MNUFF Manulife Financial Corporation (PK)

Results at a Glance

Strategic Highlights

We are executing on our strategy to reshape our portfolio and focus on high potential growth

We entered into an agreement with Global Atlantic to reinsure four in-force blocks of legacy and low ROE business, including $6 billion of LTC insurance contract net liabilities. This agreement represents the largest ever LTC reinsurance transaction and is a major milestone in our transformation journey to reshape our portfolio by reducing risk, improving ROE, strengthening capital, growing high return businesses and delivering value to shareholders.⁷

In Asia, we continued to enhance our mainland Chinese visitor (“MCV") capabilities to complement our prominent domestic franchise in Hong Kong with support from the launch of an expanded hospital network covering more than 3,000 hospitals in mainland China and the opening of our second prestige service centre in Hong Kong. Our continued investments in MCV capabilities have contributed to robust MCV APE sales in 2023, more than double that of our 2019 pre-pandemic levels.

In addition, we launched a unified onboarding platform in our global high net worth business in Bermuda¹⁰, Hong Kong and Singapore. The new platform makes new business application, underwriting and compliance processes simpler and faster, enabling more streamlined interactions and an overall enhanced experience for both our brokers and customers.

In Global WAM, we entered into an agreement to acquire multi-sector alternative credit manager CQS¹¹, headquartered in London. The acquisition will give Manulife Investment Management and CQS clients enhanced access to our combined global investment solutions.

In Canada, we partnered with League, a leading healthcare technology provider, to offer our group benefits members more personalized and integrated digital healthcare experiences, enabling them to connect their benefits directly with healthcare options.

We are helping our customers live longer, healthier, and better lives

In the U.S., we enhanced our John Hancock Vitality Program by extending eligibility to access GRAIL’s Galleri^® multi-cancer early detection test to additional members, expanding eligibility for preventative care and early detection behaviours through annual skin cancer screenings, and introducing a personalized way to incentivize members to be more physically active through a new Active Rewards feature.

In addition, we differentiated ourselves from other U.S. life insurance carriers by hosting the first longevity symposium in the industry that brought together 250 life insurance brokers, leadership from reinsurance companies, media, and local government officials to give them a first-hand look at the innovations and science shaping the future of longevity.

In Canada, we expanded our Personalized Medicine program to all group benefits extended healthcare plans, making this service available to more customers, while enabling them to learn about medications that best meet their needs and work with healthcare providers on customized treatment plans that can lead to better outcomes.

We continue to progress on our ambition to be the most digital, customer-centric company in our industry

In Global WAM, we continued to enhance and broaden our wealth planning and advice business in Canada Retail through strategic agreements with Fidelity Clearing Canada and Envestnet that will provide access to leading advisory technology and portfolio management platforms, which when combined will deliver an enhanced digital client experience and improved advisor productivity.

In Asia, we completed Phase 1 of the policy administration system modernization in mainland China, launching new business and underwriting modules on the new cloud-native solution, with the seamless data migration of more than three million customers. This enables scale and efficiency, and lays the foundation for improved customer, distributor and partner experience.

Furthermore, we optimized the customer registration experience across our customer websites in the U.S., resulting in a 26% increase in online registrations in 2023, contributing to a 19% improvement in unique website traffic. In Canada, we grew our annual Manulife mobile app downloads by 18%, supported by upgrades designed to enhance our customers’ digital experience and a successful communication campaign highlighting the ease and speed of online claims submissions.

Strong earnings¹² growth supported by rising interest rates and improved insurance experience

Core earnings of $6.7 billion in 2023, up 13% from 2022, and $1.8 billion in 4Q23, up 15% from 4Q22

The increase from 2022 was driven by improved insurance experience, the net impact of rising interest rates, and business growth. These were partially offset by a higher expected credit loss (“ECL”) provision, higher performance-related costs and investments in technology. Insurance experience in our Property and Casualty (“P&C”) Reinsurance business improved significantly in 2023 due to updates to prior year hurricane provisions compared with charges in 2022.

In the fourth quarter, core earnings increased by double-digits year-over-year across all four operating segments.

Net Income attributed to shareholders rose to $5.1 billion in 2023, $1.6 billion higher than 2022 Transitional Net Income, and $1.7 billion in 4Q23, $0.4 billion higher than 4Q22 Transitional Net Income

The $1.6 billion increase compared with 2022 Transitional Net Income reflected growth in core earnings and a smaller net charge from market experience. The net charge from market experience in 2023 was primarily related to lower-than-expected returns on alternative long-duration assets (“ALDA”) and the net impact of interest rate movements. The $7.0 billion increase compared with 2022 net income attributed to shareholders was driven by the factors noted above and $5.4 billion of transitional impacts due to the application of IFRS 9 hedge accounting and ECL principles.

The $0.4 billion increase compared with 4Q22 Transitional Net Income was primarily driven by a smaller net charge from market experience, growth in core earnings and the impact of updates to actuarial methods and assumptions in 4Q23. In addition, 4Q22 included the impact of an increase in the Canadian corporate tax rate on our deferred tax assets. The net charge from market experience in 4Q23 was primarily related to lower-than-expected returns on ALDA, partially offset by higher-than-expected returns on public equity. The $0.7 billion increase compared with 4Q22 net income attributed to shareholders was driven by the factors noted above and $0.3 billion of transitional impacts due to the application of IFRS 9 hedge accounting and ECL principles.

Double-digit growth in new business results and $4.5 billion of net inflows in Global WAM

Our 2023 new business results were boosted by strong performance in Asia and Canada. Overall, our APE sales, NBV and new business CSM increased 12%, 10% and 12%, respectively, from 2022

Our 4Q23 new business results demonstrated momentum with year-over-year growth across all insurance segments, with increases of 20%, 20% and 41% in APE sales, NBV and new business CSM, respectively

Global WAM net inflows of $4.5 billion in 2023, $1.3 billion higher compared with net inflows of $3.2 billion in 2022

Global WAM net outflows of $1.3 billion in 4Q23, a $7.1 billion improvement compared with net outflows of $8.4 billion in 4Q22

CSM balance increased 21%² with contribution from organic CSM movement of 5%⁵ and the impact from changes in actuarial methods and assumptions

CSM net of NCI¹³ was $20,440 million as at December 31, 2023

CSM net of NCI increased $3,157 million compared with December 31, 2022, representing growth of 21%. Organic CSM movement was an increase of $890 million or 5% in 2023, driven by the impact of new business and interest accretion, partially offset by amortization recognized in core earnings and a net reduction from insurance experience. Inorganic CSM movement was an increase of $2,434 million in 2023, primarily driven by the impact from changes in actuarial methods and assumptions, partially offset by changes in foreign currency exchange rates. In addition, NCI CSM increased $167 million compared with December 31, 2022. Post-tax CSM net of NCI¹ was $17,748 million as at December 31, 2023.

4Q23 Update of Actuarial Methods and Assumptions

We updated our actuarial methods and assumptions which decreased the overall level of the risk adjustment for non-financial risk in the fourth quarter. This change moves the risk adjustment to approximately the middle of our existing 90-95% confidence level range. The risk adjustment would have exceeded the 95% confidence level in 4Q23 without making the change. This change led to a decrease in pre-tax fulfilment cash flows of $2,850 million, an increase in pre-tax net income attributed to shareholders of $144 million (an increase of $119 million post-tax), an increase in pre-tax net income attributed to participating policyholders of $115 million ($91 million post-tax), an increase in CSM of $2,638 million, and a decrease in pre-tax other comprehensive income of $47 million ($37 million post-tax).

Earnings Results Conference Call

Manulife will host a conference call and live webcast on its fourth quarter and full year 2023 results on February 15, 2024, at 8:00 a.m. (ET). To access the conference call, dial 1-800-806-5484 or 1-416-340-2217 (Passcode: 7713937#). Please call in 15 minutes before the scheduled start time. You will be required to provide your name and organization to the operator. You may access the webcast at manulife.com/en/investors/results-and-reports.

The archived webcast will be available following the call at the same URL as above. A replay of the call will also be available until March 16, 2024, by dialing 1-800-408-3053 or 1-905-694-9451 (Passcode: 1481706#).

The Fourth Quarter 2023 Statistical Information Package is also available on the Manulife website at: www.manulife.com/en/investors/results-and-reports.

This earnings news release should be read in conjunction with the Company’s 2023 MD&A and Consolidated Financial Statements for the year and the quarter ended December 31, 2023, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, which is available on our website at www.manulife.com/en/investors/results-and-reports. The Company’s 2023 MD&A and additional information relating to the Company is available on the SEDAR+ website at http://www.sedarplus.ca and on the U.S. Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.

Any information contained in, or otherwise accessible through, websites mentioned in this news release does not form a part of this document unless it is expressly incorporated by reference.

Earnings

The following table presents net income attributed to shareholders for 4Q23, 3Q23 and full year 2023 results as well as Transitional Net Income for 4Q22 and full year 2022 results, consisting of core earnings and details of the items excluded from core earnings:

Non-GAAP and other financial measures

The Company prepares its Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. We use a number of non-GAAP and other financial measures to evaluate overall performance and to assess each of our businesses. This section includes information required by National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure in respect of “specified financial measures” (as defined therein).

Non-GAAP financial measures include core earnings (loss); core earnings available to common shareholders; core earnings before income taxes, depreciation and amortization (“core EBITDA”); transitional net income (loss) attributed to shareholders (“Transitional Net Income”); common shareholders’ transitional net income; adjusted book value; post-tax contractual service margin; post-tax contractual service margin net of NCI (“post-tax CSM net of NCI”); and core revenue. In addition, non-GAAP financial measures include the following stated on a constant exchange rate (“CER”) basis: any of the foregoing non-GAAP financial measures; net income attributed to shareholders; and common shareholders’ net income.

Non-GAAP ratios include core return on common shareholders’ equity (“core ROE”); diluted core earnings per common share (“core EPS”); transitional diluted earnings per common share (“transitional EPS”); transitional return on equity (“transitional ROE”); adjusted book value per common share; core EBITDA margin; and percentage growth/decline on a constant exchange rate basis in any of the above non-GAAP financial measures and non-GAAP ratios; net income attributed to shareholders; diluted earnings per common share (“EPS”), CSM net of NCI, and new business CSM.

Other specified financial measures include remittances; NBV; APE sales; gross flows; net flows; average assets under management and administration (“average AUMA”); and percentage growth/decline in these foregoing specified financial measures. In addition, explanations of the components of the CSM movement, other than the new business CSM were provided in the 2023 MD&A.

Non-GAAP financial measures and non-GAAP ratios are not standardized financial measures under GAAP and, therefore, might not be comparable to similar financial measures disclosed 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. For more information on non-GAAP financial measures, including those referred to above, see the section “Non-GAAP and other financial measures” in our 2023 MD&A, which is incorporated by reference.

IFRS 17 Transition

Manulife adopted IFRS 17 “Insurance Contracts” and IFRS 9 “Financial Instruments” effective for years beginning on January 1, 2023, to be applied retrospectively. Our quarterly and full year 2022 results have been restated in accordance with IFRS 17 and IFRS 9.

The 2022 comparative results in this news release may not be fully representative of our market risk profile, as the transition of our general fund portfolio for asset-liability matching purposes under IFRS 17 and IFRS 9 was not completed until early 2023. Consequently, year-over-year variations between our 2023 results compared to the 2022 results should be viewed in this context.

In addition, our 2022 results are also not directly comparable to 2023 results because IFRS 9 hedge accounting and ECL principles are applied prospectively effective January 1, 2023. Accordingly, we have also presented comparative quarterly and full year 2022 results as if IFRS had allowed such principles to be implemented for 2022. Such results are denoted as being “transitional” throughout this news release and include the Transitional Net Income for 2022. For a complete list of transitional financial measures, please see section 1 “Implementation of IFRS 17 and IFRS 9” of the 2023 MD&A.

Reconciliation of core earnings and transitional net income attributed to shareholders to net income attributed to shareholders

Core earnings, CER basis and U.S. dollars

Reconciliation of core earnings and transitional net income attributed to shareholders to net income attributed to shareholders

Core earnings, CER basis and U.S. dollars

Reconciliation of core earnings to net income attributed to shareholders

Core earnings, CER basis and U.S. dollars