evr 2023

2023 Embedded Value Report

for Manulife's Insurance1 Businesses

(Excludes the value of in-force business for Global Wealth and Asset Management, Bank and Property and Casualty Reinsurance businesses)

1 Includes variable and fixed annuities, and single premium products sold in Asia.

Overview:

Manulife Financial Corporation (the "Company" or "Manulife") generated New Business Value ("NBV")1 of $2,324 million in 2023, up $261 million or 10%2 from 2022. In addition, NBV margin1 increased to 39.4% in 2023 from 38.9% in 2022.

Manulife's Embedded Value ("EV")1 was $61.0 billion, or $33.78 per share, as at December 31, 2023, an increase of $1.6 billion from December 31, 20223. EV before non-operating variances contributed $9.8 billion or 16.4% from EV as at December 31, 2022. Investment variances, currency movements and retuof capital to shareholders, decreased EV.

Background:

EV is a measure of the present value of shareholders' interests in the expected future distributable earnings on in-force business reflected in the Consolidated Statements of Financial Position of the Company. It does not include any value associated with future new business. The change in EV between reporting periods is used by Manulife's management as a measure of the value created by the Company's operations in the reporting period. NBV is the change in EV due to sales in the reporting period.

We use a traditional deterministic discounted cash flow methodology for determining our EV and NBV. This methodology makes implicit allowance for all material sources of risk embedded in our products using a risk-adjusted discount rate. It should be noted that this allowance for risk is approximate and may not correspond with the allowance determined using market consistent techniques.

The calculation of EV and NBV necessarily requires several assumptions with respect to future experience. Future experience may vary from that assumed in the calculation, which may materially impact EV and NBV. See "Caution Regarding Forward- Looking Statements" below.

1. For more information on NBV, NBV margin, and EV, see "Methodology and Definitions" below.
2. Percentage growth in NBV is stated on a constant exchange rate basis.
3. The 2022 EV was restated to reflect the International Finance Reporting Standard 17 ("IFRS 17") and National Association of Insurance Commissioners ("NAIC") framework on NBV and EV as of January 1, 2023. For more information, see "Methodology and Definitions" below.

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Willis Towers Watson Review Opinion on Embedded Value

Manulife and its subsidiaries have prepared EV results for the year ended December 31, 2023. The EV results, together with a description of the methodology and assumptions that have been used, were shown in the "2023 Embedded Value Report for Manulife's Insurance Businesses (excludes the value of in-force business for Global Wealth and Asset Management, Bank and Property and Casualty Reinsurance businesses)".

Our scope of work covered:

• a review of methodology and assumptions used to determine the EV results for the year ended 2023, and the NBV for 2023, on standards in place at December 31 2023, and
• a review of the results of Manulife's calculation of the EV results.

Willis Towers Watson has concluded that:

• the methodology used for the North American and Asian business is consistent with recent industry practice in each respective region as regards to traditional embedded value calculations based on discounted values of projected deterministic after-tax cash flows. This methodology makes an overall allowance for risk for the Company using risk discount rates which incorporate risk margins which vary by business, together with an explicit allowance for the cost of holding required capital. Willis Towers Watson has not considered how this compares to a capital markets valuation of such risk (so called "market consistent valuation"),
• the economic assumptions used have made allowance for the Company's current and expected future asset mix and investment strategy and are internally consistent, and
• the operating assumptions have been set with appropriate regard to past, current, and expected future experience, considering the nature of the business.

Willis Towers Watson has performed a number of high-level checks on the results of the calculations, without undertaking detailed checks on the models and processes involved, and has confirmed that no issues have been discovered that have a material impact on the disclosed EV as at December 31, 2023, the NBV for the twelve-month period January 1, 2023 to December 31, 2023, the analysis of movement in EV for the twelve-month period December 31, 2022 to December 31, 2023, or the sensitivity analysis. With the restatement of some jurisdictions to IFRS 17 or NAIC reporting for the purposes of the calculation of Manulife's Embedded Value, Willis Towers Watson has also performed a high-level review of the restatements of those affected jurisdictions.

Our opinion on the Embedded Value of Manulife Financial is based on standards in place at December 31, 2023. The implementation of RBC in Hong Kong on January 1, 2024 may have an impact on the intrinsic value to the shareholders, which is composed of shareholder equity, the cost of holding regulatory capital and the value of inforce as measured through the future profits.

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Embedded Value Results

Embedded Value Summary

1. The 2022 figures were restated to reflect the $(4.5) billion restatement impact to IFRS 17 and NAIC. For more information, see "Methodology and Definitions" below.
2. Adjusted net worth excluding holding company activities ("adjusted net worth") reflects the equity for the Company, adjusted for the items listed under the "Summary of Adjusted Net Worth Excluding Holding Company Activities" table below.
3. The value of in-force business excludes Global WAM, Bank and P&C Reinsurance businesses.

As at December 31, 2023, Manulife's EV was $61.0 billion, an increase of $1.6 billion from December 31, 2022. EV before non-operating variances contributed $9.8 billion. This increase in EV was primarily due to the interest on the prior year's EV, NBV, as well as current period earnings from the Global Wealth and Asset Management ("Global WAM"), Manulife Bank of Canada ("Bank") and Property and Casualty ("P&C") Reinsurance businesses. Investment variances, retuof capital to shareholders, currency and other non-operating items amounted to a reduction of $8.2 billion.

Embedded Value Movement

1. The restatement impact of $(4.5) billion reflects replacing IFRS 4 with IFRS 17 (for Canadian business, International High Net Worth business, as well as business ceded to an affiliate reinsurer), and replacing IFRS 4/ LICAT with NAIC/ RBC (for U.S. business). For more information, see "Methodology and Definitions" below.
2. The value of in-force business excludes Global WAM, Bank and P&C Reinsurance businesses. As a result, the current period earnings from Global WAM, Bank and P&C Reinsurance businesses contribute to the total embedded value movement.
3. Unallocated overhead expenses include Group unallocated expenses, Asia regional office unallocated expenses, and non-directly attributable expenses.
4. Changes in investment assumptions and investment experience includes changes in the fair value adjustments made for the Company's long-term debt, preferred shares, other equity, and surplus assets.
5. Other non-operating items and exchange rates in 2022 EV includes a reduction in EV from reinsuring over 80% of our legacy U.S. Variable Annuity block, which reflects the earnings impact of the transaction adjusted for the reduced future earnings, net of the Cost of Capital release, included in Embedded Value, as well as the impact to adjusted net worth in 2022 related to the Manulife TEDA acquisition. Also includes share issues, option exercises, preferred share dividends, as well as other equity distributions.

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Embedded Value Components by Segment

1. Adjusted net worth related to the Global WAM segment is grouped with Corporate and Other.
2. Required capital is based on the required capital ratios as outlined in the "Assumptions" section below. The allocated surplus by segment is based on our capital ratio operating range for each territory in Asia, Canada, and the U.S., with the remainder allocated to Corporate and Other.
3. Adjusted net worth reflects the equity for the Company, adjusted for the items listed under the "Summary of Adjusted Net Worth Excluding Holding Company Activities" table below.
4. The value of in-force business excludes Global WAM, Bank and P&C Reinsurance businesses.

Summary of Adjusted Net Worth Excluding Holding Company Activities

1. The 2022 figures were restated to reflect a $(4.5) billion restatement impact to IFRS 17 and NAIC. For more information, see "Methodology and Definitions" below.
2. Common shareholders' equity is equal to total shareholders' equity minus preferred shares and other equity on the Consolidated Statements of Financial Position of the Company.
3. Fair value adjustments are made for the Company's long-term debt, preferred shares, and other equity which are measured at amortized cost under IFRS reporting and fair value for EV reporting. Adjustments are also made for certain surplus assets which are measured at amortized cost under IFRS reporting but fair value for EV reporting.
4. Goodwill and intangible assets are a component of adjusted net worth; however, they are excluded from EV, net of deferred tax.
5. This adjustment represents the difference between adjusted net worth for our Asian & U.S. businesses as measured under IFRS and adjusted net worth for our Asian & U.S. businesses as measured under the relevant local statutory accounting bases.

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Projected After-tax Discounted Distributable Earnings

The discounted distributable earnings value as at December 31, 2023 represents allocated surplus, net of holding company activities, as of the valuation date. The remaining discounted distributable earnings values are expected to emerge after the valuation date. Distributable earnings for Canada and International High Net Worth business reflect IFRS 17 reserving requirements and LICAT required capital. Distributable earnings for Asia and the U.S. reflect local regulatory reserving and capital requirements, except business ceded to an affiliate reinsurer, where it reflects IFRS 17 reserving and LICAT required capital. The sum of the discounted distributable earnings equals the total EV as at December 31, 2023.

New Business Value Results

1. In 2023 New Business Value ("NBV"), Canada and International High Net Worth business reflect IFRS 17 reserving requirements and LICAT required capital. Asia and the U.S. reflect local regulatory reserving and capital requirements, except business ceded to an affiliate reinsurer, where it reflects IFRS 17 reserving and LICAT required capital.
2. Annualized Premium Equivalent ("APE") sales are calculated as 100% of regular premiums/deposits sales and 10% of single premiums/deposits sales. APE Sales excludes non-controlling interest and does not include the Global WAM or Bank businesses.
3. NBV margin is calculated as NBV divided by APE sales excluding non-controlling interest.
4. Asia's NBV includes International High Net Worth business.
5. NBV does not include Global WAM, Bank and P&C Reinsurance businesses.

Manulife's NBV was $2.3 billion in 2023, an increase of 10%1 compared with 2022. In Asia, NBV increased 3% compared with 2022, driven by growth in Hong Kong, mainland China, Japan and our International High Net Worth business, partially offset by lower NBV in Vietnam, Singapore and Other Emerging Markets. In Canada, NBV increased 35% compared with 2022, driven by higher sales volumes in Individual Insurance and Group Insurance and higher margins in Group Insurance and Annuities, partially offset by lower segregated funds sales. In the U.S., NBV increased 21% compared with 2022, primarily due to pricing actions, product mix and higher interest rates, partially offset by lower sales volumes.

1 Growth in NBV is stated on a constant currency basis.

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Potential Impact on Embedded Value and New Business Value Arising from Changes in Assumptions

The "Potential Impact on Embedded Value Arising from Changes in Assumptions" table below outlines the potential impact on EV at December 31, 2023, and NBV for the year ended December 31, 2023 of changes in the assumptions used for EV and NBV, respectively.

This includes sensitivities due to specific changes in market prices and interest rate levels projected using internal models as at a specific date. The sensitivities measure the impact of changing one factor at a time and assume that all other factors remain unchanged. For example, the discount rate, public equity return, and alternative long-duration asset ("ALDA") returemain unchanged when we test a 50 basis points ("bps") increase or decrease in fixed income market yields. 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 investment retuand future investment activity assumptions; changes in business mix, effective tax rates and other market factors; and the general limitations of our internal models.

The potential impact on EV of changes in assumptions includes impacts due to changes in adjusted net worth, the present value of expected future earnings, and the present value of the cost of holding capital to support the in-force business. The potential impact on NBV of changes in assumptions includes impacts due to changes in the present value of expected future earnings on new business, and the present value of the cost of holding capital to support new business. We reflected a change in reserve assumptions only where the assumptions are set with reference to current market rates. This applies to the change in fixed income market yield in Canada, the U.S., and some Asia territories.

These estimates assume that the dynamic hedging program continues to operate effectively under the economic scenarios reflected in the EV calculation.

The sensitivities should only be viewed as directional estimates of the underlying sensitivities for the respective factors based on the changes in assumptions outlined below. Given the nature of these calculations, we cannot provide assurance that the actual impact on EV or NBV will be as indicated.

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Potential Impact on Embedded Value Arising from Changes in Assumptions (1), (2)

1. For general fund adjustable benefit products subject to minimum rate guarantee, the sensitivities assume that credited rates are floored at the minimum.
2. The EV sensitivities include impacts from both adjusted net worth, where applicable, and the value of in-force business. The adjusted net worth is affected by the 50 bps changes in fixed income market yields, which causes changes in the fair value of fixed income assets held, and by the 10% immediate increase and decrease in public equity and ALDA market values.
3. ALDA includes commercial real estate, power and infrastructure, timber and farmland real estate, oil and gas, and private equities.
4. This shows the impact of increasing required capital levels by a relative 25% above those shown in the assumptions table below. For businesses subject to LICAT, this was modeled as 125% Base Solvency Buffer - Surplus Allowance - Eligible Deposits - Par Surplus - Contractual Service Margin.

The sensitivity to a 50-bps decrease in fixed income market yields for all future yields is a decrease in EV of $355 million, driven by losses in Canada and U.S., partially offset by gains in Group and Asia. In this scenario, the change in the present value of earnings results in a $1,186 million reduction in EV, which is partially offset by a $831 million net improvement in EV from the impact of mark-to-market gains on surplus assets (net of debt) and a higher cost of capital due to the strengthening in required capital.

The sensitivity to a 50-bps increase in fixed income market yields for all future yields is an increase in EV of $12 million, driven by gains in the U.S., largely offset by losses in Canada, Asia and Group. In this scenario, the change in the present value of earnings results in a $751 million improvement in EV, which is partially offset by a $739 million net deterioration in EV from the impact of mark-to-market losses on surplus assets (net of debt) and a lower cost of capital due to the release in required capital.

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Potential Impact on New Business Value Arising from Changes in Assumptions (1), (2)

1. For general fund adjustable benefit products subject to minimum rate guarantee, the sensitivities assume that credited rates are floored at the minimum.
2. For the purpose of NBV sensitivities, assumption changes have been assumed to occur after the point-of-sale. Therefore, the NBV sensitivity gives an indication of how the NBV written during the year would have been affected by an economic shock occurring after the point-of-sale. NBV sensitivities consider hedging strategies on new business which are intended to be implemented shortly after sale. Actual changes in NBV due to experience being different from assumed may vary from what is shown above due to changes in product mix.
3. ALDA include commercial real estate, timber and farmland real estate, oil and gas, and private equities.
4. This shows the impact of increasing required capital levels by a relative 25% above those shown in the "Assumptions" table below. For businesses subject to LICAT, this was modeled as 125% Base Solvency Buffer - Surplus Allowance - Eligible Deposits - Par Surplus - Contractual Service Margin.

The potential impact of changes in fixed income market rates for all future years is relatively higher for NBV than EV. This occurs because invested assets partially mitigate exposure to changes in fixed income market yields, and EV has relatively higher invested assets than NBV.

Methodology and Definitions

With the implementation of IFRS 17 in 2023, the accounting bases underlying Manulife's EV and NBV changed as follows:

• Canadian businesses, International High Net Worth business, as well as business ceded to an affiliate reinsurer, reflect IFRS 17 earnings and LICAT required capital, instead of IFRS 4 earnings and LICAT required capital;
• U.S. businesses reflect local statutory earnings (NAIC) and capital requirements (RBC), instead of IFRS 4 earnings and LICAT required capital; and
• Asian businesses remained on local statutory bases.

The 2022 EV was restated for the above changes. The impact of the earnings and capital framework restatement was $(4.5) billion, driven by the decrease in the deferred acquisition costs in Wealth Management upon adoption of IFRS 17, as well as the impact of the delayed earnings recognition from moving to IFRS 17 and NAIC.

Embedded value ("EV") is a measure of the present value of shareholders' interests in the expected future distributable earnings on in-force business reflected in the Consolidated Statements of Financial Position of Manulife, excluding any value associated with future new business. EV is calculated as the sum of the adjusted net worth and the value of in-force business calculated as at December 31.

Adjusted net worth is the IFRS shareholders' equity adjusted for goodwill and intangible assets, fair value of surplus assets, the fair value of debt, preferred shares, and other equity, and local statutory balance sheet, regulatory reserve, and capital for our U.S. and Asian businesses. The 2024 EV report (to be released in 2025) will reflect the RBC framework for Hong Kong.

Value ofin-force business in Canada and International High Net Worth business and business ceded to an affiliate reinsurer is the present value of expected future IFRS earnings, on an IFRS 17 basis, on in-force business less the present value of the cost of holding capital to support the in-force business under the Life Insurance Capital Adequacy Test ("LICAT") framework. The value of the remaining in-force business in the U.S. and Asia reflects local statutory earnings and capital requirements. The value of in-force business excludes Global WAM, Bank or P&C Reinsurance businesses. The 2024 EV report (to be released in 2025) will reflect the RBC framework for Hong Kong.

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New business value ("NBV") is the change in embedded value as a result of sales in the reporting period. NBV is calculated as the present value of shareholders' interests in expected future distributable earnings, after the cost of capital calculated under the LICAT framework in Canada and International High Net Worth business, and the local capital requirements in Asia and the U.S., on actual new business sold in the period using assumptions that are consistent with the assumptions used in the calculation of embedded value. NBV excludes businesses with immaterial insurance risks, such as the Company's Global WAM, Manulife Bank and the P&C Reinsurance businesses. NBV is a useful metric to evaluate the value created by the Company's new business franchise.

New business value margin ("NBV margin") is calculated as NBV divided by APE sales excluding non-controlling interests. APE sales are calculated as 100% of regular premiums/deposits sales and 10% of single premiums/deposits sales. NBV margin is a useful metric to help understand the profitability of our new business.

Assumptions

Investment assumptions are consistent with the Company's best estimate assumptions reflected in the valuation of policy liabilities, updated to reflect market assumptions consistent with the market environment in the quarter the business was sold. Best estimate fixed income yields are updated quarterly, and long-term expected yields for ALDA are typically reviewed during the annual review of actuarial methods and assumptions.

The principal economic assumptions used in the EV calculation as at December 31, 2023 were:

Principal Economic Assumptions as at December 31, 2023

1. 100% of LICAT Required Capital = 100% Base Solvency Buffer - Surplus Allowance - Eligible Deposits - Par Surplus - Contractual Service Margin.
2. Company Action Level (CAL) RBC = 2 x Authorized Control Level (ACL) RBC.
3. For Hong Kong, individual insurance products are taxed on a premium tax basis due to a Company election under Hong Kong tax regulations.

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