Sunday, 19 May 2019
BREAKING NEWS

Manulife reports 3Q18 net income of $1.6 billion, core earnings of $1.5 billion and solid growth in Asia and Global …

C$ unless otherwise stated                                  
TSX/NYSE/PSE: MFC  SEHK: 945

The quarterly earnings news release for Manulife Financial Corporation (“Manulife” or the “Company”) should be read in conjunction with the Company’s Third Quarter 2018 Report to Shareholders, including our unaudited Interim Consolidated Financial Statements for the three and nine months ended September 30, 2018, prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), which are available on our website at http://manulife.force.com/Reports.



All percentage growth / declines in financial metrics in this news release are reported on a constant exchange rate basis. Constant exchange rate basis excludes the impact of currency fluctuations and is a non-GAAP measure. We use a number of non-GAAP measures to measure performance and to assess our businesses. For more information on non-GAAP measures, see “Performance and Non-GAAP Measures” below and in the Third Quarter 2018 MD&A and 2017 MD&A for details.



Additional information relating to the Company is available on the SEDAR website at http://www.sedar.com and on the U.S. Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov (EDGAR filers section).

TORONTO, Nov. 7, 2018 /PRNewswire/ – Manulife today announced net income attributed to shareholders of $1,573 million for the third quarter of 2018 (“3Q18”), diluted earnings per common share of $0.77 and return on common shareholders’ equity (“ROE”) of 15.1%, compared with $1,105 million, $0.54 and 10.8%, respectively, for the third quarter of 2017 (“3Q17”). The $468 million increase in net income attributed to shareholders primarily reflects an increase of $454 million in core earnings1 which was driven by business growth, improved claims experience and the non-recurrence of two items which netted to a $130 million charge in 3Q17. For 3Q18, Manulife generated core earnings of $1,539 million, diluted core earnings per common share1 of $0.75 and core return on common shareholders’ equity (“core ROE”)1 of 14.8%, compared with $1,085 million, $0.53 and 10.6%, respectively, for 3Q17.

Year-to-date 2018 net income attributed to shareholders was $4,207 million, diluted earnings per common share were $2.05 and ROE was 13.9% compared with $3,710 million, $1.81 and 12.3%, respectively, for the same period of 2017. Year-to-date 2018 core earnings were $4,273 million, diluted core earnings per common share were $2.09 and core ROE was 14.1% compared with $3,360 million, $1.63 and 11.1%, respectively, for the same period of 2017.

“We delivered another quarter of strong core earnings and net income, both of which achieved double-digit growth over last year. We also made solid progress improving the capital efficiency of our legacy businesses and recently announced three transactions that are expected to release over $1 billion of capital2,” said Manulife President & Chief Executive Officer Roy Gori.

“We are focused on transforming our business by using technology to deliver a great customer experience. We launched an integrated goals-based investment solution, the first-ever to use advanced analytics and dynamic liability-driven investment to help Canadian retail customers plan for retirement with greater confidence. In Canada, we marked our one-millionth transaction processed using robotics,” added Mr. Gori.

“Asia New Business Value has grown by 29% compared with 3Q17, we’ve delivered another quarter of positive net flows in Wealth and Asset Management and our expense efficiency initiatives are dropping to the bottom line with expenses growing at half the historic rate,” said Chief Financial Officer Phil Witherington.

“We are pleased with our capital position and strong business momentum and, as previously announced, the Board has approved a 14% increase to our dividend,” added Mr. Witherington.

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1

This item is a non-GAAP measure. 

2

See “Caution regarding forward-looking statements” below.

HOW OUR COMPANY PERFORMED

Profitability

Reported net income attributed to shareholders of $1,573 million in 3Q18, an increase of $468 million compared with $1,105 million in 3Q17
The increase in net income attributed to shareholders was primarily driven by a $454 million increase in core earnings. Other items included higher investment-related experience gains outside of core earnings and a positive true-up of our estimate of the impact related to U.S. Tax Reform, mostly offset by charges for the direct impact of markets, the annual review of actuarial methods and assumptions, and the impact of reinsurance transactions to improve the capital efficiency of our legacy businesses.

Achieved core earnings of $1,539 million in 3Q18, an increase of $454 million or 39% compared with 3Q17
The increase in core earnings reflected $130 million of net charges for notable items in 3Q17 (a $240 million provision in our P&C business and a $110 million gain related to taxes) which did not repeat in 3Q18. The remaining $324 million increase was driven by improved policyholder experience, the impact of lower U.S. tax rates, greater expense efficiency, and business growth in Asia and Global Wealth and Asset Management (“Global WAM”). Core earnings in 3Q18 included net insurance and annuity policyholder experience gains of $19 million post-tax ($34 million pre-tax) compared with charges of $49 million post-tax ($69 million pre-tax) in 3Q17.1

Generated ROE of 15.1% in 3Q18 compared with 10.8% in 3Q17, and core ROE of 14.8% compared with 10.6% in 3Q17
The increase in ROE and core ROE compared with 3Q17 largely reflected higher net income attributed to shareholders and core earnings as noted above.

Generated investment-related experience gains of $412 million in 3Q18 compared with gains of $111 million in 3Q17
The $412 million of investment-related experience gains reported in 3Q18 primarily reflected higher than expected returns (including changes in fair value) on alternative long-duration assets (“ALDA”), the favourable impact of fixed income reinvestment activities on the measurement of our policy liabilities and solid credit experience. In accordance with our definition of core earnings, we included $100 million of investment-related experience gains in core earnings in both 3Q18 and 3Q17. (See “Performance and Non-GAAP Measures” in our Third Quarter 2018 Report to Shareholders).

Reported charges related to the direct impact of markets of $277 million in 3Q18 compared with gains of $47 million in 3Q17
The 3Q18 charges were primarily driven by narrowing corporate spreads and several small items, the largest of them being losses on the sale of available-for-sale (“AFS”) bonds, widening swap spreads, and the steepening of the yield curve in Japan.

Recorded a net post-tax charge of $51 million for the annual review of actuarial methods and assumptions
We completed our annual review of actuarial methods and assumptions resulting in a net charge to net income attributed to shareholders of $51 million, which was within the estimated range previously disclosed. Reserves were strengthened for policyholder experience and we recorded a net favourable impact from the review of investment assumptions and other updates. (See “Actuarial methods and assumptions” in our Third Quarter 2018 Report to Shareholders).

Delivered an expense efficiency ratio2of 49.5% in 3Q18, compared with 57.1% in 3Q17
Growth of general expenses included in core earnings was 4%, while pre-tax core earnings grew 41%, resulting in a 7.6 percentage point improvement in our expense efficiency ratio.

Insurance Growth

Reported annualized premium equivalent (“APE”)2sales of $1.4 billion in 3Q18, an increase of 8% compared with 3Q17
In Asia, APE sales increased 13% from 3Q17 driven by growth in Japan, Hong Kong and Asia Other3.The improvement compared with recent quarters is a result of the successful launch of a new corporate-owned life insurance term product in Japan. In Canada, APE sales declined 14% from 3Q17. The recently-launched participating product (“Manulife Par”) in individual insurance drove an 18% increase in APE sales in the business, which was more than offset by lower group insurance APE sales due to variability in the large-case market. In the U.S., APE sales increased 14% from 3Q17 driven by product enhancements to our indexed universal life offerings.

Achieved new business value (“NBV”)1of $452 million in 3Q18, an increase of 31% compared with 3Q17
The increase in NBV was driven by strong growth in each of our insurance segments. In Asia, NBV increased 29% from 3Q17 to $382 million due to higher APE sales, an improvement in product mix, and scale benefits. In Canada, NBV increased 27% from 3Q17 primarily due to higher individual insurance APE sales of the recently-launched Manulife Par product and pricing actions in 3Q17 to improve margins. In the U.S., NBV increased 72% from 3Q17, reflecting higher APE sales and a favourable product mix.

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1

Effective the first quarter of 2018, policyholder experience is being reported excluding minority interest. Comparative prior periods have been updated.

2

This item is a non-GAAP measure. 

3

Asia Other excludes Japan and Hong Kong.

Wealth and Asset Management (“WAM”) Growth

Reported gross flows1of $27.1 billion in 3Q18, a decrease of 3% compared with 3Q17
The decline was driven by lower gross flows from retail money market funds in mainland China. This was partially offset by the closing of an institutional $1.2 billion U.S. real estate mandate, and higher new plan deposits in our North American retirement businesses.

Reported net flows1of $0.4 billion in 3Q18 compared with $4.2 billion in 3Q17
Net flows of $0.4 billion in 3Q18 were driven by positive net flows in Asia and the U.S. The decline in net flows compared with 3Q17 was due to higher redemptions in our North American retail businesses and the redemption of two large fixed income mandates totaling $1.0 billion in institutional asset management in Canada.

Achieved WAM assets under management and administration (“AUMA”)1of $644 billion as at September 30, 2018, an increase of 4% compared with December 31, 2017
WAM AUMA increased 4% compared with December 31, 2017 driven by positive year-to-date net flows of $10.5 billion, and increased 7% compared with September 30, 2017 due to positive net flows and favourable investment performance.

Total Company Growth

Delivered total AUMA of $1.1 trillion as at September 30, 2018, an increase of 2% compared with December 31, 2017 

AUMA increased 2% compared with December 31, 2017 driven by continued customer net inflows and increased 5% compared with September 30, 2017 due to favourable investment returns and continued customer net inflows.

Financial Strength

Reported a Life Insurance Capital Adequacy Test (“LICAT”) ratio of 134% for The Manufacturers Life Insurance Company (“MLI”) as at September 30, 2018 compared with 132% as at June 30, 2018
The two percentage point increase in the ratio compared with June 30, 2018 was due to favorable earnings and the reduction of ALDA in our portfolio asset mix, partially offset by the impact of interest rate and corporate spread movements.

Entered into reinsurance agreements to improve the capital efficiency of our legacy businesses
During the quarter we reinsured our legacy U.S. individual pay-out annuities business (the portion related to the New York business will close separately, subject to regulatory approval) and the mortality and lapse risk on a portion of our Canadian legacy universal life policies. Additionally, in the fourth quarter of 2018 (“4Q18”) we reinsured our legacy U.S. group pay-out annuities business (the portion related to the New York business will close separately, subject to regulatory approval). In aggregate, these reinsurance agreements are expected to release over $1 billion in capital ($35 million was released in 3Q18, $585 million is expected to be released in 4Q18, and $470 million is expected to be released over the next 12 months as we further refine our U.S. asset portfolio post-transaction). This represents significant progress towards our target of releasing $5 billion in capital from our legacy businesses by 2022.2 

Reported a financial leverage ratio for Manulife of 29.2% as at September 30, 2018 compared with 29.4% as at June 30, 2018
Financial leverage decreased from the prior quarter as growth in retained earnings more than offset the impact of a stronger Canadian dollar.

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1

This item is a non-GAAP measure.

2

See “Caution regarding forward-looking statements” below.

HOW OUR BUSINESSES PERFORMED

Effective January 1, 2018, the Company introduced the Global Wealth and Asset Management segment as a primary reporting segment. This reflects organizational changes made to drive better alignment with our strategic priorities as well as to increase focus and leverage scale in our global wealth and asset management businesses.

Our reporting segments are:

  • Asia – providing insurance products and insurance-based wealth accumulation products in Asia.
  • Canada – providing insurance products, insurance-based wealth accumulation products, and banking services in Canada.
  • U.S. – providing life insurance products and administering in-force long-term care and insurance-based wealth accumulation products in the U.S.
  • Global Wealth and Asset Management – providing fee-based wealth solutions with little or no guarantees to our retail, retirement and institutional customers around the world.
  • Corporate and Other – comprised of investment performance on assets backing capital, net of amounts allocated to operating segments; costs incurred by the corporate office related to shareholder activities (not allocated to operating segments); financing costs; our Property and Casualty Reinsurance business; and run-off reinsurance business lines. Previously we reported the impact of updates to actuarial methods and assumptions in Corporate and Other. These are now reported in the operating segments.

The table below reconciles core earnings to net income (loss) attributed to shareholders:

Quarterly Results

YTD Results

($ millions)

3Q18

2Q18

3Q17

2018

2017

Core earnings

Asia

$

457

$

406

$

374

$

1,290

$

1,081

Canada

351

403

403

1,044

936

U.S.

477

456

346

1,365

1,146

Global Wealth and Asset Management

289

239

216

755

618

Corporate and Other (excluding core investment gains)

(135)

(177)

(354)

(481)

(721)

Core investment gains

100

104

100

300

300

Total core earnings

$

1,539

1,431

1,085

$

4,273

3,360

Items excluded from core earnings:

Investment-related experience outside of core earnings

312

18

11

330

149

Direct impact of equity markets and interest rates and variable

annuity guarantee liabilities

(277)

45

47

(182)