MFC Raw

Presentation
Speaker O-Operator
Please standby, your meeting is ready to begin. Please be advised that this
conference call is being recorded. ***EOF***
Speaker O-Operator
Good morning and welcome to the Manulife Financial First Quarter 2020 Financial
Results Conference Call. Your host for today will be Ms Adrienne O'Neill. Please go
ahead, Ms O'Neill.
Speaker C-Adrienne O'Neill

Thank you and good morning. Welcome to Manulife's earnings conference call to
discuss our first quarter 2020 results for the first time in our company's history.
We are conducting this call virtually our earnings release, financial statements
and related MD&A embedded value report statistical information package and webcast
slides for today's call are available on the Investor Relations section of our
website at manulife.com.
We will begin today's presentation with an overview of our first quarter and an
update on our strategic priorities by Roy Gori, our President and Chief Executive
Officer. Following Roy's remarks Phil Witherington, our Chief Financial Officer,
will discuss the company's financial and operating results.
We will end today's presentation with Scott Hartz, our Chief Investment Officer,
who will discuss the company's general account invested asset portfolio and the
effectiveness of our hedging program. Following the prepared remarks, which were
recorded earlier this week to ensure optimal sound quality.
We will move to the live question and answer portion of the call. We ask each
participant to adhere to a limit of 2 questions if you have additional questions
please requeue. And we will do our best to respond to our question before we start,
please refer to Slide 2 for a caution on forward-looking statements and Slide 4 for
a note on the use of non-GAAP financial measures in this presentation.
Note that certain material factors or assumptions are applied in making forward-
looking statements and actual results may differ materially from what is stated the
slide also indicates where to find more information on these topics and the factors
that could cause actual results to differ materially from those stated with that
I'd like to turn the call over to Roy Gori, our President and Chief Executive
Officer. Roy
Speaker C-Roy Gori

Thank you, Adrian. Good morning everyone and thank you for joining us today.
Turning to slide 5. I'd like to start by acknowledging the significance of the
situation that we find ourselves in as a global community we offer up deepest
sympathies to those have been directly impacted by COVID-19.
And our immense gratitude to front line health care and other essential workers for
the crucial contribution I believe that it's at times like these that we have a
responsibility to step up and protect the health and welfare I'm going to employees
customers and communities. ***EOF***
Speaker C-Unidentified Speaker

And that's exactly what we're doing at Manulife. Te health and safety of our
employees is a top priority as is our focus and commitment to supporting our
customers around the world. We are very proud that enacting our business continuity
plans enabled 95% of our global employees to work from home during the pandemic.As
of today, approximately 90% of our employees are working from home as many of our
colleagues have returned to the office in China and Hong Kong. We have ensured
salary continuance and offered flexible arrangements to employees who encountered
COVID-19 related challenges with remote work.This is a challenging time for many
people and we are focused on ensuring that our customers are receiving the highest
level of service and support possible.We remain open in every market that we have
at presence and continue to offer all products and services. In order to make
things easier and safer for customers as well as for our employees, advisors and
agents, we responded to the crisis by leveraging technology to rapidly deploy
various client solutions.In some instances, these were new tools that we already
had in the pipeline. And in other cases, we moved fast to deploy existing
technology for new markets. I will share some examples later in my presentation.
In addition, we've dedicated over $20 million to financial relief for customers who
are experiencing hardship.These include extended premium grace periods on a number
of insurance products across our segments. Mortgage payments referrals through
Manulife Bank and waving the fee-for-401 k hardship withdrawals in our global
wealth and asset management business.And we are donating funds to causes supporting
health-care workers and hospitals providing COVID-19 care and to aid programs that
provide food security to vulnerable population in our communities.
Before we move on, I'd like to acknowledge how incredibly proud I am of the
Manulife team. There are countless examples of how our team members have risen to
the challenge and gone above and beyond to be there for our customers when they
needed us most. Many of them are on the call today and thank you to each of you.
[ph]Slide [/ph]6 we are very pleased with how smoothly our employees across all
levels and functions were able to transition to working from home. This was because
we have made key strategic investments in our network, equipment and tools over the
last few years. Because we already had a mature work from home culture. For
example, 99% of our North American employees have been working remotely since mid-
March. Resulting in BPM ***EOF***

Usage increasing to 2.5 times regular levels and yet during peak periods, our
average network utilization is less than 55% of our total capacity. We are keeping
team members up to date by hosting enterprise wide holes hosting regular video
updates from senior executive and launching a speaker series to tackle various
topics of interest including mental health.Formally our online learning tools a
well developed and as a result participation in training programs has continued at
pre-crisis levels. In addition, we leverage this expertise to pivot to online
learning for our agents and advisors around the globe. Turning to slide 7 as I said
earlier we responded to the crisis by rapidly deploying new and existing
technology. This included launching chat technology to manage costs and the volumes
signed to enabled contactless transactions and reinforcing our existing digital
tools such as applications for life insurance in Canada and the US.With enabled
non-face to face process, the sales in all markets in Asia prior to the crisis.
We've been using this technology in China. And thanks for that experience our
capabilities. We're well developed the cross hit an isolation measures were put in
place around the world, we accelerated our plans to roll out this technology more
broadly in the region. This is an apple our distribution partners and agents to
engage with our customers. According to their preferences. It also positions us
well to capitalize on any changes in customer sentiment post COVID-19 and supports
productivity and retention of our agency force. The ultimate test us to weather
these measures are working well UV NPS score we're happy to report so we've
actually experienced the slight improvement in our transactional NPS score since
the onset of COVID-19 which we see as a big win given the elevated core volumes and
the pivot to working remotely.Turning to Slide 8, Manulife into the quarter in a
position of strength. Thanks to the work we've done over the past decade to derisk
our business and reduce our company's sensitivity to market movements. In the first
quarter of 2020, our LICAT ratio improved to 155% and our leverage ratio of 23% was
considerably lower than it was 2 years ago. And is now below our medium term
target.This combination resulted in more financial flexibility than we've had in
recent years. We have a high quality invested asset portfolio with 98% of fixed
***EOF***

(inaudible) rated investment grade. That will go into our general account portfolio
and the effectiveness of our hedging program in his presentation. We've diligently
worked towards becoming a digital customer lead up and as you heard before this is
serving us well in the current environment. Finally expense efficiency has been one
of our highest priorities. And we've made meaningful progress towards our 2022
target with the delivery of total expense savings of $700 million and our strong
culture of expense discipline is serving us well in this environment. As a result
of these strengths I'm confident that Manulife is well positioned to navigate this
crisis and the associated economic downturn. Turning to Slide 9, yesterday we
announced our first quarter financial results. As I noted the Corona virus
continues to disrupt the economy and capital markets worldwide. Our operating
conditions during the first quarter were understandably affected. Despite these
challenging conditions we delivered solid results demonstrating the diversity and
resilience of our businesses. We delivered net income attributed to shareholders of
$1.3 billion and core earnings of $1 billion. The relatively small variance between
these 2 figures have been challenging macroeconomic conditions is a testament to
the performance of our equity market and interest rate hedging programs. Core ROE
was a resilient at 8.2% and we achieved net inflows of $3.2 billion in global ware
with all business lines contributing positive net flows. Book value per share rose
to $26.53 and we also reported embedded value of $58.1 billion for $29.79 per
share, as of December 31, 2019. It's worth noting that embedded value only reflects
a portion of the value of our businesses. As it attributes no value to future new
business and only tangible book value to our growing wealth and asset management
businesses as well as our P&C reinsurance operations and Manulife Bank. Turning to
slide 10 despite the challenging environment I believe that we've accomplished a
great deal in the first quarter. We successfully completed our 2022 portfolio
optimization target of $5 billion of capital in the fourth quarter of 2019, three
years ahead of schedule. While we've achieved our target we generated an additional
$265 million of capital benefit in the first quarter of 2020 through a variety of
initiatives. The initiatives announced to date have resulted in cumulative capital
benefit ***EOF***

$5.3 billion. We remain focused on aggressively managing costs to drive expense
efficiency which resulted in modest core expense growth of 2% in the first quarter
of 2020 which is well below our historic average. Our third priority is to
accelerate growth in our highest potential businesses and we aspire to have these
businesses, generate 2/3 of total company core earnings by 2022. In Asia, we
extended our exclusive strategic bancassurance arrangement with Bank Donamon
Indonesia to 2036 and in global [ph]WAM [/ph] we launched a large case US
retirement plan worth $2.6 billion with over 100,000 participants. Our fourth
priority is our customers and how we're using technology to attract engage and
retain customers by delivering an outstanding experience.
As I previously mentioned, during the first quarter of 2020 we've leveraged our
digital platforms to better serve our customers during the COVID-19 pandemic. Our
final priority is high performing team our target is to achieve top quartile
employee engagement compared to global financial services and insurance peers by
2022. In February I was delighted to announce the appointment of Karyn Leggett as
Chief Marketing Officer and in March, we were named one of Canada's Best Diversity
Employers for the third year in a row by [ph]Mediacore[/ph].
Moving to slide 11. In conclusion we have a fantastic diverse franchise and a

winning team. We are in a position of strength and we remain focused on maintaining
financial flexibility and operational resiliency. The long-term fundamentals and
demographics underpinning our strategy remain unchanged. Points such as these
reinforced the importance of insurance, wealth management and retirement products
which we believe will drive high demand for our products in the future and even
stronger customer preferences to interact with companies who have digital
capabilities and streamline processes. We are in an unprecedented macroeconomic
environment and there are many possible scenarios on the link and nature of the
impeding recovery.
The part of the recovery remains to be seen. But I'm confident that we are in a
position of strength. We remain committed to our dividend, along with our medium-
term financial targets. Thank you. And I'll hand over to Phil Witherington who will
review the highlights of our financial results. Phil?
Speaker C-Philip Witherington

Thank you, Roy and good morning everyone. Turning to slide 13 and our financial
performance for the first quarter of 2020. As Roy mentioned, considering the
challenging conditions, we delivered solid results. I will highlight the key
***EOF***
Speaker O-Operator
Drivers of our first quarter performance. With reference to the next few slides.
Turning to slide 14 core earnings in the first quarter of 2020 we're $1 billion,
down 34% from the prior year quarter. On a constant exchange rate basis.
The decrease in core earnings was driven by the unfavorable impact of markets on
seed money investments the absence of core investment gains lower new business
volumes in Japan compared with a very strong quarter for Japan COLI in the prior
year.
And unfavorable policyholder experience in North America, including elevated travel

insurance claims related to COVID-19 these items were partially offset by the
impact of in-force growth in Asia and higher fee income from higher average asset
levels in our global wealth and asset management businesses.
We are pleased with the resilient performance of our businesses during these
challenging times. And believe that Manulife is well positioned to continue to
succeed through this period of uncertainty and the subsequent recovery.
We delivered net income attributed to shareholders of $1.3 billion in the first

quarter of note we recognized losses of $608 million from investment related
experience driven by lower than expected returns on older primarily due to the
impact of sharp declines in oil prices.
]The favorable impact of fixed income reinvestment activities as we took advantage

of wider corporate spreads served as a partial offset the gain of $2.1 billion from
the direct impact of interest rates was primarily driven by wider corporate spreads
and realized gains on the sale of AFS bonds, partially offset by the impact of
lower risk free rates.
The charge of $1.3 billion from the direct impact of equity markets reflect
significant declines in global equities during a volatile quarter we also reported
a $72 million gain related to a tax benefit from the US act as a result of carrying
back net operating losses to prior years.
Slide 15 shows our source of earnings analysis expected profit on in-force

increased a modest 3% on a constant exchange rate basis driven by growth in Asia
new business gains were lower than the prior year quarter due to lower sales
volumes in Japan.
As a reminder, the first quarter of 2019 was an exceptional quarter for Japan COLI
sales ***EOF***

Overall policyholder experience in the first quarter was unfavorable primarily due
to higher travel claims in Canada related to covid 19 travel interruption and
cancellation and higher claims in our US Life Insurance business. LTC policyholder
experience was neutral in the first quarter of 2020. Turning to slide 16 we
delivered core earnings growth of 6% in our global wealth and asset management
business, driven by higher average asset levels. Core earnings in Asia decreased by
7% driven by lower new business volumes in Japan. You may recall that in the first
quarter of 2019, we experienced a significant increase in COLI sales in Japan.
Those customers anticipated the introduction of unfavorable tax changes. In
contrast, our businesses in Hong Kong and Asia rather both delivered double-digit
core earnings growth, which served as a partial offset. In the US, Core earnings
decreased by 13% driven by unfavorable life insurance policyholder experience. Core
earnings in our Canadian business decreased by 16% primarily due to unfavorable
travel claims experience related to covid 2019.
We delivered core ROE of 8.2% in the first quarter of 2020 against the backdrop of
challenging market conditions. Slide 17 shows our new business value generation and
APE sales. In the first quarter of 2020, we delivered new business value of $469
million, down 11% from the prior year quarter. In Asia new business value decreased
by 14% compared with the first quarter of 2019 as growth in Hong Kong and Asia
Other was more than offset by a decline in Japan. In Canada, new business value
increased by 24% from the prior year quarter, driven by higher sales across all
business lines. And in the US new business value decreased 23% primarily due to the
impact of lower sales volumes and less favorable business mix. In the first quarter
of 2020, we delivered APE sales of $1.6 billion, down 9% from the prior year
quarter. The decline in APE sales growth is driven by the impact of tax changes on
COLI product sales in Japan, which offset growth in Hong Kong and Asia Other in
Canada APE growth of 40% compared with the ***EOF***

quarter of 2019 was driven by large case group insurance sales and continued growth
of our individual insurance business. In the US, APE sales were largely in line
with the prior year quarter as lower domestic universal life sales following
regulatory changes in the fourth quarter of 2019 more than offset higher term and
international sales.Turning to slide 18, our global wealth and asset management
business generated net inflows of $3.2 billion in the first quarter, compared with
net outflows of $1.3 billion in the prior year quarter with positive contributions
from all business lines. Despite higher retail redemptions in the US and Canada,
the mid equity market declines in March. In the US, net outflows of $0.2 billion in
the first quarter of 2020 improved compared to $4 billion of net outflows in the
first quarter of 2019. This improvement was driven by higher retail gross flows
primarily from strong institutional model allocations and intermediary sales as
well as the sale of a large case retirement plan.
In Canada, net inflows of $2.8 billion improved compared to net inflows of $2.1
billion in the first quarter of 2019. The improvement was driven by higher gross
flows in institutional asset management equity mandates. In Asia, net inflows of
$0.6 billion were in line with the prior year quarter as higher net inflows in
retirement were offset by higher mainly institutional redemptions. Our core EBITDA
margin remained solid at 27.3% in line with the prior quarter and up 30 basis
points from the prior year quarter. Our average AUM remained stable compared with
the prior year quarter as the unfavorable impact of markets was offset by net
inflows. Turning to slide 19, we have entered this [ph][/ph] with a strong balance
sheet and regulatory capital position. Our financial position has strengthened
further in the first quarter of 2020. We have $31 billion of capital above the
supervisory target and our LICAT ratio improved to 155%. The 15 percentage point
increase compared to the prior quarter was driven by the positive impact of
widening corporate spreads and lower risk free rates, partially offset by the
impact of lower public equity and older valuations ***EOF***
Speaker O-Operator
Our leverage ratio declined to percent 23%(inaudible)below our medium term target
of 25%. The decrease in the leverage ratio was driven by the impact of lower
interest rates, which increased the value of AFS bet securities. The $500 million
subordinated debt redemption this occurred in January 2020 the favorable impact of
a weaker Canadian dollar and growth in retained earnings. These factors were
partially offset by share buybacks.
Given the high levels of market volatility and overall uncertainty, we believe it
is prudent to have strong levels of capital and liquidity and to adopt a longer
time horizon than a normal conditions to address future financing needs, our
relatively low leverage ratio allows for this cautious approach to pre-financing.
Turning to Slide 20, we continue to maintain strong liquidity at both consolidated
and legal entity levels and we are confident in our ability to meet all our
payments and obligations.
Approximately one quarter of the assets in our general account portfolio our
liquids government bonds and cash. I would also like to reiterate our capital
allocation priorities, which remain unchanged. Organic investments in our highest
priority businesses remain our top priority, followed by sustainable dividend
increases opportunistic share buybacks and then M&A, it's worth noting that it is
not unreasonable to expect that subsidiary remittances would be lower in this
interest rate environment. However, we do not expect this to be a constraint to our
capital priorities. As an example of our appetite to deploy capital within the last
few weeks, we have extended our exclusive bancassurance agreement with Bank them on
Indonesia until 2036. Slide 21 outlines our medium-term financial operating targets
and our recent performance core EPS growth core ROE and expense efficiency were
below our targets primarily driven by the challenging macroeconomic environment in
the first quarter of 2020. And like most other companies we expect the second
quarter of 2020 to be a challenging one given the isolation measures that have been
in place around the world.
In light of the current environment, we would not expect to achieve our medium term
core EPS growth target of 10% to 12% this year. We are in a strong position and we
remain committed to our dividend alone. ***EOF***

With our medium-term financial targets. I would now like to turn the call over to
Scott Hartz who will discuss our general account investment portfolio. Scott.
Speaker C-Scott Hartz

Thank you, Phil and good morning everyone. I'm pleased to provide you with a more
in-depth update on the direct impact of equity markets and interest rates in our
results and on our investment related experience. I will also provide some
additional color on the strength of our investment portfolio. Please turn to slide
23. As you might recall, our dynamic program hedges variable annuity risks on a
best estimate economic bases and our macro program hedges, the remaining equity
market risks not covered by the dynamic program.
Our VA hedging program was severely tested this quarter given the significant
volatility we saw in both interest rates and equities. The program performed quite
well offsetting 93% of the increase in the liability. The slippage was roughly half
due to the trading needed to re-balance the hedge and half due to the underlying
funds to under performing our hedging benchmarks. This fund under performance
typically reverses when markets normalize. Our interest rate hedging program uses a
combination of long bonds in the cash market, Forward-starting interest rate swaps,
Treasury forwards and treasury futures. We do also use interest rate for us to
hedge minimum interest rate guarantees in our liabilities.
Our sensitivities to interest rates and equity markets have been significantly
reduced since the 2008 global financial crisis. Starting from 2013 when we achieved
our hedging targets, you can see the impact from interest rates and equity markets
have largely offset each other. And over time has had an immaterial impact on net
income. During the first quarter of 2020, we saw the US 30-year risk free rate drop
over 100 basis point, the S&P 500 dropped 20%, the VIX increased to 80% and
corporate spreads widened by roughly 150 basis points. In these volatile market
conditions, we recognized a $792 million gain as losses related to the direct
impact of equity markets, and following risk free rates were more than offset by
widening corporate spreads. So while we are certainly in a period of extreme market
stress, our hedging programs have been effective at mitigating net income
variability. And we remain within our equity and interest rate risk(inaudible).
Next slide 24 shows a recent history of our investment related experience. As a

reminder, investment related experience is derived from three sources. One, fixed
income reinvestment which ***EOF***

Compares our purchase and sale activity to our reserve assumptions, two, credit
experience, which compares the impact of downgrades and defaults for that assumed
in our reserves and three, all other which compares how the total return on our all
the investments performed relative to our reserve assumptions.
As a reminder, ALDA short for alternative long duration assets is our term for
private non-fixed income assets comprised largely of real assets. Over the past 3
years, investment related experience has been significantly in excess of the $400
million we can include in our core earnings.
Gains from fixed income reinvestment have been strong and steady over this period,
and we're a significant contributor this quarter as we took advantage of the very
widespread environment to redeploy government bonds into high quality spread
product.
Credit results have also been a reliable contributor up to the current quarter. In
recessionary periods, we do expect credit results to be worse than our through the
cycle reserve assumptions. ALDA was a significant drag this quarter. Particularly
due to the mark down of our oil and gas portfolio given the significant decline in
energy prices.
We do expect variability in our ALDA portfolio, Quarter-to-quarter due to its mark

to market nature but we also expect significant recoveries when market conditions
improve. Through the cycle, our ALDA portfolio has largely performed as expected.
Now turning to slide 25, our invested assets are diverse, and of high quality. Over
98% of our fixed-income assets are investment grade. We hold a diverse mix with a
focus on defensive of asset classes. I will expand on this later in my
presentation.
We've relied on our ALDA portfolio to generate enhanced yield. This has removed the
need for us to chase yield through riskier fixed income asset, for example, our
exposure to below investment grade is limited to only 2% of our portfolio and we do
not have any exposure to collateralized loan obligation.
Finally, a key component of our risk management framework is our credit team. As a
company, we take credit risk very seriously and manage it within a highly
experienced team, which has been through many credit cycles.
Our approach to credit risk has served us well in downturns, including the 2008
global financial crisis. Turning to slide 26, you will see it illustrates how
strong our long-term credit performance has been. Our portfolio losses have
consistently stayed below benchmark level since the financial crisis.
Based on our portfolio as at March 31-2020 the long-term expected level based on
Moody's default studies are quite to our aggregate credit exposure with
approximately $108 million pre-tax per quarter. ***EOF***

further relative to our internal credit loss assumptions we have generated positive
credit experience each calendar year since 2010. The chart on the slide represents
actual impairments while the accounting credit results also include increased
credit reserves for downgrades. These reserves will ultimately be released into
income, so this chart reflects the ultimate impact of credit on our income.
While we have certainly been pleased with this performance, we would remind
everyone that credit is inherently cyclical. We will expect some adverse impacts in
the current market environment, but that is the nature of the cycle and therefore
credit losses are likely to be elevated throughout the recession.At the same time,
we are taking advantage of the market conditions and investing in very high quality
issuers at spreads not seen since the GFC.This should provide an offset to our
temporarily unfavorable credit experience.
Now turning to slide 27, we show our investment grade fixed income rating
distribution relative to US industry benchmark.As I mentioned earlier, 98% of our
fixed-income portfolios investment grade with 75% rated A-and above. Relative to
the industry benchmark as represented by Barclays US Corporate Index our portfolio
has a significantly higher weight in bonds rated A-and above. While the BBB
component of the corporate bond universe has increased in recent years, our systems
stable and is well below the market way.
In addition, within our BBB portfolio, only 17% is rated BBB-minus, which is the
weakest category. Our below investment grade Holdings which I previously mentioned
are only 2% of our fixed income portfolio are well diversified by industry sectors
in proportionately lower than our holdings at the time of the global financial
crisis.
Turning to page 28, we show our fixed income portfolio by sector. Our portfolio is
quite diverse and built to endure significant economic stress. The portfolio's
weighted most heavily in government and utility sectors, both of which are more
defensive in nature. Our energy holdings, which constitute 8% of our portfolio are
currently under higher pressure given the significant demand destruction we're
witnessing and I will cover the details of that portfolio in a few slides. I'd also
point out that we have a modest 3% weight in the more exposed to consumer cyclical
sector.
On to slide 29, which shows the composition of our -- all the portfolio. We
continue to believe all the represents an integral and complementary component of
our investment mix backing long-term liabilities.In combination with fixed-income
assets which back the first 20 to 30 years of liability cash flows, we believe
alternative assets has the potential to increase expected returns while managing
***EOF***

The level of risk we have strong in-house capabilities and experienced investment
professionals in each of our alternative asset classes. As you may recall we
recently sold over $5 billion of all the supporting our North American Legacy
businesses, which allowed us to release over $2.2 billion of capital. This helped
us reduce our exposure in guarantee checks.
Currently, more than one-third of our all that supports participating and pass
through businesses.We access our actuarial assumptions every year but have no
reason to believe our all the return assumptions are unreasonable over the long
term holding period. Slide 30 summarizes our fixed-income energy exposure which is
topical considering current depressed oil prices. Here you can see the sub-sector
diversification more than one-third of our portfolio is a midstream such as
pipelines which largely transport natural gas and liquids and our West is
susceptible to changes in commodity prices.
This portfolio is high quality with 94% rated investment grade. Given our limited
exposure to high yield issuers, we do not expect widespread defaults although given
the significant pressure on oil prices, we would expect downgrades. Slide 31
summarizes our energy exposure through ALDA as noted earlier, our all the oil and
gas portfolio generated experience loss this quarter.Our private equity Oil and Gas
Holdings are in the US and are valued based on the forward strip.
When prices fall we might typically see a delay in the loss recognition as we are
dependent on valuations from our fund managers .In this case, given the drastic
price swing when we did not wait for our fund valuations in an estimated some of
the loss that would normally have been recognized in Q2.
Our conventional Canadian oil and gas properties are managed by our subsidiary NAL
resources. These assets are valued by an independent appraiser this forward price
deck technically moves less than the forward market curve but this quarter it moved
more than the market, which exacerbated the loss. While the loss was material this
quarter it was largely a mark-to-market fair value adjustment, the ultimate loss
will depend on realized prices well into the future. And while in the short term,
prices will likely stay depressed we would expect a significant recovery when
demand is restored as shut down production will be difficult to restart.
Both our Canadian Newyork's holdings are largely unlevered so they should be able
to manage the short-term stress, the industry is experiencing. Moving on to Slide
32 in summary, I want to reiterate that our invested assets portfolio is high
quality and diverse it is designed to endure significant economic stress we have a
very strong history of favorable ***EOF***

Credit experience, which is a testament to our credit teams and underwriting
processes. Our oil and gas prices are stressed we continue to believe these are
high-quality assets and that our holdings will rebound in the medium term when
markets improve. Finally risk premiums have increased significantly, and we have
taken advantage of these as we continue to be cash flow positive in this
environment, and are putting that to work at attractive investments, this concludes
our prepared remarks. Operator we will now open the call to questions.
Speaker O-Operator
Thank you we will now take questions from the telephone lines. (Operator
Instructions) There will be a brief pause while the participants register we thank
you for your patience. Thank you, the first question is from Tom MacKinnon from BMO
Capital please go ahead your line is open.
Speaker A-Tom MacKinnon

Yeah, thanks very much, can you hear me.

We can Tom.

I got cut off a little bit on the call, but I'm not sure if you talked at all about
any kind of outlook in terms of sales in April, if you can take us through that by
division that would be helpful, and then I have one follow-up.

Yeah, let me take you back Tom.Firstly, good morning and great to see you at least
remotely, obviously the sales is going to be one area that impacts our business,
and we're expecting to see a lot of volatility as quite frankly different
geographies that just to the impacts of isolation and social distancing. I'm quite
pleased actually with our first quarter results our new business value, as Phil
highlighted in the prepared remarks was $469 million, actually when you adjust for
Japan or when you look at it on an ex-Japan basis were up 12% April 1st month of
the quarter where basically looking at across all geographies a net 10% off the
same quarter of last year, but again I guess this is obviously going to be an area
of significant movement, so I'd hate to bore a trend line from that to conclude on
how the quarter is going to end or how we're going to look at the rest of the year,
so it's something we're watching very closely.
We're pleased with the resilience of the resiliency of our franchise, and quite
frankly how our organization is adapted given the challenging circumstances to use
new technologies ***EOF***
Questions And Answers

To interact with customers and to continue our sales momentum as we saw in Q1,
April results are encouraging. But still much more work for us to do on that front.
Speaker A-Analyst
Is there any, is there any way you can elaborate at all as to what you're seeing in
US or Canada or in Asia with respect to that overall net 10%.

Yes. So, the movement is obviously varied by geography and then even within Asia
varies significantly by market places. We've seen different markets come back at
different paces in China, for example, we are now seeing in our own operation, 80%
of our people back in the office environment.
But let me let me pause and ask Mike Marianne and Neill just provide some extra
color on each of those geographies Mike, you want to start off with Canada, then
we'll go to US Neill.
Sure. So thanks, Tom, this is Mike. And in Canada, as Roy said in April, we didn't
see any material change in, we came out of Q1, with very strong momentum. I would
say that we're looking at some places very closely. We've obviously done a lot of
work over a number of years to digitize a lot of our sales process.
So we're seeing a lot more take-up of some of the tools that we have. We've also
been expanding that over the last 6 weeks so electronic applications are up,
electronic contract delivery and received are up, electronic signatures are all up.
So none of that is really getting in the way now of us being able to continue to
process business, the place that we are seeing a significant slowdown is the social
distancing and the effect that it's had on paramedicals being able to visit homes
to collect evidence.
So at the larger end of the market, we're seeing much more of a slowdown than at
the smaller end of the market. I'd also just lastly comment on our Group Benefits
business, we're definitely seeing that in the, certainly, we're certainly seeing
continuing to see sales we've switched to virtual finalist presentations, et
cetera.
But we are seeing a slowdown in sort of small business quotas as those business
owners are really primarily have been really primarily focused on just making sure
they manage their business. So I'll stop there and maybe pass to Marianne.
So, hi Tom, it's Marianne in the US, very similar story to what Mike just said in
terms of the capabilities that we have been building over the last couple of years,
getting e-applications e-signatures, e-delivery, it's been relatively smooth
because we had those tools in place even though historically hadn't been a lot of
take up on it.
There certainly is now. Our April month was actually a pretty good month and we are
seeing business holding. But we are seeing a change in mix as you might expect less
of the permanent, more of the term just because of what Mike was talking about in
terms of ***EOF***

Being able to do the exams. We can't do that. And so we have changed some of our
underwriting standards as well, things like 80 and above. We're not currently
writing and looking at some of the sub-standard pretty closely just because of the
fact that we can get the payments and so that's basically where we are in the US
over to you now.
Speaker A-Unidentified Participant

Thanks. That's for the question, John. So in Asia. It's different depending upon
each of the market and we've been witnessing the outbreaks since the 3rd week of
January and especially emotion in China quickly followed by Hong Kong.
And in Hong Kong and China start start to get better be break then kind of spread
to Japan and Southeast Asian markets which not experiencing similar levels of
locked down an isolation measures. While we are witnessing in China is almost 90%
of our folks of back to work and in Hong Kong, it's now north of 70%.
So that's kind of positive and I think it's only going to get better as the quarter
progresses. However, the customer activity is still not at normal levels. And
that's on account of the economic uncertainty that's upon us. What I think is again
in line with what you've got Mike and Marian save the investments that we made in
our business are really paying off.
So if I'm not come in Asia. We have now have face to face enabled in all our
markets and we are looking to constantly improve our processes and thereby. We are
going to enabling our distributor partners to engage with our customers. Lots of
it. If there are going to be extended period of lockdowns.
And again if you that in our agency force and extending progressively to our bank
partners. So I think it's kind of a mixed bag for us and said, China and Hong Kong
are getting better impact in April, we saw our China and market like Vietnam
getting very close to levels of what we had experienced in April of last year, but
again in other markets on account of the dropdowns.
And they are much more severely impacted and we believe that while the measures
will ease the lockdown measures with us in some form or shape as we go through the
quarter.

Paul, it might be valuable for you also to give a bit of a flavor for how progress
in GSM or what you're seeing from a perspective as well.
Speaker C-Paul Lorentz

Yeah. Thanks, Ryan. Tom, it's Paul here just I'll just add to some of these
sentiments offered by Mike and Marian we're seeing similar trends as it relates to
non-face to face sales opportunities.In particularly the impact on the small
business owner on our retirement business, so that is something we expected, and I
guess the other one that's somewhat unique to us in Asia. Amid some of the market
volatility we have seen a shift into more ***EOF***

Cash and bank deposits in Asia, which does have an impact, but having said that we
are confident on our ability to generate net flows or positive net flows over the
long term, and I think some encouraging signs from my perspective was that in Asia
we were able to deliver positive net flows this quarter despite COVID-19 impacting
Asia earlier than some of the other regions.
We also entered the year with a stronger pipeline on the institutional side than we
started last year, so that set us up well for this year, and then thirdly we've
been very proactive with customers, and advisors in terms of engaging with them
during this period of time whether it's support thought leadership, etc. And it's
been very appreciated by them and I think it sets us up well as we navigate this
crisis and come out of it to just really be true partners for both our customers,
and our advisors moving forward.
Yeah thanks, and just as a follow-up is there any, what are you seeing in terms of
your property CAP retro-cession covers are you seeing any as you set up any
provisions, is there any claims activity, how should we be thinking about that
business.

So, Tom this is Phil I think that one's best handled by me we're not seeing any
interruption, as a consequence of COVID-19 our P&C re-business, re-insurers, our
insurance clients who offer property damage protection arising from natural perils
such as earthquakes, and hurricanes, and while there may be business interruption
claims associated with property damage claims arising from those natural perils, in
the case of a pandemic that's not something that would fall within the scope of our
coverage.

Okay thank you.
Speaker O-Operator
Thank you, the next question from Steve Theriault from Eight Capital, please go
ahead your line is now open.
Speaker A-Steve Theriault

Thanks very much, maybe I'll go with the question going to the ALDA Oil & Gas
exposures, so Scott I think what you're saying is that we should think of the the
hit this quarter as more remark to market than what we've seen in the past trying
to more fully reserved for the impairment that we've seen, so is that right and is
it correct that it's sort of in the $700 to $800 million range this quarter, and
what would it take to see more losses from here, I guess how comfortable are you in
the initial assessment.

Yes Steve it's Scott, thanks for the question and you pegged it about right our
losses were about $750 million this quarter, and that was a mark-to-market some of
that loss will undoubtedly stick ***EOF***

As some of our properties are currently drilling and producing oil and selling oil
and they're selling it at lower prices than we would have expected, but it is a
mark to market based on 10 plus years of expected cash flow and marketing at all
sort of its current, current market levels.
And we did, as you pointed out and I pointed out in my prepared remarks, try to
fairly fully take that through on our NAL subsidiary, we have and an outside
appraiser and that is the way it works.
It's taken mark to market in the current quarter for our bigger U.S. private equity
portfolio, we are reliant on the private equity firms who manage a lot of those
assets to give us marks and typically we don't get those in time and things tend to
be lagged the quarter and sometimes even 2.
But given the precipitous drop in prices, we tried to estimate best based on prior
experience. The last time we had a major drop in prices, we tried to estimate where
those marks would come out and put through an estimate.
It doesn't mean there won't be future losses as we get those marks in and I would
say the last time we did see losses continue to dribbling a bit after the first big
initial down, but we have accelerated those and we feel like, we've gotten a lot of
it behind us.

I guess from here, on the way back or if things deteriorate further do you stick
with that mark-to-market approach? Or was it sort of a mark-to-market approach on a
onetime basis and then it's more of a, a bit more of a smooth progression from
here?

Well, it really is marked to market, it's just a question on, when do we get the
mark? And so for again, for anyhow, we get the mark at quarter end, a real-time
markets just were delayed on the private equity portfolio and that so for small
movements, we're not going to try to estimate what that is.
But when we see a big movement like that, we do try to estimate it and I would
again end with some of this undoubtedly will be real losses given that the cash
flows in the short term, but we would expect prices to recover.
We're going to see shut-ins to production, which we really did not see the last
time we had prices go down, and it becomes hard to restart, we'll need to see much
higher prices to try to restart and there is and in a lot of cases restarts are
difficult to do and don't produce the same level.
So, if prices get our prices need to get north of $50 to encourage, you know, a
significant shale drilling or taking off the shut-ins and at those kind of price
levels, we would expect a significant recovery in our portfolio.

Okay, and then they will ask 2 related question, on the fixed-income energy
exposure? Scott, can you give a bit more detail on say the E&P in the oilfield
services ***EOF***

Closure what kind of risk. Do you think there is there. And can you give us a
little more color.

Sure happy to do that and page 30 of the slide deck does show that break down and
you have highlighted. I would say the the 2 sectors of most concern for us. We also
have Midstream, which is much less as a concern, and you can see the quality
distribution here is largely investment grade, a fair amount and triple B, but most
of that midstream would be triple B in the majors are high quality and we'd expect
to be in good shape. The Oilfield Services is probably the one of most concern they
make a lot of their money through drilling activity, which is going to pretty much
see here, but our portfolio there is higher quality it's more skewed to the single
A range, mostly in the top three service providers. So, we probably will get some
downgrades there, but I would expect to see those stay investment grade.
Offshore drilling sort of a sub component of that we did spike that out, it's a
very small part of the portfolio, but that will, that is below investment grade,
that is, that is, if we're going to see impairments here that is where we're going
to see it, but it is a very small part of the portfolio. And then the E&P
exploration and production, which is a little bigger part of the portfolio. There
is a real mix there. We do have a couple of billion (inaudible) of sort of national
oil companies seen up in China, National Oil Company of Korea and those will be
well supported by the no concern, but we do have a fair amount of independent
producers who are more in the BBB range and that is where we would expect to see
some downgrades to below investment grade, but they started the investment grade
there strong. We do not expect impairments there, but we do expect some downgrades.

thanks for that color.

Sure.
Speaker O-Operator
Thank you. The next question is from Humphrey Lee from Dowling & Partners. Please
go ahead, your line is open.
Speaker A-Humphrey Lee

Good morning and thank you for taking my questions. In terms of claims exposure to
COVID 19. Do you have any sense in terms of the net mortality sensitivity to the
number of the staff that you can share neither based on the number of deaths in the
US or the number of deaths in Canada.
Speaker C-Steven Finch

Hi Humphrey, it's Steve Finch, I'll take that question. And yes, we've done fairly
extensive stress testing on our portfolio and your question with respect to
businesses that have either mortality or longevity exposure, so Manulife overall.
We've got a diversified mix of business and in a pandemic like this, we would
***EOF***

I mean out of the central banks is where we might expect impairment. So it's a
little difficult to compare to the GFC, and we do expect most of our experience
this cycle to be hence more downgrades then defaults and downgrades while they
create a hit to earnings as we increase reserves in the current quarter they get
released in subsequent quarters. The extent we don't have defaults. And just as
we've looked at that and look at sort of stress testing and what might happen to
give you a bit of a guide is if we saw 25% of our whole portfolio on a prorata
basis be downgraded one notch and by one notch. I mean if there is typically 3
notches in a rating category. So for BBB, there will be BBB plus BBB minus. And so
if they move down one notch. We would expect about it about a $250 million post tax
reserve increase and hit to earnings.And the way we do it things have to move up
full category. They have an increase in reserve. So we would see the BBB-minus has
being downgraded to below investment grade is what would create that charge and
about half of that overall charge, we would see it does come out of our BBB
portfolio. So that's a little context for you. And Steve, (Multiple Speaker).
Yeah, I'll just add in terms of our overall stress testing we do routinely do
stress testing on the entire company. On the balance sheet and we have stressed
more severe scenarios than what we saw in the global financial crisis and yeah,
everything that we've been doing over the years building up our hedging programs,
that portfolio optimization initiatives we enter this time in a position of
strength where we wanted to make sure that the company can with withstand very
severe shocks and still be in a strong position and so we are confident in the
capital position of the company, based on the stress testing that we've done.
Speaker A-Analyst
Thank you.
Speaker O-Operator
Thank you. The next question is from Mario Mendonca from TD Securities. Please go
ahead, your line is open.
Speaker A-Mario Mendonca

Good morning. Perhaps one thing I was looking for in the disclosures. I couldn't
find was the asset default assumptions. Steve, is that something you'd be
comfortable disclosing today.

Yes. Default assumptions in the reserves that.
Speaker A-Mario Mendonca

(Multiple Speaker). So in I was going to ask, actually what the dollar amount of
the reserve is in the asset default reserves.

Sure. So what I can do is describe our process. So as with other assumptions. We go
through a detailed regular reviews, how we work closely with Scott's team. We look
at ***EOF***

The Moody's long term default averages and our experience has been over a long
period of time has been better than what we see in the Moody's studies. We have not
gone all the way to our experience. So --we've reflected some of our own experience
in some of the industry experience.
And as you can imagine the default assumptions vary by ratings category by tenor
etcetera. So it's quite a detailed set of assumptions. Overall, the the we've
estimated that --the amount of provision for credit in our reserves. It's
approximately $3.5 billion. That was at the end of of 2019.
So as of Q1. It's likely gone up a little bit because of the currency movements and
about a 30 %to 40% of that is piece that our margin .

Okay and then just a quick clarification, Scott. When you referred to $50 oil.
Where you talking WTI US dollar

Yes, yes, i was.

Okay and then sorry just broke quickly Stephen, the $108 million. You referred to,
for Moody's, you're saying that the estimated are the expected losses. You're not.
I think what you said there, Steve is that that's not what's in the reserve $108
million that's just for information purposes.

That's correct, yes.

Okay, thank you.
Speaker O-Operator
Thank you. The next question is from Gabriel Dechaine National Bank Financial.
Please go ahead, your line is open.
Speaker A-Gabriel Dechaine

Good morning. Couple of questions, one on ALDA one on Manulife Bank well, I guess
the investment experience at slide 24. And Scott, you said there is no reasonable
leave your ALDA return assumptions are unreasonable or something to that extent.
And I understand that it's a long-term return assumption. But what I've seen that
chart is credits and a tailwind but that's going away temporarily but 4 to 5 years,
where the ALDA experience was negative. I know there's oil and gas, reflecting a
couple of years, but maybe walk me through some of the other issues that may have
arisen why this what I should interpret from that chart.

Sure. Gabriel. Thanks for the question. So yeah, let me, let me give you a little
perspective on this. We really think our ALDA through the cycle will perform about
what we put in our reserves. So when we talk about $500 million of expected
performance that's really coming out of a combination of credit in fixed income
reinvestment and they do tend to be negatively correlated to ***EOF***

Each other, so when times are good and we're getting credit releases it's very
difficult to add value in our fixed income portfolio, we do historically managed to
to do some every year. But as you have seen in this first quarter here we actually
had $370 million of fixed income gains in one quarter and that was due to the, the
volatility in the market the wider spreads, the opportunities we saw accompanied by
a $50 million credit loss. So that was, that was offset and I wouldn't, I wouldn't
assume $370 million a quarter going forward, but we should expect elevated fixed
income, the investment gains during this period when we have credit credit losses,
so that's how I see those two sort of offsetting each other and providing a
reliable stream of investment gains.
And the all the front it is the part of the portfolio that's sort of brutally mark
to market and is going to have volatility in the best of times and in these sort of
times you, you should expect losses and we should expect more gains in better times
and frankly a part of the loss is due to higher risk premiums being baked into
those valuations, and that would portend higher returns going forward. So we feel
very comfortable with our long-term assumption we will revisit that this year as we
do every year, but I have no reason to believe we would change.

Okay and then my question on Manulife Bank, can you tell me the composition of the
portfolio how much of it's Manulife One, how many of your mortgage customers of saw
payment deferrals and and if you're seeing any behavioural, behavioural changes in
terms of how the Manulife one product is used. So I think it's pretty flexible in
terms of how you can access your money if you need it.

Yeah, let me take that one, it's Mike. So just in terms of the sort of make-up of
bank portfolio, it is primarily residential mortgages. So about 91% of the assets
are made up of the residential mortgage book and that is pretty, pretty well
distributed across the country, we have not seen any sort of material
deterioration, we're obviously watching this very closely as are all financial
institutions. We have like a lot of the other banks we did introduce a deferral
program, we are at about it changes every day, but we're about 7,000 of our
customers have deferred, most of those at on a 3-month basis. So ***EOF***

Again, we're watching this very closely, we think the banks in very good shape. And
just lastly, I'll just say we stress test this regularly and even under extreme
stress, it's something that the company can handle and manage fairly effectively. I
don't know, if Roy someone wants to add anything to that.

How many customers you have at 7,000 the number, but percentage.
Speaker C-Roy Gori

Yeah, it's about, it's about 100 and 100,000 change.

Thanks. Nothing else from me.
Speaker O-Operator
Thank you. The next question is from David Borde for Martin from Evercore ISI.
Please go ahead, your line is open.
Speaker A-David Borde

Hi, good morning. Just had a question, I mean it's good to see the 155% LICAT
ratio, but I wanted to drill in a little bit on sales statements that and still you
expect lower remittances this year. The 155 like at wouldn't suggests that you
would need to have lower remittances this year than the 2.8 billion last year. So
wondering what the disconnect is there.
Thanks, David. For the question. This is Phil. So as we've said before in
environments where we see declining interest rates, we do expect to see lower
remittances particularly from our subsidiaries in Asia, and we've noted on previous
calls that Hong Kong in particular is a regime that has sensitivity to interest
rates in terms of its surplus capital levels and therefore ability to remit as
we've reiterated a number of times, remittances will bounce around from year to
year. But we do remain confident in our maintenance capacity for the medium term
and combined with the strong LICAT position that you highlighted 155% the increase
from 140% at the end of the year and the strong liquidity position of the company
that does enable us to continue to service debt and dividends through times of
market stress.
Final point that I'll add is that we are a diversified company and we're not
exclusively dependent upon any of our segments or legal entities for generation off
remittances.
Speaker A-David Borde

Great. And maybe just on the Hong Kong point that you just brought up Phil. What
was the HKIA capital ratio there. And what's your target. And do you, I mean is
that something where you think you need to inject capital with rates at these
levels.

So, David, we don't ***EOF***

So we don't set out the individual levels of capital in each of our jurisdictions,
there is some information on statutory targets included in the embedded value
report. But the strong LICAT position and the low leverage means that we do have
the ability to deploy resources wherever they are needed in the group. And I think
in the interest of transparency, I would tell you that this year as a result of the
sensitivity to market interest rates in our overseas, some of our overseas,
subsidiaries, we have downstreamed assets and that combined with some other
measures that we have taken to mitigate the impact of those market sensitivities.
It means that we don't expect to inject further material, the capital into those
overseas operations.
And just to be totally transparent and one of the reasons why in my remarks, we do
refer to an expectation of lower remittances by the end of April, the aggregate
amount that we have downstreamed is in the order of 2.5 billion Canadian dollars.

Is that--that you downstream 2.5 billion is that to Hong Kong specifically or
that's across all of the--all of the the subsidiaries, the US as well.

That's a number that is an aggregate number for all of our subsidiaries. But we,
the US is a very stable capital regime, stable liability valuations and we've not--
not needed to downstream any money into the US.

Okay, got it. And then if I could just follow up I guess kind of relatedly on that
point, just on slide 20 where you talk about consolidated liquidity, I guess I'm
more interested in terms of cash that you have at the parent at the Holdco. I'm
wondering, if we could get an update on where that stood at the end of the first
quarter and also if you can size the cash need at the Holdco for the rest of the
year outside of the common dividend.

Yeah, thanks David. This is Phil again. So as some, as you may or may not be aware,
our corporate structure is one whereby our Holdco the listed company MFC has one
subsidiary analyze, so that's a vertical structure and our practice is not to hold
assets at the, in the holding company, the listing company and that's really
possible because both MFC and the wholly-owned subsidiary MLI of both entities here
in Canada that are regulated by the same regulator OSFI and there are no special
restrictions or approvals that would constrain ***EOF***

Experience in the quarter and then what you saw in April and I guess even may now
that most rents are in.

Yeah, it's. So there's two parts of the real estate portfolio. There is the
mortgage portfolio and then the real estate owned portfolio and in in both cases
it's retail where we're seeing the most pressure and in the commercial mortgage
portfolio in April, we, we receive payments as scheduled, on 98.5% of the book, so
1.5% we did not that was focused in retail and in those cases in almost all cases
we just gave forbearance on principal not on interest although they were a couple
of cases where we we did defer defer those as well and again these are deferred. So
they will defer typically for three months to be paid.
And the May, it's still early, but the numbers are trending in a very similar
direction on the real estate owned side again our exposure to retail is very small,
it's 3% of the portfolio. When you look at specifically retail if you include all
the retail some office buildings have a little bit of retail in their podium it
gets up to more like 4.5% and that's where we're seeing most of the issues.
Although we are seeing some rents from co-working space is asking for deferrals and
so forth so it's a little higher number is about 10% of the lease payments were not
made in April and we gave deferrals on those and thus far in May, again it's early
but trends are looking somewhere.

Thank you.
Speaker O-Operator
Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please
go ahead, your line is open.
Speaker A-Analyst
Hi, thank you. My questions for Steve. We note that there is neutral impact in this
quarter from long-term care. I was wondering what's your early read here on the
long-term care side in the mass made from two different angles. One is just what
you think could happen here what I'm potentially concerned about is premium rate
increases may be difficult going forward, maybe lapses will change certainly
interest rates. So, so that from your reserving perspective. What's your early read
and what you're seeing and then secondarily we have seen some instances of of
statutory reserves being reopened and and challenged. I'm wondering if you can give
us any update on that side as well.

Thanks. Darko it's Steve here. I'll take those in order. So as you can imagine
we're tracking very closely. A lot of emerging date ***EOF***

On all of our businesses but LTC is one that we're particularly focused on. We did
not see a lot of observable changes or trends in in the first quarter. In April, we
are beginning to see a couple of trends, it has been widely reported high fatality
rates in nursing homes and assisted-living facilities. So we have seen in April
some trending up in in reported deaths, there can be a lag in long-term care was
getting all the data in and we have seen some early indications of lower incidents
or new claims occurring. I we will be tracking very closely any lapse experience
and all sorts of trends that we may see on this business. It is a very long-term
business. So I think we may see some noise in, in the short term and we will
probably see some offsets to elevated claims in our life businesses, but I think
it's too early to estimate long-term trends. But as you can imagine, will be paying
very, very close attention to best in reporting on what we're seeing as we're going
forward. On your second question, with respect to statutory reserves and regulators
challenging companies. There was a peer, I think that you're referring to there.
What I can. I can't comment on other companies, but I can talk to you about the
regulatory process and the conversations that we've been having the regulators have
increased significantly the amount of information that they're looking for on long-
term care, there is a very detailed filings that we do, it's bilateral between the
companies in the States called AG 51 filing where we provide very comprehensive
information on our assumptions on our experience and we've had follow-up very in-
depth dialog with a group of regulators. It's been overseeing this and they had
lots of questions we engaged very constructively with them and they've raised no
concerns with the adequacy of our reserves. Hi. We, as you know, we went through a
very comprehensive review of assumptions in the 3rd quarter of last year. We have a
professional 3rd party peer reviewer then reports to our audit committee and those
assumptions feed into our best estimate assumptions on our US NAIC adequacy testing
on LTC. So there has been a very robust process to go into those assumptions. And
as part of asset adequacy testing in the US even though we've got adequate margin
in long-term care, we also look broadly at the total margin in the company when
assessing adequacy of reserve. So based on all the facts. ***EOF***

And I just laid out. I don't see a risk to us of having state regulators,
challenging our LTC reserves. I've seen no evidence of that.

Thank you for that. See, that's a good answer. And just a very quick follow-up for
Navy. I think, you managed to get $5 billion --of capital what's the outlook now
and is it possible is that we should think about your work and your activities
being very muffled. In the current environment.

Yeah, hi. Darko. I'd say the short term, it probably has delayed some transactions
that we were working on. I think the increased volatility, especially on asset
prices make it difficult to transact in this environment in some case getting
bandwidth from regulators may be challenging environment. But actually in the
medium to longer term. I actually think it could create more opportunities. I've
talked to some 3rd parties including private equity backed companies and they have
indicated that they have a considerable amount of dry powder available and
attractive yield opportunities.
So I think those are things will look at the appropriate time. But I think I've
said before, that we've been focused on pivoting to organic force management.
So things like re-pricings adjusting crediting rates and actually we think that as
we get out of this crisis, there will be an opportunity to ramp up our buyout
programs, which can be a win-win for customers and the company as customers are
looking for liquidity.
So I think it's very much in flux. But I feel that there is still quite a bit of
opportunity here.

okay, thanks. Darko
Speaker A-Marianne
It's Marianne. I was just going to answer that question on lapses, you had a
question for Steve. On the sort of not lapses on rate increases for LTC. So we've
actually gotten a couple of proved since the crisis has started and only 2 states
have actually said that we're not to file rate increases.
During this time. So we are continuing to go and we still have momentum in terms of
filing the rate increases.

thank you, Maria. That's helpful. And while I have you, are you considering doing
with some other of your peers are doing in the US, which is dropping 30-year term
product and really significant changes in back to the whole product line up. Given
the interest written environment .
Speaker A-Marianne
Well, as you probably know our product lineup is you've got about 20 products in
that product portfolio and they are very much adjustable already. So I would say
that we have done a lot of those changes over the years versus where our peer
companies are. So I think we're in a good spot where we are right now.

Thank you.
Speaker O-Operator
Thank you. ***EOF***
Speaker O-Operator
Next question is from Doug Young from Desjardins Capital Markets. Please go ahead,
your line is open.
Speaker A-Doug Young
Hi, good morning. I guess this question is probably for Steve. As per your
disclosure lower interest rates now positively impacts earnings by 300 million. And
I would guess, there are some nuances and to the extent that we can have a simple
discussion as to what those nuances there , that would be fantastic. Just hoping to
get some color on that.

Sure. Doug. Thanks. Yes. The first point to make is that we have not changed our
hedging program. So there, as they have been designed and the change in that
sensitivity this quarter. It's primarily due to a divergence between the economics,
the underlying economics, which we hedged to and our accounting basis as a result
of the market movements, specifically it's corporate spreads. So the major spread
widening that we saw it means that our liability sensitivity changed by less than
the asset sensitivity. Remember we don't hedge corporate spreads, we view them as
often a nice offset to perhaps stressed equity markets, which is what we're seeing
in, in the first quarter.
And the key thing is, that if corporate spreads were to revert back to or towards
year-end levels, we would expect that our sensitivities would revert revert back as
well. So I would view it as more of a temporary situation.

So we should use the Q4 sensitivities really as a base case when we're thinking
about interest rate impacts. Is that a fair??

Yeah and the other yeah.

A couple of other comments. I mean, when you look at the sensitivities relative to
the size of the balance sheet and our net income. It's really quite modest. We've
really immunized for parallel moves on current period impacts and another place,
I'd point you to is in the embedded value disclosure, where we disclosed that a 50
basis point decline in in in yields results in over time. Approximately a 350
million hit to embedded value and I think it really demonstrates that the power of
the hedging programs that we put in place.

Okay and then just a second follow-up on your claims exposure to Covid - 19, you
said it was 100,000 deaths. Is that a 100,000 deaths across your own book, is that
the way to think of it and the way that you stressed it?
No. Good point. For clarity, a lot of people have been benchmarking on stress
scenario saying, how many deaths with that mean in the United States population. So
that's 100,000 US population deaths and currently this figure that reported figure,
it's on the order of 70,000. The other thing that we're watching ***EOF***

As well, is that there may be under reporting of there may be COVID that are not
specifically identify this COVID. So I'm really talking about all excess mortality
related to the US population.
and so that's 30 million. Just for your US book, but you said that was actually
across your entire book is that.

That's across our entire book and I think it if there is offsets in there, right.
Yeah, I commented that because of the diversified nature. We've got some businesses
that have exposure --to claims experience to mortality rates and other businesses
with exposure to longevity.
And maybe the other thing that I'd add is, what we're seeing is the pandemic is
disproportionately hitting the lower income part of the population and the insured
population tends to be of higher economic situation. So -that's also factoring into
the results. We've also reflected the expected mortality rates by age as older ages
are also more impacted.

okay, that's great, thank you very much.
Speaker O-Operator
Thank you. The next question is from Sumit Malhotra from Scotia Capital. Please go
Speaker A-Sumit Malhotra

Thanks, good morning. I'll try to keep this brief firstly for Scott, just in the
earnings on surplus. This is not the first time we've seen some reference to seed
capital marks for Manulife, obviously it's a larger number this quarter.
Just hoping --you can educate me here, on what the total size of this investment is
for the company that runs through this line and specifically what, what are you
using to mark these investments on a quarterly basis.

So I assume that this is Phil. I think it makes sense for me to start on that and
have Scott supplement with anything you'd like to supplement the the value of the
seed capital investments in our surplus segment, it's approximately $1.5 billion
dollars and that does include a mix of equity funds and balanced and bond funds.
In Q1, 20 the after-tax impact of marking those to market was $176 million but --
that loss compares to actually a mark-to-market gain in the first quarter of 2019
of $98 million, so the year-on-year swing that we've seen here in terms of
distortion to core earnings is in the order of $217 million.
Now, that impact is greater than you may expect, based on our disclosed equity
sensitivities because of the ***EOF***

What's happened this quarter is the mark-to-market on equities has been combined
with widening corporate spreads that has reduced the value of the the bond, the
bond funds and also the bonds within balanced funds. And so, that's what's causing
the slightly larger impact than you might expect the portfolio mix. If you look at
the whole portfolio, it's roughly 60% equities 40% bonds. Is there anything. Scott,
you'd like to add to that.

Yeah, the only thing I'd add Phil, is that these are, these are all public
securities. So they are absolutely mark to market at current levels.

All right. So I think by giving us a notional Phil there's at least something we
can think about how that trends. Last one is for Anil. I'm sure, I'm sure you'll be
happy for the business that on a trend line basis, it's now been a full-year since
the repositioning of the COLI product in Japan, I mean you're insurance sales in
that country have sequentially moved higher in in in every quarter since Q2
earnings have been in a reasonable range, if I try to to separate the the outlook
here between what's happening with the with the impact of the pandemic versus the
positioning of the product. As far as you're concerned has the take-up of your your
redesign COLI product now reflected your expectations and it has more to do with
what happens with the with the broader economy in that country as opposed to where
where Manulife is positioned.

Thanks. Thanks for the question. So from a from a COLI perspective, you're
absolutely right. So you know from an Aspen perspective, we saw that in quarter 3
and then sequentially we have seeing our sales improving. In fact in quarter one of
this year. As you rightly pointed out, we witness $164 million, which is a jump of
about 28% quarter-on-quarter in our earnings jumped as well by 17 by 17%. So I
think we are pleased with the, the momentum. the challenge Sumit is that Japan
continues to be under the cloud of COVID and is right now, faced up with, a lot of
restrictions around around lockdown.
So the mobility of both the customers as well as our agents has impacted it doesn't
help that economic uncertainty. We're obviously going to act to the customer
sentiment as you can as you can imagine. What we are focused on it is to going to
kind of provide you a little bit of color on that. Number one, if you look at our
product mix right now only a third of our sales contribute to the overall sales
that we generate, only a third of COLI sales not contribute to the overall sales
that we generate in Japan. So we've kind of in many ways ***EOF***
Speaker O-Operator
Bit much more resilient product mix and have moved the base, our dependence on
which as you can record if you want to kind of created back to quarter one of last
year, it was quite high. The second reason is distribution is going to be pivotal
as it always is that towards that we have been investing in building up our MFI 8
channel on the success that we're going to see in Singapore, we are up to 170
advisers and in Peru and also in marketing more NGA's to onboard the costs. In
addition to that, we've also have been training our existing NGA's to offer the
nonCOLI products, which is again as you can see starting to show some results .And
last but not the least,as I had mentioned,the last time around as well. We are
looking at expense efficiency measures in Japan given the new volume trajectory
that we are experiencing the fact that there . So a sequential perspective, we are
pretty pleased with what we're seeing. Unfortunately on account of Covid,there is a
huge amount of uncertainty and it is kind of becomes hard to predict as to what the
new normal would look like. Sumit. If I could just jump in I think Anil summary was
spot on. And just to punctuate one of the key points that he made was around
diversity. One of the things that we've been really focused on over the last 4 to 5
years has been strengthening the diversity of our franchise that's true for us
globally. But it's absolutely true for us in Asia. So reducing the reliance on any
one market or one product line is something that we've been gradually focused on
and have seen improvements in success.And again. Yeah. In Japan, we are seeing
there, we just reliance on COLI and specific acquisition channels is something that
we're going to continue to focus our efforts on in the course of this year and
beyond. So that really is a big element of our Asia strategy is just that diversity
of geography, diversity of channel and distribution as well as diversity of product
as well. I appreciate that. Thanks for your time. Thank you. The next question is
from Paul Holden from CIBC World Markets. Please go ahead, your line is open. Thank
you. Good morning. Well, I'll ask you a question again related to oil and gas
portfolio within holder. And I guess what I want to better understand the kind of
the contribution it had been making to core earnings and given the impairment
charge and where WTI is now what the impact is going forward to potential impact
[ph]to sure,[/ph] Paul. It's ***EOF***
Speaker O-Operator
Scott. I'll take that one. So for core earnings,you may recall that we will put up
to $100 million of investment gains a quarter in the core earnings up to 400
million for the full year. And that's a combination of all the performance, the
fixed income and the credit. And as I mentioned earlier it's typically the fixed
income in the credit that contributes the most of that although really contribute
some volatility, but has been pretty much on our assumptions over the longer term.
So, and within all the oil and gas is a very small component, it's 6% of our, all
the portfolio, so it equates very small role, I would say, unfortunately, in the
last 5 years, it's quite an outsized role in the wrong direction. But , the nature
of investing is that things do cycle around. And actually in the first decade of
the two thousand's oil and gas was the strongest contributor to our all the
returns. And in the last decade, they've been the lowest contributor. So it's been
a bit of a drag on our overall investment experience, but despite that we've, on
average, been able to produce 400 million of investment gains in recent years. So
what you're saying here is despite the impairment charge or maybe not impairment
but market down in Q1 that's not necessarily really going to be a drag on forward
quarter. That's what I'm hearing .I think for this year, it's going to be very
difficult to get investment gains in the core earnings that we're starting at minus
$600 million. We'd have to recoup all that before we put it into core and and
frankly, I do expect future credit losses, they will likely be offset by fixed
income gains. but will also probably see some additional all the losses. So I think
it's unlikely you're going to see a contribution to core from investment gains this
year but we'll turn the page, the next year. And I would expect, I would expect to
be back on track. Understood. Second question is related to new business gains and
Asia. So if I just take a simple look of Q-over-Q, and total sales from Asia were
actually up but business gains were down. I would assume that's due to lower
interest rates. But is that correct and where maybe there are some other factors at
play as well. Yeah, thanks for the question. This this is a meal. Let me, let me
take this and on this kind of product it to Phil if he has any supplement comments,
but I think if you look at the quarter on quarter, new business gains there are 3
essential factors that impacted. So one from a proportionality perspective, we saw
higher sales in Japan. And ***EOF***

The margin mix an impact from a quarter on quarter perspective. Secondly, we saw
some very strong a door opening in China, which was on the back of savings and
annuity product. Unfortunately the call has hit us in the third week of Jan, so
February and March we were not able to cross so as well as get the right product
mix. So that had an knock-on impact as well. And the third one was the product mix
in Hong Kong and on account of the outbreak. There was a bit of a skew from a
customer segment to a short pay products which again impacted the product mix. I
should, I should, however underscore the fact that the new business value margin in
Hong Kong, continues to be north of 60%, which we believe is still very, very
healthy for the three things that really contributed. While the ones that I just
articulated.

Okay. And it sounds (inaudible),

maybe I'll just supplement with a couple of points. One is that new business gains
of one of the items that we've commented a few times do tend to bounce around from
quarter to quarter and year-to-year. There is naturally a co-relation with the
volume of new business that we write as well as the mix and as, As Roy had
commented on earlier, we are in a challenging environment and I think it is as we
look forward, it's hard to predict exactly what volumes will be enough. That will
be one of the drivers of new business gains for the remainder of the year.

Got it, okay. Thank you.
Speaker O-Operator
Thank you. The next question is from Scott Chan from Canaccord Genuity. Please go
Speaker A-Scott Chan

Good morning, Scott. Maybe just a follow-up on Paul's question on core investment
gains. The [ph][/ph] that has to catch up, does that we said at, at the end of the
year or. Or does that have to. Does that, does that have to make up the difference
in order for you to book core investment gain starting in Q1 2021.

Scott, this is Phil. It resets on 1st January.
Speaker A-Scott Chan

Resets. Okay. And maybe just the last question for Roy, you talked about the
capital priorities organically and talks about the bank insurance agreement
committed to the dividend obviously buybacks are halted. But M&A is M&A feasible in
this environment, are you looking at stuff more or are you more concerned about the
first priority.

yes, Scott. Thanks for the question. Again, I'd start by saying that we feel very
confident about our capital position. And again, we entered into this price from a
position of strength. So that's really put us in good order. And as mentioned
earlier, our focus from ***EOF***

MFC Raw

Uploaded by

Copyright:

Available Formats

MFC Raw

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MFC Raw

Uploaded by

Copyright:

Available Formats

Presentation

Speaker C-Adrienne O'Neill

Speaker C-Roy Gori

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Moving to slide 11. In conclusion we have a fantastic diverse franchise and a

Speaker C-Philip Witherington

And unfavorable policyholder experience in North America, including elevated travel

We delivered net income attributed to shareholders of $1.3 billion in the first

]The favorable impact of fixed income reinvestment activities as we took advantage

Slide 15 shows our source of earnings analysis expected profit on in-force

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Speaker C-Scott Hartz

Next slide 24 shows a recent history of our investment related experience. As a

Speaker C-Unidentified Speaker

We do expect variability in our ALDA portfolio, Quarter-to-quarter due to its mark

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Speaker A-Tom MacKinnon

Speaker C-Unidentified Speaker

Speaker A-Tom MacKinnon

Speaker C-Unidentified Speaker

Questions And Answers

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Speaker A-Unidentified Participant

Speaker C-Unidentified Speaker

Speaker C-Paul Lorentz

Speaker C-Unidentified Speaker

Speaker C-Philip Witherington

Speaker A-Tom MacKinnon

Speaker A-Steve Theriault

Speaker A-Unidentified Participant

Speaker C-Unidentified Speaker

Speaker A-Unidentified Participant

Speaker C-Unidentified Speaker

Speaker A-Unidentified Participant

Speaker A-Unidentified Participant

Speaker C-Unidentified Speaker

Speaker A-Unidentified Participant

Speaker C-Unidentified Speaker

Speaker A-Humphrey Lee

Speaker C-Steven Finch

Speaker C-Unidentified Speaker

Speaker A-Mario Mendonca

Speaker A-Unidentified Participant

Speaker A-Mario Mendonca

Speaker C-Unidentified Speaker

Speaker C-Unidentified Speaker

Speaker A-Unidentified Participant

Speaker C-Scott Hartz

Speaker C-Unidentified Speaker

Speaker A-Unidentified Participant

Speaker C-Unidentified Speaker

Speaker A-Gabriel Dechaine