first
quarter of 2012 were $4.7 billion,
down three per cent from first quarter 2011 levels. Increases
in the quarter from strong sales and renewal premiums from growth
in our group retirement business were more than offset by lower
sales in our individual wealth management business. Premiums were
also reduced by changes in reinsurance arrangements in our
individual insurance lines.
Funds under management grew by seven per
cent or $8.6 billion to a record
$125.6 billion as at March 31, 2012 compared to March 31, 2011. The increase reflects business
growth across the division, driven by Manulife Bank and the wealth
management businesses. Net increases in the market value of assets
also contributed to the rise in funds under management as the
impact of lower interest rates outweighed the negative impact from
equity market declines over the past 12 months.
C3 U.S. Division
Effective this year we have combined U.S.
Insurance and U.S. Wealth into one reporting segment. This
change was made to better align with the management structure of
the division.
$ millions unless
otherwise stated |
Quarterly
results(1) |
Canadian dollars |
1Q 2012 |
4Q 2011 |
1Q 2011 |
Net income |
|
|
|
|
|
|
|
attributed to shareholders |
$ |
574 |
$ |
505 |
$ |
715 |
|
excluding the direct impact of equity markets and
interest rates |
|
589 |
|
237 |
|
515 |
Premiums and
deposits(2) |
|
9,089 |
|
8,210 |
|
9,517 |
Funds under management (billions) |
|
286.3 |
|
279.6 |
|
261.5 |
|
|
|
|
|
|
|
U.S. dollars |
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
attributed to shareholders |
$ |
574 |
$ |
493 |
$ |
726 |
|
excluding the direct impact of equity markets and
interest rates |
|
589 |
|
230 |
|
523 |
Premiums and
deposits(2) |
|
9,078 |
|
8,025 |
|
9,656 |
Funds under management (billions) |
|
286.6 |
|
274.9 |
|
269.1 |
(1) |
The Company moved the reporting of its International Group
Program business unit to Canadian Division in
2012. Prior period results have been restated to reflect this
change. |
(2) |
The Company moved its Privately Managed Accounts unit to
Corporate and Other in 2012. Prior period
results have been restated to reflect this change. |
U.S. Division reported net income attributed
to shareholders of US$574 million
for the first quarter of 2012 compared to net income of
US$726 million for the first quarter
of 2011. Excluding the direct impact of equity markets and interest
rates net income increased by US$66
million relative to the first quarter of 2011. This increase
includes US$103 million of higher
gains related to experience on variable annuity guarantee
liabilities that are dynamically hedged and other investment
experience gains and losses. Offsetting this increase were the
impacts of unfavorable claims experience in JH Life and JH LTC, and
lower sales volumes in relation to fixed acquisition expenses.
Premiums and deposits for the first
quarter of 2012 were US$9.1 billion,
down six per cent from US$9.7 billion
for the first quarter of 2011. The decrease was driven by
lower annuity sales as expected and lower mutual fund sales due to
low retail investor confidence at the start of the quarter,
partially offset by increased sales in the 401(k) business.
Funds under management as at March 31, 2012 were US$286.6 billion, up seven per cent from
March 31, 2011. The increase
was due to the impact of lower interest rates on the market value
of funds under management and positive investment returns.
C4 Corporate and Other
$ millions unless otherwise
stated |
Quarterly results |
Canadian dollars |
1Q
2012 |
4Q 2011 |
1Q 2011 |
Net income (loss) |
|
|
|
|
|
|
|
attributed to shareholders |
$ |
(796) |
$ |
(1,105) |
$ |
(590) |
|
excluding the direct impact of equity markets and
interest rates |
|
(201) |
|
(850) |
|
(376) |
Premiums and deposits |
|
459 |
|
688 |
|
918 |
Funds under management (billions) |
|
27.7 |
|
26.6 |
|
32.4 |
Corporate and Other reported a net loss
attributed to shareholders of $796
million for the first quarter of 2012 compared to a net loss
of $590 million for the first quarter
of 2011. Notable net charges included in the net loss
attributed to shareholders in the first quarter of 2012 totaled
$563 million:
- $556 million of losses on macro
equity hedges (excludes the expected cost),
- $37 million of realized losses on
AFS bonds/derivative positions and other items,
- $18 million of tax gains
resulting from changes in the Japan tax rate, and
- $12 million gain related to
changes in actuarial methods and assumptions.
Notable net charges included in the net loss
attributed to shareholders in the first quarter of 2011 totaled
$426 million:
- $138 million of losses on macro
equity hedges (excludes the expected cost),
- $151 million of P&C
reinsurance claims related to the Japan earthquake,
- $70 million charge related to
changes in actuarial methods and assumptions, and
- $67 million of realized losses on
AFS bonds/derivative positions and other investment items.
Excluding the above notable items, earnings
declined by $69 million compared to
the same period last year. This decline reflects lower
earnings on lower average net assets and higher expenses on the
Company's pension plans, combined with the sale of the Life
Retrocession business in the third quarter of 2011.
Premiums and deposits for the first
quarter of 2012 were $459 million,
down 50 per cent from the first quarter of 2011 on a constant
currency basis. This decline reflects the impact of the sale
of the Life Retrocession business and the variability of sales in
institutional asset management mandates.
Funds under management as at March 31, 2012 include assets managed by Manulife
Asset Management on behalf of institutional clients of $24.0 billion (March 31,
2011 - $23.9 billion) and
$3.7 billion (March 31, 2011 - $8.5
billion) of the Company's own funds. Corporate and
Other includes an adjustment of $6.8
billion (2011 - $0.2 billion)
to gross up the derivative assets and liabilities in the Company's
own funds. Excluding this adjustment, the Company's own funds
increased by $1.8 billion primarily
reflecting the issuance of subordinated debt and preferred shares,
net of capital redemptions, of $1.1
billion and higher bond values reflecting the impact of
declining interest rates over the past 12 months.
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 2011 Annual Report.
D1 General macro-economic risk factors
update
In our 2011 Annual Report we outlined potential
impacts of macro-economic factors including the impact of a low
interest environment. Our disclosure outlined that we would
expect to take a charge related to the fixed income URR in 2012
potentially greater than the $437
million charge reported in 2011. We have updated this
estimate, and based on rates at March 31,
2012 we currently estimate the amount could range from
approximately $700 million up to
$800 million. Consistent with
last year we expect to record the charge to update the URR in the
second quarter.
D2 Regulatory capital, actuarial and
accounting risks update
As outlined in our 2011 Annual Report, as a
result of the recent financial crisis, financial authorities and
regulators in many countries are reviewing their capital, actuarial
and accounting requirements, and the changes may have a material
adverse effect on the Company's consolidated financial statements
and regulatory capital, both at transition and subsequently.
We may be required to raise additional capital, which could be
dilutive to existing shareholders, or to limit the new business we
write. Subsequent updates to regulatory and professional
standards are outlined below.
The Canadian Institute of Actuaries (CIA)
published new equity calibration parameters in February 2012 for guaranteed variable annuity and
segregated funds which are expected to be adopted by the Actuarial
Standards Board and required for valuation of policyholder
liabilities on or after October 15,
2012. The new equity calibration standards will apply
to both the determination of actuarial liabilities and required
capital. Our current estimate, based on equity markets and interest
rates at March 31, 2012, is that the
resultant charge to earnings could be approximately $250 million to $300 million. The corresponding
reduction in available capital would reduce MLI's MCCSR ratio by
approximately two points. A further approximate four point
reduction would be incorporated in the required capital formula for
variable annuities and be recognized over time. These amounts are
estimates only and are dependent on future market and interest rate
levels. If adopted by the Actuarial Standards Board, we would
reflect this change as part of the annual review of actuarial
methods and assumptions in the third quarter of this year.
The CIA is also expecting to publish calibration
criteria for fixed income funds which we believe will be effective
in 2013 as well as guidance on the modeling of future realized
volatility where a hedging program is in place. Once effective, the
new calibration standards will apply both to the determination of
actuarial liabilities and required capital and may result in a
reduction in net income and MLI's MCCSR ratio. No estimate of
the potential impact is available.
The Office of the Superintendent of Financial
Institutions ("OSFI") continues to consider updates to its
regulatory guidance for non-operating insurance companies acting as
holding companies, such as MFC, and to its methodology for
evaluating stand-alone capital adequacy for Canadian operating life
insurance companies, such as MLI. OSFI has indicated that
MCCSR and internal target capital ratio guidelines, which have not
yet been determined, are expected to become applicable to MFC by
2016. These rules could put MFC at a competitive disadvantage
for a number of reasons, including: foreign based competitors
in Canada will not disclose on a
comparable basis the financial strength of their groups; life
companies owned by Canadian banks are not required to disclose
composite financial strength metrics for the combined banking and
insurance operations; and the guidelines do not apply to
non-financial institution holding companies.
OSFI recently published draft Guideline B-20
outlining expectations for prudent residential mortgage
underwriting. These proposals stem from a desire of regulators to
ensure that in the post financial crisis, economic environment of
low interest rates and historically high consumer debt levels,
federally regulated financial institutions are engaged in sound
residential underwriting practices. The proposed guideline
specifically focuses on the use of Home Equity Lines of Credit
(HELOC's) such as the ManulifeOne product sold by Manulife Bank.
Key proposals include the establishment of a maximum loan-to-value
ratio of 65 per cent and defining a set period, after which the
outstanding HELOC balance would convert to a fixed term amortizing
loan together with increased disclosure to improve transparency. We
are currently assessing the potential impact of these proposals on
our product offerings.
D3 Additional risks - Entities within
the MFC Group are interconnected which may make separation
difficult
There has been recent third party commentary
about exploring ways of unlocking value of the U.S. Division
through subsidiary reorganizations, partial spin-outs or outright
sales. MFC remains committed to the U.S. Division. In
addition, linkages between MFC and its subsidiaries may make it
difficult to dispose of or separate a subsidiary within the group
by way of spin-off or similar transaction. See the Company's
Annual Information Form - "Risk Factors - Additional risks -
Entities within the MFC Group are interconnected which may make
separation difficult". In addition to the possible negative
consequences outlined in such disclosure, other negative
consequences could include a requirement for significant capital
injections, and increased net income and capital sensitivities of
MFC and its remaining subsidiaries to market declines.
D4 Variable annuity and segregated fund
guarantees
As at March 31,
2012, approximately 65 per cent of the value of our variable
annuity and segregated fund guarantees was either dynamically
hedged or reinsured, compared to 63 per cent at December 31, 2011. The business dynamically
hedged at March 31, 2012 comprises 61
per cent of the variable annuity guarantee values, net of amounts
reinsured. During the quarter we added $0.5 billion of in-force guarantee value to our
dynamic hedge program, in addition to the new business that was
written.
The table below shows selected information
regarding the Company's variable annuity guarantees gross and net
of reinsurance and the business dynamically hedged.
Variable annuity and segregated fund guarantees
As at |
March 31, 2012 |
|
December 31, 2011 |
C$ millions |
Guarantee
value |
Fund value |
Amount
at
risk(4) |
|
Guarantee
value |
Fund value |
Amount
at risk(4) |
|
Guaranteed minimum income
benefit(1) |
$ |
7,188 |
$ |
5,515 |
$ |
1,683 |
|
$ |
7,518 |
$ |
5,358 |
$ |
2,163 |
|
Guaranteed minimum withdrawal
benefit |
|
65,481 |
|
59,079 |
|
6,900 |
|
|
66,655 |
|
56,954 |
|
9,907 |
|
Guaranteed minimum
accumulation benefit |
|
22,039 |
|
22,917 |
|
1,790 |
|
|
23,509 |
|
23,030 |
|
2,813 |
|
Gross living
benefits(2) |
$ |
94,708 |
$ |
87,511 |
$ |
10,373 |
|
$ |
97,682 |
$ |
85,342 |
$ |
14,883 |
|
Gross death
benefits(3) |
|
14,479 |
|
11,891 |
|
2,403 |
|
|
15,202 |
|
11,614 |
|
3,232 |
|
Total gross of reinsurance and
hedging |
$ |
109,187 |
$ |
99,402 |
$ |
12,776 |
|
$ |
112,884 |
$ |
96,956 |
$ |
18,115 |
|
Living benefits reinsured |
$ |
6,211 |
$ |
4,764 |
$ |
1,454 |
|
$ |
6,491 |
$ |
4,622 |
$ |
1,871 |
|
Death benefits reinsured |
|
4,136 |
|
3,509 |
|
825 |
|
|
4,360 |
|
3,430 |
|
1,104 |
|
Total reinsured |
$ |
10,347 |
$ |
8,273 |
$ |
2,279 |
|
$ |
10,851 |
$ |
8,052 |
$ |
2,975 |
Total, net of reinsurance |
$ |
98,840 |
$ |
91,129 |
$ |
10,497 |
|
$ |
102,033 |
$ |
88,904 |
$ |
15,140 |
Living benefits dynamically
hedged |
$ |
55,081 |
$ |
52,661 |
$ |
4,185 |
|
$ |
55,522 |
$ |
50,550 |
$ |
6,346 |
Death benefits
dynamically hedged |
|
5,282 |
|
3,865 |
|
493 |
|
|
5,133 |
|
3,461 |
|
739 |
Total dynamically hedged |
$ |
60,363 |
$ |
56,526 |
$ |
4,678 |
|
$ |
60,655 |
$ |
54,011 |
$ |
7,085 |
Living benefits retained |
$ |
33,416 |
$ |
30,086 |
$ |
4,734 |
|
$ |
35,669 |
$ |
30,170 |
$ |
6,666 |
Death benefits retained |
|
5,061 |
|
4,517 |
|
1,085 |
|
|
5,709 |
|
4,723 |
|
1,389 |
|
Total, net of reinsurance
and
dynamic hedging |
$ |
38,477 |
$ |
34,603 |
$ |
5,819 |
|
$ |
41,378 |
$ |
34,893 |
$ |
8,055 |
(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 as outlined in footnote (3). |
(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 net 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
net amount at risk is defined as the excess of the current
annuitization income base over the current account value. For all
guarantees,
the net amount at risk is floored at zero at the single contract
level. |
The policy liabilities established for these
benefits were $5,993 million at
March 31, 2012 (December 31, 2011 - $10,021 million) and includes the policy
liabilities for both the hedged and the unhedged business. For
unhedged business, policy liabilities were $2,199 million at March
31, 2012 (December 31, 2011 -
$3,586 million). The policy
liabilities for the hedged block were $3,794 million at
March 31, 2012 (December 31, 2011 - $6,435 million). Policy
liabilities declined largely due to the increase in equity
markets.
Caution related to sensitivities
In this document, we have provided 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 returns and investment activity we assume in
the future. The risk exposures measure the impact of changing one
factor at a time and assume that all other factors remain
unchanged. Actual results can differ significantly from these
estimates for a variety of reasons including the interaction among
these factors when more than one changes, changes in actuarial and
investment return and future investment activity assumptions,
actual experience differing from the assumptions, changes in
business mix, effective tax rates and other market factors, and the
general limitations of our internal models. For these
reasons, the sensitivities should only be viewed as directional
estimates of the underlying sensitivities for the respective
factors based on the assumptions outlined below. Given the
nature of these calculations, we cannot provide assurance that the
actual impact on net income attributed to shareholders or on MLI's
MCCSR ratio will be as indicated.
D5 Publicly traded equity performance
risk
As a result of the dynamic and macro hedges, as
at March 31, 2012, we estimate that
approximately 66 to 74 per cent of our underlying earnings
sensitivity to a 10 per cent decline in equity markets would be
offset by hedges. The lower end of the range assumes that the
dynamic hedge assets would cover 80 per cent of the loss from the
dynamically hedged variable annuity guarantee liabilities and the
upper end of the range assumes the dynamic hedge assets would
completely offset the loss from the dynamically hedged variable
annuity guarantee liabilities. The range at December 31, 2011 was 60 to 70 per cent. Our
stated goal is to have approximately 60 per cent of the underlying
earnings sensitivity to equity markets offset by hedges by the end
of 2012 and 75 per cent by the end of 2014.
As outlined in our 2011 Annual Report, the 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
MD&A in our 2011 Annual Report).
The tables below show the potential impact on
net income attributed to shareholders resulting from an immediate
10, 20 and 30 per cent 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 before and after taking into account the impact of
the change in markets on the hedge assets. The potential
impact is shown assuming that the change in value of the hedge
assets completely offsets the change in the dynamically hedged
variable annuity guarantee liabilities and also is shown assuming
the change in value is not completely offset.
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. We report the
impact based on the assumption that for a 10, 20 and 30 per cent
decrease in the market value of equities, the profit from the hedge
assets offsets 80, 75 and 70 per cent, respectively, of the loss
arising from the change in the policy liabilities associated with
the guarantees dynamically hedged. For a 10, 20 and 30 per cent
market increase in the market value of equities the loss on the
dynamic hedges is assumed to be 120, 125 and 130 per cent of the
gain from the dynamically hedged variable annuity guarantee
liabilities, respectively. It is also important to note that
these estimates are illustrative, and that the hedge program may
underperform these estimates, particularly during periods of high
realized volatility and/or periods where both interest rates and
equity market movements are unfavourable.
Potential impact on annual net income
attributed to shareholders arising from changes to public equity
returns(1)
As at March 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
C$ millions |
|
-30% |
|
-20% |
|
-10% |
|
+10% |
|
+20% |
|
+30% |
Underlying sensitivity of net income attributed
to shareholders(2) |
|
|
|
|
|
|
|
|
|
|
|
|
Variable annuity guarantees |
$ |
(5,410) |
$ |
(3,340) |
$ |
(1,510) |
$ |
1,180 |
$ |
2,080 |
$ |
2,780 |
Asset based fees |
|
(270) |
|
(180) |
|
(90) |
|
90 |
|
180 |
|
280 |
General fund equity investments(3) |
|
(300) |
|
(200) |
|
(100) |
|
100 |
|
190 |
|
280 |
Total underlying sensitivity |
$ |
(5,980) |
$ |
(3,720) |
$ |
(1,700) |
$ |
1,370 |
$ |
2,450 |
$ |
3,340 |
Impact of hedge assets |
|
|
|
|
|
|
|
|
|
|
|
|
Impact of macro hedge assets |
$ |
1,590 |
$ |
1,060 |
$ |
530 |
$ |
(530) |
$ |
(1,060) |
$ |
(1,590) |
Impact of dynamic hedge assets
assuming the change in the value of the hedge
assets completely offsets the change in the dynamically hedged
variable annuity
guarantee liabilities |
|
2,790 |
|
1,700 |
|
740 |
|
(520) |
|
(880) |
|
(1,140) |
Total impact of hedge assets assuming the
change in value of the
dynamic hedge assets completely offsets the change in
the
dynamically hedged variable annuity guarantee
liabilities |
$ |
4,380 |
$ |
2,760 |
$ |
1,270 |
$ |
(1,050) |
$ |
(1,940) |
$ |
(2,730) |
Net impact assuming the change in the value of
the hedge assets
completely offsets the change in the dynamically hedged
variable
annuity guarantee liabilities |
$ |
(1,600) |
$ |
(960) |
$ |
(430) |
$ |
320 |
$ |
510 |
$ |
610 |
Impact of assuming the change in value of the
dynamic hedge assets does not
completely offset the change in the dynamically hedged variable
annuity
guarantee liabilities(4) |
|
(840) |
|
(430) |
|
(150) |
|
(100) |
|
(210) |
|
(340) |
Net impact assuming the change in value of the
dynamic hedge assets
does not completely offset the change
in the dynamically hedged
variable annuity guarantee
liabilities(4) |
$ |
(2,440) |
$ |
(1,390) |
$ |
(580) |
$ |
220 |
$ |
300 |
$ |
270 |
Percentage of underlying earnings sensitivity
to movements in equity
markets that is offset by hedges if dynamic
hedge assets completely
offset the change in the dynamically hedged
variable annuity guarantee
liability |
|
73% |
|
74% |
|
74% |
|
77% |
|
79% |
|
82% |
Percentage of underlying
earnings sensitivity to movements in equity
markets that is offset by hedge
assets if dynamic hedges do not
completely offset the change in
the dynamically hedged variable annuity
guarantee
liability(4) |
|
59% |
|
63% |
|
66% |
|
84% |
|
88% |
|
92% |
(1) |
See "Caution Related to
Sensitivities" above. |
(2) |
Defined as earnings sensitivity to a
change in public equity markets including settlements on
reinsurance contracts existing at September 30, 2010, but before
the offset of hedge assets or other risk mitigants. |
(3) |
This impact for general fund equities
is calculated as at a point-in-time and does not include: (i) any
potential impact on public equity weightings; (ii) any gains or
losses on public equities held in the Corporate and Other segment;
or (iii) any gains or losses on public equity investments held in
Manulife Bank. The sensitivities assume that the participating
policy funds are self-supporting and generate no material impact on
net income attributed to shareholders as a result of changes in
equity markets. |
(4) |
For a 10, 20 and 30 per cent market
decrease, the gain on the dynamic hedge assets is assumed to be 80,
75 and 70 per cent of the loss from the dynamically hedged variable
annuity guarantee liabilities, respectively. For a 10, 20 and 30
per cent market increase, the loss on the dynamic hedges is assumed
to be 120, 125 and 130 per cent of the gain from the dynamically
hedged variable annuity policy liabilities, respectively. For
presentation purposes, numbers are rounded.
|
As at December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
C$ millions |
|
-30% |
|
-20% |
|
-10% |
|
+10% |
|
+20% |
|
+30% |
Underlying sensitivity of net income attributed
to
shareholders(2) |
|
|
|
|
|
|
|
|
|
|
|
|
Variable annuity guarantees |
$ |
(6,080) |
$ |
(3,830) |
$ |
(1,780) |
$ |
1,490 |
$ |
2,720 |
$ |
3,690 |
Asset based fees |
|
(260) |
|
(180) |
|
(80) |
|
90 |
|
180 |
|
260 |
General fund equity investments(3) |
|
(300) |
|
(200) |
|
(110) |
|
100 |
|
200 |
|
300 |
Total underlying sensitivity |
$ |
(6,640) |
$ |
(4,210) |
$ |
(1,970) |
$ |
1,680 |
$ |
$ 3,100 |
$ |
4,250 |
Impact of hedge assets |
|
|
|
|
|
|
|
|
|
|
|
|
Impact of macro hedge assets |
$ |
1,420 |
$ |
950 |
$ |
470 |
$ |
(470) |
$ |
(950) |
$ |
(1,420) |
Impact of dynamic hedge assets assuming the
change
in the value of the hedge assets completely offsets
the change in the dynamically hedged variable
annuity guarantee liabilities |
|
3,170 |
|
1,980 |
|
900 |
|
(710) |
|
(1,240) |
|
(1,610) |
Total impact of hedge assets assuming the
change
in value of the dynamic hedge assets completely
offsets the change in the dynamically hedged
variable annuity guarantee liabilities |
$ |
4,590 |
$ |
2,930 |
$ |
1,370 |
$ |
(1,180) |
$ |
(2,190) |
$ |
(3,030) |
Net impact assuming the change in the value of
the
hedge assets completely offsets the change in
the dynamically hedged variable annuity
guarantee liabilities |
$ |
(2,050) |
$ |
(1,280) |
$ |
(600) |
$ |
500 |
$ |
910 |
$ |
1,220 |
Impact of assuming the change in value of the
dynamic
hedge assets does not completely offset the change in
the dynamically hedged variable annuity
guarantee liabilities(4) |
|
(950) |
|
(500) |
|
(180) |
|
(140) |
|
(300) |
|
(480) |
Net impact assuming the change in value of
the
dynamic hedge assets does not completely
offset the change in the dynamically hedged
variable annuity guarantee
liabilities(4) |
$ |
(3,000) |
$ |
(1,780) |
$ |
(780) |
$ |
360 |
$ |
610 |
$ |
740 |
Percentage of underlying earnings sensitivity
to
movements in equity markets that is offset by
hedges if dynamic hedge assets completely
offset the change in the dynamically hedged
variable annuity guarantee liability |
|
69% |
|
70% |
|
70% |
|
70% |
|
71% |
|
71% |
Percentage of underlying earnings sensitivity
to
movements in equity markets that is offset by
hedge assets if dynamic hedges do not
completely offset the change in the dynamically
hedged variable annuity guarantee
liability(4) |
|
55% |
|
58% |
|
60% |
|
79% |
|
80% |
|
83% |
(1) |
See "Caution Related to
Sensitivities" above. |
(2) |
Defined as earnings sensitivity to a
change in public equity markets including settlements on
reinsurance contracts
existing at September 30, 2010, but before the offset of hedge
assets or other risk mitigants. |
(3) |
This impact for general fund equities
is calculated as at a point-in-time and does not include: (i) any
potential impact
on public equity weightings; (ii) any gains or losses on public
equities held in the Corporate and Other segment; or (iii)
any gains or losses on public equity investments held in Manulife
Bank. The sensitivities assume that the participating
policy funds are self-supporting and generate no material impact on
net income attributed to shareholders as a result
of changes in equity markets. |
(4) |
For a 10, 20 and 30 per cent market
decrease, the gain on the dynamic hedge assets is assumed to be 80,
75 and 70
per cent of the loss from the dynamically hedged variable annuity
guarantee liabilities, respectively. For a 10, 20 and
30 per cent market increase, the loss on the dynamic hedges is
assumed to be 120, 125 and 130 per cent of the gain
from the dynamically hedged variable annuity policy liabilities,
respectively. For presentation purposes, numbers are
rounded. |
Potential impact on MLI's MCCSR ratio arising
from public equity returns different than the expected return for
policy liability valuation(1),(2)
|
|
|
Impact on MLI
MCCSR |
percentage points |
-30% |
-20% |
-10% |
+10% |
+20% |
+30% |
March 31, 2012 |
(20) |
(12) |
(5) |
5 |
9 |
15 |
December 31, 2011 |
(27) |
(15) |
(7) |
2 |
3 |
4 |
(1) |
See "Caution related to sensitivities"
above. |
(2) |
For a 10, 20 and 30 per cent market decrease the gain on the
dynamic hedge assets is assumed to be 80, 75 and 70 per cent of the
loss from the dynamically hedged variable annuity guarantee
liabilities, respectively. For a 10, 20 and 30 per cent market
increase the loss on the dynamic hedge assets is assumed to be 120,
125 and 130 per cent of the gain from the dynamically hedged
variable annuity guarantee liabilities, respectively. |
The following table shows the notional value of
shorted equity futures contracts utilized for our variable annuity
guarantee dynamic hedging and our macro equity risk hedging
strategies.
|
|
|
|
|
As at |
|
|
|
|
C$ millions |
March 31,
2012 |
December 31,
2011 |
For variable annuity guarantee dynamic hedging
strategy |
$ |
8,600 |
$ |
10,600 |
For macro equity risk hedging strategy |
|
6,200 |
|
5,600 |
Total |
$ |
14,800 |
$ |
16,200 |
|
|
|
|
|
The increase in equity markets during the
quarter permitted the Company to add $225
million and $300 million of
in-force business into the Canadian and U.S. variable annuity
dynamic hedging programs, respectively. Even with this
additional business, equity future notional values decreased over
the quarter, reflecting the rebalancing of hedges resulting from
the increase in equity markets. The notional value of the shorted
equity futures related to the macro equity risk hedging strategy
increased from December 31, 2011 due
to the general rise in equity markets in the quarter.
D6 Interest rate and spread risk
As at March 31,
2012, the sensitivity of our net income attributed to
shareholders to a 100 basis point parallel decline in interest
rates was $900 million, which was
ahead of our 2014 year end goal. The decrease in sensitivity from
December 31, 2011 was attributable to
changes in investment markets as well as the continuing actions by
the Company to reduce reinvestment risk in the fixed income
portfolio.
The 100 basis point parallel decline includes a
change of one per cent in current government, swap and corporate
rates for all maturities across all markets with no change in
credit spreads between government, swap and corporate rates, and
with a floor of zero on government rates, relative to the rates
assumed in the valuation of policy liabilities, including embedded
derivatives. Any impact of a change in the actuarial booking
scenario, should interest rates and spreads decline in parallel and
by the amounts indicated, is incorporated into the earnings
sensitivities. For this reason, the impact of changes less
than the amounts indicated are unlikely to be linear relative to
this estimate. For variable annuity guarantee liabilities that are
dynamically hedged, it is assumed that interest rate hedges are
rebalanced at 20 basis point intervals. The impact does not
allow for any potential changes to the URR assumptions or other
potential impacts of lower interest rate levels.
Potential impact on annual net income
attributed to shareholders and MLI's MCCSR ratio of an
immediate one per cent parallel change in interest rates relative
to rates assumed in the valuation of policy
liabilities(1),(2),(3),(4)
|
|
|
|
As at |
March
31, 2012 |
|
December
31, 2011 |
|
- 100bp |
+100bp |
|
- 100bp |
+100bp |
Net Income attributed to shareholders
(C$ millions) |
|
|
|
|
|
|
|
|
|
Before impact of change in market
value of AFS fixed
income assets held in the surplus segment |
$ |
(900) |
$ |
500 |
|
$ |
(1,000) |
$ |
700 |
|
Including 100% of the change in
market value of AFS
fixed income assets held in the surplus segment |
$ |
(100) |
$ |
- |
|
$ |
(200) |
$ |
- |
MLI's MCCSR (percentage points) |
|
|
|
|
|
|
|
|
|
|
Before impact of change in market
value of AFS fixed
income assets held in the surplus segment |
|
(17) |
|
20 |
|
|
(18) |
|
13 |
|
Including 100% of the change in
market value of AFS
fixed income assets held in the surplus segment |
|
(12) |
|
15 |
|
|
(13) |
|
8 |
(1) |
See "Caution related to sensitivities" above. |
(2) |
The sensitivities assume that the participating policy funds
are self-supporting and generate no material impact on net income
attributed to shareholders as a result of changes in interest
rates. |
(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. The table above
only reflects the impact of the change in the unrealized position,
as the total unrealized position will depend upon the unrealized
position at the beginning of the period. |
(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. |
|
|
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 annual net income
attributed to shareholders arising from changes to corporate
spreads and swap spreads(1),(2),(3)
|
|
|
C$ millions, As at |
March 31,
2012 |
December 31,
2011 |
Corporate
spreads(4) |
|
|
|
Increase 50 basis points |
$ |
400 |
$ |
500 |
|
Decrease 50 basis points |
|
(800) |
|
(900) |
Swap spreads |
|
|
|
|
|
Increase 20 basis points |
$ |
(600) |
$ |
(600) |
|
Decrease 20 basis points |
|
600 |
|
600 |
|
|
|
|
|
|
(1) |
See "Caution related to sensitivities" above. Actual results
may differ materially from these estimates. |
(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 sensitivities assume that the participating policy
funds are self-supporting and generate no material impact on net
income attributed to shareholders as a result of changes in
corporate 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 the expected
long-term average over five years. Sensitivities to a 50
basis point change in corporate spreads were estimated except for
the 50 basis point drop in those spreads as at March 31, 2012. |
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,
2011. 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 65 to 73 of our 2011 Annual
Report.
E2 Sensitivity of policy liabilities to changes in
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 changes in asset
related assumptions underlying policy liabilities is shown below,
assuming that there is a simultaneous change in the assumption
across all business units.
For changes in asset related assumptions, the
sensitivity is shown net of the corresponding impact on income of
the change in the value of the assets supporting liabilities. In
practice, experience for each assumption will frequently vary by
geographic market and business 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.
Potential impact on annual net income
attributed to shareholders arising from changes in policy
liabilities asset related assumptions
|
|
C $ millions |
Increase (Decrease) in after-tax
income |
As at |
March 31, 2012 |
|
December
31, 2011 |
Asset related assumptions
updated periodically in valuation basis changes |
Increase |
Decrease |
|
Increase |
Decrease |
100 basis point change in ultimate
fixed income re-investment rates(1) |
$ |
1,700 |
$ |
(1,800) |
|
$ |
1,700 |
$ |
(1,900) |
100 basis point change in future
annual returns for public equities(2) |
|
900 |
|
(800) |
|
|
900 |
|
(900) |
100 basis point change in future
annual returns for other non-fixed income assets(3) |
|
4,000 |
|
(3,700) |
|
|
4,200 |
|
(3,800) |
100 basis point change in equity
volatility assumption for stochastic segregated fund
modeling(4) |
|
(300) |
|
300 |
|
|
(300) |
|
300 |
|
|
|
|
|
|
|
|
|
|
(1) |
Current URRs in Canada are 1.60% per annum and 3.70% per annum
for short and long-term bonds, respectively, and in the U.S. are
1.10% per annum and 3.90% per annum for short and long-term bonds,
respectively. Since the URRs are based upon a five and ten
year rolling average of government bond rates and the URR valuation
assumptions are currently higher than the March 31, 2011 government
bond rates, continuation of current rates or a further decline
could have a material impact on net income. However, for this
sensitivity, we assume the URRs decline with full and immediate
effect. |
(2) |
Expected long-term annual market growth assumptions for public
equities pre-dividends for key markets are based on long-term
historical observed experience and are 7.6% per annum in Canada,
8.0% per annum in the U.S., 5.2% per annum in Japan and 9.5% per
annum in Hong Kong. These returns are then reduced by margins
for adverse deviation to determine net yields used in the
valuation. The amount 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 $600 million. (December 31,
2011 - $700 million). For a 100 basis point decrease in
expected growth rates, the impact from segregated fund guarantee
reserves is $(600) million (December 31, 2011- $(700)
million). |
(3) |
Other non-fixed income assets include commercial real estate,
timber and agricultural real estate, oil and gas, and private
equities. The reduction in sensitivity from December 31, 2011 to
March 31, 2012 is primarily related to the change in the shape of
the yield curve at which fixed income assets are reinvested /
disinvested, as well as the reduction in certain currencies against
the Canadian dollar. |
(4) |
Volatility assumptions for public equities are based on
long-term historic observed experience and are 18.05% per annum in
Canada and 16.55% per annum in the U.S. for large cap public
equities, and 18.35% per annum in Japan and 34.1% per annum in Hong
Kong. |
|
E3 Future accounting and reporting
changes
There are a number of accounting and reporting
changes issued under IFRS including those still under development
by the International Accounting Standards Board ("IASB") that will
impact the Company beginning in 2013 and later. A summary of the
most recently issued new accounting standards is as follows:
|
|
|
|
|
Topic |
Effective date |
|
Measurement /
Presentation |
Expected impact |
IFRS 10, IFRS 11, IFRS 12 and amendments to IAS
27, and IAS 28 regarding consolidation, disclosures and related
matters |
Jan 1, 2013 |
|
Measurement and disclosure |
Currently assessing |
IFRS 13 "Fair Value Measurement" |
Jan 1, 2013 |
|
Measurement |
Currently assessing |
Amendments to IAS 1 "Presentation of Financial
Statements" |
Jan 1, 2013 |
|
Presentation |
Not expected to have a significant impact |
Amendments to IAS 19 "Employee Benefits" |
Jan 1, 2013 |
|
Measurement |
Could have a material adverse effect on the
financial statements and regulatory capital at transition and
subsequently |
IFRS 9 "Financial Instruments" |
Jan 1, 2015 |
|
Measurement |
Currently assessing |
|
|
|
|
|
For additional information please refer to our
2011 Annual Report.
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. Non-GAAP measures include: Net Income (Loss)
Excluding the Direct Impact of Equity Markets and Interest Rates;
Net Income in Accordance with U.S. GAAP; Total Equity in Accordance
with U.S. GAAP; Diluted Earnings per Share excluding Convertible
Instruments; Return on Common Shareholders' Equity; Total Notable
Items excluding the Direct Impact of Equity Markets and Interest
Rates; Constant Currency Basis; Deposits; Premiums and Deposits;
Funds under Management; Capital and Sales. Non-GAAP financial
measures are not defined terms under GAAP and, therefore, with the
exception of Net Income in Accordance with U.S. GAAP and Total
Equity in Accordance with U.S. GAAP (which are comparable to the
equivalent measures of issuers whose financial statements are
prepared in accordance with U.S. GAAP), are unlikely to be
comparable to similar terms used by other issuers. Therefore, they
should not be considered in isolation or as a substitute for any
other financial information prepared in accordance with GAAP.
Net income (loss) excluding the direct impact
of equity markets and interest rates is a non-GAAP
profitability measure. It shows what the net income (loss)
attributed to shareholders would have been assuming that interest
and equity markets performed as assumed in our policy
valuation. The direct impact of equity markets and interest
rates is relative to our policy liability valuation assumptions and
includes changes to the interest rate assumptions. We also
include gains and losses on the sale of AFS bonds as management may
have the ability to partially offset the direct impacts of changes
in interest rates reported in the liability segments. We
consider the gains or losses on the variable annuity business that
is dynamically hedged to be an indirect impact, not a direct
impact, of changes in equity markets and interest rates and
accordingly, such gains and losses are reflected in this
measure.
Net income in accordance with U.S. GAAP
is a non-GAAP profitability measure. It shows what the net
income would have been if the Company had applied U.S. GAAP as its
primary financial reporting basis. We consider this to be a
relevant profitability measure given our large U.S. domiciled
investor base and for comparability to our U.S. peers who report
under U.S. GAAP.
Total equity in accordance with U.S. GAAP
is a non-GAAP measure. It shows what the total equity would
have been if the Company had applied U.S. GAAP as its primary
financial reporting basis. We consider this to be a relevant
measure given our large U.S. domiciled investor base and for
comparability to our U.S. peers who report under U.S. GAAP.
Diluted earnings (loss) per share excluding
convertible instruments, is a non-GAAP measure. It shows
diluted earnings (loss) per share excluding the dilutive effect of
convertible instruments.
The following is a reconciliation of the
denominator (weighted average number of common shares) in the
calculation of basic and diluted earnings per share.
For the quarter ended
|
March 31, |
in millions |
2012 |
|
2011 |
Weighted average number of actual common shares
outstanding |
1,802 |
|
1,778 |
Dilutive number of shares for stock-based
awards |
2 |
|
3 |
Weighted average number of common shares used to
calculate diluted
earnings per share, excluding convertible instruments |
1,804 |
|
1,781 |
Dilutive number of shares for convertible
instruments |
115 |
|
80 |
Weighted average number of common shares used in
the diluted earnings
per share calculation |
1,919 |
|
1,861 |
|
|
|
Return on common shareholders' equity
("ROE") is a non-GAAP profitability measure that presents the net
income available to common shareholders as a percentage of the
capital deployed to earn the income. The Company calculates
return on common shareholders' equity using average common
shareholders' equity excluding Accumulated Other Comprehensive
Income (Loss) ("AOCI") on AFS securities and cash flow hedges.
|
|
Return on common shareholders' equity |
Quarterly results |
C$ millions |
1Q 2012 |
4Q 2011 |
1Q 2011 |
Net income (loss) attributed to common
shareholders |
$ |
1,182 |
$ |
(90) |
$ |
965 |
Opening total equity attributed to common
shareholders |
$ |
22,402 |
$ |
23,077 |
$ |
22,683 |
Closing total equity attributed to common
shareholders |
$ |
23,072 |
$ |
22,402 |
$ |
22,919 |
Weighted average total equity available to
common shareholders |
$ |
22,737 |
$ |
22,740 |
$ |
22,801 |
Opening AOCI on AFS securities and cash flow
hedges |
$ |
13 |
$ |
28 |
$ |
278 |
Closing AOCI on AFS securities and cash flow
hedges |
$ |
198 |
$ |
13 |
$ |
255 |
Adjustment for average AOCI |
$ |
(106) |
$ |
(21) |
$ |
(266) |
Weighted average total equity attributed to
common shareholders
excluding average AOCI adjustment |
$ |
22,631 |
$ |
22,719 |
$ |
22,535 |
ROE based on weighted average total equity
attributed to common
shareholders (annualized) |
|
20.9% |
|
(1.6)% |
|
17.2% |
ROE based on weighted average total equity
attributed to common
shareholders excluding average AOCI adjustment
(annualized) |
|
21.0% |
|
(1.6)% |
|
17.4% |
The Company also uses financial performance
measures that are prepared on a constant currency basis,
which exclude the impact of currency fluctuations and which are
non-GAAP measures. Quarterly amounts stated on a constant
currency basis in this report are calculated, as appropriate, using
the income statement and balance sheet exchange rates effective for
the first quarter of 2012.
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 Statement of
Income, (ii) premium equivalents for administration only group
benefit contracts, (iii) premiums in the Canadian Group Benefits
reinsurance ceded agreement, (iv) segregated fund deposits,
excluding seed money, (v) mutual fund deposits, (vi) deposits into
institutional advisory accounts, and (vii) other deposits in other
managed funds.
|
|
Premiums and deposits |
Quarterly results |
C$ millions |
1Q 2012 |
4Q 2011 |
1Q 2011 |
Premium income |
$ |
4,504 |
$ |
4,540 |
$ |
4,520 |
Deposits from policyholders |
|
6,294 |
|
5,575 |
|
5,919 |
Premiums and deposits per financial
statements |
$ |
10,798 |
$ |
10,115 |
$ |
10,439 |
Investment contract deposits |
|
70 |
|
126 |
|
95 |
Mutual fund deposits |
|
4,054 |
|
3,309 |
|
4,658 |
Institutional advisory account deposits |
|
368 |
|
627 |
|
669 |
ASO premium equivalents |
|
715 |
|
666 |
|
684 |
Group benefits ceded premiums |
|
970 |
|
941 |
|
949 |
Other fund deposits |
|
165 |
|
133 |
|
168 |
Total premiums and deposits |
$ |
17,140 |
$ |
15,917 |
$ |
17,662 |
Currency impact |
|
- |
|
(247) |
|
235 |
Constant currency premiums and
deposits |
$ |
17,140 |
$ |
15,670 |
$ |
17,897 |
|
|
|
|
|
|
|
Funds under management is a non-GAAP
measure of the size of the Company. It represents the total
of the invested asset base that the Company and its customers
invest in.
|
|
Funds under management |
Quarterly results |
C$ millions |
1Q 2012 |
4Q 2011 |
1Q 2011 |
Total invested assets |
$ |
223,837 |
$ |
226,520 |
$ |
198,603 |
Total segregated funds net assets |
|
205,953 |
|
196,058 |
|
200,890 |
Funds under management per financial
statements |
$ |
429,790 |
$ |
422,578 |
$ |
399,493 |
Mutual funds |
|
53,411 |
|
49,399 |
|
50,129 |
Institutional advisory accounts (excluding
segregated funds) |
|
21,758 |
|
21,527 |
|
21,792 |
Other funds |
|
6,684 |
|
6,148 |
|
6,883 |
Total fund under management |
$ |
511,643 |
$ |
499,652 |
$ |
478,297 |
Currency impact |
|
- |
|
(8,264) |
|
9,947 |
Constant currency funds under
management |
$ |
511,643 |
$ |
491,388 |
$ |
488,244 |
|
|
|
|
|
|
|
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 |
Quarterly results |
C$ millions |
1Q 2012 |
4Q 2011 |
1Q 2011 |
Total equity |
$ |
25,824 |
$ |
24,879 |
$ |
25,112 |
Add AOCI loss on cash flow hedges |
|
52 |
|
91 |
|
54 |
Add liabilities for preferred shares and capital
instruments |
|
4,501 |
|
4,012 |
|
3,442 |
Total Capital |
$ |
30,377 |
$ |
28,982 |
$ |
28,608 |
|
|
|
|
|
|
|
Sales are measured according to product
type:
- For total individual insurance, sales include 100 per cent of
new annualized premiums and 10 per cent of both excess and single
premiums. For individual insurance, new annualized premiums reflect
the annualized premium expected in the first year of a policy that
requires premium payments for more than one year. Sales are
reported gross before the impact of reinsurance. Single
premium is the lump sum premium from the sale of a single premium
product, e.g., travel insurance.
- For group insurance, sales include new annualized premiums and
administrative services only premium equivalents on new cases, as
well as the addition of new coverages and amendments to contracts,
excluding rate increases.
- For individual wealth management contracts, all new deposits
are reported as sales. This includes individual annuities, both
fixed and variable; variable annuity products; mutual funds;
college savings 529 plans; and authorized bank loans and
mortgages.
- For group pensions/retirement savings, sales of new regular
premiums and deposits reflect an estimate of expected deposits in
the first year of the plan with the Company. Single premium sales
reflect the assets transferred from the previous plan provider.
Sales include the impact of the addition of a new division or of a
new product to an existing client. Total sales include both new
regular and single premiums and deposits.
F2 Caution regarding forward-looking
statements
This document contains forward-looking
statements within the meaning of 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, management
objectives with respect to hedging equity markets and interest rate
risks, potential future changes related to fixed income URR
assumptions if current low interest rates persist, the estimated
impact of new equity calibration parameters for guaranteed variable
annuity and segregated funds, and the annual review of actuarial
methods and assumptions. 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, 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: general business and economic conditions (including but not
limited to the performance, volatility and correlation of equity
markets, interest rates, credit and swap spreads, currency rates,
investment losses and defaults, market liquidity and
creditworthiness of guarantors, reinsurers and counterparties);
changes in laws and regulations; changes in accounting standards;
our ability to execute strategic plans and changes to strategic
plans; downgrades in our financial strength or credit ratings; our
ability to maintain our reputation; impairments of goodwill or
intangible assets or the establishment of valuation allowances
against future tax assets; the accuracy of estimates relating to
morbidity, mortality and policyholder behavior; the accuracy of
other estimates used in applying accounting policies and actuarial
methods; our ability to implement effective hedging strategies and
unforeseen consequences arising from such strategies; our ability
to source appropriate assets to back our long dated liabilities;
level of competition and consolidation; our ability to market and
distribute products through current and future distribution
channels; unforeseen liabilities or asset impairments arising from
acquisitions and dispositions of businesses; the realization of
losses arising from the sale of investments classified as available
for sale; our liquidity, including the availability of financing to
satisfy existing financial liabilities on their expected maturity
dates when required; obligations to pledge additional collateral;
the availability of letters of credit to provide capital management
flexibility; accuracy of information received from counterparties
and the ability of counterparties to meet their obligations; the
availability, affordability and adequacy of reinsurance; legal and
regulatory proceedings, including tax audits, tax litigation or
similar proceedings; our ability to adapt products and services to
the changing market; our ability to attract and retain key
executives, employees and agents; the appropriate use and
interpretation of complex models or deficiencies in models used;
political, legal, operational and other risks associated with our
non-North American operations; acquisitions and our ability to
complete acquisitions including the availability of equity and debt
financing for this purpose; the disruption of or changes to key
elements of the Company's or public infrastructure systems;
environmental concerns; and our ability to protect our intellectual
property and exposure to claims of infringement. Additional
information about material 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 Update" and
"Critical Accounting and Actuarial Policies" in the Management's
Discussion and Analysis in our most recent annual and interim
reports, 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. We do not undertake to update any forward-looking
statements except as required by law.
Financial Highlights
(Canadian $ in millions unless otherwise stated and
per share information, unaudited) |
As at and for the three months
ended |
March 31 |
|
2012 |
|
|
2011 |
% Change |
|
|
|
|
|
|
|
Net income |
$ |
1,230 |
|
$ |
989 |
24 |
|
Less: Net income attributed to
non-controlling interest in subsidiaries |
|
9 |
|
|
5 |
80 |
|
|
Net income (loss) attributed to
participating policyholders |
|
15 |
|
|
(1) |
n/a |
Net income
attributed to shareholders |
$ |
1,206 |
|
$ |
985 |
22 |
|
Preferred share dividends |
|
(24) |
|
|
(20) |
20 |
Net income
available to common
shareholders |
$ |
1,182 |
|
$ |
965 |
22 |
|
|
|
|
|
|
|
Premiums and
deposits: |
|
|
|
|
|
|
|
Life and health insurance
premiums |
$ |
3,473 |
|
$ |
3,594 |
(3) |
|
Annuity and pension
premiums |
|
1,031 |
|
|
926 |
11 |
|
Investment contract deposits |
|
70 |
|
|
95 |
(26) |
|
Segregated fund deposits |
|
6,294 |
|
|
5,919 |
6 |
|
Mutual fund deposits |
|
4,054 |
|
|
4,658 |
(13) |
|
Institutional advisory account
deposits |
|
368 |
|
|
669 |
(45) |
|
ASO premium equivalents |
|
715 |
|
|
684 |
5 |
|
Group Benefits ceded |
|
970 |
|
|
949 |
2 |
|
Other fund deposits |
|
165 |
|
|
168 |
(2) |
Total premiums
and deposits |
$ |
17,140 |
|
$ |
17,662 |
(3) |
|
|
|
|
|
|
|
Funds under
management: |
|
|
|
|
|
|
|
General fund |
$ |
223,837 |
|
$ |
198,603 |
13 |
|
Segregated funds excluding
institutional advisory accounts |
|
203,736 |
|
|
198,736 |
3 |
|
Mutual funds |
|
53,411 |
|
|
50,129 |
7 |
|
Institutional advisory
accounts |
|
23,975 |
|
|
23,946 |
0 |
|
Other funds |
|
6,684 |
|
|
6,883 |
(3) |
Total funds
under management |
$ |
511,643 |
|
$ |
478,297 |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital: |
|
|
|
|
|
|
|
Liabilities for preferred shares and
capital instruments |
$ |
4,501 |
|
$ |
3,442 |
31 |
|
Equity |
|
|
|
|
|
|
|
|
Non-controlling interest in
subsidiaries |
|
431 |
|
|
416 |
4 |
|
|
Participating policyholders'
equity |
|
264 |
|
|
159 |
66 |
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
Preferred shares |
|
2,057 |
|
|
1,618 |
27 |
|
|
|
Common shares |
|
19,644 |
|
|
19,332 |
2 |
|
|
|
Contributed surplus |
|
253 |
|
|
229 |
10 |
|
|
|
Retained earnings |
|
3,448 |
|
|
4,124 |
(16) |
|
|
|
Accumulated other comprehensive loss on AFS
securities and translation of foreign operations |
|
(221) |
|
|
(712) |
(69) |
Total capital |
$ |
30,377 |
|
$ |
28,608 |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected key
performance measures: |
|
|
|
|
|
|
|
Basic earnings per common share |
$ |
0.66 |
|
$ |
0.54 |
|
|
Diluted earnings per common share,
excluding convertible instruments |
$ |
0.66 |
|
$ |
0.54 |
|
|
Diluted earnings per common share |
$ |
0.62 |
|
$ |
0.53 |
|
|
Return on common shareholders' equity
(annualized) 1 |
|
21.0 % |
|
|
17.4 % |
|
|
Book value per common share |
$ |
12.77 |
|
$ |
12.86 |
|
|
Common shares outstanding (in
millions) |
|
|
|
|
|
|
|
|
End of period |
|
1,807 |
|
|
1,783 |
|
|
|
Weighted average - basic |
|
1,802 |
|
|
1,778 |
|
|
|
Weighted average - diluted (excluding
convertible instruments) |
|
1,804 |
|
|
1,781 |
|
|
|
Weighted average - diluted |
|
1,919 |
|
|
1,861 |
|
1 Return on common shareholders' equity is net
income available to common shareholders divided by average common
shareholders'
equity excluding accumulated other comprehensive income (loss) on
AFS securities and cash flow hedges. |
Consolidated Statements of Income
|
|
|
|
|
(Canadian $ in millions except per
share information, unaudited) |
For the three months
ended |
|
March 31 |
|
|
2012 |
|
2011 |
Revenue |
|
|
|
|
Premium income |
$ |
4,504 |
$ |
4,520 |
Investment income |
|
|
|
|
|
Investment income 1 |
|
1,589 |
|
2,027 |
|
Realized/ unrealized losses on assets
supporting insurance and investment contract liabilities
1 |
|
(4,066) |
|
(1,247) |
Other revenue |
|
1,790 |
|
1,764 |
Total revenue |
$ |
3,817 |
$ |
7,064 |
Contract benefits and
expenses |
|
|
|
|
To contractholders and beneficiaries |
|
|
|
|
|
Death, disability and other claims |
$ |
2,466 |
$ |
2,576 |
|
Maturity and surrender benefits |
|
1,244 |
|
1,258 |
|
Annuity payments |
|
796 |
|
779 |
|
Policyholder dividends and experience rating
refunds |
|
274 |
|
269 |
|
Net transfers (from) to segregated funds |
|
(158) |
|
42 |
|
Change in insurance contract
liabilities 1 |
|
(3,409) |
|
(366) |
|
Change in investment contract
liabilities |
|
42 |
|
24 |
|
Ceded benefits and expenses |
|
(1,364) |
|
(1,223) |
|
Change in reinsurance assets |
|
5 |
|
(95) |
Net benefits and
claims |
$ |
(104) |
$ |
3,264 |
|
General expenses |
|
1,045 |
|
957 |
|
Investment expenses |
|
251 |
|
238 |
|
Commissions |
|
976 |
|
972 |
|
Interest expense |
|
288 |
|
281 |
|
Net premium taxes |
|
71 |
|
56 |
Total contract benefits
and expenses |
$ |
2,527 |
$ |
5,768 |
Income before income
taxes |
$ |
1,290 |
$ |
1,296 |
Income tax expense |
|
(60) |
|
(307) |
Net income |
$ |
1,230 |
$ |
989 |
|
Less: Net income attributed to non-controlling
interest in subsidiaries |
|
9 |
|
5 |
|
Net income (loss) attributed to
participating policyholders |
|
15 |
|
(1) |
Net income attributed to
shareholders |
$ |
1,206 |
$ |
985 |
|
Preferred share dividends |
|
(24) |
|
(20) |
Net income available to
common shareholders |
$ |
1,182 |
$ |
965 |
|
|
|
|
|
Basic earnings per common
share |
$ |
0.66 |
$ |
0.54 |
Diluted earnings per common share,
excluding convertible instruments |
$ |
0.66 |
$ |
0.54 |
Diluted earnings per common
share |
$ |
0.62 |
$ |
0.53 |
1 The Q1 2012 realized/unrealized
loss on assets supporting insurance and investment contract
liabilities of $4,066 million
relates primarily to the impact of higher interest rates on bond
and fixed income derivative positions as well as interest rate
swaps supporting the dynamic hedge program. These items are mostly
offset by gains reflected 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. In addition, the decrease in investment
income in the first quarter 2012 compared to first quarter 2011
related to losses on macro hedges used as part of our equity
risk management program and losses on AFS bonds related to the
management of interest rate exposures. These activities
in the surplus segment are mostly offset by gains reflected in the
measurement of our policy liabilities (see change in insurance
contract liabilities). |
Consolidated Statements of Financial Position
(Canadian $ in millions, unaudited) |
|
|
|
|
|
As at March 31 |
Assets |
|
2012 |
|
2011 |
Invested assets |
|
|
|
|
|
Cash and short-term securities |
$ |
12,312 |
$ |
11,379 |
|
Securities |
|
|
|
|
|
|
Bonds |
|
117,416 |
|
99,756 |
|
|
Stocks |
|
11,226 |
|
10,634 |
|
Loans |
|
|
|
|
|
|
Mortgages |
|
34,943 |
|
32,820 |
|
|
Private placements |
|
20,098 |
|
19,281 |
|
|
Policy loans |
|
6,710 |
|
6,400 |
|
|
Bank loans |
|
2,275 |
|
2,342 |
|
Real estate |
|
7,694 |
|
6,265 |
|
Other investments |
|
11,163 |
|
9,726 |
Total invested assets |
$ |
223,837 |
$ |
198,603 |
Other assets |
|
|
|
|
|
Accrued investment income |
$ |
1,839 |
$ |
1,735 |
|
Outstanding premiums |
|
654 |
|
754 |
|
Derivatives |
|
11,388 |
|
3,400 |
|
Goodwill and intangible assets |
|
5,362 |
|
5,817 |
|
Reinsurance assets |
|
10,737 |
|
7,778 |
|
Deferred tax asset |
|
1,719 |
|
1,190 |
|
Miscellaneous |
|
3,799 |
|
3,230 |
Total other assets |
$ |
35,498 |
$ |
23,904 |
Segregated funds net assets |
$ |
205,953 |
$ |
200,890 |
Total assets |
$ |
465,288 |
$ |
423,397 |
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
Policy liabilities |
|
|
|
|
|
Insurance contract liabilities |
$ |
184,232 |
$ |
155,625 |
|
Investment contract liabilities |
|
2,537 |
|
2,617 |
Bank deposits |
|
18,424 |
|
16,900 |
Deferred tax liability |
|
712 |
|
758 |
Derivatives |
|
5,996 |
|
3,185 |
Other liabilities |
|
11,637 |
|
9,062 |
|
$ |
223,538 |
$ |
188,147 |
Long-term debt |
|
5,472 |
|
5,806 |
Liabilities for preferred shares and capital
instruments |
|
4,501 |
|
3,442 |
Segregated funds net liabilities |
|
205,953 |
|
200,890 |
Total liabilities |
$ |
439,464 |
$ |
398,285 |
|
|
|
|
|
Equity |
|
|
|
|
Issued share capital |
|
|
|
|
|
Preferred shares |
$ |
2,057 |
$ |
1,618 |
|
Common shares |
|
19,644 |
|
19,332 |
Contributed surplus |
|
253 |
|
229 |
Shareholders' retained earnings |
|
3,448 |
|
4,124 |
Shareholders' accumulated other
comprehensive loss |
|
(273) |
|
(766) |
Total shareholders' equity |
$ |
25,129 |
$ |
24,537 |
Participating policyholders' equity |
|
264 |
|
159 |
Non-controlling interest in subsidiaries |
|
431 |
|
416 |
Total equity |
$ |
25,824 |
$ |
25,112 |
Total liabilities and equity |
$ |
465,288 |
$ |
423,397 |
SOURCE Manulife Financial Corporation