MANULIFE(MFC) - 2024 Q3 - Quarterly Report

Financial Highlights Third Quarter 2024 Performance Overview The company reported record core earnings of $1.8 billion and strong new business growth in Q3 2024 Q3 2024 Key Financial Metrics | Metric | Q3 2024 | Change vs Q3 2023 (Constant Exchange Rate) | | :--- | :--- | :--- | | Core Earnings | $1.8 billion | ▲ 4% | | Net Income to Shareholders | $1.8 billion | ▲ $0.8 billion | | Core EPS | $1.00 | ▲ 7% | | EPS | $1.00 | ▲ 91% | | Core ROE | 16.6% | -0.2 pps | | LICAT Ratio | 137% | Unchanged | | APE Sales | $2.3 billion | ▲ 40% | | New Business CSM | $759 million | ▲ 47% | | Global WAM Net Flows | $5.2 billion (inflows) | vs. $0.8 billion (outflows) | - Management highlighted progress on financial targets, noting strong business performance, disciplined capital allocation, and an expense efficiency ratio of 45.0% year-to-date, in line with the medium-term target of less than 45%[2] - The company has returned over $2 billion to shareholders through its common share buyback program since the start of 2024[2] Strategic Highlights Strategic priorities advanced through profitable growth initiatives, digital enhancements, and customer wellness programs - Key growth initiatives in Q3 2024 included rolling out the 'Manulife Pro' agent program contributing to over 20% YoY growth in agency NBV and APE sales, launching new high-net-worth products, and closing a $1.1 billion institutional private equity fund[7] - Digital and AI enhancements were a key focus, with AI-enabled tools reducing average handling time by 28% in the Japan contact center and a new strategic partnership with Ethos for instant term life insurance decisions[8] - Customer wellness initiatives were advanced by enhancing the Manulife Vitality mobile app in Canada and expanding access to multi-cancer early detection tests for John Hancock Vitality members in the U.S[8] A. TOTAL COMPANY PERFORMANCE Profitability Net income surged to $1.84 billion, while core earnings grew 4% to $1.83 billion, driven by market experience and business growth Quarterly Profitability (Q3 2024 vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income to Shareholders | $1,839 M | $1,013 M | ▲ $826 M | | Core Earnings | $1,828 M | $1,743 M | ▲ $85 M | | Items Excluded from Core Earnings | $11 M (gain) | $(730) M (charge) | - | | Core EPS | $1.00 | $0.92 | ▲ 7% (CER) | - The increase in core earnings was driven by higher net fee income in Global WAM, growth in the insurance business, and a lower charge in the expected credit loss (ECL) provision[19] - The expense efficiency ratio was 44.4% in Q3 2024, with the year-to-date ratio improving to 45.0% from 45.5%, aligning with the company's medium-term target of less than 45%[28][30] Business Performance The company achieved record new business results, with APE sales up 40%, and a significant turnaround in Global WAM net flows New Business Performance (Q3 2024 vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | Change (CER) | | :--- | :--- | :--- | :--- | | APE Sales | $2,347 M | $1,657 M | ▲ 40% | | New Business Value (NBV) | $843 M | $600 M | ▲ 39% | | New Business CSM | $759 M | $507 M | ▲ 47% | - Segment contributions to new business growth were led by Asia with 64% growth in APE sales, while the U.S. delivered double-digit growth across all metrics[32] - Global WAM net inflows of $5.2 billion were driven by a turnaround in Retail (+$3.9B vs. -$0.2B in Q3'23) and Retirement (+$0.6B vs. -$3.4B in Q3'23)[34] - The Contractual Service Margin (CSM) net of NCI stood at $20.9 billion as of September 30, 2024, an increase of $490 million since year-end 2023[34] Financial Strength A strong financial position was maintained with a stable LICAT ratio of 137% and an improved financial leverage ratio of 23.5% Key Financial Strength Indicators (as of Sept 30, 2024) | Indicator | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | MLI's LICAT Ratio | 137% | 137% | | Financial Leverage Ratio | 23.5% | 25.2% | | Book Value per Common Share | $24.40 | $22.42 | | Adjusted Book Value per Common Share | $34.97 | $30.67 | - The financial leverage ratio decreased by 1.7 percentage points from Q3 2023, primarily due to the redemption of capital instruments and an increase in total equity[36] - The company has purchased 51 million common shares for cancellation as of September 30, 2024, and plans to purchase the maximum 90 million shares approved under its current normal course issuer bid[37] Assets Under Management and Administration (AUMA) Total AUMA reached $1.6 trillion, a 10% increase from year-end 2023, driven by favorable markets and net inflows - AUMA increased by 10% to $1.6 trillion compared to December 31, 2023[39] - The increase was attributed to the favorable impact of interest rates on debt instruments, positive equity market performance, and net inflows[39] Impact of Foreign Currency Exchange Rates Foreign currency fluctuations had a modest impact, with a weaker Canadian dollar increasing Q3 core earnings by $20 million - Changes in foreign currency exchange rates increased Q3 2024 core earnings by $20 million, primarily due to a weaker Canadian dollar versus the U.S. dollar[40] - Year-to-date core earnings decreased by $4 million due to currency effects, mainly from a stronger Canadian dollar compared to the Japanese yen[40] Business Highlights Strategic execution focused on driving profitable growth, elevating customer experience, and promoting healthier lives - Driving Growth: Expanded 'Manulife Pro' agent program to Hong Kong, boosting agency NBV and APE sales by over 20% YoY, and closed a $1.1 billion institutional private equity fund[41] - Elevating Customer Experience: Deployed AI in Japan's contact center, reducing handling time by 28%, and launched new mobile apps in Vietnam and Indonesia[42] - Promoting Healthier Lives: Enhanced the Manulife Vitality app in Canada, increasing utilization by 9% YoY, and expanded access to multi-cancer early detection tests in the U.S[43] Strategic Priorities Manulife raised key financial targets, including a core ROE of 18%+ by 2027 and cumulative remittances over $22 billion - The company raised several key financial targets, including: Core ROE of 18%+ by 2027, Cumulative Remittances of $22 billion+ between 2024 and 2027, and an Expense Efficiency Ratio of <45% in the medium-term[44] - Manulife reconfirmed its other medium-term financial targets, including core EPS growth of 10% to 12% and new business CSM growth of 15%[44] B. PERFORMANCE BY SEGMENT Asia The Asia segment served as a primary growth engine, with core earnings up 17% and APE sales surging 64% Asia Segment Performance (Q3 2024 vs. Q3 2023, in US$) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income to Shareholders | $606 M | $63 M | ▲ 877% | | Core Earnings | $453 M | $390 M | ▲ 17% | | APE Sales | $1,372 M | $835 M | ▲ 64% | | New Business Value (NBV) | $481 M | $310 M | ▲ 55% | - Core earnings growth was driven by an increase in expected earnings on insurance contracts from business growth and the net impact of updates to actuarial methods and assumptions[46][47] - APE sales growth was broad-based, with Hong Kong APE sales increasing 173% to US$570 million, Japan up 83%, and Asia Other up 21%[48] Canada The Canada segment delivered stable results with a 1% increase in core earnings, though APE sales declined from a strong prior year Canada Segment Performance (Q3 2024 vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income to Shareholders | $430 M | $290 M | ▲ 48% | | Core Earnings | $412 M | $408 M | ▲ 1% | | APE Sales | $343 M | $431 M | ▼ 20% | - The 20% decrease in APE sales was primarily due to the non-recurrence of a large affinity markets sale in Q3 2023[53] - Manulife Bank's average net lending assets grew 4% to $26.2 billion compared to year-end 2023, driven by improved mortgage retention and business growth[54][55] U.S. The U.S. segment saw an 8% core earnings decline but positive business momentum with a 23% increase in APE sales U.S. Segment Performance (Q3 2024 vs. Q3 2023, in US$) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income to Shareholders | $5 M | $53 M | ▼ 91% | | Core Earnings | $302 M | $329 M | ▼ 8% | | APE Sales | $97 M | $79 M | ▲ 23% | - The decrease in core earnings was driven by lower expected investment earnings and the impact of the GA Reinsurance transaction, partially offset by a lower ECL provision and favorable life claims experience[59] - APE sales of products featuring John Hancock Vitality PLUS represented 79% of overall U.S. sales in Q3 2024, up from 71% in Q3 2023[60] Global Wealth and Asset Management The Global WAM segment delivered a record quarter with core earnings up 37% and a sharp reversal to $5.2 billion in net inflows Global WAM Performance (Q3 2024 vs. Q3 2023) | Metric | Q3 2024 | Q3 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income to Shareholders | $498 M | $318 M | ▲ 55% | | Core Earnings | $499 M | $361 M | ▲ 37% | | Net Flows | $5.2 B (inflows) | $(0.8) B (outflows) | - | | Core EBITDA Margin | 27.8% | 26.9% | ▲ 90 bps | - Core earnings growth was driven by higher average AUMA, favorable tax benefits totaling $70 million, and disciplined expense management[63] - The $6.0 billion increase in net flows was primarily due to a turnaround in Retirement (net inflows of $0.6B vs. outflows of $3.4B) and Retail (net inflows of $3.9B vs. outflows of $0.2B)[63] Corporate and Other The Corporate and Other segment reported a core loss of $113 million, driven by a new Global Minimum Tax charge - The segment's core loss was $113 million, a $123 million decrease from the prior-year quarter's core earnings of $10 million[65] - A key driver of the decline was an $89 million charge for the Global Minimum Tax (GMT), of which $61 million was recorded in core earnings[65] - Higher interest on capital allocated to the Asia, Global WAM, and U.S. operating segments also contributed to the decline in core earnings[65] C. RISK MANAGEMENT AND RISK FACTORS UPDATE Variable Annuity and Segregated Fund Guarantees The net amount at risk from guarantees decreased to $1.6 billion, reflecting ongoing risk mitigation strategies Net Amount at Risk from Guarantees (Net of Reinsurance) | Date | Net Amount at Risk | | :--- | :--- | | September 30, 2024 | $1,589 million | | December 31, 2023 | $2,463 million | Publicly Traded Equity Performance Risk Sensitivities Net income is sensitive to equity markets, with a 10% decline estimated to reduce net income by $400 million after hedging Potential Impact on Net Income from Public Equity Changes (as of Sept 30, 2024) | Equity Market Change | Impact on Net Income Attributed to Shareholders | | :--- | :--- | | -30% | $(1,210) million | | -10% | $(400) million | | +10% | $400 million | | +30% | $1,200 million | Interest Rate and Spread Risk Sensitivities Net income shows balanced sensitivity to interest rates, with a 50 basis point parallel decline estimated to benefit net income by $100 million Potential Impact on Net Income from Rate/Spread Changes (as of Sept 30, 2024) | Scenario | Impact on Net Income | | :--- | :--- | | Interest Rates -50 bp | $100 million | | Interest Rates +50 bp | $(100) million | | Corporate Spreads +50 bp | $(100) million | | Swap Spreads -20 bp | $200 million | Alternative Long-Duration Asset (ALDA) Performance Risk Sensitivities Earnings are significantly exposed to ALDA performance, with a 10% market value decline estimated to reduce net income by $2.5 billion Potential Impact on Net Income from ALDA Market Value Changes (as of Sept 30, 2024) | ALDA Market Value Change | Impact on Net Income Attributed to Shareholders | | :--- | :--- | | -10% | $(2,500) million | | +10% | $2,500 million | Strategic and Product Risk Factors Update The new Global Minimum Tax is expected to increase the effective tax rate by 2 to 3 percentage points - The newly enacted Global Minimum Tax (GMT) Act in Canada is expected to increase the company's effective tax rate by approximately 2 to 3 percentage points[91] - The company is in disputes with some reinsurers who have attempted to increase rates on existing contracts, but is enforcing its contractual rights and believes its reserves are appropriate[93] D. CRITICAL ACTUARIAL AND ACCOUNTING POLICIES Actuarial Methods and Assumptions The annual actuarial review resulted in a $199 million post-tax decrease in net income, driven by updates to lapse and reinsurance assumptions Impact of 2024 Actuarial Review on Pre-tax Fulfilment Cash Flows | Assumption Update | Impact on Pre-tax Fulfilment Cash Flows | | :--- | :--- | | Lapse and policyholder behaviour | $620 M | | Reinsurance contract and risk adjustment | $427 M | | Expense updates | $(406) M | | Financial related updates | $(386) M | | Mortality and morbidity updates | $(273) M | | Methodology and other updates | $(156) M | | Total Impact | $(174) M | - The $174 million decrease in pre-tax fulfillment cash flows translated into a $250 million pre-tax ($199 million post-tax) decrease in net income attributed to shareholders[97][99] - Key assumption changes included updates to lapse rates for U.S. life insurance, reinsurance costs on older U.S. mortality blocks, a global expense review, and updates to discount rates[99][100] E. OTHER Non-GAAP and Other Financial Measures This section defines and reconciles non-GAAP measures like core earnings used to evaluate long-term operating performance - Core earnings is a key non-GAAP measure used to assess the long-term earnings capacity of the business by excluding market-related volatility and other non-recurring items[117] - The report provides detailed reconciliations of core earnings to net income attributed to shareholders for Q3 2024, prior quarters, and year-to-date periods, broken down by operating segment[122][124][130] - Other defined and reconciled measures include Core ROE, Core EPS, AUMA, CSM, Core EBITDA, and the expense efficiency ratio, providing a comprehensive view of management's performance metrics[145][163][184] Quarterly Financial Information A summary of key financial data for the last eight quarters shows total revenue for Q3 2024 was $14.6 billion Quarterly Financial Summary | Metric ($ millions, except per share) | Q3 2024 | Q2 2024 | Q1 2024 | Q4 2023 | Q3 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 14,586 | 12,876 | 12,798 | 14,917 | 9,125 | | Net Income to Shareholders | 1,839 | 1,042 | 866 | 1,659 | 1,013 | | Diluted EPS | $1.00 | $0.52 | $0.45 | $0.86 | $0.52 | Revenue Total revenue increased to $14.6 billion in Q3 2024 from $9.1 billion in Q3 2023, driven by higher net investment income Revenue Breakdown (Q3 2024 vs. Q3 2023) | Revenue Component ($ millions) | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Insurance Revenue | 6,746 | 6,215 | | Net Investment Income | 5,912 | 1,265 | | Other Revenue | 1,928 | 1,645 | | Total Revenue | 14,586 | 9,125 |