Manulife Financial Corp (MFC)

MFC 
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Manulife Financial (MFC)

Q2 2013 Earnings Call

August 08, 2013 2:00 pm ET

Executives

Anique Asher

Donald A. Guloien - Chief Executive Officer, President and Director

Stephen Bernard Roder - Chief Financial Officer and Senior Executive Vice President

Cindy L. Forbes - Chief Actuary, Executive Vice President and Chairman of Capital Committee

Rahim Badrudin Hassanali Hirji - Chief Risk Officer and Executive Vice President

Craig Richard Bromley - Executive Vice President of Japan Operations and General Manager of Japan Operations

Warren Alfred Thomson - Chief Investment Officer and Senior Executive Vice President

Analysts

Joanne A. Smith - Scotiabank Global Banking and Markets, Research Division

Tom MacKinnon - BMO Capital Markets Canada

Steve Theriault - BofA Merrill Lynch, Research Division

Mario Mendonca - Canaccord Genuity, Research Division

Robert Sedran - CIBC World Markets Inc., Research Division

Gabriel Dechaine - Crédit Suisse AG, Research Division

John Aiken - Barclays Capital, Research Division

Peter D. Routledge - National Bank Financial, Inc., Research Division

Doug Young - TD Securities Equity Research

Darko Mihelic - Cormark Securities Inc., Research Division

Ohad Lederer - Veritas Investment Research Corporation

Michael Goldberg - Desjardins Securities Inc., Research Division

Presentation

Operator

Please be advised that this conference call is being recorded. Good afternoon, and welcome to the Manulife Financial Second Quarter 2013 Financial Results Conference Call for Thursday, August 8, 2013. Your host for today will be Ms. Anique Asher. Ms. Asher, please go ahead.

Anique Asher

Thank you, and good afternoon. Welcome to Manulife conference call to discuss our second quarter 2013 financial and operating results. Today's call will reference our earnings announcement, statistical package and webcast live, which are available in the Investor Relations section of our website at manulife.com. As in prior quarters, our executives will be making some introductory comments. We will then follow with a question-and-answer session.

Today speakers may make forward-looking statements within the meaning of securities legislation. Certain material factors or assumptions are implied in making forward-looking statements and actual results may differ materially from those expressed or implied. For additional information about the material factors or assumptions applied and about the important factors that may cause actual results to differ, please consult the slide presentation for this conference call and webcast available on our website, as well as the securities filings referred to in the slide entitled Caution Regarding Forward-looking Statements.

We have also included a note to use the slide that sets out the performance on non-GAAP measures used in today's presentation. [Operator Instructions]

With that, I'd like to turn the call over to Donald Guloien, our President and Chief Executive Officer. Donald?

Donald A. Guloien

Thank you, Anique. Good afternoon, everyone, and thank you for joining us today. I'm joined on the call by our Chief Financial Officer, Steve Roder, as well as several members of our senior management team, including our Asian General Manager, Bob Cook; our Canadian General Manager, Marianne Harrison; our U.S. General Manager, Craig Bromley; our Chief Operating Officer, Paul Rooney; our Chief Investment Officer, Warren Thomson; our Executive Vice President of General Account Investments, Scott Hartz; our Chief Actuary, Cindy Forbes; our Chief Risk Officer, Rahim Hirji; and our Treasurer, Steven Moore.

This morning we announced our second quarter 2013 financial results. And while our net income was not as strong as we would have liked due to a number of market-related items, I'm encouraged by the substantial progress that we have made on our growth strategies, our solid core earnings, our record wealth sales and the reduction in our run rate hedging costs. I would also like to start the call reviewing the progress on our growth strategies made during the second quarter.

We continue to develop our Asian opportunity to the fullest. Our wealth sales increased for the third consecutive quarter and were more than double those of a year ago. We increased our market share and achieved the leading position in net cash flows in the Mandatory Provident Fund business in Hong Kong. We also enhanced our distribution network with a new bancassurance agreement in Malaysia.

Insurance sales in Asia were below our expectations and only 6% higher than the second quarter of 2012 after adjusting for the runoff in last year sales in advance of tax changes, as well as pricing actions to improve margins in that territory.

We also continue to grow our wealth and asset management businesses and in the second quarter, we achieved record Mutual Fund sales in each one of Asia, Canada and the United States, which contributed to another quarter of record funds under management, which as you know, drives future fee income. On a year-to-date basis, we have now achieved over $10 billion in net, and I stress net, mutual fund flows, reflecting our robust distribution partnerships, our strong product suite, strong performance and improved market conditions.

Our balanced Canadian franchise continued its steady progress. And in the second quarter, Mutual Fund sales in Canada continue to outperform the market with sales more than double those of a year ago. Manulife Bank's net lending assets increased, and we saw significant improvement in new loan volumes over the previous quarter. And despite the fact that our pricing actions have not been matched by some of our competitors, we saw an increase in individual insurance sales of 11% from the first quarter of 2013 with, needless to say, much improved margins.

In the United States, we continue to grow our higher ROE, lower risk businesses, consistent with our strategic plan. Our Mutual Fund business achieved record sales, net flows and assets under management, driven in part by funds added to the preferred list and selected for inclusion in model portfolios. Our 401(k) sales declined due to lower plan turnover in the market, but also our recently launched mid-market 401(k) in full-service group annuity products, which are now gaining traction.

While our U.S. insurance sales overall were flat compared with a year ago, again consistent with the strategic plan, we saw increased sales of Life Insurance products with more favorable risk attributes for our company. We also further strengthened our distribution capability with the announced acquisition of an independent broker-dealer to add to our already impressive distribution capability in the United States. We will continue to make investments to enhance our distribution networks globally.

In terms of our operating performance in the second quarter, we reported net income of $259 million. This was not what the market expected and occurs as a result of a number of items that are unusual in nature, but say very little about our earnings capability going forward. Steve will elaborate on these later in the call. I hope it is obvious that the volatility in earnings is being constrained, and our earnings in the second quarter were a significant improvement from the same quarter last year.

We also reported core earnings of $609 million and on the top line, we achieved record wealth sales, which increased 60% from a year ago. The performance of our wealth and asset management businesses, so far in 2013, has been outstanding. While our insurance sales did not match the strong results of last year, we have much improved margins and are developing and launching new and innovative products that we expect to take traction in the second half of the year. And finally, we also took advantage of favorable markets to reduce our quarterly run rate hedging costs by $30 million.

In summary, our outlook is positive, and we are confident that our strategies will continue to yield results for shareholders and position us to achieve our goal of delivering $4 billion of core earnings in 2016.

With that, I'll turn it over to Steve Roder, who will highlight our financial results, and then we'll open the call to your questions. Thank you.

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