Mr. Roy Gori reports
MANULIFE REPORTS Q3 2020 NET INCOME OF $2.1 BILLION, CORE EARNINGS OF $1.5 BILLION, APE SALES OF $1.4 BILLION, AND A STRONG LICAT CAPITAL RATIO OF 155 per cent
Manulife Financial Corp. has released its third quarter 2020 results. Key highlights include:
Net income attributed to shareholders of $2.1-billion in Q3 2020, up $1.3-billion from Q3 2019;
- Core earnings of $1.5-billion in Q3 2020, down 6 per cent from Q3 2019;
- Strong LICAT ratio of 155 per cent;
- Core ROE (core return on common shareholder equity) of 11.4 per cent and ROE of 16.4 per cent in Q3 2020;
NBV (new business value) of $460-million in Q3 2020, down 14 per cent from Q3 2019;
- APE (annualized premium equivalent) sales of $1.4-billion in Q3 2020, down 2 per cent from Q3 2019;
- Global WAM net outflows of $2.2-billion in Q3 2020 compared with net outflows of $4.4-billion in Q3 2019;
- The impact to net income of the annual actuarial review was a net charge of $198-million.
"While the COVID-19 pandemic continues to disrupt economies worldwide, the overall demand for our products was robust. Our strong digital capabilities have enabled us to fulfill customers' insurance and wealth management needs across all of our markets globally. The global diversity of our franchise, strength of our offerings and quality of our distribution capabilities were evident in Manulife's third quarter APE sales, which were down only 2 per cent from the prior-year quarter, despite the challenging environment. In addition, we delivered core earnings of $1.5-billion and net income of $2.1-billion for the quarter, which reflects the resilience of our business," said Manulife president and chief executive officer Roy Gori.
"I am confident that Manulife is well positioned to navigate the challenges of the current environment. Our balance sheet and capital levels are strong and we continue to execute on our five priorities. We've made significant progress on our portfolio optimization and expense efficiency objectives, whilst accelerating growth in our highest-potential businesses, notably Asia and global WAM. Our efforts to enhance our digital capabilities over the last few years have enabled us to pivot quickly in the current environment, and position us well to serve our customers in a more digitally enabled world," added Mr. Gori.
Phil Witherington, chief financial officer, said: "Our LICAT ratio of 155 per cent is strong and we continue to have substantial financial flexibility. We released over $450-million of incremental capital during the quarter by executing a reinsurance agreement in the U.S., bringing the cumulative capital benefits released from our legacy businesses through portfolio optimization activities to $5.8-billion since 2018.
"Expense discipline continues to be a strategic priority and we reduced core general expenses by 5 per cent compared with the prior-year quarter. Furthermore, the core EBITDA margin in our global WAM business exceeded 30 per cent this quarter, which reflects our scale and commitment to expense efficiency," added Mr. Witherington.
Manulife continued to make progress on its portfolio optimization initiative by executing an agreement with Global Atlantic Financial Group to reinsure approximately $3.4-billion of policy liabilities related to John Hancock's legacy United States bank-owned life insurance business. John Hancock has retained administration of the policies. The transaction closed on Sept. 30, 2020, released $465-million in capital and generated a gain of $262-million that was reported outside of core earnings in Q3 2020.
In Q3 2020, Manulife continued to extend its product and distribution reach to fulfill the financial health and well-being needs of the company's customers. In Asia, Manulife sold its first policy in Myanmar, a digitally savvy market with one of the lowest insurance penetration rates in Asia. In Vietnam, the company entered into a partnership with Cong Dong Bau, a community with more than five million members that improves access to financial advice and solutions for expectant and new mothers. In Canada, Manulife launched a new travel insurance product that covers emergency medical costs and trip interruption expenses from COVID-19 and related conditions. Manulife further enhanced its group benefits product offering with the introduction of health by design, a pro-active approach using the latest science, technology and predictive analytics to help each member with their unique health journey. In the U.S., Manulife continued to make progress on its objective of transforming the experience of owning life insurance for its customers. Manulife announced a strategic collaboration with Amazon, which adds the Halo wellness band to the devices supported by John Hancock's vitality program. In global WAM, Manulife continued to earn top scores on the United Nations-supported Principles for Responsible Investment (PRI) annual assessment report for integrating environmental, social, and governance (ESG) considerations into the company's investment practices across a range of asset classes. In addition, Manulife Investment Management was also recognized in the PRI Leaders' Group 2020, a 10-year initiative honouring signatories at the cutting edge of responsible investment. This year, 36 signatories, including Manulife Investment Management, were recognized for demonstrating responsible investment excellence in climate reporting throughout their organizations and portfolios. Finally, in Canada Manulife accelerated its retail wealth digital transformation by launching several on-line tools and automations that make account maintenance, accessing forms and statements easier for advisers to service their customers.
Reported net income attributed to shareholders of $2.1-billion in Q3 2020, up $1.3-billion from Q3 2019
The increase was driven by gains from investment-related experience compared with losses in the prior-year quarter, gains from the direct impact of equity markets, and interest rates and variable annuity guarantee liabilities (compared with losses in the prior-year quarter, which included a $500-million charge related to updated Ultimate Reinvestment Rate assumptions issued by the Canadian Actuarial Standards Board), and the impact of a reinsurance transaction to improve the capital efficiency of Manulife's legacy business, partially offset by a $198-million charge from the annual review of actuarial methods and assumptions. Investment-related experience in Q3 2020 reflected the favourable impact of fixed income reinvestment activities and higher-than-expected returns (including fair value changes) on the company's alternative long-duration assets driven primarily by fair value gains on private equities.
Delivered core earnings of $1.5-billion in Q3 2020, a decrease of 6 per cent compared with Q3 2019
The decrease in core earnings in Q3 2020 compared with Q3 2019 reflects the absence of core investment gains in the quarter (compared with gains in the prior-year quarter), lower investment income in corporate and other, unfavourable policyholder experience in Manulife's Canadian insurance businesses, and lower new business volumes as a result of COVID-19. These items were partially offset by the impact of in-force business growth, favourable product mix in Hong Kong and Asia other, and average AUMA growth in global WAM.
Annual review of actuarial methods and assumptions
Manulife completed its annual review of actuarial methods and assumptions, resulting in a net charge to net income attributed to shareholders of $198-million, which was consistent with the previously disclosed estimate. Assumptions reviewed this year included lapse assumptions for Canada and Japan life insurance, certain mortality and morbidity assumptions in all insurance segments, a complete review of Manulife's Canada variable annuities assumptions, as well as certain methodology refinements.
New business value (NBV) of $460-million in Q3 2020, a decrease of 14 per cent compared with Q3 2019
In Asia, NBV of $365-million was down 16 per cent compared with the prior-year quarter, primarily driven by lower APE sales and a decline in interest rates in Hong Kong. In Canada, NBV of $67-million was up 31 per cent from Q3 2019, primarily due to higher sales volumes in large-case group insurance. In the U.S., NBV of $28-million was down 38 per cent compared with the prior-year quarter, primarily driven by lower international universal life sales due to COVID-19.
Annualized premium equivalent (APE) sales of $1.4-billion in Q3 2020, a decrease of 2 per cent compared with Q3 2019
In Asia, APE sales decreased 6 per cent compared with the prior-year quarter as growth in Japan and Asia other was more than offset by lower sales in Hong Kong. Hong Kong APE sales decreased 26 per cent driven by the adverse impact of COVID-19, a decrease in sales to mainland Chinese visitors, as well as strong prior-year quarter sales of Manulife's voluntary health insurance scheme and qualifying deferred annuity policy products. Japan APE sales increased 9 per cent as Manulife gained traction in the corporate-owned life insurance (COLI) market following the launch of Manulife's redesigned COLI product in Q3 2019, partially offset by the adverse impact of COVID-19. Asia other APE sales increased 3 per cent driven by higher agency sales, partially offset by lower bancassurance sales due to restricted activities in bank branches and temporary bank closures. In Canada, APE sales increased 23 per cent primarily driven by higher large-case group insurance sales, partially offset by lower individual insurance sales due to the adverse impact of COVID-19. In the U.S., APE sales declined 14 per cent compared with the prior-year quarter largely due to the adverse impacts of COVID-19. In addition, lower international universal life, domestic protection universal life and variable universal life sales were partially offset by higher domestic indexed universal life and term life sales.
Reported global wealth and asset management net outflows of $2.2-billion in Q3 2020, compared with Q3 2019 net outflows of $4.4-billion
Net inflows in Asia were $1.1-billion in Q3 2020, compared with net inflows of $2.3-billion in Q3 2019, driven by higher retail redemptions in mainland China. Net inflows in Canada were $1.2-billion in Q3 2020 compared with net outflows of $6.9-billion in Q3 2019, driven by the non-recurrence of an $8.5-billion redemption in institutional asset management. Net outflows in the U.S. were $4.5-billion in Q3 2020 compared with net inflows of $100-million in Q3 2019, driven by a $5.0-billion redemption of an equity mandate in institutional asset management, coupled with lower plan sales and recurring deposits, as well as higher member withdrawals in retirement.
Quarterly earnings results conference call
Manulife Financial will host a third quarter earnings results conference call at 8 a.m. ET on Nov. 12, 2020. For local and international locations, please call 416-340-2217 or toll-free, North America 1-800-806-5484 (passcode: 8503281 followed by the pound key). 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 Nov. 12, 2020, through Feb. 12, 2021, by calling 905-694-9451 or 1-800-408-3053 (passcode: 5440418 followed by the pound key).
The conference call will also be webcast through Manulife's website at 8 a.m. ET on Nov. 12, 2020. You may access the webcast through the Manulife website. An archived version of the webcast will be available on the website following the call.
The third quarter 2020 statistical information package is also available on the Manulife website.
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