Manulife Financial Reports 2014 Net Income Of $3.5 Billion
C$ unless otherwise stated
TSX/
SEHK:945
Made substantive progress on growth strategies in 2014:
- Developing our Asian opportunity to the fullest -Japan (+60%),
China (+28%) andHong Kong (+15%); delivered record wealth sales on a constant currency basis, in line with the levels set in 2013; strengthened our bancassurance footprint by entering into nine new insurance distribution agreements, two of which are exclusive. - Growing our wealth and asset management businesses around the world - Achieved our 25th consecutive quarter of record assets under management; delivered record institutional sales at Manulife Asset Management across a broad variety of mandates, including
$1.1 billion in mandates from our Private Markets business in its inaugural year; generated over$18 billion of net flows into our asset management and group retirement businesses. - Building on our balanced Canadian business - Announced the acquisition of the Canadian-based operations of Standard Life plc, which closed on
January 30, 2015 ; delivered solid Group Retirement Solutions and mutual fund sales; generatedRetail Insurance sales growth, driven by the successful launch of a simplified universal life product; reported lower lending volumes atManulife Bank and a decline in Group Benefits sales amid competitive pressures. - Continuing to drive sustainable earnings and opportunistic growth in the U.S. - Announced our agreement to acquire
New York Life 's Retirement Plan Services ("RPS") business; delivered record wealth sales with strong mutual fund volumes outweighing the negative impact of intensified competitive pressures in the RPS market; continued to build momentum in insurance sales over the course of the year, driven by product changes.
Core earnings1 in 4Q14 and in 2014 were
"In the fourth quarter, we continued the very strong momentum in life insurance sales and delivered record assets under management. But core earnings, due to a variety of experience factors, were below our plan. Also, the macro environment, including low interest rates, produces headwinds for 2015. But for the year as a whole, we dramatically overachieved our goal on net income, delivering
"New business embedded value improved in 2014, thanks to fast-growing sales in
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1 | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
Highlights for the Fourth Quarter of 2014 and Full Year 2014:
- Reported net income attributed to shareholders of
$640 million in 4Q14, down$657 million from the fourth quarter of 2013 ("4Q13"), and$3,501 million in 2014, up$371 million from 2013: - In 4Q14, net income attributed to shareholders included core earnings of
$713 million and items excluded from core earnings which netted to a charge of$73 million . Items excluded from core earnings included charges resulting from adjustments to the fair value of alternative long-duration assets and changes in actuarial methods and assumptions, which were largely offset by the favourable impact of interest rates. - In 2014, net income attributed to shareholders included core earnings of
$2,888 million as well as a number of items excluded from core earnings totaling$613 million . These items included gains from market-related factors and favourable investment-related experience, partly offset by charges related to changes in actuarial methods and assumptions. - Generated core earnings of
$713 million in 4Q14, down$42 million from the third quarter of 2014 ("3Q14"), and$2,888 million in 2014, up$271 million from 2013: - In 4Q14, core earnings declined
$42 million compared with 3Q14 due to unfavourable policyholder experience and the timing of certain expenses, partly offset by the favourable impact of higher new business volumes. - In 2014, core earnings increased
$271 million from 2013, driven by higher fee income on higher asset levels in our wealth management businesses, lower equity hedging costs and the favourable impact of a stronger U.S. dollar, partially offset by unfavourable policyholder experience. - Achieved insurance sales2 of
$760 million in 4Q14, up 20%3 from 4Q13, and$2.5 billion in 2014, down 10% from 2013. Excluding Group Benefits, insurance sales grew by 13% in 2014: - In 4Q14, all three geographies delivered strong growth in insurance sales compared with 4Q13. In Asia, we achieved record sales, with most territories growing at a double digit pace. In
Canada , we had a strong fourth quarter in large case Group Benefits sales. In the U.S., we continued to build momentum in life insurance sales as product enhancements and targeted pricing changes implemented earlier in the year continued to make an impact. - In 2014, insurance sales declined 10% from 2013 largely due to a decrease in Group Benefit sales reflecting our disciplined pricing approach in the very competitive market. Excluding Group Benefits, insurance sales increased 13% in 2014 over the prior year. In
Asia , we achieved record insurance sales on a constant currency basis, up 31% compared with 2013, driven by continued momentum in corporate products inJapan , successful sales campaigns and product launches inHong Kong , and double digit sales growth in our Asia Other businesses. InCanada , retail insurance sales grew reflecting the successful launch of a simplified universal life solution. In the U.S., insurance sales increased sequentially in each quarter of the year, but decreased compared with 2013 amid a sluggish estate planning market.
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2 | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
3 | Growth (declines) in sales, premiums and deposits and assets under management are stated on a constant currency basis. Constant currency basis is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
- Generated wealth sales of
$13.8 billion in 4Q14 and achieved record sales of$52.6 billion in 2014, reflecting 6% and 1% increases from 4Q13 and 2013, respectively. Excluding Manulife Bank, wealth sales grew by 3% in 2014:- In 4Q14, wealth sales increased 6% compared with 4Q13. New bank loan volumes (which we include in wealth sales) declined due to competitive rate pressures in a slowing residential mortgage market. Excluding bank loan volumes, wealth sales increased 9% compared with 4Q13. In Asia, wealth sales continued to demonstrate strong momentum, growing 64% from 4Q13, benefiting from new product launches, marketing campaigns and improved market sentiment. In
Canada , group retirement sales increased with strong sales of defined contribution plans. In the U.S., wealth sales were in line with the prior year, reflecting continued strong mutual fund sales. - In 2014, we delivered record full year wealth sales, with solid contributions from all three geographies. In
Asia , sales trended upward throughout the year as a result of new product launches, marketing campaigns, and improved market sentiment. InCanada , wealth sales excluding bank loan volumes rose, led by our second highest annual group retirement sales. In the U.S., mutual fund sales continued to be strong and outpaced the industry4, outweighing the negative impact of intensified competitive pressures in the group retirement market.
- In 4Q14, wealth sales increased 6% compared with 4Q13. New bank loan volumes (which we include in wealth sales) declined due to competitive rate pressures in a slowing residential mortgage market. Excluding bank loan volumes, wealth sales increased 9% compared with 4Q13. In Asia, wealth sales continued to demonstrate strong momentum, growing 64% from 4Q13, benefiting from new product launches, marketing campaigns and improved market sentiment. In
- Achieved 25th consecutive quarter of record assets under management5 of
$691 billion atDecember 31, 2014 , an increase of$92 billion , or 9% on a constant currency basis, compared with the prior year.
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4 | Strategic Insight: ICI Confidential. Direct Sold mutual funds, fund-of-funds and ETF's are excluded. Organic sales growth rate is calculated as: net new flows divided by beginning period assets. Industry data through |
5 | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
- Announced two acquisitions in 2014 that will accelerate our strategy to grow our wealth and asset management businesses around the world:
- In
Canada , we announced an agreement to acquire the Canadian-based operations of Standard Life plc, which will increase our presence inQuebec and accelerate our growth strategy inCanada , particularly for our wealth and asset management businesses. The transaction closed onJanuary 30, 2015 . - In the U.S., we announced an agreement to acquire New York Life Insurance Company's RPS business. By joining
New York Life 's strength and expertise in the mid- and large-plan segments with our leadership in the small-plan segment, we will significantly expand our market presence and become one of the major group retirement plan providers in the U.S. This transaction is expected to close in the first half of 2015, subject to regulatory approvals and other customary closing conditions. - Reported a
Minimum Continuing Capital and Surplus Requirements ("MCCSR") ratio for TheManufacturers Life Insurance Company ("MLI") of 248% at the end of 2014, the same ratio as atSeptember 30, 2014 andDecember 31, 2013. MFC's financial leverage ratio was 27.8% atDecember 31, 2014 compared with 27.1% atSeptember 30, 2014 and 31.0% at the end of 2013. - In 2014, we issued
$2.26 billion of subscription receipts that were exchanged for common shares onJanuary 30, 2015 as a result of the closing of the acquisition of the Canadian-based operations of Standard Life plc. On a pro forma basis, had the transaction closed onDecember 31, 2014 , the MCCSR ratio would have been in the range of 235% to 240% and our leverage ratio would have been approximately 27.1%. - Delivered
$2.4 billion in remittances6 from operating divisions to the group in 2014, in line with 2013. OurAsia , Canadian and U.S. Divisions were able to remit a high proportion of their earnings. - Achieved run rate Efficiency and Effectiveness savings in excess of
$300 million pre-tax as atDecember 31, 2014 , up from approximately$200 million pre-tax run rate savings7 at the end of 2013. We continued to make substantial progress with our Efficiency and Effectiveness ("E&E") initiative, with projects being completed at a faster pace than originally anticipated. In 2014, we achieved approximately$200 million in net pre-tax savings, which enabled us to fund new strategic initiatives to accelerate our long-term earnings growth. We remain on track to achieve$400 million in pre-tax E&E savings in 20168. - Generated new business embedded value ("NBEV")9 of
$355 million in 4Q14 and$1,274 million in 2014, reflecting 12% and 6% increases from 4Q13 and 2013, respectively. The growth in NBEV in 4Q14 and in the full year of 2014 compared with prior year periods was primarily driven by the growth in our insurance sales inAsia and a more favourable business mix.
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6 | Remittances are defined as cash remitted by operating subsidiaries and excess capital generated by stand-alone Canadian operations, and available for deployment by Manulife. |
7 | Pre-tax run-rate savings represent cumulative annualized savings from the E&E initiative. |
8 | See "Caution regarding forward-looking statements" below. |
9 | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
Financial Highlights
Quarterly Results | Full Year Results | |||||||||||||||
4Q 2014 | 3Q 2014 | 4Q 2013 | 2014 | 2013 | ||||||||||||
Net income attributed to shareholders | $ | 640 | $ | 1,100 | $ | 1,297 | $ | 3,501 | $ | 3,130 | ||||||
Preferred share dividends | (28) | (28) | (34) | (126) | (131) | |||||||||||
Common shareholders' net income | $ | 612 | $ | 1,072 | $ | 1,263 | $ | 3,375 | $ | 2,999 | ||||||
Reconciliation of core earnings to net income attributed to shareholders: | ||||||||||||||||
Core earnings(1) | $ | 713 | $ | 755 | $ | 685 | $ | 2,888 | $ | 2,617 | ||||||
Investment-related experience in excess of amounts included in core earnings | (403) | 320 | 215 | 359 | 706 | |||||||||||
Core earnings and investment-related experience in excess of amounts included in core earnings | $ | 310 | $ | 1,075 | $ | 900 | $ | 3,247 | $ | 3,323 | ||||||
Other items to reconcile core earnings to net income attributed to shareholders: | ||||||||||||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities | 377 | 70 | (81) | 412 | (336) | |||||||||||
Changes in actuarial methods and assumptions | (59) | (69) | (133) | (198) | (489) | |||||||||||
Disposition of |
12 | - | 350 | 12 | 350 | |||||||||||
Other items(2) | - | 24 | 261 | 28 | 282 | |||||||||||
Net income attributed to shareholders | $ | 640 | $ | 1,100 | $ | 1,297 | $ | 3,501 | $ | 3,130 | ||||||
Basic earnings per common share (C$) | $ | 0.33 | $ | 0.58 | $ | 0.69 | $ | 1.82 | $ | 1.63 | ||||||
Diluted earnings per common share (C$) | $ | 0.33 | $ | 0.57 | $ | 0.68 | $ | 1.80 | $ | 1.62 | ||||||
Diluted core earnings per common share (C$)(1) | $ | 0.36 | $ | 0.39 | $ | 0.35 | $ | 1.48 | $ | 1.34 | ||||||
Return on common shareholders' equity ("ROE") | 8.1% | 14.8% | 20.2% | 11.9% | 12.8% | |||||||||||
Core ROE (1) | 9.0% | 10.1% | 10.4% | 9.8% | 10.6% | |||||||||||
Assets under management (C$ billions)(1) | $ | 691 | $ | 663 | $ | 599 | $ | 691 | $ | 599 |
(1) | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
(2) | The 4Q13 gain of |
SALES AND BUSINESS GROWTH
Asia Division
Insurance sales of
Japan insurance sales ofUS$141 million increased 46% driven by the continued momentum of corporate products augmented by growth in retail sales across all distribution channels. Full year 2014 insurance sales ofUS$589 million increased 60% compared with 2013.Hong Kong insurance sales ofUS$98 million increased 12% driven by successful sales campaigns and product launches, including a first-in-market multiple critical illness product. Full year 2014 insurance sales ofUS$293 million increased 15% compared with 2013.Indonesia insurance sales ofUS$34 million were slightly lower than last year as strong growth in our bancassurance business did not fully offset lower agency sales. Full year 2014 insurance sales ofUS$114 million increased 8% compared with 2013.- Asia Other (excludes
Japan ,Hong Kong andIndonesia ) insurance sales ofUS$91 million increased 52%. We delivered double digit growth in all markets, except forThailand .Singapore andChina grew 81% and 55%, respectively. Full year 2014 insurance sales ofUS$282 million increased 17% compared with 2013.
Wealth sales of
Japan wealth sales ofUS$453 million almost doubled, driven by the continued success of our single premium product as bank distribution reach expanded together with strong momentum in captive and independent agency channels. Full year wealth sales ofUS$1.5 billion decreased 11% in 2014 compared with 2013 as strong sales of theStrategic Income Fund in the first half of 2013 did not recur due to a shift in investor preference from bonds to equities.Hong Kong wealth sales ofUS$334 million increased 18% driven by pension sales, reflecting successful sales campaigns. Full year wealth sales ofUS$1.2 billion increased 6% in 2014 compared with 2013.Indonesia wealth sales ofUS$269 million increased 246% as a result of improved market sentiment. Full year wealth sales ofUS$851 million increased 4% in 2014 compared with 2013.- Asia Other wealth sales of
US$1.4 billion increased 56%. We delivered double digit growth in all markets, except forThailand andTaiwan , driven by higher mutual fund sales inChina andMalaysia and improved single premium unit-linked sales inthe Philippines . Full year wealth sales ofUS$4.4 billion in 2014 increased 5% compared with 2013.
Canadian Division
"We ended the year with record mutual funds assets under management10 and 25 Four- or Five-Star Morningstar rated mutual funds.11 Excluding new bank loan volumes, our 2014 wealth sales increased 3% compared with full year 2013, and our 2014
Wealth sales of
- Mutual Funds assets under management were a record
$33.4 billion atDecember 31, 2014 , increasing 21% year-over-year reflecting positive net sales and equity market appreciation. Gross deposits11,12 of$6.3 billion in 2014 and$1.6 billion in 4Q14 were 5% and 4% lower than comparative periods in 2013, respectively, as investor preference shifted toward equities where we continue to build our presence with a growing suite of equity funds. - Segregated Fund Products13sales of
$1.6 billion for the year and$400 million in 4Q14 were 7% and 3% higher than the comparative periods in 2013, respectively. Fixed Products salesof$297 million for the year and$67 million in 4Q14 were 22% and 27% lower than comparative periods in 2013, respectively, reflecting our deliberate rate positioning in this market. - Group Retirement Solutions delivered our second highest annual sales on record with 2014 sales of
$1.6 billion , 16% higher than 2013, reflecting strong growth in the defined contribution market. Sales of$529 million in 4Q14 increased 33% compared with 4Q13. Manulife Bank new lending volumes continued to reflect the impact of intense rate competition in a slowing residential mortgage market. New loan volumes were$770 million in 4Q14 and$3.2 billion for the year, 26% and 22% below the comparative 2013 periods, respectively. Net lending assets were$19.4 billion as atDecember 31, 2014 a 2% increase compared with 2013.
Insurance sales in 4Q14 of
- Retail Markets full year 2014 insurance sales were
$167 million , 4% higher than 2013 reflecting the success of our simplified universal life product, Manulife UL, in the second half of the year. Sales in 4Q14 of$49 million increased 20% compared with 3Q14 and were 4% higher than 4Q13. - Institutional Markets 4Q14 insurance sales of
$123 million increased 7% compared with 4Q13 due to sales in the large case group benefits segment. Full year 2014 sales of$411 million were 57% lower than 2013, reflecting strong competitive pressures and our disciplined pricing approach in the large case group benefits segment.
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10 | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
11 | For each fund with at least a 3-year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return that accounts for variation in a fund's monthly performance (including effects of sales charges, loads and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category, the next 22.5%, 35%, 22.5% and bottom 10% receive 5, 4, 3, 2 or 1 star, respectively. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance associated with its 3-, 5- and 10 year (if applicable) Morningstar Rating metrics. Past performance is no guarantee of future results. The overall rating includes the effects of sales charges, loads and redemption fees, while the load-waived does not. Load-waived rating for Class A shares should only be considered by investors who are not subject to a front-end sales charge. |
12 | Gross mutual fund deposits include deposits from segregated fund products of |
13 | Segregated fund products include guarantees. These products are also referred to as variable annuities. |
U.S. Division
Wealth sales were
- JH Investments 4Q14 sales of
US$5.8 billion and full year 2014 sales ofUS$24.7 billion represented increases of 4% and 6%, respectively, compared with comparative periods in 2013. Record full year sales were aided by strong fund performance and the ability to get products on to recommended lists and into wirehouse firms' investment allocation models. Our results continue to outpace the industry as our 12-month trailing organic growth rate throughDecember 2014 (calculated as net new flows as percentage of beginning assets) was 18.9% versus the industry rate of 1.0%, placing us 3rd in the industry in terms of growth.14 JH Investments redemption rates continue to outperform the industry with a favourable downward trend, while industry redemptions continue to trend upward.15 Assets under management reached a recordUS$74.8 billion atDecember 31, 2014 , a 23% increase from the prior year end. - JH Retirement Plan Services ("JH RPS") 4Q14 sales were
US$1.4 billion andUS$4.5 billion for the full year, representing decreases of 14% and 8%, respectively, compared with comparative periods in 2013. Our mid-market product, Enterprise, contributed full year sales ofUS$209 million compared withUS$41 million in 2013. Continued repricing initiatives are underway to regain share in an intensely competitive market while we continue to garner significant attention in the industry with our fee transparency initiative. - At the end of 2014, John Hancock announced an agreement to acquire
New York Life 's retirement plan services business andNew York Life net reinsuring 60% of the legacy John Hancock par life insurance block. While the transaction is subject to regulatory approvals and other customary closing conditions, it is expected to close in the first half of 2015. When completed, our 401(k) assets under administration will increase by approximately 60% to someUS$135 billion , representing 55,000 plans and over 2.5 million participants. This transaction is expected to provide a significant positive impact to JH RPS sales and retention efforts in 2015.16
Insurance sales were
- John Hancock Life ("JH Life") 4Q14 sales of
US$140 million were 13% higher than 4Q13 as product enhancements implemented in early 2014 continued to make an impact. Full year 2014 sales ofUS$439 million were 14% below full year 2013, driven by a challenging 1Q14 and a sluggish estate planning market. Sales have increased sequentially in each quarter of the year, led by continued sales momentum in our flagship protection universal life product as well as from new offerings including variable universal life and international products. - John Hancock Long-Term Care 4Q14 sales of
US$14 million were 8% higher than 4Q13 and full year 2014 sales ofUS$62 million were 17% higher than 2013, driven by group inflation buy-up offerings in 4Q14 and bi-annual buy-up activity on Federal plans in 1Q14.
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14 | Strategic Insight: ICI Confidential. Direct Sold mutual funds, fund-of-funds and ETF's are excluded. Organic sales growth rate is calculated as net new flows divided by beginning period assets. Industry data through |
15 | Strategic Insight SIMFUND. Net sales (net new flows) is calculated using retail long-term open end mutual funds for managers in the Intermediary-Sold channel. Figures exclude money market and 529 share classes. |
16 | See "Caution regarding forward-looking statements" below. |
Investment Division
At
CORPORATE ITEMS
In a separate news release today, the Company announced that the Board of Directors approved a quarterly shareholders' dividend of
The Board of Directors also approved that, in respect of MFC's
Awards & Recognition
In
In
In
In the U.S., John Hancock Investments received five STAR awards from the
Notes:
The conference call will also be webcast through
The Fourth Quarter 2014 Statistical Information Package is also available on the
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") is current as of
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 Risk Factors" and "Critical Accounting and Actuarial Policies" in the MD&A in our 2013 Annual Report, and the "Risk Management" note to the consolidated financial statements in our most recent annual and interim reports.
In this MD&A, the terms "Company", "Manulife", "we" and "our" mean
Contents | ||||||
A | OVERVIEW | D | RISK MANAGEMENT AND RISK FACTORS UPDATE | |||
1. | Earnings | 1. | Potential Impact of current macro environment | |||
2. | Sales | 2. | Variable annuity and segregated fund guarantees | |||
3. | Capital | 3. | Caution related to sensitivities | |||
4. | Efficiency and Effectiveness initiative | 4. | Publicly traded equity performance risk | |||
5. | Standard Life transaction | 5. | Interest rate and spread risk | |||
6. | Alternative long-duration asset performance risk | |||||
B | FINANCIAL PERFORMANCE | |||||
1. | Fourth quarter earnings analysis | E | ACCOUNTING MATTERS AND CONTROLS | |||
2. | Full year earnings analysis | 1. | Critical accounting and actuarial policies | |||
3. | Revenue | 2. | Sensitivity of policy liabilities to updates to assumptions | |||
Premiums and deposits | 3. | Accounting and reporting changes | ||||
5. | Assets under management | |||||
6. | Capital | F | OTHER | |||
7. | Impact of fair value accounting | 1. | Performance and Non-GAAP measures | |||
8. | Impact of foreign exchange rates | 2. | Key planning assumptions and uncertainties | |||
3. | Caution regarding forward-looking statements | |||||
C | PERFORMANCE BY DIVISION | |||||
1. | ||||||
2. | Canadian | |||||
3. | U.S. | |||||
4. | Corporate and Other |
A OVERVIEW
A1 Earnings
Manulife's 4Q14 net income attributed to shareholders was
The
With respect to items excluded from 4Q14 core earnings, fair value losses related to the impact of the sharp decline in oil prices on investments held in
Items excluded from core earnings in 4Q13 included strong investment-related experience and the one-time gains related to the sale of our
Manulife's full year 2014 net income attributed to shareholders was
The
The
The investment-related experience gains are a combination of reported investment experience as well as the impact of investing activities on the measurement of our policy liabilities. Investment-related experience gains in 2014 of
A2 Sales
Insurance sales17 were
In 4Q14, all three geographies delivered strong growth in insurance sales compared with 4Q13. In
In 2014, insurance sales declined 10% compared with 2013 largely due to a decrease in Group Benefits sales reflecting our disciplined approach to pricing in the very competitive market. Excluding Group Benefits, insurance sales increased 13% in 2014. In Asia, we achieved record insurance sales, up 31% over 2013, driven by continued momentum in corporate products in
Wealth sales were
In 4Q14, wealth sales increased 6% compared with 4Q13. New bank loan volumes (which we include in wealth sales) declined due to competitive rate pressures in a slowing residential mortgage market. Excluding new bank loan volumes, wealth sales increased 9% from 4Q13. In
In 2014, we delivered record full year wealth sales, with solid contributions from all three geographies. In
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17 | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
18 | Growth (declines) in sales, premiums and deposits and assets under management are stated on a constant currency basis. Constant currency basis is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
A3 MCCSR and financial leverage ratio
During 2014 we raised
We also issued
A4 Update on Efficiency and Effectiveness initiative
Our Efficiency and Effectiveness ("E&E") initiative, announced
Over the next four years, we also plan to invest a significant amount in projects in order to realize our strategic vision. The amount of that investment is subject to change as our strategy unfolds. In particular, we intend to ensure that projects are appropriately sequenced and prioritized given recent headwinds.
A5 Acquisition of Canadian-based operations of Standard Life plc
On
On
The following table summarizes the unaudited assets and liabilities of the Canadian-based operations of Standard Life plc as at
(C$ millions, unaudited) | As at |
|||
Assets | ||||
Invested assets | $ | 18,670 | ||
Other assets | 970 | |||
Segregated funds' net assets | 31,251 | |||
Total assets | $ | 50,891 | ||
Liabilities | ||||
Insurance and investment contract liabilities | $ | 16,271 | ||
Other liabilities | 771 | |||
Subordinated debentures | 403 | |||
Segregated funds' net liabilities | 31,251 | |||
Total liabilities | $ | 48,696 | ||
Net assets acquired | $ | 2,195 |
The difference between the purchase price and the determination of the final fair value of tangible net assets acquired as of
This transaction significantly builds the Company's capability to serve customers in all of
- Adds
$20.9 billion in assets under administration19 in capital accumulation plans to our group retirement business inCanada , bringing our total group retirement assets under administration in capital accumulation plans inCanada to$46.1 billion ; - adds
$6.5 billion in assets under management to our mutual funds business inCanada , bringing our total mutual fund assets under management19 inCanada to$39.6 billion 20; and, - adds
$0.7 billion in premiums and deposits to our Canadian group benefits business, bringing our total Canadian group benefits premiums and deposits inCanada to$7.8 billion .
Transaction highlights21:
- Excluding transition and integration costs, after the first year we expect the transaction to be accretive by approximately
$0.03 to earnings per common share ("EPS") per year over each of the next 3 years. It will also increase our earnings capacity beyond our 2016 core earnings objective of$4 billion . - The transaction, and the financing, maintain our strong capital position and financial flexibility, and in no way inhibit our ability to pay dividends. In fact, it will enhance our ability to increase dividends in the future.
- We believe the transaction will improve core earnings, however the transition costs reported in core earnings will create a modest, temporary headwind on our core return on common shareholders' equity ("Core ROE") 2016 objective of 13%.
- Excluding transition and integration costs, the transaction is expected to be marginally accretive to EPS in the 1st year.
- The transaction increases earnings contributions from less capital intensive, fee-based businesses.
- Integration costs totaling
$150 million post-tax are expected to be incurred in the first 3 years and we expect revenue synergies which will build over time. - Annual cost savings of
$100 million post-tax are expected to be largely achieved by the 3rd year. - At the time of announcement, we indicated we were targeting an MCCSR ratio in the range of 235% to 240% at close. The pro forma ratio assuming we had closed on
December 31, 2014 would have been in that range. - We also indicated that we were targeting a financial leverage ratio of approximately 28% at close. The pro forma ratio assuming we had closed on
December 31, 2014 would have been approximately 27.1%. - We continue to target a 25% financial leverage ratio over the long-term.
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19 | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
20 | Based on |
21 | See "Caution regarding forward-looking statements" and "Performance and Non-GAAP Measures" below. |
B FINANCIAL HIGHLIGHTS
Quarterly Results | Full Year Results | ||||||||||||||||
(C$ millions, unless otherwise stated, unaudited) | 4Q 2014 | 3Q 2014 | 4Q 2013 | 2014 | 2013 | ||||||||||||
Net income attributed to shareholders | $ | 640 | $ | 1,100 | $ | 1,297 | $ | 3,501 | $ | 3,130 | |||||||
Preferred share dividends | (28) | (28) | (34) | (126) | (131) | ||||||||||||
Common shareholders' net income | $ | 612 | 1,072 | $ | 1,263 | $ | 3,375 | $ | 2,999 | ||||||||
Reconciliation of core earnings to net income attributed to shareholders: |
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Core earnings(1) | $ | 713 | $ | 755 | $ | 685 | $ | 2,888 | $ | 2,617 | |||||||
Investment-related experience in excess of amounts included in core earnings |
(403) | 320 | 215 | 359 | 706 | ||||||||||||
Core earnings and investment-related experience in excess of amounts included in core earnings |
$ | 310 | $ | 1,075 | $ | 900 | $ | 3,247 | $ | 3,323 | |||||||
Other items to reconcile core earnings to net income attributed to shareholders: |
|||||||||||||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities |
377 | 70 | (81) | 412 | (336) | ||||||||||||
Changes in actuarial methods and assumptions | (59) | (69) | (133) | (198) | (489) | ||||||||||||
Disposition of |
12 | - | 350 | 12 | 350 | ||||||||||||
Impact of in-force product changes and other (2) | - | 24 | 261 | 28 | 282 | ||||||||||||
Net income attributed to shareholders | $ | 640 | $ | 1,100 | $ | 1,297 | $ | 3,501 | $ | 3,130 | |||||||
Basic earnings per common share (C$) | $ | 0.33 | $ | 0.58 | $ | 0.69 | $ | 1.82 | $ | 1.63 | |||||||
Diluted earnings per common share (C$) | $ | 0.33 | $ | 0.57 | $ | 0.68 | $ | 1.80 | $ | 1.62 | |||||||
Diluted core earnings per common share(C$)(1) | $ | 0.36 | $ | 0.39 | $ | 0.35 | $ | 1.48 | $ | 1.34 | |||||||
Return on common shareholders' equity ("ROE") | 8.1% | 14.8% | 20.2% | 11.9% | 12.8% | ||||||||||||
Core ROE (1) | 9.0% | 10.1% | 10.4% | 9.8% | 10.6% | ||||||||||||
Sales(1) | |||||||||||||||||
Insurance products(3) | $ | 760 | $ | 660 | $ | 617 | $ | 2,544 | $ | 2,757 | |||||||
Wealth products | $ | 13,762 | $ | 11,742 | $ | 12,241 </td> | $ | 52,604 | $ | 49,681 | |||||||
Premiums and deposits(1) | |||||||||||||||||
Insurance products | $ | 6,649 | $ | 6,455 | $ | 6,169 | $ | 25,015 | $ | 24,549 | |||||||
Wealth products | $ | 18,863 | $ | 15,632 | $ | 15,367 | $ | 72,986 | $ | 63,701 | |||||||
Assets under management(C$ billions)(1) | $ | 691 | $ | 663 | $ | 599 | $ | 691 | $ | 599 | |||||||
Capital(C$ billions)(1) | $ | 39.6 | $ | 37.7 | $ | 33.5 | $ | 39.6 | $ | 33.5 | |||||||
MLI's MCCSR ratio | 248% | 248% | 248% | 248% | 248% |
(1) | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
(2) | For a more detailed description see Section B1 below. |
(3) | Insurance sales have been adjusted to exclude |
B1 Fourth quarter earnings analysis
The table below reconciles 4Q14 net income attributed to shareholders of
(C$ millions, unaudited) | 4Q 2014 | 3Q 2014 | 4Q 2013 | ||||||
Core earnings(1) | |||||||||
Asia Division(2) | $ | 260 | $ | 273 | $ | 227 | |||
Canadian Division(2) | 224 | 243 | 233 | ||||||
U.S. Division(2) | 338 | 342 | 366 | ||||||
Corporate and Other (excluding expected cost of macro hedges and core investment gains) |
(112) | (107) | (138) | ||||||
Expected cost of macro hedges(2),(3) | (47) | (46) | (53) | ||||||
Investment-related experience in core earnings(4) | 50 | 50 | 50 | ||||||
Core earnings | $ | 713 | $ | 755 | $ | 685 | |||
Investment-related experience in excess of amounts included in core earnings(4) | (403) | 320 | 215 | ||||||
Core earnings and investment-related experience in excess of amounts included in core earnings |
$ | 310 | $ | 1,075 | $ | 900 | |||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities (see table below)(4),(5) |
377 | 70 | (81) | ||||||
Changes in actuarial methods and assumptions(6) | (59) | (69) | (133) | ||||||
Disposition of |
12 | - | 350 | ||||||
Impact of in-force product changes and other items(7) | - | 24 | 261 | ||||||
Net income attributed to shareholders | $ | 640 | $ | 1,100 | $ | 1,297 |
(1) | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
(2) | The decrease in expected macro hedge cost in 4Q14 compared with 4Q13 was partially offset by an increase in dynamic hedging costs included in |
(3) | The 4Q14 net loss from macro equity hedges was |
(4) | As outlined under "Critical Accounting and Actuarial Policies" below, net insurance contract liabilities under IFRS for Canadian insurers are determined using the Canadian Asset Liability Method ("CALM"). Under CALM, the measurement of policy liabilities includes estimates regarding future expected investment income on assets supporting the policies. Experience gains and losses are reported when current period activity differs from what was assumed in the policy liabilities at the beginning of the period. These gains and losses can relate to both the investment returns earned in the period, as well as to the change in our policy liabilities driven by the impact of current period investing activities on future expected investment income assumptions. The direct impact of equity markets and interest rates is separately reported. The inclusion of up to |
(5) | The direct impact of equity markets and interest rates is relative to our policy liability valuation assumptions and includes changes to interest rate assumptions, including experience gains and losses on derivatives associated with our macro equity hedges. We also include gains and losses on derivative positions and the sale of available-for-sale ("AFS") bonds in the Corporate and Other segment. See table below for components of this item. Until 3Q14 this also included a quarterly ultimate reinvestment rate ("URR") update. |
(6) | The 4Q14 charge of |
(7) | The 4Q13 gain of |
The gain (charge) related to the direct impact of equity markets and interest rates and variable annuity guarantee liabilities in the table above is attributable to:
C$ millions, unaudited | 4Q 2014 | 3Q 2014 | 4Q 2013 | ||||||
Direct impact of equity markets and variable annuity guarantee liabilities(1) | $ | (142) | $ | (35) | $ | 105 | |||
Fixed income reinvestment rates assumed in the valuation of policy liabilities(2) | 533 | 165 | (105) | ||||||
Sale of AFS bonds and derivative positions in the Corporate and Other segment | (14) | (15) | (55) | ||||||
Charges due to lower fixed income URR assumptions used in the valuation of policy liabilities(3) |
- | (45) | (26) | ||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities |
$ | 377 | $ | 70 | $ | (81) |
(1) | In 4Q14, gross equity exposure losses of |
(2) | The gain in 4Q14 for fixed income reinvestment assumptions was driven by the favourable impact on the measurement of policy liabilities of changes in yield curves and spreads primarily in the U.S. and |
(3) | The periodic URR charges have ceased effective 4Q14 due to revisions to the Canadian Actuarial Standards of Practice related to economic reinvestment assumptions. |
B2 Full year earnings analysis
The table below reconciles the full year 2014 net income attributed to shareholders of
(C$ millions, unaudited) | ||||||||
For the years ended |
2014 | 2013 | ||||||
Core earnings(1) | ||||||||
Asia Division(2) | $ | 1,008 | $ | 921 | ||||
Canadian Division(2) | 927 | 905 | ||||||
U.S. Division(2) | 1,383 | 1,510 | ||||||
Corporate and Other (excluding expected cost of macro hedges and core investment gains) |
(446) | (506) | ||||||
Expected cost of macro hedges(2),(3) | (184) | (413) | ||||||
Investment-related experience in core earnings(4) | 200 | 200 | ||||||
Total Core earnings | $ | 2,888 | $ | 2,617 | ||||
Investment-related experience in excess of amounts included in core investment gains(4) | 359 | 706 | ||||||
Core earnings and investment-related experience in excess of amounts included in core earnings |
$ | 3,247 | $ | 3,323 | ||||
Changes in actuarial methods and assumptions(5) | (198) | (489) | ||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities(4),(6) (see table below) |
412 | (336) | ||||||
Disposition of |
12 | 350 | ||||||
Impact of in-force product changes and other items(7) | 24 | 261 | ||||||
Material and exceptional tax related items(8) | 4 | 47 | ||||||
Restructuring charge related to organizational design | - | (26) | ||||||
Net income attributed to shareholders | $ | 3,501 | $ | 3,130 |
(1) | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
(2) | The decrease in expected macro hedge cost in 2014 compared with 2013 was partially offset by an increase in dynamic hedging costs included in |
(3) | The 2014 net loss from macro equity hedges was |
(4) | As outlined under Critical Accounting and Actuarial Policies, net insurance contract liabilities under IFRS for Canadian insurers are determined using CALM. Under CALM, the measurement of policy liabilities includes estimates regarding future expected investment income on assets supporting the policies. Experience gains and losses are reported when current period activity differs from what was assumed in the policy liabilities at the beginning of the period. These gains and losses can relate to both the investment returns earned in the period, as well as to the change in our policy liabilities driven by the impact of current period investing activities on future expected investment income assumptions. The direct impact of markets is reported separately. The inclusion of up to |
(5) | Of the |
(6) | The direct impact of equity markets and interest rates is relative to our policy liability valuation assumptions and includes changes to interest rate assumptions, as well as experience gains and losses on derivatives associated with our macro equity hedges. We also include gains and losses on derivative positions and the sale of AFS bonds in the Corporate and Other segment. See table below for components of this item. |
(7) | The 2014 the amount relates to the recapture of a reinsurance treaty in |
(8) | The |
The gain (loss) related to the direct impact of equity markets and interest rates and variable annuity guarantee liabilities included in the table above is attributable to:
(C$ millions, unaudited) | ||||||
For the years ended |
2014 | 2013 | ||||
Direct impact of equity markets and variable annuity guarantee liabilities(1) | $ | (182) | $ | 458 | ||
Fixed income reinvestment rates assumed in the valuation of policy liabilities(2) | 729 | (276) | ||||
Sale of AFS bonds and derivative positions in the Corporate and Other segment | (40) | (262) | ||||
Charges due to lower fixed income URR assumptions used in the valuation of policy liabilities(3) | (95) | (256) | ||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities | $ | 412 | $ | (336) |
(1) | In 2014, gross equity exposure losses of |
(2) | The gain in 2014 for fixed income reinvestment assumptions was driven by the favourable impact on the measurement of policy liabilities of changes in yield curves and spreads primarily in the U.S. and |
(3) | The periodic URR charges have ceased effective 4Q14 due to revisions to the Canadian Actuarial Standards of Practice related to economic reinvestment assumptions. |
B3 Revenue
Quarterly Results | Full Year Results | ||||||||||||||
(C$ millions, unaudited) | 4Q 2014 | 3Q 2014 | 4Q 2013 | 2014 | 2013 | ||||||||||
Net premium income | $ | 4,849 | $ | 4,641 | $ | 4,548 | $ | 17,883 | $ | 17,510 | |||||
Investment income | 2,681 | 2,618 | 2,632 | 10,808 | 9,860 | ||||||||||
Other revenue (1) | 2,301 | 2,207 | 2,633 | 8,739 | 8,876 | ||||||||||
Revenue before realized and unrealized gains (losses) on assets supporting insurance and investment contract liabilities and on macro hedging program | 9,831 | 9,466 | 9,813 | 37,430 | 36,246 | ||||||||||
Realized and unrealized gains (losses) on assets supporting insurance and investment contract liabilities and on macro hedging program |
6,182 | 1,561 | (2,783) | 17,092 | (17,607) | ||||||||||
Total revenue | $ | 16,013 | $ | 11,027 | $ | 7,030 | $ | 54,522 | $ | 18,639 |
(1) | Other revenue in 4Q13 and full year 2013 includes a pre-tax gain of |
For the full year 2014, revenue before realized and unrealized gains (losses) was
The change in net unrealized and realized gains (losses) on assets supporting insurance and investment contract liabilities and on the macro hedging program primarily related to the impact of movements in interest rates on the fair value of our bond and fixed income derivative holdings. In 2014, the general decrease in interest rates resulted in an increase in revenue while in 2013 the general increase in interest rates resulted in a decrease in revenue.
Please see discussion below in section B7 "Impact of fair value accounting".
B4 Premiums and deposits22
Premiums and deposits is used as an alternate measure of our top line growth, as it includes all new policyholder cash flows and unlike total revenue is not impacted by the volatility created by fair value accounting. Premiums and deposits for insurance products were
Premiums and deposits for wealth products were
B5 Assets under management22
Assets under management as at
B6 Capital22
MFC's total capitalas at
____________________________ | |
22 | This item is a non-GAAP measure. See "Performance and Non-GAAP Measures" below. |
B7 Impact of fair value accounting
Fair value accounting policies affect the measurement of both our assets and our liabilities. The impact on the measurement of both assets and liabilities of investment activities and market movements are reported as experience gains (losses) on investments, the direct impact of equity markets and interest rates and variable annuity guarantees, each of which impacts net income (see sections A1 and A2 above for discussion of fourth quarter and full year experience).
Net realized and unrealized gains reported in investment income were
As outlined in the "Critical Accounting and Actuarial Policies" in our 2013 Annual Report MD&A, net insurance contract liabilities under IFRS are determined using CALM, as required by the
B8 Impact of foreign exchange rates
Changes in foreign exchange rates, primarily due to the strengthening of the U.S. dollar compared to the Canadian dollar, increased core earnings by
C PERFORMANCE BY DIVISION
C1 Asia Division
($ millions, unless otherwise stated) | Quarterly results | Full year results | |||||||||||||
Canadian dollars | 4Q 2014 | 3Q 2014 | 4Q 2013 | 2014 | 2013 | ||||||||||
Net income attributed to shareholders | $ | 336 | $ | 332 | $ | 725 | $ | 1,247 | $ | 2,519 | |||||
Core earnings(1) | 260 | 273 | 227 | 1,008 | 921 | ||||||||||
Premiums and deposits | 5,256 | 4,691 | 3,680 | 17,897 | 16,504 | ||||||||||
Assets under management (billions) | 87.1 | 84.5 | 76.6 | 87.1 | 76.6 | ||||||||||
U.S. dollars | |||||||||||||||
Net income attributed to shareholders | $ | 297 | $ | 305 | $ | 690 | $ | 1,129 | $ | 2,451 | |||||
Core earnings | 229 | 251 | 216 | 913 | 893 | ||||||||||
Premiums and deposits | 4,627 | 4,308 | 3,509 | 16,185 | 16,062 | ||||||||||
Assets under management (billions) | 75.1 | 75.4 | 72.0 | 75.1 | 72.0 |
(1) | See "Performance and Non-GAAP Measures" for a reconciliation between IFRS net income attributed to shareholders and core earnings. |
Asia Division's 4Q14 net income attributed to shareholders was
Expressed in U.S. dollars, the presentation currency of the division, net income attributed to shareholders was
Core earnings increased
Asia Division's full year 2014 net income attributed to shareholders of
Premiums and deposits for 4Q14 were
Premiums and deposits for the full year 2014 of
Assets under management as at
C2 Canadian Division
($ millions, unless otherwise stated) | Quarterly results | Full year results | ||||||||||||||
Canadian dollars | 4Q 2014 | 3Q 2014 | 4Q 2013 | 2014 | 2013 | |||||||||||
Net income attributed to shareholders | $ | 73 | $ | 286 | $ | 373 | $ | 1,003 | $ | 828 | ||||||
Core earnings(1) | 224 | 243 | 233 | 927 | 905 | |||||||||||
Premiums and deposits | 5,427 | 5,073 | 5,275 | 21,619 | 21,172 | |||||||||||
Assets under management (billions) | 158.9 | 156.0 | 145.2 | 158.9 | 145.2 |
(1) | See "Performance and Non-GAAP Measures" for a reconciliation between IFRS net income attributed to shareholders and core earnings. |
Canadian Division's 4Q14 net income attributed to shareholders was
Canadian Division's full year 2014 net income attributed to shareholders of
Premiums and deposits in 4Q14 were
Assets under management were a record
C3 U.S. Division
($ millions, unless otherwise stated) | Quarterly results | Full year results | |||||||||||||
Canadian dollars | 4Q 2014 | 3Q 2014 | 4Q 2013 | 2014 | 2013 | ||||||||||
Net income attributed to shareholders | $ | 506 | $ | 679 | $ | 825 | $ | 2,147 | $ | 2,908 | |||||
Core earnings(1) | 338 | 342 | 366 | 1,383 | 1,510 | ||||||||||
Premiums and deposits | 12,535 | 11,342 | 11,608 | 50,223 | 46,519 | ||||||||||
Assets under management (billions) | 398.5 | 376.9 | 340.4 | 398.5 | 340.4 | ||||||||||
U.S. dollars | |||||||||||||||
Net income attributed to shareholders | $ | 444 | $ | 623 | $ | 787 | $ | 1,946 | $ | 2,820 | |||||
Core earnings | 297 | 314 | 349 | 1,252 | 1,469 | ||||||||||
Premiums and deposits | 11,040 | 10,415 | 11,061 | 45,474 | 45,186 | ||||||||||
Assets under management (billions) | 343.5 | 336.3 | 320.1 | 343.5 | 320.1 |
(1) | See "Performance and Non-GAAP Measures" for a reconciliation between IFRS net income attributed to shareholders and core earnings. |
U.S. Division's 4Q14 net income attributed to shareholders was
Expressed in U.S. dollars, the functional currency of the division, 4Q14 net income attributed to shareholders was
U.S. Division's full year 2014 net income attributed to shareholders was
Premiums and deposits for 4Q14 were
Premiums and deposits for the full year 2014 were
Assets under management as at
C4 Corporate and Other
($ millions, unless otherwise stated) | Quarterly Results | Full year results | ||||||||||||||
Canadian dollars | 4Q 2014 | 3Q 2014 | 4Q 2013 | 2014 | 2013 | |||||||||||
Net loss attributed to shareholders | $ | (275) | $ | (197) | $ | (626) | $ | (896) | $ | (3,125) | ||||||
Core loss (excluding macro hedges and core investment gains)(1) |
$ | (112) | $ | (107) | $ | (138) | $ | (446) | $ | (506) | ||||||
Expected cost of macro hedges | (47) | (46) | (53) | (184) | (413) | |||||||||||
Investment-related experience included in core earnings |
50 | 50 | 50 | 200 | 200 | |||||||||||
Total core loss | $ | (109) | $ | (103) | $ | (141) | $ | (430) | $ | (719) | ||||||
Premiums and deposits | $ | 2,294 | $ | 981 | $ | 974 | $ | 8,262 | $ | 4,056 | ||||||
Assets under management (billions) | 46.6 | 45.1 | 36.7 | 46.6 | 36.7 |
(1) | See "Performance and Non-GAAP Measures" for a reconciliation between IFRS net income attributed to shareholders and core earnings. |
Corporate and Other is composed of: investment performance on assets backing capital, net of amounts allocated to operating divisions and financing costs; Investment Division's external asset management business; Property and Casualty ("P&C") Reinsurance business; as well as run-off reinsurance operations including variable annuities and accident and health.
For segment reporting purposes, the impact of updates to actuarial assumptions, settlement costs for macro equity hedges and other non-operating items are included in this segment's earnings.
Corporate and Other reported a net loss attributed to shareholders of
The
For the full year 2014, Corporate and Other reported a net loss attributed to shareholders of
The
Premiums and deposits for 4Q14 were
Assets under management of
D RISK MANAGEMENT AND RISK FACTORS UPDATE
This section provides an update to our risk management practices and risk factors outlined in the MD&A in our 2013 Annual Report.
D1 Potential Impact of current macro environment
The current macro environment, including low interest rates and declining oil and gas prices, produces headwinds for 2015 earnings. Lower interest rates may reduce new business margins, reduce the income reported in our Corporate and Other segment and reduce the amount of provisions for adverse deviation released into earnings each period. We may experience investment-related experience charges if oil and gas prices persist at current levels or decline further.
D2 Variable annuity and segregated fund guarantees
As described in the MD&A in our 2013 Annual Report, guarantees on variable products and segregated funds may include one or more of death, maturity, income and withdrawal guarantees. Variable annuity and segregated fund guarantees are contingent and only payable upon the occurrence of the relevant event, if fund values at that time are below guaranteed values. Depending on future equity market levels, liabilities on current in-force business would be due primarily in the period from 2015 to 2038.
We seek to mitigate a portion of the risks embedded in our retained (i.e. net of reinsurance) variable annuity and segregated fund guarantee business through the combination of our dynamic and macro hedging strategies (see section D4 "Publicly traded equity performance risk" below).
The table below shows selected information regarding the Company's variable annuity and segregated fund guarantees gross and net of reinsurance.
Variable annuity and segregated fund guarantees, net of reinsurance
As at | ||||||||||||||||||
(C$ millions) | Guarantee value |
Fund value |
Amount at risk(4),(5) |
Guarantee value |
Fund value |
Amount at risk(4),(5) |
||||||||||||
Guaranteed minimum income benefit(1) | $ | 6,014 | $ | 4,846 | $ | 1,203 | $ | 6,194 | $ | 5,161 | $ | 1,109 | ||||||
Guaranteed minimum withdrawal benefit | 66,950 | 64,016 | 4,570 | 66,189 | 63,849 | 4,120 | ||||||||||||
Guaranteed minimum accumulation benefit | 14,514 | 18,670 | 23 | 16,942 | 20,581 | 94 | ||||||||||||
Gross living benefits(2) | $ | 87,478 | $ | 87,532 | $ | 5,796 | $ | 89,325 | $ | 89,591 | $ | 5,323 | ||||||
Gross death benefits(3) | 12,178 | 11,036 | 1,312 | 12,490 | 11,230 | 1,413 | ||||||||||||
Total gross of reinsurance and hedging | $ | 99,656 | $ | 98,568 | $ | 7,108 | $ | 101,815 | $ | 100,821 | $ | 6,736 | ||||||
Living benefits reinsured | $ | 5,242 | $ | 4,249 | $ | 1,020 | $ | 5,422 | $ | 4,544 | $ | 942 | ||||||
Death benefits reinsured | 3,598 | 3,398 | 560 | 3,601 | 3,465 | 564 | ||||||||||||
Total reinsured | $ | 8,840 | $ | 7,647 | $ | 1,580 | $ | 9,023 | $ | 8,009 | $ | 1,506 | ||||||
Total, net of reinsurance | $ | 90,816 | $ | 90,921 | $ | 5,528 | $ | 92,792 | $ | 92,812 | $ | 5,230 |
(1) | Contracts with guaranteed long-term care benefits are included in this category. |
(2) | Where a policy includes both living and death benefits, the guarantee in excess of the living benefit is included in the death benefit category. |
(3) | 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. |
(4) | Amount at risk (in-the-money amount) 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. For guaranteed minimum death benefit, the amount at risk is defined as the current guaranteed minimum death benefit in excess of the current account balance. For guaranteed minimum income benefit, the amount at risk is defined as the excess of the current annuitization income base over the current account value. For all guarantees, the amount at risk is floored at zero at the single contract level. |
(5) | The amount at risk net of reinsurance at |
The amount at risk on variable annuity contracts, net of reinsurance was
Policy liabilities established for variable annuity and segregated fund guarantees were
The increase in total policy liabilities for variable annuity and segregated fund guarantees since
D3 Caution related to sensitivities
In this document, we provide sensitivities and risk exposure measures for certain risks. These include sensitivities 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 the Company's assets and liabilities at that date and the actuarial factors, investment activity and investment returns assumed in the determination of policy liabilities. 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 significantly 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. For these reasons, the sensitivities should only be viewed as directional estimates of the underlying sensitivities for the respective factors based on the assumptions outlined below. Given the nature of these calculations, we cannot provide assurance that the actual impact on net income attributed to shareholders will be as indicated or on MLI's MCCSR ratio will be as indicated.
D4 Publicly traded equity performance risk
As outlined in our 2013 Annual Report, our macro hedging strategy is designed to mitigate public equity risk arising from variable annuity guarantees not dynamically hedged and from other products and fees. In addition, our variable annuity guarantee dynamic hedging strategy is not designed to completely offset the sensitivity of policy liabilities to all risks associated with the guarantees embedded in these products (see pages 48 and 49 of our 2013 Annual Report).
The tables below show the potential impact on net income attributed to shareholders resulting from an immediate 10, 20 and 30% change in market values of publicly traded equities followed by a return to the expected level of growth assumed in the valuation of policy liabilities. The potential impact is shown after taking into account the impact of the change in markets on the hedge assets. While we cannot reliably estimate the amount of the change in dynamically hedged variable annuity guarantee liabilities that will not be offset by the profit or loss on the dynamic hedge assets, we make certain assumptions for the purposes of estimating the impact on shareholders' net income.
This estimate assumes that the performance of the dynamic hedging program would not completely offset the gain/loss from the dynamically hedged variable annuity guarantee liabilities. It assumes that the hedge assets are based on the actual position at the period end, and that equity hedges in the dynamic program are rebalanced at 5% intervals. In addition, we assume that the macro hedge assets are rebalanced in line with market changes.
It is also important to note that these estimates are illustrative, and that the hedging program may underperform these estimates, particularly during periods of high realized volatility and/or periods where both interest rates and equity market movements are unfavourable.
This disclosure has been simplified in 2014 to exclude the impact of assuming that the change in the value of dynamic hedge assets completely offsets the change in dynamically hedged variable annuity guarantees, and now shows the impact of macro and dynamic hedge assets in aggregate.
Potential impact on net income attributed to shareholders arising from changes to public equities (1)
As at |
||||||||||||||||||
(C$ millions) | -30% | -20% | -10% | 10% | 20% | 30% | ||||||||||||
Underlying sensitivity to net income attributed to shareholders(2) | ||||||||||||||||||
Variable annuity guarantees | $ | (4,480) | $ | (2,570) | $ | (1,100) | $ | 740 | $ | 1,210 | $ | 1,510 | ||||||
Asset based fees | (360) | (240) | (120) | 120 | 240 | 360 | ||||||||||||
General fund equity investments(3) | (650) | (440) | (210) | 220 | 450 | 680 | ||||||||||||
Total underlying sensitivity before hedging | $ | (5,490) | $ | (3,250) | $ | (1,430) | $ | 1,080 | $ | 1,900 | $ | 2,550 | ||||||
Impact of macro and dynamic hedge assets(4) | $ | 3,770 | $ | 2,150 | $ | 950 | $ | (850) | $ | (1,460) | $ | (1,940) | ||||||
Net potential impact on net income after impact of hedging | $ | (1,720) | $ | (1,100) | $ | (480) | $ | 230 | $ | 440 | $ | 610 | ||||||
As at |
||||||||||||||||||
(C$ millions) | -30% | -20% | -10% | 10% | 20% | 30% | ||||||||||||
Underlying sensitivity to net income attributed to shareholders(2) | ||||||||||||||||||
Variable annuity guarantees | $ | (4,120) | $ | (2,310) | $ | (960) | $ | 610 | $ | 1,060 | $ | 1,380 | ||||||
Asset based fees | (310) | (210) | (110) | 110 | 210 | 310 | ||||||||||||
General fund equity investments(3) | (420) | (280) | (130) | 140 | 280 | 430 | ||||||||||||
Total underlying sensitivity before hedging | $ | (4,850) | $ | (2,800) | $ | (1,200) | $ | 860 | $ | 1,550 | $ | 2,120 | ||||||
Impact of macro and dynamic hedge assets(4) | $ | 3,510 | $ | 1,880 | $ | 770 | $ | (680) | $ | (1,160) | $ | (1,510) | ||||||
Net potential impact on net income after impact of hedging | $ | (1,340) | $ | (920) | $ | (430) | $ | 180 | $ | 390 | $ | 610 |
(1) | See "Caution related to sensitivities" above. |
(2) | Defined as earnings sensitivity to a change in public equity markets including settlements on reinsurance contracts, but before the offset of hedge assets or other risk mitigants. |
(3) | This impact for general fund equities is calculated as at a point-in-time and does not include: (i) any potential impact on public equity weightings; (ii) any gains or losses on AFS public equities held in the Corporate and Other segment; or (iii) any gains or losses on public equity investments held in |
(4) | Includes the impact of rebalancing equity hedges in the macro and dynamic hedging program. The impact of dynamic hedge rebalancing represents the impact of rebalancing equity hedges for dynamically hedged variable annuity guarantee best estimate liabilities at 5% intervals, but does not include any impact in respect of other sources of hedge ineffectiveness e.g. fund tracking, realized volatility and equity, interest rate correlations different from expected among other factors. |
Potential impact on MLI's MCCSR ratio arising from public equity returns different from the expected return for policy liability valuation(1),(2)
Impact on MLI MCCSR ratio | ||||||||||||||||||
Percentage points | -30% | -20% | -10% | 10% | 20% | 30% | ||||||||||||
(20) | (10) | (4) | 1 | 7 | 11 | |||||||||||||
(14) | (8) | (4) | 13 | 25 | 25 |
(1) | See "Caution related to sensitivities" above. In addition, estimates exclude changes to the net actuarial gains/losses with respect to the Company's pension obligations as a result of changes in equity markets, as the impact on the quoted sensitivities is not considered to be material. | ||||||||||||||||||||||||
(2) | The potential impact is shown assuming that the change in value of the hedge assets does not completely offset the change in the dynamically hedged variable annuity guarantee liabilities. The estimated amount that would not be completely offset relates to our practices of not hedging the provisions for adverse deviation and of rebalancing equity hedges for dynamically hedged variable annuity liabilities at 5% intervals. |
As at | ||||||
(C$ millions) | 2014 | 2013 | ||||
For variable annuity guarantee dynamic hedging strategy | $ | 10,700 | $ | 7,500 | ||
For macro equity risk hedging strategy | 3,000 | 2,000 | ||||
Total | $ | 13,700 | $ | 9,500 |
The equity futures notional amount required for the macro hedging program increased due to normal rebalancing and market movements, and for the dynamic hedging program the increase was related to changes in actuarial methods and assumptions and market movements.
D5 Interest rate and spread risk
Effective
The 50 basis point parallel decline includes a change of 50 basis points in current government, swap and corporate rates for all maturities across all markets with no change in credit spreads between government, swap and corporate rates, and with a floor of zero on government rates, relative to the rates assumed in the valuation of policy liabilities, including embedded derivatives. For variable annuity guarantee liabilities that are dynamically hedged, it is assumed that interest rate hedges are rebalanced at 20 basis point intervals.
As the sensitivity to a 50 basis point change in interest rates includes any associated change in the reinvestment scenarios used to calculate our actuarial liabilities, the impact of changes to interest rates for less than, or more than 50 basis points is unlikely to be linear. The reinvestment scenario changes tend to amplify the negative effects of a decrease in interest rates, and dampen the positive effects of an increase in interest rates. Furthermore, the actual impact on net income of non-parallel interest rate movements may differ from the estimated impact of parallel movements because our exposure to interest rate movements is not uniform across all durations.
The income impact does not allow for any future potential changes to the URR assumptions or other potential impacts of lower interest rate levels, for example, increased strain on the sale of new business or lower interest earned on our surplus assets. It also does not reflect potential management actions to realize gains or losses on AFS fixed income assets held in the surplus segment in order to partially offset changes in MLI's MCCSR ratio due to changes in interest rate levels.
Potential impact on net income attributed to shareholders and MLI's MCCSR ratio of an immediate 50 basis point parallel change in interest rates relative to rates assumed in the valuation of policy liabilities(1),(2),(3),(4)
As at | ||||||||||||
-50bp | +50bp | -50bp | +50bp | |||||||||
Net income attributed to shareholders (C$ millions) | ||||||||||||
Excluding change in market value of AFS fixed income assets held in the surplus segment |
$ | (100) | $ | 100 | $ | (200) | $ | 100 | ||||
From fair value changes in AFS fixed income assets held in surplus, if realized |
500 | (400) | 300 | (300) | ||||||||
MLI's MCCSR ratio (Percentage points) | ||||||||||||
Before impact of change in market value of AFS fixed income assets held in the Corporate and Other segment(5) |
(7) | 5 | (7) | 8 | ||||||||
From fair value changes in AFS fixed income assets held in surplus, if realized |
3 | (3) | 2 | (2) |
(1) | See "Caution related to sensitivities" above. Estimates exclude changes to the net actuarial gains/losses with respect to the Company's pension obligations as a result of changes in interest rates, as the impact on the quoted sensitivities is not considered to be material. |
(2) | Includes guaranteed insurance and annuity products, including variable annuity contracts as well as adjustable benefit products where benefits are generally adjusted as interest rates and investment returns change, a portion of which have minimum credited rate guarantees. For adjustable benefit products subject to minimum rate guarantees, the sensitivities are based on the assumption that credited rates will be floored at the minimum. |
(3) | The amount of gain or loss that can be realized on AFS fixed income assets held in the surplus segment will depend on the aggregate amount of unrealized gain or loss. |
(4) | Sensitivities are based on projected asset and liability cash flows at the beginning of the quarter adjusted for the estimated impact of new business, investment markets and asset trading during the quarter. Any true-up to these estimates, as a result of the final asset and liability cash flows to be used in the next quarter's projection, are reflected in the next quarter's sensitivities. Impact of realizing fair value changes in AFS fixed income assets is as of the end of the quarter. |
(5) | The impact on MLI's MCCSR ratio includes both the impact of the change in earnings on available capital as well as the change in required capital that results from a change in interest rates. The potential increase in required capital accounted for 6 of the 7 point impact of a 50 bp decline in interest rates on MLI's MCCSR ratio this quarter. |
The following table shows the potential impact on net income attributed to shareholders resulting from a change in credit spreads and swap spreads over government bond rates for all maturities across all markets with a floor of zero on the total interest rate, relative to the spreads assumed in the valuation of policy liabilities.
Potential impact on net income attributed to shareholders arising from changes to corporate spreads and swap spreads(1),(2),(3)
As at (C$ millions) |
2014 |
2013 |
|||||
Corporate spreads(4) | |||||||
Increase 50 basis points | $ | 500 | $ | 400 | |||
Decrease 50 basis points | (500) | (400) | |||||
Swap spreads | |||||||
Increase 20 basis points | $ | (500) | $ | (400) | |||
Decrease 20 basis points | 500 | 400 |
(1) | See "Caution related to sensitivities" above. |
(2) | The impact on net income attributed to shareholders assumes no gains or losses are realized on our AFS fixed income assets held in the surplus segment and excludes the impact arising from changes in off-balance sheet bond fund value arising from changes in credit spreads. The participating policy funds are largely self-supporting and generate no material impact on net income attributed to shareholders as a result of changes in corporate and swap spreads. |
(3) | Sensitivities are based on projected asset and liability cash flows at the beginning of the quarter adjusted for the estimated impact of new business, investment markets and asset trading during the quarter. Any true-up to these estimates, as a result of the final asset and liability cash flows to be used in the next quarter's projection, are reflected in the next quarter's sensitivities. |
(4) | Corporate spreads are assumed to grade to an expected long-term average over five years. |
As the sensitivity to a 50 basis point decline in corporate spreads includes the impact of a change in prescribed reinvestment scenarios where applicable, the impact of changes to corporate spreads for less than, or more than, the amounts indicated are unlikely to be linear.
The
D6 Alternative long-duration asset ("ALDA") performance risk
The following table shows the potential impact on net income attributed to shareholders resulting from changes in market values of ALDA that differ from the expected levels assumed in the valuation of policy liabilities.
Potential impact on net income attributed to shareholders arising from changes in ALDA returns(1),(2),(3),(4)
As at | ||||||||||||
(C$ millions) | -10% | 10% | -10% | 10% | ||||||||
Real estate, agriculture and timber assets | $ | (1,000) | $ | 1,000 | $ | (1,000) | $ | 1,000 | ||||
Private equities and other alternative long-duration assets | (1,000) | 900 | (900) | 800 | ||||||||
Alternative long-duration assets | $ | (2,000) | $ | 1,900 | $ | (1,900) | $ | 1,800 |
(1) | See "Caution Related to Sensitivities" above. |
(2) | This impact is calculated as at a point-in-time impact and does not include: (i) any potential impact on ALDA, weightings; (ii) any gains or losses on ALDA held in the Corporate and Other segment; or (iii) any gains or losses on ALDA held in |
(3) | The participating policy funds are largely self-supporting and generate no material impact on net income attributed to shareholders as a result of changes in alternative long-duration asset returns. |
(4) | Net income impact does not consider any impact of the market correction on assumed future return assumptions. |
The increased sensitivity from
E ACCOUNTING MATTERS AND CONTROLS
E1 Critical accounting and actuarial policies
Our significant accounting policies under IFRS are described in note 1 to our Consolidated Financial Statements for the year ended
E2 Sensitivity of policy liabilities to updates and assumptions
When the assumptions underlying our determination of policy liabilities are updated to reflect recent and emerging experience or change in outlook, the result is a change in the value of policy liabilities which in turn affects income. The sensitivity of after-tax income to updates to asset related assumptions underlying policy liabilities is shown below, assuming that there is a simultaneous update to the assumption across all business units.
For updates to asset related assumptions, the sensitivity is shown net of the corresponding impact on income of the change in the value of the assets supporting policy liabilities. In practice, experience for each assumption will frequently vary by business and geographic market and assumption updates are made on a business/geographic specific basis. 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.
Most participating business is excluded from this analysis because of the ability to pass both favourable and adverse experience to the policyholders through the participating dividend adjustment. The estimated potential impact on net income for the next 5 years and the following 5 years from changes in the fixed income URR driven by changes in risk free rates is not shown here. After the implementation of the revised Canadian Actuarial Standards of Practice relating to reinvestment assumptions in 4Q14 we do not anticipate that there will be any further impact on net income due to changes in fixed income URR.23
____________________________ | |
23 | See "Caution related to forward-looking statements" below. |
Potential impact on net income attributed to shareholders arising from changes to asset related assumptions supporting actuarial liabilities, excluding the fixed income ultimate reinvestment rate discussed above
As at | Increase (decrease) in after-tax income | |||||||||||
(C$ millions) | ||||||||||||
Asset related assumptions updated periodically in valuation basis changes |
Increase | Decrease | Increase | Decrease | ||||||||
100 basis point change in future annual returns for public equities(1) | $ | 300 | $ | (300) | $ | 400 | $ | (400) | ||||
100 basis point change in future annual returns for alternative long- duration assets(2) |
2,500 | (3,100) | 3,800 | (3,700) | ||||||||
100 basis point change in equity volatility assumption for stochastic segregated fund modelling(3) |
(200) | 200 | (200) | 200 |
(1) | The sensitivity to public equity returns above includes the impact on both segregated fund guarantee reserves and on other policy liabilities. For a 100 basis point increase in expected growth rates, the impact from segregated fund guarantee reserves is a |
(2) | ALDA include commercial real estate, timber and agricultural real estate, oil and gas, and private equities. The reduction of |
(3) | Volatility assumptions for public equities are based on long-term historic observed experience and compliance with actuarial standards. The resulting volatility assumptions are 17.15% per annum in |
E3 Accounting and reporting changes
Topic | Effective Date |
Recognition / Measurement / Presentation |
Impact / Expected Impact |
|||
Amendments to IAS 19 "Employee Benefits" | Measurement | Not significant | ||||
Annual Improvements 2010-2012 and 2011-2013 cycle | Measurement and Presentation |
Not significant | ||||
IAS 16 "Property, Plant and Equipment" and IAS 38 "Intangible Assets" |
Measurement | Currently assessing |
||||
IFRS 11 "Joint Arrangements" | Recognition and Measurement | Not significant | ||||
IAS 41 "Agriculture" and IAS 16 "Property, Plant and Equipment" | Recognition and Measurement | Not significant | ||||
IFRS 10 "Consolidated Financial Statements" and IAS 28 "Investments in Associates and Joint Ventures" |
Recognition | Not significant | ||||
Annual Improvements 2012-2014 cycle | Measurement and Presentation |
Not significant | ||||
Amendments to IAS 1 "Presentation of Financial Statements" | Presentation | Not significant | ||||
IFRS 15 "Revenue from Contracts with Customers" | Recognition and Measurement | Currently assessing |
||||
IFRS 9 "Financial Instruments: Impairment" and "Financial Instrument: Classification and Measurement" |
Recognition, Measurement and Presentation |
Currently assessing |
F Other
F1 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. A financial measure is considered a non-GAAP measure for Canadian securities law purposes if it is presented other than in accordance with generally accepted accounting principles used for the Company's audited financial statements. Non-GAAP measures include: Core Earnings (Loss); Core ROE; Diluted Core Earnings Per Common Share; Constant Currency Basis; Earnings Per Share ("EPS") excluding Transition and Integration Costs; Mutual Funds Assets under Management ("MF AUM"); Assets under Administration ("AUA"); Premiums and Deposits; Assets under Management ("AUM"); Capital; New Business Embedded Value; and Sales. 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.
As disclosed last quarter, we no longer disclose U.S. GAAP measures. In the past, we elected to report consolidated U.S. GAAP information because of our large U.S. domiciled investor base and for comparison purposes with our U.S. peers. In the aftermath of the financial crisis, presenting U.S. GAAP measures highlighted the significant impact of fair value accounting on our financial statements under International Financial Reporting Standards ("IFRS"). In 2012, we introduced a core earnings metric which also highlights such impact. This metric has gained acceptance with our stakeholders and, therefore, we discontinued the use of consolidated U.S. GAAP information starting in 4Q14.
Core earnings (loss) is a non-GAAP measure which we use to better understand the long-term earnings capacity and valuation of the business. Core earnings excludes the direct impact of changes in equity markets and interest rates as well as a number of other items, outlined below, that are considered material and exceptional in nature. While this metric is relevant to how we manage our business and offers a consistent methodology, it is not insulated from macro-economic factors, which can have a significant impact.
Since we introduced this measure in 2012, we have included up to
Items that are included in core earnings are:
- Expected earnings on in-force, including expected release of provisions for adverse deviation, fee income, margins on group business and spread business such as
Manulife Bank and asset fund management. - Macro hedging costs based on expected market returns.
- New business strain.
- Policyholder experience gains or losses.
- Acquisition and operating expenses compared with expense assumptions used in the measurement of insurance and investment contract liabilities.
- Up to
$200 million ($400 million beginning in 2015) of favourable investment-related experience reported in a single year which is referred to as "core investment gains". - Earnings on surplus other than mark-to-market items. Gains on available-for-sale ("AFS") equities and seed money investments are included in core earnings.
- Routine or non-material legal settlements.
- All other items not specifically excluded.
- Tax on the above items.
- All tax related items except the impact of enacted or substantially enacted income tax rate changes.
Items excluded from core earnings are:
- The direct impact of equity markets and interest rates and variable annuity guarantee liabilities, consisting of:
- The earnings impact of the difference between the net increase (decrease) in variable annuity liabilities that are dynamically hedged and the performance of the related hedge assets. Our variable annuity dynamic hedging strategy is not designed to completely offset the sensitivity of insurance and investment contract liabilities to all risks or measurements associated with the guarantees embedded in these products for a number of reasons, including; provisions for adverse deviation, fund performance, the portion of the interest rate risk that is not dynamically hedged, realized equity and interest rate volatilities and changes to policyholder behaviour.
- Gains (charges) on variable annuity guarantee liabilities that are not dynamically hedged.
- Gains (charges) on general fund equity investments supporting insurance and investment contract liabilities and on fee income.
- Gains (charges) on macro equity hedges relative to expected costs. The expected cost of macro hedges is calculated using the equity assumptions used in the valuation of insurance and investment contract liabilities.
- Gains (charges) on higher (lower) fixed income reinvestment rates assumed in the valuation of insurance and investment contract liabilities, including the impact on the fixed income ultimate reinvestment rate ("URR").
- Gains (charges) on sale of AFS bonds and open derivatives not in hedging relationships in the Corporate and Other segment.
- Net favourable investment-related experience in excess of
$200 million ($400 million beginning in 2015) per annum or net unfavourable investment-related experience on a year-to-date basis. Investment-related experience relates to fixed income trading, alternative long-duration asset returns, credit experience and asset mix changes. This favourable and unfavourable investment-related experience is a combination of reported investment experience as well as the impact of investing activities on the measurement of our insurance and investment contract liabilities. - Mark-to-market gains or losses on assets held in the Corporate and Other segment other than gains on AFS equities and seed money investments in new segregated or mutual funds.
- Changes in actuarial methods and assumptions.
- The impact on the measurement of insurance and investment contract liabilities of changes in product features or new reinsurance transactions, if material.
- Goodwill impairment charges.
- Gains or losses on disposition of a business.
- Material one-time only adjustments, including highly unusual/extraordinary and material legal settlements or other items that are material and exceptional in nature.
- Tax on the above items.
- Impact of enacted or substantially enacted income tax rate changes.
The following table summarizes for the past eight quarters net income (loss) attributed to shareholders and core earnings.
Quarterly Results | |||||||||||||||||||||||||
(C$ millions, unaudited) | 4Q | 3Q | 2Q | 1Q | 4Q | 3Q | 2Q | 1Q | |||||||||||||||||
2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | |||||||||||||||||||
Core earnings (loss) | |||||||||||||||||||||||||
Asia Division | $ | 260 | $ | 273 | $ | 231 | $ | 244 | $ | 227 | $ | 242 | $ | 226 | $ | 226 | |||||||||
Canadian Division | 224 | 243 | 232 | 228 | 233 | 268 | 225 | 179 | |||||||||||||||||
U.S. Division | 338 | 342 | 329 | 374 | 366 | 361 | 343 | 440 | |||||||||||||||||
Corporate and Other (excluding expected cost of macro hedges and core investment gains) |
(112) | (107) | (92) | (135) | (138) | (135) | (105) | (128) | |||||||||||||||||
Expected cost of macro hedges | (47) | (46) | (49) | (42) | (53) | (84) | (128) | (148) | |||||||||||||||||
Investment-related experience included in core earnings |
50 | 50 | 50 | 50 | 50 | 52 | 48 | 50 | |||||||||||||||||
Total core earnings | $ | 713 | $ | 755 | $ | 701 | $ | 719 | $ | 685 | $ | 704 | $ | 609 | $ | 619 | |||||||||
Investment-related experience in excess of amounts included in core earnings |
(403) | 320 | 217 | 225 | 215 | 491 | (97) | 97 | |||||||||||||||||
Core earnings and investment-related experience in excess of amounts included in core earnings |
$ | 310 | $ | 1,075 | $ | 918 | $ | 944 | $ | 900 | $ | 1,195 | $ | 512 | $ | 716 | |||||||||
Other items to reconcile core earnings to net income attributed to shareholders: |
|||||||||||||||||||||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities (details below) |
377 | 70 | 55 | (90) | (81) | 94 | (242) | (107) | |||||||||||||||||
Impact of major reinsurance transactions, in-force product changes and recapture of reinsurance treaties |
- | 24 | - | - | 261 | - | - | - | |||||||||||||||||
Change in actuarial methods and assumptions | (59) | (69) | (30) | (40) | (133) | (252) | (35) | (69) | |||||||||||||||||
Net impact of acquisitions and divestitures | 12 | - | - | - | 350 | - | - | - | |||||||||||||||||
Tax items and restructuring charge related to organizational design |
- | - | - | 4 | - | (3) | 24 | - | |||||||||||||||||
Net income attributed to shareholders | $ | 640 | $ | 1,100 | $ | 943 | $ | 818 | $ | 1,297 | $ | 1,034 | $ | 259 | $ | 540 | |||||||||
Other market-related factors | |||||||||||||||||||||||||
Direct impact of equity markets and variable annuity guarantee liabilities |
$ | (142) | $ | (35) | $ | 66 | $ | (71) | $ | 105 | $ | 306 | $ | (196) | $ | 243 | |||||||||
Gains (charges) on higher (lower) fixed income reinvestment rates assumed in the valuation of policy liabilities |
533 | 165 | 22 | 9 | (105) | (77) | 151 | (245) | |||||||||||||||||
Gains (charges) on sale of AFS bonds and derivative positions in the Corporate segment |
(14) | (15) | (8) | (3) | (55) | (72) | (127) | (8) | |||||||||||||||||
Charges due to lower fixed income URR assumptions used in the valuation of policy liabilities |
- | (45) | (25) | (25) | (26) | (63) | (70) | (97) | |||||||||||||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities |
$ | 377 | $ | 70 | $ | 55 | $ | (90) | $ </td> | (81) | $ | 94 | $ | (242) | $ | (107) | |||||||||
Asia Division
Quarterly Results | ||||||||||||||||||||||||
(C$ millions, unaudited) | 4Q | 3Q | 2Q | 1Q | 4Q | 3Q | 2Q | 1Q | ||||||||||||||||
2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | |||||||||||||||||
Asia Division core earnings | $ | 260 | $ | 273 | $ | 231 | $ | 244 | $ | 227 | $ | 242 | $ | 226 | $ | 226 | ||||||||
Investment-related experience in excess of amounts included in core earnings |
(2) | 27 | 18 | 19 | (5) | (4) | (18) | 43 | ||||||||||||||||
Core earnings and investment-related experience in excess of amounts included in core earnings |
$ | 258 | $ | 300 | $ | 249 | $ | 263 | $ | 222 | $ | 238 | $ | 208 | $ | 269 | ||||||||
Other items to reconcile core earnings to net income attributable to shareholders |
||||||||||||||||||||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities |
78 | 32 | 88 | (25) | 85 | 242 | 178 | 659 | ||||||||||||||||
Recapture of reinsurance treaty and tax items | - | - | - | 4 | 68 | - | - | - | ||||||||||||||||
Disposition of |
- | - | - | - | 350 | - | - | - | ||||||||||||||||
Net income attributed to shareholders | $ | 336 | $ | 332 | $ | 337 | $ | 242 | $ | 725 | $ | 480 | $ | 386 | $ | 928 |
Canadian Division
Quarterly Results | ||||||||||||||||||||||||
(C$ millions, unaudited) | 4Q | 3Q | 2Q | 1Q | 4Q | 3Q | 2Q | 1Q | ||||||||||||||||
2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | |||||||||||||||||
Canadian Division core earnings | $ | 224 | $ | 243 | $ | 232 | $ | 228 | $ | 233 | $ | 268 | $ | 225 | $ | 179 | ||||||||
Investment-related experience in excess of amounts included in core earnings |
(199) | 19 | 46 | 135 | 106 | 135 | (88) </td> | (187) | ||||||||||||||||
Core earnings and investment-related experience in excess of amounts included in core earnings |
$ | 25 | $ | 262 | $ | 278 | $ | 363 | $ | 339 | $ | 403 | $ | 137 | $ | (8) | ||||||||
Other items to reconcile core earnings to net income (loss) attributable to shareholders |
||||||||||||||||||||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities |
48 | - | (11) | 14 | 34 | 14 | (34) | (54) | ||||||||||||||||
Recapture of reinsurance treaty and tax items | - | 24 | - | - | - | (3) | - | - | ||||||||||||||||
Net income (loss) attributed to shareholders | $ | 73 | $ | 286 | $ | 267 | $ | 377 | $ | 373 | $ | 414 | $ | 103 | $ | (62) |
U.S. Division
Quarterly Results | ||||||||||||||||||||||||
(C$ millions, unaudited) | 4Q | 3Q | 2Q | 1Q | 4Q | 3Q | 2Q | 1Q | ||||||||||||||||
2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | |||||||||||||||||
U.S. Division core earnings | $ | 338 | $ | 342 | $ | 329 | $ | 374 | $ | 366 | $ | 361 | $ | 343 | $ | 440 | ||||||||
Investment-related experience in excess of amounts included in core earnings |
(154) | 319 | 206 | 111 | 161 | 404 | 65 | 263 | ||||||||||||||||
Core earnings and investment-related experience in excess of amounts included in core earnings |
$ | 184 | $ | 661 | $ | 535 | $ | 485 | $ | 527 | $ | 765 | $ | 408 | $ | 703 | ||||||||
Other items to reconcile core earnings to net income (loss) attributable to shareholders |
||||||||||||||||||||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities |
322 | 18 | 24 | (82) | 105 | 163 | 21 | 23 | ||||||||||||||||
Impact of in-force product changes and recapture of reinsurance treaties |
- | - | - | - | 193 | - | - | - | ||||||||||||||||
Net income attributed to shareholders | $ | 506 | $ | 679 | $ | 559 | $ | 403 | $ | 825 | $ | 928 | 429 | $ | 726 |
Corporate and Other
Quarterly Results | ||||||||||||||||||||||||
(C$ millions, unaudited) | 4Q | 3Q | 2Q | 1Q | 4Q | 3Q | 2Q | 1Q | ||||||||||||||||
2014 | 2014 | 2014 | 2014 | 2013 | 2013 | 2013 | 2013 | |||||||||||||||||
Corporate and Other core loss (excluding expected cost of macro hedges and core investment gains) |
$ | (112) | $ | (107) | $ | (92) | $ | (135) | $ | (138) | $ | (135) | $ | (105) | $ | (128) | ||||||||
Expected cost of macro hedges | (47) | (46) | (49) | (42) | (53) | (84) | (128) | (148) | ||||||||||||||||
Investment-related experience included in core earnings |
50 | 50 | 50 | 50 | 50 | 52 | 48 | 50 | ||||||||||||||||
Total core loss | $ | (109) | $ | (103) | $ | (91) | $ | (127) | $ | (141) | $ | (167) | $ | (185) | $ | (226) | ||||||||
Investment-related experience in excess of amounts included in core earnings |
(48) | (45) | (53) | (40) | (47) | (44) | (56) | (22) | ||||||||||||||||
Core loss and investment-related experience in excess of amounts included in core earnings |
$ | (157) | $ | (148) | $ | (144) | $ | (167) | $ | (188) | $ | (211) | $ | (241) | $ | (248) | ||||||||
Other items to reconcile core earnings (losses) to net income (loss) attributed to shareholders |
||||||||||||||||||||||||
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities |
(71) | 20 | (46) | 3 | (305) | (325) | (407) | (735) | ||||||||||||||||
Changes in actuarial methods and assumptions | (59) | (69) | (30) | (40) | (133) | (252) | (35) | (69) | ||||||||||||||||
Net impact of acquisitions and divestitures | 12 | - | - | - | - | - | - | - | ||||||||||||||||
Tax items and restructuring charge related to organizational design |
- | - | - | - | - | - | 24 | - | ||||||||||||||||
Net loss attributed to shareholders | $ | (275) | $ | (197) | $ | (220) | $ | (204) | $ | (626) | $ | (788) | $ | (659) | $ | (1,052) |
Core return on common shareholders' equity("Core ROE") is a non-GAAP profitability measure that presents core earnings available to common shareholders as a percentage of the capital deployed to earn the core earnings. The Company calculates Core ROE using average common shareholders' equity.
Diluted core earnings per common share is core earnings available to common shareholders expressed per diluted weighted average common share outstanding.
The Company also uses financial performance measures that are prepared on a constant currency basis, which exclude the impact of currency fluctuations (from local currency to Canadian dollars at a total company level and from local currency to U.S. dollars in
Earnings Per Share ("EPS") excluding Transition and Integration Costs is a non-GAAP measure of the Company's profitability. It shows what the earnings per common share would be excluding transition and integration costs which are one-time costs.
Mutual Funds' assets under management ("MF AUM") is a non-GAAP measure of the size of the Company's Canadian mutual fund business. It represents the assets managed by the Company, on behalf of mutual fund clients, on a discretionary basis for which the Company earns investment management fees.
Assets under administration ("AUA") is a non-GAAP measure of the size of the Company's Canadian group pension business. It represents the asset base on which the Company provides administrative services such as recordkeeping, custodial and customer reporting services.
Premiums and deposits is a non-GAAP measure of top line growth. The Company calculates premiums and deposits as the aggregate of (i) general fund premiums, net of reinsurance, reported as premiums on the Consolidated Statements of Income and investment contract deposits, (ii) segregated fund deposits, excluding seed money, ("deposits from policyholders"), (iii) mutual fund deposits, (iv) deposits into institutional advisory accounts, (v) premium equivalents for "administration services only" group benefits contracts ("ASO premium equivalents"), (vi) premiums in the Canadian Group Benefits reinsurance ceded agreement, and (vii) other deposits in other managed funds.
Premiums and deposits | Quarterly Results | Full Year | |||||||||||||
(C$ millions) | 4Q 2014 | 3Q 2014 | 4Q 2013 | 2014 | 2013 | ||||||||||
Net premium income and investment contract deposits | $ | 4,948 | $ | 4,656 | $ | 4,563 | $ | 18,022 | $ | 17,569 | |||||
Deposits from policyholders | 6,240 | 5,509 | 5,756 | 24,112 | 23,059 | ||||||||||
Mutual fund deposits | 10,120 | 8,982 | 8,400 | 40,066 | 35,890 | ||||||||||
Institutional advisory account deposits | 2,276 | 962 | 957 | 8,148 | 3,974 | ||||||||||
ASO premium equivalents | 773 | 736 | 746 | 3,048 | 2,935 | ||||||||||
Group Benefits ceded premiums | 1,023 | 1,132 | 1,000 | 4,130 | 4,404 | ||||||||||
Other fund deposits | 132 | 110 | 114 | 475 | 419 | ||||||||||
Total premiums and deposits | $ | 25,512 | $ | 22,087 | $ | 21,536 | $ | 98,001 | $ | 88,250 | |||||
Currency impact | - | 557 | 1,179 | 1,667 | 5,781 | ||||||||||
Constant currency premiums and deposits | $ | 25,512 | $ | 22,644 | $ | 22,715 | $ | 99,668 | $ | 94,031 |
Assets under management ("AUM") is a non-GAAP measure of the size of the Company. It represents the total of the invested asset base that the Company and its customers invested in.
Assets under management | ||||||||||
As at (C$ millions) |
December 31, 2014 |
September 30, 2014 |
December 31, 2013 |
|||||||
Total invested assets | $ | 269,310 | $ | 257,842 | $ | 232,709 | ||||
Segregated funds net assets | 256,532 | 250,406 | 239,871 | |||||||
Assets under management per financial statements | $ | 525,842 | $ | 508,248 | $ | 472,580 | ||||
Mutual funds | 119,593 | 111,600 | 91,118 | |||||||
Institutional advisory accounts (excluding segregated funds) | 38,864 | 36,498 | 30,284 | |||||||
Other funds | 6,830 | 6,185 | 4,951 | |||||||
Total assets under management | $ | 691,129 | $ | 662,531 | $ | 598,933 | ||||
Currency impact | - | 13,712 | 34,523 | |||||||
Constant currency assets under management | $ | 691,129 | $ | 676,243 | $ | 633,456 |
Capital The definition we use for capital, a non-GAAP measure, 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 (i) total equity excluding AOCI on cash flow hedges and (ii) liabilities for preferred shares and capital instruments.
Capital | ||||||||
As at (C$ millions) |
December 31, 2014 |
September 30, 2014 |
December 31, 2013 |
|||||
Total equity | $ | 33,926 | $ | 32,596 | $ | 29,033 | ||
Add AOCI loss on cash flow hedges | 211 | 159 | 84 | |||||
Add liabilities for preferred shares and capital instruments | 5,426 | 4,909 | 4,385 | |||||
Total capital | $ | 39,563 | $ | 37,664 | $ | 33,502 |
New business embedded value ("NBEV") is the change in shareholders' economic value as a result of sales in the reporting period. NBEV is calculated as the present value of expected future earnings, after the cost of capital, on actual new business sold in the period using future mortality, morbidity, policyholder behaviour, expense and investment assumptions that are consistent with the assumptions used in the valuation of our policy liabilities.
The principal economic assumptions used in the NBEV calculations in 4Q14 were as follows:
U.S. | ||||||||||||
MCCSR ratio | 150% | 150% | 150% | 150% | ||||||||
Discount rate | 8.25% | 8.50% | 9.00% | 6.25% | ||||||||
Jurisdictional income tax rate | 26.5% | 35% | 16.5% | 30.78% | ||||||||
Foreign exchange rate | n/a | 1.135572 | 0.146422 | 0.009939 | ||||||||
Yield on surplus assets | 4.50% | 4.50% | 4.50% | 2.00% |
Sales are measured according to product type:
For individual insurance, sales include 100% of new annualized premiums and 10% 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. Single premium is the lump sum premium from the sale of a single premium product, e.g. travel insurance. Sales are reported gross before the impact of reinsurance.
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.
For individual wealth management contracts, all new deposits are reported as sales. This includes individual annuities, both fixed and variable; mutual funds; and, college savings 529 plans. Sales also include bank loans and mortgages authorized in the period. As we have discontinued sales of new VA contracts in the U.S., beginning in 1Q13, subsequent deposits into existing U.S. VA contracts are not reported as sales.
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. Total sales include both new regular and single premiums and deposits. Sales include the impact of the addition of a new division or of a new product to an existing client.
F2 Key planning assumptions and uncertainties
Manulife's 2016 management objectives24 do not constitute guidance and are based on certain key planning assumptions, including: current accounting and regulatory capital standards; no acquisitions; equity market and interest rate assumptions consistent with our long-term assumptions, and favourable investment-related experience included in core earnings.
____________________________ | |
24 | See "Caution regarding forward-looking statements" below. |
F3 Caution regarding forward-looking statements
From time to time, MFC makes written and/or oral forward-looking statements, including in this document. In addition, our representatives may make forward-looking statements orally to analysts, investors, the media and others. All such statements are made pursuant to the "safe harbour" provisions of Canadian provincial securities laws and the U.S. Private Securities Litigation Reform Act of 1995.
The forward-looking statements in this document include, but are not limited to, statements with respect to our 2016 management objectives for core earnings and core ROE, and long-term leverage as disclosed in our 2012 Investor Day press release, our 2016 goal for pre-tax savings related to our Efficiency and Effectiveness initiative, statements with respect to the anticipated benefits and the completion of and timing for completion of the acquisition of
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", "goal", "restore", "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, including that: the acquisition of
Important factors that could cause actual results to differ materially from expectations include but are not limited to: the factors identified in "Key Planning Assumptions and Uncertainties" in our 2013 Annual Report and in this document; general business and economic conditions (including but not limited to the performance, volatility and correlation of equity markets, interest rates, credit and swap spreads, currency rates, investment losses and defaults, market liquidity and creditworthiness of guarantors, reinsurers and counterparties); changes in laws and regulations; changes in accounting standards; our ability to execute strategic plans and changes to strategic plans; downgrades in our insurance subsidiaries financial strength or credit ratings; our ability to maintain our reputation; impairments of goodwill or intangible assets or the establishment of provisions against future tax assets; the accuracy of estimates relating to morbidity, mortality and policyholder behaviour; the accuracy of other estimates used in applying accounting policies and actuarial methods; our ability to implement effective hedging strategies and unforeseen consequences arising from such strategies; our ability to source appropriate assets to back our long-dated liabilities; level of competition and consolidation; our ability to market and distribute products through current and future distribution channels, including through our proposed collaboration arrangements with Standard Life plc; unforeseen liabilities or asset impairments arising from acquisitions and dispositions of businesses, including with respect to the acquisition of the Canadian-based operations of Standard Life plc; the realization of losses arising from the sale of investments classified as available-for-sale; our liquidity, including the availability of financing to satisfy existing financial liabilities on expected maturity dates when required; obligations to pledge additional collateral; the availability of letters of credit to provide capital management flexibility; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; the availability, affordability and adequacy of reinsurance; legal and regulatory proceedings, including tax audits, tax litigation or similar proceedings; our ability to adapt products and services to the changing market; our ability to attract and retain key executives, employees and agents; the appropriate use and interpretation of complex models or deficiencies in models used; political, legal, operational and other risks associated with our non-North American operations; acquisitions and our ability to complete acquisitions including the availability of equity and debt financing for this purpose; the failure to realize some or all of the expected benefits of the acquisition of
Additional information about material risk 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", "Risk Management and Risk Factors" and "Critical Accounting and Actuarial Policies" in the Management's Discussion and Analysis in our most recent annual report, under "Risk Management and Risk Factors Update" and "Critical Accounting and Actuarial Policies" in the Management's Discussion and Analysis in our most recent interim report, 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.
There can be no assurance that the anticipated benefits and effects of the acquisition of
The forward-looking statements in this document are, unless otherwise indicated, stated as of the date hereof and are presented for the purpose of assisting investors and others in understanding our financial position and results of operations, our future operations if the acquisition is completed, as well as our objectives and strategic priorities, and may not be appropriate for other purposes. We do not undertake to update any forward-looking statements, except as required by law.
The pro forma financial information set forth in this document should not be considered to be what the actual financial position or other results of operations would have necessarily been had MFC,
Consolidated Statements of Income | ||||||||||||
For the three months ended |
For the years ended |
|||||||||||
(Canadian $ in millions except per share amounts, unaudited) | 2014 | 2013 | 2014 | 2013 | ||||||||
Revenue | ||||||||||||
Net premiums | $ | 4,849 | $ | 4,548 | $ | 17,883 | $ | 17,510 | ||||
Investment income | ||||||||||||
Investment income | 2,681 | 2,632 | 10,808 | 9,860 | ||||||||
Realized and unrealized gains (losses) on assets supporting insurance and investment contract liabilities and on the macro hedge program(1) |
6,182 | (2,783) | 17,092 | (17,607) | ||||||||
Other revenue | 2,301 | 2,633 | 8,739 | 8,876 | ||||||||
Total revenue | $ | 16,013 | $ | 7,030 | $ | 54,522 | $ | 18,639 | ||||
Contract benefits and expenses | ||||||||||||
To contract holders and beneficiaries | ||||||||||||
Gross claims and benefits | $ | 5,408 | $ | 4,642 | $ | 20,452 | $ | 18,671 | ||||
Change in insurance contract liabilities | 8,123 | (1,363) | 24,185 | (10,130) | ||||||||
Change in investment contract liabilities | (15) | 41 | 65 | 162 | ||||||||
Benefits and expenses ceded to reinsurers | (1,730) | (1,568) | (6,709) | (6,376) | ||||||||
Change in reinsurance assets | 262 | 525 | 506 | 1,526 | ||||||||
Net benefits and claims | $ | 12,048 | $ | 2,277 | $ | 38,499 | $ | 3,853 | ||||
General expenses | 1,345 | 1,282 | 4,772 | 4,618 | ||||||||
Investment expenses | 358 | 325 | 1,319 | 1,154 | ||||||||
Commissions | 1,160 | 1,041 | 4,250 | 3,911 | ||||||||
Interest expense | 309 | 177 | 1,131 | 1,045 | ||||||||
Net premium taxes | 69 | 74 | 287 | 311 | ||||||||
Total contract benefits and expenses | $ | 15,289 | $ | 5,176 | $ | 50,258 | $ | 14,892 | ||||
Income before income taxes | $ | 724 | $ | 1,854 | $ | 4,264 | $ | 3,747 | ||||
Income tax expense | (17) | (497) | (671) | (581) | ||||||||
Net income | $ | 707 | $ | 1,357 | $ | 3,593 | $ | 3,166 | ||||
Net income (loss) attributed to: | ||||||||||||
Non-controlling interests | $ | 7 | $ | 12 | $ | 71 | $ | 48 | ||||
Participating policyholders | 60 | 48 | 21 | (12) | ||||||||
Shareholders | 640 | 1,297 | 3,501 | 3,130 | ||||||||
$ | 707 | $ | 1,357 | $ | $ | 3,166 | ||||||
Net income attributed to shareholders | $ | 640 | $ | 1,297 | $ | 3,501 | $ | 3,130 | ||||
Preferred share dividends | (28) | (34) | (126) | (131) | ||||||||
Common shareholders' net income | $ | 612 | $ | 1,263 | $ | 3,375 | $ | 2,999 | ||||
Earnings per share: | ||||||||||||
Basic earnings per common share | $ | 0.33 | $ | 0.69 | $ | 1.82 | $ | 1.63 | ||||
Diluted earnings per common share | 0.33 | 0.68 | 1.80 | 1.62 |
(1) | The realized and unrealized gains (losses) on assets supporting insurance and investment contract liabilities are mostly offset by changes in the measurement of our policy obligations. For fixed income assets supporting insurance and investment contracts, equities supporting pass-through products and derivatives related to variable annuity hedging programs, the impact of realized/unrealized gains (losses) on the assets is largely offset in the change in insurance and investment contract liabilities. The realized/unrealized gains (losses) on assets supporting insurance and investment contract liabilities related primarily to the impact of interest rate changes on bond and fixed income derivative positions as well as interest rate swaps supporting the dynamic hedge program. See section B7 - "impact of fair value accounting" above. |
Consolidated Statements of Financial Position | |||||
As at December 31, | |||||
(Canadian $ in millions) | 2014 | 2013 | |||
Assets | |||||
Cash and short-term securities | $ | 21,079 | $ | 13,630 | |
Debt securities | 134,446 | 114,957 | |||
Public equities | 14,543 | 13,075 | |||
Mortgages | 39,458 | 37,558 | |||
Private placements | 23,284 | 21,015 | |||
Policy loans | 7,876 | 7,370 | |||
Loans to bank clients | 1,772 | 1,901 | |||
Real estate | 10,101 | 9,708 | |||
Other invested assets | 16,751 | 13,495 | |||
Total invested assets | $ | 269,310 | $ | 232,709 | |
Other assets | |||||
Accrued investment income | $ | 2,003 | $ | 1,813 | |
Outstanding premiums | 737 | 734 | |||
Derivatives | 19,315 | 9,673 | |||
Reinsurance assets | 18,525 | 17,443 | |||
Deferred tax assets | 3,329 | 2,763 | |||
Goodwill and intangible assets | 5,461 | 5,298 | |||
Miscellaneous | 4,194 | 3,324 | |||
Total other assets | $ | 53,564 | $ | 41,048 | |
Segregated funds net assets | $ | 256,532 | $ | 239,871 | |
Total assets | $ | 579,406 | $ | 513,628 | |
Liabilities and Equity | |||||
Liabilities | |||||
Insurance contract liabilities | $ | 229,513 | $ | 193,242 | |
Investment contract liabilities | 2,644 | 2,524 | |||
Deposits from bank clients | 18,384 | 19,869 | |||
Derivatives | 11,283 | 8,929 | |||
Deferred tax liabilities | 1,228 | 617 | |||
Other liabilities | 14,365 | 10,383 | |||
$ | 277,417 | $ | 235,564 | ||
Long-term debt | 3,885 | 4,775 | |||
Liabilities for preferred shares and capital instruments | 5,426 | 4,385 | |||
Liabilities for subscription receipts | 2,220 | - | |||
Segregated funds net liabilities | 256,532 | 239,871 | |||
Total liabilities | $ | 545,480 | $ | 484,595 | |
Equity | |||||
Preferred shares | $ | 2,693 | $ | 2,693 | |
Common shares | 20,556 | 20,234 | |||
Contributed surplus | 267 | 256 | |||
Shareholders' retained earnings | 7,624 | 5,294 | |||
Shareholders' accumulated other comprehensive income (loss): | |||||
Pension and other post-employment plans | (529) | (452) | |||
Available-for-sale securities | 794 | 324 | |||
Cash flow hedges | (211) | (84) | |||
Translation of foreign operations | 2,112 | 258 | |||
Total shareholders' equity | $ | 33,306 | $ | 28,523 | |
Participating policyholders' equity | 156 | 134 | |||
Non-controlling interests | 464 | 376 | |||
Total equity | $ | 33,926 | $ | 29,033 | |
Total liabilities and equity | $ | 579,406 | $ | 513,628 |
SOURCE
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