Manulife Financial Corporation Reports Fourth Quarter and Annual Results
- Full year net income $1,402 million compared to $517 million in 2008
- Strong capital levels - MLI MCCSR of 240 per cent at year end
- Equity exposure reduced through hedging, business and product mix
adjustments and improved equity markets
- Solid sales with priority on the highest return products and
geographies, and diversification of risk
- Good investment results in the face of challenging markets
- Announced three attractive acquisitions in 2009 - wealth management
in China and Canada and travel insurance in Canada
- Completed U.S. subsidiary reorganization at year end - reduces equity
sensitivity and provides more efficient capital structure and
diversified risk profile
C$ unless otherwise stated
TSX/NYSE/PSE: MFC SEHK: 945
In its second quarter earnings release, the Company included a forward-looking statement that estimated adjusted earnings from operations to be between
Chief Executive Officer Donald A. Guloien stated, "Our fourth quarter results capped off a year of many accomplishments. We have improved margins, balanced our product portfolio, announced three attractive acquisitions and continued to demonstrate good investment results in the face of challenging market conditions. We have a strong capital base and our equity exposure has reduced through additional hedging, product mix adjustments and with the benefit of equity market increases. We intend to continue to reduce our equity exposure, subject to market conditions. Our full year net income increased from
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(1) Return on common shareholders' equity is a non-GAAP measure. See
"Performance and Non-GAAP Measures" below.
(2) Referred to in the second quarter report as normalized earnings. See
"Normalized Earnings and Adjusted Earnings from Operations -
Reconciliation with GAAP Measure" and "Performance and Non-GAAP
Measures" below.
FINANCIAL RESULTS
Chief Financial Officer Michael W. Bell said, "Our adjusted earnings from operations(3) for the fourth quarter were in line with anticipated levels. Our net earnings of
North American equity markets, where the S&P 500 increased five per cent and the TSX increased three per cent in the quarter, generated non cash gains of
Partially offsetting the above gains were declines, relative to our growth assumptions, in real estate, timber and agriculture property appraisals of
The Company's fixed income portfolio continued to perform very well relative to overall market conditions. In the fourth quarter, recoveries exceeded impairments, resulting in net recoveries of
The hedged amount of our variable annuity business increased from
At
MLI reported an MCCSR ratio of 240 per cent as at
The Company's capital sensitivity to market declines decreased significantly. Compared with
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(3) Referred to in the second quarter report as normalized earnings. See
"Normalized Earnings and Adjusted Earnings from Operations -
Reconciliation with GAAP Measure" and "Performance and Non-GAAP
Measures" below.
(4) Amount at risk is the excess of guarantee values over fund values on
all policies where the guarantee value exceeds the fund value.
SALES AND BUSINESS GROWTH
Chief Operating Officer John D. DesPrez III said, "The positive sales results we recorded across most of our businesses in 2009 were tempered by the pace of economic recovery in the
Insurance sales in the fourth quarter were in line with the prior year, with full year sales declining by four per cent in comparison to 2008 levels on a constant currency basis(5). Declines primarily attributable to a slower economic recovery in the U.S. were largely offset by strong growth in Asia both on a quarterly and annual basis.
Wealth sales in the fourth quarter, excluding variable annuity products, increased by seven per cent over the fourth quarter of 2008, driven by growth in both Asia and the U.S., and full year sales were in line with the prior year, on a constant currency basis.
In accordance with the Company's on-going risk management initiatives, sales of variable annuity products in the fourth quarter declined by 60 per cent compared to the prior year, and full year sales were lower than 2008 levels by 45 per cent, on a constant currency basis.
Premiums and deposits(6) for the insurance businesses amounted to
Premiums and deposits for the wealth businesses excluding variable annuities amounted to
Variable annuity and segregated fund premiums and deposits amounted to
New business embedded value(7) ("NBEV") for the insurance businesses was
NBEV for the wealth, excluding variable annuity, businesses was
NBEV for the variable annuity businesses was
Total funds under management(8) as at
Continuing to capitalize on strategic opportunities, Asia and
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(5) Constant currency amounts are non-GAAP measures. See "Performance and
Non-GAAP Measures" below.
(6) Premiums and deposits is a non-GAAP measure. See "Performance and
Non-GAAP Measures" below.
(7) New business embedded value is a non-GAAP measure. See "Performance
and Non-GAAP Measures" below.
(8) Funds under management is a non-GAAP measure. See "Performance and
Non-GAAP Measures" below.
OPERATING HIGHLIGHTS
Insurance
- Total insurance sales for the full year 2009 were down by
four per cent versus 2008 and fourth quarter sales in 2009 were in
line with the prior year, on a constant currency basis. The fourth
quarter results were led by advances in Asia, which experienced
double-digit growth, offset by declines in North America. These
results reflect the varying paces of economic recovery experienced
across the Company's geographic regions of operations over the course
of the year, with Asia recovering the fastest, followed by Canada.
- In the U.S., the slow pace of economic recovery resulted in a
19 per cent annual decline in insurance sales versus 2008, on a
US dollar basis, in line with general industry trends. Fourth quarter
sales improved but were down seven per cent in comparison to the
fourth quarter of 2008, on a US dollar basis. Part of the sales
decline was attributable to re-pricing initiatives taken on certain
product offerings. During the fourth quarter, the Company's
distribution relationship with Edward Jones was expanded to include
life insurance products.
- In Canada, full year insurance sales ended the year up four per cent
over fiscal 2008. Group Benefits had a strong year with sales
increasing 12 per cent year over year; while individual insurance
sales were down modestly from 2008, as large case sales were most
impacted by the market turmoil. Individual insurance sales rebounded
in the fourth quarter and travel sales were at record highs, however
quarterly volatility in group insurance dampened the overall sales
result and total insurance sales of $146 million for the fourth
quarter were three per cent below 2008 levels.
- In Asia, full year insurance sales were up 15 per cent and fourth
quarter sales were up 14 per cent versus the same periods in 2008, on
a constant currency basis. Strong sales momentum in the quarter was
led by robust growth in Hong Kong, Taiwan, Indonesia and China
arising from successful sales and marketing campaigns and new product
launches. Japan sales finished the year up 21 per cent over the prior
year, on a Yen basis, attributable to strong sales growth through the
MGA channel and the success of the increasing term insurance and the
corporate owned medical and life insurance products introduced in
2008. Fourth quarter sales in Japan were down nine per cent versus
2008, on a Yen basis, as the sales from the MGA channel slowed down
relative to the 2008 launch momentum of the corporate owned medical
and life products. During the quarter, new products were launched in
Hong Kong, Taiwan, Malaysia and Singapore. In addition, Manulife
continued to expand in China, receiving a license to operate in the
city of Shantou. At year end, Manulife-Sinochem was licensed in
39 cities, which are home to more than 280 million individuals,
across 11 provinces.
Wealth Management, excluding variable annuities
- Wealth sales, excluding variable annuities, for the full year 2009
were in line with the prior year, while fourth quarter sales
increased by seven per cent over the fourth quarter of 2008, in each
case on a constant currency basis. The increase in the fourth quarter
was driven by growth in both Asia and the U.S. as most business units
experienced healthy increases reflecting the market recovery.
- In the U.S., full year wealth sales, excluding variable annuities,
were down by 11 per cent compared to 2008, on a US dollar basis, as
higher fixed product sales, attributable to demand for guaranteed
returns from highly rated firms, were more than offset by the decline
in mutual fund sales due to the economy. In the fourth quarter, sales
increased by ten per cent over the prior year, on a US dollar basis,
driven by sales in Mutual Funds and Retirement Plan Services, which
grew by 38 per cent and 17 per cent, respectively. These increases
were partially offset by lower sales in Fixed Products.
- In Canada, full year wealth sales, excluding variable annuities,
increased by 12 per cent over 2008, driven by strong fixed product
sales, and success in the large case defined contribution market in
Group Savings and Retirement Solutions ("GSRS"). Sales in the fourth
quarter of 2009 declined by 15 per cent versus the prior year, as
strong growth in retail mutual funds and fixed products was more than
offset by the lingering impact of the economic downturn on Manulife
Bank loan volumes and lower sales in GSRS, where sales levels are by
nature less uniform. Following the acquisition of AIC retail funds,
the Company continues to streamline its overall mutual fund platform
and launched a number of new funds in the fourth quarter.
- In Asia, full year wealth sales, excluding variable annuities, grew
by 41 per cent versus fiscal 2008, on a constant currency basis,
primarily attributable to mutual fund sales in Taiwan arising from an
acquisition made in October 2008. Wealth sales for the fourth quarter
of 2009 increased by over 80 per cent compared to the prior year, on
a constant currency basis, led by mutual fund sales growth in
Indonesia, Hong Kong and Taiwan.
- During the fourth quarter, Manulife announced the acquisition of
Fortis Bank SA/NV's 49 per cent ownership in ABN AMRO TEDA Fund
Management Co., Ltd. ("ABN AMRO TEDA"). With US$4.4 billion in assets
under management, subject to regulatory approval, ABN AMRO TEDA will
provide Manulife with an immediate, sizable entry point into China's
rapidly growing wealth management industry.
- MFC Global Investment Management ("MFC GIM") ended the year with
funds under management of $110 billion, an increase of $4 billion
from the prior quarter, where positive market performance and net
sales were partially offset by the impact of the strengthened
Canadian dollar. During the quarter, MFC GIM was selected as
investment adviser for three new equity mandates totaling
$234 million. In total, MFC GIM secured approximately $6 billion in
new assets from institutional clients, despite a very challenging
economic environment in 2009.
Wealth Management - variable annuities
- Full year variable annuity sales declined, on a constant currency
basis, by 45 per cent versus full year 2008 and by 60 per cent for
the fourth quarter of 2009 compared to the fourth quarter of 2008,
largely as a result of the Company's on-going initiatives to balance
its risk profile across all geographies.
- During the fourth quarter, the Company expanded its hedging program
and commenced hedging new variable annuity business written in Japan.
Substantially all new business in the U.S. and Canada continues to be
hedged. With good global equity market performance in the quarter,
the Company also continued to put in place hedges on a portion of its
in-force variable annuity business, hedging an additional
$3.7 billion of guaranteed value including $0.6 billion in Canada,
$2.0 billion in the U.S., and $1.1 billion in Japan.
- Overall, the Company made significant progress hedging more of its
variable annuity business during the year. The Company executes these
hedges on an ongoing basis as market conditions improve to levels
that allow us to meet our business objectives. At year end,
$24.9 billion of guarantee value was hedged, up from $5.7 billion at
December 31, 2008. Approximately 35 per cent of the gross guarantee
value was reinsured or hedged, up from 20 per cent at the end of
2008. As a result of improved equity markets, increased hedging, and
the impact of currency movements, the amount at risk net of
reinsurance and hedging at December 31, 2009 was $11.6 billion,
54 per cent lower than at the end of the prior year.
- Subsequent to year end, the Company has hedged an additional
$7.6 billion of guarantee value ($2.7 billion in Canada and
$4.9 billion in the U.S.), bringing the percentage of guarantee value
hedged or reinsured up to approximately 42 per cent.
Corporate
- During the quarter, consistent with on-going efforts to strengthen
its capital base and to take advantage of small to medium sized
acquisition opportunities, the Company announced and completed a
common equity offering of $2.5 billion, issuing shares at $19 per
share. The common shares were sold to a syndicate of underwriters in
a "bought deal" public offering.
- Effective December 31, 2009, the Company completed the previously
announced reorganization of certain of its U.S. legal entities. The
reorganization involved merging John Hancock Life Insurance Company
and John Hancock Variable Life Insurance Company into John Hancock
Life Insurance Company (U.S.A.), thus reducing the number of John
Hancock's primary operating life insurance companies from five to
three.
- In a separate news release, the Company also announced today that the
Board of Directors approved a quarterly shareholders' dividend of
$0.13 per share on the common shares of the Company, payable on and
after March 19, 2010 to shareholders of record at the close of
business on February 24, 2010.
Awards & Recognition
Manulife Financial received recognition from several organizations in the quarter, including the following:
- In the U.S., John Hancock Retirement Plan Services was recognized for
communications excellence by the League of American Communication
Professionals (LACP) winning a total of 18 awards including five
platinum and seven gold. Multi-media, print and web communications
were all honoured. The communications focused on a wide range of
audiences including 401(k) participants, plan sponsors, financial
representatives, third party administrators and internal audiences.
- In Canada, Manulife Investments was recognized at the 2009 Canadian
Investment Awards where the Manulife Strategic Income Fund won a
silver award in the "Global Fixed Income" category. Mawer Investment
Management, a key sub-adviser in the Manulife funds family, received
two gold awards. In addition, our Insight Services Online
Transactions, which streamlines advisor interaction with the Company,
received a silver award in the "Best Use of Technology" category. The
Canadian Investment Awards recognize leading investment products and
firms illustrating an enduring commitment to excellence within the
Canadian financial services industry.
- In Hong Kong, Manulife (International) Limited ("MIL") has been
designated the "Best Company for Financial Planning Excellence" for
the third year running. MIL has won the company award in the
insurance sector of the SCMP/IFPHK Financial Planner Awards since its
inception in 2007. SCMP/IFPHK Awards are an industry-wide
competition, jointly organized by the Institute of Financial Planners
of Hong Kong (IFPHK) and the South China Morning Post (SCMP).
- In Vietnam, Manulife was awarded an "Outstanding Achievement Award"
by the Ministry of Finance for its outstanding achievements and
significant contribution to the development of the insurance market
in Vietnam. The Ministry also awarded the General Director of
Manulife Vietnam an "Outstanding Contribution Award" in recognition
of his outstanding management as well as contribution to developing
the life insurance market in Vietnam.
Notes:
Manulife Financial Corporation will host a Fourth Quarter Earnings Results Conference Call at
The conference call will also be webcast through Manulife Financial's website at
The Fourth Quarter 2009 Statistical Information Package is also available on the Manulife website at: www.manulife.com/quarterlyreports. The document may be downloaded before the webcast begins.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")
FINANCIAL HIGHLIGHTS
(unaudited)
Quarterly Results Year Ended
----------------- ----------
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders (C$ millions) 868 (172) (1,870) 1,402 517
Net Income (Loss) Available
to Common Shareholders
(C$ millions) 848 (193) (1,878) 1,338 487
Diluted Earnings (Loss) per
Common Share (C$) 0.51 (0.12) (1.24) 0.82 0.32
Return on Common Shareholders'
Equity(1) (%, annualized) 13.1 (3.0) (28.9) 5.2 2.0
Premiums & Deposits(1)
(C$ millions) 16,535 16,238 19,493 71,270 75,750
Funds under Management(1)
(C$ billions) 439.6 436.6 404.5 439.6 404.5
Capital(1) (C$ billions) 33.2 30.7 30.9 33.2 30.9
(1) This item is a non-GAAP measure. For a discussion of our use of
non-GAAP measures, see "Performance and Non-GAAP Measures" below.
Net Income
The Company's net income attributed to shareholders was
Full year net income attributed to shareholders was
Fourth quarter 2009:
In the fourth quarter of 2009, North American equity markets increased by three to five per cent and the
During the quarter, interest rates on corporate bonds increased but spreads narrowed, and resulted in fourth quarter net non cash gains of approximately
Credit recoveries exceeded impairments in the fourth quarter, resulting in net recoveries of
Partially offsetting the above gains were declines, relative to our growth assumptions, in real estate, timber and agriculture property appraisals of
Other experience gains of
A charge of
During the quarter, the Ontario government announced a reduction in corporate income taxes and harmonization with the federal sales tax, resulting in a charge to income of
The overall effective income tax rate in the quarter was 14 per cent. Tax rates vary by subsidiary and therefore the overall effective tax rate will vary based on the amount of the pre tax income or loss in each subsidiary.
Fourth quarter of 2008:
In the fourth quarter of 2008, the Company reported a net loss attributed to shareholders of
Normalized Earnings and Adjusted Earnings from Operations
In our second quarter report in the section entitled "Normalized Earnings", we provided forward-looking information for "normalized earnings", which is a non-GAAP measure. In this and our third quarter report we have compared our estimate at
Comparison with Fourth Quarter Actual Adjusted Earnings from Operations
Our estimate of adjusted earnings from operations for the financial quarter ended
Adjusted earnings from operations for the fourth quarter were
Reconciliation with GAAP Measure
The following table reconciles adjusted earnings from operations to our reported net earnings for the fourth quarter:
C$ millions
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Net income attributed to shareholders reported 868
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Items excluded from adjusted earnings from operations:
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Experience gains/(losses) because equity, interest rate,
credit and other non-fixed income returns differ from
our best estimate policy liability assumptions(1)
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Net credit recoveries of $6 million and credit downgrade
charges of $31 million(2) (25)
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Private equity recoveries 12
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Real estate, timber and agriculture properties - change
in fair value relative to policy liability assumptions (171)
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Equity market appreciation, primarily related to
segregated fund guarantee policy liabilities(3) 435
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Impact of change in interest rates on the valuation of
policy liabilities 110
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Other(4) 65
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Corporate and Other segment net impairment - OTTI and
realized losses on AFS equities ($29 million), private
equity impairments ($7 million) and credit impairments
($2 million) (38)
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Net policyholder experience losses (7)
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Model refinements to previously implemented changes in
actuarial methods (147)
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Net impact of Ontario tax law changes, including impact
on policy liabilities (101)
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Currency rates(5) (46)
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Total excluded items 87
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Adjusted earnings from operations 781
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(1) As outlined in our accounting policies, policy liabilities represent
the amount which, together with estimated future premiums and net
investment income, will be sufficient to pay estimated future
benefits, policyholder dividends and refunds, taxes (other than
income taxes) and expenses on policies in-force. Under Canadian GAAP,
the determination of actuarial liabilities is based on an explicit
projection of cash flows using current best estimate assumptions for
each material cash flow item and contingency. Investment returns are
projected using the current asset portfolios and projected
re-investment strategies. Each assumption is adjusted by a margin for
adverse deviation. As a result of this methodology, experience
gains/(losses) arise when equity, interest rate, credit and other
non-fixed income returns differ from our best estimate policy
liability assumptions.
(2) The credit and downgrade loss in the liability segments excludes the
impact on earnings of the expected policy liability assumptions. The
expected amount shows up in the other market and investment related
experience gains.
(3) Adjusted earnings from operations excludes the earnings impact from
equity market changes that differ from our best estimate assumptions
of growth of 7.25% per annum in Canada, 8.0% per annum in the U.S.,
5.0% per annum in Japan and 9.5% per annum in Hong Kong. For
actuarial valuation purposes, these returns are reduced by margins
for adverse deviation to determine net yields used in valuation.
(4) Other experience gains of $65 million include the impact on the
valuation of policy liabilities of our actual investing activities in
the period. We invested in a higher proportion of fixed income
investments than assumed in the valuation of our policy liabilities.
The valuation methodology incorporated the returns on the new fixed
income investments, but also updated the valuation assumptions to
reflect a reduced proportion of non-fixed income investments in the
future. The overall result was a gain related to fixed income
investments partially offset by a charge related to assuming lower
non-fixed income investments in the future.
(5) Adjusted earnings from operations excludes the impact of changes in
currency exchange rates from those in effect at June 30, 2009 when we
originally provided our estimate of this amount. Since that time, the
Canadian dollar has strengthened and the Canadian dollar equivalent
of one U.S. dollar has declined from $1.1625 as at June 30, 2009 to
$1.0466 as at December 31, 2009. The average daily exchange rate for
the quarter was $1.0562. This decline has reduced reported net income
by $46 million during the quarter.
Estimated Adjusted Earnings from Operations for 2010
Given the current economic conditions including the volatility of equity markets, interest rates, the impact of current economic conditions on credit and other factors, we are providing forward-looking information for financial periods for all quarters in 2010 for what we refer to as adjusted earnings from operations. We estimate adjusted earnings from operations to be between
The information in this section is forward-looking information and should be read in conjunction with the section below entitled "Caution Regarding Forward-Looking Statements". This discussion should not be considered earnings guidance, particularly as it is not possible to predict near term market conditions and because adjusted earnings from operations excludes items that are included in GAAP net income or loss. Estimated adjusted earnings from operations are based on assumptions that include our book of business, equity market growth as described in footnote (3) to the "Reconciliation with GAAP Measure" table above, foreign currency rates that are consistent with levels as at
Actual reported quarterly results will differ from estimated adjusted earnings from operations as a result of any changes in the factors outlined above. See also "Risk Factors" in our most recent Annual Information Form, "Risk Management" and "Critical Accounting and Actuarial Policies" in the Management's Discussion and Analysis in our most recent annual and interim reports, and the "Risk Management" note to the consolidated financial statements in our most recent annual and interim reports for other factors that could impact adjusted earnings from operations and actual reported results.
Earnings per Share and Return on Common Shareholders' Equity(9)
Fourth quarter earnings per common share on a fully diluted basis was
Full year earnings per share on a fully diluted basis was
Premiums and Deposits(10)
Total insurance premiums and deposits amounted to
Deposits on wealth products excluding variable annuities were
Variable annuity premiums and deposits were
Funds under Management(11)
Total funds under management as at
Capital(12)
Total capital was
At
MLI's consolidated regulatory capital, MCCSR ratio, after giving effect to the reorganization, was 240 per cent as at
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(9) Return on common shareholders' equity is a non-GAAP measure. See
"Performance and Non-GAAP Measures" below.
(10) Premiums and deposits is a non-GAAP measure. See "Performance and
Non-GAAP Measures" below.
(11) Funds under management is a non-GAAP measure. See "Performance and
Non-GAAP Measures" below.
(12) Capital is a non-GAAP measure. See "Performance and Non-GAAP
Measures" below.
PERFORMANCE BY DIVISION
U.S. Insurance
Canadian dollars Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders (millions) (117) (601) 36 (1,441) 779
Premiums & Deposits
(millions) 3,034 2,020 2,106 8,909 7,149
Funds under Management
(billions) 66.6 66.3 70.3
U.S. dollars Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders (millions) (111) (547) 30 (1,273) 757
Premiums & Deposits
(millions) 2,874 1,838 1,739 7,914 6,686
Funds under Management
(billions) 63.6 61.8 57.4
U.S. Insurance reported a net loss attributed to shareholders of US$111 million for the fourth quarter of 2009, compared with net income of US$30 million a year earlier. Included in the fourth quarter of 2009 are net experience losses of US$151 million (2008 - US$93 million) as a result of equity, interest rate, credit and other non-fixed income returns differing from our best estimate policy liability assumptions. The decrease in income, excluding these items, was
The full year net loss attributed to shareholders was US$1,273 million, compared with net income of US$757 million reported last year. These amounts included net experience losses as described above of US$1,483 million in 2009 (2008 - gains of US$258 million).
Premiums and deposits for the quarter were US$2.9 billion,
Funds under management as at
U.S. Wealth Management
Canadian dollars Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders (millions) 671 593 (1,314) 2,186 (921)
Premiums & Deposits
(millions) 6,727 7,169 9,217 30,513 35,412
Funds under Management
(billions) 177.4 176.5 163.9
U.S. dollars Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders (millions) 635 541 (1,085) 2,000 (694)
Premiums & Deposits
(millions) 6,370 6,531 7,606 26,670 33,346
Funds under Management
(billions) 169.5 164.6 133.9
U.S. Wealth Management reported net income attributed to shareholders of US$635 million for the fourth quarter of 2009, compared with a net loss of US$1,085 million a year earlier. Included in the fourth quarter of 2009 are net experience gains of US$490 million (2008 - loss of US$1,307 million) as a result of equity, interest rate, credit and other non-fixed income returns differing from our best estimate policy liability assumptions. The decrease in earnings excluding these items was US$77 million due to a number of small items such as the costs associated with hedging virtually all of 2009 new business and a portion of the prior years, in-force variable annuity business, as well as lower permanent tax differences than in 2008.
The full year net income attributed to shareholders was US$2,000 million, in contrast to a net loss of US$694 million reported last year. The 2009 full year results included net experience gains, as described above, of US$1,339 million (2008 - losses of US$1,513 million).
Premiums and deposits, excluding variable annuities, for the quarter were US$5.6 billion, up seven per cent from US$5.3 billion for the fourth quarter of 2008. Favourable equity market performance and improved economic conditions translated into an increase in premiums and deposits from higher sales in
Funds under management were US$169.5 billion, up 27 per cent from US$133.9 billion as at
Canadian Division
Canadian dollars Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders (millions) 384 113 (13) 745 656
Premiums & Deposits
(millions) 4,096 4,075 4,505 16,917 16,379
Funds under Management
(billions) 102.7 101.1 82.3
Canadian Division reported net income attributed to shareholders of
Excluding the above noted items, fourth quarter net income attributed to shareholders in 2009 was in line with 2008 as business growth, driven by wealth management and Manulife Bank, was dampened by adverse lapse experience in Individual Insurance and the cost of hedging equity exposures on new and a portion of the in-force variable annuity guarantees, as well as lower allocated interest on surplus assets. The Division had a net tax recovery in the quarter, as a portion of the gains, as described above, was subject to lower tax rates than were the experience losses.
The full year net income attributed to shareholders was
Premiums and deposits excluding variable annuities were
Funds under management grew by 25 per cent or
Asia and
Canadian dollars Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders (millions) 291 417 (440) 1,739 177
Premiums & Deposits
(millions) 2,036 1,949 2,320 9,308 9,749
Funds under Management
(billions) 57.2 58.4 50.0
U.S. dollars Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders (millions) 274 380 (363) 1,530 243
Premiums & Deposits
(millions) 1,926 1,775 1,913 8,109 9,220
Funds under Management
(billions) 54.7 54.5 40.8
Asia and
The full year net income attributed to shareholders was US$1,530 million, compared to US$243 million reported last year. These amounts included net experience gains as described above of US$355 million in 2009 (2008 - losses of US$539 million).
Premiums and deposits excluding variable annuities for the quarter were US$1.7 billion, up 25 per cent from US$1.4 billion for the fourth quarter of 2008. Growth was driven by an increase in insurance premiums as a result of larger in-force business across most of the territories, as well as an improvement in the economy leading to an increase in mutual fund sales in
Funds under management were US$54.7 billion as at
Reinsurance Division
Canadian dollars (millions) Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders 92 65 (14) 261 154
Premiums 279 267 273 1,123 1,091
U.S. dollars (millions) Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (Loss) Attributed
to Shareholders 87 59 (11) 232 154
Premiums 265 243 225 987 1,028
Reinsurance Division's net income attributed to shareholders for the fourth quarter of 2009 was US$87 million in contrast to a net loss of US$11 million a year earlier. The results for the quarter included net experience gains of US$3 million (2008 - losses of US$70 million) as a result of equity, interest rate, credit and other non-fixed income returns differing from our best estimate policy liability assumptions. The increase in income, excluding these items, was US$25 million largely driven by favourable claims experience in Life Reinsurance as well as increased premiums on the Property and Casualty business.
The full year net income attributed to shareholders was US$232 million, compared to US$154 million reported last year. These full year amounts include net experience losses as described above of US$51 million in 2009 (2008 - US$86 million).
Premiums for the quarter were US$265 million, up 18 per cent from US$225 million reported in the same quarter of 2008. Life Reinsurance premiums increased due to the aging of the block and International Group Program premiums were also up as a result of increased volumes reported by clients.
Corporate and Other
Canadian dollars Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Loss Attributed to
Shareholders (millions) (453) (759) (125) (2,088) (328)
Funds under Management
(billions) 33.0 31.5 35.0
Corporate and Other is comprised of the earnings on assets backing capital, net of amounts allocated to operating divisions, changes in actuarial methods and assumptions, Investment Division's external asset management business, the
Corporate and Other recorded a net loss attributed to shareholders of
Excluding the above items, the loss in the current quarter was
The full year net loss attributed to shareholders was
Funds under management were
SUBSEQUENT EVENT AND TAX RELATED CONTINGENCY
The Company is an investor in leveraged leases and has established provisions for possible disallowance of the tax treatment and for interest on past due taxes. During the year ended
The Company expects that it will go to trial in tax court in 2011, related to this matter, and although we believe we have compelling facts and circumstances that differentiate our case from other taxpayers, there is no assurance that we will be successful. We continue to monitor and assess the facts and circumstances in this matter. Subsequent to year end, there was another court case that was decided unfavourably for the taxpayer. Accordingly, the Company is assessing its position as it relates to these recent developments, including assessing the need to take a provision in the first quarter of 2010.
RISK MANAGEMENT
Overview
Manulife Financial is a financial institution offering insurance, wealth and asset management products and services, which subjects the Company to a broad range of risks. We manage these risks within an enterprise-wide risk management framework. Our goal in managing risk is to strategically optimize risk taking and risk management to support long-term revenue, earnings and capital growth. We seek to achieve this by capitalizing on business opportunities that are aligned with the Company's risk taking philosophy, risk tolerance and return expectations, by identifying, measuring and monitoring key risks taken, and by executing risk control and mitigation programs.
For further information relating to our risk management practices and risk factors affecting the Company, see "Risk Factors" in our most recent Annual Information Form, "Risk Management" and "Critical Accounting and Actuarial Policies" in Management's Discussion and Analysis in our most recent annual and interim reports and the "Risk Management" note to consolidated financial statements in our most recent annual and interim reports.
Risk Governance
Recognizing the changing risk environment, the Board of Directors has increased, and intends to continue to increase, its focus on risk oversight. The Board of Directors has separated the audit and risk oversight functions of the Audit and Risk Management Committee by establishing a separately constituted Risk Committee of the Board of Directors. It is anticipated that the first Risk Committee meeting will be held on
Market Price and Interest Rate Risk
Due to the nature of our insurance business, invested assets and insurance liabilities as well as revenues and expenses are sensitive to movements in markets and interest rates. Accordingly, the Company considers these risks together when it seeks to manage the risks in its asset and liability positions. These risks are referred to collectively as market price and interest rate risk - the risk of loss resulting from adverse movements in market prices, risk-free interest rates and credit spreads.
Market price volatility and interest rate changes, including credit spreads, in combination with our product guarantees and policyholder withdrawal options, may lead to asset returns insufficient to support product liabilities, and may impact the value of assets held in our shareholders' equity account. The level of our sales activity and policy retention may also be affected by the performance of markets, interest rates, inflation and general economic conditions as these will influence the performance of our general fund investments, segregated funds and mutual funds.
We evaluate market price and interest rate risk exposures using a variety of techniques and measures, each of which are based on projecting asset and liability cash flows under a variety of future interest rate and market price scenarios. These measures include durations, key-rate durations, convexity, cash flow gaps, as well as the sensitivity of shareholders' economic value, net income attributed to shareholders and regulatory capital ratios, along with our earnings at risk and economic capital measures.
At an enterprise level, the Company's aggregate exposure to market price risk arising from each of publicly traded equities and other non-fixed income assets and the Company's aggregate interest rate risk exposure, including to credit spreads, are managed against economic capital, regulatory capital and earnings at risk targets, newly established in 2009. During 2009, we also established new policies requiring management to develop plans to reduce publicly traded equity risk and interest rate risk exposures to within economic capital, regulatory capital and earnings at risk targets as equity markets improve or interest rates rise to levels that allow us to meet our business objectives. For publicly traded equities these targets cover the combined risk arising from off-balance sheet product death and living benefit guarantees, asset-based fees and general fund investments. For other non-fixed income assets these targets cover the combined risk arising from general fund investments in real estate, timber and agriculture properties, oil and gas, and private equities. For interest rate risk these targets cover the exposure related to general interest rate movements and credit spreads arising from general fund fixed income investments and the liabilities they support.
Caution related to risk exposures
The risk exposure measures expressed below primarily include the sensitivity of shareholders' economic value and net income attributed to shareholders. These risk exposures include the sensitivity due to specific changes in market prices and interest rate levels projected using internal models as at a specific date, and are measured relative to a starting level reflecting our assets and liabilities at that date and the actuarial factors, investment returns and investment activity we assume in the future. The risk exposures measure the impact of changing one factor at a time and assume that all other factors remain unchanged. Actual results can differ materially from these estimates for a variety of reasons including the interaction among these factors when more than one changes, changes in actuarial and investment return and future investment activity assumptions, actual experience differing from the assumptions, changes in business mix, effective tax rates and other market factors, and the general limitations of our internal models.
General fund - key risk factors
Interest rate risk arises within our general fund primarily due to the uncertainty of future returns on investments to be made as recurring premiums are received and as assets mature and must be reinvested to support longer dated liabilities. Interest rate risk also arises due to minimum rate guarantees and withdrawal options on products where investment returns are generally passed through to policyholders. Changes in interest rates impact cash flows over a very long period of time, and it is only over the lifetime of the Company's liabilities that the ultimate profit or loss related to changes in interest rates will be known. In the interim:
- If there is a general decline in interest rates, without a change in
spreads between corporate bond rates and swap rates, this will reduce
the assumed yield on future investments used in the valuation of
policy liabilities, resulting in an increase in policy liabilities
and a charge to income.
- If there is a general increase in interest rates, without a change in
spreads between corporate bond rates and swap rates, this will result
in a decrease in policy liabilities and an increase in earnings.
- In addition, a decrease in the spread between corporate bond rates
and swap rates will result in an increase to policy liabilities and a
charge to income. An increase in the spread between corporate bonds
and swap rates may have the opposite impact.
- The impact of changes in interest rates and in spreads may be
partially offset by changes to credited rates on products that pass
through investment returns to policyholders.
Market price risk arises within our general fund as a result of investing in publicly traded equities, private equities, real estate, timber and agriculture, oil and gas and other non-fixed income assets. To the extent these assets are used to support policy liabilities, the policy valuation incorporates projected investment returns on these assets. To the extent actual returns are lower than the expected returns, our policy liabilities will increase, reducing net income and our regulatory capital ratios. To the extent these assets support our shareholders' equity account, other than temporary impairments that arise will reduce income.
Further, the investment strategy applied to future cash flows in the policy valuation of certain long dated liabilities includes investing a specified portion of future policy cash flows in non-fixed income assets, to a maximum of the current non-fixed income portion in the asset portfolio backing those liabilities. If we are unable or choose not to invest in the assumed level of non-fixed income assets, as a result of suitable assets not being available in the market or as a result of capital, risk tolerance or other considerations, or the non-fixed income asset weightings otherwise reduce, we may be required to increase our policy liabilities, reducing net income and regulatory capital ratios.
General Fund - Risk Management Strategies
We separate our policy liabilities and the invested assets which support them into three broad categories with differing overall investment mandates: (i) liabilities supported with matching mandates, (ii) liabilities supported with target return mandates, and (iii) liabilities arising from variable annuity and segregated fund guarantees. We separately manage the assets in the shareholders' equity account to achieve a target return over the long term, subject to established risk tolerances.
In the first category, liabilities supported with matching mandates generally include insurance and wealth guaranteed benefit obligations projected to be paid within the term period for which fixed income assets are generally available in the market, and are supported by fixed income assets with generally matching term profiles, consisting of publicly traded bonds, loans and commercial mortgages.
In the second category, liabilities supported with target return mandates include both insurance and wealth guaranteed benefit obligations projected to be paid beyond the term for which fixed income assets are generally available in the market, as well as obligations related to products that generally pass through investment returns to policyholders. For insurance and wealth management products with guaranteed benefits projected to be paid well beyond the term for which fixed income assets are generally available in the market, we manage assets supporting those long-dated benefits with the objective of achieving a target return sufficient to support these guaranteed obligations over their lifetime, subject to established risk tolerances, by investing a portion in a diversified basket of non-fixed income assets, with the balance invested in fixed income portfolios. We design our guaranteed benefit insurance and wealth management products and set premiums and credited rates in a manner intended to mitigate the risk of not achieving our targeted profit margins. This program may not work as expected.
During 2009, we established a plan to reduce our interest rate risk exposure arising from our in-force guaranteed products managed under the target return strategy. The plan includes hedging increasing portions of our interest rate risk exposure when we believe we can meet our business objectives. As well, in response to the changed market conditions, the design and prices of these products have been, and will continue to be, reviewed and modified with the aim of keeping risk arising from new business within tolerances and achieving acceptable profit margins on new business.
Also in the second category are products that generally pass through investment returns to policyholders. We manage assets supporting those policy liabilities to achieve a target return designed to maximize dividends or credited rates, subject to established risk tolerances, by investing in a basket of fixed income and non-fixed income assets.
The third category includes the general fund investment risk related to our on-balance sheet policy liabilities established to support the payment of potential guarantee claim payments arising from off-balance sheet variable annuities and segregated funds. These on-balance sheet liabilities are supported by publicly traded bonds and loans with generally matching term profiles, limited by the term of bonds and loans available in the market.
General Fund - Risk Exposure Measures
a) Impact on shareholders' economic value(13) arising from general fund interest rate risk
The impact on shareholders' economic value, of interest rate movements on the assets and liabilities in the general fund, is calculated as the change in the net present value of future cash flows related to assets, policy premiums, benefits and expenses, all discounted at market yields for bonds of a specified quality rating and adjusted for tax.
The table below shows the potential impact on shareholders' economic value of an immediate change of one per cent in government, swap and corporate rates for all maturities across all markets with no change in spreads between government, swap and corporate rates, and with a floor of zero on the interest rates.
1% change in interest As at As at
rates(1) December 31, 2009 December 31, 2008
--------------------- ---------------------
(Canadian $ millions) Increase Decrease Increase Decrease
-------------------------------------------------------------------------
Matching mandates
Insurance $ 140 $ (200) $ 30 $ (90)
Wealth Management 10 (10) (10) 10
-------------------------------------------------------------------------
Total matching mandates $ 150 $ (210) $ 20 $ (80)
-------------------------------------------------------------------------
Target return mandates
Insurance $ 1,160 $ (1,870) $ 690 $ (1,130)
Wealth Management 100 (200) 10 (110)
Shareholders' equity account (400) 540 (370) 470
-------------------------------------------------------------------------
Total target return mandates $ 860 $ (1,530) $ 330 $ (770)
-------------------------------------------------------------------------
Mandates for on-balance
sheet variable annuity and
segregated fund guarantee
liabilities $ 90 $ (130) $ 210 $ (250)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total $ 1,100 $ (1,870) $ 560 $ (1,100)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Please see "Caution related to risk exposures" above.
b) Impact on net income attributed to shareholders as a result of changes in interest rates
The potential impact on annual net income attributed to shareholders as a result of a change in policy liabilities in the general fund for a one per cent increase in government, swap and corporate rates at all maturities across all markets, with no change in spreads between government, swap and corporate rates, was estimated to be an increase of approximately
The net income sensitivity measures the impact of a change in current interest rates, but consistent with the policy liability methodology does not consider a change in interest rates assumed for new investments made and assets sold 20 or more years into the future. For new investments or assets sold within the first 20 years, for the calculation of policy liabilities we assume future interest rates that grade between current interest rates and the rates assumed after 20 years. The net income sensitivity also assumes no gain or loss is realized on our fixed income investments that are designated as AFS.
c) Impact on shareholders' economic value arising from general fund market risk
The following tables show the potential impact on shareholders' economic value of a ten, 20 and 30 per cent decline in market values of publicly traded equities and other non-fixed income assets. A ten, 20 and 30 per cent increase in market values of publicly traded equities and other non-fixed income assets would have the opposite impact.
10% decline in market As at As at
values(1) December 31, 2009 December 31, 2008
--------------------- ---------------------
Publicly Other Publicly Other
traded non-fixed traded non-fixed
(C$ millions) equities income(2) equities income(2)
-------------------------------------------------------------------------
Target return mandates
Insurance $ (84) $ (464) $ (65) $ (492)
Wealth Management (8) (117) (10) (135)
Shareholders' equity account (171) (76) (174) (72)
-------------------------------------------------------------------------
Total $ (263) $ (657) $ (249) $ (699)
-------------------------------------------------------------------------
(1) Please see "Caution related to risk exposures" above.
(2) Other non-fixed income assets include real estate, timber and
agricultural properties, oil and gas, and private equities.
20% decline in market As at As at
values(1) December 31, 2009 December 31, 2008
--------------------- ---------------------
Publicly Other Publicly Other
traded non-fixed traded non-fixed
(C$ millions) equities income(2) equities income(2)
-------------------------------------------------------------------------
Target return mandates
Insurance $ (168) $ (928) $ (130) $ (984)
Wealth Management (16) (234) (20) (270)
Shareholders' equity account (342) (152) (348) (144)
-------------------------------------------------------------------------
Total $ (526) $ (1,314) $ (498) $ (1,398)
-------------------------------------------------------------------------
(1) Please see "Caution related to risk exposures" above.
(2) Other non-fixed income assets include real estate, timber and
agricultural properties, oil and gas, and private equities.
30% decline in market As at As at
values(1) December 31, 2009 December 31, 2008
--------------------- ---------------------
Publicly Other Publicly Other
traded non-fixed traded non-fixed
(C$ millions) equities income(2) equities income(2)
-------------------------------------------------------------------------
Target return mandates
Insurance $ (252) $ (1,392) $ (195) $ (1,476)
Wealth Management (24) (351) (30) (405)
Shareholders' equity account (513) (228) (522) (216)
-------------------------------------------------------------------------
Total $ (789) $ (1,971) $ (747) $ (2,097)
-------------------------------------------------------------------------
(1) Please see "Caution related to risk exposures" above.
(2) Other non-fixed income assets include real estate, timber and
agricultural properties, oil and gas, and private equities.
d) Impact on net income attributed to shareholders arising from general fund market risk
The potential impact on net income attributed to shareholders arising from general fund publicly traded equities and other non-fixed income assets supporting policy liabilities of an immediate ten per cent decline in market values of publicly traded equities and other non-fixed income assets is shown in the table below. This impact is based on a point-in-time impact and does not include: (a) any potential impact on non-fixed income asset weightings; (b) any losses on non-fixed income investments held in the Corporate and Other segment; or (c) any losses on non-fixed income investments held in Manulife Bank. As noted above, if the non-fixed income asset weightings, on assets supporting policy liabilities, reduce we may be required to increase our policy liabilities resulting in a reduction to net income.
Change in market values(1) As at As at
December 31, 2009 December 31, 2008
--------------------- ---------------------
Publicly Other Publicly Other
traded non-fixed traded non-fixed
(C$ millions) equities income(2) equities income(2)
-------------------------------------------------------------------------
10% decrease in market values $ (84) $ (647) $ (74) $ (710)
10% increase in market values $ 81 $ 639 $ 74 $ 703
(1) Please see "Caution related to risk exposures" above.
(2) Other non-fixed income assets include real estate, timber and
agricultural properties, oil and gas, and private equities.
The impact on income attributed to shareholders of a 20 and 30 per cent decrease in market value of other non-fixed income assets are not currently available, but will be disclosed in our annual report.
---------------------------
(13) Impact on shareholders' economic value is a non-GAAP measure. See
"Performance and Non-GAAP Measures" below.
Off-balance sheet products - Key Risk Factors
Market price and interest rate risk arises from our off-balance sheet products due mainly to the guarantees provided on variable annuity and insurance products as well as the uncertainty of future levels of asset-based fees. Guarantees include death, maturity, income and withdrawal guarantees on variable products. A sustained decline in stock markets or bond values would likely increase the cost of guarantees associated with our variable products and reduce asset-based fee revenues. A sustained increase in equity market or bond fund volatility or a decline in interest rates would likely increase the costs of hedging the benefit guarantees provided. Details on our variable annuity and variable life insurance contracts are provided below.
Off-balance sheet products - Risk Management Strategies
We seek to mitigate both market price and interest rate risk arising from off-balance sheet variable annuity and insurance products through benefit guarantee design, limitations on fund offerings, use of reinsurance and capital markets hedging. We have attempted to design the benefit guarantees and funds we are now offering for sale to meet event risk exposure criteria, based on economic capital and regulatory capital levels, and to achieve desired profit targets in current market conditions. We regularly review and modify product guarantee features, fund offerings and fees with a goal of being able to improve hedge effectiveness and achieve acceptable profit margins in changing market conditions. We have reinsured the benefit guarantee risk on the majority of our U.S. variable annuity business written prior to 2004. In addition, we have hedged, with capital market instruments, the vast majority of our variable annuity and segregated fund guarantee risk related to policies written in 2009 and a portion of our in-force unreinsured policies written prior to 2009. Of the variable annuity and segregated fund investment related guarantees, 35 per cent of the guarantee value was either hedged or reinsured at
In 2009 the Company established plans to reduce the market price and interest rate risk exposure arising from new variable annuity sales. These plans include expanding our hedging programs to the vast majority of new variable annuity sales, repricing and redesigning our variable annuity products with the objective of reducing risk, improving expected profit margins and increasing our expected hedge effectiveness, and re-balancing our variable annuity sales relative to other lines of business. The hedging programs incorporate a hedging approach described in the "Capital Markets Hedging Program" section below. The plans also include hedging increasing portions of our unhedged in-force variable annuity guarantee business as equity markets improve or interest rates rise to levels that allow us to meet our business objectives.
Key risk reduction actions taken in 2009 include the re-pricing and redesign of variable annuity products in
There can be no assurance that the Company's exposure to equity and bond fund performance and movements in interest rates will be reduced to within established targets. We may be unable to hedge our existing unhedged business as outlined in our risk reduction plans, or if we do so, we may be required to record a charge to income when we hedge. Depending on market conditions, which include a sustained increase in equity and bond fund realized volatility or decline in interest rates, the costs of hedging the benefit guarantees provided in variable annuities may increase or become uneconomic, in which case we may reduce or discontinue hedging or sales of certain of these products. In addition, there can be no assurance that the Company's capital market hedging strategy will fully reduce the risks related to the guaranteed products being hedged. Please see "Capital Markets Hedging Program".
Capital Markets Hedging Program
The Company expanded the capital market hedging program of its variable annuity product guarantees during 2009. The total amount of guarantee value hedged has increased to
Since policy liabilities for variable annuity guarantees are determined using long-term forward looking estimates of volatilities and not current implied market volatilities, guarantee policy liabilities, and consequently regulatory available capital, have no sensitivity to changes in implied market volatilities. Long-term forward-looking volatilities assumed for policy liabilities are approved by OSFI and meet the Canadian Institute of Actuaries calibration standards. To the extent that realized equity and bond fund volatilities exceed the assumed long-term volatilities, there is a risk that rebalancing will be greater and more frequent, resulting in higher hedging costs. To the extent that our assumptions for long-term forward-looking volatilities change, policy liability increases may be required that would have a material impact on financial results.
The level of guarantee claims ultimately paid will be impacted by policyholder longevity and policyholder activity including the timing and amount of withdrawals, lapses and fund transfers. The Company's hedging program assumes long-term assumptions for longevity and policyholder behaviour, since the risk related to longevity and policyholder behaviour cannot be hedged using capital markets instruments. The hedges are rebalanced monthly to reflect actual policyholder experience different from long-term assumed levels.
The Company's capital market hedging strategies are not intended to completely or fully eliminate the risks associated with the guarantees embedded in these products and the strategies expose the Company to additional risks. The program relies on the execution of derivative transactions in a timely manner and therefore hedging costs and the effectiveness of the program may be negatively impacted if markets for these instruments become illiquid. The Company is also subject to counterparty risks arising from the derivative instruments and to the risk of increased funding and collateral demands which may become material as markets and interest rates increase. The capital market hedging program is highly dependent on complex systems and mathematical models that are subject to error, which rely on assumptions that may prove inaccurate, and which rely on sophisticated infrastructure and personnel which may fail or be unavailable at critical times. Due to the complexity of the hedging program there may be additional, unidentified risk that may negatively impact our business and our future financial results.
Off-Balance Sheet Products - Risk Exposure Measures
a) Variable Annuity and Segregated Fund Investment Related Guarantees
Of the variable annuity and segregated fund investment related guarantees, 35 per cent of the guarantee value was either hedged or reinsured at
The table below shows selected information regarding the Company's variable annuity and segregated fund investment related guarantees:
As at December 31, 2009 December 31, 2008
-----------------------------------------------------------
(Canadian $ Guarantee Fund Amount Guarantee Fund Amount
millions) value value at risk(4) value value at risk(4)
-------------------------------------------------------------------------
Gross living
benefits(1) $ 92,183 $ 83,693 $ 12,710 $ 95,297 $ 71,391 $ 25,086
Gross death
benefits(2) 18,455 13,282 4,414 22,937 14,099 8,975
-------------------------------------------------------------------------
Total gross
benefits $110,638 $ 96,975 $ 17,124 $118,234 $ 85,490 $ 34,061
-------------------------------------------------------------------------
Living benefits
reinsured $ 8,012 $ 5,818 $ 2,200 $ 10,049 $ 5,934 $ 4,115
Death benefits
reinsured 5,985 4,639 1,577 7,960 5,134 3,137
-------------------------------------------------------------------------
Total
reinsured $ 13,997 $ 10,457 $ 3,777 $ 18,009 $ 11,068 $ 7,252
-------------------------------------------------------------------------
Total, net of
reinsurance $ 96,641 $ 86,518 $ 13,347 $100,225 $ 74,422 $ 26,809
-------------------------------------------------------------------------
Living benefits
hedged $ 24,399 $ 24,137 $ 1,782 $ 5,731 $ 4,237 $ 1,494
Death benefits
hedged 481 317 10 - - -
-------------------------------------------------------------------------
Total
hedged(3) $ 24,880 $ 24,454 $ 1,792 $ 5,731 $ 4,237 $ 1,494
-------------------------------------------------------------------------
Living benefits
retained $ 59,772 $ 53,738 $ 8,728 $ 79,517 $ 61,220 $ 19,477
Death benefits
retained 11,989 8,326 2,827 14,977 8,965 5,838
-------------------------------------------------------------------------
Total, net of
reinsurance
and hedging $ 71,761 $ 62,064 $ 11,555 $ 94,494 $ 70,185 $ 25,315
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Living benefits include maturity/income/withdrawal/long-term care
benefits. Where a policy also includes a death benefit, the guarantee
in excess of the living benefit is included in the death benefit
category as outlined in footnote (2).
(2) Death benefits include stand-alone guarantees and guarantees in
excess of living benefit guarantees where both death and living
benefits are provided on a policy. For total gross death benefits,
guarantee value is $103,821 million (2008 - $113,860 million), fund
value is $96,530 million (2008 - $85,490 million) and amount at risk
is $12,196 million (2008 - $29,631 million).
(3) For a description of some of the risks related to hedging, see
"Capital Markets Hedging Program" above.
(4) Amount at risk is the excess of guarantee values over fund values on
all policies where the guarantee value exceeds the fund value. This
amount is not currently payable.
Variable annuity and segregated fund guarantees are contingent and only payable upon death, maturity, withdrawal or annuitization, if fund values remain below guaranteed values. If markets do not recover, liabilities on current in-force business would be due primarily in the period from 2015 to 2038. The policy liability established for these benefits was
b) Impact on shareholders' economic value arising from variable products and other managed assets public equity market risk
The impact on shareholders' economic value from changes in the market value of equities within the segregated funds of variable products, mutual funds and institutional asset management operations is calculated as the net present value of expected after-tax cash flows related to managing these assets and/or providing guarantees, including fee income, expense and benefit payments, discounted at market yields. The present value of expected after-tax cash flows related to variable product guarantees is the average, across all investment return scenarios, of the present value of projected future guaranteed benefit payments, net of reinsurance and fee income allocated to support the guarantees.
The tables below show the potential impact on shareholders' economic value of an immediate ten, 20 and 30 per cent change in the market value of equities within the variable products and other managed assets.
Canadian $ millions As at December 31, 2009 As at December 31, 2008
----------------------------------------------------
Decrease in market
value of equity
funds(1) 10% 20% 30% 10% 20% 30%
----------------------------------------------------
Market-based fees ($470) ($960) ($1,480) ($380) ($800) ($1,250)
Variable product
guarantees (450) (1,080) (1,930) (710) (1,630) (2,820)
-------------------------------------------------------------------------
Total ($920) ($2,040) ($3,410) ($1,090) ($2,430) $(4,070)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Canadian $ millions As at December 31, 2009 As at December 31, 2008
----------------------------------------------------
Increase in market
value of equity
funds(1) 10% 20% 30% 10% 20% 30%
-------------------------------------------------------------------------
Market-based fees $490 $1,000 $1,520 $350 $770 $1,210
Variable product
guarantees 290 490 600 550 960 1,270
-------------------------------------------------------------------------
Total $780 $1,490 $2,120 $900 $1,730 $2,480
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Please see "Caution related to risk exposures" above.
c) Impact on net income attributed to shareholders arising from variable products public equity market risk
The following table shows the potential impact on annual net income attributed to shareholders arising from variable products, including the impact on segregated fund fee income, of an immediate ten, 20 and 30 per cent decline and a ten per cent increase in the market values of equities within the segregated funds followed by a return to normal market growth assumptions.
Change in market value of equity funds(1)
(Canadian $ millions)
For the year ended December 31, 2009 2008
--------------------------------------
10% decline $ (1,100) $ (1,400)
20% decline $ (2,600) not available
30% decline $ (4,400) not available
10% increase 900 not available
(1) Please see "Caution related to risk exposures" above.
The impact on net income attributed to shareholders arising from both variable product and general fund public equity market risk is outlined in the table below. These are the total of the amounts in the table related to variable products directly above and the column on public equities in table on general fund market price risk above.
Change in market value of equity funds(1)
(Canadian $ millions)
For the year ended December 31, 2009 2008
--------------------------------------
10% decline $ (1,200) $ (1,500)
20% decline $ (2,800) not available
30% decline $ (4,600) not available
10% increase $ 1,000 not available
(1) Please see "Caution related to risk exposures" above.
d) Impact on MLI's MCCSR ratio from general fund and variable products public equity market risk
Changes in equity markets also impact our available and required components of the MCCSR calculation. The following table shows the potential impact to MLI's MCCSR ratio of an immediate ten, 20 and 30 per cent decline and a ten per cent increase in public equity market values.
Change in market value of equity funds(1)
As at As at
(basis points) December 31, 2009 December 31, 2008
---------------------------------------
10% decline (11) (21)
20% decline (25) not available
30% decline (42) not available
10% increase 13 not available
(1) Please see "Caution related to risk exposures" above.
Foreign Currency Risk
Our financial results are reported in Canadian dollars. A substantial portion of our business is transacted in currencies other than Canadian dollars, mainly US dollars,
Claims Risk
The morbidity experience in the
Capital
Although currently our regulatory capital ratios are strong, insurance regulators, in
CRITICAL ACCOUNTING AND ACTUARIAL POLICIES
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite lives are tested at least annually for impairment. Goodwill is tested at the reporting unit level. The tests performed in 2009 demonstrated that there was no impairment of goodwill or intangible assets with indefinite lives. However, given the impact of the economic conditions and changes in product mix, the results of our goodwill testing for U.S. Insurance and U.S. Wealth Management indicated a lower margin of fair value in excess of carrying value than in prior years. The goodwill testing for 2010 will be updated based on the conditions that exist in 2010 and may result in an impairment charge, which could be material.
Under International Financial Reporting Standards ("IFRS"), once adopted, the tests will be performed at the cash generating unit level, a more granular level than a reporting unit. Based on current information, the Company expects that the testing at this more granular level may result in an impairment charge to be reflected in opening retained earnings upon adoption of IFRS, in 2011, which could be material.
Accounting Adjustment
During 2009, the Company identified errors originating primarily from periods prior to our purchase of
Quarterly Dividend
Our Board of Directors approved a quarterly shareholders' dividend of
The Board also declared dividends on the following non-cumulative preferred shares, payable on or after
- Class A Shares Series 1 - $0.25625 per share
- Class A Shares Series 2 - $0.29063 per share
- Class A Shares Series 3 - $0.28125 per share
- Class A Shares Series 4 - $0.4125 per share
- Class 1 Shares Series 1 - $0.35 per share
Performance and Non-GAAP Measures
We use a number of non-GAAP financial measures to measure overall performance and to assess each of our businesses. Non-GAAP measures include: Normalized Earnings, Adjusted Earnings from Operations, Return on Common Shareholders' Equity; Premiums and Deposits; Premiums and Premium Equivalents; Funds under Management; Capital; Sales; New Business Embedded Value and Impact on Shareholders' Economic Value. Non-GAAP financial measures are not defined terms under GAAP and, therefore, are unlikely to be comparable to similar terms used by other issuers. Therefore, they should not be considered in isolation or as a substitute for any other financial information prepared in accordance with GAAP.
In our second quarter report in the section entitled "Normalized Earnings", the Company estimated Normalized Earnings for the third and fourth quarters in 2009 and all quarters in 2010, which constitutes forward-looking information, in accordance with the methods outlined under "Financial Highlights - Normalized Earnings and Adjusted Earnings from Operations" above. In this report, we have compared our estimate of normalized earnings with the adjusted earnings from operations for the fourth quarter excluding specified items that were excluded in arriving at our estimate of normalized earnings. The Company believes these measures are useful to investors given the current economic conditions including the volatility of equity markets, interest rates and other factors.
Return on common shareholders' equity is a profitability measure that presents the net income available to common shareholders as a percentage of the capital deployed to earn the income. The Company calculates return on common shareholders' equity using average common shareholders' equity excluding Accumulated Other Comprehensive Income (Loss) on available for sale securities and cash flow hedges.
Return on Equity
----------------
C$ millions Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Net Income (loss) Available
to Common Shareholders per
Consolidated Statement of
Operations 848 (193) (1,878) 1,338 487
Opening Total Equity
Available to Common
Shareholders 24,812 26,173 24,236 26,496 23,370
Closing Total Equity
Available to Common
Shareholders 27,405 24,812 26,496 27,405 26,496
-------------------------- -----------------
Weighted Average Total
Equity Available to
Common Shareholders 26,108 25,493 25,366 25,845 24,364
Opening Accumulated other
comprehensive income (loss)
on available for sale
securities and cash flow
hedges per Consolidated
Balance Sheets 442 111 (87) (846) 1,291
Closing Accumulated other
comprehensive income (loss)
on available for sale
securities and cash flow
hedges per Consolidated
Balance Sheets 564 442 (846) 564 (846)
-------------------------- -----------------
Adjustment for Average AOCI (503) (277) 466 126 (352)
-------------------------- -----------------
Weighted Average Total
Equity Available to Common
Shareholders Excluding
Average AOCI 25,605 25,216 25,833 25,971 24,012
ROE based on Weighted
Average Total Equity
Available to Common
Shareholders (annualized) 12.9% (3.0)% (29.4)% 5.2% 2.0%
ROE based on Weighted
Average Total Equity
Available to Common
Shareholders Excluding
Average AOCI (annualized) 13.1% (3.0)% (28.9)% 5.2% 2.0%
The Company also uses financial performance measures that are prepared on a constant currency basis, which exclude the impact of currency fluctuations. Quarterly amounts stated on a constant currency basis in this report are calculated, as appropriate, using the income statement and balance sheet exchange rates effective for the fourth quarter of 2008.
Premiums and deposits is a measure of top line growth. The Company calculates premiums and deposits as the aggregate of (i) premiums and premium equivalents (see below), (ii) segregated fund deposits, excluding seed money, (iii) mutual fund deposits, (iv) deposits into institutional advisory accounts, and (v) other deposits in other managed funds.
Premiums and premium equivalents are part of premiums and deposits. The Company calculates premiums and premium equivalents as the aggregate of (i) general fund premiums net of reinsurance, reported as premiums on the Statement of Operations, (ii) premium equivalents for administration only group benefit contracts and (iii) premiums in the Canadian Group Benefit's reinsurance ceded agreement.
Premiums and Deposits
---------------------
C$ millions Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Premium Income per Statement
of Operations 4,731 5,523 7,022 22,946 23,252
Deposits from Policyholders
per Consolidated Statement
of Segregated Funds 7,343 6,091 8,847 29,084 34,205
-------------------------- -----------------
Premiums and Deposits per
Financial Statements 12,074 11,614 15,869 52,030 57,457
Mutual Fund Deposits 2,378 2,118 1,824 8,733 9,473
Institutional Advisory
Account Deposits 363 758 1,025 4,492 5,798
ASO Premium Equivalents 663 635 633 2,629 2,488
Group Benefits Ceded
premiums 919 909 - 2,760 -
Other Fund Deposits 138 204 142 626 534
-------------------------- -----------------
Total Premiums and
Deposits 16,535 16,238 19,493 71,270 75,750
Currency Impact 1,699 1,183 - (3,567) -
-------------------------- -----------------
Constant Currency
Premiums and Deposits 18,234 17,421 19,493 67,703 75,750
Funds under management is a measure of the size of the Company. It represents the total of the invested asset base that the Company and its customers invest in.
Funds Under Management
----------------------
C$ millions Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Total Invested Assets per
Consolidated Balance Sheet 187,470 188,465 187,501 187,470 187,501
Total Segregated Funds Net
Assets per Consolidated
Statement of Segregated
Funds 191,741 188,148 165,380 191,741 165,380
Less: Segregated Funds
held by the Company per
Consolidated Statement
of Segregated Funds (118) (193) (220) (118) (220)
-------------------------- -----------------
Funds Under Management Per
Financial Statements 379,093 376,420 352,661 379,093 352,661
Mutual Funds 33,370 32,310 25,629 33,370 25,629
Institutional Advisory
Accounts (Excluding
Segregated Funds) 20,906 21,235 20,633 20,906 20,633
Other Funds (Excluding
Segregated Funds) 6,248 6,612 5,584 6,248 5,584
-------------------------- -----------------
Total Funds Under
Management 439,617 436,577 404,507 439,617 404,507
Currency Impact 55,405 45,501 - 55,405 -
-------------------------- -----------------
Constant Currency Funds
Under Management 495,022 482,078 404,507 495,022 404,507
The definition we use for capital serves as a foundation of our capital management activities at the MFC level. For regulatory reporting purposes, the numbers are further adjusted for various additions or deductions to capital as mandated by the guidelines used by OSFI. Capital is calculated as the sum of: total equity excluding Accumulated Other Comprehensive Income (Loss) on cash flow hedges; non-controlling interest in subsidiaries; and liabilities for preferred shares and qualifying capital instruments.
Total Capital
-------------
C$ millions Quarterly Results Year Ended
4Q09 3Q09 4Q08 2009 2008
---- ---- ---- ---- ----
Total Equity per
Consolidated Balance Sheets 28,907 26,334 27,197 28,907 27,197
Less: Accumulated Other
Comprehensive Loss on
Cash Flow Hedges per
Consolidated Balance Sheets 48 126 325 48 325
Add: Liabilities for
Preferred Shares and
Qualifying Capital
Instruments 4,037 4,049 3,121 4,037 3,121
Add: Non-Controlling Interest
in Subsidiaries 202 216 217 202 217
-------------------------- -----------------
Total Capital 33,194 30,725 30,860 33,194 30,860
Sales are measured according to product type.
(i) For total individual insurance, sales include 100 per cent of new
annualized premiums and 10 per cent of both excess and single
premiums. For individual insurance, new annualized premiums reflect
the annualized premium expected in the first year of a policy that
requires premium payments for more than one year. Sales are
reported gross before the impact of reinsurance. Single premium is
the lump sum premium from the sale of a single premium product,
e.g. travel insurance.
(ii) For group insurance, sales include new annualized premiums and
administrative services only premium equivalents on new cases, as
well as the addition of new coverages and amendments to contracts,
excluding rate increases.
(iii) For individual wealth management contracts, all new deposits are
reported as sales. This includes individual annuities, both fixed
and variable; segregated fund products; mutual funds; college
savings 529 plans; and authorized bank loans and mortgages.
(iv) For group pensions/retirement savings, sales of new regular
premiums and deposits reflect an estimate of expected deposits in
the first year of the plan with the Company. Single premium sales
reflect the assets transferred from the previous plan provider.
Sales include the impact of the addition of a new division or of a
new product to an existing client. Total sales include both new
regular and single premiums and deposits.
New business embedded value ("NBEV") is the change in shareholders' economic value as a result of sales in the period. NBEV is calculated as the present value of expected future earnings after the cost of capital on new business using future mortality, morbidity, policyholder behavior assumptions, expense and investment assumptions used in the pricing of the products sold. The principal economic assumptions used in the NBEV calculations in 2009 were based on
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Canada U.S. Hong Kong Japan
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MCCSR ratio 150% 150% 150% 150%
Discount rate 6.75% 6.25% 7.00% 6.25%
Income tax rate 31% 35% 16.5% 24%
Foreign exchange rate n/a 1.2246 0.1581 0.0135
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Impact on shareholders' economic value is one of the measures we use to describe the potential impact of changes in equity markets and interest rates. Our method of calculating the impact on shareholders' economic value is set out in the relevant sections above where the impact is disclosed.
Caution Regarding Forward-Looking Statements
This document contains forward-looking statements within the meaning of the "safe harbour" provisions of Canadian provincial securities laws and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements with respect of our estimated adjusted earnings from operations referred to above under "Financial Highlights - Normalized Earnings and Adjusted Earnings from Operations". The forward-looking statements in this document also relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as "may", "will", "could", "should", "would", "likely", "suspect", "outlook", "expect", "intend", "estimate", "anticipate", "believe", "plan", "forecast", "objective", "seek", "aim", "continue", "embark" and "endeavour" (or the negative thereof) and words and expressions of similar import, and include statements concerning possible or assumed future results. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements and they should not be interpreted as confirming market or analysts' expectations in any way. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to performance of equity markets, interest rate fluctuations and movements in credit spreads, currency rates, investment losses and defaults, market liquidity and creditworthiness of guarantors, reinsurers and counterparties); Company liquidity, including the availability of financing to satisfy existing financial liabilities on their expected maturity dates when required; changes in laws and regulations; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; accuracy of estimates used in applying accounting policies and actuarial methods used by the Company; the ability to implement effective hedging strategies; the ability to maintain the Company's reputation; legal and regulatory proceedings; level of competition and consolidation; the ability to adapt products and services to the changing market; the ability to attract and retain key executives; acquisitions and the ability to complete acquisitions including the availability of equity and debt financing for this purpose; the ability to execute strategic plans and changes to strategic plans; the disruption of or changes to key elements of the Company's or public infrastructure systems; and environmental concerns. Additional information about material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the body of this document as well as under "Risk Factors" in our most recent Annual Information Form, under "Risk Management" and "Critical Accounting and Actuarial Policies" in the Management's Discussion and Analysis in our most recent annual and interim reports, in the "Risk Management" note to consolidated financial statements in our most recent annual and interim reports and elsewhere in our filings with Canadian and U.S. securities regulators. We do not undertake to update any forward-looking statements except as required by law.
About Manulife Financial
Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in
Attachments: Financial Highlights, Consolidated Statements of Operations, Consolidated Balance Sheets, Divisional Information.
Financial Highlights
(Canadian $ in millions unless otherwise stated and per share
information, unaudited)
As at and for the three months ended
December 31
2009 2008 % Change
-------------------------------------------------------------------------
Net income (loss) $ 845 $ (1,869) -
Net income (loss) attributed to
participating policyholders (23) 1 -
-------------------------------------------------------------------------
Net income (loss) attributed to
shareholders $ 868 $ (1,870) -
Preferred share dividends (20) (8) 150
-------------------------------------------------------------------------
Net income (loss) available to common
shareholders $ 848 $ (1,878) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Premiums and deposits:
Life and health insurance premiums(1) $ 3,582 $ 4,460 (20)
Annuity and pension premiums excluding
variable annuities 1,062 1,577 (33)
Segregated fund deposits excluding
variable annuities 5,564 4,913 13
Mutual fund deposits 2,378 1,824 30
Institutional advisory account deposits 363 1,025 (65)
ASO premium equivalents 663 633 5
Group Benefits ceded(1) 919 - -
Other fund deposits 138 142 (3)
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Premiums and deposits excluding
variable annuities $ 14,669 $ 14,574 1
Variable annuities premium and deposits 1,866 4,919 (62)
-------------------------------------------------------------------------
Total premiums and deposits $ 16,535 $ 19,493 (15)
-------------------------------------------------------------------------
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Funds under management:
General fund $187,470 $187,501 -
Segregated funds excluding
institutional advisory accounts 188,229 161,424 17
Mutual funds 33,370 25,629 30
Institutional advisory accounts 23,342 24,016 (3)
Other funds 7,206 5,937 21
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Total funds under management $439,617 $404,507 9
-------------------------------------------------------------------------
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Capital
Liabilities for preferred shares and
qualifying capital instruments $ 4,037 $ 3,121 29
Non-controlling interest in subsidiaries 202 217 (7)
Equity
Participating policyholders' equity 80 62 29
Shareholders' equity
Preferred shares 1,422 638 123
Common shares 18,937 16,157 17
Contributed surplus 182 160 14
Retained earnings(2) 12,870 12,796 1
Accumulated other comprehensive
income (loss) on AFS securities
and translation of net foreign
operations (4,536) (2,291) 98
-------------------------------------------------------------------------
Total capital $ 33,194 $ 30,860 8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Selected key performance measures:
Basic earnings (loss) per common share $ 0.51 $ (1.24)
Diluted earnings (loss) per common
share $ 0.51 $ (1.24)
Return on common shareholders'
equity (annualized)(3) 13.1% (28.9)%
Book value per common share $ 15.59 $ 16.46
Common shares outstanding (in millions)
End of period 1,758 1,610
Weighted average - basic 1,669 1,519
Weighted average - diluted 1,673 1,519
(1) At the end of the first quarter of 2009, Canadian Group Benefits
entered into an external reinsurance agreement which resulted in a
substantial reduction in net premium revenue reported in the income
statement. The Company continues to retain certain benefits and
certain risks on this business and the associated direct premiums
continue to be included in the overall premiums and deposits metric
as "Group Benefits ceded".
(2) Opening retained earnings at January 1, 2008 have been reduced by
$283 million relating to an understatement of policy liabilities and
an understatement of future income tax liabilities relating
primarily to periods prior to the merger with John Hancock Financial
Services, Inc. in April 2004.
(3) Return on common shareholders' equity is net income (loss) available
to common shareholders divided by average common shareholders' equity
excluding accumulated other comprehensive income (loss) on AFS
securities and cash flow hedges.
Summary Consolidated Financial Statements
Consolidated Statements of Operations
(Canadian $ in millions except per share information, unaudited)
For the three
months ended
December 31
2009 2008
-------------------------------------------------------------------------
Revenue
Premium income(1) $ 4,731 $ 7,022
Investment income
Investment income 2,061 1,786
Realized/ unrealized gain (losses) on assets
supporting policy liabilities and consumer notes (1,441) 1,519
Other revenue 1,620 1,323
-------------------------------------------------------------------------
Total revenue $ 6,971 $ 11,650
-------------------------------------------------------------------------
Policy benefits and expenses
To policyholders and beneficiaries
Death, disability and other claims(1) $ 1,029 $ 1,760
Maturity and surrender benefits(2) 1,396 3,179
Annuity payments 778 809
Policyholder dividends and experience rating refunds 324 431
Net transfers to (from) segregated funds (1) 385
Change in actuarial liabilities(2) (48) 4,957
General expenses 954 907
Investment expenses 242 248
Commissions 987 1,096
Interest expense 261 372
Premium taxes 78 78
Non-controlling interest in subsidiaries (10) 24
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Total policy benefits and expenses $ 5,990 $ 14,246
-------------------------------------------------------------------------
Income (loss) before income taxes $ 981 $ (2,596)
Income tax recovery (expense) (136) 727
-------------------------------------------------------------------------
Net income (loss) $ 845 $ (1,869)
Net income (loss) attributed to participating
policyholders (23) 1
-------------------------------------------------------------------------
Net income (loss) attributed to shareholders $ 868 $ (1,870)
Preferred share dividends (20) (8)
-------------------------------------------------------------------------
Net income (loss) available to common shareholders $ 848 $ (1,878)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings (loss) per common share $ 0.51 $ (1.24)
Diluted earnings (loss) per common share $ 0.51 $ (1.24)
(1) At the end of the first quarter of 2009, Canadian Group Benefits
entered into an external reinsurance agreement which resulted in a
substantial reduction in net premium revenue reported in the income
statement. The Company continues to retain certain benefits and
certain risks on this business.
(2) The change in actuarial liabilities includes the impact of scheduled
maturities in John Hancock Fixed Products institutional annuity
contracts of $0.3 billion in Q4 2009 and $1.5 billion in Q4 2008.
Consolidated Balance Sheets
(Canadian $ in millions, unaudited)
As at December 31
Assets 2009(1) 2008(1)
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Invested assets
Cash and short-term securities $ 18,780 $ 17,269
Securities
Bonds 85,107 83,148
Stocks 9,688 8,240
Loans
Mortgages 30,699 30,963
Private placements 22,912 25,705
Policy loans 6,609 7,533
Bank loans 2,457 2,384
Real estate 5,897 6,345
Other investments 5,321 5,914
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Total invested assets $187,470 $187,501
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Other assets
Accrued investment income $ 1,540 $ 1,760
Outstanding premiums 812 799
Goodwill 7,122 7,929
Intangible assets 2,005 2,115
Derivatives 2,680 7,883
Miscellaneous 3,511 3,038
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Total other assets $ 17,670 $ 23,524
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Total assets $205,140 $211,025
-------------------------------------------------------------------------
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Segregated funds net assets $191,741 $165,380
-------------------------------------------------------------------------
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Liabilities and equity
-------------------------------------------------------------------------
Policy liabilities $141,687 $146,344
Deferred realized net gains 108 127
Bank deposits 14,735 12,210
Consumer notes 1,291 1,876
Long-term debt 3,308 3,689
Future income tax liability 1,178 1,794
Derivatives 2,656 6,389
Other liabilities 6,487 7,508
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$171,450 $179,937
Liabilities for preferred shares and
capital instruments 4,581 3,674
Non-controlling interest in subsidiaries 202 217
Equity
Participating policyholders' equity 80 62
Shareholders' equity
Preferred shares 1,422 638
Common shares 18,937 16,157
Contributed surplus 182 160
Retained earnings 12,870 12,796
Accumulated other comprehensive loss (4,584) (2,616)
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Total equity $ 28,907 $ 27,197
-------------------------------------------------------------------------
Total liabilities and equity $205,140 $211,025
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Segregated funds net liabilities $191,741 $165,380
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(1) Opening retained earnings at January 1, 2008 have been reduced by
$283 million relating to an understatement of policy liabilities and
an understatement of future income tax liabilities relating
primarily to periods prior to the merger with John Hancock Financial
Services, Inc. in April 2004.
Notes to Summary Consolidated Financial Statements
(Canadian $ in millions, unaudited)
Note 1: Divisional Information
For the quarter ended December 31, 2009
--------------------------------------------
U.S.
U.S. Wealth Asia and
Premiums and deposits Insurance Management Canadian Japan
-------------------------------------------------------------------------
General fund premiums
excluding variable
annuities(1) $ 1,709 $ 698 $ 967 $ 991
Segregated fund deposits
excluding variable annuities 1,325 3,214 498 527
Mutual fund deposits - 1,907 189 282
Institutional advisory
account deposits - - - -
ASO premium equivalents - - 663 -
Group Benefits ceded(1) - - 919 -
Other fund deposits - 138 - -
Variable annuities premiums
and deposits - 770 860 236
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Total $ 3,034 $ 6,727 $ 4,096 $ 2,036
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Net income (loss) $ (117) $ 671 $ 383 $ 269
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Funds under management As at December 31, 2009
-------------------------------------------------------------------------
General fund $ 55,119 $ 35,482 $ 59,898 $ 24,469
Segregated funds excluding
institutional advisory
accounts 11,431 113,440 36,258 27,218
Mutual funds - 25,044 6,508 1,818
Institutional advisory
accounts - - - -
Other funds - 3,477 - 3,729
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Total $ 66,550 $177,443 $102,664 $ 57,234
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For the quarter ended December 31, 2009
------------------------------------------
Corporate
and
Premiums and deposits Reinsurance Other Total
--------------------------------------------------------------
General fund premiums
excluding variable
annuities(1) $ 279 $ - $ 4,644
Segregated fund deposits
excluding variable annuities - - 5,564
Mutual fund deposits - - 2,378
Institutional advisory
account deposits - 363 363
ASO premium equivalents - - 663
Group Benefits ceded(1) - - 919
Other fund deposits - - 138
Variable annuities premiums
and deposits - - 1,866
--------------------------------------------------------------
Total $ 279 $ 363 $ 16,535
--------------------------------------------------------------
--------------------------------------------------------------
Net income (loss) $ 92 $ (453) $ 845
--------------------------------------------------------------
--------------------------------------------------------------
Funds under management As at December 31, 2009
--------------------------------------------------------------
General fund $ 2,687 $ 9,815 $187,470
Segregated funds excluding
institutional advisory
accounts - (118) 188,229
Mutual funds - - 33,370
Institutional advisory
accounts - 23,342 23,342
Other funds - - 7,206
--------------------------------------------------------------
Total $ 2,687 $ 33,039 $439,617
--------------------------------------------------------------
--------------------------------------------------------------
For the quarter ended December 31, 2008
--------------------------------------------
U.S.
U.S. Wealth Asia and
Premiums and deposits Insurance Management Canadian Japan
-------------------------------------------------------------------------
General fund premiums
excluding variable
annuities $ 1,670 $ 1,259 $ 1,817 $ 1,018
Segregated fund deposits
excluding variable annuities 436 3,447 524 459
Mutual fund deposits - 1,560 95 169
Institutional advisory
account deposits - - - -
ASO premium equivalents - - 633 -
Other fund deposits - 142 - -
Variable annuities premiums
and deposits - 2,809 1,436 674
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Total $ 2,106 $ 9,217 $ 4,505 $ 2,320
-------------------------------------------------------------------------
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Net income (loss) $ 36 $ (1,314) $ (11) $ (441)
-------------------------------------------------------------------------
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Funds under management As at December 31, 2008
-------------------------------------------------------------------------
General fund $ 59,967 $ 39,581 $ 52,314 $ 21,406
Segregated funds excluding
institutional advisory
accounts 10,342 99,133 27,628 24,541
Mutual funds - 21,943 2,320 1,366
Institutional advisory
accounts - - - -
Other funds - 3,279 - 2,658
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Total $ 70,309 $163,936 $ 82,262 $ 49,971
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For the quarter ended December 31, 2008
-----------------------------------------
Corporate
and
Premiums and deposits Reinsurance Other Total
--------------------------------------------------------------
General fund premiums
excluding variable
annuities $ 273 $ - $ 6,037
Segregated fund deposits
excluding variable annuities - 47 4,913
Mutual fund deposits - - 1,824
Institutional advisory
account deposits - 1,025 1,025
ASO premium equivalents - - 633
Other fund deposits - - 142
Variable annuities premiums
and deposits - - 4,919
--------------------------------------------------------------
Total $ 273 $ 1,072 $ 19,493
--------------------------------------------------------------
--------------------------------------------------------------
Net income (loss) $ (14) $ (125) $ (1,869)
--------------------------------------------------------------
--------------------------------------------------------------
Funds under management As at December 31, 2008
--------------------------------------------------------------
General fund $ 2,935 $ 11,298 $187,501
Segregated funds excluding
institutional advisory
accounts - (220) 161,424
Mutual funds - - 25,629
Institutional advisory
accounts - 24,016 24,016
Other funds - - 5,937
--------------------------------------------------------------
Total $ 2,935 $ 35,094 $404,507
--------------------------------------------------------------
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(1) At the end of the first quarter of 2009, Canadian Group Benefits
entered into an external reinsurance agreement which resulted in a
substantial reduction in net premium revenue reported in the income
statement. The Company continues to retain certain benefits and
certain risks on this business and the associated direct premiums
continue to be included in the overall premiums and deposits metric
as "Group Benefits ceded".
Note 2: Comparatives
Certain comparative amounts have been reclassified to conform with the
current period's presentation.
For further information: Media inquiries: David Paterson, (416) 852-8899, [email protected]; Laurie Lupton, (416) 852-7792, [email protected]; Investor Relations: Amir Gorgi, (416) 852-8311, [email protected]
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