MANULIFE(MFC) - 2024 Q2 - Quarterly Report

Executive Summary & Highlights Manulife Financial Corporation reported strong second-quarter 2024 results, demonstrating positive momentum in core earnings, new business, and book value growth Key Highlights for 2Q24 (YoY Change) | Metric | Value | Change from 2Q23 (Constant Exchange Rate) | | :-------------------------------- | :------------------ | :--------------------------------------- | | Core earnings | $1.7 billion | Up 6% | | Net income attributed to shareholders | $1.0 billion | In-line | | Core EPS | $0.91 | Up 9% | | Core EPS (excluding GMT) | $0.94 | Up 12% | | Core ROE | 15.7% | - | | LICAT ratio | 139% | - | | APE sales | - | Up 17% | | New business value (NBV) | - | Up 23% | | Global WAM net inflows | $0.1 billion | Down from $2.2 billion | | Common shares bought back | 31 million ($1.1 billion) | - | | Planned capital return (NCIB) | >$3 billion | - | - Manulife completed the acquisition of CQS, a U.K.-based multi-sector alternative credit manager, and co-branded it as Manulife | CQS Investment Management[6][17] - The company launched an innovative Generative AI agent sales tool in Singapore, piloted a Manulife Mandatory Provident Fund (MPF) Robo-Advisor in Hong Kong, and deployed a Generative AI knowledge management chatbot in the U.S. Annuities contact center[19][20][22] - Manulife became the first U.S. life insurer to offer discounted and prioritized access to Prenuvo (whole body MRI scan) to eligible John Hancock Vitality members for early disease detection[23] Contractual Service Margin (CSM) Net of NCI | Metric | June 30, 2024 (CAD millions) | December 31, 2023 (CAD millions) | Change | | :----- | :--------------------------- | :------------------------------- | :----- | | CSM | $20,758 | $20,440 | $318 | A. TOTAL COMPANY PERFORMANCE This section provides an overview of Manulife's overall financial and operational performance for the second quarter and year-to-date 2024 A1 Profitability Manulife's 2Q24 net income was stable YoY, while core earnings grew robustly, driven by Global WAM and insurance business expansion Quarterly Profitability (2Q24 vs 2Q23) | Metric | 2Q24 (CAD millions) | 2Q23 (CAD millions) | Change | | :-------------------------------- | :------------------ | :------------------ | :----- | | Net income attributed to shareholders | $1,042 | $1,025 | 1.7% | | Core earnings | $1,737 | $1,637 | 6.1% | | Diluted EPS | $0.52 | $0.50 | 4.0% | | Diluted Core EPS | $0.91 | $0.83 | 9.6% | | ROE | 9.0% | 9.3% | -0.3 pps | | Core ROE | 15.7% | 15.5% | 0.2 pps | | Expense efficiency ratio | 45.4% | 45.1% | 0.3 pps | | General expenses | $1,225 | $1,022 | 19.9% | | Core expenses | $1,713 | $1,598 | 7.2% | Year-to-Date Profitability (2024 vs 2023) | Metric | YTD 2024 (CAD millions) | YTD 2023 (CAD millions) | Change | | :-------------------------------- | :---------------------- | :---------------------- | :----- | | Net income attributed to shareholders | $1,908 | $2,431 | -21.5% | | Core earnings | $3,491 | $3,168 | 10.2% | | Diluted EPS | $0.97 | $1.23 | -21.1% | | Diluted Core EPS | $1.85 | $1.63 | 13.5% | | ROE | 8.5% | 11.4% | -2.9 pps | | Core ROE | 16.2% | 15.2% | 1.0 pps | | Expense efficiency ratio | 45.3% | 46.1% | -0.8 pps | | General expenses | $2,327 | $2,108 | 10.4% | | Core expenses | $3,386 | $3,203 | 5.7% | - Net income in 2Q24 was impacted by a $239 million net loss from the RGA Reinsurance Transaction and a charge related to the adoption of the Global Minimum Tax Act[44] - The increase in core earnings was driven by higher core earnings in Global Wealth and Asset Management (Global WAM), growth in the insurance business, updates to actuarial methods and assumptions, and a tax true-up in Global WAM[45][51] - Manulife updated its medium-term target for the expense efficiency ratio from less than 50% to less than 45%[61] A2 Business performance Manulife achieved record-level APE sales and New Business Value in 2Q24, reflecting strong growth across its diversified insurance portfolio Quarterly New Business Performance (2Q24 vs 2Q23) | Metric (CAD millions) | 2Q24 | 2Q23 | Change (Constant Exchange Rate) | | :-------------------- | :--- | :--- | :------------------------------ | | Total APE sales | $1,907 | $1,633 | 17% | | Total NBV | $723 | $585 | 23% | | Total New business CSM | $628 | $592 | 6% | Year-to-Date New Business Performance (2024 vs 2023) | Metric (CAD millions) | YTD 2024 | YTD 2023 | Change (Constant Exchange Rate) | | :-------------------- | :------- | :------- | :------------------------------ | | Total APE sales | $3,790 | $3,233 | 19% | | Total NBV | $1,392 | $1,094 | 28% | | Total New business CSM | $1,286 | $1,034 | 25% | - Asia's APE sales grew 7%, New business CSM grew 10%, and NBV grew 19% in 2Q24, driven by higher sales volumes in Japan and Hong Kong[72] - Canada's APE sales increased 61% and NBV increased 50% in 2Q24, driven by higher sales volumes in all business units, led by a large-case Group Insurance sale[72] - Global WAM net inflows were $0.1 billion in 2Q24, a decrease from $2.2 billion in 2Q23, mainly reflecting strength in the Institutional business offset by outflows in the Retirement business[31][74] A3 Financial strength Manulife maintained a strong capital position in 2Q24, with an improved LICAT ratio and growth in book value per common share Capital Ratios (2Q24 vs 1Q24) | Metric | 2Q24 | 1Q24 | Change | | :---------------------- | :--- | :--- | :----- | | MLI's LICAT ratio | 139% | 138% | 1 pps | | MFC's LICAT ratio | 127% | 126% | 1 pps | | Financial leverage ratio | 24.6% | 24.3% | 0.3 pps | Book Value per Common Share (June 30, 2024 vs Dec 31, 2023) | Metric | June 30, 2024 | Dec 31, 2023 | Change | | :-------------------------- | :------------ | :----------- | :----- | | Book value per common share | $23.71 | $22.36 | 6% | | Adjusted BV per common share | $33.96 | $32.19 | 5% | - MFC's consolidated capital was $77.6 billion as at June 30, 2024, an increase of $3.7 billion compared with $73.9 billion as at December 31, 2023[82] - The number of common shares outstanding was 1,785 million as at June 30, 2024, a net decrease of 21 million common shares from 1,806 million as at December 31, 2023, primarily driven by common share buybacks[84] A4 Assets under management and administration ("AUMA") Total AUMA increased by 4% in 2Q24 compared to year-end 2023, driven by favorable equity markets and net inflows - AUMA as at June 30, 2024 was $1.5 trillion, an increase of 4% compared with December 31, 2023, primarily due to the favourable impact of equity markets and net inflows[89] - Total invested assets decreased 2% on an actual exchange rate basis, primarily due to the transfer of invested assets related to the GA and RGA Reinsurance Transactions[89] - Segregated funds net assets increased 8% on an actual exchange rate basis, primarily due to the impact of equity markets[89] A5 Impact of foreign currency exchange rates Foreign currency exchange rate changes had a minor positive impact on 2Q24 core earnings but a negative impact on year-to-date core earnings - Changes in foreign currency exchange rates increased core earnings by $2 million in 2Q24, primarily due to a weaker Canadian dollar compared with the U.S. dollar[90] - Changes in foreign currency exchange rates decreased year-to-date core earnings by $24 million in 2024 compared with the same period of 2023 primarily due to a stronger Canadian dollar compared with the Japanese yen[90] A6 Business highlights Manulife expanded customer reach through strategic partnerships and advanced its digital transformation by deploying Generative AI tools - Manulife completed the acquisition of CQS, a U.K.-based multi-sector alternative credit manager, and launched the John Hancock Multi Asset Credit Fund in U.S. Retail[91] - A strategic partnership with Annexus was announced in the U.S. to expand indexed account offerings and reach a wider market with the Protection Indexed Universal Life solution[92] - Generative AI tools were deployed across various segments: an agent sales tool in Singapore, a MPF Robo-Advisor in Hong Kong Retirement, and a knowledge management chatbot in the U.S. Annuities contact center[93][94][97] - Manulife became the first U.S. life insurer to offer discounted and prioritized access to Prenuvo (whole body MRI scan) to eligible John Hancock Vitality members[98] A7 Strategic priorities Manulife updated its financial targets, aiming for higher returns and lower risk, while reconfirming its five strategic priorities New Financial Targets (by 2027) | Metric | Target | | :---------------------- | :------- | | Core ROE | 18%+ | | Cumulative remittances (2024-2027) | $22 billion+ | | Expense efficiency ratio | <45% | Reconfirmed Medium-Term Financial Targets | Metric | Target | | :-------------------------------- | :------- | | Core EPS growth | 10% to 12% | | New business CSM growth | 15% | | CSM balance growth | 8% to 10% | | Financial leverage ratio | 25% | | Core common share dividend payout ratio | 35% to 45% | - Manulife reconfirmed its five strategic priorities, including achieving 75% of core earnings from highest potential businesses by 2025 and 50% of core earnings from the Asia region by 2027[102][105] B. PERFORMANCE BY SEGMENT This section details the financial and operational performance of Manulife's key segments, highlighting segment-specific drivers of profitability and sales B1 Asia The Asia segment delivered strong profitability and new business growth in 2Q24, with core earnings up 40% and APE sales up 7% YoY Asia Segment Profitability (2Q24 vs 2Q23, US$ millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------------------- | :--- | :--- | :----- | | Net income attributed to shareholders | $424 | $96 | 289% | | Core earnings | $472 | $353 | 40% | Asia Segment Business Performance (2Q24 vs 2Q23, US$ millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------- | :--- | :--- | :----- | | APE sales | $920 | $879 | 7% | | NBV | $370 | $315 | 19% | | New business CSM | $349 | $323 | 10% | | NBV margin | 43.7% | 40.3% | 3.4 pps | - Core earnings increased due to higher expected earnings on insurance contracts, favorable claims experience, higher expected investment income, and the net impact of updates to actuarial methods and assumptions[110] - Hong Kong APE sales increased 15% and NBV increased 23% in 2Q24, reflecting higher sales in agency and bancassurance channels[114] - Japan APE sales increased 93% and NBV increased 176% in 2Q24, driven by higher sales in other wealth products due to strong market performance[114] - The Asia segment enhanced agent-customer interactions through a Generative AI agent sales tool in Singapore and expanded its presence in Macau by doubling client-servicing capacity[118] B2 Canada The Canada segment's core earnings grew 7% in 2Q24, driven by business growth, though net income decreased due to items excluded from core earnings Canada Segment Profitability (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------------------- | :--- | :--- | :----- | | Net income attributed to shareholders | $79 | $227 | -65% | | Core earnings | $402 | $374 | 7% | Canada Segment Business Performance (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------- | :--- | :--- | :----- | | APE sales | $520 | $322 | 61% | | NBV | $159 | $106 | 50% | | New business CSM | $76 | $57 | 33% | - Core earnings increased due to business growth in Group Insurance and affinity markets, and favorable retail claims experience in Individual Insurance, partially offset by lower investment spreads[121] - Group Insurance APE sales increased 103% in 2Q24, driven by higher sales across all markets, led by a large-case sale[126] - Manulife Bank average net lending assets were $25.7 billion as at June 30, 2024, up $0.5 billion or 2% compared with December 31, 2023[127] - The Manulife mobile app for group benefits members was enhanced with mental health features and live support, and the 2023 Wellness Report was released[130] B3 U.S. The U.S. segment experienced a decrease in net income and core earnings in 2Q24, primarily due to unfavorable net insurance experience U.S. Segment Profitability (2Q24 vs 2Q23, US$ millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------------------- | :--- | :--- | :----- | | Net income attributed to shareholders | $98 | $136 | -28% | | Core earnings | $303 | $341 | -11% | U.S. Segment Business Performance (2Q24 vs 2Q23, US$ millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------- | :--- | :--- | :----- | | APE sales | $93 | $97 | -4% | | NBV | $41 | $40 | 3% | | New business CSM | $54 | $77 | -30% | - Core earnings decreased due to more unfavorable net insurance experience, primarily reflecting unfavorable claims in long-term care and unfavorable claims and lapse experience in life[132] - APE sales of products with the John Hancock Vitality PLUS feature represented 81% of overall U.S. sales in 2Q24, up from 75% in 2Q23[134] - The U.S. segment announced a strategic partnership with Annexus to expand indexed account offerings and became the first U.S. life insurer to offer discounted access to Prenuvo whole body MRI scans[137][142] B4 Global Wealth and Asset Management Global WAM achieved strong core earnings growth of 23% in 2Q24, driven by higher net fee income and disciplined expense management Global WAM Profitability (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------------------- | :--- | :--- | :----- | | Net income attributed to shareholders | $350 | $317 | 9% | | Core earnings | $399 | $320 | 23% | | Core EBITDA | $513 | $424 | 20% | | Core EBITDA margin | 26.3% | 24.6% | 170 bps | Global WAM Business Performance (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------------------- | :--- | :--- | :----- | | Gross flows | $41,442 | $35,152 | 17% | | Net flows | $82 | $2,187 | -96% | | Average AUMA | $933.1 billion | $814.9 billion | 13% | - Core earnings increased due to higher net fee income from higher average AUMA (favorable market impacts and net inflows), a favorable tax true-up in Asia, and disciplined expense management[141] - Retirement net outflows were $1.3 billion in 2Q24 compared with net inflows of $0.7 billion in 2Q23, driven by higher member withdrawals and a large-case retirement plan redemption in the U.S[148] - Institutional Asset Management net inflows were $1.4 billion in 2Q24, with net inflows from CQS partially offset by higher redemptions in fixed income mandates and lower sales in alternative mandates[148] - Global WAM AUMA increased to $943.9 billion as of June 30, 2024, up 9% from December 31, 2023, driven by favorable equity markets, $19 billion of assets from the CQS acquisition, and year-to-date net inflows[146] B5 Corporate and Other The Corporate and Other segment reported a net loss in 2Q24, primarily due to a charge related to the adoption of the Global Minimum Tax Act Corporate and Other Segment Profitability (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | Change | | :-------------------------------- | :--- | :--- | :----- | | Net income (loss) attributed to shareholders | $(104) | $168 | -161.9% | | Core earnings (loss) | $(126) | $12 | -1150% | - The segment recorded an $88 million charge related to the adoption of the Global Minimum Tax Act in 2Q24, which was enacted in Canada and is retroactive to January 1, 2024[152] - The decline in core earnings was primarily related to the GMT charge, higher interest on allocated capital to operating segments, higher core expenses due to workforce-related costs, and lower gains from updates to provisions for estimated losses in the P&C Reinsurance business[154] C. RISK MANAGEMENT AND RISK FACTORS UPDATE This section updates Manulife's risk management practices and factors, focusing on sensitivities to market and strategic risks C1 Variable annuity and segregated fund guarantees Manulife's net amount at risk for variable annuity and segregated fund guarantees decreased from year-end 2023 to June 30, 2024 Variable Annuity and Segregated Fund Guarantees, Net of Reinsurance (CAD millions) | Guarantee Type | June 30, 2024 | December 31, 2023 | Change | | :----------------------------- | :------------ | :---------------- | :----- | | Guaranteed minimum income benefit | $956 | $1,156 | -$200 | | Guaranteed minimum withdrawal benefit | $3,660 | $4,093 | -$433 | | Guaranteed minimum accumulation benefit | $88 | $116 | -$28 | | Total, net of reinsurance | $1,993 | $2,463 | -$470 | - The Company seeks to mitigate a portion of the risks embedded in its retained variable annuity and segregated fund guarantee business through dynamic and macro hedging strategies[159] C2 Caution related to sensitivities The provided sensitivities are directional estimates based on internal models and should be viewed with caution as actual results may differ significantly - Sensitivities are directional estimates of underlying sensitivities for respective factors based on assumptions outlined, and actual results can differ significantly[164] - Risk exposures measure the impact of changing one factor at a time, assuming all other factors remain unchanged[164] - Differences can arise from interactions among factors, changes in liabilities from updates to non-economic assumptions, changes in business mix, effective tax rates, other market factors, and general limitations of internal models[164] C3 Publicly traded equity performance risk sensitivities and exposure measures A 10% decline in public equity markets could result in a net potential impact of -$380 million on net income after hedging and reinsurance Net Potential Impact on Net Income Attributed to Shareholders (after hedging and reinsurance, CAD millions) | Equity Market Change | -30% | -20% | -10% | +10% | +20% | +30% | | :------------------- | :------ | :------ | :------ | :----- | :----- | :----- | | As at June 30, 2024 | $(1,130) | $(750) | $(380) | $370 | $740 | $1,110 | Net Potential Impact on Contractual Service Margin (pre-tax, CAD millions) | Equity Market Change | -30% | -20% | -10% | +10% | +20% | +30% | | :------------------- | :------ | :------ | :------ | :----- | :----- | :----- | | As at June 30, 2024 | $(1,880) | $(1,220) | $(600) | $580 | $1,160 | $1,720 | MLI's LICAT Ratio Impact (change in percentage points) | Equity Market Change | -30% | -20% | -10% | +10% | +20% | +30% | | :------------------- | :--- | :--- | :--- | :--- | :--- | :--- | | As at June 30, 2024 | (3) | (1) | (1) | 1 | 2 | 2 | - The dynamic hedging program is assumed to offset 95% of the dynamically hedged variable annuity liability movement that occurs as a result of market changes[170] C4 Interest rate and spread risk sensitivities and exposure measures Manulife's net income is sensitive to parallel shifts in interest rates, with a 50 basis point change impacting it by $100 million Potential Impacts on Net Income Attributed to Shareholders (CAD millions, post-tax, June 30, 2024) | Scenario | -50bp | +50bp | | :---------------- | :---- | :---- | | Interest rates | $100 | $(100) | | Corporate spreads | $100 | $(100) | | Swap spreads | $100 | $(100) | MLI's LICAT Ratio Impact (change in percentage points, June 30, 2024) | Scenario | -50bp | +50bp | | :---------------- | :---- | :---- | | Interest rates | – | – | | Corporate spreads | (3) | 3 | | Swap spreads | – | – | - The disclosed interest rate sensitivities assume no hedge accounting ineffectiveness, as hedge accounting programs are optimized for parallel movements in interest rates[185] - The probability of a LICAT scenario switch that could materially impact the LICAT ratio is low with the current level of interest rates in 2Q24[203] C5 Alternative long-duration asset performance risk sensitivities and exposure measures A 10% change in the market values of Alternative Long-Duration Assets could impact net income by $2.4 billion Potential Immediate Impacts from 10% Change in ALDA Market Values (June 30, 2024, CAD millions, post-tax) | Metric | -10% | +10% | | :-------------------------------------- | :-------- | :-------- | | Net income attributed to shareholders | $(2,400) | $2,400 | | Total comprehensive income attributed to shareholders | $(2,600) | $2,600 | MLI's LICAT Ratio Impact from ALDA Market Values (change in percentage points, June 30, 2024) | ALDA Market Change | -10% | +10% | | :----------------- | :--- | :--- | | MLI's LICAT ratio | (2) | 1 | - ALDA includes investments in commercial real estate, private equity, infrastructure, timber and agriculture, and energy[206] C6 Strategic and product risk factors update Strategic risk updates include potential impacts from the new Global Minimum Tax Act, which is expected to increase the effective tax rate - Canada enacted the Global Minimum Tax Act on June 20, 2024, retroactive to fiscal periods commencing on or after December 31, 2023, which is expected to increase the effective tax rate by approximately 2 to 3 percentage points[216] - Year-to-date GMT expense of $88 million was recorded in 2Q24, primarily arising from operations in Hong Kong and China[216][413] - The company is actively disputing rate increase requests from some reinsurers to protect its contractual rights, and thus far, these disputes have not had a material adverse effect on results[214] D. CRITICAL ACTUARIAL AND ACCOUNTING POLICIES This section outlines Manulife's critical actuarial and accounting policies and sensitivities to changes in key economic assumptions D1 Critical actuarial and accounting policies Manulife's material accounting policies are consistent with its 2023 Annual Consolidated Financial Statements - Material accounting policies are consistent with the Company's 2023 Annual Consolidated Financial Statements[217] - Critical actuarial policies relate to the determination of insurance and investment contract liabilities[217] - Critical accounting policies cover assessment of control for consolidation, estimation of fair value of invested assets, evaluation of impairments, accounting for derivatives, determination of pension obligations, accounting for income taxes, and valuation/impairment of goodwill and intangible assets[217] D2 Sensitivity to changes in assumptions The company provides sensitivities to changes in certain economic risk variables on CSM, net income, and comprehensive income Potential Impact on CSM net of NCI (CAD millions, post-tax, June 30, 2024) | Financial Assumption | Impact | | :---------------------------------------------------- | :----- | | 10 basis point reduction in ultimate spot rate | $(200) | | 50 basis point increase in non-fixed income return volatility | $(100) | - The analysis is based on a simultaneous change in assumptions across all business units and holds all other assumptions constant[219] - Actual results can differ materially from these estimates due to the interaction among factors, actual experience differing from assumptions, changes in business mix, effective tax rates, and general limitations of internal models[219] D3 Accounting and reporting changes Future accounting and reporting changes are detailed in note 2 of the unaudited Interim Consolidated Financial Statements - For future accounting and reporting changes arising during the quarter, refer to note 2 of the unaudited Interim Consolidated Financial Statements for the three and six months ended June 30, 2024[222] E. OTHER This section provides supplementary information including outstanding common shares, legal proceedings, and non-GAAP financial measures E1 Outstanding common shares – selected information As of July 31, 2024, Manulife Financial Corporation had 1,778,242,782 common shares outstanding - As at July 31, 2024, MFC had 1,778,242,782 common shares outstanding[224] E2 Legal and regulatory proceedings Information on legal and regulatory proceedings can be found in note 13 of the unaudited Interim Consolidated Financial Statements - Information on legal and regulatory proceedings can be found in note 13 of our unaudited Interim Consolidated Financial Statements for the three and six months ended June 30, 2024[225] E3 Non-GAAP and other financial measures This section defines and reconciles various non-GAAP and other financial measures used by Manulife to evaluate performance - Non-GAAP financial measures include core earnings (loss), core EBITDA, post-tax contractual service margin (CSM), adjusted book value, and constant exchange rate (CER) basis measures[227] - Non-GAAP ratios include core return on shareholders' equity (ROE), diluted core earnings per common share (EPS), financial leverage ratio, expense efficiency ratio, and core EBITDA margin[228] - Core earnings reflect the underlying earnings capacity of the business by excluding market-related gains or losses, changes in actuarial methods and assumptions, and other material but non-recurring items[233] Core Earnings Available to Common Shareholders (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | | :----------------------------------- | :--- | :--- | | Core earnings | $1,737 | $1,637 | | Less: Preferred share dividends and other equity distributions | $99 | $98 | | Core earnings available to common shareholders | $1,638 | $1,539 | Global WAM Core EBITDA and Margin (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | Change | | :---------------- | :--- | :--- | :----- | | Core EBITDA | $513 | $424 | 20% | | Core EBITDA margin | 26.3% | 24.6% | 170 bps | E4 Caution regarding forward-looking statements This section advises caution regarding forward-looking statements, which involve risks and uncertainties that could cause actual results to differ materially - Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements[377] - Actual results can differ significantly from estimates due to factors including general business and economic conditions, changes in laws and regulations, changes in accounting standards, and the accuracy of estimates relating to morbidity, mortality, and policyholder behaviour[378] - The forward-looking statements are stated as of the date of the document and are not updated, except as required by law[381] E5 Quarterly financial information This section provides summary financial information for the eight most recently completed quarters Quarterly Financial Summary (2Q24, CAD millions) | Metric | 2Q24 | | :-------------------------------------- | :------ | | Total revenue | $12,876 | | Net income (loss) attributed to shareholders | $1,042 | | Diluted earnings (loss) per common share | $0.52 | | Total assets (in billions) | $915 | | Dividends per common share | $0.400 | - 2022 quarterly information has been restated using IFRS 17 and IFRS 9, which were adopted on January 1, 2023[382] E6 Revenue Total revenue for 2Q24 increased compared to 2Q23, driven by higher insurance and other revenue Total Revenue (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | Change | | :------------ | :------ | :------ | :----- | | Total revenue | $12,876 | $12,090 | 6.5% | Revenue Components (2Q24 vs 2Q23, CAD millions) | Metric | 2Q24 | 2Q23 | | :------------------ | :------ | :------ | | Insurance revenue | $6,515 | $5,580 | | Net investment income | $4,512 | $4,819 | | Other revenue | $1,849 | $1,691 | - The increase in 2Q24 revenue reflected higher insurance revenue in the U.S., Canada, and Asia, and higher other revenue in Global WAM[385] E7 Other No material changes were made to internal control over financial reporting during 2Q24 - No changes were made in internal control over financial reporting during the three months ended June 30, 2024, that have materially affected or are reasonably likely to materially affect internal control over financial reporting[387] - MFC's Audit Committee reviewed the MD&A and the unaudited interim financial report, and MFC's Board of Directors approved the MD&A prior to its release[387] Consolidated Financial Statements This section presents the unaudited interim consolidated financial statements for the periods ended June 30, 2024, and comparative periods Consolidated Statements of Financial Position As of June 30, 2024, total assets were $915,273 million and total equity was $50,756 million Key Financial Position Data (June 30, 2024 vs Dec 31, 2023, CAD millions) | Metric | June 30, 2024 | Dec 31, 2023 | Change | | :---------------------- | :------------ | :----------- | :----- | | Total assets | $915,273 | $875,574 | 4.5% | | Total invested assets | $410,619 | $417,210 | -1.6% | | Segregated funds net assets | $406,106 | $377,544 | 7.6% | | Total liabilities | $864,517 | $826,847 | 4.6% | | Total equity | $50,756 | $48,727 | 4.2% | Consolidated Statements of Income For the three months ended June 30, 2024, net income attributed to shareholders was $1,042 million, a slight increase from 2Q23 Key Income Data (3 months ended June 30, 2024 vs 2023, CAD millions) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :------ | :------ | :----- | | Total insurance service result | $1,037 | $887 | 16.9% | | Total investment result | $513 | $597 | -14.1% | | Other revenue | $1,849 | $1,691 | 9.3% | | Net income (loss) before income taxes | $1,384 | $1,436 | -3.7% | | Net income (loss) attributed to shareholders | $1,042 | $1,025 | 1.7% | | Diluted earnings per common share | $0.52 | $0.50 | 4.0% | Key Income Data (6 months ended June 30, 2024 vs 2023, CAD millions) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :------ | :------ | :----- | | Total insurance service result | $2,015 | $1,736 | 16.1% | | Total investment result | $861 | $1,567 | -45.1% | | Other revenue | $3,657 | $3,382 | 8.1% | | Net income (loss) before income taxes | $2,636 | $3,155 | -16.4% | | Net income (loss) attributed to shareholders | $1,908 | $2,431 | -21.5% | | Diluted earnings per common share | $0.97 | $1.23 | -21.1% | Consolidated Statements of Comprehensive Income For the three months ended June 30, 2024, total comprehensive income was $2,294 million, a significant improvement from a loss in 2Q23 Total Comprehensive Income (3 months ended June 30, 2024 vs 2023, CAD millions) | Metric | 2024 | 2023 | Change | | :-------------------------------------- | :------ | :------ | :----- | | Net income (loss) | $1,132 | $1,171 | -3.3% | | Other comprehensive income (loss) ("OCI"), net of tax | $1,162 | $(1,557) | 174.8% | | Total comprehensive income (loss), net of tax | $2,294 | $(386) | 694.3% | - Key drivers of OCI in 2Q24 included $391 million in foreign exchange gains on translation of foreign operations and $3,381 million in insurance finance income (expenses), partially offset by $(2,143) million in unrealized gains (losses) on fair value through OCI investments[392] Consolidated Statements of Changes in Equity For the six months ended June 30, 2024, total equity increased to $50,756 million, driven by net income and positive AOCI changes Total Equity (June 30, 2024 vs 2023, CAD millions) | Metric | 2024 | 2023 | Change | | :----------- | :------ | :------ | :----- | | Total equity | $50,756 | $47,156 | 7.6% | - During the six months ended June 30, 2024, the company repurchased 25 million common shares for cancellation for $840 million[395][545] - Common share dividends for the six months ended June 30, 2024, amounted to $1,440 million[395] Consolidated Statements of Cash Flows For the six months ended June 30, 2024, cash provided by operating activities increased to $11,849 million from $8,749 million in 2023 Cash Flow Summary (6 months ended June 30, 2024 vs 2023, CAD millions) | Activity | 2024 | 2023 | Change | | :------------------------ | :-------- | :-------- | :----- | | Operating activities | $11,849 | $8,749 | 35.4% | | Investing activities | $(10,033) | $(3,980) | -152.1% | | Financing activities | $(580) | $(2,371) | 75.5% | | Increase (decrease) during the period | $1,236 | $2,398 | -48.4% | | Balance, end of period | $21,461 | $20,658 | 3.9% | - Cash provided by operating activities increased primarily due to an increase in insurance contract net liabilities and changes in policy related and operating receivables and payables[397] - Investing activities resulted in a net cash outflow of $10,033 million, driven by purchases and mortgage advances of $67,008 million[397] CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed notes to the interim consolidated financial statements, covering accounting policies, assets, liabilities, and risk management Note 1 Nature of Operations and Material Accounting Policy Information Manulife Financial Corporation is a leading financial services group operating in Asia, Canada, and the U.S - Manulife Financial Corporation (MFC) is a leading financial services group with principal operations in Asia, Canada and the United States, offering financial protection and wealth management products and services[399] - These Interim Consolidated Financial Statements have been prepared in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting', consistent with the Company's 2023 Annual Consolidated Financial Statements[400] - The Interim Consolidated Financial Statements as at and for the three and six months ended June 30, 2024 were authorized for issue by MFC's Board of Directors on August 7, 2024[402] Note 2 Accounting and Reporting Changes Manulife is assessing the impact of upcoming accounting changes and has applied a temporary exception for deferred taxes related to the Global Minimum Tax Act - Manulife is assessing the impact of future accounting and reporting changes, including Annual Improvements to IFRS Accounting Standards – Volume 11 (effective Jan 1, 2026), Amendments to the Classification and Measurement of Financial Instruments (effective Jan 1, 2026), and IFRS 18 "Presentation and Disclosure in the Financial Statements" (effective Jan 1, 2027)[404][406][407] - Canada enacted the Global Minimum Tax Act on June 20, 2024, retroactive to fiscal periods commencing on or after December 31, 2023[412] - The Company expects to pay GMT of $88 million for the six months ended June 30, 2024, primarily arising from its operations in Hong Kong and China, and generally expects it to increase the effective tax rate by approximately 2 to 3 percentage points[216][413] - A temporary mandatory exception in IAS 12 from recognizing and disclosing deferred tax assets and liabilities related to GMT has been applied[410] Note 3 Invested Assets and Investment Income This note details the carrying values, fair values, and fair value hierarchy of Manulife's invested assets Total Invested Assets by Fair Value Hierarchy (June 30, 2024, CAD millions) | Level | Fair Value | | :------ | :--------- | | Level 1 | $405,499 | | Level 2 | $281,248 | | Level 3 | $89,515 | Investment Income (6 months ended June 30, 2024 vs 2023, CAD millions) | Metric | 2024 | 2023 | Change | | :------------------ | :------ | :------ | :----- | | Interest income | $6,861 | $6,149 | 11.6% | | Dividends, rental income and other income | $1,400 | $1,386 | 1.0% | | Net investment income (loss) | $9,005 | $9,972 | -9.6% | - Alternative long-duration assets (ALDA) include investments in infrastructure ($16,446 million), private equity ($16,371 million), timber and agriculture ($5,858 million), and energy ($1,809 million) as of June 30, 2024[423] Total Invested Assets by Remaining Term to Maturity (June 30, 2024, CAD millions) | Term to Maturity | Total Invested Assets | | :------------------- | :-------------------- | | Less than 1 year | $37,239 | | 1 to 3 years | $35,215 | | 3 to 5 years | $33,519 | | 5 to 10 years | $63,295 | | Over 10 years | $145,155 | | With no specific maturity | $96,196 | Note 4 Derivative and Hedging Instruments Manulife uses derivatives to manage exposures to interest rates, foreign exchange, commodity prices, and equity markets Fair Value of Derivatives (June 30, 2024 vs Dec 31, 2023, CAD millions) | Metric | June 30, 2024 | Dec 31, 2023 | | :-------------- | :------------ | :----------- | | Notional amount | $463,917 | $440,077 | | Fair value assets | $8,727 | $8,546 | | Fair value liabilities | $14,232 | $11,687 | - The total notional amount includes $79 billion of derivative instruments which reference rates impacted by the interest rate benchmark reform, with a significant majority to CDOR, which converted to CORRA as at July 1, 2024[458] - Certain insurance contracts contain embedded derivatives, such as reinsurance contracts related to guaranteed minimum income benefits and contracts containing certain credit and interest rate features, which are measured separately at FVTPL[462] Note 5 Insurance and Reinsurance Contract Assets and Liabilities This note details the movements in carrying amounts of insurance and reinsurance contracts, including CSM - The net closing balance of insurance contracts was $490,289 million as of June 30, 2024[467] - The net closing balance of reinsurance contracts held was $55,315 million as of June 30, 2024[471] Insurance Revenue Components (3 months ended June 30, 2024, CAD millions) | Component | Amount | | :-------------------------------------- | :----- | | Expected incurred claims and other insurance service result | $3,509 | | Change in risk adjustment for non-financial risk expired | $366 | | CSM recognized for services provided | $642 | | Recovery of insurance acquisition cash flows | $313 | | Contracts under PAA | $1,685 | | Total insurance revenue | $6,515 | Ultimate Spot Rates for Discounting Liability Cash Flows (June 30, 2024) | Currency | Liquidity Category | Ultimate Year | | :------- | :----------------- | :------------ | | CAD | Illiquid | 4.40% | | USD | Illiquid | 5.00% | | JPY | Somewhat liquid | 1.60% | | HKD | Illiquid | 3.80% | - The company closed two significant reinsurance transactions: one with Global Atlantic Financial Group (Feb 22, 2024) and another with RGA Life Reinsurance Company of Canada (Apr 2, 2024), transferring substantial invested assets and reinsuring insurance/investment contract liabilities[479][480][481][482] Note 6 Investment Contract Assets and Liabilities Investment contract liabilities totaled $13,031 million as of June 30, 2024, measured at fair value or amortized cost Investment Contract Liabilities (June 30, 2024, CAD millions) | Measurement Method | Gross of Reinsurance | Reinsurance Financial Assets | Net | | :----------------- | :------------------- | :--------------------------- | :-- | | Fair value | $717 | $658 | $59 | | Amortized cost | $12,314 | $1,034 | $11,280 | Note 7 Risk Management This note outlines Manulife's credit risk management policies, exposure limits, and collateral requirements - Manulife manages credit risk through defined credit evaluation and adjudication processes, delegated credit approval authorities, and established exposure limits by borrower, corporate connection, credit rating, industry, and geographic region[489] Allowance for Credit Losses (June 30, 2024 vs Dec 31, 2023, CAD millions) | Metric | June 30, 2024 | Dec 31, 2023 | | :---------------------- | :------------ | :----------- | | Probability-weighted ECLs | $888 | $929 | | Baseline ECL | $670 | $659 | - As at June 30, 2024, the Company had loaned securities with a market value of $1,312 million, engaged in reverse repurchase transactions of $914 million, and repurchase transactions of $436 million[501][502] - The Company limits credit risk from derivative counterparties by using investment grade counterparties, with 33% of derivative exposure with counterparties rated AA- or higher as of June 30, 2024[508] Note 8 Long-Term Debt As of June 30, 2024, the total carrying value of long-term debt was $6,304 million Long-Term Debt (June 30, 2024 vs Dec 31, 2023, CAD millions) | Metric | June 30, 2024 | Dec 31, 2023 | | :------------ | :------------ | :----------- | | Carrying value | $6,304 | $6,071 | | Fair value | $5,365 | $5,525 | - U.S. dollar senior notes have been designated as hedges of the Company's net investment in its U.S. operations to reduce earnings volatility[520] Note 9 Capital Instruments As of June 30, 2024, the total carrying value of capital instruments was $7,714 million Capital Instruments (June 30, 2024 vs Dec 31, 2023, CAD millions) | Metric | June 30, 2024 | Dec 31, 2023 | | :------------ | :------------ | :----------- | | Carrying value | $7,714 | $6,667 | | Fair value | $7,580 | $6,483 | - MFC issued 4.275% Subordinated notes (S$500 million) on June 19, 2024, and 5.054% Subordinated debentures ($1,100 million) on February 23, 2024[525][526] - Capital instruments of $647 million had an interest rate referencing CDOR and transitioned to CORRA on July 1, 2024[523] Note 10 Equity Capital and Earnings Per Share The company repurchased 25 million common shares for cancellation during the first six months of 2024 under its Normal Course Issuer Bid Preferred Shares and Other Equity Instruments (June 30, 2024, CAD millions) | Instrument Type | Net Amount | | :-------------- | :--------- | | Preferred shares | $3,093 | | Limited recourse capital notes | $3,561 | | Total | $6,660 | - As at June 30, 2024, there were 1,785 million common shares outstanding[542] - The Normal Course Issuer Bid (NCIB) was amended on May 7, 2024, to increase the number of common shares that may be repurchased for cancellation from up to 50 million to up to 90 million shares[544] - During the six months ended June 30, 2024, the Company purchased for cancellation 25 million common shares for $840 million[545] Note 11 Revenue from Service Contracts Manulife generates revenue from various service contracts, including investment management, transaction processing, and administration - The Company provides investment management services, transaction processing and administrative services, and distribution and related services[548] - Revenue from service contracts is generally recognized over time as the customer simultaneously receives and consumes the benefits of the services rendered[550] Total Other Revenue from Service Contracts (3 months ended June 30, 2024, CAD millions) | Service Line | Amount | | :------------------------------------------ | :----- | | Investment management and other related fees | $751 | | Transaction processing, administration, and service fees | $779 | | Distribution fees and other | $231 | | Total included in other revenue | $1,761 | Note 12 Employee Future Benefits Manulife maintains defined contribution and defined benefit pension plans, and other post-employment plans Net Benefit Cost Reported in Earnings (3 months ended June 30, 2024, CAD millions) | Plan Type | Amount | | :----------------- | :----- | | Pension plans | $38 | | Retiree welfare plans | $0 | Remeasurement (gain) loss recorded in AOCI, net of tax (3 months ended June 30, 2024, CAD millions) | Plan Type | Amount | | :----------------- | :----- | | Pension plans | $(29) | | Retiree welfare plans | $(5) | Note 13 Commitments and Contingencies Manulife is regularly involved in legal actions, including class actions related to Performance Universal Life policies - Litigation with respect to 100% of the filed lawsuits concerning Performance Universal Life (Perf UL) policy Cost of Insurance (COI) increases has been resolved, representing 84% of the total face amount of policies in the COI-increase block[561] - An unrelated putative class action was initiated in September 2023 regarding COI rates charged to universal life policy owners after the implementation of the Tax Cuts and Jobs Act of 2018[562] - MFC has guaranteed the payment of amounts on the $650 million subordinated debentures due on December 15, 2041, issued by Manulife Finance (Delaware), L.P. (MFLP)[563] Note 14 Segment and Geographic Reporting This note outlines Manulife's reporting segments and provides a detailed breakdown of financial results by segment and geography - Manulife's reporting segments are Asia, Canada, U.S., Global Wealth and Asset Management (Global WAM), and Corporate and Other[569] - Global WAM provides investment advice and solutions to retirement, retail, and institutional clients[570][571] Net Income (Loss) Attributed to Shareholders by Segment (3 months ended June 30, 2024, CAD millions) | Segment | Amount | | :---------------- | :----- | | Asia | $582 | | Canada | $79 | | U.S. | $135 | | Global WAM | $350 | | Corporate and Other | $(104) | | Total | $1,042 | Total Assets by Segment (6 months ended June 30, 2024, CAD millions) | Segment | Amount | | :---------------- | :----- | | Asia | $188,217 | | Canada | $153,629 | | U.S. | $251,973 | | Global WAM | $282,890 | | Corporate and Other | $38,564 | | Total | $915,273 | Note 15 Segregated Funds Manulife's exposure to loss from segregated funds is limited to the value of guarantees associated with certain variable life and annuity products - The Company's exposure to loss from segregated fund products is limited to the value of guarantees associated with certain variable life and annuity products[582] - As at June 30, 2024, these guarantees are recorded within the Company's insurance contract liabilities and amount to $1,823 million, of which $563 million are reinsured[583] Note 16 Information Provided in Connection with Investments in Deferred Annuity Contracts and Signature Notes Issued or Assumed by John Hancock Life Insurance Company (U.S.A.) This note provides condensed consolidated financial information for John Hancock Life Insurance Company (U.S.A.) to comply with SEC regulations - Condensed consolidated financial information for John Hancock Life Insurance Company (U.S.A.) (JHUSA) is provided in compliance with Regulation S-X and Rule 12h-5 of the United States Securities and Exchange Commission[584] - These financial statements relate to MFC's guarantee of certain securities to be issued by its subsidiaries[584] JHUSA Key Financial Data (June 30, 2024, CAD millions) | Metric | Amount | | :-------------------------------------- | :----- | | Total assets | $375,988 | | Net income (loss) attributed to shareholders (3 months) | $356 | | Cash provided by (used in) operating activities (6 months) | $3,453 | Note 17 Comparatives Certain comparative amounts in the financial statements have been reclassified to conform to the current period's presentation - Certain comparative amounts have been reclassified to conform to the current period's presentation[593] SHAREHOLDER INFORMATION This section provides contact information, financial strength ratings, and common stock trading data - Manulife's Head Office is located at 200 Bloor Street East, Toronto, ON Canada M4W 1E5[594] - Transfer Agents are located in Canada (TSX Trust Company), the United States (Equiniti Trust Company, LLC), Hong Kong (Tricor Investor Services Limited), and the Philippines (RCBC Trust Company)[595][596] The Manufacturers Life Insurance Company's Financial Strength Ratings (as at June 30, 2024) | Rating Agency | MLI Rating | Rank (out of 21 or 22 ratings) | | :-------------- | :--------- | :----------------------------- | | S&P | AA- | 4th | | Moody's | A1 | 5th | | Fitch | AA | 3rd | | Morningstar DBRS | AA | 3rd | | AM Best | A+ (Superior) | 2nd | Common Stock Trading Data (April 1 – June 30, 2024) | Exchange | High (Currency) | Low (Currency) | Close (Currency) | Average Daily Volume (000) | | :---------- | :-------------- | :------------- | :--------------- | :------------------------- | | Canada | $36.52 CAD | $31.44 CAD | $36.43 CAD | 8,886 | | U.S. | $26.69 USD | $22.78 USD | $26.62 USD | 2,667 | | Hong Kong | $206.60 HKD | $177.00 HKD | $205.80 HKD | 18 | | Philippines | P1,600 PHP | P1,150 PHP | P1,445 PHP | 0.4 | - Shareholders can consent to receive documents electronically, including the Annual Report, Proxy Circular, Notice of Annual Meeting, and Shareholder Reports, via the company's website[602]