Mr. Roy Gori reports
MANULIFE REPORTS 1Q20 NET INCOME OF $1.3 BILLION AND CORE EARNINGS OF $1.0 BILLION, A STRONG CAPITAL POSITION WITH A LICAT RATIO OF 155%, AND NET INFLOWS OF $3.2 BILLION IN GLOBAL WEALTH AND ASSET MANAGEMENT
Manulife Financial Corp. has released its first quarter 2020 results. Key highlights include:
Net income attributed to shareholders of $1.3-billion in first quarter 2020, down $900-million from first quarter 2019;
Core earnings (1) of $1.0-billion in first quarter 2020, down 34 per cent (2) from first quarter 2019;
Strong LICAT (life insurance capital adequacy test) ratio (3) of 155 per cent;
Core ROE (return on equity) (1) of 8.2 per cent and ROE of 10.4 per cent in first quarter 2020;
NBV (new business value) (1) of $500-million in first quarter 2020, down 11 per cent from first quarter 2019;
APE (annualized premium equivalent) sales (1) of $1.6-billion in first quarter 2020, down 9 per cent from first quarter 2019;
WAM (wealth and asset management) net inflows (1) of $3.2-billion in first quarter 2020 compared with net outflows of $1.3-billion in first quarter 2019;
Leverage ratio of 23 per cent on March 31, 2020, down 2.1 percentage points from Dec. 31, 2019.
"As the world battles against COVID-19, the safety and well-being of our employees and customers is a top priority, and we salute the tireless and selfless efforts of those who are helping others during this challenging time, including front line health care workers. We are contributing $25-million to focus on several critical fronts, including relief for our customers, support for our employees and aid for our communities. We are also supporting the efforts of our employees by matching their donations," said Manulife president and chief executive officer Roy Gori.
"I am very proud of how our teams have risen to the challenge to be there for our customers when they need us most. To support business continuity, we adapted quickly by accelerating the rollout of digital tools and platforms, enabling us to continue to service existing customers and generate new business from the fulfilment of customers' insurance and wealth management needs across all our markets globally.
"The COVID-19 pandemic continues to disrupt economies and capital markets worldwide, and our operating conditions during the first quarter were understandably affected. Considering these challenging conditions, we delivered solid results, demonstrating the diversity and resilience of our businesses. In recent years, we've taken significant actions to strengthen our capital ratios, reduce our leverage, reduce risk in our legacy businesses and tightly manage our expense base. As a result, I'm confident that Manulife is well positioned to navigate this crisis and achieve ongoing success in the long term," added Mr. Gori.
Phil Witherington, chief financial officer, said: "Our business results were solid in the first quarter. Global wealth and asset management generated net inflows of $3.2-billion with positive contributions from all business lines. Our insurance new business generation remained robust with meaningful growth in new business value in both Hong Kong and Asia other markets.
"Our balance sheet has shown resilience in challenging market conditions with our LICAT capital ratio strengthening further to 155 per cent and our leverage ratio declining to 23.0 per cent as of the end of the first quarter. This combination provides financial flexibility and puts us in a position of strength during challenging macroeconomic times," added Mr. Witherington.
(1) Core earnings, core return on common shareholders' equity, new business value, annualized premium equivalent sales and net flows are non-generally accepted accounting principle measures. See "Performance and Non-GAAP Measures" in the company's first quarter 2020 management's discussion and analysis for additional information.
(2) All percentage growth and declines in financial metrics in this news release are reported on a constant exchange rate basis. The constant exchange rate basis excludes the impact of currency fluctuations and is a non-GAAP measure. See "Performance and Non-GAAP Measures" in the company's first quarter 2020 MD&A for additional information.
(3) Life insurance capital adequacy test ratio of The Manufacturers Life Insurance Company (MLI).
The company made further progress on portfolio optimization in first quarter 2020 through a variety of initiatives in the United States. It experienced continued success from its annuity guaranteed minimum withdrawal benefit offer program, recognized impacts from the sale of alternative long-duration assets (ALDA) enabled by the reinsurance of individual and group payout annuity policies, and expanded reinsurance coverage of certain universal life no-lapse-guarantee products. In total, these initiatives generated additional capital benefits of $265-million during the quarter.
In first quarter 2020, the company continued to leverage and enhance its digital capabilities while extending support to its customers during the COVID-19 pandemic. Strategic investment in the company's technology infrastructure in recent years led to a smooth transition for over 95 per cent of employees working from home. In Asia, the company accelerated its digital capabilities and supported its customers by extending the use of non face-to-face sales methods across most of its businesses. Additionally, the company has provided limited additional benefit coverage and extended premium payment grace periods. In Canada, it provided a temporary extension of emergency out-of-country coverage for its group and individual customers who experienced travel delays, and introduced flexible financial solutions to support its banking clients. In the United States, it has extended the grace period for its life insurance policyholders to make premium payments and increased the payout limits permitted by phone for its annuity and life customers. In addition, in the company's global wealth and asset management business in Canada, the company launched an on-line cash withdrawal feature, allowing members to have a safe and reliable way to directly access their retirement plans, and in the U.S., it has temporarily waived the fee for 401k hardship withdrawals.
($ millions, unless otherwise stated)
Q1 2020 Q1 2019
Net income attributed to shareholders $1,296 $2,176
Core earnings (1) 1,028 1,548
Diluted earnings per common share ($) 0.64 1.08
Diluted core earnings per common share ($) (1) 0.51 0.76
Return on common shareholders' equity (ROE) 10.4% 20.1%
Core ROE (1) 8.2% 14.2%
Expense efficiency ratio (1) 60.0% 49.9%
Asia new business value 356 411
Canada new business value 77 62
U.S. new business value 36 46
Total new business value (1) 469 519
Asia APE sales 1,084 1,336
Canada APE sales 376 261
U.S. APE sales 141 143
Total APE sales (1) 1,601 1,740
Wealth and asset management net flows ($ billions) (1) 3.2 (1.3)
Wealth and asset management gross flows ($ billions) (1) 38.2 27.9
Wealth and asset management assets under management and administration ($ billions) (1) 636.2 648.1
MLI's LICAT ratio 155% 144%
Financial leverage ratio 23.0% 27.0%
Book value per common share ($) 26.53 22.34
Book value per common share excluding AOCI ($) 20.29 19.06
(1) This item is a non-generally accepted accounting principle measure. See "Performance and Non-GAAP
Measures" in the company's first quarter 2020 management's discussion and analysis for additional
Reported net income attributed to shareholders of $1.3-billion in first quarter 2020, down $900-million from first quarter 2019
The decrease compared with first quarter 2019 was driven by a decline in core earnings of $500-million and charges from investment-related experience and the direct impact of equity markets and variable annuity guarantee liabilities (compared with gains in the prior year), partially offset by gains from the direct impact of interest rates driven by widening corporate spreads (compared with losses in the prior year). Investment-related experience in first quarter 2020 reflected lower-than-expected returns (including fair value changes) on ALDA driven primarily by the impact of a sharp decline in oil prices, partially offset by the favourable impact of fixed-income reinvestment activities.
Achieved core earnings of $1.0-billion in first quarter 2020, a decrease of 34 per cent compared with first quarter 2019
The decrease in core earnings in first quarter 2020 compared with first quarter 2019 was driven by the unfavourable impact of markets on seed money investments in new segregated funds and mutual funds, the absence of core investment gains (1) in the quarter, lower new business volumes in Japan, and unfavourable first quarter 2020 policyholder experience in North America, including unfavourable travel claims related to COVID-19. These items were partially offset by the impact of in-force business growth in Asia and higher fee income from higher average assets under management and administration levels in the company's global wealth and asset management business.
New business value of $469-million in first quarter 2020, a decrease of 11 per cent compared with first quarter 2019
In Asia, NBV decreased 14 per cent to $356-million as growth in Hong Kong and Asia other
(2) was more than offset by a decline in Japan. In Canada, NBV of $77-million was up 24 per cent from first quarter 2019, driven by higher sales across all business lines. In the United States, NBV of $36-million was down 23 per cent from first quarter 2019, primarily due to the impact of lower sales volumes and a less favourable business mix.
Annualized premium equivalent sales of $1.6-billion in first quarter 2020, a decrease of 9 per cent compared with first quarter 2019
In Asia, APE sales decreased 20 per cent as growth in Hong Kong and Asia other was more than offset by the impact of tax changes on corporate-owned life insurance product sales in Japan in the prior year. Hong Kong APE sales increased 21 per cent driven by the continued success of the company's voluntary health insurance scheme and qualifying deferred annuity products from the company's active agency force that grew by 18 per cent from first quarter 2019. Asia other APE sales increased 5 per cent as strong sales in agency were partially offset by lower sales in bancassurance. In Canada, APE sales increased 44 per cent driven by higher large-case group insurance sales, growth across the company's individual insurance business, including a large sale in the company's affinity markets business, and higher sales of the company's lower-risk segregated funds. In the U.S., APE sales declined 3 per cent compared with the prior-year quarter as lower variable universal life and domestic protection universal life sales following regulatory changes in the fourth quarter of 2019 more than offset higher term life and international sales.
Reported global wealth and asset management net inflows of $3.2-billion in first quarter 2020, compared with net outflows of $1.3-billion in first quarter 2019
Net inflows in Asia were $600-million in first quarter 2020 in line with first quarter 2019 as higher net inflows in retirement were offset by higher redemptions, mainly in institutional asset management. Net inflows in Canada were $2.8-billion in first quarter 2020 compared with net inflows of $2.1-billion in first quarter 2019, driven by higher gross flows (1) into institutional asset management equity mandates. This was partially offset by lower net inflows in retirement from lower new plan sales and higher redemptions and, in retail, from higher redemptions amid equity market declines in March, partially offset by higher gross flows. Net outflows in the U.S. were $200-million in first quarter 2020 compared with net outflows of $4.0-billion in first quarter 2019. The improvement was driven by higher retail gross flows, primarily from strong institutional model allocations and intermediary sales, as well as the sale of a large-case retirement plan of $2.6-billion. This was partially offset by the redemption of several retirement plans and retail redemptions amid equity market declines in March.
Quarterly earnings results conference call
Manulife Financial will host a first quarter earnings results conference call at 8 a.m. ET on May 7, 2020. For local and international locations, please call 416-406-0743 or toll-free in North America 1-800-898-3989. Please call in 15 minutes before the call starts. You will be required to provide your name and organization to the operator. A replay of this call will be available by 11 a.m. ET on May 7, 2020, through Aug. 7, 2020, by calling 905-694-9451 or 1-800-408-3053 (passcode: 8236475 followed by the number sign).
The conference call will also be webcast through Manulife's website at 8 a.m. ET on May 7, 2020. You may access the webcast at the Manulife website. An archived version of the webcast will be available on the website following the call.
The first quarter 2020 statistical information package is also available on the Manulife website.
(1) This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" in the company's first quarter 2020 MD&A for additional information.
(2) Asia other excludes Japan and Hong Kong.
We seek Safe Harbor.
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