Manulife Financial Corp (MFC)

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Manulife Financial (MFC)

Q3 2012 Earnings Call

November 08, 2012 2:00 pm ET


Anthony G. Ostler - Senior Vice President of Investor Relations

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 and Executive Vice President

Scott Sears Hartz - Executive Vice President of General Account Investments


Tom MacKinnon - BMO Capital Markets Canada

Steve Theriault - BofA Merrill Lynch, Research Division

Mario Mendonca - Canaccord Genuity, Research Division

Gabriel Dechaine - Crédit Suisse AG, Research Division

Doug Young - TD Securities Equity Research

Robert Sedran - CIBC World Markets Inc., Research Division

Michael Goldberg - Desjardins Securities Inc., Research Division

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

Andre-Philippe Hardy - RBC Capital Markets, LLC, Research Division

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

Sumit Malhotra - Macquarie Research



Please be advised that this conference call is being recorded. Good afternoon, and welcome to the November 8, 2012, Manulife Financial Q3 Financial Results Conference Call. Your host for today will be Mr. Anthony Ostler. Mr. Ostler, please go ahead.

Anthony G. Ostler

Thank you, Michael, and good afternoon. Welcome to Manulife's conference call to discuss our third quarter 2012 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

As in prior quarters, our executives will be making some introductory comments. We will then follow with a question-and-answer session. Available to answer questions about their businesses are the heads of the U.S., Canada and General Account Investments.

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 A. Guloien

Thanks, Anthony. Good afternoon, everyone, and thank you for joining us today. I'm joined on the call today by Steve Roder, our CFO; as well as several other members of our senior management team, including our U.S. General Manager, Craig Bromley; as well as Jim Boyle, who has been working with Craig through the transition of our U.S. operations. I would like to take the opportunity today to personally thank Jim for his substantial contribution to John Hancock and to Manulife companies. He's very capably managed our U.S. operations through a period of significant challenge and change, and we will certainly miss him and his leadership.

We're also joined by our Canadian General Manager, Paul Rooney; Warren Thomson, our Chief Investment Officer; Scott Hartz, our Executive Vice President of General Account Investments; Cindy Forbes, our Chief Actuary; and Rahim Hirji, our Chief Risk Officer.

This morning, we announced our third quarter 2012 financial results. We've made significant progress towards the achievement of our strategic priorities this quarter. Let me share with you some of the highlights of that progress.

We delivered record insurance sales in Southeast Asia. Tracking ahead of expectations from our expanded distribution relationship with Bank Danamon in Indonesia, we further enhanced the distribution network with additional partners in Malaysia and Japan.

We had strong sales on our North American Mutual Fund business, and John Hancock Mutual Funds was designated the Preferred Fund Family by Edward Jones. This recognition affirms our position as a world-class provider of asset management services.

Our balanced Canadian franchise continued its steady advancement. Our group businesses led the industry in sales, delivered strong Affinity sales and record net assets in Manulife Bank. We further improved our business mix in the United States with the launch of redesigned, lower risk products in our Long-Term Care business. We also achieved record third quarter sales in the 401(k) business and generated positive net flows in mutual funds, which contribute to another record funds under management for the company. We achieved all this despite the macroeconomic climate.

I'm also very proud of the fact that we have now achieved our 2014 equity and interest-rate hedging targets, needless to say, 2 years ahead of schedule. As you know, this hedging comes at a cost, but it's a cost worth bearing as it substantially reduces the volatility of our earnings going forward. As you know, this quarter, we incurred a $1 billion charge for basis changes. As a reminder, these relate to products and businesses that are not a substantial part of our go-forward business plans and also relate to the macroeconomic environment. Steve will talk about these in more detail in a few moments. We also incurred a $200 million goodwill write-off associated with the Canadian Individual Insurance business largely due to the continued low interest rate environment.

At the request of analysts and investors, we introduced the core earnings metric to help investors better understand the long-term earnings capacity of our businesses. In the second quarter, we indicated a number of items over the past 2 years have impacted the achievability of our 2015 earnings targets. While the environment continues to put pressure on our businesses, we are making very substantial progress towards our strategic priorities and have increased our focus on improving the efficiency and effectiveness of our operations globally.

We have shifted our goal of $4 billion in net income by 2015 by roughly a year, and we are now targeting $4 billion of earnings -- core earnings in 2016. I say roughly a year because we're talking about core earnings as a metric for this target. And with other charges, the net income would understandably be slightly lower than that. So our target for 2016 is to deliver higher earnings with a higher degree of consistency and sustainability and significantly less macroeconomic volatility, and we're well along the path to achieving that. We look forward to updating you on our strategic and financial objectives at our Investor Day next week.

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