Manulife Financial Corp (MFC)

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Manulife Financial (MFC)

Q1 2011 Earnings Call

May 05, 2011 2:00 pm ET

Executives

Donald Guloien - Chief Executive Officer, President and Director

Scott Hartz - Executive Vice President of General Account Investments

Beverly Margolian - Chief Risk Officer and Executive Vice President

Warren Thomson - Chief Investment Officer, Senior Executive Vice President and Chairman of MFC Global Investment Management

Michael Bell - Chief Financial Officer and Senior Executive Vice President

Anthony Ostler - Senior Vice President of Investor Relations

Cindy Forbes - Chief Actuary and Executive Vice President

Robert Cook - Senior Executive Vice President and General Manager of Asia Operations

Analysts

Michael Goldberg - Desjardins Securities Inc.

Doug Young - TD Newcrest Capital Inc.

Joanne Smith - Scotia Capital Inc.

Tom MacKinnon - Scotia Capital

Mario Mendonca - Canaccord Genuity

Robert Sedran - National Bank Financial

Darko Mihelic - Cormark Securities Inc.

Robert Sedran - CIBC World Markets Inc.

Gabriel Dechaine - Crédit Suisse AG

Steve Theriault - BofA Merrill Lynch

Peter Routledge - National Bank Financial, Inc.

Andre-Philippe Hardy - RBC Capital Markets, LLC

Presentation

Operator

Good afternoon and welcome to the Manulife Financial Q1 2011 Financial Results Conference Call for May 5, 2011. Your host for today will be Mr. Anthony Ostler. Mr. Ostler, please go ahead.

Anthony Ostler

Thank you, and good afternoon. Welcome to Manulife's Conference Call to discuss our first quarter 2011 financial and operating results.

Today's call will reference our earnings announcement, statistical package and webcast slides, 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. The Heads of our Asia, U.S., Canada investment businesses are all attending this call and are open to taking questions from you.

Today's speakers may make forward-looking statements within the meaning of securities legislation. Certain material factors or assumptions are applied 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. [Operator Instructions]

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

Donald Guloien

Thank you, Anthony. Good afternoon, everyone, and thank you for joining us today. Our first quarter 2011 financial results were announced this morning. Those of you who looked at them will know that we are making excellent progress on our strategic plan, delivering sales and products as targeted for growth, implementing hedging, improving product mix and profitability, maintaining very strong capital levels and delivering excellent customer value and advice.

We had quarterly earnings of $985 million. We're joined on the call today by our CFO, Michael Bell; as well as several members of our senior management team including our U.S. General Manager, Jim Boyle; our Canadian GM, Paul Rooney; our Asian GM, Bob Cook; Warren Thomson for Investments; Bev Margolian, our Chief Risk Officer; and Cindy Forbes, our Chief Actuary. And I hope that you'll have some questions directed to these people on the operating parts of our business in addition to the usual, technical questions.

I'm pleased to report that we are seeing very solid progress in all fronts of our company. Our first quarter sales of wealth and insurance products targeted for growth were up 22% and 15%, respectively. I am particularly happy with sales growth in Asia with wealth sales more than doubling, and insurance sales increasing 27% compared with the first quarter of 2010.

We continue to diversify our business in Canada, which posted first quarter record sales across a broad spectrum of offerings, including record Mutual Fund sales of $595 million. In the United States, we see tangible signs of success from our repositioning efforts with record Mutual Fund sales of $3.5 billion, as well as success in other product lines. Funds under management reached a record $478 billion in the first quarter.

We also continue to make progress in obtaining state approvals for John Hancock Long-Term Care in-force price increases, now with 15 states approving increases in our Retail business.

In the first quarter of 2011, we made further progress on reducing equity market and interest rate sensitivity. An additional $8.5 billion of segregated fund guarantee value was added to the dynamic hedging program, and $200 million of TOPIX macro hedges were added on March 10, 2011, which just happens to be before the onset of the earthquake in Japan.

At the end of the quarter, for a 10% decline in equity markets, approximately 59% to 65% of the underlying earning sensitivity was estimated to be offset by hedges. The range at the end of 2010 was 50% to 55%. With this, we have achieved our year-end 2012 target.

We've also reduced our net income sensitivity to 100 basis point drop in interest rates before the offset for gains and losses on AFS bonds from $1.8 billion at year-end 2010 to $1.5 billion. This surpassed the reduction required to meet our year-end 2012 goal.

Fair value gains on oil and gas and real estate investments and continuing favorable credit experience contributed to earnings. As I said, our first quarter 2011 net income attributed to shareholders was $985 million, despite much higher hedging costs relative to a year ago and the estimated reinsurance claims related to the earthquake in Japan.

Finally, our capital levels continued to be strong, with Manufacturers Life Insurance Company, MCCSR [Minimum Continuing Capital and Surplus Requirements] ratio of 243%.

In summary, we have achieved our year-end 2012 target for equity market sensitivity reduction that exceed our year-end 2012 interest rate sensitivity target. Our capital is strong, our asset quality is superior, and we're seeing strong sales growth. Our strategy is delivering results that will position Manulife for future earnings growth and ROE expansion.

As you can see, 2011 is off to a very solid start. My management team and I are working hard at growing our business and doing our best at achieving all of our strategic objectives. We hope this call can be focused on your questions about strategic progress, and the myriad of initiatives that we're working out across the firm. Bob, Paul, Jim, Warren, and I are passionate about the these divisions, their businesses that would welcome the opportunity to discuss it with you today.

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

Michael Bell

Thank you, Donald. Hello, everyone. Overall, we continue to make good progress on our strategic priorities in the first quarter. Consistent with our strategy to enhance our business mix, we've generated a significant increase in sales on our products targeted for growth. We're also ahead of our original timeline on reducing interest rate and equity market sensitivities, as we have achieved our year-end 2012 equity risk reduction target. And we've surpassed our year-end 2012 target for interest rate sensitivity.

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