Manulife Financial Corporation, Q3 2010 Earnings Call, Nov 04, 2010 - SEHK:945

SEHK:945

** Summary of Executives' Speeches**

Anthony Ostler (Executives)

• Introduction: Welcomed participants to Manulife's third quarter 2010 financial and operating results conference call.
• Format: Explained that the call would include introductory comments from executives followed by a question-and-answer session.
• Forward-Looking Statements: Noted that the call would include forward-looking statements and provided a disclaimer about the material factors and assumptions applied.
• Question-and-Answer Session: Set guidelines for the Q&A session, requesting participants to limit themselves to one or two questions and to re-queue for additional questions.

Donald Guloien (Executives)

• Opening Remarks: Thanked participants and provided an overview of the third quarter results, highlighting both the challenges and achievements.
• Financial Results:
  • Reported a net loss attributed to shareholders of $947 million, equating to a fully diluted loss per share of $0.55.
  • Emphasized strong underlying earnings from operations, adjusted earnings from operations were $779 million, within the estimated range.
  • Mentioned a $2 billion reserve strengthening and a $1 billion goodwill impairment related to the current economic climate and repositioning of the U.S. business.
• Capital Position: Highlighted a strong capital position with Manulife’s MCCSR ratio increasing to 234%.
• Strategic Actions:
  • Reduced interest rate income sensitivity by 19% through swaps and other initiatives.
  • Lowered equity exposure by hedging an additional $3.3 billion of in-force variable annuity guaranteed value and reducing equity holdings by almost $450 million.
  • Adopted revised targets for hedging interest rates and equities, aiming to hedge 60% of underlying earning sensitivity to equity market movements by the end of 2012.
• Global Performance:
  • Sales of insurance products in Asia increased by 50%.
  • Adjusted earnings from operations in the U.S. increased by 72% over the third quarter of 2009.
  • Mutual fund sales in Canada increased by 181%.
• Repositioning and Branding:
  • Launched brand campaigns in Asia and Canada to grow the value of the global brand.
  • Reaffirmed the board's support for the company’s strategic direction and plans.
• Future Plans: Announced an Investor Day planned for November 19 to share future plans.

Michael Bell (Executives)

• Financial Overview:
  • Reported a third quarter shareholders' net loss of $947 million, equating to a loss of $0.55 per share on a fully diluted basis.
  • Excluded notable items, adjusted earnings from operations were $779 million, at the upper end of the previously stated range.
  • Discussed the $2 billion net charge from the annual review of actuarial methods and assumptions and the $1 billion goodwill impairment related to the U.S. insurance business.
• Capital Position:
  • Ended the third quarter with a strong capital position, MCCSR ratio of 234%, up 13 points from last quarter.
  • Highlighted the impact of debt proceeds, strong investment gains, and positive equity markets on the capital ratio.
• Sensitivity Analysis:
  • Reduced earnings sensitivity to interest rates to $2.2 billion for a 100 basis point parallel decline.
  • Equity market sensitivity remained relatively unchanged due to the impact of the basis change.
• Hedging Actions:
  • Reduced equity exposure by hedging an additional $3.3 billion of in-force variable annuity guaranteed value.
  • Established a goal to hedge 60% of underlying earnings sensitivity to equity market movements by the end of 2012 and 75% by the end of 2014.
• Interest Rate Sensitivity:
  • Actions taken in the quarter significantly reduced interest rate sensitivity.
  • Planned to decrease sensitivity meaningfully over the next several years.
• Actuarial Review:
  • Completed the annual review of actuarial assumptions, resulting in a total net charge of just over $2 billion after tax.
  • Updated equity volatility parameters and expected bond returns for variable annuities.
• Goodwill Impairment:
  • Accelerated goodwill review due to the updated outlook for the U.S. insurance business.
  • Estimated an additional $2.2 billion goodwill impairment for a total impact of $3.2 billion under IFRS Phase I.
• Investment Portfolio:
  • Fixed income portfolio performed well relative to market conditions.
  • Portfolio remained high-quality and well-diversified, with 95% of bonds investment-grade.
• Top Line Results:
  • Strong insurance sales results, with targeted growth products growing by 24% over the prior year.
  • Wealth sales for targeted growth products grew by 11% over the prior year.
• Regional Performance:
  • Asia division delivered record sales, increasing by 50% over the prior year.
  • Canada and U.S. showed good progress in product repositioning efforts.
• New Business Embedded Value:
  • Increased by 10% in the third quarter, reflecting strong growth in Asia and Canada.
• Funds Under Management:
  • Total funds under management were $474 billion, representing an increase of $20 billion over last quarter.
• Risk Reduction Actions:
  • Explained the necessity of reducing interest rate sensitivity due to the current economic outlook.
• Goodwill and U.S. Life Insurance Business:
  • Emphasized that the goodwill impairment was a non-cash, non-capital accounting charge.
  • Valued the U.S. life insurance business and planned to grow it, excluding the Universal Life No-Lapse Guarantee product.
• Long-Term Care Price Increases:
  • Recognized uncertainty around proposed in-force rate increases but believed in strong actuarial support and offered benefit plan reductions as an alternative.
• Conclusion:

  • Summarized the quarter's results, noting strong underlying earnings and a strong capital position.

  • Highlighted progress in reducing interest rate sensitivities and delivering on business strategy.

  • Emphasized the company's strong credit experience and well-positioned businesses for future growth.