Summary

  • Manulife Financial Corporation is a leading international financial services group that helps people make their decisions easier and lives better.
  • The company has global headquarters in Toronto, Canada and operate across in Canada, Asia, and Europe.
  • The company provide financial advice, insurance, as well as wealth and asset management solutions for individuals, groups, and institutions.

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Company Overview

Manulife Financial Corporation (NYSE:MFC, TSX:MFC) is a leading international financial services group that helps people make their decisions easier and lives better. The company operate primarily as John Hancock in the United States and Manulife elsewhere. The company provide financial advice, insurance, as well as wealth and asset management solutions for individuals, groups and institutions.1

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With its global headquarters in Toronto, Canada, the company operate as Manulife across its offices in Canada, Asia, and Europe, and primarily as John Hancock in the United States. The company provide financial advice, insurance, as well as wealth and asset management solutions for individuals, groups, and institutions. At the end of 2020, the company had more than 37,000 employees, over 118,000 agents, and thousands of distribution partners, serving over 30 million customers.

Business Segments

The company's reporting segments are:

  • Asia – providing insurance products and insurance-based wealth accumulation products in Asia.
  • Canada – providing insurance products, insurance-based wealth accumulation products, and banking services in Canada and has an in-force variable annuity business.
  • U.S. – providing life insurance products, insurance-based wealth accumulation products and has an in-force long-term care insurance business and an in-force annuity business.
  • Global Wealth and Asset Management (“Global WAM”) – providing fee-based wealth solutions to its retail, retirement and institutional customers around the world.
  • Corporate and Other – comprised of investment performance on assets backing capital, net of amounts allocated to operating segments; financing costs; costs incurred by the corporate office related to shareholder activities (not allocated to operating segments); its Property and Casualty (“P&C”) Reinsurance business; and run-off reinsurance business lines.

Asia

The company's Asia segment is a leading provider of insurance products and insurance-based wealth accumulation products, driven by a customer-centric strategy and leveraging the asset management expertise and products managed by its Global Wealth and Asset Management segment. Present in many of Asia’s largest and fastest growing economies, Manulife Financial is well positioned to capitalize on the attractive underlying demographics of the region, underpinned by a rigorous focus on creating value for its customers, employees and shareholders.

Manulife Financial has insurance operations in 11 markets1: Japan, Hong Kong, Macau, Singapore, mainland China, Vietnam, Indonesia, the Philippines, Malaysia and Cambodia, and have recently started operations in Myanmar.

Manulife Financial has a diversified multi-channel distribution network, including over 115,000 contracted agents and over 100 bank partnerships. The company also work with many independent agents, financial advisors and brokers. Among its bancassurance partnerships Manulife Financial has nine exclusive partnerships, including a long-term partnership with DBS Bank across Singapore, Hong Kong, mainland China and Indonesia, that give it access to over 16 million bank customers.

In 2020, Asia contributed 33% of the Company’s core earnings from operating segments and, as at December 31, 2020, accounted for 11% of the Company’s assets under management and administration.

Asia reported net income attributed to shareholders of $1,762 million in 2020 compared with $1,935 million in 2019. Net income attributed to shareholders is comprised of core earnings, which was $2,110 million in 2020 compared with $2,005 million in 2019, and items excluded from core earnings, which amounted to a net charge of $348 million for 2020 compared with a net charge of $70 million in 2019.

Expressed in U.S. dollars, the presentation currency of the segment, net income attributed to shareholders was US$1,322 million in 2020 compared with US$1,457 million in 2019 and core earnings were US$1,576 million in 2020 compared with US$1,511 million in 2019. Items excluded from core earnings are outlined in the table below and amounted to a net charge of US$254 million in 2020 and a net charge of US$54 million in 2019.

Core earnings in 2020 increased 4% compared with 2019, after adjusting for the impact of changes in foreign currency exchange rates. Core earnings increased by 10% in Hong Kong and 8% in Asia Other and declined by 18% in Japan. Hong Kong and Asia Other core earnings benefited from in-force business growth, favourable new business product mix, and improved policyholder experience, partially offset by lower new business volumes in Hong Kong. Japan core earnings were impacted by lower new business volumes partially offset by in-force business growth and favourable policyholder experience.

Total revenue of US$21.2 billion in 2020 decreased US$0.4 billion compared with 2019. Revenue before net realized and unrealized investment gains and losses increased US$0.5 billion compared with 2019 due to an increase in net premium income and higher investment income. The net premium income increase was primarily driven by the growth of in-force business, partly offset by a decline in new business.

Asia’s assets under management were US$108.7 billion as at December 31, 2020, an increase of US$15.2 billion or 13% compared with December 31, 2019, driven by net customer inflows of US$9.9 billion and market growth during 2020.

Canada

The company's Canada segment is a leading financial services provider, offering insurance products, insurance-based wealth accumulation products and banking services, has an in-force variable annuity business, and leveraging the asset management expertise and products managed by its Global Wealth and Asset Management segment. The comprehensive solutions the company offer target a broad range of customer needs and foster holistic long-lasting relationships.

The company offer financial protection solutions to individuals, families and business owners through a combination of competitive products, professional advice and quality customer service. The company provide group life, health and disability insurance solutions to Canadian employers, with approximately 24,000 Canadian businesses and organizations entrusting their employee benefit programs to Manulife’s Group Insurance. The company also provide life, health and specialty products, such as mortgage creditor and travel insurance, through advisors, sponsor groups and associations, as well as direct-to-customer. The company continue to increase the proportion of products with behavioural insurance features.

Manulife Bank offers flexible debt and cash flow management solutions as part of a customer’s overall financial plan. Products include savings and chequing accounts, GICs, lines of credit, investment loans, mortgages and other specialized lending programs, offered through financial advisors supported by a broad distribution network.

In 2020, Canada contributed 19% of the Company’s core earnings from operating segments and, as at December 31, 2020, accounted for 12% of the Company’s assets under management and administration.

Canada’s full year 2020 net income attributed to shareholders was $195 million compared with $1,122 million in 2019. Net income attributed to shareholders is comprised of core earnings, which was $1,174 million in 2020 compared with $1,201 million in 2019, and items excluded from core earnings, which amounted to a net charge of $979 million for 2020 compared with a net charge of $79 million in 2019.

The $27 million or 2% decrease in core earnings was driven by the unfavourable impact of travel claims, lower retail sales in its individual insurance business, the non-recurrence of gains from the second phase of its segregated fund transfer program in 2019 and a number of smaller experience-related items, partially offset by favourable policyholder experience in both group and individual insurance.

Total revenue of $18.6 billion in 2020 decreased $1.0 billion from $19.6 billion in 2019. Revenue before net realized and unrealized investment gains and losses of $13.9 billion in 2020 decreased $0.9 billion from $14.8 billion in 2019 due to lower investment income as a result of declines in oil and gas prices in the first quarter of 2020 (“1Q20”) and the impact of lower interest rates.

Assets under management of $159.3 billion as at December 31, 2020 increased by $8.0 billion or 5% from $151.3 billion at December 31, 2019, due to the impact of lower interest rates on asset values.

U.S.

The company's U.S. segment provides a range of life insurance products, insurance-based wealth accumulation products, and has an in-force long-term care insurance business and an in-force annuity business.

The insurance products the company offer are designed to provide estate, business and income-protection solutions for high net worth, emerging affluent markets and the middle market, and to leverage the asset management expertise and products managed by its Global Wealth and Asset Management business. Behavioural insurance features are standard on all its new insurance product offerings. The primary distribution channel is licenced financial advisors. The company aim to establish lifelong customer relationships that benefit from its holistic protection and wealth product offerings in the future.

The company's in-force annuity business includes fixed deferred, variable deferred, and payout products.

In 2020, U.S. contributed 31% of the Company’s core earnings from operating segments and, as at December 31, 2020, accounted for 18% of the Company’s assets under management and administration.

U.S. reported net income attributed to shareholders of $1,269 million in 2020 compared with $1,428 million in 2019. Net income attributed to shareholders is comprised of core earnings, which was $1,995 million in 2020 compared with $1,876 million in 2019, and items excluded from core earnings, which amounted to a net charge of $726 million in 2020 compared with a net charge of $448 million in 2019.

Expressed in U.S. dollars, the functional currency of the segment, 2020 net income attributed to shareholders was US$987 million compared with US$1,074 million in 2019 and core earnings were US$1,485 million in 2020 compared with US$1,414 million in 2019. Items excluded from core earnings are outlined in the table below and amounted to a net charge of US$498 million in 2020 compared with a net charge of US$340 million in 2019.

The US$71 million increase in core earnings was driven by higher in-force earnings and a focus on reduced spending in the current economic environment, partially offset by the non-recurrence of a favourable true-up of prior year tax provisions in 2019. Insurance policyholder experience was consistent with the prior year, as unfavourable life insurance experience, which included COVID-19 related claim losses, was offset by favourable long-term care experience resulting from claim terminations due to the impact of COVID-19.

Total revenue in 2020 of US$17.3 billion decreased US$1.2 billion compared with 2019. Revenue before net realized and unrealized investment gains and losses was US$9.6 billion, a decrease of US$2.6 billion compared with 2019 primarily due to the net impact of the reinsurance of a block of its legacy U.S. BOLI business in 3Q20 and lower investment income, partially offset by the impact of a one-time ceded premium in 2019 from the reinsurance of legacy annuity business.

U.S. assets under management of US$188 billion as at December 31, 2020 increased 6% from December 31, 2019. The increase was driven by the favourable impact of markets partially offset by the continued run-off of its annuities business and the reinsurance of a block of its legacy U.S. BOLI business in the third quarter of 2020 (“3Q20”).

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Global Wealth and Asset Management

The company's Global Wealth and Asset Management segment, branded as Manulife Investment Management (“MIM”), provides investment advice and innovative solutions to retirement, retail, and institutional clients. The company's leading capabilities in public and private markets are strengthened by an investment footprint that spans 17 countries and territories1, including 10 markets and 120 years of on-the-ground experience in Asia. The company complement these capabilities by providing access to a network of unaffiliated asset managers from around the world.

In retirement, the company provide financial guidance, advice, and investment solutions to nearly 8 million plan participants and members in North America and Asia. In North America, its Canadian retirement business focuses on providing retirement solutions through defined contribution and defined benefit plans, and also to group plan members when they retire or leave their plan; and in the United States, the company provide employer sponsored retirement plans as well as personal retirement accounts when individuals leave their plan. In Asia, the company provide retirement offerings to employers and individuals, including Mandatory Provident Fund (“MPF”) schemes and administration in Hong Kong. Additionally, the company provide retirement solutions in several emerging retirement markets in Asia including Indonesia and Malaysia.

The company distribute investment funds to retail clients primarily through intermediaries and banks in North America, Europe and Asia and offer investment strategies across the world, through its affiliated and from unaffiliated asset managers. In Canada, the company also provide personalized investment management, private banking and wealth and estate solutions to high net worth clients.

The company's institutional asset management business provides comprehensive asset management solutions for pension plans, foundations, endowments, financial institutions and other institutional investors worldwide. The company's solutions span all major asset classes including equities, fixed income, alternative assets (including real estate, timberland, farmland, private equity/debt, infrastructure, and liquid alternatives). In addition, the company offer multi-asset investment solutions covering a broad range of clients’ investment needs.

In 2020, Global WAM contributed 17% of the Company’s core earnings from operating segments and, as at December 31, 2020, represented 58% of the Company’s total assets under management and administration.

Total revenue in 2020 of $5.7 billion increased 2% compared with 2019, driven by higher average assets under management and administration, partially offset by the impact of changes in product mix and lower fee spread in the U.S. Retirement business.

In 2020, AUMA for its wealth and asset management businesses were $753.6 billion, 12% higher than December 31, 2019 on a constant exchange rate basis driven by the favourable impact of markets and year-to-date net inflows of $8.9 billion. As of December 31, 2020, Global WAM also managed $212.4 billion in assets for the Company’s non-WAM reporting segments. Including those assets, AUMA managed by Global WAM was $966.0 billion compared with $879.2 billion as at December 31, 2019.

Corporate and Other

Corporate and Other is comprised of investment performance on assets backing capital, net of amounts allocated to the operating segments; financing costs; costs incurred by the corporate office related to shareholder activities (not allocated to the operating segments); its P&C Reinsurance business; as well as its run-off reinsurance operation, including variable annuities and accident and health.

Corporate and Other reported net income attributed to shareholders of $1,545 million in 2020 compared with a net income attributed to shareholders of $95 million in 2019. Net income (loss) attributed to shareholders was comprised of core loss and items excluded from core loss. Core loss was $863 million in 2020 compared with a core loss of $99 million in 2019. Items excluded from core loss amounted to a net gain of $2,408 million in 2020 compared with a net gain of $194 million in 2019.

The unfavourable variance in the year-to-date core loss of $764 million was primarily attributable to nil core investment gains in 2020 compared with $400 million in the same period of 2019, lower investment income, less favourable impact of markets on seed money investments in new segregated and mutual funds, net losses on AFS equities in 2020 compared to net gains in 2019 and higher Corporate expenses mainly due to impairment of capitalized IT assets, primarily software, partially offset by lower interest on external debt.

Revenue of $2,705 million in 2020 increased $1,606 million compared with $1,099 million in 2019 primarily related to investment income. The increase in investment income was mainly driven by higher realized gains on AFS bonds, partially offset by lower investment income, lower gains from seed money investments and net losses from AFS equities compared to net gains in the prior year.

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Business Overview

At the end of 2020, the company had $1.3 trillion (US$1.0 trillion) in assets under management and administration, and during 2020, the company made $31.6 billion in payments to its customers. The company's principal operations are in Asia, Canada and the United States where Manulife Financial has served customers for more than 155 years.2

The company's net income attributed to shareholders was $5.9 billion in 2020 compared with $5.6 billion in 2019. Net income attributed to shareholders is comprised of core earnings (consisting of items the company believe reflect the underlying earnings capacity of the business), which amounted to $5.5 billion in 2020 compared with $6.0 billion in 2019, and items excluded from core earnings of $0.4 billion of net gains in 2020 compared with $0.4 billion of net charges in 2019.

The $0.3 billion increase in net income attributed to shareholders compared with 2019 was primarily due to gains from the direct impact of interest rates in 2020, including gains from the sale of available-for-sale bonds (“AFS”) held in Corporate and Other, (compared with losses in 2019, including a $0.5 billion charge related to updated Ultimate Reinvestment Rate (“URR”) assumptions issued by the Canadian Actuarial Standards Board), partially offset by losses on investment-related experience (compared with gains in 2019, including $400 million of core investment gains1) and losses from the direct impact of equity markets and variable annuity guarantee liabilities (compared with gains in 2019). The $0.5 billion decrease in core earnings compared with 2019 reflects the absence of core investment gains in the year (compared with gains in the prior year), lower investment income in Corporate and Other, less favourable impact of markets on seed money investments in new segregated and mutual funds, and lower new business volumes. These items were partially offset by the impact of in-force business growth, favourable policyholder experience, favourable new business product mix in Hong Kong and Asia Other, and higher average AUMA in Global Wealth and Asset Management. Core earnings in 2020 included net policyholder experience gains of $83 million post-tax ($76 million pre-tax) compared with a net charge of $17 million post-tax ($55 million pre-tax) in 2019. Actions to improve the capital efficiency of its legacy businesses resulted in $37 million lower core earnings in 2020 compared with 2019.

Annualized premium equivalent (“APE”) sales were $5.6 billion in 2020, a decrease of 8% compared with 2019. In Asia, APE sales decreased 11% compared with 2019 primarily as a result of lower Japan APE sales, which decreased 30% due to accelerated sales of corporate-owned life insurance (“COLI”) products in the first quarter of 2019 in advance of a change in tax regulations and the adverse impact of COVID-19. Hong Kong APE sales decreased 10% compared with 2019 driven by the adverse impact of COVID-19 containment measures, and lower sales to mainland Chinese visitors. Asia Other APE sales in 2020 were in-line with 2019, as growth in mainland China and Vietnam was offset by the adverse impact of COVID-19 in other markets. In Canada, APE sales increased 9% compared with 2019, primarily driven by higher large-case group insurance sales, higher sales in its lower risk segregated funds and higher affinity market sales within individual insurance, partially offset by lower retail insurance sales due to the adverse impact of COVID-19. In the U.S., APE sales decreased 14% compared with 2019, as lower international universal life, domestic protection universal life, and variable universal life sales, more than offset higher term life and domestic indexed universal life sales. The decline in U.S. APE sales was driven by higher prior year domestic universal life sales in advance of anticipated regulatory changes, as well as the unfavourable impact of COVID-19.

New business value (“NBV”) was $1.8 billion in 2020, a decrease of 13% compared with 2019. In Asia, NBV of $1.4 billion was down 14% compared with 2019, driven by lower sales volumes in Hong Kong and Japan and a decline in market interest rates in Hong Kong and Asia Other, partially offset by favourable product mix in Asia Other. In Canada, NBV of $255 million was up 8% compared with 2019, primarily due to higher margins and higher sales in its insurance businesses. In the U.S., NBV of $160 million was down 27% compared with 2019 primarily driven by lower sales volumes.

Global WAM gross flows of $130.2 billion increased $16.0 billion or 13% compared with 2019, driven by higher gross flows across all geographies. See “Global Wealth and Asset Management” section below for further details.

Assets under Management and Administration (“AUMA”)

AUMA as at December 31, 2020 was $1.3 trillion, an increase of 10%, compared with December 31, 2019, primarily due to the favourable impact of markets and net inflows. The Global Wealth and Asset Management portion of AUMA as at December 31, 2020 was $754 billion, an increase of 12%, compared with December 31, 2019, driven by the favourable impact of markets and net inflows of $8.9 billion.

In 2020, revenue before realized and unrealized investment gains and losses was $59.9 billion compared with $61.4 billion in 2019. The decrease was primarily due to higher ceded premiums in 2020 from the reinsurance of a block of legacy U.S. Bank-Owned Life Insurance (“BOLI”) business partially offset by higher investment income.

In 2020, the net realized and unrealized investment gains on assets supporting insurance and investment contract liabilities and on the macro hedging program were $19.0 billion compared with gains of $18.2 billion for 2019. The 2020 and 2019 gains were primarily due to a decrease in interest rates and higher equity markets.

Recent developments

November 3, 2021; Manulife reports 3Q21 net income of $1.6 billion and core earnings of $1.5 billion, double-digit new business value growth and strong net flows in Global Wealth and Asset Management with contributions across all business lines and geographies.3

Manulife announced its third quarter of 2021 (“3Q21”) results. Key highlights include:

  • Net income attributed to shareholders of $1.6 billion in 3Q21, down $476 million from the third quarter of 2020 (“3Q20”). 3Q21 results included strong investment gains that offset a $532 million charge from the previously announced Ultimate Reinvestment Rate (“URR”) reduction
  • Core earnings1 of $1.5 billion in 3Q21, up 10% on a constant exchange rate basis from 3Q20
  • Core ROE1 of 12.0% and ROE of 12.6% in 3Q21
  • NBV1 of $539 million in 3Q21, up 22% from 3Q20
  • APE sales1 of $1.4 billion in 3Q21, up 5% from 3Q20
  • Global Wealth and Asset Management (“Global WAM”) net inflows1 of $9.8 billion in 3Q21, compared with net outflows of $2.2 billion in 3Q20.

“The diversity and resilience of its franchise was evident once again in the third quarter, as the company continued to deliver against its medium-term targets,” said Manulife President & Chief Executive Officer Roy Gori. “The company delivered core earnings growth of 10% and solid net income of $1.6 billion in 3Q21, and on a year-to-date basis delivered core return on equity of 13.2%.”

“The impact of the pandemic continues to vary across the globe with North American markets beginning to experience a recovery, while many markets in Asia implemented further restrictions in the third quarter,” said Phil Witherington, Chief Financial Officer. “Despite the challenging environment, Asia generated double-digit NBV growth and Global WAM was supported by strong net inflows of $9.8 billion in the quarter and delivered an 18% increase in core earnings compared with the prior year quarter.”

The decrease in net income attributed to shareholders in 3Q21 was driven by a $532 million charge related to the impact of updated URR assumptions issued by the Canadian Actuarial Standards Board, which is a component of the direct impact of markets. This compares with gains on this line in 3Q20. The year-over-year change in the direct impact of markets was partially offset by more favourable investment related experience, which reflected higher-than-expected returns (including fair value changes) on alternative long-duration assets, primarily due to fair value gains on private equity investments, the favourable impact of fixed income reinvestment activities and favourable credit experience.

The increase in core earnings in 3Q21 compared with 3Q20 was driven by the recognition of core investment gains1 in the quarter (compared with nil core investment gains in the prior year quarter), higher net fee income from higher average assets under management and administration (“average AUMA”)1 in Global WAM, which benefitted from the favourable impact of markets and net inflows, higher new business gains, in-force business growth in Canada and Asia and favourable policyholder experience in Canada. These items were partially offset by a $152 million ($155 million pre-tax) charge in its Property and Casualty Reinsurance business for estimated losses related to Hurricane Ida and the European floods and unfavourable policyholder experience in Asia and the U.S.

In Asia, NBV increased 15% to $399 million, reflecting higher sales volumes in Hong Kong and Asia Other2 and favourable interest rates and product management actions in Hong Kong, partially offset by a decline in Japan due to lower Corporate Owned Life Insurance (“COLI”) product sales. In Canada, NBV of $71 million was up 6% from 3Q20, primarily due to the impact of higher margins in annuities and continued growth in individual insurance, partially offset by lower volumes in group insurance. In the U.S., NBV of $69 million was up 162% from 3Q20, primarily driven by higher sales volumes and favourable product mix, notably due to higher international sales.

In Asia, APE sales decreased 2% as growth in Hong Kong and Asia Other was more than offset by lower COLI product sales in Japan. In Hong Kong, APE sales increased 12% reflecting strong growth in its bank channel, demand from mainland Chinese visitors through its Macau branch and an expanded agency force. Sales continued to be dampened by COVID-19 containment measures as cross-border travel between Hong Kong and China remains constrained. Asia Other APE sales increased 8%, as higher sales in bancassurance were partially offset by lower agency sales, which were adversely impacted by COVID-19 containment measures in markets such as Vietnam and Indonesia. In Japan, APE sales declined 50%, primarily due to a decrease in COLI product sales. In Canada, APE sales increased 5%, primarily driven by higher individual insurance sales and increased customer demand for its lower risk segregated fund products, partially offset by variability in the large-case group insurance market. In the U.S., APE sales increased 58%, due to higher customer demand for international, domestic indexed universal life and variable universal life product offerings. APE sales of products with the John Hancock Vitality PLUS feature in 3Q21 increased 84% compared with the prior year quarter. This feature continues to be a differentiator in the market, particularly in the current environment of greater consumer interest in improving baseline health.

Net inflows in Retail were $7.9 billion in 3Q21 compared with net inflows of $0.7 billion in 3Q20, driven by doubledigit growth in gross flows1 across all geographies amid increased investor demand as well as lower mutual fund redemption rates. Net inflows in Institutional Asset Management were $1.3 billion in 3Q21 compared with net outflows of $3.9 billion in 3Q20, driven by the non-recurrence of a $5.0 billion redemption in Europe in 3Q20, and higher sales of timberland mandates in the U.S., partially offset by lower gross flows of fixed income products in China. Net inflows in Retirement were $0.6 billion in 3Q21 compared with net inflows of $1.0 billion in 3Q20, reflecting higher plan redemptions, partially offset by growth in member contributions and new plan sales.

References

  1. ^ https://www.manulife.ca/about-usv.html
  2. ^ https://www.manulife.com/content/dam/corporate/investors/MFC_SR_2020_Y1_EN.pdf
  3. ^ https://www.manulife.com/content/dam/corporate/investors/MFC_QPR_2021_Q3_EN.pdf
Tags: US:MFC CA:MFC
Created by Asif Farooqui on 2021/12/13 14:55
     

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