MANULIFE(MFC) - 2023 Q4 - Annual Report

IFRS 17 Adoption and Impact - The company adopted IFRS 17 'Insurance Contracts' on January 1, 2023, with an effective date of January 1, 2022, impacting the measurement of insurance contract liabilities, including the transition Contractual Service Margin (CSM)[36][42] - The transition to IFRS 17 required significant auditor judgment due to the complexity of models and key assumptions, including discount rates and risk adjustments[42] - The company applied the Full Retrospective Approach to most contracts issued on or after January 1, 2021, and the Fair Value Approach for contracts issued prior to this date[42] - The audit of insurance contract liabilities included testing the methodology and calculations, as well as assessing the adequacy of disclosures[42] - The company's net insurance service result includes insurance revenue representing the change in the Liability for Remaining Coverage (LRC) relating to insurance services, expected claims, changes in risk adjustment, and release of Contractual Service Margin (CSM)[174] - Insurance contract liabilities were recorded at $482 billion as of December 31, 2023, with$355 billion measured under the variable fee approach (VFA) and the general measurement model (GMM)[42] - The company derecognizes insurance contracts when the rights and obligations are extinguished or the contract is modified, resulting in a change in the measurement model or applicable standard[170] Financial Instruments and Fair Value Measurements - The company changed its method of accounting for the classification and measurement of financial instruments due to the adoption of IFRS 9 'Financial Instruments'[37] - Fair value measurements are categorized into three levels: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (significant non-market observable inputs)[72][74][75] - Invested assets recorded at $87.6 billion, with derivative assets and liabilities at$0.6 billion and $2.7 billion respectively, classified as Level 3 in fair value hierarchy[43] - Real estate investments are classified as Level 3 for fair value disclosure, with fair value determined using external appraisals and valuation techniques like discounted cash flows and comparable sales analysis[97][98] - Mortgages are classified as Level 3 for fair value purposes due to the lack of market observability of significant valuation inputs[92] - The fair value of embedded derivative liabilities increased from$395 million in 2022 to $487 million in 2023, reflecting credit and interest rate risks in insurance and investment contracts[337] - The fair value of long-term debt was$5,525 million in 2023, slightly down from $5,587 million in 2022, determined using Level 2 valuation techniques[580] Insurance Contract Liabilities and Reinsurance - Insurance contract liabilities increased to$367.996 billion in 2023, up from $354.849 billion in 2022[53] - Insurance contract liabilities as of December 31, 2023, totaled$1,110,645 million, with $1,074,764 million due over 5 years[408] - Reinsurance contract held liabilities as of December 31, 2023, amounted to$8,448 million, with $6,097 million due over 5 years[408] - Net reinsurance contract held assets decreased from$43,480 million in 2022 to $39,820 million in 2023[358] - Reinsurance assets totaled$40,249 million in 2023, down from $44,053 million in 2022, with 91$1) million for 2023[57] - Income tax expenses (recoveries) on unrealized foreign exchange gains (losses) on net investment hedges at $13 million for 2023[57] - Income tax expenses (recoveries) on insurance/reinsurance finance income (expenses) at ($1,853) million for 2023[57] - Income tax expenses (recoveries) on unrealized gains (losses) on fair value through OCI investments at $1,863 million for 2023[57] - Income tax expenses (recoveries) on reclassification of net realized gains (losses) on fair value through OCI investments at ($8) million for 2023[57] - Total income tax expenses (recoveries) at ($6) million for 2023[57] - Tax rates for Japan, Canada, and U.S. jurisdictions were 28.0$417.210 billion in 2023, compared to $400.142 billion in 2022[53] - The company's invested assets, predominantly debt instruments, are measured at Fair Value through Other Comprehensive Income (FVOCI), reflecting the time value of money in income or expenses and financial risk changes in OCI[180] - Private equity investments are accounted for using the equity method or classified as FVTPL, with fair value determined using various valuation techniques[100] - Total investment return for the year ended December 31, 2023 was$29.426 billion, with $26.158 billion from insurance contracts and$3.268 billion from non-insurance[380] - The company's dynamic hedging program assumes equity hedges offset 95% of the hedged variable annuity liability movement due to market changes[499] - The company's macro equity risk hedging program aims to maintain earnings sensitivity to public equity market movements within Board-approved risk appetite limits[476] Credit Risk and Expected Credit Losses (ECL) - Expected credit loss (ECL) impairment allowances are measured using probability-weighted macroeconomic scenarios, considering past events, current conditions, and future economic outlooks[102] - The company's ECL calculations include probability of default (PD) and loss given default (LGD), based on internal credit experience and contractual cash flow expectations[105] - The company measures Expected Credit Losses (ECL) using a three-stage approach, with Stage 1 and 2 exposures generating ECLs for each individual exposure, while Stage 3 ECLs are assessed individually or collectively based on the nature of the instrument and impairment[108] - The company uses four probability-weighted macroeconomic scenarios to estimate ECLs, with economic forward-looking inputs varying by market and projected at the country, province, or more granular level[110] - Stage 1 financial instruments recognize 12-month ECLs, representing the portion of lifetime ECLs resulting from default events within 12 months of the reporting date, while Stage 2 and 3 financial instruments recognize full lifetime ECLs[115] Goodwill and Intangible Assets - The company's goodwill represents the difference between the fair value of purchase consideration of an acquired business and its proportionate share of the net identifiable assets acquired, initially recorded at cost and subsequently measured at cost less any accumulated impairment[113] - Intangible assets with indefinite useful lives, such as the John Hancock brand name and certain investment management contracts, are not amortized but are subject to an annual impairment test[118] - Goodwill decreased from $6,014 million to$5,919 million in 2023 due to foreign exchange rate changes[340] - Indefinite life intangible assets decreased from $1,861 million to$1,825 million in 2023, primarily due to foreign exchange rate impacts[340] - Finite life intangible assets increased by $312 million in 2023, driven by software additions of$274 million[340] - Total goodwill and intangible assets decreased from $10,519 million to$10,310 million in 2023, impacted by foreign exchange rate changes[340] - Asia WAM goodwill decreased from $450 million to$438 million in 2023 due to foreign exchange rate changes[346] - U.S. WAM goodwill decreased from $1,286 million to$1,250 million in 2023, primarily due to foreign exchange rate impacts[346] Capital Management and Risk - The company's capital management framework sets internal targets above regulatory requirements, considering factors such as regulatory expectations, stress testing results, and risk assessments[618] - The company's foreign exchange risk management strategy aims to match the currency of assets with liabilities, with no material unmatched currency exposure as at December 31, 2023[526] - The company's credit risk exposure includes $3,437 in debt securities past due less than 90 days and$257 past due 90 days or greater as at December 31, 2022[537] - 95% of debt securities and private placements are rated as investment grade BBB or higher as of December 31, 2023, compared to 96% in 2022[563] - Government debt securities accounted for 38% of total debt securities in 2023, up from 36% in 2022[563] - The largest single issuer exposure in the equity portfolio remained at 2% of the total portfolio in both 2023 and 2022[563] - Income-producing commercial office properties decreased to 37% of real estate in 2023 from 41% in 2022, with a value of $4,829 million compared to$5,486 million in 2022[563] - The largest concentration of mortgages and real estate in Ontario, Canada increased to 29% in 2023 from 27% in 2022, with a value of $19,003 million compared to$18,343 million in 2022[563] Derivatives and Hedging - The company uses derivatives, non-derivative financial instruments, and reinsurance contracts to mitigate financial risk arising from direct participation contracts applying the Variable Fee Approach (VFA) measurement model[147] - Changes in value of hedged items due to benchmark interest rate changes recognized at ($53) million for the year ended December 31, 2023[43] - Changes in value of hedged items due to foreign currency denominated debt instruments recognized at$742 million for the year ended December 31, 2023[43] - The Company's dynamic hedging program assumes equity hedges offset 95% of the hedged variable annuity liability movement due to market changes[499] - The Company was over-collateralized on OTC derivative assets, OTC derivative liabilities, securities lending, and reverse repurchase agreements by $424,$1,420, $20, and$nil respectively (2022 – $507,$1,528, $63, and$nil)[557] Financial Position and Performance - Total assets increased to $875.574 billion in 2023, up from$833.689 billion in 2022[53] - Net income for 2023 was $5.607 billion, a significant improvement from a net loss of$1.979 billion in 2022[56] - Total comprehensive income for 2023 was $5.005 billion, slightly down from$5.797 billion in 2022[56] - Shareholders' and other equity holders' retained earnings increased to $4.819 billion in 2023, up from$3.947 billion in 2022[59] - Common shares repurchased amounted to $745 million in 2023, compared to$838 million in 2022[59] - Total liabilities, excluding those for account of segregated fund holders, increased to $449.303 billion in 2023, up from$436.901 billion in 2022[53] - Total equity grew to $48.727 billion in 2023, from$48.226 billion in 2022[59] Segregated Funds and Investment Contracts - Segregated funds net assets rose to $377.544 billion in 2023, from$348.562 billion in 2022[53] - Investment contract liabilities held at amortized cost increased from $2,452 million to$9,281 million due to reclassification from insurance contract liabilities under IFRS 4[229] - Total in-scope financial liabilities increased from $69,821 million to$78,125 million, driven by classification and measurement changes[229] - Investment contract liabilities as of December 31, 2023, stood at $264,150 million, with$263,401 million for account of segregated fund holders[456] - Policy deposits for investment contract liabilities increased by $3,365 million in 2023, contributing to a year-end balance of$11,067 million[460] - The fair value of investment contract liabilities in Asia decreased from $607 million in 2022 to$438 million in 2023[458] Real Estate and Rental Income - Rental income from investment properties increased from $825 million in 2022 to$840 million in 2023, while direct operating expenses rose from $458 million to$473 million, resulting in a net total of $367 million for both years[262] - The Company's investment property was valued at$11,417 million as of December 31, 2022, with no specific maturity terms[292] - Income-producing commercial office properties decreased to 37% of real estate in 2023 from 41% in 2022, with a value of $4,829 million compared to$5,486 million in 2022[563] Global Minimum Tax (GMT) and Tax Compliance - The Company's exposure to the Global Minimum Tax (GMT) is not expected to impact operations in jurisdictions like Ireland, Japan, Luxembourg, Netherlands, the UK, and Vietnam, as no current tax expense or recovery related to GMT is disclosed[235] - The Company applied a temporary mandatory exception from recognizing deferred tax assets and liabilities related to the GMT, as per amendments to IAS 12[239] Actuarial Methods and Assumptions - The 2023 review of actuarial methods and assumptions resulted in a $3,197 million decrease in pre-tax fulfilment cash flows, increasing pre-tax net income attributed to shareholders by$171 million[413] - Changes in actuarial methods and assumptions in Asia led to a $2,513 million decrease in pre-tax fulfilment cash flows, increasing pre-tax net income attributed to shareholders by$107 million[433] - The U.S. long-term care triennial review increased pre-tax fulfilment cash flows by $118 million in 2022[439] - The company secured$2.5 billion in premium increase approvals as of September 30, 2022, aligning with pre-tax fulfilment cash flow assumptions[442] Counterparty and Collateral Management - The percentage of the Company's derivative exposure with counterparties rated AA- or higher was 33% (2022 – 36%)[551] - The largest single counterparty exposure was $1,357 (2022 –$1,582), with net exposure after master netting agreements and collateral held at $nil (2022 –$nil)[551] - The Company had loaned securities with a market value of $626 (2022 –$723) as at December 31, 2023[543] - The Company's total single name CDS notional amount was $131 (2022 –$159) with a fair value of $3 (2022 –$4)[547] - The fair value of collateral held as security was $22,264 million in 2023, down from$25,247 million in 2022, reducing net exposure to $17,984 million from$22,465 million[572] Long-Term Debt and Interest - Interest paid on long-term debt increased to $231 million in 2023 from$204 million in 2022[578] - The fair value of long-term debt was $5,525 million in 2023, slightly down from$5,587 million in 2022, determined using Level 2 valuation techniques[580] Insurance Finance and Reinsurance Finance - Insurance finance (income) expenses for 2022 were $68,833 million[362] - Insurance finance (income) expenses for 2023 were$24,306 million[364] - Reinsurance finance income (expenses) from reinsurance contracts held for the year ended December 31, 2023 was a gain of $505 million, including a$120 million loss from foreign exchange movements[380] - Total insurance finance income (expenses) from insurance contracts issued for the year ended December 31, 2023 was a loss of $25.993 billion, including a$952 million loss from foreign exchange movements[380] Opening and Closing Balances - Opening insurance contract liabilities for account of segregated fund holders were $130,836 million as of January 1, 2022[362] - Net closing balance for insurance contracts was$464,392 million as of December 31, 2022[362] - Net opening balance for insurance contracts as of January 1, 2023 was $464,392 million[364] - Net closing balance for insurance contracts as of December 31, 2023 was$481,994 million[364] - Closing insurance contract liabilities for account of segregated fund holders were $114,143 million as of December 31, 2023[364] - Opening reinsurance contract held assets as of January 1, 2022 were$45.699 billion, with net opening balance of $50.750 billion[368] - Net closing balance for reinsurance contracts as of December 31, 2022 was$43.480 billion, with closing assets of $45.871 billion and liabilities of$2.391 billion[368] - Opening reinsurance contract held assets as of January 1, 2023 were $39.656 billion, with net opening balance of$43.480 billion[370] - Net closing balance for reinsurance contracts as of December 31, 2023 was $39.820 billion, with closing assets of$42.355 billion and liabilities of $2.790 billion[370] New Business and Reinsurance Contracts - New business reinsurance contracts in Asia as of December 31, 2023 had estimated present value of cash outflows of$916 million and inflows of $815 million[377] Investment Returns and Insurance Revenue - Total investment return for the year ended December 31, 2023 was$29.426 billion, with $26.158 billion from insurance contracts and$3.268 billion from non-insurance[380