Manulife Financial Corporation
M
a
n
u
l
i
f
e
F
i
n
a
n
c
i
a
l
C
o
r
p
o
r
a
t
i
o
n
|
A
n
n
u
a
l
R
e
p
o
r
t
2
0
2
2
Cover.indd 1
Cover.indd 1
2023-03-09 11:59 PM
2023-03-09 11:59 PM
In 2022, we created
in-office experiences
and activities for our
colleagues globally
to encourage and
nurture connection
and collaboration, and
to drive innovation.
Decisions made easier.
Lives made beter.
“We want to be the digital, customer leader
in our industry, which is why we remain
focused on providing simple, intuitive and
innovative experiences across our business.”
Roy Gori, President and Chief Executive Officer
Cover.indd 2
Cover.indd 2
2023-03-09 11:59 PM
2023-03-09 11:59 PM
Manulife by the numbers
Net Income Attributed to Shareholders
5.9
7.1
7.3
$7.3 billion
Net income attributed to shareholders
increased $0.2 billion from 2021.
Core Earnings
$6.2 billion
Core earnings decreased 7% versus 2021.
New Business Value
$2.1 billion
New business value decreased 9%
compared with 2021.
2020
2021
2022
6.5
6.2
5.5
2020
2021
2022
1.8
2.2
2.1
2020
2021
2022
Common Share Dividend
$1.32/share
Common share dividend increased 13%
versus 2021.
$1.12/sh
$1.17/sh
$1.32/sh
2020
2021
2022
Assets Under Management and Administration
$1.3 trillion
Total invested assets: $414 billion
Segregated funds net assets: $349 billion
Mutual funds: $258 billion
Institutional asset management: $110 billion
Other funds: $14 billion
Assets under administration: $170 billion
Note: Core earnings and assets under management and administration are non-GAAP financial measures and
percentage change in core earnings on a constant exchange rate basis is a non-GAAP ratio. Percentage change
in new business value is also on a constant exchange rate basis. For more information on non-GAAP and other
specified financial measures used in this report, see the section “Non-GAAP and Other Financial Measures” in
our 2022 Management’s Discussion and Analysis below.
1
Fellow shareholders,
Five years ago, in my first
letter on behalf of your Board,
I highlighted Manulife’s shared
values as the common thread
uniting our globally diverse
Company and the foundation
enabling us to achieve the
bold ambition we set for
transforming and growing
our business.
Each year since, I have focused in this
letter on one of our core values and how
it has come to life and guided our work.
With my retirement from the Board,
I thought it was fitting in this letter to
shine a light on the ways our winning
global team has owned it not only in
2022, but also over the past several
years, driving resilient performance
and consistently strong results.
Thanks to our team’s spirit of ownership
and commitment to delivering on
our bold ambition, Manulife today is
meaningfully different than it was in
2017. Together, they have delivered
on the key commitments made to
shareholders, and in 2022 achieved
record net income of $7.3 billion as
compared to $2.1 billion in 2017. In
Asia, we’ve grown from being within
the top six pan-Asian insurers, to being
the fastest growing of the top three
pan-Asian insurers between 2017
and 2021, and our global wealth
and asset management business is
thriving, having achieved net inflows
in 10 of the last 12 quarters. We’ve
taken cost out of the business, having
met our expense efficiency target two
years ahead of schedule in 2020, and
we’ve bolstered our capital position,
achieving a Life Insurance Capital
Adequacy Test (LICAT) ratio of 131%
for 2022, more than $20 billion above
our supervisory target. We have also
delivered for customers, as reflected
in the significant improvement in our
Net Promoter Score (NPS) of 19 points
D on
Lindsay
Chair of the Board
John
Cassaday
Chairman Emeritus
2
| 2022 Annual Report
against the 2017 baseline, and at the
same time expanded our customer
base from 26 million to 34 million
customers worldwide. These results
have been delivered thanks to the
efforts of our 40,000 colleagues
around the globe, who have taken
accountability for meeting and
achieving our targets, year in and year
out, and who together have built solid
foundations for future success.
Your Board’s activities
in 2022
Your Board has remained focused
on providing oversight and guidance
to the leadership team, and we were
also energized by the opportunity
to incorporate in-person sessions
into our meeting cadence, having
met virtually for most of the previous
two years. As hoped last year, our
hybrid meeting schedule has not only
enabled optimal participation from
our directors, but also enhanced our
ability to attract talented directors
from around the globe.
We continued to make progress
towards greater diversity on your
Board, and we are proud to have
increased our representation of
Asia-domiciled directors in view of the
importance of the region to our future
growth ambitions. We are also proud
to have maintained our aspiration of
gender parity among independent
directors, with women representing
seven of the 11 independent
directors nominated for election
at our upcoming annual meeting
of shareholders.
Reflecting these efforts, we were
pleased to be ranked in the top four
by the Globe and Mail’s Report on
Business Board Games rankings for
board governance in Canada.
We are also proud of our robust
succession planning, including the
appointment of Don Lindsay as your
new Chair of the Board, which became
effective in February 2023, in tandem
with my retirement from Manulife. It
has been my pleasure and privilege to
serve as a member of your Board for
the past 30 years and as Chairman for
the past five. Reflecting on all we have
accomplished in that time, I am very
proud of our team and deeply grateful
for the opportunity to represent you.
I’m honoured to have passed the gavel
to Don, under whose leadership I know
the Board, and indeed our Company,
will continue to thrive.
Thank you
With that in mind, and as Don has
taken over in February, we wanted to
offer some shared words of thanks
in closing.
First, we would like to thank Joseph
Caron, whose term as director will
end as of the end of our 2023 annual
meeting, for his 12 years of dedicated
service. We very much appreciate his
many contributions to Manulife.
We would also like to recognize Roy
Gori and the Executive Leadership
Team for their steadfast leadership,
anchored always in our values. The
past several years have brought many
challenges, from an unpredictable
macroeconomic environment to an
unprecedented global pandemic and
its many impacts. They have navigated
each of these challenges with
characteristic energy and focus and
continued to drive resilient results.
We are also grateful to each of our
40,000 winning team members at
Manulife, whose commitment to our
customers, our values, and to each
other remains an inspiration.
We would also like to thank you,
our fellow shareholders, for your
trust, support, and candid feedback.
While the past few years have been
challenging, the Company’s ability to
deliver through such times is proof
positive that we have the right strategy,
the right team, and the right to win.
John Cassaday
Chairman Emeritus
Don Lindsay
Chair of the Board
On behalf of the Board and Manulife’s shareholders, customers,
and colleagues, I would like to offer our sincere thanks to John for
his 30 years of service. We have marked many milestones during
that time, and we are grateful for his unwavering leadership and
many contributions to the Company. John’s sense of duty, grace,
insight, and wisdom have served the Company well, and he will
be missed. We wish him the very best in his future endeavours.
Looking to the future, I appreciate the trust you have placed in me
and I am humbled to serve as the Chair of your Board as we work
together to achieve our bold ambition.
Don Lindsay
Chair of the Board
3
Dear fellow shareholders,
Looking back on all we’ve
accomplished over the past
year, I’m tremendously proud
of the way our colleagues once
again showed their creativity,
resilience, and innovative spirit.
With the pandemic continuing
to impact many of our markets
through much of the year, our team
focused on supporting our existing
customers—and reaching new
ones—knowing how important
our products are to ensuring their
well-being and financial future. Our
colleagues also adapted to new
ways of working, as we reopened
our offices and migrated to our
new Working Better approach. With
international travel resuming, I had
the privilege of visiting many of our
teams for the first time since 2020,
and it was wonderful to connect and
re-connect in person after such a long
time away. For me, it underscored the
value of the time we spend together,
and I’ve come away from each
interaction feeling energized and
optimistic about our future.
The end of 2022 marked five
years since we embarked on our
journey to become the most digital,
customer-centric global company
in our industry. At that time, we
set out five strategic priorities—
accelerate growth; digital, customer
leader; expense efficiency; portfolio
optimization; and high performing
team—essential to achieving our
bold ambition. Today, thanks to our
disciplined approach, we’ve delivered
record net income and remittances,
significantly improved our Net
Promoter Score (NPS), industry-
leading team and culture, and strong
market leadership positions across
attractive markets and businesses.
In Asia, we are not only at scale as a
top three pan-Asian insurer, but we
are well positioned to benefit from the
Roy Gori
President and Chief Executive Officer
4
| 2022 Annual Report
significant growth opportunities in
the region. In Global Wealth and Asset
Management (Global WAM), we are a
global leader in retirement, a top 10
global retail multi-manager, and one
of the largest natural resource asset
managers for institutional investors
globally. We are a leading life insurer
in Canada, and we are a global leader
in behavioural insurance.
We continue to believe in the
growing need for health, wealth, and
retirement solutions, which have
been amplified by the pandemic, and
we are well positioned to capitalize
on global megatrends. The global
growth of household wealth remains
a compelling opportunity. This is
especially true in Asia, where the
middle class is expected to grow
75% to 3.5 billion people by 2030.
The size and proportion of an aging
population globally is growing rapidly
with one in six people expected to be
over the age of 60 by 2030. And, as
digitization continues to accelerate
globally, success will be defined
by those who are able to provide
extraordinary experiences.
We are uniquely positioned to
meet these opportunities with a
diversified, scaled business, and have
demonstrated that we have the right
strategy to win, anchored in our five
strategic priorities.
Accelerating growth
In 2022, our diversified Global
WAM business recorded net inflows
of $3.3 billion globally, against an
industry backdrop of net outflows in
North America. This performance
extended our remarkable track
record of delivering positive net flows
in 12 of the past 13 years.
Our Global WAM and Asia results
contributed to delivering 63% of
our core earnings from our highest
potential businesses against a
baseline of 54% in 2017. We will
continue to drive this momentum
through our growing agency
force, successful bancassurance
partnerships, transformational digital
offerings, and strategic expansion into
high growth markets in the Asia region
where, by 2025, we aim to generate
50% of our core earnings.
We’re bringing our growth ambitions to
life in the most attractive high growth
markets through partnerships like
our 16-year exclusive bancassurance
partnership with VietinBank in
Vietnam, which has already shown
strong momentum in its first year.
We also became the first global wealth
and asset manager to acquire a 100%
stake in a fully operating public fund
management company in mainland
China through our investment in
Manulife TEDA Fund Management
Co., Ltd.
Delivering for
our customers
We want to be the digital, customer
leader in our industry, which is why
we remain focused on providing
simple, intuitive and innovative
experiences across our business.
Through those efforts, we’ve
improved our NPS from +1 in 2017,
to +20 in 2022, and improved our
straight-through-processing (STP)
rate from 68% in 2018 to 83% in
2022. We have also invested almost
$1 billion to enhance our digital
capabilities since 2018.
We’re proud of our leading suite and
continued expansion of behavioural
insurance offerings. In the United
States, we achieved our highest ever
full year domestic life insurance sales
with the John Hancock Vitality PLUS
feature, reflecting the increasing
attractiveness of the Vitality feature
as an option for health-focused life
insurance consumers.
We’re continuing to innovate to provide
our customers with unique wellness
offerings. In 2022, we entered into a
partnership with GRAIL, a healthcare
company, offering access to Galleri®,
their leading edge, multi-cancer
early detection test to a pilot group
of customers through John Hancock
Vitality. We are the first life insurance
carrier to make GRAIL’s Galleri® test
available, enabling eligible customers
to take proactive steps to better
understand and make more informed
choices about their health.
“We continue to believe in the
growing need for health, wealth,
and retirement solutions, which have
been amplified by the pandemic, and
we are well positioned to capitalize
on global megatrends underpinning
our strategy.”
5
Driving expense
efficiency
We continue to foster a culture of
expense efficiency and prioritize our
resources where they will be most
effective. This focus has allowed
us to contain the growth of our
general expenses to less than 8%
and improve our expense efficiency
ratio from 55.4% in 2017 to 50.9%
in 2022, with a commitment to our
target of below 50%. We’re achieving
this through digitization, simplifying
and standardizing our processes,
optimizing our structure, and careful
management of our expenditures,
embedding a culture of disciplined
spending to enable growth.
Optimizing our portfolio
By the end of 2022, we freed up
$9.0 billion of capital from our
legacy portfolio, having previously
achieved our 2022 target to release
$5.0 billion of capital three years
ahead of schedule in 2019. We have
also made progress towards our
business mix targets for long-term
care insurance and variable annuities
to contribute less than 15% of core
earnings by 2025. We created value
for our shareholders, executing
two reinsurance transactions of our
U.S. variable annuity block in 2022,
releasing $2.5 billion of capital and
buying back 4.1% of our common
shares in 2022. Portfolio optimization
remains a high priority as we continue
to explore opportunities to reduce
risk and release capital from our
legacy businesses.
Our winning team
and culture
None of this would be possible
without the efforts and dedication
of our high-performing team, and
I’m very pleased that we achieved
6
| 2022 Annual Report
top quartile employee engagement
scores in 2020, 2021, and 2022.
Since 2017, we’ve seen continued
improvement each year, and in
2022, we ranked in the top six
percent amongst global finance and
insurance companies. In addition, we
have been consistently recognized as
an employer of choice, including as
one of the World’s Best Employers by
Forbes for the third consecutive year.
We’ve continued to invest in
robust learning and development,
leadership, and recognition
programmes, and we’ve enjoyed
the opportunities for in-person
collaboration that have emerged
through our return to offices
during 2022. These investments
will be critical to providing us
with a long-term, sustainable
competitive advantage.
Our commitment
to a healthier planet
and community
As a health and wealth company,
sustainability is about creating
economic return while also
addressing the world’s societal and
environmental challenges. Whilst we
are already net zero in our scope 1
and scope 2 operational greenhouse
gas emissions, we are committed
to further reducing our absolute
emissions by 35% by 2035, and to
achieving net zero scope 3 financed
emissions in our General Account
by 2050.
In 2022, we shared our Impact
Agenda, an articulation of our long-
standing commitment to empowering
health and wellbeing, driving
inclusive economic opportunities,
and accelerating a sustainable
future. Staying true to our Mission
through our Impact Agenda is how
we will create long-term value for our
business, our communities, and the
planet. It’s how we all win.
In recognition of our continued
and strengthening commitment to
sustainability performance, we were
once again named to the S&P Dow
Jones Sustainability North America
Index, one of only seven insurers
across North America to be included,
and within the top 10% of our industry
peers globally.
I’m tremendously proud of the
progress our winning team has made:
we’ve driven great change, delivered
for our customers and shareholders,
and bolstered a great culture in which
all of our colleagues can thrive.
Our disciplined approach helped
us remain resilient throughout the
pandemic, while delivering record net
income in 2022, a testament to our
strong focus on delivering shareholder
value as a team.
Thank you
I am honoured to lead our winning
team and want to acknowledge each
of my Manulife colleagues around the
world for their contributions to our
shared achievements. Thank you.
I have the privilege of acknowledging
our outgoing Chairman, John
Cassaday, and of thanking him on
behalf of our team for his 30 years of
service as a member of our Board of
Directors, including the past five as
Chairman. During this time, he has
made invaluable contributions to our
growth, and in helping us to become
the Company we are today. On a
personal note, I have appreciated his
support and wise counsel throughout
my tenure. Thank you, John.
“I’m tremendously proud of the
progress our winning team has made:
we’ve driven great change, delivered
for our customers and shareholders,
and bolstered a great culture in which
all of our colleagues can thrive.”
With John’s departure, I also have the
privilege of welcoming our incoming
Chair of the Board, Don Lindsay.
As a long-standing member of our
Board, Don has a deep knowledge
of our business and I look forward to
working even more closely with him in
his new role.
In closing, I’d like to thank you, my
fellow shareholders and customers,
for the trust you have extended
to me, and to our team. Our team
is confident that our all-weather
strategy, diverse business model, and
considerable financial strength and
flexibility position us well to win and
deliver in 2023 and beyond. We will
continue to work diligently to execute
against our strategic priorities as
we build the future of insurance and
asset management, always keeping
our mission—Decisions made easier.
Lives made beter.—at the heart of all
we do.
Sincerely,
Roy Gori
President and Chief Executive Officer
7
Caution regarding forward-looking statements
From time to time, Manulife Financial
Corporation (“MFC”) makes written and/
or oral forward-looking statements,
including in this document. In addition, our
representatives may make forward-looking
statements orally to analysts, investors,
the media and others. All such statements
are made pursuant to the “safe harbour”
provisions of Canadian provincial securities
laws and the U.S. Private Securities Litigation
Reform Act of 1995.
The forward-looking statements in this
document include, but are not limited to,
statements with respect to possible share
buybacks under our normal course issuer bid,
expected expense savings in 2023 related
to actions taken in 2021, the Company’s
strategic priorities and 2025 targets for its
highest potential businesses, net promoter
score, straight-through-processing, ongoing
expense efficiency, portfolio optimization,
employee engagement, its medium-term
financial and operating targets, its ability to
achieve our financed emissions and absolute
scope 1 and 2 emissions targets, its ability
to manage its long-term care and variable
annuity blocks of business to maturity and
its ability to secure future premium rate
increases in respect of its long-term care
policies and also relate to, among other
things, our objectives, goals, strategies,
intentions, plans, beliefs, expectations and
estimates, and can generally be identified by
the use of words such as “may”, “will”, “could”,
“should”, “would”, “likely”, “suspect”, “outlook”,
“expect”, “intend”, “estimate”, “anticipate”,
“believe”, “plan”, “forecast”, “objective”, “seek”,
“aim”, “continue”, “goal”, “restore”, “embark”
and “endeavour” (or the negative thereof)
and words and expressions of similar
import, and include statements concerning
possible or assumed future results. Although
we believe that the expectations reflected
in such forward-looking statements are
reasonable, such statements involve risks
and uncertainties, and undue reliance should
not be placed on such statements and they
should not be interpreted as confirming
market or analysts’ expectations in any way.
8
| 2022 Annual Report
Certain material factors or assumptions are
applied in making forward-looking statements
and actual results may differ materially
from those expressed or implied in such
statements. Important factors that could
cause actual results to differ materially from
expectations include but are not limited to:
general business and economic conditions
(including but not limited to the performance,
volatility and correlation of equity markets,
interest rates, credit and swap spreads,
inflation rates, currency rates, investment
losses and defaults, market liquidity and
creditworthiness of guarantors, reinsurers
and counterparties); the ongoing prevalence
of COVID-19, including any variants, as well
as actions that have been, or may be taken
by governmental authorities in response
to COVID-19, including the impacts of any
variants; changes in laws and regulations;
changes in accounting standards applicable
in any of the territories in which we operate;
changes in regulatory capital requirements;
our ability to obtain premium rate increases
on in-force policies; our ability to execute
strategic plans and changes to strategic
plans; downgrades in our financial strength
or credit ratings; our ability to maintain
our reputation; impairments of goodwill or
intangible assets or the establishment of
provisions against future tax assets; the
accuracy of estimates relating to morbidity,
mortality and policyholder behaviour; the
accuracy of other estimates used in applying
accounting policies, actuarial methods and
embedded value methods; our ability to
implement effective hedging strategies and
unforeseen consequences arising from such
strategies; our ability to source appropriate
assets to back our long-dated liabilities;
level of competition and consolidation; our
ability to market and distribute products
through current and future distribution
channels; unforeseen liabilities or asset
impairments arising from acquisitions and
dispositions of businesses; the realization of
losses arising from the sale of investments
classified as available-for-sale; our liquidity,
including the availability of financing to
satisfy existing financial liabilities on
expected maturity dates when required;
obligations to pledge additional collateral;
the availability of letters of credit to provide
capital management flexibility; accuracy of
information received from counterparties
and the ability of counterparties to meet
their obligations; the availability, affordability
and adequacy of reinsurance; legal and
regulatory proceedings, including tax audits,
tax litigation or similar proceedings; our
ability to adapt products and services to the
changing market; our ability to attract and
retain key executives, employees and agents;
the appropriate use and interpretation of
complex models or deficiencies in models
used; political, legal, operational and other
risks associated with our non-North American
operations; geopolitical uncertainty, including
international conflicts; acquisitions and our
ability to complete acquisitions including the
availability of equity and debt financing for
this purpose; the disruption of or changes
to key elements of the Company’s or public
infrastructure systems; environmental
concerns including climate change; our
ability to protect our intellectual property and
exposure to claims of infringement; and our
inability to withdraw cash from subsidiaries.
Additional information about material risk
factors that could cause actual results to
differ materially from expectations and about
material factors or assumptions applied in
making forward-looking statements may
be found in this document under “Risk
Management and Risk Factors” and “Critical
Actuarial and Accounting Policies” and in the
“Risk Management” note to the Consolidated
Financial Statements as well as elsewhere in
our filings with Canadian and U.S. securities
regulators. The forward-looking statements
in this document are, unless otherwise
indicated, stated as of the date hereof and
are presented for the purpose of assisting
investors and others in understanding our
financial position and results of operations,
our future operations, as well as our
objectives and strategic priorities, and may
not be appropriate for other purposes. We do
not undertake to update any forward-looking
statements, except as required by law.
Table of contents
10 Management’s Discussion and Analysis
10 Manulife Financial Corporation
22 Asia
26 Canada
29 U.S.
32 Global Wealth and Asset Management
36 Corporate and Other
38
Investments
Fourth Quarter Financial Highlights
43
46 Risk Management and Risk Factors
85 Capital Management Framework
88 Critical Actuarial and Accounting Policies
101 Controls and Procedures
102 Non-GAAP and Other Financial Measures
128 Additional Disclosures
131 Consolidated Financial Statements
145 Notes to Consolidated Financial Statements
230 Additional Actuarial Disclosures
232 Board of Directors
233 Executive Leadership Team
234 Office Listing
236 Glossary of Terms
237 Shareholder Information
237 Dividend Information
9
Management’s Discussion
and Analysis
This Management’s Discussion and Analysis (“MD&A”) is current as of February 15, 2023.
1. Manulife Financial Corporation
Manulife Financial Corporation is a leading international financial services group that helps people make their decisions easier and
lives better. With our global headquarters in Toronto, Canada, we operate as Manulife across our offices in Asia, Canada, and
Europe, and primarily as John Hancock in the United States. We provide financial advice, insurance, and wealth and asset
management solutions for individuals, groups and institutions. At the end of 2022, we had more than 40,000 employees, over
116,000 agents, and thousands of distribution partners, serving over 34 million customers. At the end of 2022, we had $1.3 trillion
(US$1.0 trillion) in assets under management and administration1, including total invested assets of $0.4 trillion (US$0.3 trillion),
and segregated funds net assets of $0.3 trillion (US$0.3 trillion). We trade as ‘MFC’ on the Toronto, New York, and the Philippine
stock exchanges, and under ‘945’ in Hong Kong.
Our reporting segments are:
• Asia – providing insurance products and insurance-based wealth accumulation products in Asia.
• Canada – providing insurance products, insurance-based wealth accumulation products, and banking services in Canada and has an
in-force variable annuity business.
• U.S. – providing life insurance products and insurance-based wealth accumulation products and has an in-force long-term care
insurance business and an in-force annuity business.
• Global Wealth and Asset Management (“Global WAM”) – providing investment advice and innovative solutions to our retail, retirement
and institutional clients around the world under the Manulife Investment Management (“MIM”) brand.
• Corporate and Other – comprised of investment performance on assets backing capital, net of amounts allocated to operating
segments; financing costs; costs incurred by the corporate office related to shareholder activities (not allocated to operating
segments); our Property and Casualty (“P&C”) Reinsurance business; and run-off reinsurance business lines.
In this document, the terms “Company”, “Manulife”, “we” and “our” mean Manulife Financial Corporation (“MFC”) and its subsidiaries. The
term “MLI” means The Manufacturers Life Insurance Company and its subsidiaries.
Profitability
Profitability
As at and for the years ended December 31,
($ millions, unless otherwise stated)
Net income attributed to shareholders
Core earnings(1)
Diluted earnings per common share ($)
Diluted core earnings per common share ($)(2)
Return on common shareholders’ equity (“ROE”)
Core ROE(2)
Expense efficiency ratio(2)
General expenses
2022
2021
$ 7,294
$ 6,182
3.68
$
3.10
$
14.1%
11.9%
50.9%
$ 7,782
$ 7,105
$ 6,536
$ 3.54
$ 3.25
14.2%
13.0%
48.9%
$ 7,828
(1) This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
(2) This item is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.
Our net income attributed to shareholders was $7.3 billion in 2022 compared with $7.1 billion in 2021. Net income attributed to
shareholders is comprised of core earnings (consisting of items we believe reflect the underlying earnings capacity of the business), which
amounted to $6.2 billion in 2022 compared with $6.5 billion in 2021, and items excluded from core earnings of $1.1 billion of net gains in
2022 compared with $0.6 billion of net gains in 2021.
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
10 | 2022 Annual Report | Management’s Discussion and Analysis
The $0.2 billion increase in net income attributed to shareholders in 2022 compared with 2021 was driven by gains related to the two U.S.
variable annuity reinsurance transactions and the favourable impact of an increase in the Canadian corporate tax rate, partially offset by
lower gains from investment-related experience and lower core earnings. Investment-related experience gains in 2022 reflected the
favourable impact of fixed income reinvestment activities, strong credit experience and higher-than-expected returns (including fair value
changes) on alternative long duration assets (“ALDA”) primarily driven by private equity, infrastructure, and timberland, partially offset by
real estate. The net charge from the direct impact of markets in 2022 was primarily driven by the impact of unfavourable equity market
performance and losses from the sale of available-for-sale (“AFS”) bonds, partially offset by gains due to flattening of the yield curve in the
U.S. and Canada.
The $0.4 billion or 7%1 decrease in core earnings on a constant exchange rate basis compared with 2021 was driven by lower new
business gains in Asia and the U.S., losses from the unfavourable impact of markets on seed money investments in new and segregated
mutual funds of $159 million in 2022 (compared with gains of $27 million in 2021) and lower net gains on the sale of AFS equities in
Corporate and Other, lower net fee income from lower average assets under management and administration2 (“average AUMA”) in Global
WAM, lower in-force earnings in U.S. Annuities of $191 million due to the variable annuity reinsurance transactions and higher charges in
our P&C Reinsurance business in 2022. These items were partially offset by higher yields on fixed income investments and lower expenses
in Corporate and Other, in-force business growth in Asia and Canada and experience gains in Canada compared with losses in 2021. Lower
expenses in Corporate and Other were primarily driven by lower supplemental pension expense due to market impacts. In 2022, core
earnings included a net charge of $143 million ($152 million pre-tax) related to policyholder insurance and annuity experience compared
with a net charge of $110 million ($127 million pre-tax) in 2021.3 Actions to improve the capital efficiency of our legacy business resulted in
$191 million lower core earnings in 2022 compared with 2021. Excluding these actions, in-force business increased 6%4 compared with
2021.
Core earnings by segment is presented in the following table. See Asia, Canada, U.S., and Global WAM sections below.
For the years ended December 31,
($ millions)
Core earnings by segment
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other (excluding core investment gains)
Core investment gains(2)
Total core earnings
2022
2021
% change(1)
2022 vs 2021
$ 2,132
1,359
1,700
1,241
(650)
400
$ 6,182
$ 2,176
1,179
1,936
1,406
(561)
400
$ 6,536
(2)%
15%
(15)%
(14)%
(16)%
–
(7)%
(1) Percentage change in core earnings on a constant exchange rate basis is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.
(2) See note (2) in the table below. This item is disclosed under the Office of the Superintendent of Financial Institution’s (“OSFI’s”) Source of Earnings Disclosure (Life Insurance
Companies) guideline.
1 Percentage growth / declines in core earnings, core general expenses, pre-tax core earnings, assets under management and administration, assets under management, core
EBITDA, general expenses, Manulife Bank average net lending assets and Global Wealth and Asset Management revenue are stated on a constant exchange rate basis, a
non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.
2 For more information on this metric, see “Non-GAAP and Other Financial Measures” below.
3 Policyholder experience includes gains of $20 million post-tax in 2022 (2021 – gains of $29 million post-tax) from the release of margins on medical policies in Hong Kong that
have lapsed for customers who have opted to change their existing policies to the new Voluntary Health Insurance Scheme (“VHIS”) products. These gains did not have a
material impact on core earnings as they were mostly offset by new business strain.
4 Excludes $243 million (pre-tax) in 2022 of lost expected profit on in-force relating to the U.S. variable annuity reinsurance transaction. Percentage growth is based on the
pre-tax impact of these actions, and is stated on a constant exchange rate basis.
11
The table below presents 2022 and 2021 net income attributed to shareholders consisting of core earnings and items excluded from core
earnings.
For the years ended December 31,
($ millions)
2021
2022
Core earnings
Items excluded from core earnings:(1)
Investment-related experience outside of core earnings(2)
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities
Direct impact of equity markets and variable annuity guarantee liabilities(3)
Fixed income reinvestment rates assumed in the valuation of policy liabilities(4)
Sale of AFS bonds and derivative positions in the Corporate and Other segment(4)
Changes to the ultimate reinvestment rate(5)
Change in actuarial methods and assumptions(6)
Restructuring charge(7)
Reinsurance transactions, tax-related items and other(8)
Total items excluded from core earnings
Net income attributed to shareholders
$ 6,182
$ 6,536
817
(840)
(995)
576
(421)
–
36
–
1,099
1,112
$ 7,294
1,642
(817)
289
(346)
(228)
(532)
(41)
(115)
(100)
569
$ 7,105
(1) These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.
(2) In accordance with our definition of core earnings, we include up to $400 million of net favourable investment-related experience reported in a single year, as core investment
gains (see “Non-GAAP and Other Financial Measures” below). Items excluded from core earnings include net investment-related experience in excess of $400 million per annum
or net unfavourable investment-related experience on a year-to-date basis. In 2022, the investment-related experience net gain of $817 million reflected the favourable impact
of fixed income reinvestment activities, strong credit experience, and higher-than-expected returns (including fair value changes) on ALDA primarily driven by private equity,
infrastructure, and timberland, partially offset by real estate. In 2021, the investment-related experience net gain of $1,642 million reflected higher-than-expected returns
(including fair value changes) on ALDA primarily driven by gains on private equity and infrastructure, strong credit experience and the favourable impact of fixed income
reinvestment activities.
(3) In 2022, the net charge related to equity markets of $995 million included a charge of $893 million from gross equity exposure and a charge of $111 million from dynamic
hedge experience, partially offset by a modest gain of $9 million from macro hedging experience. In 2021, the net gain of $289 million included a gain of $382 million from
gross equity exposure, partially offset by a charge of $90 million from dynamic hedge experience and a modest charge of $3 million from macro hedging experience.
(4) In 2022, the gain due to fixed income reinvestment rates of $576 million was primarily due to the flattening of the yield curve in the U.S. and Canada, partially offset by losses
on the sale of available-for-sale bonds. In 2021, the charge due to fixed income reinvestment rates of $346 million was primarily due to the increase in risk-free interest rates
and the overall steepening of the yield curve in the U.S. and Canada.
(5) In 2021, the Canadian Actuarial Standards Board issued a new promulgation with reductions to the ultimate reinvestment rate (“URR”) and updates to the calibration criteria for
stochastic risk-free rates. The updated standard included a reduction of 15 basis points in the URR and a corresponding change to stochastic risk-free rate modeling and was
effective October 15, 2021. The long-term URR for risk-free rates in Canada is prescribed at 2.9% and we use the same assumption for the U.S. Our assumption for Japan is 1.5%.
(6) See “Critical Actuarial and Accounting Policies – Review of Actuarial Methods and Assumptions” section below for further information on the 2022 and 2021 charges.
(7) In 2021, we reported a restructuring charge of $150 million pre-tax ($115 million post-tax) related to actions that are expected to result in recurring total annual expense
savings of $250 million (pre-tax) by 2023; $100 million (pre-tax) of these expected total annual savings were realized in 2021, $200 million (pre-tax) were realized in 2022,
and $250 million (pre-tax) are expected to be realized in 2023.1
(8) In 2022, the $1,099 million of gain included a net gain of $846 million from the U.S. variable annuity reinsurance transactions and a net gain of $86 million related to acquiring
full ownership interest of Manulife TEDA Fund Management Co., LTD (“MTEDA”) by purchasing the remaining 51% of shares from our joint venture partner, partially offset by a
charge of $71 million related to withholding tax on anticipated remittances resulting from the U.S. variable annuity reinsurance transaction, a charge of $17 million resulting
from a reinsurance transaction in Asia, a $13 million increase to an existing legal provision in the U.S. and an integration charge of $8 million in our Vietnam operation. In
addition, we reported tax benefits of $297 million in 2022 as a result of an increase in the Canadian corporate tax rate. In 2021, the $100 million net charge included a
$119 million charge relating to updating the impact of the 2017 U.S. Tax Cuts and Jobs Act and a $37 million charge resulting from a reinsurance transaction in the U.S.,
partially offset by a $37 million gain related to affiliate reinsurance transactions in Asia and a $19 million gain related to the divestment of our Thailand operation.
Net income attributed to shareholders by segment is presented in the following table. See Asia, Canada, U.S., and Global WAM sections
below.
For the years ended December 31,
($ millions)
Net income attributed to shareholders by segment
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total net income attributed to shareholders
(1) Percentage change is on an actual exchange rate basis.
2022
2021
% change(1)
2022 vs 2021
$ 2,224
1,530
3,950
1,321
(1,731)
$ 7,294
$ 3,057
1,354
2,080
1,406
(792)
$ 7,105
(27)%
13%
90%
(6)%
(119)%
3%
Diluted earnings per common share was $3.68 in 2022, compared with $3.54 in 2021 primarily related to the increase in net income
attributed to common shareholders. Diluted core earnings per common share was $3.10 in 2022, compared with $3.25 in 2021 primarily
related to the decrease in core earnings. The diluted weighted average common shares outstanding was 1,913 million in 2022 and
1,946 million in 2021.
Return on common shareholders’ equity (“ROE”) for 2022 was 14.1%, compared with 14.2% for 2021 and core return on common
shareholders’ equity (“core ROE”) was 11.9% in 2022 compared with 13.0% in 2021. The decrease in 2022 ROE and core ROE were
primarily driven by a decrease in common shareholders’ core earnings.
1 See “Caution regarding forward-looking statements” above.
12 | 2022 Annual Report | Management’s Discussion and Analysis
Expense efficiency ratio was 50.9% for 2022, compared with 48.9% in 2021. The 2.0 percentage point increase in the ratio compared
with 2021 was driven by an 8% decrease in pre-tax core earnings1. Core general expenses1 were in line with 2021 driven by higher
workforce costs offset by the net favourable impact of our strategic focus on digitization and efficiency, lower distribution-related and
discretionary expenses reflecting lower 2022 sales, and lower pension costs primarily due to market impacts.
Total general expenses in 2022 were in line with 2021 on both a constant and actual exchange rate basis due to the items noted above for
core general expenses and a number of items recorded outside of core earnings. These include the non-recurrence of a restructuring
charge and the establishment of a legal provision in 2021, partially offset by various 2022 items, including an integration charge in our
Vietnam operation, expenses associated with the U.S. variable annuity reinsurance transactions, and a legal provision in the U.S.
Business Performance
Business performance
As at and for the years ended December 31,
($ millions, unless otherwise stated)
Asia APE sales
Canada APE sales
U.S. APE sales
Total APE sales(1)
Asia new business value
Canada new business value
U.S. new business value
Total new business value(1)
Global Wealth and Asset Management gross flows ($ billions)(1)
Global Wealth and Asset Management net flows ($ billions)(1)
Global Wealth and Asset Management assets under management and administration ($ billions)(2),(3)
Global Wealth and Asset Management total invested assets ($ billions)(3)
Global Wealth and Asset Management segregated funds net assets ($ billions)(3)
Total assets under management and administration ($ billions)
Total invested assets ($ billions)
Total net segregated funds net assets ($ billions)
$
2022
3,569
1,261
823
5,653
1,349
362
352
2,063
136.6
3.3
779.9
3.7
224.2
1,314.6
414.0
348.6
2021
$ 4,050
1,227
788
6,065
1,666
307
270
2,243
144.7
27.9
855.9
4.5
252.6
1,425.8
427.1
399.8
(1) For more information on this metric, see “Non-GAAP and Other Financial Measures” below.
(2) This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
(3) The Global WAM portion of AUMA as at December 31, 2022 was $779.9 billion, a decrease of 9% compared with December 31, 2021, driven by the impact of higher interest
rates and equity market declines, partially offset by $8.8 billion in assets acquired and net inflows of $3.3 billion. The Global WAM segregated funds net assets were
$224.2 billion as at December 31, 2022, a decline of 11% compared with December 31, 2021 on an actual exchange rate basis driven by the impact of higher interest rates
and equity market declines.
Annualized premium equivalent (“APE”) sales were $5.7 billion in 2022, a decrease of 7%2 compared with 2021. In Asia, COVID-19
continued to impact sales in select markets throughout the year, with the situation beginning to improve in most markets, as containment
measures were progressively relaxed. Travel restrictions between mainland China and, Hong Kong and Macau impacted cross-border
commerce in 2022. Weaker customer sentiment negatively impacted sales in the second half of the year. Asia APE sales declined 12%
compared with 2021, due to decreases experienced in Hong Kong, Japan, Vietnam and Other Emerging Markets3, partially offset by
increases in mainland China and Singapore. In Hong Kong, APE sales decreased 33% compared with 2021, primarily reflecting weaker
customer sentiment on financial planning decisions and continued COVID-19 containment measures through most of the year. In Japan,
APE sales decreased 15% compared with 2021, reflecting lower corporate-owned life insurance (“COLI”) product sales, partially offset by
higher individual protection and other wealth sales. Vietnam APE sales decreased 9% compared with 2021, reflecting a decline in the
agency channel, partially offset by growth in the bank channel. Other Emerging Markets APE sales decreased 4% compared with 2021,
reflecting a decline in the agency and bank channels. Mainland China APE sales increased 4% compared with 2021, driven by growth in the
bank channel, partially offset by a decline in the agency channel. Singapore APE sales increased 1% compared with 2021, reflecting growth
in the bank channel offset by a decline in the broker channel. In Canada, APE sales increased 3% compared with 2021, primarily driven by
higher sales in group insurance, participating insurance and travel insurance, partially offset by the impact of market volatility on the
demand for segregated fund products, and lower universal life and health and dental sales. In the U.S., APE sales increased 1% compared
with 2021, due to an increase in international sales which are reported as part of U.S. segment results, partially offset by lower sales of
domestic life insurance products. APE sales of products with the John Hancock Vitality PLUS feature were a record-setting
US$332 million, an increase of 13% compared with 2021, reflecting the increasing attractiveness of the Vitality feature as an option for
health-focused life insurance consumers.
New business value (“NBV”) was $2.1 billion in 2022, a decrease of 9% compared with 2021. In Asia, NBV was $1.3 billion in 2022, a
decrease of 20% compared with 2021, due to lower NBV in Hong Kong, Singapore and mainland China, partially offset by higher NBV in
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
2 Percentage growth / declines in APE sales, gross flows, and NBV are stated on a constant exchange rate basis.
3 Other Emerging Markets includes Indonesia, the Philippines, Malaysia, Thailand, Cambodia, and Myanmar.
1
Japan and Other Emerging Markets. NBV in Hong Kong decreased 27% compared with 2021, reflecting lower sales volumes, partially
offset by favourable product mix and the impact of higher interest rates. NBV in Singapore and mainland China decreased 19% and 58%,
respectively, compared with 2021, reflecting changes in product mix. NBV in Vietnam was in line compared with 2021, as the impact of
favourable product mix was offset by lower sales volumes. NBV in Japan and Other Emerging Markets increased 28% and 5%, respectively,
compared with 2021, reflecting favourable product mix, partially offset by lower sales volumes. In Canada, NBV of $362 million increased
18% compared with 2021, driven by higher margins across all businesses and higher group insurance volumes, partially offset by lower
volumes in annuities. In the U.S., NBV of $352 million increased 25% compared with 2021, driven by higher interest rates, higher
international sales volumes and product actions partially offset by lower brokerage sales volumes.
Global WAM gross flows of $136.6 billion decreased $8.1 billion or 7% compared with 2021, primarily driven by lower gross flows in
Retail. See “Global Wealth and Asset Management” section below for further details.
Global WAM net inflows were $3.3 billion in 2022, compared with net inflows of $27.9 billion in 2021. Net outflows in Retirement were
$0.1 billion compared with net inflows of $1.1 billion in the prior year, driven by higher plan redemptions in the U.S. Net outflows in Retail
were $1.6 billion compared with net inflows of $29.2 billion in the prior year, reflecting higher redemptions and lower gross flows due to
decreased investor demand amid higher interest rates and equity market declines in 2022. Net inflows in Institutional Asset Management
were $5.0 billion compared with net outflows of $2.4 billion in the prior year, driven by the non-recurrence of a $9.4 billion redemption in
2021 and higher equity mandate gross flows mainly from a $1.9 billion sale in the second quarter of 2022 (“2Q22”).
Assets under Management and Administration (“AUMA”)
AUMA as at December 31, 2022 was $1.3 trillion, a decrease of 11% compared with December 31, 2021, primarily due to the impact of
higher interest rates and lower equity markets. Total invested assets and segregated funds net assets decreased 3% and 13%,
respectively, on an actual exchange rate basis, primarily due to the impact of higher interest rates and lower equity markets.
Assets under Management and Administration
As at December 31,
($ millions)
Total invested assets
Segregated funds net assets(1)
Mutual funds, institutional asset management and other(1),(2)
Total assets under management
Other assets under administration
Total assets under management and administration
2022
2021
$
414,001
348,562
381,779
1,144,342
170,224
$ 1,314,566
$ 427,098
399,788
411,271
1,238,157
187,631
$ 1,425,788
(1) These assets are not available to satisfy the liabilities of the Company’s general fund.
(2) Other funds represent pension funds, pooled funds, endowment funds and other institutional funds managed by the Company on behalf of others.
Revenue
Revenue includes (i) premiums received on life and health insurance policies and fixed annuity products, net of premiums ceded to
reinsurers; (ii) investment income comprised of income earned on general fund assets, credit experience and realized gains and losses on
assets held in the Corporate and Other segment; (iii) fee and other income received for services provided; and (iv) realized and unrealized
gains and losses on assets supporting insurance and investment contract liabilities and on our macro hedging program. Premium
equivalents from administrative services only (“ASO”), as well as deposits received by the Company on investment contracts such as
segregated funds, mutual funds and managed funds are not included in revenue; however, the Company does receive fee income from
these products, which is included in revenue. Fees generated from deposits and ASO premium and deposit equivalents are an important
part of our business and as a result, revenue does not fully represent sales and other activity taking place during the respective periods.
In 2022, revenue before realized and unrealized investment gains and losses was $62.2 billion compared with $65.8 billion in 2021. The
decrease was driven primarily by the 2022 U.S. variable annuity reinsurance transactions, which impacted other revenue and ceded
premiums, as well as from unfavourable markets.
In 2022, the net realized and unrealized investment gains and losses on assets supporting insurance and investment contract liabilities
and on the macro hedging program was a charge of $45.1 billion compared with a charge of $4.0 billion for 2021. The 2022 charge was
primarily due to the impact of interest rate increases and lower equity markets partially offset by fair value gains on ALDA. The 2021
charge was primarily due to the impact of interest rate increases partially offset by fair value gains on ALDA and higher equity markets.
See “Impact of Fair Value Accounting” below. Also, see “Profitability” above for additional information on the impact on 2022 net income
attributed to shareholders from the direct impact of equity markets and interest rates and variable annuity guarantee liabilities.
14 | 2022 Annual Report | Management’s Discussion and Analysis
Revenue
For the years ended December 31,
($ millions)
Gross premiums
Premiums ceded to reinsurers
Net premium income
Investment income
Other revenue
Revenue before realized and unrealized investment gains and losses
Realized and unrealized investment gains and losses on assets supporting insurance and investment contract liabilities and
on the macro hedge program(1)
Total revenue
2022
2021
$ 44,102
(6,249)
37,853
15,207
9,164
62,224
$ 44,344
(5,279)
39,065
15,627
11,132
65,824
(45,077)
$ 17,147
(4,003)
$ 61,821
(1) See “Impact of Fair Value Accounting” section below. Also see “Profitability – Items excluded from core earnings” section above for information on direct impact of equity
markets and interest rates and variable annuity guarantee liabilities.
Financial Strength
Financial strength metrics
As at and for the years ended December 31,
($ millions, unless otherwise stated)
MLI’s LICAT ratio(1)
Financial leverage ratio
Consolidated capital(2)
Book value per common share ($)
Book value per common share excluding accumulated other comprehensive income ($)
2022
2021
131%
27.7%
$ 62,493
$ 26.49
$ 26.50
142%
25.8%
$ 66,005
$ 26.78
$ 24.12
(1) This item is disclosed under OSFI’s Life Insurance Capital Adequacy Test Public Disclosure Requirements guideline.
(2) This item is a capital management measure. For more information on this metric, see “Non-GAAP and Other Financial Measures” below.
The Life Insurance Capital Adequacy Test (“LICAT”) ratio for MLI was 131% as at December 31, 2022, compared with 142% as at
December 31, 2021. The 11 percentage point decrease from December 31, 2021 was driven by the unfavourable impact of market
movements on capital primarily from the large increase in risk-free interest rates, and from common share buybacks, partially offset by the
favourable impacts from the U.S. variable annuity reinsurance transactions.
MFC’s financial leverage ratio as at December 31, 2022 was 27.7%, an increase of 1.9 percentage points from 25.8% as at
December 31, 2021. The increase in the ratio was driven by a reduction in the carrying value of AFS debt securities from higher interest
rates, common share buybacks, and the net issuance of securities1, partially offset by growth in retained earnings and the impact of a
weaker Canadian dollar.
Consolidated capital was $62.5 billion as at December 31, 2022 compared with $66.0 billion as at December 31, 2021, a decrease of
$3.5 billion. The decrease was driven by a decline in total equity and the redemption of capital instruments. The decline in total equity was
due to a reduction in the carrying value of AFS debt securities from higher interest rates, and common share buybacks, partially offset by
growth in retained earnings, the impact of a weaker Canadian dollar, and net capital issuances2.
Remittances3 were $6.9 billion in 2022 of which Asia and U.S. operations4,5 have delivered $0.9 billion and $2.8 billion respectively.
Remittances in 2022 increased by $2.5 billion compared with 2021 primarily due to contributions related to the U.S. variable annuity
transactions and other corporate actions.
Cash and cash equivalents and marketable assets6 was $241.0 billion as at December 31, 2022 compared with $268.4 billion as at
December 31, 2021. The decrease of $27.4 billion was primarily driven by the lower market value of fixed income instruments due to
higher interest rates and the lower market value of public equities due to a decline in equity markets. Refer to “Liquidity Risk Management
Strategy” below for more information.
Book value per common share as at December 31, 2022 was $26.49, in line with $26.78 as at December 31, 2021, and the book value
per common share excluding accumulated other comprehensive income (“AOCI”) was $26.50 as at December 31, 2022, an increase of
10% compared with $24.12 as at December 31, 2021. Compared with December 31, 2021, book value per common share was impacted by
1 For financial leverage ratio, net issuance of securities consisted of the issuance of Limited Recourse Capital Notes (reported as other equity instruments) of $1.0 billion and
senior debt of $1.0 billion, offset by the redemption of subordinated debt of $1.0 billion, and two series of preferred shares totaling $0.7 billion.
2 For consolidated capital, net capital issuance consisted of the issuance of Limited Recourse Capital Notes (reported as other equity instruments) of $1.0 billion, partially offset
by the redemption of two series of preferred shares totaling $0.7 billion.
3 For more information on this metric, see “Non-GAAP and Other Financial Measures” below.
4 Remittances from Asia and U.S. operations include the remittances from their respective affiliate reinsurers. In addition, U.S. operation remittances include the International
High Net Worth business written in the Bermuda branch of MLI.
5 Asia and U.S. operations include their respective insurance, and wealth and asset management segments.
6 Includes cash & cash equivalents, comprised of cash on deposit, Canadian and U.S. Treasury Bills and high quality short-term investments, and marketable assets, comprised of
investment grade government and agency bonds, investment grade corporate bonds, investment grade securitized instruments, publicly traded common stocks and preferred
shares.
15
a reduction in the carrying value of AFS debt securities from higher interest rates offset by an increase in retained earnings, the favourable
impact of a weaker Canadian dollar and common share buybacks. The number of common shares outstanding was 1,865 million as at
December 31, 2022 and 1,943 million as at December 31, 2021.
Impact of Fair Value Accounting
Fair value accounting policies affect the measurement of both our assets and our liabilities. The difference between the reported amounts
of our assets and liabilities determined as of the balance sheet date and the immediately preceding balance sheet date in accordance with
the applicable fair value accounting principles is reported as investment-related experience and the direct impact of equity markets and
interest rates and variable annuity guarantees, each of which impacts net income.
We reported $45.1 billion of net realized and unrealized investment losses in investment income in 2022 (2021 – losses of $4.0 billion).
As outlined under “Critical Actuarial and Accounting Policies” below, net insurance contract liabilities under IFRS are determined using
Canadian Asset Liability Method (“CALM”), as required by the Canadian Institute of Actuaries (“CIA”). The measurement of policy liabilities
includes the estimated value of future policyholder benefits and settlement obligations to be paid over the term remaining on in-force
policies, including the costs of servicing the policies, reduced by the future expected policy revenues and future expected investment
income on assets supporting the policies. Investment returns are projected using the current asset portfolios and projected reinvestment
strategies. Experience gains and losses are reported when current period activity differs from what was assumed in the policy liabilities at
the beginning of the period. We classify gains and losses by assumption type. For example, current period investing activities that increase
(decrease) the future expected investment income on assets supporting the policies will result in an investment-related experience gain
(loss). See description of investment-related experience in “Non-GAAP and Other Financial Measures” below.
Public Equity Risk and Interest Rate Risk
At December 31, 2022, excluding impacts from asset-based fees earned on assets under management and policyholder account value,
the impact of a 10% decline in equity markets was estimated to be a charge of $560 million and the impact of a 50 basis point decline in
interest rates, across all durations and markets, on our earnings was estimated to be a charge of $100 million. See “Risk Management and
Risk Factors” below.
Impact of Foreign Exchange Rates
We have worldwide operations, including in Canada, the United States and various markets in Asia, and generate revenues and incur
expenses in local currencies in these jurisdictions, all of which are translated into Canadian dollars. The bulk of our exposure to foreign
exchange rates is to movements in the U.S. dollar.
Items impacting our Consolidated Statements of Income are translated to Canadian dollars using average exchange rates for the
respective quarterly period. For items impacting our Consolidated Statements of Financial Position, period end rates are used for currency
translation purposes. The following table provides the most relevant foreign exchange rates for 2022 and 2021.
Exchange rate
Average(1)
U.S. dollar
Japanese yen
Hong Kong dollar
Period end
U.S. dollar
Japanese yen
Hong Kong dollar
Quarterly
Full Year
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
1.3575
0.0096
0.1736
1.3057
0.0094
0.1664
1.2765
0.0098
0.1627
1.2663
0.0109
0.1622
1.2601
0.0111
0.1618
1.3015
0.0099
0.1662
1.2536
0.0114
0.1613
1.3549
0.0103
0.1736
1.3740
0.0095
0.1750
1.2900
0.0095
0.1644
1.2496
0.0103
0.1595
1.2678
0.0110
0.1626
1.3549
0.0103
0.1736
1.2678
0.0110
0.1626
(1) Average rates for the quarter are from Bank of Canada which are applied against Consolidated Statements of Income items for each period. Average rate for the full year is a
4-point average of the quarterly average rates.
Net income attributed to shareholders and core earnings from the Company’s foreign operations are translated to Canadian dollars, and in
general, our net income attributed to shareholders and core earnings benefit from a weakening Canadian dollar and are adversely affected
by a strengthening Canadian dollar. However, in a period of net losses in foreign operations, the weakening of the Canadian dollar has the
effect of increasing the losses. The relative impact of foreign exchange in any given period is driven by the movement of currency rates as
well as the proportion of earnings generated in our foreign operations.
Changes in foreign currency exchange rates from 2021 to 2022, primarily due to the weakening of the Canadian dollar compared with the
U.S. dollar, increased core earnings by approximately $57 million in 2022. The impact of foreign currency exchange rates on items
excluded from core earnings does not provide relevant information given the nature of these items.
16 | 2022 Annual Report | Management’s Discussion and Analysis
Strategic priorities progress update
Strategy
Our ambition is to be the most digital, customer-centric global company in our industry. The goals for our stakeholders are:
Customers
Improve Net Promoter Score (“NPS”) by +36 points and delight customers1
Employees
Engage our employees — maintain top quartile engagement2
Shareholders
Deliver top quartile returns3
Our mission, strategic priorities and values are summarized below:
Mission
Strategic
Priorities
Values
Decisions made easier.
Lives made better.
Portfolio
Optimization
Expense
Effciency
Accelerate
Growth
Digital,
Customer
Leader
High
Performing
Team
• Obsess about customers
• Do the right thing
• Think big
• Get it done together
• Own it
• Share your humanity
Our values enable the achievement of our mission and strategic priorities, reflect our culture, inform our behaviours, and help define how
we work together:
• Obsess about customers – Predict their needs and do everything in our power to satisfy them.
• Do the right thing – Act with integrity and do what we say.
• Think big – Anything is possible. We can always find a better way.
• Get it done together – We’re surrounded by an amazing team. Do it better by working together.
• Own it – Feel empowered to make decisions and take action to deliver our mission.
• Share your humanity – Build a supportive, diverse and thriving workplace.
Strategic Priorities
Our strategy is underpinned by five strategic priorities, and we have made substantial progress on the ambitious targets that we set for
ourselves. Our 2022 targets were announced at our 2018 Investor Day and 2025 targets were announced at our 2021 Investor Day.
Accelerate Growth
We remain committed to generating 75% of core earnings from our highest potential businesses4 by 2025, and 50% of core earnings
from our Asia region (Asia segment and Asia wealth and asset management (“Asia WAM”)) by 2025.
Focus areas:
• Execute on organic and inorganic growth opportunities in Asia and Global WAM
• Leverage global footprint and business diversity to allocate capital and resources to higher growth opportunities
• Expand North American behavioural insurance offerings to provide innovative solutions and support positive health for customers
• Drive new business growth and persistency in group insurance in Canada
1 As compared to a baseline of +1 in 2017, by 2025. 2022 results are discussed in the “Strategic Priorities” section below.
2 Top quartile employee engagement compared to global financial services companies and insurance peers. 2022 results are discussed in the “Strategic Priorities” section below.
3 MFC’s Total Shareholder Return was 27th percentile compared with our performance peer group for the five-year period ended December 31, 2022. Please refer to Manulife’s
most recent Management Information Circular for more information on our performance peer group.
4 Highest potential businesses include Asia, Global WAM, Canada group benefits, and behavioural insurance products.
17
Core earnings from highest potential businesses
Core earnings from Asia region
Baseline
Targets1
2022
63%
39%
2021
63%
39%
2017
2022
2025
54%
n/a
67%
n/a
75%
50%
In 2022, 63% of core earnings were generated from our highest potential businesses, a notable improvement of 9 percentage points from the
2017 baseline of 54%. This increase was supported by a strong execution track record against our strategic priorities, coupled with robust
inorganic growth opportunities in Asia and Global WAM markets. Our position as the third largest Pan-Asian life insurer, a scalable Global WAM
platform that enables an integrated operating model and distribution capabilities, and greater demand for our North American behavioural
insurance products reinforced this growth. Looking forward, we will continue to drive momentum through our growing agency force, successful
bancassurance partnerships, transformational digital offerings, and strategic expansion into high-potential markets in Asia.
Temporary headwinds faced in Asia due to COVID-19 containment measures and in Global WAM due to challenging market conditions,
dampened the contribution of core earnings generated from our highest potential business in 2022, which was 4 percentage points short
of our 2022 target.
Our percentage of core earnings from highest potential businesses was 63% in 2022 and in 2021, as the decline in core earnings from
highest potential businesses was in line with the decline in total core earnings. Asia core earnings in 2022 decreased 2% compared with
2021, after adjusting for the impact of changes in foreign currency exchange rates, primarily due to the impact of lower new business
volumes, partially offset by favourable product mix and in-force business growth. Global WAM core earnings decreased $165 million or 14%
on a constant exchange rate basis reflecting a decline in net fee income from lower average AUMA due to higher interest rates and equity
market declines in 2022, and lower fee spread. Canada group insurance core earnings in 2022 benefited from in-force business growth.
Confidence in the strength of our diverse, global franchise, balance sheet and financial flexibility position us well to capitalize on attractive
opportunities for our highest potential businesses.
2022 Highlights
• Commenced offering insurance solutions to VietinBank’s customers in early 2022, as part of our 16-year exclusive bancassurance
partnership in Vietnam, demonstrating strong momentum in its first year;
• Further bolstered our presence in high-growth attractive markets by acquiring control of MTEDA through the purchase of the remaining
51% of shares from our joint venture partner, making us the first global wealth and asset manager to acquire a 100% stake in a fully
operating public fund management company in mainland China;
• Continued to expand our Private Markets capabilities with the acquisition of a significant minority equity position in ARCH Capital, an
Asia-focused real estate private equity investment manager;
• Accelerated the utilization of ManuAcademy, our regional digital learning platform, which was initially launched in Vietnam during 2Q22 and
continued to expand to the Philippines in 4Q22. The platform is accessible now to all agents in these two markets, making learning easier
while accelerating the further expansion and digitization of Manulife’s agency force. Our new training series, Manulife MasterClass, captures
best practices from our Million Dollar Round Table agents and shares them across all agents through the platform;
• Expanded our Global WAM Retail product lineup with the launch of the Manulife Real Asset Investment strategy that will give Canadian
retail high-net-worth investors access to a combination of private and public real asset investments. Additionally, we launched our first
actively managed equity ETF, the U.S. High Dividend ETF, managed by MIM;
• Continued the expansion of the Manulife Vitality program, demonstrating our commitment to helping our customers lead healthier lives.
All eligible new retail term and universal life insurance policies will include Vitality Go at no cost, while additional features are available
with Vitality Plus for a low monthly fee;
• Achieved highest ever full year domestic life insurance sales with the John Hancock Vitality PLUS feature, reflecting the increasing
attractiveness of the Vitality feature as an option for health-focused life insurance consumers; and
• Continued to innovate our wellness offerings and entered into a partnership with GRAIL, a healthcare company, offering access to
Galleri®, their leading edge, multi-cancer early detection test to a pilot group of customers through John Hancock Vitality. As the first
life insurance carrier to make GRAIL’s Galleri® test available, we are enabling eligible customers to take proactive steps to better
understand and make more informed choices about their health.
Digital, Customer Leader
We remain committed to a target NPS of +372 and aim to achieve 88% straight-through-processing (“STP”)3 by 2025.
Focus areas:
• Harness customer feedback to enhance the experience delivered
• Build differentiated, market-leading priority customer experiences
• Extend customer relationships through value-added advice, new services in health and wellness, and open innovation
• Drive NPS through a globally consistent NPS system
1 See “Caution regarding forward-looking statements” above.
2 Represents an improvement of +36 points in our NPS score from the 2017 baseline.
3 Straight-through processing represents customer interactions that are completely digital, and includes money movement.
18 | 2022 Annual Report | Management’s Discussion and Analysis
Net promoter score
Straight-through-processing
Baseline
Targets1
2022
+20
83%
2021
2018
2017
2022
2025
+21
82%
n/a
68%
+1
n/a
+31
n/a
+37
88%
In 2022, our NPS score was +20, and we led or were on par with leading peers2 in 11 of the 16 business lines where we benchmark. The
score marked a significant 19 point improvement from our 2017 baseline, driven by various efforts. We have developed forward-looking
roadmaps to align and propel our digital customer leadership ambition, refreshed our innovation strategy to embed new ways of working
across our businesses, and are advancing our internal capabilities to gather and analyze customer data and sentiment. We have also
globally deployed human-centered design practices to systematically research, design, iterate, and deliver best-in-class experiences that
are validated with customers at each step.
Our NPS score in 2022 was 1 point below our NPS score in 2021, and short of our ambitious 2022 target of +31, in part because service
levels in the first half of 2022 were impacted by workforce capacity constraints, which affected the rolling four quarter average NPS for
2022. We addressed these issues and improved service levels in the second half of the year, although still below our 2022 target;
initiatives are underway to maintain momentum for future improvement.
We are making consistent progress on our global STP objectives, with a 15 percentage point improvement from the 2018 baseline across
segments in a variety of areas such as system enhancements, app releases and increased digital capabilities.
Customer centricity is at the heart of our ambition and we remain committed to achieving our 2025 NPS and STP targets of +37 and 88%,
respectively.
2022 Highlights
•
In Asia:
O Delivered multi-channel options for customers through the launch of Manulife Shop in the Philippines in 4Q22, enabling customers
to find and purchase insurance online at their own convenience. We also became the first life insurer in Vietnam to offer health
solutions to MoMo’s 31 million user base via MoMo e-wallet in 2Q22; and
O Successfully increased the adoption of ePOS, our proprietary digital onboarding app, by 15 percentage points3 to 89%, enabling
faster, error-free new business application submissions.
• In Global WAM:
O Enhanced our digital experience in Canada Retirement with the launch of new features that enable members to make additional
contributions to their Registered Retirement Savings Plans and to book one-on-one meetings with Manulife PlanRight financial
advisors directly in the mobile app. This generated successful engagement, resulting in over 1,780 advisor meeting requests and a
14% increase in member adoption of the mobile app since the launch; and
O Launched a new, end-to-end digital and mobile-friendly enrollment experience in Canada Retirement for our members. The improved
enrollment experience offers a more intuitive and guided experience for our members, helping them feel more confident about their
long-term investment choices. 82% of our eligible sponsors adopted the new experience for their employees in 2022.
•
In Canada:
O Launched an upgraded Manulife Vitality mobile app experience for our individual insurance business, giving the app a new look and
feel with easier navigation to further drive customer engagement; and
O For our Group Benefits customers, our Manulife Mobile app added a new user interface and navigation refresh, full integration with
Manulife ID, and new drug coverage look up functionality.
•
In the U.S.:
O Reduced the average time to complete background checks for new producers within our digital brokerage and traditional brokerage
channels by over 90% via automation; and
O Reduced call volumes for enquiries related to John Hancock Vitality customer login and registration by 39% compared with 2021 by
optimizing self-service functionality.
Expense Efficiency
We remain focused on driving efficient growth and are committed to consistently achieving an expense efficiency ratio of less than 50%
while ensuring scalable growth, outstanding customer experience, and digital ways of working.
Focus areas:
• Leverage global scale and operating environment
• Streamline business processes and eliminate activities not valued by end customers
• Continue to sustain a culture of expense efficiency and driving efficient growth
1 See “Caution regarding forward-looking statements” above.
2 Based on studies conducted in 2022 by IPSOS, a global market research company.
3 Case adoption, compared with 2021.
19
Expense efficiency ratio
Baseline
Target1
2022
2021
2017
2022 and onwards
50.9% 48.9%
55.4%
<50%
We previously delivered on our 2022 target of $1 billion in expense efficiencies in 2020, two years ahead of schedule, and delivered an
expense efficiency ratio of 48.9% in 2021. Progress on our expense efficiency ratio compared with the 2017 baseline, reflects a cultural
shift throughout the organization that rightsized our expense base by eliminating significant costs and allowing us to be more nimble.
The expense efficiency ratio was 50.9% for 2022, compared with 48.9% in 2021. The 2.0 percentage point increase in the ratio compared
with 2021 was driven by an 8% decrease in pre-tax core earnings. Core general expenses were in line with 2021 driven by higher workforce
costs offset by the net favourable impact of our strategic focus on digitization and efficiency, lower distribution-related and discretionary
expenses reflecting lower 2022 sales, and lower pension costs primarily due to market impacts.
Expense efficiency continues to be an important lever in our current operating environment, and we remain committed to consistently
achieving a ratio of less than 50%.
2022 Highlights
• Continued to improve expense efficiency by lowering unit costs and improving scalability of our operations through:
O Digitizing to improve automation and straight-through processing;
O Simplifying and standardizing processes;
O Optimizing organizational structure;
O Actively managing third-party spend and procurement; and
O Rationalizing real estate expenditures.
• Achieved annual savings of $200 million (pre-tax) in 2022 resulting from the restructuring action in the first half of 2021.
Portfolio Optimization
We will continue to optimize our legacy businesses and reduce the combined contributions from long-term care insurance (“LTC”) and
variable annuities (“VA”) businesses to less than 15% of core earnings by 2025.
Focus areas:
• Deliver capital release from legacy businesses, including variable annuity, long-term care insurance and select long-duration,
guaranteed insurance products
• Optimize portfolio to improve our risk profile and ROE
• Create value through in-force management initiatives
Free up capital from legacy portfolio, cumulative (C$ billions)
Core earnings contribution from LTC and VA
Targets1
2022
20212
$ 9.0
18%
$ 6.3
20%
2022
$5.0
n/a
2025
n/a
<15%
We previously achieved our 2022 target to release $5.0 billion of capital in 2019, three years ahead of schedule when we reduced the size
of our legacy businesses, freed up capital, and improved core ROE through actions such as reinsurance transactions in North America,
buy-back programs on guaranteed minimum withdrawal benefit (“GMWB”) blocks, repricing life insurance blocks, and reinsurance
renegotiations and recaptures. Optimization activities continued into 2022; to date, we have delivered $9.0 billion of cumulative capital
benefits, exceeding our target by $4.0 billion, reducing our go-forward risk profile and unlocking value from legacy businesses. In 2022,
we completed two transactions to reinsure over 80%3 of our legacy U.S. variable annuity block, releasing $2.5 billion of capital and
significantly reducing our risk.
In 2022, we made progress towards our 2025 target and reduced core earnings contribution from LTC and VA by 2 percentage points as
compared with December 31, 2021, primarily driven by the impact of the two reinsurance transactions mentioned above. We continue to
assess inorganic options such as the two transactions completed in 2022 mentioned above, taking into account policyholder
considerations and the potential impact to our risk profile and ROE. We are also confident in our ability to effectively manage the
two blocks of business to maturity, most importantly by seeking premium increases for LTC for which we have a strong track record of
success.1
A dedicated team working exclusively on portfolio optimization, and our proactive, disciplined approach to optimizing the in-force business
are key success factors; we remain committed to achieving our 2025 target.
1 See “Caution regarding forward-looking statements” above.
2 2021 total company and U.S. LTC core earnings were normalized to remove estimated gains on U.S. LTC policyholder experience due to COVID-19.
3 Represents a reduction in guarantee value on our total U.S. variable annuity block compared with December 31, 2021. Guarantee value on our U.S. variable annuity Guaranteed
Minimum Withdrawal Benefits block reduced by more than 90% compared with December 31, 2021.
20 | 2022 Annual Report | Management’s Discussion and Analysis
2022 Highlights
• The two reinsurance transactions of our legacy U.S. variable annuity block resulted in the release of $2.5 billion of capital, which
included a cumulative one-time after-tax net gain of $806 million1; and
• Other portfolio optimization initiatives released $234 million of capital in 2022.
High Performing Team
We are committed to enabling a high performing team and maintaining top quartile employee engagement compared to global financial
services and insurance peers.
Focus areas:
• Organizational effectiveness and speed of decision making
• Diversity, equity, and inclusion
• Developing our talent with differentiated capabilities
• Continuing to strengthen our value proposition to attract and retain top talent
Employee Engagement
Baseline
Target2
2022
2021
20173
2022 and onwards
1st quartile
1st quartile
2nd quartile
1st quartile
We achieved a top quartile employee engagement rank4 in each of 2020, 2021 and 2022. Our employee engagement score has improved
steadily since 2017 and we ranked in the top 6%4 amongst global finance and insurance companies in 2022. We were also recognized as
one of the World’s Best Employers by Forbes for the third consecutive year.
Our high performing team has been a key enabler of accomplishments to date, and we remain committed to achieving top quartile
employee engagement going forward.
2022 Highlights
• Achieved our fourth consecutive year of higher employee engagement;
• Named to Bloomberg’s 2022 Gender-Equality Index for the fourth consecutive year, highlighting our commitment to support gender
equality through policy development, representation, and transparency; and
• Recognized as one of Canada’s Top 100 Employers 2022 by Mediacorp Canada Inc. for the second year in a row.
Medium-term financial and operating targets2
As communicated in May 2022, upon transition to IFRS 17 in 2023, two of our existing targets will increase due to the change in
accounting framework, the other existing targets will remain the same, and we will introduce two new targets related to Contractual
Service Margin (“CSM”).
Our medium-term targets under IFRS 17 are:
• Core EPS growth of 10% to 12% (no change);
• Core ROE target will increase to 15%+ (from 13%+);
• Leverage ratio of 25% (no change);
• Common share core dividend payout ratio5 range will increase to 35% to 45% (from 30% to 40%);
• CSM balance growth of 8% to 10% per year (new); and
• New business CSM growth of 15% per year (new).
1 The cumulative one-time after-tax gain of these two transactions was $806 million, consisting of a net gain of $846 million in 2022 and a $40 million loss recognized in 2021.
2 See “Caution regarding forward-looking statements” above.
3 Starting in 2019, engagement surveys were transitioned to the Gallup methodology.
4 Based on the annual global employee engagement survey conducted by Gallup. Ranking is measured by the engagement grand mean as compared to Gallup’s Finance and
Insurance Company level database.
5 This item is a non-GAAP ratio. See “Non-GAAP and other financial measures” below for more information.
21
2. Asia
Our Asia segment is a leading provider of insurance products and insurance-based wealth accumulation products, driven by a
customer-centric strategy, leveraging the asset management expertise and products managed by our Global Wealth and Asset
Management segment. Present in many of Asia’s largest and fastest growing economies, we are well positioned to capitalize on the
attractive underlying demographics of the region, underpinned by a rigorous focus on creating value for our customers, employees
and shareholders.
We have insurance operations in 11 markets: Hong Kong, Macau, Japan, mainland China, Singapore, Vietnam, Indonesia, the
Philippines, Malaysia, Cambodia, and Myanmar.
We have a diversified multi-channel distribution network, including over 116,000 contracted agents and over 100 bank
partnerships. We also work with many independent agents, financial advisors, and brokers. Among our bancassurance partnerships
we have 10 exclusive partnerships, including a long-term partnership with DBS Bank across Singapore, Hong Kong, mainland China
and Indonesia, and VietinBank in Vietnam, that give us access to over 35 million bank customers.
In 2022, our Asia segment contributed 33%1 of the Company’s core earnings from operating segments and, as at December 31, 2022,
accounted for 11%1 of the Company’s assets under management and administration.
Profitability
Asia reported net income attributed to shareholders of $2,224 million in 2022 compared with $3,057 million in 2021. Net income
attributed to shareholders is comprised of core earnings, which were $2,132 million in 2022 compared with $2,176 million in 2021, and
items excluded from core earnings, which amounted to a net gain of $92 million for 2022 compared with a net gain of $881 million in
2021. The changes in net income attributed to shareholders and core earnings expressed in Canadian dollars were due to the factors
described below and, in addition, the change in core earnings reflected a net $28 million unfavourable impact due to changes in foreign
currency exchange rates versus the Canadian dollar.
Expressed in U.S. dollars, the presentation currency of the segment, net income attributed to shareholders was US$1,711 million in 2022
compared with US$2,437 million in 2021 and core earnings were US$1,637 million in 2022 compared with US$1,736 million in 2021.
Items excluded from core earnings are outlined in the table below and amounted to a net gain of US$74 million in 2022 compared with a
net gain of US$701 million in 2021.
Core earnings in 2022 decreased 2% compared with 2021, after adjusting for the impact of changes in foreign currency exchange rates.
The changes in core earnings by geography are as follows:
• Hong Kong decreased 8% reflecting lower new business volumes and less favourable policyholder experience, partially offset by
favourable product mix;
• Mainland China decreased 83% reflecting the broader economic challenges from COVID-19 containment measures, changes in product
mix from the ongoing regulatory changes to critical illness products, and unfavourable policyholder experience;
• Other Emerging Markets decreased 6% reflecting lower new business volumes, partially offset by favourable product mix;
• Japan increased 24% due to favourable product mix, in-force business growth and improved policyholder experience, partially offset by
the impact of lower new business volumes;
• Vietnam increased 9% benefiting from in-force business growth and favourable product mix, partially offset by lower new business
volumes; and
• Singapore increased 1% reflecting in-force business growth and improved policyholder experience, partially offset by lower new
business gains.
In addition, higher investment income on allocated capital increased core earnings by US$49 million compared with 2021 (see Corporate
and Other Segment).
1 This item is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.
22 | 2022 Annual Report | Management’s Discussion and Analysis
The table below presents net income attributed to shareholders for Asia for 2022 and 2021 consisting of core earnings and items
excluded from core earnings.
For the years ended December 31,
($ millions)
Core earnings
Items excluded from core earnings:(1)
Investment-related experience related to fixed income trading, market value increases in excess
of expected alternative assets investment returns, asset mix changes and credit experience
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities(2)
Change in actuarial methods and assumptions
Reinsurance transactions, tax-related items and other
Total items excluded from core earnings
Net income attributed to shareholders
Canadian $
US $
2022
2021
2022
2021
$ 2,132
$ 2,176
$ 1,637
$ 1,736
31
153
(45)
(47)
92
$ 2,224
313
169
343
56
881
$ 3,057
30
114
(34)
(36)
74
$ 1,711
251
133
273
44
701
$ 2,437
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
(2) The direct impact of markets in 2022 was a gain of US$114 million and included a gain of US$501 million related to fixed income reinvestment rates and a charge of
US$387 million related to equity markets and variable annuity guarantee liabilities. The direct impact of markets in 2021 was a gain of US$133 million and included a gain of
US$98 million related to fixed income reinvestment rates and a gain of US$35 million related to equity markets and variable annuity guarantee liabilities.
Business Performance
(All percentages quoted are on a constant exchange rate basis)
APE sales in 2022 were US$2,748 million, representing a decrease of 12% compared with 2021. APE sales decreased in Hong Kong,
Japan, Vietnam and Other Emerging Markets, and increased in mainland China and Singapore. COVID-19 continued to impact sales in
select markets throughout the year, with the situation beginning to improve in most markets as containment measures have been
progressively relaxed. Travel restrictions between mainland China and, Hong Kong and Macau impacted cross-border commerce in 2022.
Weaker customer sentiment began to negatively affect sales in the second half of the year.
In Hong Kong, APE sales in 2022 were US$573 million, a 33% decrease compared with 2021, primarily reflecting weaker customer
sentiment on financial planning decisions and continued COVID-19 containment measures through most of the year. Japan APE sales in
2022 were US$307 million, a decrease of 15% compared with 2021, reflecting lower COLI product sales, partially offset by higher
individual protection and other wealth sales. Vietnam APE sales in 2022 were US$337 million, a 9% decrease compared with 2021,
reflecting a decline in the agency channel, partially offset by growth in the bank channel. Other Emerging Markets APE sales in 2022 were
US$281 million, a 4% decrease compared with 2021, reflecting a decline in agency and bank channels. Mainland China APE sales in 2022
were US$484 million, a 4% increase compared with 2021, reflecting growth in the bank channel, partially offset by a decline in the agency
channel. Singapore APE sales in 2022 were US$766 million, a 1% increase compared with 2021, reflecting growth in the bank channel,
offset by a decline in the broker channel.
New business value (“NBV”) was US$1,037 million in 2022, a decrease of 20% compared with 2021. NBV was lower in Hong Kong,
Singapore, and mainland China, partially offset by higher NBV in Japan and Other Emerging Markets. In Hong Kong, NBV in 2022 was
US$447 million, a 27% decrease compared with 2021, reflecting lower sales volumes, partially offset by favourable product mix and the
impact of higher interest rates. NBV in 2022 was US$206 million in Singapore and US$50 million in mainland China, a decrease of 19%
and 58%, respectively, compared with 2021, reflecting changes in product mix. In Vietnam, NBV in 2022 was US$177 million, in line with
2021, as the impact of favourable product mix was offset by lower sales volumes. NBV in 2022 was US$101 million in Japan and
US$56 million in Other Emerging Markets, an increase of 28% and 5%, respectively, compared with 2021, reflecting favourable product
mix, partially offset by lower sales volumes. The new business value margin (“NBV margin”)1 was 41.8% in 2022, a decrease of 3.1
percentage points compared with 2021.
1 For more information on this metric, see “Non-GAAP and Other Financial Measures” below.
2
APE Sales and NBV
For the years ended December 31,
($ millions)
Annualized premium equivalent sales
New business value
Canadian $
US $
2022
2021
2022
2021
$ 3,569
$ 1,349
$ 4,050
$ 1,666
$ 2,748
$ 1,037
$ 3,229
$ 1,329
Assets under Management1
Asia’s assets under management were US$110.3 billion as at December 31, 2022, a decrease of US$11.7 billion or 6% compared with
December 31, 2021. The decrease was driven by the impact of higher interest rates and unfavourable equity market performance on
invested assets and segregated funds net assets, partially offset by net customer inflows of US$9.9 billion.
Assets under Management
As at December 31,
($ millions)
Total invested assets
Segregated funds net assets
Total assets under management
Canadian $
US $
2022
2021
2022
2021
$ 126,267
23,226
$ 149,493
$ 129,207
25,505
$ 154,712
$ 93,179
17,138
$ 110,317
$ 101,893
20,112
$ 122,005
Revenue
Total revenue of US$11.4 billion in 2022 decreased US$12.2 billion compared with 2021. Revenue before net realized and unrealized
investment gains and losses decreased US$1.4 billion compared with 2021 due to a decrease in net premium income and changes in
foreign currency exchange rates. The net premium income decrease was primarily driven by lower new business sales, partially offset by
the growth of in-force business.
Revenue
For the years ended December 31,
($ millions)
Gross premiums
Premiums ceded to reinsurers
Net premium income
Investment income
Other revenue
Revenue before net realized and unrealized investment gains and losses
Net realized and unrealized investment gains and losses(1)
Total revenue
(1) See “Impact of Fair Value Accounting” above.
Canadian $
US $
2022
2021
2022
2021
$ 22,337
(861)
21,476
4,190
1,458
27,124
(12,162)
$ 14,962
$ 24,013
(1,027)
22,986
3,207
1,696
27,889
1,682
$ 29,571
$ 17,204
(664)
16,540
3,228
1,115
20,883
(9,478)
$ 11,405
$ 19,152
(819)
18,333
2,557
1,353
22,243
1,391
$ 23,634
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below.
24 | 2022 Annual Report | Management’s Discussion and Analysis
Strategic Highlights
Asia continues to be a core driver of growth for Manulife, supported by a clear strategy, a focus on execution, a strong team, and a
diversified footprint in 11 markets. Our growth is underpinned by powerful economic secular trends including middle-class emergence, low
insurance penetration and an estimated mortality protection gap of more than US$100 trillion by 20301 driving continued demand for
financial solutions.
We continued to invest in our diversified distribution platform to accelerate growth. In 2022 we:
• Commenced offering insurance solutions to VietinBank’s customers in early 2022, as part of our 16-year exclusive bancassurance
partnership in Vietnam, demonstrating strong momentum in its first year; and
• Accelerated the utilization of ManuAcademy, our regional digital learning platform, which was initially launched in Vietnam during 2Q22
and continued to expand to the Philippines in 4Q22. The platform is accessible now to all agents in these two markets, making learning
easier while accelerating the further expansion and digitization of Manulife’s agency force. Our new training series, Manulife
MasterClass, captures best practices from our Million Dollar Round Table agents and shares them across all agents through the
platform.
In 2022, we continued to increase NPS, as we further enhanced digital capabilities and invested in high impact digital initiatives spanning
the full customer and distributor experience from Search, Buy, Manage & Review to Claim.
• Search: Delivered multi-channel options for customers through the launch of Manulife Shop in the Philippines in 4Q22, enabling
customers to find and purchase insurance online at their own convenience. We also became the first life insurer in Vietnam to offer
health solutions to MoMo’s 31 million user base via MoMo e-wallet in 2Q22;
• Buy: Successfully increased the adoption of ePOS, our proprietary digital onboarding app, by 15 percentage points2 to 89%, enabling
faster, error-free new business application submissions;
• Manage & Review: Enhanced self-servicing capabilities on our proprietary health and wellness platform, ManulifeMOVE, with initial
rollout in Vietnam, accelerating MOVE as the one-stop digital gateway for health and life servicing; and
• Claim: Further increased utilization of our digital claims platform, with 76% of claims being submitted digitally, an increase of 12
percentage points compared with 2021 driven by strong improvements in Japan and continued high customer adoption across Asia.
We continued to maintain a winning culture and make Manulife a great place to work. Manulife has been recognized by HR Asia as one of
the “Best Companies to Work for in Asia 2022” in five of our Asian markets — mainland China, Hong Kong, Malaysia, Singapore and
Vietnam.
1 Closing Asia’s mortality protection gap, Swiss Re, July 2020.
2 Case adoption, compared with 2021.
25
3. Canada
Our Canada segment is a leading financial services provider, offering insurance products, insurance-based wealth accumulation
products and banking solutions, has an in-force variable annuity business, and leverages the asset management expertise and
products managed by our Global Wealth and Asset Management segment. The comprehensive solutions we offer target a broad
range of customer needs and foster holistic long-lasting relationships.
We offer financial protection solutions to individuals, families and business owners through a combination of competitive products,
professional advice and quality customer service. We provide group life, health and disability insurance solutions to Canadian
employers, with approximately 26,000 Canadian businesses and organizations entrusting their employee benefit programs to
Manulife’s Group Insurance. We also provide life, health, disability and specialty products, such as mortgage creditor and travel
insurance, through advisors, sponsor groups and associations, as well as direct-to-customer. We continue to increase the
proportion of products with behavioural insurance features.
Manulife Bank offers flexible debt and cash flow management solutions as part of a customer’s overall financial plan. Products
include savings and chequing accounts, guaranteed investment certificates, lines of credit, investment loans, mortgages and other
specialized lending programs, offered through financial advisors and mortgage brokers supported by a broad distribution network.
In 2022, our Canada segment contributed 21% of the Company’s core earnings from operating segments and, as at December 31, 2022,
accounted for 11% of the Company’s assets under management and administration.
Profitability
Canada’s full year 2022 net income attributed to shareholders was $1,530 million compared with $1,354 million in 2021. Net income
attributed to shareholders is comprised of core earnings, which was $1,359 million in 2022 compared with $1,179 million in 2021, and
items excluded from core earnings, which amounted to a net gain of $171 million for 2022 compared with a net gain of $175 million in
2021. Items excluded from core earnings are outlined in the table below.
The $180 million increase in core earnings was driven by experience gains in 2022 compared with losses in 2021, with all businesses
contributing to the improvement, higher insurance in-force earnings, and higher bank earnings, partially offset by the impact of an
increase in the tax rate and lower segregated fund in-force earnings due to lower equity markets.
The table below presents net income attributed to shareholders for Canada for 2022 and 2021 consisting of core earnings and items
excluded from core earnings.
For the years ended December 31,
($ millions)
Core earnings
Items excluded from core earnings:(1)
Investment-related experience related to fixed income trading, market value increases in excess of expected alternative
assets investment returns, asset mix changes and credit experience
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities(2)
Change in actuarial methods and assumptions
Reinsurance transactions, tax-related items and other
Total items excluded from core earnings
Net income attributed to shareholders
2022
2021
$ 1,359
$ 1,179
70
76
35
(10)
171
$ 1,530
329
(89)
(65)
–
175
$ 1,354
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
(2) The direct impact of markets in 2022 was a gain of $76 million and included a gain of $192 million related to fixed income reinvestment rates, partially offset by a charge of
$116 million related to the direct impact of equity markets and variable annuity guarantee liabilities. The charge in 2021 related to fixed income reinvestment rates and
changes to the URR, partially offset by a gain related to the direct impact of equity markets and variable annuity guarantee liabilities.
26 | 2022 Annual Report | Management’s Discussion and Analysis
Business Performance
APE sales were $1,261 million in 2022, an increase of 3% compared with 2021. Individual insurance APE sales in 2022 of $415 million
decreased 2% compared with 2021, primarily driven by lower universal life and health and dental sales, partially offset by higher
participating insurance and travel insurance sales. Group insurance APE sales of $576 million in 2022 increased 30% compared with
2021, reflecting higher sales in all markets. Annuities APE sales in 2022 of $270 million decreased 25% compared with 2021, due to the
impact of market volatility on the demand for segregated fund products.
Sales
For the years ended December 31,
($ millions)
APE sales
2022
2021
$ 1,261
$ 1,227
Manulife Bank average net lending assets1 were $24.1 billion in 2022, up $1.0 billion or 4% compared with 2021, driven by strong
retention efforts and new loan volumes.
Assets under Management
Assets under management of $146.1 billion as at December 31, 2022 decreased $15.9 billion or 10% from $162.0 billion as at
December 31, 2021, due to lower total invested assets and segregated funds net assets, primarily reflecting the impact of higher interest
rates and a decline in equity markets.
Assets under Management
As at December 31,
($ millions)
Total invested assets
Segregated funds net assets
Total assets under management
2022
2021
$ 110,433
35,695
$ 146,128
$ 119,872
42,124
$ 161,996
Revenue
Total revenue of $3.9 billion in 2022 decreased $8.5 billion from $12.4 billion in 2021, primarily driven by higher net realized and
unrealized investment losses in 2022 compared to 2021. Revenue before net realized and unrealized investment gains and losses of
$16.4 billion in 2022 increased $1.0 billion from $15.4 billion in 2021, primarily due to business growth.
Revenue
For the years ended December 31,
($ millions)
Gross premiums
Premiums ceded to reinsurers
Net premium income
Investment income
Other revenue
Revenue before net realized and unrealized investment gains and losses
Net realized and unrealized investment gains and losses(1)
Total revenue
(1) See “Impact of Fair Value Accounting” above.
2022
2021
$ 12,202
(1,810)
10,392
4,606
1,426
16,424
(12,517)
3,907
$
$ 11,251
(1,690)
9,561
4,495
1,336
15,392
(3,026)
$ 12,366
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
27
Strategic Highlights
In 2022, we added innovative customer-centric enhancements across our product shelf to help Canadians focus on improving their health
and wellness. We also advanced our digital capabilities across our businesses to stay connected with our clients and strengthen their
experience with us.
We continued to offer a differentiated customer experience. In 2022, we:
• Continued the expansion of the Manulife Vitality program, demonstrating our commitment to helping our customers lead healthier lives.
All eligible new retail term and universal life insurance policies will include Vitality Go at no cost, while additional features are available
with Vitality Plus for a low monthly fee;
• Reduced Group Benefits claims processing times by 60%, providing a better customer experience as evidenced by an increase in our
net promoter score; and
• Launched a campaign in Group Benefits to help new customers easily access and use our digital tools, better understand their benefits
plan, and learn how to submit claims online.
We further advanced digital solutions across our business. In 2022, we:
• Enhanced our apps across many businesses:
• Launched an upgraded Manulife Vitality mobile app experience for our individual insurance business, giving the app a new look and
feel with easier navigation to further drive customer engagement;
• For our Group Benefits customers, our Manulife Mobile app added a new user interface and navigation refresh, full integration with
Manulife ID, and new drug coverage lookup functionality;
• Launched a new customer site for Retail Insurance customers and their advisors, giving real time access to coverage information. This
site sets the foundation to enable future digital transactions for our customers; and
• Continued to advance our digital solutions with enhancements to Manulife.ca that included enabling artificial intelligence and natural-
language processing capabilities to make searching for product information quicker, more accurate and more intuitive.
28 | 2022 Annual Report | Management’s Discussion and Analysis
4. U.S.
Our U.S. segment provides a range of life insurance products and insurance-based wealth accumulation products, and has an
in-force long-term care insurance business and an in-force annuity business.
The insurance products we offer are designed to provide estate, business and income-protection solutions for high net worth,
emerging affluent markets and the middle market, and to leverage the asset management expertise and products managed by our
Global Wealth and Asset Management business. Behavioural insurance features are standard on all our new insurance product
offerings. The primary distribution channel is licensed financial advisors. We aim to establish lifelong customer relationships that
benefit from our holistic protection and wealth product offerings in the future.
Our in-force long-term care insurance policies provide coverage for the cost of long-term services and support.
Our in-force annuity business includes fixed deferred, variable deferred, and payout products.
In 2022, our U.S. segment contributed 27% of the Company’s core earnings from operating segments and, as at December 31, 2022,
accounted for 17% of the Company’s assets under management and administration.
Profitability
U.S. reported net income attributed to shareholders of $3,950 million in 2022 compared with $2,080 million in 2021. Net income
attributed to shareholders is comprised of core earnings, which was $1,700 million in 2022 compared with $1,936 million in 2021, and
items excluded from core earnings, which amounted to a net gain of $2,250 million in 2022 compared with a net gain of $144 million in
2021. The changes in net income attributed to shareholders and core earnings expressed in Canadian dollars were due to the factors
described below and, in addition, the change in core earnings reflected a $58 million favourable impact from the strengthening of the U.S.
dollar compared with the Canadian dollar.
Expressed in U.S. dollars, the functional currency of the segment, 2022 net income attributed to shareholders was US$3,077 million
compared with US$1,667 million in 2021 and core earnings were US$1,311 million in 2022 compared with US$1,544 million in 2021.
Items excluded from core earnings are outlined in the table below and amounted to a net gain of US$1,766 million in 2022 compared with
a net gain of US$123 million in 2021.
The US$233 million or 15% decrease in core earnings was driven by lower in-force earnings in Annuities of US$147 million related to the
two transactions to reinsure over 80%1 of our U.S. variable annuity block in 2022, lower new business gains, higher net unfavourable
policyholder experience, and the non-recurrence of prior year gains from the Annuity Guaranteed Minimum Withdrawal Benefit offer
program. Compared with 2021, less favourable long-term care and annuities policyholder experience was partially offset by improved,
although still unfavourable, life insurance policyholder experience. In addition, higher investment income on allocated capital increased
core earnings by US$24 million compared with 2021 (see Corporate and Other segment).
The table below presents net income attributed to shareholders for the U.S. for 2022 and 2021 consisting of core earnings and items
excluded from core earnings.
For the years ended December 31,
($ millions)
Core earnings
Items excluded from core earnings:(1)
Investment-related experience related to fixed income trading, market value increases in
excess of expected alternative assets investment returns, asset mix changes and credit
experience
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities(2)
Change in actuarial methods and assumptions
Reinsurance transactions, tax-related items and other
Total items excluded from core earnings
Net income (loss) attributed to shareholders
Canadian $
US $
2022
2021
2022
2021
$ 1,700
$ 1,936
$ 1,311
$ 1,544
1,183
197
36
834
2,250
$ 3,950
1,341
(727)
(314)
(156)
144
$ 2,080
930
151
27
658
1,766
$ 3,077
1,074
(578)
(249)
(124)
123
$ 1,667
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
(2) The direct impact of markets in 2022 was a gain of US$151 million and included a gain of US$396 million related to fixed income reinvestment rates, partially offset by a charge
of US$245 million related to the direct impact of equity markets and variable annuity guarantee liabilities. The direct impact of markets in 2021 was a charge of US$578 million
and included a charge of US$493 million related to fixed income reinvestment rates and a charge of US$85 million related to the direct impact of equity markets and variable
annuity guarantee liabilities.
Business Performance
U.S. APE sales in 2022 of US$633 million increased 1% compared with 2021 due to an increase in international sales, partially offset by
lower sales of domestic life insurance products. Demand for domestic life insurance products purchased primarily to protect household
1 Represents a reduction in guarantee value on our total U.S. variable annuity block compared with December 31, 2021. Guarantee value on our U.S. variable annuity Guaranteed
Minimum Withdrawal Benefits block reduced by more than 90% compared with December 31, 2021.
29
income declined across the industry. Recently, volatility in equity markets has reduced the demand for domestic products that are
purchased primarily for estate planning. APE sales of products with the John Hancock Vitality PLUS feature in 2022 were a record-setting
US$332 million, an increase of 13% compared with 2021, reflecting the increasing attractiveness of the Vitality feature as an option for
health-focused life insurance consumers.
Sales
For the years ended December 31,
($ millions)
APE sales
Canadian $
US $
2022
2021
2022
2021
$ 823
$ 788
$ 633
$ 628
Assets under Management
U.S. assets under management of US$162.0 billion as at December 31, 2022 decreased 16% from December 31, 2021. The decrease in
total invested assets and segregated funds net assets was primarily due to the impact of an increase in interest rates and a decline in
equity markets, and the continued run-off of the annuity business, including the impact on total invested assets from the above-noted
variable annuity reinsurance transactions.
Assets under Management
As at December 31,
($ millions)
Total invested assets
Segregated funds net assets
Total assets under management
Canadian $
US $
2022
2021
2022
2021
$ 154,004
65,489
$ 219,493
$ 164,830
79,620
$ 244,450
$ 113,660
48,333
$ 161,993
$ 130,013
62,801
$ 192,814
Revenue
Total revenue in 2022 was a net loss of US$5.6 billion and decreased US$16.3 billion compared with 2021. Revenue before net realized
and unrealized investment gains and losses was US$10.5 billion, a decrease of US$2.2 billion compared with 2021, primarily due to the
above-noted variable annuity reinsurance transactions.
Revenue
For the years ended December 31,
($ millions)
Gross premium income
Premiums ceded to reinsurers
Net premium income
Investment income
Other revenue
Revenue before net realized and unrealized investment gains and losses
Net realized and unrealized investment gains and losses(1)
Total revenue
(1) See “Impact of Fair Value Accounting” above.
Canadian $
US $
2022
2021
2022
2021
$
9,329
(3,613)
5,716
7,544
458
13,718
(20,547)
$ (6,829)
$ 8,965
(2,594)
6,371
7,771
1,824
15,966
(2,710)
$ 13,256
$
7,168
(2,791)
4,377
5,792
342
10,511
(16,074)
$ (5,563)
$ 7,151
(2,069)
5,082
6,197
1,456
12,735
(2,010)
$ 10,725
Strategic Highlights
At John Hancock, we are focused on building holistic and long-lasting customer relationships by offering innovative products and solutions,
and making it easier for customers to do business with us. We are focused on growing our insurance business by expanding our product
offerings, modernizing the delivery process, and enhancing customer experience. In addition, we continued to make significant progress to
optimize our portfolio through both organic initiatives and strategic reinsurance transactions, and create tangible shareholder value
through various in-force management actions. In 2022, we:
• Completed two transactions to reinsure over 80%1 of our legacy U.S. variable annuity block. These transactions resulted in the release
of $2.5 billion of capital, which included a cumulative one-time after-tax net gain of $806 million2;
• Achieved highest ever full year domestic life insurance sales with the John Hancock Vitality PLUS feature, reflecting the increasing
attractiveness of the Vitality feature as an option for health-focused life insurance consumers;
• Continued to innovate our wellness offerings and entered into a partnership with GRAIL, a healthcare company, offering access to
Galleri®, their leading edge, multi-cancer early detection test to a pilot group of customers through John Hancock Vitality. As the first
1 Represents a reduction in guarantee value on our total U.S. variable annuity block compared with December 31, 2021. Guarantee value on our U.S. variable annuity Guaranteed
Minimum Withdrawal Benefits block reduced by more than 90% compared with December 31, 2021.
2 The cumulative one-time after-tax gain of these two reinsurance transactions was $806 million, consisting of a net gain of $846 million in 2022 and a $40 million loss
recognized in 2021.
0 | 2022 Annual Report | Management’s Discussion and Analysis
life insurance carrier to make GRAIL’s Galleri® test available, we are enabling eligible customers to take proactive steps to better
understand and make more informed choices about their health; and
• Reported record APE sales and case placements in our international business. We signed new distributors in the Latin America region
and launched a whole life product to support continued sales growth and diversify the business across geographies.
In 2022, we achieved the following digital successes, improving the producer and customer experience while also contributing to a more
cost-efficient operation:
• Reduced the average time to complete background checks for new producers within our digital brokerage and traditional brokerage
channels by over 90% via automation;
• Accelerated new producers’ ability to place cases with John Hancock from two business days to just minutes, by automating the
scheduling of appointments into our digital brokerage licensing system;
• Reduced call volumes for enquiries related to John Hancock Vitality customer login and registration by 39% compared with 2021 by
optimizing self-service functionality;
• Enabled third-party ownership submission of life insurance applications via JH eApp. This advancement allows even very large cases,
which are typically trust-owned, to take advantage of our digital experience; and
Improved producer experience and customer response times by launching eDelivery notification of client correspondence.
•
1
5. Global Wealth and Asset Management
Our Global Wealth and Asset Management segment, branded as Manulife Investment Management, provides investment advice and
innovative solutions to retirement, retail and institutional clients. Our leading capabilities in public and private markets are
strengthened by an investment footprint that spans 19 geographies1, including 10 in Asia with over 120 years of on-the-ground
experience.
In Retirement, we provide financial guidance, advice, investment solutions and recordkeeping services to over 8 million plan
participants and rollover individuals in North America and Asia while they are in the accumulation phase with their employer, and
increasingly as they prepare for retirement outside their employer’s plan. In North America, our Canadian retirement business
focuses on providing retirement solutions through defined contribution plans, and also to group plan members when they retire or
leave their plan; and in the United States, we provide employer sponsored retirement plans as well as personal retirement accounts
when individuals leave their plan. In Asia, we provide retirement offerings to employers and individuals, including Mandatory
Provident Fund (“MPF”) schemes and administration in Hong Kong. Additionally, we provide retirement solutions in several
emerging retirement markets in Asia, including Indonesia and Malaysia.
In Retail, we distribute investment funds to clients through our proprietary advice channels in Canada and Asia as well as through
intermediaries and banks in North America, Europe, and Asia, and offer investment strategies across the world, through affiliated
and select unaffiliated asset managers. In Canada, we also provide holistic personal advice to individual clients and investment
management, private banking and wealth and estate solutions to high-net-worth clients. In addition, we provide wealth
management expertise for insurance-based wealth accumulation products that are distributed through Manulife’s insurance
segments, as well as through our own proprietary advice channels.
Our institutional asset management business provides comprehensive asset management solutions for pension plans, foundations,
endowments, financial institutions, and other institutional investors worldwide. Our solutions span all major asset classes including
equities, fixed income, and alternative assets (including real estate, timberland, farmland, private equity/debt, infrastructure, and
liquid alternatives). In addition, we offer multi-asset investment solutions covering a broad range of clients’ investment needs.
We are committed to investing responsibly across our businesses. We develop innovative global frameworks for sustainable
investing, collaboratively engage with companies in our internally managed portfolios, and maintain a high standard of stewardship
where we own and operate assets.
In 2022, our Global WAM segment contributed 19% of the Company’s core earnings from operating segments and, as at December 31,
2022, represented 59% of the Company’s total assets under management and administration.
Profitability
Global WAM’s 2022 net income attributed to shareholders was $1,321 million compared with $1,406 million in 2021, and core earnings
were $1,241 million in 2022 compared with $1,406 million in 2021. Items excluded from core earnings are outlined in the table below and
amounted to a net gain of $80 million in 2022 compared with nil in 2021.
Core earnings decreased $165 million or 14% on a constant exchange rate basis reflecting a decline in net fee income from lower average
AUMA due to higher interest rates and equity market declines in 2022, and lower fee spread. Net income attributed to shareholders
decreased $85 million in 2022 compared with 2021 driven by the same factors as mentioned above, partially offset by a net gain of
$80 million excluded from core earnings in 2022 as explained below.
The table below presents net income attributed to shareholders for the Global WAM segment for 2022 and 2021 consisting of core
earnings and items excluded from core earnings.
For the years ended December 31,
($ millions)
Core earnings
Retirement
Retail
Institutional
Core earnings
Items excluded from core earnings:
Reinsurance transactions, tax-related items and other(1)
Net income attributed to shareholders
2022
2021
$
699
523
19
1,241
$ 819
551
36
1,406
80
$ 1,321
–
$ 1,406
(1) The net gain of $80 million includes a net gain of $86 million related to acquiring full ownership interest of MTEDA by purchasing the remaining 51% of shares from our joint
venture partner, partially offset by a $6 million charge related to an increase in the Canadian corporate tax rate.
1 United States, Canada, Japan, Hong Kong, Singapore, Taiwan, Indonesia, Vietnam, Malaysia, India, the Philippines, England, Ireland, Switzerland, Germany, and mainland
China. In addition, we have timberland/farmland operations in Australia, New Zealand, and Chile.
2 | 2022 Annual Report | Management’s Discussion and Analysis
In 2022, core EBITDA1 for Global WAM was $1,890 million, $649 million higher than core earnings. In 2021, core EBITDA was
$2,062 million, $656 million higher than core earnings. The decrease in core EBITDA of $172 million or 10% on a constant exchange rate
basis was driven by similar factors as noted above for core earnings. Core EBITDA margin2 was 30.4% in 2022 compared with 31.5% in
2021. The 110 basis point decrease was driven by a decline in net fee income. Income before income taxes for Global WAM was
$1,546 million in 2022, a decrease of $95 million compared with 2021, driven by similar factors as noted above for net income attributed
to shareholders.
Core EBITDA
For the years ended December 31,
($ millions)
Core earnings
Amortization of deferred acquisition costs and other depreciation
Amortization of deferred sales commissions
Core income tax expense (recovery)
Core EBITDA
Core EBITDA margin
Income before income taxes
Business Performance
2022
2021
$ 1,241
336
95
218
$ 1,890
30.4%
$ 1,546
$ 1,406
323
99
234
$ 2,062
31.5%
$ 1,641
Gross Flows and Net Flows
Gross Flows were $136.6 billion in 2022, a decrease of 7% compared with 2021. By business line, the results were:
• Retirement gross flows in 2022 were $52.1 billion, in line with 2021, reflecting growth in member contributions offset by lower new plan
sales.
• Retail gross flows in 2022 were $67.7 billion, a decrease of 14% compared with 2021, reflecting lower investor demand amid higher
•
interest rates and equity market declines in 2022.
Institutional Asset Management gross flows in 2022 were $16.8 billion, an increase of 5% compared with 2021 driven by higher equity
mandate gross flows, mainly from a $1.9 billion sale in 2Q22, partially offset by lower fixed income mandate gross flows.
Net Inflows were $3.3 billion in 2022, compared with net inflows of $27.9 billion in 2021. By business line, the results were:
• Retirement net outflows were $0.1 billion in 2022 compared with net inflows of $1.1 billion in 2021, driven by higher plan redemptions in
the U.S.
• Retail net outflows were $1.6 billion in 2022 compared with net inflows of $29.2 billion in 2021, driven by higher redemptions and lower
•
gross flows due to factors mentioned above.
Institutional Asset Management net inflows were $5.0 billion in 2022 compared with net outflows of $2.4 billion in 2021, driven by the
non-recurrence of a $9.4 billion redemption in 2021 and higher equity mandate gross flows as mentioned above.
Gross Flows and Net Flows
For the years ended December 31,
($ millions)
Gross flows
Net flows
2022
2021
$ 136,648
3,305
$
$ 144,681
$ 27,893
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below.
2 This item is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.
Assets under Management and Administration
In 2022, AUMA for our wealth and asset management businesses were $779.9 billion, 13% lower compared with December 31, 2021 on a
constant exchange rate basis driven by the impact of higher interest rates and equity market declines, partially offset by $8.8 billion in
assets acquired and net inflows of $3.3 billion. As of December 31, 2022, Global WAM also managed $229.5 billion in assets for the
Company’s non-WAM reporting segments. Including those assets, AUMA managed by Global WAM1 were $1,009.4 billion compared with
$1,102.7 billion as at December 31, 2021.
Segregated funds net assets were $224.2 billion for December 31, 2022, 11% lower compared with December 31, 2021 on an actual
exchange rate basis, driven by the impact of higher interest rates and equity market declines. Total invested assets in our general fund
form a small portion of Global WAM AUMA.
Changes in Assets under Management and Administration
For the years ended December 31,
($ millions)
Balance January 1,
Acquisitions/Dispositions
Net flows
Impact of markets and other
Balance December 31,
Average assets under management and administration
Assets under Management and Administration
As at December 31,
($ millions)
Total invested assets
Segregated funds net assets(1)
Mutual funds, institutional asset management and other(2)
Total assets under management
Other assets under administration
Total assets under management and administration
2022
2021
$ 855,927
8,789
3,305
(88,109)
$ 779,912
$ 787,842
$ 753,610
1,633
27,893
72,791
$ 855,927
$ 798,022
2022
2021
$
3,717
224,192
381,779
609,688
170,224
$ 779,912
$
4,458
252,567
411,271
668,296
187,631
$ 855,927
(1) Segregated funds net assets are comprised of Retirement assets under management (“AUM”), consisting primarily of fee-based products with little or no guarantees.
(2) Other funds represent pension funds, pooled funds, endowment funds and other institutional funds managed by the Company on behalf of others.
Revenue
Total revenue in 2022 of $6.3 billion decreased 6% compared with 2021, driven by lower fee income from lower average AUMA and lower
fee spread, and lower investment income. This was partially offset by higher other revenue from a gain on our acquisition of the remaining
equity interest in MTEDA.
Revenue
As at December 31,
($ millions)
Fee income
Investment income
Other revenue
Total revenue
2022
2021
$ 6,265
(44)
90
$ 6,311
$ 6,513
28
–
$ 6,541
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below.
4 | 2022 Annual Report | Management’s Discussion and Analysis
Strategic Highlights
Leveraging our integrated business model and global scale, we have a clear strategy to pursue high-growth opportunities in the most
attractive markets globally through our three business lines: Retirement, Retail and Institutional Asset Management. Our strategy includes
being a global retirement leader by supporting financial wellness; expanding our presence in retail distribution platforms across the globe;
leveraging a multi-manager model; and providing differentiated institutional active asset management capabilities across high performing
equity and fixed income strategies, outcome-oriented solutions and alternative assets.
We executed on a number of initiatives to accelerate growth in our franchise. In 2022, we:
• Further bolstered our presence in high-growth attractive markets by acquiring control of MTEDA through the purchase of the remaining
51% of shares from our joint venture partner, making us the first global wealth and asset manager to acquire a 100% stake in a fully
operating public fund management company in mainland China;
• Continued to expand our Private Markets capabilities with the acquisition of a significant minority equity position in ARCH Capital, an
Asia-focused real estate private equity investment manager;
• Expanded our Environmental, Social and Governance investment offerings with the launch of the Global Climate Action Strategy in Europe
and Asia, and the launch of the Manulife Forest Climate strategy in the U.S., which will promote climate change mitigation by investing in
sustainably managed forests that prioritize carbon sequestration. Additionally, we published our 2022 Manulife Investment Management
Stewardship report, detailing our commitment to sustainability as a global investment manager and outlining actions we are taking to
address material sustainability risks and opportunities, build more resilient portfolios, and pursue long-term value creation;
• Expanded our Global Retail product lineup with the launch of the Manulife Real Asset Investment strategy that will give Canadian retail
high-net-worth investors access to a combination of private and public real asset investments. Additionally, we also launched our first
actively managed equity ETF, the U.S. High Dividend ETF, managed by MIM; and
• Expanded and broadened our financial wellness offering in Global Retirement with the launch of new and enhanced financial
management tools in the U.S. (Personal Finance Organizer) and Canada (PlanRight Through Mobile). We also expanded the availability
of in-plan advice to a larger portion of our clients.
We continue to make progress on our digital customer leader strategy. In 2022, we:
• Continued to invest in our mobile app in U.S. Retirement, making significant improvements in the user experience that have resonated
with customers and resulted in a 99% growth in users in 2022;
• Enhanced our digital experience in Canada Retirement with the launch of new features that enable members to make additional
contributions to their Registered Retirement Savings Plans and to book one-on-one meetings with Manulife PlanRight financial advisors
directly in the mobile app. This generated successful engagement, resulting in over 1,780 advisor meeting requests and a 14% increase
in member adoption of the mobile app since the launch;
• Launched multiple new mobile app features in Hong Kong Retirement to enable our members to manage their investment portfolio with
greater convenience, receive the latest market updates and get access to exclusive member benefits. These new features resulted in
156,000 customers opting for e-statements, and contributed to over 177,000 new mobile app downloads;
• Launched a new, end-to-end digital and mobile-friendly enrollment experience in Canada Retirement for our members. The improved
enrollment experience offers a more intuitive and guided experience for our members, helping them feel more confident about their
long-term investment choices. 82% of our eligible sponsors adopted the new experience for their employees in 2022; and
Improved the website experience in U.S. Retail in 2Q22 by making it easier for customers to log-in, which resulted in a 45% decrease in
customer log-in help inquiries in 2022 compared with the same period last year.
•
5
6. Corporate and Other
Corporate and Other is comprised of investment performance on assets backing capital, net of amounts allocated to the operating
segments; financing costs; costs incurred by the corporate office related to shareholder activities (not allocated to the operating
segments); our P&C Reinsurance business; as well as our run-off reinsurance operation, including variable annuities and accident
and health.
For segment reporting purposes, settlement costs for macro equity hedges and other non-operating items are included in
Corporate and Other earnings. This segment is also where we reclassify favourable investment-related experience to core earnings
from items excluded from core earnings, subject to certain limits (see “Non-GAAP and Other Financial Measures” below). In each of
the operating segments, we report all investment-related experience in items excluded from core earnings.
Profitability
Corporate and Other reported a net loss attributed to shareholders of $1,731 million in 2022 compared with a net loss attributed to
shareholders of $792 million in 2021. Net income (loss) attributed to shareholders was comprised of core loss and items excluded from
core loss. Core loss was $250 million in 2022 compared with a core loss of $161 million in 2021. Items excluded from core loss amounted
to a net loss of $1,481 million in 2022 compared with a net loss of $631 million in 2021.
The unfavourable variance in core loss of $89 million was primarily attributable to a net charge of $159 million from the unfavourable
impact of markets on seed money investments in new segregated funds and mutual funds in 2022 compared with a $27 million net gain in
2021, $120 million of higher interest on allocated capital to operating segments in 2022, higher charges in our P&C Reinsurance business
compared with prior year and lower net gains on sales of AFS equities. These losses were partially offset by higher yields on fixed income
investments, lower pension expenses that are primarily due to market impacts, and lower interest on external debt and withholding taxes.
Items excluded from core loss were a net loss of $1,481 million in 2022 compared with a net loss of $631 million in 2021. The
unfavourable variance was primarily driven by larger losses on sales of AFS bonds and other direct impacts of markets, partially offset by
the favourable impact of Canadian tax rate change in 2022.
The items excluded from core earnings are outlined below.
The table below presents net income (loss) attributed to shareholders for Corporate and Other for 2022 and 2021 consisting of core loss
and items excluded from core loss.
For the years ended December 31,
($ millions)
Core loss excluding core investment gains
Core investment gains
Total core loss
Items excluded from core loss:(1)
Direct impact of equity markets and interest rates(2)
Changes in actuarial methods and assumptions
Investment-related experience related to mark-to-market items(3)
Reclassification to core investment gains above
Restructuring charge(4)
Reinsurance transactions, tax-related items and other
Total items excluded from core loss
Net income (loss) attributed to shareholders
$
2022
(650)
400
(250)
2021
$ (561)
400
(161)
(1,266)
10
(67)
(400)
–
242
(1,481)
$ (1,731)
(170)
(5)
59
(400)
(115)
–
(631)
$ (792)
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
(2) The direct impact of markets in 2022 included losses of $421 million related to sale of AFS bonds and losses on derivatives. Other losses were mostly from fixed income
investments supporting a portion of the capital in Asia that are classified as fair value through profit and loss and other unfavourable market impacts. The direct impact of
markets in 2021 included losses of $228 million related to the sale of AFS bonds and losses on derivatives, partially offset by gains from fixed income investments supporting a
portion of the capital in Asia that are classified as fair value through profit and loss.
(3) Investment-related experience includes mark-to-market gains or losses on ALDA, other than gains on AFS equities and seed money investments in new segregated or mutual
funds.
(4) Please see “Manulife Financial Corporation – Profitability” above for explanation of the restructuring charge.
Revenue
Revenue in 2022 was a loss of $1,204 million compared with a gain of $87 million in 2021. The $1,291 million decrease in revenue was
primarily driven by higher losses from fixed income investments supporting a portion of the capital in Asia that are classified as fair value
through profit and loss, higher realized losses on the sale of AFS bonds, declines in the fair value of seed money investments in 2022
compared with gains in the prior year, higher losses on derivative positions, higher interest on allocated capital and lower gains from AFS
equities. These amounts were partially offset by higher yields on fixed income investments in 2022 and higher net premium income from
our P&C Reinsurance business.
6 | 2022 Annual Report | Management’s Discussion and Analysis
Revenue
For the years ended December 31,
($ millions)
Net premium income
Investment income (loss)
Other revenue(1)
Revenue before net realized and unrealized investment gains and losses and on the macro hedge program
Net realized and unrealized investment gains and losses(2) and on the macro hedge program
Total revenue
2022
2021
$
269
(1,200)
(528)
(1,459)
255
$ (1,204)
$ 147
113
(237)
23
64
87
$
(1) Includes a consolidation adjustment related to asset management fees earned by Global WAM from affiliated business (the offset to the consolidation adjustment is investment
expense).
(2) See “Impact of Fair Value Accounting” section above.
Strategic Highlights
Our P&C Reinsurance business provides substantial retrocessional capacity for a very select clientele in the property and casualty
reinsurance market. The business is largely non-correlated to Manulife’s other businesses and helps diversify our overall business mix. We
manage the risk exposure of this business in relation to the total Company balance sheet risk and volatility as well as the prevailing market
pricing conditions. The business is renewable annually, and we currently estimate our exposure limit in 2023 for a single event to be
approximately US$300 million (net of reinstatement premiums) and for multiple events to be approximately US$600 million (net of all
premiums).1
1 See “Caution regarding forward-looking statements” above.
7
7. Investments
Our investment philosophy for the general fund is to invest in an asset mix that optimizes our risk adjusted returns and matches the
characteristics of our underlying liabilities. We follow a bottom-up approach which combines our strong asset management skills with an
in-depth understanding of the characteristics of each investment. We invest in a diversified mix of assets and our diversification strategy
has historically produced superior risk adjusted returns while reducing overall risk. We use a disciplined approach across all asset classes.
Our risk management strategy is outlined in the “Risk Management and Risk Factors” section below.
General Fund Assets
As at December 31, 2022, our general fund invested assets totaled $414.0 billion compared with $427.1 billion at the end of 2021. The
following table shows the asset class composition as at December 31, 2022 and December 31, 2021.
As at December 31,
($ billions)
Cash and short-term securities
Debt Securities and Private Placement Debt
Government bonds
Corporate bonds
Securitized/asset-backed securities
Private placement debt
Mortgages
Policy loans and loans to bank clients
Public equities
Alternative Long-Duration Assets (“ALDA”)
Real Estate
Infrastructure
Timberland and Farmland
Private Equity
Oil & Gas
Other ALDA
Leveraged Leases and Other
Total general fund invested assets
2022
2021
Carrying value
% of total
Fair value
Carrying value
% of total
Fair value
$ 19.2
5
$ 19.2
$ 22.6
5 $ 22.6
72.4
129.1
2.3
47.1
54.6
9.7
23.5
13.3
12.8
6.0
14.3
2.2
3.2
4.3
$ 414.0
17
32
1
11
13
2
6
3
3
1
3
1
1
1
100
72.2
129.0
2.3
42.0
51.4
9.7
23.5
14.4
13.0
6.5
14.3
2.2
3.2
4.3
$ 407.2
79.7
141.6
2.9
42.8
52.0
8.9
28.1
13.2
9.8
5.3
11.6
1.9
2.6
4.1
$ 427.1
19
33
1
10
12
2
7
3
2
1
3
0
1
1
100
79.7
141.6
2.9
47.3
54.1
8.9
28.1
14.4
10.0
5.7
11.6
1.9
2.6
4.1
$ 435.5
The carrying values for invested assets are generally equal to their fair values, however, mortgages and private placement debt are carried
at amortized cost; loans to bank clients are carried at unpaid principal balances less allowance for credit losses; real estate held for own
use is carried at cost less accumulated depreciation and any accumulated impairment losses; and private equity investments, including
power and infrastructure, oil and gas, and timber, are accounted for as associates using the equity method, or at fair value. Certain
government and corporate bonds and public equities are classified as AFS, with the remaining classified as “fair value through profit or
loss”.
As at December 31, 2022, the carrying value of renewable energy assets, including energy efficiency projects, was $13.6 billion (2021 –
$13.1 billion).
Shareholders’ accumulated other comprehensive pre-tax income (loss) at December 31, 2022 consisted of a $7.3 billion loss for bonds
(2021 – gain of $873 million) and an $84 million loss for public equities (2021 – gain of $288 million). Included in the $7.3 billion loss for
bonds was a $276 million loss related to the fair value hedge basis adjustments attributable to the hedged risk of certain AFS bonds that
are in a gain position (2021 – loss of $293 million).
Debt Securities and Private Placement Debt
We manage our high-quality fixed income portfolio to optimize yield and quality while ensuring that asset portfolios remain diversified by
sector, industry, issuer, and geography. As at December 31, 2022, our fixed income portfolio of $251.0 billion (2021 – $267.0 billion) was
96% investment grade (rated BBB or better) and 71% was rated A or higher (2021 – 97% and 72%, respectively). Our private placement
debt holdings provide diversification benefits (issuer, industry, and geography) and, because they often have stronger protective covenants
and collateral than debt securities, they typically provide better credit protection and potentially higher recoveries in the event of default.
Geographically, 22% is invested in Canada (2021 – 23%), 48% is invested in the U.S. (2021 – 49%), 5% is invested in Europe (2021 – 4%)
and the remaining 25% is invested in Asia and other geographic areas (2021 – 24%).
8 | 2022 Annual Report | Management’s Discussion and Analysis
Debt Securities and Private Placement Debt – by Credit Quality(1)
As at December 31,
($ billions)
AAA
AA
A
BBB
BB
B & lower, and unrated
Total carrying value
2022
Private
placement
debt
% of
Total
Total
$ 0.9
7.0
16.5
17.2
1.1
4.4
$ 47.1
$ 34.6
43.3
100.0
63.3
5.1
4.7
$ 251.0
14
17
40
25
2
2
100
Debt
securities
$ 33.7
36.3
83.5
46.1
4.0
0.3
$ 203.9
2021
Private
placement
debt
$ 1.0
5.7
16.2
16.2
1.1
2.6
$ 42.8
Total
$ 41.1
45.3
106.2
65.6
4.8
4.0
$ 267.0
% of
Total
15
17
40
25
2
1
100
Debt
securities
$ 40.1
39.6
90.0
49.4
3.7
1.4
$ 224.2
(1) Reflects credit quality ratings as assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”) using the following priority sequence order: S&P Global Ratings
(“S&P”), Moody’s Investors Services (“Moody’s”), DBRS Limited and its affiliated entities (“DBRS Morningstar”), Fitch Ratings Inc. (“Fitch”), Rating and Investment information,
and Japan Credit Rating. For those assets where ratings by NRSRO are not available, disclosures are based upon internal ratings as described in the “Risk Management and Risk
Factors” section below.
Debt Securities and Private Placement Debt – by Sector
As at December 31,
(Per cent of
carrying value, unless otherwise stated)
Government and agency
Utilities
Financial
Industrial
Consumer (non-cyclical)
Energy – Oil & Gas
Energy – Other
Consumer (cyclical)
Securitized (MBS/ABS)
Telecommunications
Basic materials
Technology
Media and internet and other
Total per cent
Total carrying value ($ billions)
2022
Private
placement
debt
10
37
11
14
14
4
0
6
1
0
3
0
0
100
$ 47.1
Debt
securities
36
14
16
9
8
7
0
3
1
2
2
1
1
100
$ 203.9
Total
31
18
15
9
9
7
0
4
1
2
2
1
1
100
$ 251.0
2021
Private
placement
debt
11
38
10
12
14
5
1
6
1
0
2
0
0
100
$ 42.8
Debt
securities
35
14
15
9
8
8
0
3
1
2
2
2
1
100
$ 224.2
Total
32
18
15
9
9
7
0
3
1
2
2
1
1
100
$ 267.0
As at December 31, 2022, gross unrealized losses on our fixed income holdings were $33.3 billion or 12% of the amortized cost of these
holdings (2021 – $1.6 billion or 0.6%). Of this amount, $8.4 billion (2021 – $11 million) related to debt securities trading below 80% of
amortized cost for more than 6 months. Securitized assets represented $228 million of the gross unrealized losses and none of the
amounts trade below amortized cost for more than 6 months (2021 – $2 million and none, respectively). After adjusting for debt securities
supporting participating policyholder and pass-through products and the provisions for credit included in the insurance and investment
contract liabilities, the potential impact to shareholders’ pre-tax earnings for debt securities trading at less than 80% of amortized cost for
greater than 6 months was approximately $6.6 billion as at December 31, 2022 (2021 – $7 million).
9
Mortgages
As at December 31, 2022, our mortgage portfolio of $54.6 billion represented 13% of invested assets (2021 – $52.0 billion and 12%,
respectively). Geographically, 66% of the portfolio is invested in Canada (2021 – 66%) and 34% is invested in the U.S. (2021 – 34%). The
overall portfolio is also diversified by geographic region, property type, and borrower. Of the total mortgage portfolio, 13% is insured
(2021 – 14%), primarily by the Canada Mortgage and Housing Corporation (“CMHC”) – Canada’s AAA rated government-backed national
housing agency, with 31% of residential mortgages insured (2021 – 35%) and 1% of commercial mortgages insured (2021 – 2%).
As at December 31,
($ billions)
Commercial
Retail
Office
Multi-family residential
Industrial
Other commercial
Other mortgages
Manulife Bank single-family residential
Agricultural
Total mortgages
2022
2021
Carrying value
% of total
Carrying value
% of total
$ 8.7
9.1
7.4
4.7
2.7
32.6
21.6
0.4
$ 54.6
16
17
13
9
5
60
39
1
100
$ 8.8
8.7
7.0
3.6
3.0
31.1
20.5
0.4
$ 52.0
17
17
13
7
6
60
39
1
100
Our commercial mortgage loans are originated with a hold-for-investment philosophy. They have low loan-to-value ratios, high debt-service
coverage ratios, and as at December 31, 2022 there were no loans in arrears. Geographically, of the total commercial mortgage loans,
44% are in Canada and 56% are in the U.S. (2021 – 44% and 56%, respectively). We are diversified by property type and largely avoid risky
market segments such as hotels, construction loans, and second liens.
Non-CMHC Insured Commercial Mortgages(1)
As at December 31,
Loan-to-Value ratio(2)
Debt-Service Coverage ratio(2)
Average duration (years)
Average loan size ($ millions)
Loans in arrears(3)
(1) Excludes Manulife Bank commercial mortgage loans of $381 million (2021 – $393 million).
(2) Loan-to-Value and Debt-Service Coverage are based on re-underwritten cash flows.
(3) Arrears defined as over 90 days past due in Canada and over 60 days past due in the U.S.
2022
2021
Canada
60%
1.57x
4.27
21.5
0.00%
$
U.S.
56%
1.90x
6.31
21.1
0.00%
$
Canada
61%
1.56x
4.6
$ 19.4
0.00%
U.S.
57%
1.87x
6.8
$ 19.0
0.00%
Public Equities
As at December 31, 2022, public equity holdings of $23.5 billion represented 6% (2021 – $28.1 billion and 7%) of invested assets and,
when excluding assets supporting participating policyholder and pass-through products, represented 1% (2021 – 1%) of invested assets.
The portfolio is diversified by industry sector and issuer. Geographically, 29% (2021 – 28%) is held in Canada; 31% (2021 – 37%) is held in
the U.S.; and the remaining 40% (2021 – 35%) is held in Asia, Europe, and other geographic areas.
Public Equities – classified by type of product-line supported
As at December 31,
($ billions)
Participating Policyholders
Non-participating products and pass-through products
Corporate and Other segment
Total public equities(1)
2022
2021
Carrying value
% of total
Carrying value
% of total
$ 12.2
8.4
2.9
$ 23.5
52
36
12
100
$ 14.7
9.6
3.8
$ 28.1
52
34
14
100
(1) Includes $1.6 billion of AFS equities and $1.3 billion of seed money investments in new segregated and mutual funds.
Alternative Long-Duration Assets (“ALDA”)
Our ALDA portfolio is comprised of a diverse range of asset classes with varying degrees of correlations. The portfolio typically consists of
private assets representing investments in varied sectors of the economy which act as a natural hedge against future inflation and serve as
an alternative source of asset supply to long-term corporate bonds. In addition to being a suitable match for our long-duration liabilities,
these assets provide enhanced long-term yields and diversification relative to traditional fixed income markets. The vast majority of our
ALDA are managed in-house.
40 | 2022 Annual Report | Management’s Discussion and Analysis
As at December 31, 2022, carrying value of ALDA of $51.7 billion represented 12% (2021 – $44.4 billion and 10%) of invested assets. The
fair value of total ALDA was $53.7 billion at December 31, 2022 (2021 – $46.3 billion). The carrying value and corresponding fair value by
sector and/or asset type are outlined above (see table in the section “General Fund Assets”).
Real Estate
Our real estate portfolio is diversified by geographic region; of the total fair value of this portfolio, 44% is located in the U.S., 39% in
Canada, and 17% in Asia and Other as at December 31, 2022 (2021 – 42%, 42%, and 16%, respectively). This high-quality portfolio has
virtually no leverage and is primarily invested in premium urban office towers, concentrated in cities with stable growth, and highly diverse
economies, in North America and Asia. The portfolio is well positioned with an average occupancy rate of 89% (2021 – 90%) and an
average lease term of 5.1 years (2021 – 5.5 years). During 2022, we executed 2 acquisitions representing $0.09 billion market value of
commercial real estate assets (2021 – 2 acquisitions and $0.03 billion, respectively). As part of ongoing portfolio management initiatives,
9 commercial real estate assets totaling $0.3 billion were sold during 2022.
The composition of our real estate portfolio based on fair value is as follows:
As at December 31,
($ billions)
Company Own-Use
Office – Downtown
Office – Suburban
Industrial
Residential
Retail
Other
Total real estate(1)
2022
2021
Fair value
$ 3.0
4.3
1.1
2.7
2.2
0.4
0.7
$ 14.4
% of total
21
30
8
19
15
3
4
100
Fair value
$ 3.0
4.8
1.4
2.2
1.9
0.4
0.7
$ 14.4
% of total
21
33
10
15
13
3
5
100
(1) These figures represent the fair value of the real estate portfolio. The carrying value of the portfolio was $13.3 billion and $13.2 billion at December 31, 2022 and
December 31, 2021, respectively.
Infrastructure
We invest both directly and through funds in a variety of industry specific asset classes, listed below. The portfolio is well-diversified with
over 600 portfolio companies. The portfolio is predominately invested in the U.S. and Canada, but also in the United Kingdom, Western
Europe, Latin America, and Australia. Our power and infrastructure holdings are as follows:
As at December 31,
($ billions)
Power generation
Transportation (including roads, ports)
Electric and gas regulated utilities
Electricity transmission
Water distribution
Midstream gas infrastructure
Maintenance service, efficiency and social infrastructure
Telecommunications/Tower
Other infrastructure
Total infrastructure
2022
2021
Carrying value
$ 4.3
3.6
0.6
0.2
0.4
0.8
0.4
2.3
0.2
$ 12.8
% of total
34
28
5
2
3
6
3
18
1
100
Carrying value
$ 3.9
2.7
0.4
0.1
0.2
0.7
0.2
1.5
0.1
$ 9.8
% of total
40
27
5
1
2
7
2
15
1
100
Timberland & Farmland
Our timberland and farmland assets are managed by a proprietary entity, Manulife Investment Management Timberland and Agriculture
(“MIM Timberland and Agriculture”). In addition to being the world’s largest timberland investment manager for institutional investors1,
with timberland properties in the U.S., New Zealand, Australia, Chile, Brazil, and Canada, MIM Timberland and Agriculture also manages
farmland properties in the U.S., Australia, Chile, and Canada. The general fund’s timberland portfolio comprised 22% of MIM Timberland
and Agriculture’s total timberland AUM (2021 – 22%). The farmland portfolio includes annual (row) crops, fruit crops, wine grapes, and nut
crops. The general fund’s holdings comprised 41% of MIM Timberland and Agriculture’s total farmland AUM (2021 – 41%).
Private Equities
Our private equity portfolio of $14.3 billion (2021 — $11.6 billion) includes both directly held private equity and private equity funds. Both
are diversified across vintage years and industry sectors.
1 Based on the global timber investment management organization ranking in the RISI International Timberland Ownership and Investment Database.
41
Oil & Gas
This category is comprised of $2.2 billion (2021 — $1.9 billion) in various oil and gas private equity interests which are a combination of
both producing and mid-streaming assets.
Investment Income
For the years ended December 31,
($ millions, unless otherwise stated)
Interest income
Dividend, rental and other income(1)
(Impairments)/Recoveries
Other, including gains and losses on sale of AFS debt securities
Investment income before realized and unrealized gains on assets supporting
insurance and investment contract liabilities and on macro equity hedges
Realized and unrealized gains and losses on assets supporting insurance and
investment contract liabilities and on macro equity hedges
Debt securities
Public equities
Mortgages and private placements
Alternative long-duration assets and other investments
Derivatives, including macro equity hedging program
Total investment income (loss)
(1) Rental income from investment properties is net of direct operating expenses.
2022
2021
$ 12,290
3,843
(151)
(775)
$ 11,517
4,180
15
(85)
15,207
15,627
(32,675)
(3,602)
394
1,349
(10,543)
(45,077)
$ (29,870)
(5,585)
3,220
403
3,772
(5,813)
(4,003)
$ 11,624
In 2022, the $29.9 billion of investment loss (2021 – income of $11.6 billion) consisted of:
• $15.2 billion of investment income before net realized and unrealized gains on assets supporting insurance and investment contract
liabilities and on macro equity hedges (2021 – gains of $15.6 billion); and
• $45.1 billion of net realized and unrealized losses on assets supporting insurance and investment contract liabilities and on macro
equity hedges (2021 – losses of $4.0 billion).
The $0.4 billion decrease in net investment income before unrealized and realized losses was due to losses of $0.5 billion in other
derivatives – mainly driven by Treasury Locks and longer tenor yield and $0.5 billion in stocks – mainly due to lower dividend distributions,
partially offset by an increase of $0.4 billion in bonds.
In 2022, net realized and unrealized losses on assets supporting insurance and investment contract liabilities and on the macro hedge
program were $45.1 billion compared with losses of $4.0 billion in 2021. The 2022 losses were primarily due to the impact of interest rate
increases and lower equity markets. The 10-year government bonds for the U.S., Canada, and Hong Kong increased 236 bps, 186 bps and
211 bps, respectively. The S&P 500 decreased 19.4% and S&P/TSX decreased 8.7%. The 2021 losses were primarily due to the impact of
interest rate increases partially offset by fair value gains in ALDA and higher equity markets.
Fair value accounting policies affect the measurement of both our assets and our liabilities. Refer to “Impact of Fair Value Accounting”
above.
42 | 2022 Annual Report | Management’s Discussion and Analysis
8. Fourth Quarter Financial Highlights
Profitability
As at and for the quarters ended December 31,
($ millions, unless otherwise stated)
Profitability:
Net income attributed to shareholders
Core earnings(1)
Diluted earnings per common share ($)
Diluted core earnings per common share ($)
Return on common shareholders’ equity (“ROE”)
Core ROE
2022
2021
$ 1,891
$ 1,746
0.95
$
0.88
$
14.4%
13.2%
$ 2,084
$ 1,708
$ 1.03
$ 0.84
15.6%
12.7%
(1) Impact of currency movement on the fourth quarter of 2022 (“4Q22”) core earnings compared with the fourth quarter of 2021 (“4Q21”) was a $46 million favourable variance.
Manulife’s 4Q22 net income attributed to shareholders was $1,891 million compared with $2,084 million in 4Q21. Net income
attributed to shareholders is comprised of core earnings (consisting of items we believe reflect the underlying earnings capacity of the
business), which amounted to $1,746 million in 4Q22 compared with $1,708 million in 4Q21, and items excluded from core earnings,
which amounted to a net gain of $145 million in 4Q22 compared with a net gain of $376 million in 4Q21. Net income attributed to
shareholders in 4Q22 decreased compared with 4Q21 primarily driven by losses from investment-related experience (compared with gains
in the prior year) and a smaller gain from the direct impact of markets, partially offset by the favourable impact of an increase in the
Canadian corporate tax rate and higher core earnings. Investment-related experience in 4Q22 reflected lower-than-expected returns
(including fair value changes) on ALDA related to real estate, partially offset by the favourable impact of fixed income reinvestment
activities and strong credit experience. The gain from the direct impact of markets in 4Q22 was primarily driven by gains due to the
flattening of the yield curve in the U.S. and Canada and the impact of favourable equity market performance, partially offset by losses from
corporate spread movements across several markets of differing magnitudes and from the sale of AFS bonds.
The 2% decrease in core earnings on a constant exchange rate basis compared with 4Q21 was driven by lower net fee income from lower
average AUMA in Global WAM, lower new business gains in Asia and the U.S. and lower in-force earnings in U.S. Annuities of $55 million
due to the variable annuity reinsurance transactions. These items were largely offset by higher yields on fixed income investments, gains
on seed money investments and lower withholding taxes in Corporate and Other, improved policyholder experience in Canada and the U.S.
and in-force business growth in Asia and Canada. 4Q22 core earnings included a net charge of $73 million ($82 million pre-tax) related to
policyholder insurance and annuity experience compared with a net charge of $97 million ($120 million pre-tax) in 4Q21.1 Actions to
improve the capital efficiency of our legacy business resulted in $55 million lower core earnings in 4Q22 compared with 4Q21. Excluding
these actions, in-force business increased 5%2 compared with 4Q21.
Core earnings by segment is presented in the table below for the periods presented.
For the quarters ended December 31,
($ millions)
Core earnings
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other (excluding core investment gains)
Core investment gains
Core earnings
2022
2021
$
569
350
374
267
86
100
$ 547
286
467
387
(79)
100
$ 1,746
$ 1,708
In Asia, core earnings were $569 million in 4Q22 compared with $547 million in 4Q21. The 1% increase on a constant exchange rate basis
was driven by favourable changes in new business product mix and in-force business growth, partially offset by the impact of lower new
business volumes primarily in Hong Kong. In addition, higher investment income on allocated capital increased core earnings by
US$12 million compared with 4Q21 (see Corporate and Other segment).
In Canada, core earnings were $350 million in 4Q22 compared with $286 million in 4Q21. The 22% increase primarily reflected
experience gains in 4Q22 compared with losses in 4Q21 with contributions from all businesses, higher Manulife Bank earnings and higher
insurance in-force earnings, partially offset by the impact of an increase in the corporate income tax rate and lower segregated fund
in-force earnings due to lower equity markets.
1 Policyholder experience includes quarterly gains of nil post-tax in 4Q22 (4Q21 – gains of $5 million) from customers who have opted to change their existing medical coverage
to the VHIS products in Hong Kong. These gains did not have a material impact on core earnings as they were offset by new business strain.
2 Excludes $70 million (pre-tax) in 4Q22 of lost expected profit on in-force relating to the U.S. variable annuity reinsurance transaction. Percentage growth is based on the
pre-tax impact of these actions, and is stated on a constant exchange rate basis.
4
In the U.S., core earnings were $374 million in 4Q22 compared with $467 million in 4Q21. The 25% decrease on a constant exchange
rate basis was due to lower core earnings in both Annuities and Insurance. The decline in Annuities core earnings was driven by reduced
in-force earnings of $55 million related to the two transactions to reinsure over 80%1 of our U.S. variable annuity block in 2022. Annuities
core earnings were also impacted by lower in-force earnings from unfavourable equity markets and lower policyholder experience gains.
Insurance core earnings were lower primarily due to lower new business gains and lower other experience gains, partially offset by more
favourable long-term care policyholder experience. Life insurance policyholder experience was neutral compared with 4Q21. In addition,
higher investment income on allocated capital increased core earnings by US$6 million compared with 4Q21 (see Corporate and Other
segment).
Global WAM core earnings were $267 million in 4Q22 compared with $387 million in 4Q21. The 34% decrease was driven by a decline in
net fee income from lower average AUMA due to higher interest rates and equity market declines in 2022, and the non-recurrence of
favourable tax benefits in 4Q21.
Corporate and Other core earnings excluding core investment gains were $86 million in 4Q22 compared with core loss of $79 million in
4Q21. The $165 million increase in core earnings was primarily due to higher yields on fixed income investments, $53 million of gains on
seed money investments in segregated funds and mutual funds in 4Q22 compared with losses in the prior year and lower withholding
taxes, partially offset by higher interest on allocated capital to operating segments.
The table below presents net income attributed to shareholders for the periods presented consisting of core earnings and the items
excluded from core earnings.
For the quarters ended December 31,
($ millions)
Core earnings
Items excluded from core earnings:
Investment-related experience outside of core earnings(1)
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities (see table below)
Direct impact of equity markets and variable annuity guarantee liabilities(2)
Fixed income reinvestment rates assumed in the valuation of policy liabilities(3)
Sale of AFS bonds and derivative positions in the Corporate and Other segment
Reinsurance transactions, tax-related items and other(4)
Total items excluded from core earnings
Net income (loss) attributed to shareholders
2022
2021
$ 1,746
$ 1,708
(457)
184
109
130
(55)
418
145
$ 1,891
126
398
124
454
(180)
(148)
376
$ 2,084
(1) Total investment-related experience in 4Q22 was a net charge of $357 million, compared with a net gain of $226 million in 4Q21, and in accordance with our definition of core
earnings, we included $100 million in investment-related experience gains in core earnings and a $457 million loss in items excluded from core earnings in 4Q22 ($100 million
in investment gains and $126 million, respectively, in 4Q21). Investment-related experience charge in 4Q22 reflected lower-than-expected returns (including fair value
changes) on ALDA related to real estate, partially offset by the favourable impact of fixed income reinvestment activities and strong credit experience. Investment-related
experience gains in 4Q21 reflected higher-than-expected returns (including fair value changes) on ALDA primarily driven by gains on private equity and infrastructure as well as
strong credit experience, partially offset by the unfavourable impact of fixed income reinvestment activities primarily driven by the acquisition of US Treasury bills.
(2) In 4Q22, the net gain related to equity markets of $109 million included a gain of $126 million from gross equity exposure, partially offset by a loss of $14 million from
dynamic hedge experience and a modest charge of $3 million from macro hedging experience. In 4Q21, the net gain related to equity markets of $124 million included a gain
of $145 million from gross equity exposure, partially offset by a loss of $20 million from dynamic hedging experience and a modest charge of $1 million from macro hedge
experience.
(3) The $130 million gain in 4Q22 due to fixed income reinvestment rates was driven by gains due to the flattening of the yield curve in the U.S. and Canada and the impact of
favourable equity market performance, partially offset by losses from corporate spread movements across several markets of differing magnitudes and from the sale of AFS
bonds. The $454 million gain in 4Q21 was driven by flattening of the yield curve in Canada and the U.S. and, to a lesser extent, widening corporate spreads in the U.S.
(4) The $418 million gain in 4Q22 includes $297 million related to the favourable impact of an increase in the Canadian corporate tax rate, $86 million net gain from acquiring full
ownership interest of MTEDA by purchasing the remaining 51% of shares from our joint venture partner and a $35 million gain from a reinsurance transaction in the U.S. 4Q21
includes a $119 million charge related to updating the impact of the 2017 U.S. Tax Cuts and Jobs Act and a $37 million charge from a reinsurance transaction in the U.S.,
partially offset by Asia reinsurance transaction gains of $8 million in 4Q22.
Net income attributed to shareholders by segment is presented in the following table.
For the quarters ended December 31,
($ millions)
Net income attributed to shareholders by segment
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total net income attributed to shareholders
2022
2021
$
569
320
410
347
245
$ 1,891
$
645
616
494
387
(58)
$ 2,084
1 Represents a reduction in guarantee value on our total U.S. variable annuity block compared with December 31, 2021. Guarantee value on our U.S. variable annuity Guaranteed
Minimum Withdrawal Benefits block reduced by more than 90% compared with December 31, 2021.
44 | 2022 Annual Report | Management’s Discussion and Analysis
Business Performance
As at and for the quarters ended December 31,
($ millions, unless otherwise stated)
Asia APE sales
Canada APE sales
U.S. APE sales
Total APE sales
Asia new business value
Canada new business value
U.S. new business value
Total new business value
Global Wealth and Asset Management gross flows ($ billions)
Global Wealth and Asset Management net flows ($ billions)
Global Wealth and Asset Management assets under management and administration ($ billions)
Global Wealth and Asset Management total invested assets ($ billions)
Global Wealth and Asset Management segregated funds net assets ($ billions)
Total assets under management and administration ($ billions)
Total invested assets ($ billions)
Total net segregated funds net assets ($ billions)
2022
2021
$
829
252
208
1,289
339
87
99
525
32.6
(8.3)
779.9
3.7
224.2
1,314.6
414.0
348.6
$
890
295
244
1,429
391
82
82
555
36.0
8.1
855.9
4.5
252.6
1,425.8
427.1
399.8
Sales
APE sales were $1.3 billion in 4Q22, a decrease of 12% compared with 4Q21. In Asia, APE sales decreased 9% compared with 4Q21,
reflecting lower sales in Hong Kong, partially offset by higher individual protection and other wealth sales in Japan and higher sales in Asia
Other1. In Hong Kong, APE sales decreased 35% compared with 4Q21 driven by the impact of weaker customer sentiment on financial
planning decisions. In Japan, APE sales increased 15% compared with 4Q21 as a result of higher individual protection and other wealth
sales. Asia Other APE sales increased 2% compared with 4Q21, reflecting higher bancassurance and agency sales in mainland China,
partially offset by lower agency sales in Vietnam, Singapore and Other Emerging Markets. In Canada, APE sales decreased 15% compared
with 4Q21, primarily driven by lower segregated fund and participating insurance sales, partially offset by higher small business group
insurance sales. In the U.S., APE sales decreased 21% compared with 4Q21 due to lower sales of domestic life insurance products,
partially offset by an increase in international sales, which are reported as part of the U.S. segment results. Demand for domestic life
insurance products purchased primarily to protect household income declined. Demand also decreased for domestic life insurance
products purchased primarily for estate planning due to volatility in equity markets. APE sales of products with the John Hancock Vitality
PLUS feature decreased 20% compared with 4Q21, reflecting the decrease in sales of domestic life insurance products.
New Business Value was $525 million in 4Q22, a decrease of 9% compared with 4Q21. In Asia, NBV decreased 17% compared with 4Q21
reflecting lower sales in Hong Kong and unfavourable changes in product mix in Asia Other, partially offset by the benefit of higher interest
rates, and higher individual protection and other wealth sales in Japan. In Canada, NBV increased 6% compared with 4Q21, driven by
higher margins in our insurance businesses, partially offset by lower volumes in annuities. In the U.S., NBV increased 12% compared with
4Q21, driven by higher interest rates, higher international sales volumes and product actions, partially offset by lower brokerage sales
volumes.
Global Wealth and Asset Management net outflows were $8.3 billion in 4Q22 compared with net inflows of $8.1 billion in 4Q21. Net
outflows in Retirement were $4.6 billion in 4Q22 compared with net outflows of $1.0 billion in 4Q21, driven by higher plan redemptions
and lower new plan sales in the U.S. Net outflows in Retail were $4.7 billion in 4Q22 compared with net inflows of $7.5 billion in 4Q21,
reflecting higher redemptions and lower gross flows driven by decreased investor demand. Net inflows in Institutional Asset Management
were $0.9 billion in 4Q22 compared with net inflows of $1.6 billion in 4Q21, driven by lower net flows in real estate, timberland, and
infrastructure products, partially offset by higher sales of fixed income mandates.
Global Wealth and Asset Management gross flows were $32.6 billion in 4Q22, a decrease of 13% compared with 4Q21. Retirement
gross flows in 4Q22 were $12.1 billion, a decrease of 9% compared with 4Q21, reflecting lower new plan sales in the U.S. Retail gross flows
in 4Q22 were $15.2 billion, a decrease of 23% compared with 4Q21, driven by lower investor demand amid higher interest rates and equity
market declines in 2022. Institutional Asset Management gross flows in 4Q22 were $5.2 billion, an increase of 19% compared with 4Q21,
mainly due to higher sales of fixed income mandates, partially offset by lower infrastructure and real estate gross flows.
1 Asia Other excludes Hong Kong and Japan.
45
9. Risk Management and Risk Factors
This section provides an overview of our overall risk management approach along with detailed description of specific risks which may
affect our results of operations or financial condition and the strategies used to manage those risks.
Enterprise Risk Management Framework
Delivering on our mission “Decisions made easier. Lives made better”, our ambition is to be the most digital, customer-centric global
company in our industry. The activities required to achieve these results involve elements of risk taking.
Our approach to risk management is governed by our Enterprise Risk Management (“ERM”) Framework.
Culture
Risk Identification
Analysis and Assessment
Management Framework
Response
Materialized Risks
Assessment of Risk Appetite
Management of Principal Risks
Non-Materialized Risks
• Stress Testing
• Risk Capital Management
• Risk Appetite and Limit Management
Evolving Risk Program
Our ERM Framework provides a structured approach to risk taking and risk management activities across the enterprise, supporting our
long-term revenue, earnings, and capital growth strategy. It is communicated through risk policies and standards, which are intended to
enable consistent design and execution of strategies across the organization. We have a common approach to managing all risks to which
we are exposed, and to evaluating potential directly comparable risk-adjusted returns on contemplated business activities. Our risk
policies and standards cover:
• Risk roles and authorities – Assignment of accountability and delegation of authority for risk oversight and risk management at various
levels within the Company, as well as accountability principles;
• Governance and strategy – The types and levels of risk the Company seeks given its strategic plan, the internal and external
environment, and risk appetite which drives risk limits and policies;
• Execution – Risk identification, measurement, assessment, and mitigation which enable those accountable for risks to manage and
monitor their risk profile; and
• Evaluation – Validation, back testing and independent oversight to confirm that the Company generated the risk profile it intended, root
cause analysis of any notable variation, and any action required to re-establish desired levels when exposures materially increase such
that risk appetite is neared or exceeded.
Our risk management practices are influenced and impacted by external and internal factors (such as economic conditions, political
environments, technology and risk culture), which can significantly impact the levels and types of risks we might face in pursuit of strategically
optimized risk taking and risk management. Our ERM Framework incorporates relevant impacts and mitigating actions as appropriate.
Three Lines of Defense Model
A strong risk culture and a common approach to risk management are integral to Manulife’s risk management practices. Management is
responsible for managing risk within risk appetite and has established risk management strategies and monitoring practices. Our
approach to risk management includes a “three lines of defense” governance model that segregates duties among risk taking activities,
risk monitoring and risk oversight, and establishes appropriate accountability for those who assume risk versus those who oversee risk.
Our first line of defense includes the Chief Executive Officer (“CEO”), Segment and Business Unit General Managers, Global Function Heads
and all business operations personnel. In our matrix reporting model, the Segment General Managers are ultimately accountable for their
business results, the risks they assume to achieve those results, and for the day-to-day management of the risks and related controls, and
the Global Function Heads are accountable for the management of the risks and related controls for their function.
The second line of defense is comprised of the Company’s Chief Risk Officer (“CRO”), the Global Risk Management (“GRM”) function, the
Company’s Chief Compliance Officer and the Global Compliance Office, and other global oversight functions. Collectively, this group
46 | 2022 Annual Report | Management’s Discussion and Analysis
provides independent oversight of risk taking and risk management activities across the enterprise. Risk oversight committees, through
broad-based membership, also provide oversight of risk taking and risk management activities.
The third line of defense is Audit Services, which provides independent, objective assurance that controls are effective and appropriate
relative to the risk inherent in the business and that risk mitigation programs and risk oversight functions are effective in managing risks.
Risk Culture
To enable the achievement of our mission and strategic priorities, we are committed to a set of shared values, which reflect our culture,
inform our behaviours, and help define how we work together:
• Obsess about customers – Predict their needs and do everything in our power to satisfy them.
• Do the right thing – Act with integrity and do what we say.
• Think big – Anything is possible. We can always find a better way.
• Get it done together – We’re surrounded by an amazing team. Do it better by working together.
• Own it – Feel empowered to make decisions and take action to deliver our mission.
• Share your humanity – Build a supportive, diverse and thriving workplace.
Risk Culture Vision – Within this context, we strive for a risk aware culture, where individuals and groups are encouraged, feel comfortable
and are proactive in making transparent, balanced risk-return decisions that are in the long-term interests of the Company.
Risk Culture Framework – We have set a framework of desired behaviours to foster a strong risk aware culture. The framework is
assessed against a set of qualitative and quantitative indicators and regularly reported to MFC’s board of directors (the “Board”) and
executive leadership, with the intent to continuously identify opportunities to increase risk awareness across all geographies, businesses
and layers of management and staff.
We believe that risk culture is strengthened once desired organizational behaviours and attitudes are reinforced through effective
application of our corporate values. As such, we communicate key elements of our values through a risk lens to build a strong risk aware
culture, including:
• Transparency – Encourage an environment where we can get it done together by openly discussing the strengths, weaknesses and
potential range of outcomes of an issue, proposal or initiative and making informed decisions. Escalate issues before they become
significant problems.
• Risk appetite – Once we have identified a risk or situation, we establish a risk appetite and own that decision.
• Learn – Use mistakes and failures as learning moments and share what was learned; think big by sharing beyond teams and business
•
units. Seek out lessons learned from throughout the organization in order to continuously improve and grow our business the right way.
Incentives – Align personal incentives with our goals and how we want to execute our plan. When things go wrong, share our humanity
by maintaining a supportive environment to ensure appropriate incentives for continued transparency and lessons learned.
Risk Governance
The Board oversees our culture of integrity and ethics, strategic planning, risk management, and corporate governance, among other
things. The Board carries out its responsibilities directly and through its four standing committees:
• Risk Committee – Oversees the management of our principal risks, and our programs, policies and procedures to manage those risks.
• Audit Committee – Oversees internal control over financial reporting and our finance, actuarial, internal audit and global compliance
functions, serves as the conduct review committee, reviews our compliance with legal and regulatory requirements and oversees the
performance, qualifications and independence of our external auditors.
• Management Resources and Compensation Committee – Oversees our global human resources strategy, policies, programs,
management succession, executive compensation, and pension plan governance.
• Corporate Governance and Nominating Committee – Develops our governance policies and procedures, including environmental,
social and governance related matters, including climate change, among other activities.
The CEO is directly accountable to the Board for our results and operations and all risk taking activities and risk management practices
required to achieve those results. The CEO is supported by the CRO as well as by the Executive Risk Committee (“ERC”). Together, they
shape and promote our risk culture, guide risk taking throughout our global operations and strategically manage our overall risk profile.
The ERC, along with other executive-level risk oversight committees, establishes risk policies, guides risk taking activity, monitors
significant risk exposures and sponsors strategic risk management priorities throughout the organization.
GRM, under the direction of the CRO, establishes and maintains our ERM Framework and oversees the execution of individual risk
management programs across the enterprise. GRM seeks to ensure a consistent enterprise-wide assessment of risk, risk based capital and
risk-adjusted returns across all operations.
The ERC approves and oversees the execution of the Company’s enterprise risk management program. It establishes and presents for
approval to the Board the Company’s risk appetite and enterprise-wide risk limits and monitors our overall risk profile, including key and
47
emerging risks and risk management activities. As part of these activities, the ERC monitors material risk exposures, endorses and reviews
strategic risk management priorities, and reviews and assesses the impact of business strategies, opportunities and initiatives on our
overall risk position. The ERC is supported by a number of oversight sub-committees including:
• Credit Committee – Establishes credit risk policies and risk management standards of practice and oversees the credit risk
management program. Also monitors the Company’s overall credit risk profile and approves large individual credits and investments.
• Product Oversight Committee – Oversees insurance risk and reviews risks in new product and new business reinsurance initiatives.
Also monitors product design, new product pricing, and insurance risk exposures and trends.
• Global Asset Liability Committee – Oversees market and liquidity risk for insurance products, hedging, and asset liability management
programs and strategies. Also monitors market risk profile, risk exposures, risk mitigation activities and compliance with related policies.
• Operational Risk Committee – Oversees operational risk appetite, exposures and associated governance, risk processes, risk
management activities and compliance with related policies.
We also have segment risk committees, each with mandates similar to the ERC except with a focus at the segment as applicable.
Risk Appetite
The Company’s strategic direction drives overall risk appetite. All risk taking activities are managed within the Company’s overall risk
appetite, which defines the amount and types of risks the Company is willing to assume in pursuit of its objectives. The Company’s risk
appetite is comprised of three components: overall risk taking philosophy, risk appetite statements, and risk limits and tolerances.
Risk Philosophy – Manulife is a global financial institution offering insurance, wealth and asset management products and other financial
services. The activities required to achieve our mission of “Decisions made easier. Lives made better” are guided by our values and involve
elements of risk taking. As such, when making decisions about risk taking and risk management, the Company places a priority on the
following risk management objectives:
• To safeguard the commitments and expectations established with our customers, creditors, shareholders and employees;
• To support the successful design and delivery of customer solutions through the development and deployment of innovative product
solutions, and providing customer-centric digital experiences;
• To prudently and effectively deploy the capital invested in the Company by shareholders with appropriate risk/return profiles;
• To invest wealth and asset management’s customer assets consistent with their objectives;
• To achieve and maintain a high level of operational resilience;
• To safeguard the well-being of our employees, and promote a diverse, equitable and inclusive business environment;
• To consider environmental, social, and governance (ESG) impacts across our business activities and community impact;
• To protect and/or enhance the Company’s reputation and brand; and
• To maintain the Company’s targeted financial strength rating.
While we only pursue risks that we believe we can appropriately analyze and monitor, we also manage risks which arise outside of our
direct influence. We recognize that risk exposures change over time. If exposures materially increase, we will activate management actions
designed to bring exposures back to desired levels. As an integrated component of our business model, risk management assists the
Company in achieving our objectives and in reaching higher levels of operational excellence, while encouraging transparency and
organizational learning.
Risk Appetite Statements – At least annually, we establish and/or reaffirm that our risk appetite and the Company’s strategy are aligned.
The risk appetite statements provide ‘guideposts’ on our appetite for identified risks, any conditions placed on associated risk taking and
direction for where quantitative risk limits should be established. The Company’s risk appetite statements are as follows:
• Manulife accepts a total level of risk that provides a very high level of confidence to meeting customer obligations while targeting an
appropriate overall return to shareholders over time;
• Capital market risks are acceptable when they are managed within specific risk limits and tolerances;
• Manulife believes a diversified investment portfolio reduces overall risk and enhances returns; therefore, it accepts credit and
alternative long-duration asset related risks;
• Manulife pursues product risks that add customer and shareholder value where there is competence to assess and monitor them, and
for which appropriate compensation is received;
• Manulife accepts that operational risks are an inherent part of the business when managed within thresholds and tolerances of key risk
indicators and will protect its business and customers’ assets through cost-effective operational risk mitigation; and
• Manulife expects its officers and employees to act in accordance with the Company’s values, ethics and standards; and to protect its
brand and reputation.
Risk Limits and Tolerances – Risk limits and tolerances are established for risks within our risk classification framework that are inherent in our
strategies in order to define the types and amount of risk the Company will assume. Risk tolerance levels are set for risks deemed to be most
significant to the Company and are established in relation to economic capital, earnings-at-risk and regulatory capital required. The purpose of
risk limits is to cascade the total Company risk appetite to a level that can be effectively managed. Manulife establishes standalone risk limits for
risk categories to avoid excessive concentration in any individual risk category and to manage the overall risk profile of the organization.
48 | 2022 Annual Report | Management’s Discussion and Analysis
Risk Identification, Measurement and Assessment
We have a common approach and process to identify, measure, and assess the risks that we assume. We evaluate all potential new
business initiatives, acquisitions, product offerings, reinsurance arrangements, and investment and financing transactions on a
comparable risk-adjusted basis. Segments and functional groups are responsible for identifying and assessing key and emerging risks on
an ongoing basis. A standard inventory of risks is used in all aspects of risk identification, measurement and assessment, and monitoring
and reporting.
Risk exposures are evaluated using a variety of measures focused on both short-term net income attributed to shareholders and long-term
economic value, with certain measures used across all risk categories, while others are applied only to some risks or a single risk type.
Measures include stress tests such as sensitivity tests, scenario impact analyses and stochastic scenario modeling. In addition, qualitative
risk assessments are performed, including for those risk types that cannot be reliably quantified.
We perform a variety of stress tests on earnings, regulatory capital ratios, economic capital, earnings-at-risk and liquidity that consider
significant, but plausible events. We also perform other integrated, complex scenario tests to assess key risks and the interaction of these
risks.
Economic capital and earnings-at-risk provide measures of enterprise-wide risk that can be aggregated and compared across business
activities and risk types. Economic capital measures the amount of capital required to meet obligations with a high and pre-defined
confidence level. Our earnings-at-risk metric measures the potential variance from quarterly expected earnings at a particular confidence
level. Economic capital and earnings-at-risk are both determined using internal models.
Risk Monitoring and Reporting
Under the direction of the CRO, GRM oversees a formal process for monitoring and reporting on all significant risks at the Company-wide
level. Risk exposures are also discussed at various risk oversight committees, along with any exceptions or proposed remedial actions, as
required.
On at least a quarterly basis, the ERC and the Board’s Risk Committee reviews risk reports that present an overview of our overall risk
profile and exposures across our principal risks. The reports incorporate both quantitative risk exposure measures and sensitivities, and
qualitative assessments. The reports also highlight key risk management activities and facilitate monitoring compliance with key risk policy
limits.
The results of the Financial Condition Test and Own Risk and Solvency Assessment are presented to the Board annually by our Chief
Actuary and CRO, respectively. Our Chief Auditor reports the results of internal audits of risk controls and risk management programs to
the Audit Committee and the Board’s Risk Committee annually. Management reviews the implementation of key risk management
strategies, and their effectiveness, with the Board’s Risk Committee annually.
Risk Control and Mitigation
Risk control activities in place throughout the Company are designed to mitigate risks within established risk limits. We believe our
controls, which include policies, procedures, systems and processes, are appropriate and commensurate with the key risks faced at all
levels across the Company. Such controls are an integral part of day-to-day activity, business management and decision making.
GRM establishes and oversees formal review and approval processes for product offerings, insurance underwriting, reinsurance,
investment activities and other material business activities, based on the nature, size and complexity of the risk taking activity involved.
Authorities for assuming risk at the transaction level are delegated to specific individuals based on their skill, knowledge and experience.
Principal Risk Categories
Our insurance, wealth and asset management and other financial services businesses subject Manulife to a broad range of risks.
Management has identified the following risks to which our businesses, operations and financial condition are subjected to, grouped under
five principal risk categories: strategic risk, market risk, credit risk, product risk and operational risk. The following sections describe the
risk management strategies and risk factors for each principal risk category.
The risks described below are not the only ones we face. Additional risks not presently known to us or that are currently immaterial could
also impair our businesses, operations and financial condition in the future. If any of such risks should occur, the trading price of our
securities, including common shares, preferred shares and debt securities, could decline, and investors may lose all or part of their
investment.
Strategic Risk
Strategic risk is the risk of loss resulting from the inability to adequately plan or implement an appropriate business strategy that allows us
to effectively compete in the markets in which we operate, or to adapt to change in the external business, political or regulatory
environment.
49
We operate in highly competitive markets and compete for customers with both insurance and non-insurance financial services
companies. Customer loyalty and retention, and access to distributors, are important to the Company’s success and are influenced by
many factors, including our distribution practices and regulations, product features, service levels including digital capabilities, prices,
investment performance, and our financial strength ratings and reputation. Our ability to effectively compete is highly dependent upon
being quick to react and adapt to changes from the external environment while continuing to proactively drive internal innovation.
Strategic Risk Management Strategy
The CEO and Executive Leadership Team establish and oversee execution of business strategies and have accountability to identify and
manage the risks embedded in these strategies. They are supported by a number of processes:
• Strategic business, risk and capital planning that is reviewed with the Board, Executive Leadership Team, and the ERC;
• Performance and risk reviews of all key businesses with the CEO and annual reviews with the Board;
• Risk based capital attribution and allocation designed to encourage a consistent decision-making framework across the organization; and
• Review and approval of significant acquisitions and divestitures by the CEO and, where appropriate, the Board.
Reputation risk is the risk that the Company’s corporate image may be eroded by adverse publicity, about real or perceived issues, as a
result of business practices of Manulife or its representatives potentially causing long-term or even irreparable damage to the Company’s
franchise value. Reputation risk arises from both internal and external environmental factors, and cannot be managed in isolation from
other risks, but only as an integral part of the Company’s integrated risk management approach.
The Company’s Reputation Risk Policy requires that internal processes and controls, management decisions, and business decisions,
include considerations for how the Company’s reputation and brand could be impacted. Any incident with the potential to harm our
reputation is of high priority and senior management is to be alerted. An essential component of the Reputation Risk Policy requires that all
employees should conduct themselves in accordance with our values, as well as the Company’s Code of Conduct and Business Ethics.
Environmental, Social and Governance Risks
Environmental, social and governance (“ESG”) risks could arise from our inability to adapt to evolving ESG issues, including climate
change, and may impact our investments, underwriting, and operations, which could lead to adverse financial, operational, legal,
reputational, or brand value risks for Manulife due to our actual or perceived actions, or inaction in relation to ESG issues.
The Board’s Corporate Governance and Nominating Committee (“CGNC”) oversees Manulife’s ESG framework, including matters related to
climate change. On a regular basis, the CGNC is updated on relevant ESG topics, including our progress against the commitments set out
in Manulife’s Climate Action Plan. Starting in 2023, each member of the CGNC will also participate in at least one externally facilitated
ESG-related educational activity every two years. The CGNC’s oversight complements Manulife’s Executive Sustainability Council (“ESC”),
which consists of the Chief Executive Officer, the Chief Sustainability Officer, the Chief Risk Officer and other members of the Executive
Leadership Team. As part of its mandate, the ESC is responsible for guiding the development and execution of our climate strategy,
including climate-related risk management activities. The ESC meets monthly and is supported by the ESG Centre of Expertise (“CoE”),
which consists of corporate function and business unit leads tasked with integrating sustainability into our business practices and a Legal
and Compliance ESG CoE, whose purpose is to share information and advice relating to ESG activities across Manulife. Manulife’s Climate
Change Taskforce, a cross-functional team, is responsible for the execution of the Climate Action Plan and manages climate-related
performance and disclosures. Additionally, our global executive Diversity, Equity and Inclusion (“DEI”) Council, which includes members of
the Executive Leadership Team and is chaired by the CEO, meets quarterly and guides, supports, and facilitates the implementation of our
DEI strategy, encourages innovative thinking about DEI challenges and opportunities, and drives and builds accountability for DEI
throughout the organization.
Climate Risk
Consistent with the Financial Stability Board’s Taskforce on Climate-Related Financial Disclosures (“TCFD”), Manulife defines climate-related
risks as the potential negative impacts from climate change, which may be experienced directly (e.g., through financial loss) or indirectly (e.g.,
through reputational harm), resulting from the physical impacts of climate change or the transition to a low-carbon economy.
Climate risk is a risk with unique characteristics given the diverse set of pathways in which risks can manifest. As such, it is a transversal
risk, that has the potential to impact any of our principal risks, including strategic, market, credit, product, or operational risk, as well as
legal and reputational risk. Climate risk, therefore, is viewed as a modifier or an accelerator of existing risk types, and failure to adequately
prepare for the potential impacts of climate change can have material adverse impacts on our balance sheet or our ability to operate.
Potential impacts of climate change may include business losses or disruption resulting from extreme weather conditions, challenges in
adapting to changes in climate-related legal or regulatory frameworks, reputational damage, devaluation of our debt or equity asset
exposures to fossil-fuel related or high-emitting industries, or increased mortality or morbidity resulting from climate related events.
We continue to enhance the integration of climate-related risks into our enterprise risk management framework to ensure that they are
managed in a manner consistent with our common approach to risk management (refer to “Risk Identification, Measurement and
Assessment” above). Our Environmental Risk Policy and other relevant policies and standards are used to guide business operations on
50 | 2022 Annual Report | Management’s Discussion and Analysis
climate risk identification and assessment. GRM continues to enhance risk management practices to consider the potential impacts from
climate-related risk, including in our investment decision-making processes, life insurance underwriting due diligence, and assessment of
operational risks and controls.
The Executive Risk Committee and the Risk Committee of the Board consider climate-related risks and opportunities through the ongoing
monitoring and reporting of emerging risks. Risk management activities addressing climate-related risks are expected to continue to
evolve over time as knowledge and capabilities further mature, and as applicable standards, frameworks and methodologies continue to
emerge and coalesce.
Manulife is a long-term oriented underwriter and investor. Therefore, climate-related risks and opportunities, including changes in the
physical environment and policy and technological changes associated with the transition to a low-carbon economy, are strategically
relevant and, in some cases, could become material to our business over time. In 2022, we continued to monitor climate-related risks and
opportunities within our business strategy over short (1-5 year), medium (5-15 year), and long (beyond 15 years) time horizons to better
assess the relative significance of potential impacts and how and when actions will be required to address such impacts.
Our Climate Action Plan (released in May 2021) focuses on three areas, our operations, our general fund investments, and the products and
services we offer to clients. It includes our commitment to achieve net zero financed emissions by 2050, and our commitment to reduce our
absolute scope 1 and 2 emissions by 35% by 2035.1 We are also taking a combined sector and asset class approach to establish ambitious
near term decarbonization targets for our financing activities in the general fund. Interim targets for real estate, power generation project
finance, and listed equities and debt are being developed in line with the target-setting methodology of the Science-Based Targets Initiative
(“SBTi”), a leading global standard for setting carbon emission reduction targets in line with global decarbonization ambitions to limit global
warming. Interim target-setting activities for additional heavy emitting industries not covered by SBTi are also under development.
Through our general fund we continue to make targeted investments in green asset categories (such as energy efficiency, sustainably
certified timberlands, and renewable energy). We also continue to develop investment products and solutions for climate change
mitigation and resilience through Manulife Investment Management.
For additional information regarding strategic risks associated with Manulife’s sustainability commitments, see “Strategic Risk Factors –
We may not be able to achieve our sustainability commitments, or our commitments may not meet the expectations of stakeholders or
regulators”. Please also refer to our annual “Environmental, Social and Governance Report”, published in the second quarter of each year,
for detailed disclosure on our alignment with the TCFD recommendations and our ESG performance.
Strategic Risk Factors
We may not be successful in executing our business strategies or these strategies may not achieve our objectives.
• The global macroeconomic environment has a significant impact on our financial plans and ability to implement our business strategy.
The macroeconomic environment can be significantly impacted by the actions of both the government sector (including central banks)
and the private sector. The macroeconomic environment may also be affected by natural and human-made catastrophes.
• Our business strategy and associated financial plans are developed by considering forecasts of economic growth, both globally and in
the specific countries in which we operate. Actual economic growth can be significantly impacted by the macroeconomic environment
and can deviate significantly from forecasts, thus impacting our financial results and the ability to implement our business strategy.
• Any plans to expand our global operations in markets where we operate and potentially in new markets may require considerable
management time, as well as start-up expenses for market development before any significant revenues and earnings are generated.
Operations in new foreign markets may achieve low margins or may be unprofitable, and expansion in existing markets may be affected
by local economic and market conditions.
• Changes in the macroeconomic environment can also have a significant impact on financial markets, including movements in interest
rates, spreads on fixed income assets, and returns on public equity and ALDA assets. Our financial plan, including income projections,
capital projections, and valuation of liabilities are based on certain assumptions with respect to future movements in interest rates and
spreads on fixed income assets, and expected future returns from our public equity and ALDA investments. Actual experience is highly
variable and can deviate significantly from our assumptions, thus impacting our financial results. In addition, actual experience that is
significantly different from our assumptions and/or changes in the macroeconomic environment may result in changes to the
assumptions themselves which would also impact our financial results.
• Specific changes in the macroeconomic environment can have very different impacts across different parts of the business. For
example, a rise in interest rates is generally beneficial to us in the long-term but can adversely affect valuations of some ALDA assets,
especially those that have returns dependent on contractual cash flows, such as real estate.
• A rise in geopolitical tensions either within or outside of jurisdictions in which we operate can trigger changes in the macroeconomic
environment which can have various impacts across our business. For example, economic sanctions imposed on a country could
adversely impact our ability to achieve specific business objectives in that region. Military conflicts could drive financial and economic
dislocations across global capital markets, supply chains or commodity markets. See also “Operational Risk Factors – Our operations
face political, legal, operational and other risks that could negatively affect those operations or our results of operations and financial
condition.”
1 See “Caution regarding forward-looking statements” above.
51
• The spending and savings patterns of our customers could be significantly influenced by the macroeconomic environment and could
have an impact on the products and services we offer to our customers.
• Customer behaviour and emergence of claims on our liabilities can be significantly impacted by the macroeconomic environment. For
example, a prolonged period of economic weakness could impact the health and well-being of our customers and that could result in
increased claims for certain insurance risks.
• An elevated risk for stagflation, increased unemployment, inflation and economic uncertainty in certain parts of the global markets may
result in adverse policyholders’ behaviour (such as higher withdrawals, lapses, lower premium deposits and lower policy persistency
than anticipated), higher expenses and cost of fundings, along with other adverse impacts from higher rates due to inflationary
pressure as mentioned in the Market Risk Factors section. These impacts could have a material adverse effect on our business,
financial condition, results of operations, and cash flows.
Adverse publicity, litigation or regulatory action resulting from our business practices or actions by our employees, representatives
and/or business partners, could erode our corporate image and damage our franchise value and/or create losses.
• Manulife’s reputation is one of its most valuable assets. Harm to a company’s reputation is often a consequence of risk control failure,
whether associated with complex financial transactions or routine operational activities. Manulife’s reputation could also be harmed by
the actions of third parties with whom we do business. Our representatives include affiliated broker-dealers, agents, wholesalers and
independent distributors, such as broker-dealers and banks, whose services and representations our customers rely on. Business
partners include, among others, joint venture partners and third parties to whom we outsource certain functions and that we rely on to
fulfill various obligations.
If any of these representatives or business partners fail to adequately perform their responsibilities, or monitor their own risks, these
failures could affect our business reputation and operations. While we seek to maintain adequate internal risk management policies and
procedures and protect against performance failures, events may occur involving our representatives or our business partners that
could cause us to lose customers or cause us or our representatives or business partners to become subject to legal, regulatory,
economic or trade sanctions, which could have a material adverse effect on our reputation, our business, and our results of operations.
For further discussion of government regulation and legal proceedings refer to “Government Regulation” in MFC’s Annual Information
Form dated February 15, 2023 and note 19 of the Consolidated Financial Statements.
•
Our businesses are heavily regulated, and changes in regulation or laws, or in the interpretation or enforcement of regulation and
laws, may reduce our profitability and limit our growth.
• Our operations are subject to a wide variety of insurance and other laws and regulations including with respect to financial crimes
(which include, but are not limited to, money laundering, bribery and economic or trade sanctions), privacy, market conduct, consumer
protection, business conduct, prudential and other generally applicable non-financial requirements. Insurance and securities regulators
in Canada, the United States, Asia and other jurisdictions regularly re-examine existing laws and regulations applicable to insurance
companies, investment advisors, brokers-dealers and their products. Compliance with applicable laws and regulations is time
consuming and personnel-intensive, and changes in these laws and regulations or in the interpretation or enforcement thereof, may
materially increase our direct and indirect compliance costs and other expenses of doing business, thus having a material adverse
effect on our results of operations and financial condition.
• Regulators review their capital requirements and implement changes aimed at strengthening risk management and capitalization of
•
financial institutions. Future regulatory capital, actuarial and accounting changes, including changes with a retroactive impact, could
have a material adverse effect on the Company’s consolidated financial condition, results of operations and regulatory capital both on
transition and going forward. In addition, such changes could have a material adverse effect on the Company’s position relative to that
of other Canadian and international financial institutions with which Manulife competes for business and capital.
In Canada, MFC and its principal operating subsidiary, MLI, are governed by the Insurance Companies Act (Canada) (“ICA”). The ICA is
administered, and the activities of the Company are supervised, by the Office of the Superintendent of Financial Institutions (“OSFI”).
MLI is also subject to regulation and supervision under the insurance laws of each of the provinces and territories of Canada. Regulatory
oversight is vested in various governmental agencies having broad administrative power with respect to, among other things, dividend
payments, capital adequacy and risk based capital requirements, asset and reserve valuation requirements, permitted investments and
the sale and marketing of insurance contracts. These regulations are intended to protect policyholders and beneficiaries rather than
investors and may adversely impact shareholder value.
• Some recent examples of regulatory and professional standard developments, in addition to the developments outlined in the “Risk
Management and Risk Factors – Strategic Risk” section, which could impact our net income attributed to shareholders and/or capital
position are provided below.
• The International Association of Insurance Supervisors (“IAIS”) is still developing elements of its global frameworks for supervision of
internationally active insurance groups (“IAIGs”). This includes a risk-based global Insurance Capital Standard (“ICS”) which is
undergoing a five-year monitoring period through 2025 to inform its development. While broadly supportive of the goals of ICS, OSFI
stated that they did not support the ICS design adopted by the IAIS in 2019 for use in the monitoring period, citing that it was ‘not fit
for purpose for the Canadian market’. The adoption of the international rules in specific markets or on a group-based basis will
depend on the decision of each applicable regulator.
52 | 2022 Annual Report | Management’s Discussion and Analysis
The impact of the frameworks on capital and other regulatory requirements and Manulife’s competitive position remains unknown
and is being monitored.
The Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector was adopted by the Financial
Stability Board (“FSB”) in December 2022 and the annual identification process of some IAIGs as Globally Systemically Important
Insurers (“G-SIIs”), which had been paused since 2019, has been discontinued. See “Emerging Risks – Regulatory Capital” section
below.
• The National Association of Insurance Commissioners (“NAIC”) has been reviewing reserving and capital methodologies as well as
the overall risk management framework. These reviews will affect U.S. life insurers, including John Hancock, and could lead to
increased reserving and/or capital requirements for our business in the U.S. In addition, in December 2020 the NAIC adopted a
group capital calculation (“GCC”) and amendments to the NAIC Insurance Holding Company System Regulatory Act which exempt
certain insurance holding groups, including John Hancock and Manulife, from the requirements relating to the GCC. In Michigan,
which is the lead state for NAIC regulation of John Hancock, the Michigan Insurance Code was recently amended to adopt the NAIC
Group Capital Calculation model language.
•
• The Canadian Actuarial Standards Board (“ASB”) promulgates certain assumptions referenced in the CIA Standards of Practice for the
valuation of insurance contract liabilities. These promulgations are updated periodically and, in the event that new promulgations are
published, they will apply to the determination of actuarial liabilities and may lead to an increase in actuarial liabilities and a reduction
in net income attributed to shareholders.
Increasingly, global financial regulators are promulgating guidance related to climate change and its potential impacts on financial
services firms. OSFI, the SEC and several regulators across Asia have begun to engage industry to assess the impacts of climate change
and to set expectations on establishing climate transition plans, including ensuring effective risk management and governance
structures to manage climate change-related risks. There are also increasing expectations from investors, regulators, and other
stakeholders to provide comparable, decision-useful data and reporting on climate change-related risks and opportunities, including
performance metrics such as an organization’s Scope 1, 2 and 3 carbon emissions. Regulatory disclosure requirements are guided by
private sector bodies, where there is a convergence in the industry around sustainability reporting frameworks. The IFRS Foundation’s
International Sustainability Standards Board (“ISSB”) is one such body and has published draft standards for a comprehensive global
baseline of sustainability disclosures for capital markets.
In the United States, state insurance laws regulate most aspects of our business, and our U.S. insurance subsidiaries are regulated by
the insurance departments of the states in which they are domiciled and the states in which they are licensed. State laws grant
insurance regulatory authorities broad administrative powers with respect to, among other things: licensing companies and agents to
transact business; calculating the value of assets to determine compliance with statutory requirements; mandating certain insurance
benefits; regulating certain premium rates; reviewing and approving policy forms; regulating unfair trade and claims practices,
including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of
inducements; regulating advertising; protecting privacy; establishing statutory capital and reserve requirements and solvency
standards; fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance
policies and annuity contracts; approving changes in control of insurance companies; restricting the payment of dividends and other
transactions between affiliates; and regulating the types, amounts and valuation of investments. Changes in any such laws and
regulations, or in the interpretation or enforcement thereof by regulators, could significantly affect our business, results of operations
and financial condition.
•
• Currently, the U.S. federal government does not directly regulate the business of insurance. However, federal legislation and
•
administrative policies in several areas can significantly and adversely affect state regulated insurance companies. These areas include
financial services regulation, securities regulation, pension regulation, privacy, tort reform legislation, and taxation. In addition, under
the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), the U.S. Board of Governors of the Federal Reserve
has supervisory powers over non-bank financial companies that are determined to be systemically important.
Insurance guaranty associations in Canada and the United States have the right to assess insurance companies doing business in their
jurisdiction for funds to help pay the obligations of insolvent insurance companies to policyholders and claimants. Typically, an insurer is
assessed an amount related to its proportionate share of the line of business written by all insurers in the relevant jurisdiction. Because
the amount and timing of an assessment is beyond our control, the liabilities that we have currently established for these potential
liabilities may not be adequate, particularly if there is an increase in the number of insolvent insurers or if the insolvent insurers operated
in the same lines of business and in the same jurisdictions in which we operate.
• While many of the laws and regulations to which we are subject are intended to protect policyholders, beneficiaries, depositors and
investors in our products and services, others also set standards and requirements for the governance of our operations. Failure to
comply with applicable laws or regulations could result in financial penalties or sanctions, and damage our reputation.
• All aspects of Manulife’s Global WAM businesses are subject to various laws and regulations around the world. These laws and
regulations are primarily intended to protect investment advisory clients, investors in registered and unregistered funds, and clients of
Manulife’s global retirement businesses. Agencies that regulate investment advisors, investment funds and retirement plan products
and services have broad administrative powers, including the power to limit, restrict or prohibit the regulated entity or person from
carrying on business if it fails to comply with such laws and regulations. Possible sanctions for significant compliance failures include
5
the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of
investment advisor and other registrations and censures and fines both for individuals and Manulife, along with the resulting damage to
our reputation.
• From time to time, regulators raise issues during examinations or audits of Manulife that could have a material adverse impact on us.
We cannot predict whether or when regulatory actions may be taken that could adversely affect our operations. Our failure to comply
with existing and evolving regulatory requirements could also result in regulatory sanctions and could affect our relationships with
regulatory authorities and our ability to execute our business strategies and plans. For further discussion of government regulation and
legal proceedings refer to “Government Regulation” in MFC’s Annual Information Form dated February 15, 2023 and note 19 of the
2022 Annual Consolidated Financial Statements. See also “Operational Risk Factors – Our operations face political, legal, operational
and other risks that could negatively affect those operations or our results of operations and financial condition” for further discussion
on the impact to our operations.
Changes to International Financial Reporting Standards could have a material impact on our financial results.
• New standards or modifications to existing standards could have a material adverse impact on our financial results and regulatory
capital position (the regulatory capital framework in Canada uses IFRS as a base). Additionally, any mismatch between the underlying
economics of our business and new accounting standards could have significant unintended negative consequences on our business
model; and potentially affect our customers, shareholders and our access to capital markets. Please refer to “Emerging Risks – IFRS 17
and IFRS 9” below.
Changes in tax laws, tax regulations, or interpretations of such laws or regulations could make some of our products less attractive
to consumers, could increase our corporate taxes or cause us to change the value of our deferred tax assets and liabilities as well
as our tax assumptions included in the valuation of our policy liabilities. This could have a material adverse effect on our business,
results of operations and financial condition.
• Many of the products that the Company sells benefit from one or more forms of preferred tax treatment under current income tax
regimes. For example, the Company sells life insurance policies that benefit from the deferral or elimination of taxation on earnings
accrued under the policy, as well as permanent exclusion of certain death benefits that may be paid to policyholders’ beneficiaries. We
also sell annuity contracts that allow the policyholders to defer the recognition of taxable income earned within the contract. Other
products that the Company sells, such as certain employer-paid health and dental plans, also enjoy similar, as well as other, types of tax
advantages. The Company also benefits from certain tax benefits, including tax-exempt interest, dividends-received deductions, tax
credits (such as foreign tax credits), and favourable tax rates and/or income measurement rules for tax purposes.
• There is risk that tax legislation could be enacted that would lessen or eliminate some or all of the tax advantages currently benefiting
the Company or its policyholders or its other clients. This could occur in the context of deficit reduction or other tax reforms. The effects
of any such changes could result in materially lower product sales, lapses of policies currently held, and/or our incurrence of materially
higher corporate taxes, any of which could have a material adverse effect on our business, results of operations and financial condition.
• Additionally, the Company may be required to change its provision for income taxes or carrying amount of deferred tax assets or
•
liabilities if the characterization of certain items is successfully challenged by taxing authorities or if future transactions or events,
which could include changes in tax laws, tax regulations or interpretations of such laws or regulations, occur. Any such changes could
significantly affect the amounts reported in the Consolidated Financial Statements in the year these changes occur.
In 2021, 136 of the 140 members of the Organization for Economic Co-Operation and Development (“OECD”) / G20 Inclusive Framework
agreed on a two-pillar solution to address tax challenges from the digital economy, and to close the gaps in international tax systems.
These include a new approach to allocating certain profits of multinational entities amongst countries and a global minimum income tax
rate of 15%. On April 7, 2022, the Canadian government reaffirmed its commitment to the two-pillar solution in its 2022 Budget
statement. The Company is closely monitoring developments and potential impacts and, in particular, for issues unique to the insurance
industry. If enacted, we expect an increase in the effective tax rate, pending further details on timing and specific implementation in
both Canada and other affected countries.
• The Canada Recovery Dividend and permanent corporate tax rate increase for certain financial institutions were enacted in 2022. Both
tax measures apply to Canada’s insurance and banking operations. The Canada Recovery Dividend is a one-time 15% tax applicable to
the average taxable income for 2020 and 2021 in excess of $1 billion and is not a material cost to the Company. The 1.5% corporate tax
rate increase on Canadian taxable income over $100 million had an immediate favourable impact on the value of our existing deferred
tax assets in the fourth quarter of 2022 that will be offset over time by a slight increase to our effective tax rate as future Canadian
insurance and banking earnings are taxed at the new higher federal corporate tax rate of 16.5%.
• Rules to govern the transition to IFRS 17 for Canadian tax purposes were enacted in late 2022 and became effective January 1, 2023. A
five-year transition period for both insurance reserves and revaluations of investments under IFRS 9 should generally smooth the
current tax impact of the change in accounting standards but is not expected to have a material effect on the Company’s annual cash
tax payable.
• The U.S. Inflation Reduction Act of 2022 was signed into law on August 16, 2022, which includes a 15% minimum tax based on financial
statement income, starting in 2023. Many related regulations remain to be drafted to clarify how the tax will operate, but at this time
we do not expect our IFRS effective tax rate to be materially affected by this new tax, though the timing of cash tax payments could be
accelerated.
54 | 2022 Annual Report | Management’s Discussion and Analysis
Access to capital may be negatively impacted by market conditions.
• Disruptions, uncertainty or volatility in the financial markets may limit our access to the capital markets to raise capital required to
operate our business. Such market conditions may limit our ability to access the capital necessary to satisfy regulatory capital
requirements to grow our business and meet our refinancing requirements. Under extreme conditions, we may be forced, among other
things, to delay raising capital, issue different types of capital than we would otherwise under normal conditions, less effectively deploy
such capital, issue shorter term securities than we prefer, or issue securities that bear an unattractive cost of capital which could
decrease our financial flexibility, profitability, and/or dilute our existing shareholders.
As a holding company, MFC depends on the ability of its subsidiaries to transfer funds to it to meet MFC’s obligations and pay
dividends. Subsidiaries’ remittance of capital depends on subsidiaries’ earnings, regulatory requirements and restrictions, and
macroeconomic and market conditions.
• MFC is a holding company and relies on dividends and interest payments from our insurance and other subsidiaries as the principal
source of cash flow to meet MFC’s obligations and pay dividends. As a result, MFC’s cash flows and ability to service its obligations are
dependent upon the earnings of its subsidiaries and the distribution of those earnings and other funds by its subsidiaries to MFC.
Substantially all of MFC’s business is currently conducted through its subsidiaries.
• The ability of our holding company to fund its cash requirements depends upon it receiving dividends, distributions and other payments
from our operating subsidiaries. The ability of MFC’s insurance subsidiaries to pay dividends to MFC in the future will depend on their
earnings, macroeconomic and market conditions, and their respective local regulatory requirements and restrictions, including capital
adequacy and requirements, exchange controls and economic or trade sanctions.
• MFC’s insurance subsidiaries are subject to a variety of insurance and other laws and regulations that vary by jurisdiction and are
intended to protect policyholders and beneficiaries in that jurisdiction first and foremost, rather than investors. These subsidiaries are
generally required to maintain solvency and capital standards as set by their local regulators and may also be subject to other
regulatory restrictions, all of which may limit the ability of subsidiary companies to pay dividends or make distributions to MFC.
• Potential changes to regulatory capital and actuarial and accounting standards could also limit the ability of the insurance subsidiaries
to pay dividends or make distributions and could have a material adverse effect on internal capital mobility. We may be required to raise
additional capital, which could be dilutive to existing shareholders, or to limit the new business we write, or to pursue actions that would
support capital needs but adversely impact our subsequent earnings potential. In addition, the timing and outcome of these initiatives
could have a significantly adverse impact on our competitive position relative to that of other Canadian and international financial
institutions with which we compete for business and capital. Please also refer to “Emerging Risks – IFRS 17 and IFRS 9” below.
• The Company seeks to maintain capital in its regulated subsidiaries in excess of the minimum required in all jurisdictions in which the
Company does business. The minimum requirements in each jurisdiction may increase due to regulatory changes and we may decide to
maintain additional capital in our operating subsidiaries for competitive reasons, to fund expected growth of the business or to deal with
changes in the risk profile of such subsidiaries. Any such increases in the level of capital may reduce the ability of the operating
companies to pay dividends.
• The payment of dividends to MFC by MLI is subject to restrictions set out in the ICA. The ICA prohibits the declaration or payment of any
dividend on shares of an insurance company if there are reasonable grounds for believing: (i) the company does not have adequate
capital and adequate and appropriate forms of liquidity; or (ii) the declaration or the payment of the dividend would cause the company
to be in contravention of any regulation made under the ICA respecting the maintenance of adequate capital and adequate and
appropriate forms of liquidity, or of any order made to the company by the Superintendent. All of our U.S. and Asian operating life
insurance companies are subsidiaries of MLI. Accordingly, a restriction on dividends from MLI would restrict MFC’s ability to obtain
dividends from its U.S. and Asian businesses.
• Certain of MFC’s U.S. insurance subsidiaries also are subject to insurance laws in Michigan, New York and Massachusetts, the
jurisdictions in which these subsidiaries are domiciled, which impose general limitations on the payment of dividends and other
upstream distributions by these subsidiaries to MLI.
• Our Asian insurance subsidiaries are also subject to restrictions in the jurisdictions in which these subsidiaries are domiciled which
could affect their ability to pay dividends to MLI in certain circumstances.
We may experience future downgrades in our financial strength or credit ratings, which may materially adversely impact our
financial condition and results of operations.
• Credit rating agencies publish financial strength ratings on life insurance companies that are indicators of an insurance company’s
ability to meet contract holder and policyholder obligations. Credit rating agencies also assign credit ratings, which are indicators of an
issuer’s ability to meet the terms of its obligations in a timely manner and are important factors in a company’s overall funding profile
and ability to access external capital. Ratings reflect the views held by each credit agency, which are subject to change based on
various factors that may be within or beyond a company’s control.
• Ratings are important factors in establishing the competitive position of insurance companies, maintaining public confidence in
products being offered, and determining the cost of capital. A ratings downgrade, or the potential for such a downgrade could adversely
affect our operations and financial condition. A downgrade could, among other things, increase our cost of capital and limit our access
to the capital and loan markets; cause some of our existing liabilities to be subject to acceleration, additional collateral support,
changes in terms, or additional financial obligations; result in the termination of our relationships with broker-dealers, banks, agents,
wholesalers and other distributors of our products and services; increase our cost of hedging; unfavourably impact our ability to
execute on our hedging strategies; materially increase the number of surrenders, for all or a portion of the net cash values, by the
55
owners of policies and contracts we have issued; impact our ability to obtain reinsurance at reasonable prices or at all; and materially
increase the number of withdrawals by policyholders of cash values from their policies; and reduce new sales.
Competitive factors may adversely affect our market share and profitability.
• The insurance, wealth and asset management industries are highly competitive. Our competitors include other insurers, securities
firms, investment advisors, mutual funds, banks and other financial institutions. The rapid advancement of new technologies, such as
blockchain, artificial intelligence and advanced analytics, may enable other non-traditional firms to compete directly in the industry
space, or offer services to our traditional competitors to enhance their value propositions. The impact from technological disruption
may result in our competitors improving their customer experience, product offerings and business costs. Our competitors compete
with us for customers, access to distribution channels such as brokers and independent agents, and for employees. In some cases,
competitors may be subject to less onerous regulatory requirements, have lower operating costs or have the ability to absorb greater
risk while maintaining their financial strength ratings, thereby allowing them to price their products more competitively or offer features
that make their products more attractive. These competitive pressures could result in lower new business volumes and increased
pricing pressures on a number of our products and services that may harm our ability to maintain or increase our profitability. Due to
the highly competitive nature of the financial services industry, there can be no assurance that we will continue to effectively compete
with our traditional and non-traditional industry rivals, and competitive pressure may have a material adverse effect on our business,
results of operations and financial condition.
We may experience difficulty in marketing and distributing products through our current and future distribution channels.
• We distribute our insurance and wealth management products through a variety of distribution channels, including brokers,
independent agents, broker-dealers, banks, wholesalers, affinity partners, other third-party organizations and our own sales force in
Asia. We generate a significant portion of our business through individual third-party arrangements. We periodically negotiate
provisions and renewals of these relationships, and there can be no assurance that such terms will remain acceptable to us or relevant
third parties. An interruption in our continuing relationship with certain of these third parties could significantly affect our ability to
market our products and could have a material adverse effect on our business, results of operations and financial condition.
Industry trends could adversely affect the profitability of our businesses.
• Our business segments continue to be influenced by a variety of trends that affect our business and the financial services industry in
general. The impact of the volatility and instability of the financial markets on our business is difficult to predict and the results of
operations and our financial condition may be significantly impacted by general business and economic trends in the geographies in
which we operate. These conditions include, but are not limited to, market factors, such as public equity, foreign currency, interest rate
and other market risks, demographic shifts, consumer behaviours (e.g. spending habits and debt levels), and governmental policies
(e.g. fiscal, monetary, and global trade). The Company’s business plans, results of operations, and financial condition have been
negatively impacted in the recent past and may also be negatively affected in the future.
We may face unforeseen liabilities or asset impairments arising from possible mergers with, or acquisitions and dispositions of,
businesses or difficulties integrating acquired businesses.
• We have engaged in mergers with, or acquisitions and dispositions of, businesses in the past and expect to continue to do so in the
future as we may deem appropriate. There could be unforeseen liabilities or asset impairments, including goodwill impairments that
arise in connection with the businesses that we may sell, have acquired, or may acquire in the future. In addition, there may be liabilities
or asset impairments that we fail, or are unable, to discover in the course of performing due diligence investigations on acquisition
targets. Furthermore, the use of our own funds as consideration in any acquisition would consume capital resources that would no
longer be available for other corporate purposes.
• Our ability to achieve some or all of the benefits we anticipate from any mergers with, or acquisitions and dispositions of, businesses will
depend in large part upon our ability to successfully integrate the businesses in an efficient and effective manner. We may not be able
to integrate the businesses smoothly or successfully, and the process may take longer than expected. The integration of operations
may require the dedication of significant management resources, which may distract management’s attention from our day-to-day
business. Mergers with, or acquisitions and dispositions of, operations outside of North America, especially any acquisition in a
jurisdiction in which we do not currently operate, may be particularly challenging or costly to integrate. If we are unable to successfully
integrate the operations of any acquired businesses, we may be unable to realize the benefits we expect to achieve as a result of the
acquisitions and the results of operations may be less than expected.
If our businesses do not perform well, or if the outlook for our businesses is significantly lower than historical trends, we may be
required to recognize an impairment of goodwill or intangible assets or to establish a valuation allowance against our deferred tax
assets, which could have a material adverse effect on our results of operations and financial condition.
• Goodwill represents the excess of the amounts we paid to acquire subsidiaries and other businesses over the fair value of their net
identifiable assets at the date of acquisition. Intangible assets represent assets that are separately identifiable at the time of an
acquisition and provide future benefits such as the John Hancock brand.
• As outlined below under “Critical Actuarial and Accounting Policies – Goodwill and Intangible Assets”, goodwill and intangible assets
with indefinite lives are tested at least annually for impairment at the cash generating unit (“CGU”) or group of CGUs level, representing
the smallest group of assets that is capable of generating largely independent cash flows. Going forward, as a result of the impact of
economic conditions and changes in product mix and the granular level of goodwill testing under IFRS, additional impairment charges
could occur in the future. Any impairment in goodwill would not affect LICAT capital.
56 | 2022 Annual Report | Management’s Discussion and Analysis
•
If market conditions deteriorate in the future and, in particular, if MFC’s common share price is low relative to book value per share, if
the Company’s actions to limit risk associated with its products or investments cause a significant change in any one CGU’s recoverable
amount, or if the outlook for a CGU’s results deteriorate, the Company may need to reassess the value of goodwill and/or intangible
assets which could result in impairments during 2023 or subsequent periods. Such impairments could have a material adverse effect
on our results of operations and financial condition.
• Deferred income tax balances represent the expected future tax effects of the differences between the book and tax basis of assets and
liabilities, loss carry forwards and tax credits. Deferred tax assets are recorded when the Company expects to claim deductions on tax
returns in the future for expenses that have already been recorded in the financial statements.
• The availability of those deductions is dependent on future taxable income against which the deductions can be made. Deferred tax
assets are assessed periodically by management to determine if they are realizable. Factors in management’s determination include the
performance of the business including the ability to generate gains from a variety of sources and tax planning strategies. If based on
information available at the time of the assessment, it is determined that the deferred tax asset will not be realized, then the deferred
tax asset is reduced to the extent that it is no longer probable that the tax benefit will be realized.
We may not be able to protect our intellectual property and may be subject to infringement claims.
• We rely on a combination of registrations, contractual rights and copyright, trademark, patent and trade secret laws to establish and
protect our intellectual property. In particular, we have invested considerable resources in promoting and protecting the brand names
“Manulife” and “John Hancock” and expect to continue to do so. Although we use a broad range of measures to protect our intellectual
property rights, third parties may infringe or misappropriate our intellectual property. As the occurrence of potential infringements or
misappropriations against our intellectual property increases, we may have to litigate more often to enforce and protect our copyrights,
trademarks, patents, trade secrets and know-how or to determine their scope, validity or enforceability, which represents a diversion of
resources that may be significant in amount and may not prove successful. The loss of intellectual property protection or the inability to
secure or enforce the protection of our intellectual property assets could have a material adverse effect on our business and our ability
to compete.
• We also may be subject to costly litigation in the event that another party alleges our operations or activities infringe upon its
intellectual property rights. Third parties may have, or may eventually be issued, patents that could be infringed by our products,
methods, processes or services. Any party that holds such a patent could make a claim of infringement against us. We may also be
subject to claims by third parties for breach of copyright, trademark, trade secret or license usage rights. Any such claims and any
resulting litigation could result in significant liability for damages. If we were found to have infringed a third-party patent or other
intellectual property rights, we could incur substantial liability, and in some circumstances could be enjoined from providing certain
products or services to our customers or utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade
secrets or licenses, or alternatively could be required to enter into costly licensing arrangements with third parties, all of which could
have a material adverse effect on our business, results of operations and financial condition.
Applicable laws may discourage takeovers and business combinations that common shareholders of MFC might consider in their
best interests.
• The ICA contains restrictions on the purchase or other acquisition, issue, transfer and voting of the shares of an insurance company. In
addition, under applicable U.S. insurance laws and regulations in states where certain of our insurance company subsidiaries are
domiciled, no person may acquire control of MFC without obtaining prior approval of those states’ insurance regulatory authorities.
These restrictions may delay, defer, prevent, or render more difficult a takeover attempt that common shareholders of MFC might
consider in their best interests. For instance, they may prevent shareholders of MFC from receiving the benefit from any premium to the
market price of MFC’s common shares offered by a bidder in a takeover context. Even in the absence of a takeover attempt, the
existence of these provisions may adversely affect the prevailing market price of MFC’s common shares if they are viewed as
discouraging takeover attempts in the future.
Entities within the MFC group are interconnected which may make separation difficult.
• MFC operates in local markets through subsidiaries and branches of subsidiaries. These local operations are financially and
operationally interconnected to lessen expenses, share and reduce risk, and efficiently utilize financial resources. In general, external
capital required for companies in the Manulife group has been raised at the MFC level in recent years and then transferred to other
entities primarily as equity or debt capital as appropriate. Other linkages include policyholder and other creditor guarantees and other
forms of internal support between various entities, loans, capital maintenance agreements, derivatives, shared services and affiliate
reinsurance treaties. Accordingly, the risks undertaken by a subsidiary may be transferred to or shared by affiliates through financial
and operational linkages. Some of the consequences of this are:
O Financial difficulties at a subsidiary may not be isolated and could cause material adverse effects on affiliates and the group as a whole.
O Linkages may make it difficult to dispose of or separate a subsidiary or business within the group by way of a spin-off or similar
transaction and the disposition or separation of a subsidiary or business may not fully eliminate the liability of the Company and
its remaining subsidiaries for shared risks. Issues raised by such a transaction could include: (i) the Company cannot terminate,
without policyholder consent and in certain jurisdictions regulator consent, parental guarantees on in-force policies and therefore
would continue to have residual risk under any such non-terminated guarantees; (ii) internal capital mobility and efficiency could
be limited; (iii) significant potential tax consequences; (iv) uncertainty about the accounting and regulatory outcomes of such a
57
transaction; (v) obtaining any other required approvals; (vi) there may be a requirement for significant capital injections; and
(vii) the transaction may result in increased sensitivity of net income attributed to shareholders and capital of MFC and its
remaining subsidiaries to market declines.
We may not be able to achieve our sustainability commitments, or our commitments may not meet the expectations of
stakeholders or regulators.
• We continue to build on our sustainability commitments, including our climate-related commitments, as set out in our sustainability
strategy, and continue to adopt policies and processes to manage these commitments, in alignment with our business priorities.
Internal or external circumstances could affect our ability to successfully meet some or all of our sustainability commitments. Our
commitments could also materially change in the future and this could affect stakeholders’ evaluation of us and lead to adverse
reputational impact.
• Our progress towards the commitments is disclosed periodically, which allows our stakeholders, including shareholders, customers and
employees, to evaluate our business based on our advancement towards these commitments. Our reporting on our progress relies on
various external frameworks, methodologies, taxonomies and other standards, which may change over time, resulting in changes to or
restatements of our reporting processes and results. Stakeholders may also evaluate our business by their own sustainability criteria
which may not be consistent with our own criteria or performance indicators, which could result in varying levels of expectations for
which we may not be able to entirely satisfy.
•
• The availability of quality and reliable data, including issuer data, is a notable factor in our ability to set targets, make effective decisions
against, and report our progress towards our targets and strategic areas of focus for our general fund. However, as a consequence of
incomplete, inadequate, or unavailable data, our targets, and our progress toward achieving them, may need to be revisited.
Interim targets support us in understanding how our investments can contribute to decarbonization of the real economy and provide
guideposts against which to measure our progress towards our targets, including our targets to support ambitious global decarbonization
commitments as validated by SBTi. However, our targets, and our progress toward achieving them, may need to be revisited if the
assumptions underlying net zero scenarios and pathways prove incorrect, or if regulatory, economic, technological and other external factors
needed to enable such scenarios and pathways fail to evolve.
• As regulators start to adopt mandatory sustainability related disclosure requirements and investment criteria and taxonomies, there is
an increasing possibility of regulatory sanctions, including fines, and litigations. As a result, we may face adverse investor, media, or
public scrutiny which may negatively impact our financial results and reputation.
Market Risk
Market risk is the risk of loss resulting from market price volatility, interest rate change, credit and swap spread changes, and adverse
foreign exchange rate movements. Market price volatility primarily relates to changes in prices of publicly traded equities and alternative
long-duration assets. The profitability of our insurance and annuity products, as well as the fees we earn in our investment management
business, are subject to market risk.
IFRS 7 Disclosures
Text and tables in this and the following section (“Market Risk Sensitivities and Market Risk Exposure Measures”) include disclosures on
market and liquidity risk in accordance with IFRS 7, “Financial Instruments – Disclosures”, and discussions on how we measure risk and
our objectives, policies and methodologies for managing them. Disclosures in accordance with IFRS 7 are identified by a vertical line in the
left margin of each page. The identified text and tables represent an integral part of our audited annual Consolidated Financial Statements
for the years ended December 31, 2022 and December 31, 2021. The fact that certain text and tables are considered an integral part of
the Consolidated Financial Statements does not imply that the disclosures are of any greater importance than the sections not part of the
disclosure. Accordingly, the “Risk Management and Risk Factors” disclosure should be read in its entirety.
Market Risk Management Strategy
Market risk management strategy is governed by the Global Asset Liability Committee which oversees the overall market and liquidity risk
program. Our overall strategy to manage our market risks incorporates several component strategies, each targeted to manage one or
more of the market risks arising from our businesses. At an enterprise level, these strategies are designed to manage our aggregate
exposures to market risks against limits associated with earnings and capital volatility.
The following table outlines our key market risks and identifies the risk management strategies which contribute to managing these risks.
Risk Management Strategy
Key Market Risk
Product design and pricing
Variable annuity guarantee dynamic hedging
Macro equity risk hedging
Asset liability management
Foreign exchange management
Liquidity risk management
58 | 2022 Annual Report | Management’s Discussion and Analysis
Public
Equity Risk
Interest Rate
and Spread Risk
ALDA
Risk
Foreign
Exchange Risk
Liquidity Risk
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Public Equity Risk – To manage public equity risk from our insurance and annuity businesses, we primarily use a variable annuity
guarantee dynamic hedging strategy which is complemented by a general macro equity risk hedging strategy, in addition to asset liability
management strategies. Our strategies employed for variable annuity guarantee dynamic hedging and macro equity risk hedging expose
the Company to additional risks. See “Market Risk Factors” below.
Interest Rate and Spread Risk – To manage interest rate and spread risk, we primarily employ asset liability management strategies to
manage the duration of our fixed income investments and execute interest rate hedges in our insurance segments and our Corporate and
Other segments.
ALDA Risk – We seek to limit concentration risk associated with ALDA performance by investing in a diversified basket of assets including
commercial real estate, timber, farmland, private equities, infrastructure, and oil and gas assets. We further diversify risk by managing
investments against established investment and risk limits.
Foreign Exchange Risk – Our policy is to generally match the currency of our assets with the currency of the liabilities they support.
Where assets and liabilities are not currency matched, we seek to hedge this exposure where appropriate to stabilize our capital positions
and remain within our enterprise foreign exchange risk limits.
Liquidity Risk – We are exposed to liquidity risk, which is the risk of not having access to sufficient funds or liquid assets to meet both
expected and unexpected cash outflows and collateral demands in our operating and holding companies. In the operating companies,
cash and collateral demands arise day-to-day to fund policyholder benefits, withdrawals of customer deposit balances, reinsurance
settlements, derivative instrument settlements/collateral pledging, expenses, and investment and hedging activities. Under stressed
conditions, additional cash and collateral demands could arise primarily from changes to policyholder termination or policy renewal rates,
withdrawals of customer deposit balances, borrowers renewing or extending their loans when they mature, derivative settlements or
collateral demands, and reinsurance settlements.
Our liquidity risk management framework is designed to provide adequate liquidity to cover cash and collateral obligations as they come
due, and to sustain and grow operations in both normal and stressed conditions. Refer to “Liquidity Risk Management Strategy” below for
more information.
Product Design and Pricing Strategy
Our policies, standards, and guidelines with respect to product design and pricing are designed with the objective of aligning our product
offerings with our risk-taking philosophy and risk appetite, and in particular, ensuring that incremental risk generated from new sales
aligns with our strategic risk objectives and risk limits. The specific design features of our product offerings, including level of benefit
guarantees, policyholder options, fund offerings and availability restrictions as well as our associated investment strategies, help to
mitigate the level of underlying risk. We regularly review and modify key features within our product offerings, including premiums and fee
charges with a goal of meeting profit targets and staying within risk limits. Certain of our general fund adjustable benefit products have
minimum rate guarantees. The rate guarantees for any particular policy are set at the time the policy is issued and governed by insurance
regulation in each jurisdiction where the products are sold. The contractual provisions allow crediting rates to be re-set at pre-established
intervals subject to the established minimum crediting rate guarantees. The Company may partially mitigate the interest rate exposure by
setting new rates on new business and by adjusting rates on in-force business where permitted. In addition, the Company partially
mitigates this interest rate risk through its asset liability management process, product design elements, and crediting rate strategies.
New product initiatives, new reinsurance arrangements and material insurance underwriting initiatives must be reviewed and approved by
the CRO or key individuals within risk management functions.
Hedging Strategies for Variable Annuity and Other Equity Risks
The Company’s exposure to movement in public equity market values primarily arises from insurance liabilities related to variable annuity
guarantees and general fund public equity investments.
Dynamic hedging is the primary hedging strategy for variable annuity market risks. Dynamic hedging is employed for new variable annuity
guarantees business when written or as soon as practical thereafter.
We seek to manage public equity risk arising from unhedged exposures in our insurance liabilities through our macro equity risk hedging
strategy. We seek to manage interest rate risk arising from variable annuity business not dynamically hedged through our asset liability
management strategy.
59
Variable Annuity Dynamic Hedging Strategy
The variable annuity dynamic hedging strategy is designed to hedge the sensitivity of variable annuity guarantee policy liabilities to fund
performance (both public equity and bond funds) and interest rate movements. The objective of the variable annuity dynamic hedging
strategy is to offset, as closely as possible, the change in the economic value of guarantees with the profit and loss from our hedge asset
portfolio. The economic value of guarantees moves in close tandem, but not exactly, with our variable annuity guarantee policy liabilities,
as it reflects best estimate liabilities and does not include any liability provisions for adverse deviations.
Our variable annuity hedging program uses a variety of exchange-traded and over-the-counter (“OTC”) derivative contracts to offset the
change in value of variable annuity guarantees. The main derivative instruments used are equity index futures, government bond futures,
currency futures, interest rate swaps, total return swaps, equity options and interest rate swaptions. The hedge instruments’ positions
against policy liabilities are continuously monitored as market conditions change. As necessary, the hedge asset positions will be
dynamically rebalanced in order to stay within established limits. We may also utilize other derivatives with the objective to improve hedge
effectiveness opportunistically.
Our variable annuity guarantee dynamic hedging strategy is not designed to completely offset the sensitivity of policy liabilities to all risks
associated with the guarantees embedded in these products. The profit (loss) on the hedge instruments will not completely offset the
underlying losses (gains) related to the guarantee liabilities hedged because:
• Policyholder behaviour and mortality experience are not hedged;
• Provisions for adverse deviation in the policy liabilities are not hedged;
• A portion of interest rate risk is not hedged;
• Credit spreads may widen and actions might not be taken to adjust accordingly;
• Fund performance on a small portion of the underlying funds is not hedged due to lack of availability of effective exchange-traded hedge
instruments;
• Performance of the underlying funds hedged may differ from the performance of the corresponding hedge instruments;
• Correlations between interest rates and equity markets could lead to unfavourable material impacts;
• Unfavourable hedge rebalancing costs can be incurred during periods of high volatility from equity markets, bond markets and/or
interest rates. The impact is magnified when these impacts occur concurrently; and
• Not all other risks are hedged.
Macro Equity Risk Hedging Strategy
The objective of the macro equity risk hedging program is to maintain our overall earnings sensitivity to public equity market movements
within our Board approved risk appetite limits. The macro equity risk hedging program is designed to hedge earnings sensitivity due to
movements in public equity markets arising from all sources (outside of dynamically hedged exposures). Sources of equity market
sensitivity addressed by the macro equity risk hedging program include:
• Residual equity and currency exposure from variable annuity guarantees not dynamically hedged;
• General fund equity holdings backing guaranteed, adjustable liabilities and variable universal life; and
• Unhedged provisions for adverse deviation related to variable annuity guarantees dynamically hedged.
Asset Liability Management Strategy
Our asset liability management strategy is designed to help ensure that the market risks embedded in our assets and liabilities held in the
Company’s general fund are effectively managed and that risk exposures arising from these assets and liabilities are maintained within risk
limits. The embedded market risks include risks related to the level and movement of interest rates and credit and swap spreads, public
equity market performance, ALDA performance and foreign exchange rate movements.
General fund product liabilities are categorized into groups with similar characteristics in order to support them with a specific asset
strategy. We seek to align the asset strategy for each group to the premium and benefit patterns, policyholder options and guarantees, and
crediting rate strategies of the products they support. The strategies are set using portfolio analysis techniques intended to optimize
returns, subject to considerations related to regulatory and economic capital requirements, and risk tolerances. They are designed to
achieve broad diversification across asset classes and individual investment risks while being suitably aligned with the liabilities they
support. The strategies encompass asset mix, quality rating, term profile, liquidity, currency and industry concentration targets.
Products which feature guaranteed liability cash flows (i.e., where the projected net flows are not materially dependent upon economic
scenarios) are managed to a target return investment strategy. The products backed by this asset group include:
• Accumulation annuities (other than annuities with pass-through features), which are primarily short-to-medium-term obligations and
offer interest rate guarantees for specified terms on single premiums. Withdrawals may or may not have market value adjustments;
• Payout annuities, which have no surrender options and include predictable and very long-dated obligations; and
•
Insurance products, with recurring premiums extending many years in the future, and which also include a significant component of
very long-dated obligations.
We seek to manage the assets backing these long-dated benefits to achieve a target return sufficient to support the obligations over their
lifetime, subject to established risk tolerances and the impact of regulatory and economic capital requirements. Fixed income assets are
60 | 2022 Annual Report | Management’s Discussion and Analysis
managed to a benchmark developed to minimize interest rate risk against the liability cash flows. Utilizing ALDA and public equity
investments provides a suitable match for long-duration liabilities that also enhances long-term investment returns and reduces aggregate
risk through diversification.
For insurance and annuity products where significant pass-through features exist, a total return strategy approach is used, generally
combining fixed income with ALDA plus public equity investments. ALDA and public equity may be included to enhance long-term
investment returns and reduce aggregate risk through diversification. Target investment strategies are established using portfolio analysis
techniques that seek to optimize long-term investment returns while considering the risks related to embedded product guarantees and
policyholder withdrawal options, the impact of regulatory and economic capital requirements and considering management tolerances
with respect to short-term income volatility and long-term tail risk exposure. For these pass-through products such as participating
insurance and universal life insurance, the investment performance of assets supporting the liabilities will be largely passed through to
policyholders as changes in the amounts of dividends declared or rates of interest credited, subject to embedded minimum guarantees.
Shorter duration liabilities such as fixed deferred annuities do not incorporate ALDA plus public equity investments into their target asset
mixes. Authority to manage our investment portfolios is delegated to investment professionals who manage to benchmarks derived from
the target investment strategies established for each group, including interest rate risk tolerances.
Our asset liability management strategy incorporates a wide variety of risk measurement, risk mitigation and risk management, and
hedging processes. The liabilities and risks to which the Company is exposed, however, cannot be completely matched or hedged due to
both limitations on instruments available in investment markets and uncertainty of impact on liability cash flows from policyholder
experience/behaviour.
Foreign Exchange Risk Management Strategy
Our policy is to generally match the currency of our assets with the currency of the liabilities they support. Where assets and liabilities are
not currency matched, we seek to hedge this exposure where appropriate to stabilize our capital positions and remain within our
enterprise foreign exchange risk limits.
Risk from small balance sheet mismatches is accepted if managed within set risk limits. Risk exposures are measured in terms of potential
changes in capital ratios, due to foreign exchange rate movements, determined to represent a specified likelihood of occurrence based on
internal models.
Liquidity Risk Management Strategy
Global liquidity management policies and procedures are designed to provide adequate liquidity to cover cash and collateral obligations as
they come due, and to sustain and grow operations in both normal and stressed conditions. They reflect legal, regulatory, tax, operational
or economic impediments to inter-entity funding. The asset mix of our balance sheet takes into account the need to hold adequate
unencumbered and appropriate liquid assets to satisfy the requirements arising under stressed scenarios and to allow our liquidity ratios
to remain strong. We manage liquidity centrally and closely monitor the liquidity positions of our principal subsidiaries.
We seek to mitigate liquidity risk by diversifying our business across different products, markets, geographical regions and policyholders.
We design insurance products to encourage policyholders to maintain their policies in-force, to help generate a diversified and stable flow
of recurring premium income. We design the policyholder termination features of our wealth management products and related investment
strategies with the goal of mitigating the financial exposure and liquidity risk related to unexpected policyholder terminations. We establish
and implement investment strategies intended to match the term profile of the assets to the liabilities they support, taking into account the
potential for unexpected policyholder terminations and resulting liquidity needs. Liquid assets represent a large portion of our total assets.
We aim to reduce liquidity risk in our businesses by diversifying our funding sources and appropriately managing the term structure of our
funding. We forecast and monitor daily operating liquidity and cash movements in various individual entities and operations as well as
centrally, aiming to ensure liquidity is available and cash is employed optimally.
We also maintain centralized cash pools and access to other sources of liquidity and contingent liquidity such as repurchase funding
agreements. Our centralized cash pool consists of cash or near-cash, high quality short-term investments that are continually monitored
for their credit quality and market liquidity.
61
As at December 31, 2022, the Company held $241.0 billion in cash and cash equivalents, comprised of cash on deposit, Canadian and
U.S. Treasury Bills and high quality short-term investments, and marketable assets comprised of investment grade government and agency
bonds, investment grade corporate bonds, investment grade securitized instruments, publicly traded common stocks and preferred
shares, compared with $268.4 billion as at December 31, 2021 as noted in the table below.
As at December 31,
($ millions, unless otherwise stated)
Cash and cash equivalents
Marketable assets
Government bonds (investment grade)
Corporate bonds (investment grade)
Securitized — ABS, CMBS, RMBS (investment grade)
Public equities
Total marketable assets
Total cash and cash equivalents and marketable assets(1)
2022
2021
$ 19,153
$ 22,594
70,508
126,827
2,285
22,223
221,843
$ 240,996
77,743
138,479
2,892
26,706
245,820
$ 268,414
(1) Including $13.3 billion encumbered cash and cash equivalents and marketable assets as at December 31, 2022 (2021 – $6.6 billion).
We have established a variety of contingent liquidity sources. These include, among others, a $500 million committed unsecured revolving
credit facility with certain Canadian chartered banks available for MFC, and a US$500 million committed unsecured revolving credit
facility with certain U.S. banks available for MFC and certain of its U.S. subsidiaries. There were no outstanding borrowings under these
facilities as of December 31, 2022 (2021 – nil). In addition, John Hancock Life Insurance Company (U.S.A.) (“JHUSA”) is a member of the
Federal Home Loan Bank of Indianapolis (“FHLBI”), which enables the company to obtain loans from FHLBI as an alternative source of
liquidity that is collateralizable by qualifying mortgage loans, mortgage-backed securities and U.S. Treasury and Agency securities. As of
December 31, 2022, JHUSA had an estimated maximum borrowing capacity of US$3.8 billion (2021 – US$4.4 billion) based on regulatory
limitations with an outstanding balance of US$500 million (2021 – US$500 million), under the FHLBI facility.
The following table outlines the maturity of the Company’s significant financial liabilities.
Maturity of financial liabilities(1)
As at December 31, 2022
($ millions)
Long-term debt
Capital instruments
Derivatives
Deposits from Bank clients(2)
Lease liabilities
$
Less than
1 year
–
–
2,656
16,884
112
$
1 to 3
years
–
615
1,956
3,000
154
3 to 5
years
Over 5
years
$ 2,661
–
1,146
2,623
93
$ 3,573
5,507
8,531
–
61
Total
$ 6,234
6,122
14,289
22,507
420
(1) The amounts shown above are net of the related unamortized deferred issue costs.
(2) Carrying value and fair value of deposits from Bank clients as at December 31, 2022 was $22,507 million and $22,271 million, respectively (2021 – $20,720 million and
$20,746 million, respectively). Fair value is determined by discounting contractual cash flows, using market interest rates currently offered for deposits with similar terms and
conditions. All deposits from Bank clients were categorized in Level 2 of the fair value hierarchy (2021 – Level 2).
Through the normal course of business, pledging of assets is required to comply with jurisdictional regulatory and other requirements
including collateral pledged to partially mitigate derivative counterparty credit risk, assets pledged to exchanges as initial margin and
assets held as collateral for repurchase funding agreements. Total unencumbered assets were $477.7 billion as at December 31,
2022 (2021 – $502.4 billion).
Market Risk Sensitivities and Market Risk Exposure Measures
Variable Annuity and Segregated Fund Guarantees Sensitivities and Risk Exposure Measures
Guarantees on variable annuity products and segregated funds may include one or more of death, maturity, income and withdrawal
guarantees. Variable annuity and segregated fund guarantees are contingent and only payable upon the occurrence of the relevant event,
if fund values at that time are below guarantee values. Depending on future equity market levels, liabilities on current in-force business
would be due primarily in the period from 2023 to 2043.
We seek to mitigate a portion of the risks embedded in our retained (i.e. net of reinsurance) variable annuity and segregated fund
guarantee business through the combination of our dynamic and macro hedging strategies (see “Publicly Traded Equity Performance Risk”
below).
62 | 2022 Annual Report | Management’s Discussion and Analysis
The table below shows selected information regarding the Company’s variable annuity and segregated fund investment-related guarantees
gross and net of reinsurance.
Variable annuity and segregated fund guarantees, net of reinsurance
As at December 31,
($ millions)
Guaranteed minimum income benefit
Guaranteed minimum withdrawal benefit
Guaranteed minimum accumulation benefit
Gross living benefits(4)
Gross death benefits(5)
Total gross of reinsurance
Living benefits reinsured
Death benefits reinsured
Total reinsured
Total, net of reinsurance(6)
2022
2021
Guarantee
value(1)
$ 4,357
38,319
20,035
62,711
10,465
73,176
26,999
3,923
30,922
$ 42,254
Fund value
$ 2,723
34,203
19,945
56,871
15,779
72,650
23,691
2,636
26,327
$ 46,323
Net
amount at
risk(1),(2),(3)
$ 1,639
5,734
221
7,594
2,156
9,750
4,860
1,061
5,921
$ 3,829
Guarantee
value(1)
$ 4,419
39,098
19,820
63,337
11,105
74,442
3,788
639
4,427
$ 70,015
Fund value
$ 3,603
41,809
20,226
65,638
22,920
88,558
3,102
547
3,649
$ 84,909
Net
amount at
risk(1),(2),(3)
918
$
2,233
12
3,163
618
3,781
771
253
1,024
$ 2,757
(1) Guarantee Value and Net Amount at Risk in respect of guaranteed minimum withdrawal business in Canada and the U.S. have been updated in 2021 to reflect the time value of
money of these claims.
(2) Amount at risk (in-the-money amount) is the excess of guarantee values over fund values on all policies where the guarantee value exceeds the fund value. For guaranteed
minimum death benefit, the amount at risk is defined as the current guaranteed minimum death benefit in excess of the current account balance and assumes that all claims
are immediately payable. In practice, guaranteed death benefits are contingent and only payable upon the eventual death of policyholders if fund values remain below
guarantee values. For guaranteed minimum withdrawal benefit, the amount at risk assumes that the benefit is paid as a lifetime annuity commencing at the earliest
contractual income start age. These benefits are also contingent and only payable at scheduled maturity/income start dates in the future, if the policyholders are still living
and have not terminated their policies and fund values remain below guarantee values. For all guarantees, the amount at risk is floored at zero at the single contract level.
(3) The amount at risk net of reinsurance at December 31, 2022 was $3,829 million (2021 – $2,757 million) of which: US$737 million (2021 – US$1,336 million) was on our
U.S. business, $2,154 million (2021 – $886 million) was on our Canadian business, US$275 million (2021 – US$53 million) was on our Japan business and US$224 million
(2021 – US$87 million) was related to Asia (other than Japan) and our run-off reinsurance business.
(4) Where a policy includes both living and death benefits, the guarantee in excess of the living benefit is included in the death benefit category as outlined in footnote 5.
(5) Death benefits include standalone guarantees and guarantees in excess of living benefit guarantees where both death and living benefits are provided on a policy.
(6) Reinsured amounts at December 31, 2022 reflect the U.S. variable annuity reinsurance transactions effected on February 1, 2022 and October 3, 2022.
Investment categories for variable contracts with guarantees
Variable contracts with guarantees, including variable annuities and variable life, are invested, at the policyholder’s discretion subject to
contract limitations, in various fund types within the segregated fund accounts and other investments. The account balances by investment
category are set out below.
As at December 31,
($ millions)
Investment category
Equity funds
Balanced funds
Bond funds
Money market funds
Other fixed interest rate investments
Total
2022
$ 42,506
36,290
9,336
1,924
2,029
$ 92,085
2021
$ 52,528
43,783
10,965
1,844
1,917
$ 111,037
Caution Related to Sensitivities
In the sections that follow, we provide sensitivities and risk exposure measures for certain risks. These include sensitivities due to specific
changes in market prices and interest rate levels projected using internal models as at a specific date and are measured relative to a
starting level reflecting the Company’s assets and liabilities at that date and the actuarial factors, investment activity and investment
returns assumed in the determination of policy liabilities. The risk exposures measure the impact of changing one factor at a time and
assume that all other factors remain unchanged. Actual results can differ significantly from these estimates for a variety of reasons
including the interaction among these factors when more than one changes; changes in actuarial and investment return and future
investment activity assumptions; actual experience differing from the assumptions, changes in business mix, effective tax rates and other
market factors; and the general limitations of our internal models. For these reasons, the sensitivities should only be viewed as directional
estimates of the underlying sensitivities for the respective factors based on the assumptions outlined below. Given the nature of these
calculations, we cannot provide assurance that the actual impact on net income attributed to shareholders or on MLI’s LICAT ratio will be
as indicated. Market movements affect LICAT capital sensitivities both through income and other components of the regulatory capital
framework. For example, LICAT is affected by changes to other comprehensive income.
6
Publicly Traded Equity Performance Risk Sensitivities and Exposure Measures
As outlined above, we have net exposure to equity risk through asset and liability mismatches; our variable annuity guarantee dynamic
hedging strategy is not designed to completely offset the sensitivity of policy liabilities to all risks associated with the guarantees
embedded in these products. The macro hedging strategy is designed to mitigate public equity risk arising from variable annuity
guarantees not dynamically hedged and from other unhedged exposures in our insurance liabilities.
Changes in public equity prices may impact other items including, but not limited to, asset-based fees earned on assets under
management and administration or policyholder account value, and estimated profits and amortization of deferred policy acquisition and
other costs. These items are not hedged.
The table below shows the potential impact on net income attributed to shareholders resulting from an immediate 10%, 20% and 30%
change in market values of publicly traded equities followed by a return to the expected level of growth assumed in the valuation of policy
liabilities. If market values were to remain flat for an entire year, the potential impact would be roughly equivalent to an immediate decline
in market values equal to the expected level of annual growth assumed in the valuation of policy liabilities. Further, if after market values
dropped 10%, 20% or 30%, they continued to decline, remained flat, or grew more slowly than assumed in the valuation the potential
impact on net income attributed to shareholders could be considerably more than shown. Refer to “Sensitivity of Earnings to Changes in
Assumptions” for more information on the level of growth assumed and on the net income sensitivity to changes in these long-term
assumptions. The potential impact is shown after taking into account the impact of the change in markets on the hedge assets. While we
cannot reliably estimate the amount of the change in dynamically hedged variable annuity guarantee liabilities that will not be offset by the
profit or loss on the dynamic hedge assets, we make certain assumptions for the purposes of estimating the impact on net income
attributed to shareholders.
This estimate assumes that the performance of the dynamic hedging program would not completely offset the gain/loss from the
dynamically hedged variable annuity guarantee liabilities. It assumes that the hedge assets are based on the actual position at the period
end, and that equity hedges in the dynamic program are rebalanced at 5% intervals. In addition, we assume that the macro hedge assets
are rebalanced in line with market changes.
It is also important to note that these estimates are illustrative, and that the dynamic and macro hedging programs may underperform
these estimates, particularly during periods of high realized volatility and/or periods where both interest rates and equity market
movements are unfavourable.
The Standards of Practice for the valuation of insurance contract liabilities and guidance published by the CIA constrain the investment
return assumptions for public equities and certain ALDA assets based on historical return benchmarks for public equities. The potential
impact on net income attributed to shareholders does not take into account possible changes to investment return assumptions resulting
from the impact of declines in public equity market values on these historical return benchmarks.
64 | 2022 Annual Report | Management’s Discussion and Analysis
Potential immediate impact on net income attributed to shareholders arising from changes to public equity returns(1),(2),(3)
As at December 31, 2022
($ millions)
Underlying sensitivity to net income attributed to shareholders(4)
Variable annuity guarantees
General fund equity investments(5)
Total underlying sensitivity before hedging
Impact of macro and dynamic hedge assets(6)
Net potential impact on net income attributed to shareholders after
-30%
-20%
-10%
+10%
+20%
+30%
$
$ (1,100)
(1,520)
(2,620)
850
$
(660)
(1,010)
(1,670)
530
(300)
(500)
(800)
240
$ 240
420
660
(230)
$ 450
820
1,270
(420)
$
610
1,220
1,830
(570)
impact of hedging(7)
$ (1,770)
$ (1,140)
$
(560)
$ 430
$ 850
$ 1,260
As at December 31, 2021
($ millions)
Underlying sensitivity to net income attributed to shareholders(4)
Variable annuity guarantees
General fund equity investments(5)
Total underlying sensitivity before hedging
Impact of macro and dynamic hedge assets(6)
Net potential impact on net income attributed to shareholders after
-30%
-20%
-10%
+10%
+20%
+30%
$ (2,560) $ (1,480) $
(1,430)
(3,990)
2,060
(890)
(2,370)
1,190
(630) $ 440
450
(440)
890
(1,070)
(470)
500
$ 750
880
1,630
(820)
$
960
1,320
2,280
(1,110)
impact of hedging(7)
$ (1,930) $ (1,180) $
(570) $ 420
$ 810
$ 1,170
(1) See “Caution Related to Sensitivities” above.
(2) The tables above show the potential impact on net income attributed to shareholders resulting from an immediate 10%, 20% and 30% change in market values of publicly
traded equities followed by a return to the expected level of growth assumed in the valuation of policy liabilities, excluding impacts from asset-based fees earned on assets
under management and policyholder account value.
(3) Please refer to “Sensitivity of Earnings to Changes in Assumptions” section below for more information on the level of growth assumed and on the net income sensitivity to
changes in these long-term assumptions.
(4) Defined as earnings sensitivity to a change in public equity markets including settlements on reinsurance contracts, but before the offset of hedge assets or other risk
mitigants.
(5) This impact for general fund equity investments includes general fund investments supporting our policy liabilities, investment in seed money investments (in segregated and
mutual funds made by Corporate and Other segment) and the impact on policy liabilities related to the projected future fee income on variable universal life and other unit
linked products. The impact does not include: (i) any potential impact on public equity weightings; (ii) any gains or losses on AFS public equities held in the Corporate and
Other segment; or (iii) any gains or losses on public equity investments held in Manulife Bank. The participating policy funds are largely self-supporting and generate no
material impact on net income attributed to shareholders as a result of changes in equity markets.
(6) Includes the impact of rebalancing equity hedges in the macro and dynamic hedging program. The impact of dynamic hedge rebalancing represents the impact of rebalancing
equity hedges for dynamically hedged variable annuity guarantee best estimate liabilities at 5% intervals but does not include any impact in respect of other sources of hedge
ineffectiveness (e.g. fund tracking, realized volatility and equity, interest rate correlations different from expected among other factors).
(7) The sensitivity on net income attributed to shareholders from changes in public equity returns after the impact of hedging is largely unchanged as at December 31, 2022
compared with December 31, 2021. This is primarily driven by the decline in sensitivities in 1Q22 as a result of the U.S. variable annuity reinsurance transaction being
largely offset by the net increase in sensitivities from the second quarter of 2022 (“2Q22”) to 4Q22 as a result of the impact of equity market declines on our variable
universal life business projected fee income.
The following table shows the potential impact to MLI’s LICAT ratio resulting from changes in public equity market values.
Potential immediate impact on MLI’s LICAT ratio arising from public equity returns different than the expected returns assumed in
the valuation of policy liabilities(1),(2),(3)
Percentage points
December 31, 2022
December 31, 2021
Impact on MLI’s LICAT ratio
-30%
-20%
-10%
+10%
+20%
+30%
(1)
(1)
(1)
–
–
–
–
–
1
1
1
–
(1) See “Caution Related to Sensitivities” above. In addition, estimates exclude changes to the net actuarial gains/losses with respect to the Company’s pension obligations as a
result of changes in equity markets, as the impact on the quoted sensitivities is not considered to be material.
(2) The potential impact is shown assuming that the change in value of the hedge assets does not completely offset the change in the dynamically hedged variable annuity
guarantee liabilities. The estimated amount that would not be completely offset relates to our practices of not hedging the provisions for adverse deviation and of rebalancing
equity hedges for dynamically hedged variable annuity liabilities at 5% intervals.
(3) OSFI rules for segregated fund guarantees reflect full capital impacts of shocks over 20 quarters within a prescribed range. As such, the deterioration in equity markets could
lead to further increases in capital requirements after the initial shock.
Interest Rate and Spread Risk Sensitivities and Exposure Measures
At December 31, 2022, we estimated the sensitivity of our net income attributed to shareholders to a 50 basis point parallel decline in
interest rates to be a charge of $100 million, and to a 50 basis point parallel increase in interest rates to be a benefit of $100 million.
The table below shows the potential impact on net income attributed to shareholders from a 50 basis point parallel move in interest rates.
This includes a change of 50 basis points in current government, swap and corporate rates for all maturities across all markets with no
change in credit spreads between government, swap and corporate rates, and with a floor of zero on government rates where government
rates are not currently negative (currently zero floor applies to all countries we operate in except Japan), relative to the rates assumed in
the valuation of policy liabilities, including embedded derivatives. For variable annuity guarantee liabilities that are dynamically hedged, it
is assumed that interest rate hedges are rebalanced at 20 basis point intervals.
65
As the sensitivity to a 50 basis point change in interest rates includes any associated change in the applicable reinvestment scenarios, the
impact of changes to interest rates for less than, or more than 50 basis points is unlikely to be linear. Furthermore, our sensitivities are not
consistent across all regions in which we operate, and the impact of yield curve changes will vary depending upon the geography where the
change occurs. Reinvestment assumptions used in the valuation of policy liabilities tend to amplify the negative effects of a decrease in
interest rates and dampen the positive effects of interest rate increases. This is because the reinvestment assumptions used in the
valuation of our insurance liabilities are based on interest rate scenarios and calibration criteria set by the ASB. Therefore, in any particular
quarter, changes to the reinvestment assumptions are not fully aligned to changes in current market interest rates especially when there is
a significant change in the shape of the interest rate curve. As a result, the impact from non-parallel movements may be materially
different from the estimated impact of parallel movements. For example, if long-term interest rates increase more than short-term interest
rates (sometimes referred to as a steepening of the yield curve) in North America, the decrease in the value of our swaps may be greater
than the decrease in the value of our insurance liabilities. This could result in a charge to net income attributed to shareholders in the
short-term even though the rising and steepening of the yield curve, if sustained, may have a positive long-term economic impact.
The interest rate and spread risk sensitivities are determined in isolation of each other and therefore do not reflect the combined impact of
changes in government rates and credit spreads between government, swap and corporate rates occurring simultaneously. As a result, the
impact of the summation of each individual sensitivity may be materially different from the impact of sensitivities to simultaneous changes
in interest rate and spread risk.
The potential impact on net income attributed to shareholders does not take into account any future potential changes to our URR
assumptions or calibration criteria for stochastic risk-free rates. In 2021, the ASB issued a new promulgation with reductions to the URR
and updates to the calibration criteria for stochastic risk-free rates. The updated standard included a reduction of 15 basis points in the
URR and a corresponding change to stochastic risk-free rate modeling and was effective October 15, 2021. At December 31, 2022, we
estimated the sensitivity of our net income attributed to shareholders to a 10 basis point reduction in the URR in all geographies, and a
corresponding change to stochastic risk-free modeling, to be a charge of $300 million (post-tax); and note that the impact of changes to
the URR are not linear. The long-term URR for risk-free rates in Canada is prescribed at 2.9% and we use the same assumption for the U.S.
Our assumption for Japan is 1.5%.
The potential impact on net income attributable to shareholders does not take into account other potential impacts of lower interest rate
levels, for example, increased strain on the sale of new business or lower interest earned on our surplus assets. The impact on net income
attributed to shareholders also does not reflect any unrealized gains or losses on AFS fixed income assets held in our Corporate and Other
segment. Changes in the market value of these assets may provide a natural economic offset to the interest rate risk arising from our
product liabilities. In order for there to also be an accounting offset, the Company would need to realize a portion of the AFS fixed income
asset unrealized gains or losses. It is not certain we would realize any of the unrealized gains or losses available.
The impact does not reflect any potential effect of changing interest rates to the value of our ALDA assets. Rising interest rates could
negatively impact the value of our ALDA (see “Critical Actuarial and Accounting Policies – Fair Value of Invested Assets”, below). More
information on ALDA can be found under the section “Alternative Long-Duration Asset Performance Risk Sensitivities and Exposure
Measures”, below.
Under LICAT, changes in unrealized gains or losses in our AFS bond portfolio resulting from interest rate shocks tend to dominate capital
sensitivities. As a result, the reduction in interest rates improves LICAT ratios and vice-versa.
The following table shows the potential impact on net income attributed to shareholders as well as the change in the market value of AFS
fixed income assets held in our Corporate and Other segment, which could be realized through the sale of these assets.
Potential impact on net income attributed to shareholders and MLI’s LICAT ratio of an immediate parallel change in interest rates
relative to rates assumed in the valuation of policy liabilities(1),(2),(3),(4)
As at December 31,
Net income attributed to shareholders ($ millions)
Changes in other comprehensive income from fair value changes in AFS fixed income assets held
2022
2021
-50bp
+50bp
-50bp
+50bp
$ (100)
$
100
$
(200) $
nil
in the Corporate and Other segment ($ millions)
1,500
(1,400)
2,100
(1,900)
MLI’s LICAT ratio (change in percentage points)(5)
3
(2)
5
(4)
(1) See “Caution Related to Sensitivities” above. In addition, estimates exclude changes to the net actuarial gains/losses with respect to the Company’s pension obligations as a
result of changes in interest rates, as the impact on the quoted sensitivities is not considered to be material.
(2) Includes guaranteed insurance and annuity products, including variable annuity contracts as well as adjustable benefit products where benefits are generally adjusted as
interest rates and investment returns change, a portion of which have minimum credited rate guarantees. For adjustable benefit products subject to minimum rate
guarantees, the sensitivities are based on the assumption that credited rates will be floored at the minimum.
(3) The amount of gain or loss that can be realized on AFS fixed income assets held in the Corporate and Other segment will depend on the aggregate amount of unrealized gain
or loss.
(4) Sensitivities are based on projected asset and liability cash flows and the impact of realizing fair value changes in AFS fixed income is based on the holdings at the end of the period.
(5) LICAT impacts include realized and unrealized fair value changes in AFS fixed income assets. LICAT impacts do not reflect the impact of the scenario switch discussed below.
The following tables show the potential impact on net income attributed to shareholders resulting from a change in corporate spreads and
swap spreads over government bond rates for all maturities across all markets with a floor of zero on the total interest rate, relative to the
spreads assumed in the valuation of policy liabilities.
66 | 2022 Annual Report | Management’s Discussion and Analysis
Potential impact on net income attributed to shareholders and MLI’s LICAT ratio arising from changes to corporate spreads and
swap spreads relative to spreads assumed in the valuation of policy liabilities(1),(2),(3)
Corporate spreads(4),(5)
As at December 31,
Net income attributed to shareholders ($ millions)(6)
MLI’s LICAT ratio (change in percentage points)(7)
Swap spreads
As at December 31,
Net income attributed to shareholders ($ millions)
MLI’s LICAT ratio (change in percentage points)(7)
2022
2021
-50bp
+50bp
-50bp
+50bp
$ (100)
(3)
$ nil
3
$ (600) $ 500
4
(3)
2022
2021
-20bp
+20bp
-20bp
+20bp
$
nil
nil
$ nil
nil
$
nil
nil
$
nil
nil
(1) See “Caution Related to Sensitivities” above.
(2) The impact on net income attributed to shareholders assumes no gains or losses are realized on our AFS fixed income assets held in the Corporate and Other segment and
excludes the impact of changes in segregated fund bond values due to changes in credit spreads. The participating policy funds are largely self-supporting and generate no
material impact on net income attributed to shareholders as a result of changes in corporate and swap spreads.
(3) Sensitivities are based on projected asset and liability cash flows.
(4) Corporate spreads are assumed to grade to the long-term average over five years.
(5) As the sensitivity to a 50 basis point decline in corporate spreads includes the impact of a change in deterministic reinvestment scenarios where applicable, the impact of
changes to corporate spreads for less than, or more than, the amounts indicated are unlikely to be linear.
(6) The sensitivity on net income attributed to shareholders due to changes in corporate spreads decreased significantly as at December 31, 2022 compared with
December 31, 2021, as the rise in risk-free interest rates reduced projected reinvestments in the actuarial valuation models.
(7) LICAT impacts include realized and unrealized fair value change in AFS fixed income assets. Under LICAT, spread movements are determined from a selection of investment
grade bond indices with BBB and better bonds for each jurisdiction. For LICAT, we use the following indices: FTSE TMX Canada All Corporate Bond Index, Barclays USD Liquid
Investment Grade Corporate Index, and Nomura-BPI (Japan). LICAT impacts presented for corporate spreads do not reflect the impact of the scenario switch discussed below.
Swap spreads remain at low levels, and if they were to rise, this could generate material charges to net income attributed to shareholders.
LICAT Scenario Switch
Typically, a reduction in interest rates improves LICAT ratios and vice-versa. However, when interest rates decline past a certain threshold,
reflecting the combined movement in risk-free rates and corporate spreads, a different prescribed interest rate stress scenario needs to be
taken into account in the LICAT ratio calculation in accordance with OSFI guidelines for LICAT.
The LICAT guideline specifies four stress scenarios for interest rates and prescribes the methodology to determine the most adverse
scenario to apply for each LICAT geographic region1 based on current market inputs and the Company’s balance sheet.
With the rise in interest rates in 2022, the probability of a scenario switch has decreased significantly. In a lower interest rate environment,
we would estimate the incremental impact of a potential switch in the scenarios to be approximately a one-time six percentage point
decrease in MLI’s LICAT ratio. Should a scenario switch be triggered in a LICAT geographic region, the full impact would be reflected
immediately for non-participating products while the impact for participating products would be reflected over six quarters using a rolling
average of interest rate risk capital, in line with the smoothing approach prescribed in the OSFI Advisory effective January 1, 2021.
The potential negative impact of a switch in scenarios is not reflected in the stated risk-free rate and corporate spread sensitivities, as it is
a one-time impact. After this one-time event, further decreases in risk-free interest rates would continue to improve the LICAT capital
position, similar to the sensitivity above.
The level of interest rates and corporate spreads that would trigger a switch in the scenarios is dependent on market conditions and
movements in the Company’s asset and liability position. The scenario switch, if triggered, could reverse in response to subsequent
increases in interest rates and/or corporate spreads.
Alternative Long-Duration Asset Performance Risk Sensitivities and Exposure Measures
The following table shows the potential impact on net income attributed to shareholders resulting from an immediate 10% change in
market values of ALDA followed by a return to the expected level of growth assumed in the valuation of policy liabilities. If market values
were to remain flat for an entire year, the potential impact would be roughly equivalent to an immediate decline in market values equal to
the expected level of annual growth assumed in the valuation of policy liabilities. Further, if after market values dropped 10% they
continued to decline, remained flat, or grew more slowly than assumed in the valuation of policy liabilities, the potential impact on net
income attributed to shareholders could be considerably more than shown. Refer to “Sensitivity of Earnings to Changes in Assumptions”
below, for more information on the level of growth assumed and on the net income sensitivity to changes in these long-term assumptions.
ALDA includes commercial real estate, timber and farmland real estate, infrastructure, and private equities, some of which relate to oil and gas.
1 LICAT geographic locations include North America, the United Kingdom, Europe, Japan, and Other Region.
67
Potential impact on net income attributed to shareholders and MLI’s LICAT ratio arising from changes in ALDA returns relative to
returns assumed in the valuation of policy liabilities(1),(2),(3),(4),(5),(6)
As at December 31,
($ millions)
Net income attributed to shareholders
Real estate, agriculture and timber assets
Private equities and other ALDA
Total(7)
MLI’s LICAT ratio (change in percentage points)
2022
2021
-10%
+10%
-10%
+10%
$ (1,300)
(1,600)
$ (2,900)
(3)
$ 1,300
1,500
$ 2,800
2
(1,900)
$ (1,400) $ 1,400
1,800
$ (3,300) $ 3,200
3
(4)
(1) See “Caution Related to Sensitivities” above.
(2) This impact is calculated as at a point-in-time impact and does not include: (i) any potential impact on ALDA weightings or (ii) any gains or losses on ALDA held in the Corporate
and Other segment.
(3) The participating policy funds are largely self-supporting and generate no material impact on net income attributed to shareholders as a result of changes in ALDA returns. For
some classes of ALDA, where there is not an appropriate long-term benchmark available, the return assumptions used in valuation are not permitted by the Standards of
Practice and CIA guidance to result in a lower reserve than an assumption based on a historical return benchmark for public equities in the same jurisdiction.
(4) Net income impact does not consider any impact of the market correction on assumed future return assumptions.
(5) Please refer to “Sensitivity of Earnings to Changes in Assumptions” section below for more information on the level of growth assumed and on the net income sensitivity to
changes in these long-term assumptions.
(6) The impact of changes to the portfolio asset mix supporting our North American legacy businesses are reflected in the sensitivities when the changes take place.
(7) The decrease in net income sensitivity under each ALDA returns scenario was primarily driven by the increase in fixed income yields since December 31, 2021. This led to
higher fixed income reinvestment rates relative to ALDA returns, which decreases the ALDA sensitivity because more fixed income assets are held compared to ALDA.
Foreign Exchange Risk Sensitivities and Exposure Measures
We generally match the currency of our assets with the currency of the insurance and investment contract liabilities they support, with the
objective of mitigating risk of loss arising from foreign exchange rate changes. As at December 31, 2022, we did not have a material
unmatched currency exposure.
The following table shows the potential impact on core earnings of a 10% change in the value of the Canadian dollar relative to our other
key operating currencies. Note that the impact of foreign currency exchange rates on items excluded from core earnings does not provide
relevant information given the nature of these items.
Potential impact on core earnings of changes in foreign exchange rates(1),(2)
As at December 31,
($ millions)
2022
2021
+10%
strengthening
-10%
weakening
+10%
strengthening
-10%
weakening
10% change in the Canadian dollar relative to the U.S. dollar and the Hong Kong dollar
10% change in the Canadian dollar relative to the Japanese yen
$ (350)
(40)
$ 350
40
$ (400)
(40)
$ 400
40
(1) This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
(2) See “Caution Related to Sensitivities” above.
LICAT regulatory ratios are also sensitive to the fluctuations in the Canadian dollar relative to our other key operating currencies. The
direction and materiality of this sensitivity varies across various capital metrics.
Liquidity Risk Exposure Strategy
We manage liquidity levels of the consolidated group and key subsidiaries against established thresholds. These thresholds are based on
liquidity stress scenarios over different time horizons.
Increased use of derivatives for hedging purposes has necessitated greater emphasis on measurement and management of contingent
liquidity risk related to these instruments, in particular the movement of “over-the-counter” derivatives to central clearing in the U.S. and
Japan places an emphasis on cash as the primary source of liquidity as opposed to security holdings. The market value of our derivative
portfolio is therefore regularly stress tested to assess the potential collateral and cash settlement requirements under various market
conditions.
Manulife Bank (the “Bank”) has a standalone liquidity risk management framework. The framework includes stress testing, cash flow
modeling, a funding plan and a contingency plan. The Bank has an established securitization infrastructure which enables the Bank to
access a range of funding and liquidity sources. The Bank models extreme but plausible stress scenarios that demonstrate that the Bank
has a sufficient pool of highly liquid marketable securities, which when combined with the Bank’s capacity to securitize residential
mortgage assets provides sufficient liquidity to meet potential requirements under these stress scenarios.
Similarly, Global WAM has a standalone liquidity risk management framework for the businesses managing assets or manufacturing
investment products for third-party clients. We maintain fiduciary standards to ensure that client and regulatory expectations are met in
relation to the liquidity risks taken within each investment. Additionally, we regularly monitor and review the liquidity of our investment
products as part of our ongoing risk management practices.
68 | 2022 Annual Report | Management’s Discussion and Analysis
Market Risk Factors
Our most significant source of publicly traded equity risk arises from equity-linked products with guarantees, where the guarantees
are linked to the performance of the underlying funds.
• Publicly traded equity performance risk arises from a variety of sources, including guarantees associated with equity-linked investments
such as variable annuity and segregated fund products, general fund investments in publicly traded equities and mutual funds backing
general fund product liabilities.
• Market conditions resulting in reductions in the asset value we manage has an adverse effect on the revenues and profitability of our
investment management business, which depends on fees related primarily to the values of assets under management and
administration.
• Guaranteed benefits of variable annuity and segregated funds are contingent and payable upon death, maturity, permitted withdrawal
or annuitization. If equity markets decline or even if they increase by an amount lower than that assumed in our actuarial valuation,
additional liabilities may need to be established to cover the contingent liabilities, resulting in a reduction in net income attributed to
shareholders and regulatory capital ratios. Further, if equity markets do not recover to the amount of the guarantees, by the dates the
liabilities are due, the accrued liabilities will need to be paid out in cash. In addition, sustained flat or declining public equity markets
would likely reduce asset-based fee revenues related to variable annuities and segregated funds with guarantees and related to other
wealth and insurance products.
• Where publicly traded equity investments are used to support general fund product liabilities, the policy valuation incorporates
projected investment returns on these assets. If actual returns are lower than the expected returns, the investment losses will reduce
net income attributed to shareholders.
• For products where the investment strategy applied to future cash flows in the policy valuation includes investing a specified portion of
future cash flows in publicly traded equities, a decline in the value of publicly traded equities relative to other assets could require us to
change the investment mix assumed for future cash flows, which may increase policy liabilities and reduce net income attributed to
shareholders. A reduction in the outlook for expected future returns for publicly traded equities, which could result from a fundamental
change in future expected economic growth, would increase policy liabilities and reduce net income attributed to shareholders.
Furthermore, to the extent publicly traded equities are held as AFS, other than temporary impairments that arise will reduce income.
• Expected long-term annual market growth assumptions for public equities for key markets are based on long-term historical observed
experience. See “Critical Actuarial and Accounting Policies” below for the rates used in the stochastic valuation of our segregated fund
guarantee business. The calibration of the economic scenario generators that are used to value segregated fund guarantee business
complies with current CIA Standards of Practice for the valuation of these products. Implicit margins, determined through stochastic
valuation processes, lower net yields used to establish policy liabilities. Assumptions used for public equities backing liabilities are also
developed based on historical experience but are constrained by different CIA Standards of Practice and differ slightly from those used
in stochastic valuation. Alternative asset return assumptions vary based on asset class but are largely consistent, after application of
valuation margins and differences in taxation, with returns assumed for public equities.
We experience interest rate and spread risk within the general fund primarily due to the uncertainty of future returns on
investments.
•
Interest rate and spread risk arises from general fund guaranteed benefit products, general fund adjustable benefit products with
minimum rate guarantees, general fund products with guaranteed surrender values, segregated fund products with minimum benefit
guarantees and from surplus fixed income investments. The risk arises within the general fund primarily due to the uncertainty of future
returns on investments to be made as assets mature and as recurring premiums are received and invested or reinvested to support
longer dated liabilities. Interest rate risk also arises due to minimum rate guarantees and guaranteed surrender values on products
where investment returns are generally passed through to policyholders. A rapid rise in interest rates may also result in losses
attributable to early liquidation of fixed income instruments supporting contractual surrender benefits, if customers surrender to take
advantage of higher interest rates on offer elsewhere. In contrast, in a lower interest rate environment, borrowers may prepay or
redeem fixed income securities, mortgages and loans with greater frequency in order to borrow at lower market rates, potentially
reducing the returns on our investment portfolio, if there are no make whole conditions. Substantially all our fixed income securities,
mortgages and loans portfolio include make whole conditions.
• The valuation of policy liabilities reflects assumptions for the yield on future investments and the projected cash flows associated with
interest rate hedges. A general decline in interest rates, without a change in corporate bond spreads and swap spreads, will reduce the
assumed yield on future investments but favourably impact the value of lengthening interest rate hedges. Conversely, a general
increase in interest rates, without a change in corporate bond spreads and swap spreads, will increase the assumed yield on future
investments, but unfavourably impact the value of lengthening interest rate hedges. The Company’s disclosed estimated impact from
interest rate movements reflects a parallel increase and decrease in interest rates of specific amounts. The impact from non-parallel
movements may be different from the estimated impact of parallel movements. For further information on interest rate scenarios refer
to “Interest Rate and Spread Risk Sensitivities and Exposure Measures”. In addition, decreases in corporate bond spreads or increases
in swap spreads should generally result in an increase in policy liabilities and a reduction in net income attributed to shareholders, while
an increase in corporate bond spreads or a decrease in swap spreads should generally have the opposite impact. The impact of
changes in interest rates and in spreads may be partially offset by changes to credited rates on adjustable products that pass-through
investment returns to policyholders.
69
• For segregated fund and variable annuity products that contain investment guarantees in the form of benefit guarantees, a sustained
increase in interest rate volatility or a decline in interest rates would increase the costs of hedging the benefit guarantees provided. The
impact of changes in interest rates are managed within the variable annuity dynamic hedging program.
We experience ALDA performance risk when actual returns are lower than expected returns.
• ALDA performance risk arises from general fund investments in directly-owned real estate, timber properties, farmland properties,
infrastructure, oil and gas assets, and private equities.
• Where these assets are used to support policy liabilities, the policy valuation incorporates projected investment returns on these
assets. ALDA assumptions vary by asset class and generally have a similar impact on policy liabilities as public equities would. If actual
returns are lower than the expected returns, there will be a negative impact to the net income attributed to shareholders. A reduction in
the outlook for expected future returns for ALDA, which could result from a variety of factors such as a fundamental change in future
expected economic growth or declining risk premiums due to increased competition for such assets, would increase policy liabilities
and reduce net income attributed to shareholders. Further, if returns on certain external asset benchmarks used to determine
permissible assumed returns under the CIA Standards of Practice are lower than expected, expected future returns will be adjusted
accordingly and the Company’s policy liabilities will increase, reducing net income attributed to shareholders.
• The value of oil and gas assets could be adversely affected by declines in energy prices as well as by a number of other factors including
production declines, uncertainties associated with estimating oil and natural gas reserves, difficult economic conditions, changes in
consumer preferences to transition to a low-carbon economy, competition from renewable energy providers and geopolitical events.
Changes in government regulation of the oil and gas industry, including environmental regulation, carbon taxes and changes in the
royalty rates resulting from provincial royalty reviews, could also adversely affect the value of our oil and gas investments.
• Difficult economic conditions could result in higher vacancy, lower rental rates and lower demand for real estate investments, all of
which would adversely impact the value of our diversified real estate investments. Our commercial real estate investments may be
negatively impacted by the trends solidified by COVID-19, including the digitization of work and the transformation of physical retail.
Difficult economic conditions could also prevent companies in which we have made private equity investments from achieving their
business plans and could cause the value of these investments to fall, or even cause the companies to fail. Sustained declines in
valuation multiples in the public equity market would also likely cause values to decline in our private equity portfolio. The timing and
amount of investment income from private equity investments is difficult to predict, and investment income from these investments can
vary from quarter to quarter.
• Our timberland and farmland holdings are exposed to natural risks, such as prolonged drought, wildfires, insects, windstorms, flooding,
and climate change. We are generally not insured for these types of risks but seek to proactively mitigate their impact through portfolio
diversification and prudent operating practices.
• A rising interest rate environment could result in the value of some of our ALDA investments declining, particularly those with fixed
contractual cash flows such as long-leased real estate and certain infrastructure investments.
• The negative impact of changes in market or economic factors can take time to be fully reflected in the valuations of private
investments, including ALDA, especially if the change is large and rapid, as market participants endeavor to adjust their forecasts and
better understand the potential medium to long-term impact of such changes. As a result, valuation changes in any given period may
reflect the delayed impact of events that occurred in prior periods. Our real estate valuation is based on appraisals, and these
appraisals may lag behind current market transactions.
• We rely on a diversified portfolio of ALDA to generate relatively stable investment returns. Diversification benefits may be reduced at
times, especially during a period of economic stress, which would adversely affect portfolio returns.
• The Company determines investment return assumptions for ALDA in accordance with the Standards of Practice for the valuation of
insurance contract liabilities and guidance published by the CIA. The guidance requires that the investment return assumption for these
assets should not be higher than the historical long-term average returns of an appropriate broad-based index. Where such experience
is not available, the investment return assumption for these assets should not result in a lower reserve than an assumption based on a
historical-return benchmark for public equities in the same jurisdiction. As a result, the impact of changes in the historical returns for
public equity benchmarks may result in an update to our investment return assumptions for ALDA.
Our liabilities are valued based on an assumed asset investment strategy over the long-term.
• We develop an investment strategy for the assets that back our liabilities. The strategy involves making assumptions on the kind of
assets in which we will invest and the returns such assets will generate.
• We may not be able to implement our investment strategy as intended due to a lack of assets available at the returns we assume. This
may result in a change in investment strategy and/or assumed future returns, thus adversely impacting our financial results.
• From time to time, we may decide to adjust our portfolio asset mix which may result in adverse impacts to our financial results for one
or more periods.
We experience foreign exchange risk as a substantial portion of our business is transacted in currencies other than Canadian dollars.
• Our financial results are reported in Canadian dollars. A substantial portion of our business is transacted in currencies other than
Canadian dollars, mainly U.S. dollars, Hong Kong dollars and Japanese yen. If the Canadian dollar strengthens relative to these
currencies, net income attributed to shareholders would decline and our reported shareholders’ equity would decline. A weakening of
the Canadian dollar against the foreign currencies in which we do business would have the opposite effect and would increase net
income attributed to shareholders and shareholders’ equity.
70 | 2022 Annual Report | Management’s Discussion and Analysis
The Company’s hedging strategies will not fully reduce the market risks related to the product guarantees and fees being hedged,
hedging costs may increase and the hedging strategies expose the Company to additional risks.
• Our hedging strategies rely on the execution of derivative transactions in a timely manner. Market conditions can limit availability of
hedging instruments, requiring us to post additional collateral, and can further increase the costs of executing derivative transactions.
Therefore, hedging costs and the effectiveness of the strategy may be negatively impacted if markets for these instruments become
illiquid. The Company is subject to the risk of increased funding and collateral demands which may become significant as equity
markets increase.
• The Company is also subject to counterparty risks arising from the derivative instruments and to the risk of increased funding and
collateral demands which may become significant as equity markets and interest rates increase. The strategies are highly dependent on
complex systems and mathematical models that are subject to error and rely on forward-looking long-term assumptions that may prove
inaccurate, and which rely on sophisticated infrastructure and personnel which may fail or be unavailable at critical times. Due to the
complexity of the strategies, there may be additional unidentified risks that may negatively impact our business and future financial
results. In addition, rising equity markets and interest rates that would otherwise result in profits on variable annuities will be offset by
losses from our hedging positions. For further information pertaining to counterparty risks, refer to the risk factor “If a counterparty fails
to fulfill its obligations, we may be exposed to risks we had sought to mitigate”.
• Under certain market conditions, which include a sustained increase in realized equity and interest rate volatilities, a decline in interest
rates, or an increase in the correlation between equity returns and interest rate declines, the costs of hedging the benefit guarantees
provided in variable annuities may increase or become uneconomic. In addition, there can be no assurance that our dynamic hedging
strategy will fully offset the risks arising from the variable annuities being hedged.
• Policy liabilities for variable annuity guarantees are determined using long-term forward-looking estimates of volatilities. These long-
term forward-looking volatilities assumed for policy liabilities meet the CIA calibration standards. To the extent that realized equity or
interest rate volatilities in any quarter exceed the assumed long-term volatilities, or correlations between interest rate changes and
equity returns are higher, there is a risk that rebalancing will be greater and more frequent, resulting in higher hedging costs.
• The level of guarantee claims returns or other benefits ultimately paid will be impacted by policyholder longevity and policyholder
behaviour including the timing and amount of withdrawals, lapses, fund transfers, and contributions. The sensitivity of liability values to
equity market and interest rate movements that we hedge are based on long-term expectations for longevity and policyholder behaviour
since the impact of actual policyholder longevity and policyholder behaviour variances cannot be hedged using capital markets
instruments. The efficiency of our market risk hedging is directly affected by accuracy of the assumptions related to policyholder
longevity and policyholder behaviour.
Changes in market interest rates may impact our net income attributed to shareholders and capital ratios.
• A prolonged low or negative (nominal or real) interest rate environment may result in charges related to lower fixed income
reinvestment assumptions and an increase in new business strain until products are repositioned for the lower rate environment. Other
potential consequences of low interest rates include:
O Low interest rates could negatively impact sales;
O Lower risk-free rates tend to increase the cost of hedging and as a result, the offering of guarantees could become uneconomic;
O The reinvestment of cash flows into low yielding bonds could result in lower future earnings due to lower returns on surplus and
general fund assets supporting in-force liabilities, and due to guarantees embedded in products including minimum guaranteed
rates in participating and adjustable products;
O A lower interest rate environment could be correlated with other macroeconomic factors including unfavourable economic growth
and lower returns on other asset classes;
O Lower interest rates could contribute to potential impairments of goodwill;
O Lower interest rates could lead to lower mean bond parameters used for the stochastic valuation of segregated fund guarantees,
resulting in higher policy liabilities;
O Lower interest rates would also reduce expected earnings on in-force policies;
O A prolonged low or negative interest rate environment may also result in the ASB lowering the promulgated URR and require us to
increase our provisions;
O Lower interest rates could also trigger a switch to a more adverse prescribed interest stress scenario, increasing LICAT capital.
See “LICAT Scenario Switch” above;
O Lower interest rates could reduce the ability of MFC’s insurance subsidiaries to pay dividends to MFC;
O The difference between the current investable returns and the returns used in pricing new business are generally capitalized when new
business is written. Lower interest rates result in higher new business strain until products are re-priced or interest rates increase; and
O Fixed income reinvestment rates other than the URR are based on current market rates. The net income sensitivity to changes in
current rates is outlined in the section “Interest Rate and Spread Risk Sensitivities and Exposure Measures” above.
• A rapid rise in interest rates could lead to customers surrendering policies and we may incur losses attributable to early liquidation of
fixed income instruments supporting contractual surrender benefits.
71
The global interest rate benchmark reform, leading to the transition away from LIBOR / IBOR to alternative reference rates based
on risk-free rates, may impact the value of our IBOR-based financial instruments.
• Manulife holds different types of instruments, including derivatives, bonds, loans, and other floating rate instruments that reference
LIBOR (London Interbank Offered Rate) or other Interbank Offered Rates (IBORs). As previously announced by the U.K. Financial
Conduct Authority (FCA) in July 2017, the FCA will no longer compel panel banks to submit rate information used to determine LIBOR
post 2021. On March 5, 2021, the Intercontinental Exchange Benchmark Administration, the administrator of LIBOR, announced that it
will cease the publication of one-week and two-month USD LIBOR and all non-USD (GBP, EUR, CHF, and JPY) LIBOR settings at the end
of December 2021, but will extend the publication of the remaining USD LIBOR tenors (overnight and one, three, six and 12 month USD
LIBOR) until the end of June 2023. In addition, on June 22, 2021, OSFI published a letter setting out their expectation that Federally
Regulated Financial Institutions (FRFIs) will stop using USD LIBOR as a reference rate as soon as possible and will not enter into
transactions referencing these rates after December 31, 2021. On May 16, 2022, Refinitiv Benchmark Services (UK) Limited (RBSL), the
administrator of Canadian Dollar Offered Rate (CDOR), announced that the calculation and publication of all tenors of CDOR will
permanently cease immediately following a final publication on June 28, 2024. Further to the confirmation of CDOR’s cessation date,
OSFI expects all new derivative contracts and securities to transition to alternative reference rates by June 30, 2023, with no new
CDOR exposure being booked after that date. The Canadian Overnight Repo Rate Average (CORRA) is the alternative reference rate to
which CDOR is expected to transition.
• We successfully converted our exposures to LIBOR rates that decommissioned on December 31, 2021 and we continue to actively
transition to the alternative reference rates such as the Secured Overnight Financing Rate (SOFR), the alternative rate for USD LIBOR,
and the Singapore Overnight Rate Average (SORA), the alternative rate for the Singapore Swap Offer Rate (SOR). Changes from LIBOR /
IBOR to alternative reference rates that have different characteristics compared to LIBOR / IBOR may adversely affect the valuation of
our existing interest-rate linked and derivatives securities we hold, the effectiveness of those derivatives in mitigating our risks,
securities we have issued, or other assets, liabilities and other contractual rights, and obligations whose value is tied to LIBOR / IBOR or
to a LIBOR / IBOR alternative. For example, since SOFR is a secured overnight rate whereas LIBOR is an unsecured forward-looking rate
for interbank funding over different maturities, there can be no assurance that SOFR will perform in the same way as LIBOR as a result
of interest rate changes, market volatility, or global or regional economic, financial, political, regulatory, judicial, or other events.
Furthermore, depending on the nature of the alternative reference rate, we may become exposed to additional risks such as legal
settlement risk associated with instruments having inadequate fallback language.
• To ensure a timely transition to alternative reference rates, Manulife has established an enterprise-wide program and governance structure
across functions to identify, measure, monitor, and manage financial and non-financial risks of transition. Manulife’s enterprise-wide program
focuses on quantifying our exposures to various IBORs, evaluating contract fallback language, contract remediation, risk management,
assessing accounting and tax implications, and ensuring operational readiness for IT systems, models, processes, and controls. We continue
to monitor market developments, changes and guidance from regulators, and adjust our project plan to align with updated timelines.
Liquidity risk is impacted by various factors, including but not limited to, capital and credit market conditions, repricing risk on
letters of credit, collateral pledging obligations, and reliance on confidence sensitive deposits.
• Adverse market conditions may significantly affect our liquidity risk.
O Reduced asset liquidity may restrict our ability to sell certain types of assets for cash without taking significant losses. If providers
of credit preserve their capital, our access to borrowing from banks and others or access to other types of credit such as letters of
credit, may be reduced. If investors have a negative perception of our creditworthiness, this may reduce access to wholesale
borrowing in the debt capital markets or increase borrowing costs.
O Liquid assets are required to pledge as collateral to support activities such as the use of derivatives for hedging purposes and to
cover cash settlement associated with such derivatives.
O The principal sources of our liquidity are cash, insurance and annuity premiums, fee income earned on AUM, cash flow from our
investment portfolios, and our assets that are readily convertible into cash, including money market securities. The issuance of
long-term debt, common and preferred shares, and other capital securities may also increase our available liquid assets or be
required to replace certain maturing or callable liabilities. In the event we seek additional financing, the availability and terms of
such financing will depend on a variety of factors including market conditions, the availability of credit to the financial services
industry, our credit ratings and credit capacity, as well as the possibility that customers, lenders, or investors could develop a
negative perception of our long-term or short-term financial prospects if we incur large financial losses or if the level of our
business activity decreases due to a significant market downturn.
•
Increased cleared derivative transactions coupled with margin rules on non-cleared derivatives could adversely impact our liquidity risk.
O Over time our existing over-the-counter derivatives will migrate to clearing houses, or the Company and its counterparties may
have the right to cancel derivative contracts after specific dates or in certain situations such as a ratings downgrade, which could
accelerate the transition to clearing houses. Cleared derivatives are subject to both initial and variation margin requirements, and
a more restrictive set of eligible collateral than non-cleared derivatives.
O In addition, initial margin rules for new non-cleared derivatives, implemented since September 1, 2021, may further increase our
liquidity needs over time.
72 | 2022 Annual Report | Management’s Discussion and Analysis
• We are exposed to repricing risk on letters of credit.
O In the normal course of business, third-party banks issue letters of credit on our behalf. In lieu of posting collateral, our
businesses utilize letters of credit for which third parties are the beneficiaries, as well as for affiliate reinsurance transactions
between subsidiaries of MFC. Letters of credit and letters of credit facilities must be renewed periodically. At time of renewal, the
Company is exposed to repricing risk and under adverse conditions increases in costs may be realized. In the most extreme
scenarios, letters of credit capacity could become constrained due to non-renewals which would restrict our flexibility to manage
capital. This could negatively impact our ability to meet local capital requirements or our sales of products in jurisdictions in
which our operating companies have been affected. As at December 31, 2022, letters of credit for which third parties are
beneficiaries, in the amount of $215 million, were outstanding. There were no assets pledged against these outstanding letters of
credit as at December 31, 2022.
• Our obligations to pledge collateral or make payments related to declines in value of specified assets may adversely affect our liquidity.
O In the normal course of business, we are obligated to pledge assets to comply with jurisdictional regulatory and other requirements
including collateral pledged in relation to derivative contracts and assets held as collateral for repurchase funding agreements. The
amount of collateral we may be required to post under these agreements, and the amount of payments we are required to make to
our counterparties, may increase under certain circumstances, including a sustained or continued decline in the value of our
derivative contracts. Such additional collateral requirements and payments could have an adverse effect on our liquidity. As at
December 31, 2022, total pledged assets were $16,365 million, compared with $9,896 million as of December 31, 2021.
• Our bank subsidiary relies on confidence sensitive deposits.
O Manulife Bank is a wholly owned subsidiary of our Canadian life insurance operating company, MLI. Retail deposits are a
significant part of the funding base of Manulife Bank. A real or perceived problem with the Bank or its parent companies could
result in a loss of confidence in the Bank’s ability to meet its obligations, which in turn may trigger a significant withdrawal of
deposit funds. A substantial portion of the Bank’s deposits are demand deposits that can be withdrawn at any time, while the
majority of the Bank’s assets are first residential mortgages in the form of home equity lines of credit, which represent long-term
funding obligations. If deposit withdrawal speeds exceed our extreme stress test assumptions, mitigation strategies in pursuant
to the Bank’s liquidity contingency plan will be executed and the Bank may have to sell assets to third parties. There is no
guarantee that the Bank will sell the assets or that its customers will be able to repay their home equity line of credit. In such
circumstances, Manulife Bank may seek to rely on Bank of Canada facilities to generate liquidity to pay depositors; however,
these facilities are at the sole discretion of the Bank of Canada in which it provides only short-term liquidity and is not guaranteed.
The declaration and payment of dividends and the amount thereof is subject to change.
• The holders of common shares are entitled to receive dividends as and when declared by the Board, subject to the preference of the
holders of Class A Shares, Class 1 Shares, Class B Shares (collectively, the “Preferred Shares”) and any other shares ranking senior to
the common shares with respect to priority in payment of dividends. The declaration and payment of dividends and the amount thereof
is subject to the discretion of the Board of MFC and is dependent upon the results of operations, financial condition, cash requirements
and future prospects of, and regulatory and contractual restrictions on the payment of dividends by MFC and other factors deemed
relevant by the Board of MFC. Although MFC has historically declared quarterly cash dividends on the common shares, MFC is not
required to do so and the Board of MFC may reduce, defer, or eliminate MFC’s common share dividend in the future.
• The foregoing risk disclosure in respect of the declaration and payment of dividends on the common shares applies equally in respect of
the declaration and payment of dividends on the Preferred Shares, notwithstanding that the Preferred Shares have a fixed rate of
dividend.
• See “Government Regulation” and “Dividends” in MFC’s Annual Information Form dated February 15, 2023 for a summary of additional
statutory and contractual restrictions concerning the declaration of dividends by MFC.
Credit Risk
Credit risk is the risk of loss due to the inability or unwillingness of a borrower or counterparty to fulfill its payment obligations.
Credit Risk Management Strategy
Credit risk is governed by the Credit Committee which oversees the overall credit risk management program. The Company has established
objectives for overall quality and diversification of our general fund investment portfolio and criteria for the selection of counterparties,
including derivative counterparties, reinsurers, and insurance providers. Our policies establish exposure limits by borrower, corporate
connection, quality rating, industry, and geographic region, and govern the usage of credit derivatives. Corporate connection limits vary
according to risk rating. Our general fund fixed income investments are primarily public and private investment grade bonds and commercial
mortgages. We have a program for selling Credit Default Swaps (“CDS”) that employs a highly selective, diversified and conservative
approach. CDS decisions follow the same underwriting standards as our cash bond portfolio. Our credit granting units follow a defined
evaluation process that provides an objective assessment of credit proposals. We assign a risk rating, based on a standardized 22-point
scale consistent with those of external rating agencies, following a detailed examination of the borrower that includes a review of business
strategy, market competitiveness, industry trends, financial strength, access to funds, and other risks facing the counterparty. We assess
and update risk ratings regularly. For additional input to the process, we also assess credit risks using a variety of industry standard market-
based tools and metrics. We map our risk ratings to pre-established probabilities of default and loss given defaults, based on historical
industry and Company experience, and to resulting default costs.
7
We establish delegated credit approval authorities and make credit decisions on a case-by-case basis at a management level appropriate
to the size and risk level of the transaction, based on the delegated authorities that vary according to risk rating. Major credit decisions are
approved by the Credit Committee and the largest decisions are approved by the CEO and, in certain cases, by the Board.
We limit the types of authorized derivatives and applications and require pre-approval of all derivative application strategies and regular
monitoring of the effectiveness of derivative strategies. Derivative counterparty exposure limits are established based on a minimum
acceptable counterparty credit rating (generally A- from internationally recognized rating agencies). We measure both bilateral and
exchange-traded derivative counterparty exposure as net potential credit exposure, which takes into consideration mark-to-market values
of all transactions with each counterparty, net of any collateral held, and an allowance to reflect future potential exposure. Reinsurance
counterparty exposure is measured reflecting the level of ceded liabilities net of collateral held. The creditworthiness of all reinsurance
counterparties is reviewed internally on a regular basis.
Regular reviews of the credits within the various portfolios are undertaken with the goal of identifying changes to credit quality and, where
appropriate, taking corrective action. Prompt identification of problem credits is a key objective.
We establish an allowance for losses on a loan when it becomes impaired as a result of deterioration in credit quality, to the extent there is
no longer assurance of timely realization of the carrying value of the loan and related investment income. We reduce the carrying value of
an impaired loan to its estimated net realizable value when we establish the allowance. We establish an allowance for losses on
reinsurance contracts when a reinsurance counterparty becomes unable or unwilling to fulfill its contractual obligations. We base the
allowance for loss on current recoverables and ceded policy liabilities. There is no assurance that the allowance for losses will be adequate
to cover future potential losses or that additional allowances or asset write-downs will not be required.
Policy liabilities include general provisions for credit losses from future asset impairments.
Our credit policies, procedures and investment strategies are established under a strong governance framework and are designed to
ensure that risks are identified, measured, and monitored consistent with our risk appetite. We seek to actively manage credit exposure in
our investment portfolio to reduce risk and minimize losses, and derivative counterparty exposure is managed proactively. However, we
could experience volatility on a quarterly basis and losses could potentially rise above long-term expected and historical levels.
Credit Risk Exposure Measures
Allowances for losses on loans are established taking into consideration normal historical credit loss levels and future expectations, with
an allowance for adverse deviations. Additionally, we make general provisions for credit losses from future asset impairments in the
determination of policy liabilities. The amount of the provision for credit losses included in policy liabilities is established through regular
monitoring of all credit related exposures, considering such information as general market conditions, industry and borrower specific
credit events, and any other relevant trends or conditions. To the extent that an asset is written off, or disposed of, any allowance and
general provisions for credit losses are released.
Our general provision for credit losses included in policyholder liabilities as at December 31, 2022 was $3,714 million compared with
$4,109 million as at December 31, 2021. This provision represents 1.4% of our fixed income assets1 supporting policy liabilities reported
on our Consolidated Statements of Financial Position as at December 31, 2022.
As at December 31, 2022 and December 31, 2021, the impact of a 50% increase in fixed income credit default rates over the next year in excess
of the rates assumed in policy liabilities, would reduce net income attributed to shareholders by $75 million and $70 million, respectively.
Credit downgrades of fixed income investments would adversely impact our regulatory capital, as required capital levels for these
investments are based on the credit quality of each instrument. In addition, credit downgrades could also lead to a higher general provision
for credit losses than had been assumed in policy liabilities, resulting in an increase in policy liabilities and a reduction in net income
attributed to shareholders. The estimated impact of a one-notch2 ratings downgrade across 25% of fixed income assets would result in an
increase to policy liabilities and a decrease to our net income attributed to shareholders of $250 million post-tax. This ratings downgrade
would result in a one percentage point reduction to our LICAT ratio.
Approximately 25% of the impact from the one-notch ratings downgrade on our policy liabilities and net income attributed to shareholders
noted above relates to fixed income assets rated below investment grade. Approximately 1% of our fixed income assets as of December 31,
2022 is rated below investment grade. The table below shows net impaired assets and allowances for loan losses.
Net Impaired Assets and Loan Losses
As at December 31,
($ millions, unless otherwise stated)
Net impaired fixed income assets
Net impaired fixed income assets as a % of total invested assets
Allowance for loan losses
1 Includes debt securities, private placements and mortgages.
2 A one-notch downgrade is equivalent to a ratings downgrade from A to A- or BBB- to BB+.
74 | 2022 Annual Report | Management’s Discussion and Analysis
2022
313
0.075%
47
$
$
2021
228
0.053%
44
$
$
Credit Risk Factors
Borrower or counterparty defaults or downgrades could adversely impact our earnings.
Worsening regional and global economic conditions could result in borrower or counterparty defaults or downgrades and could lead to
increased provisions or impairments related to our general fund invested assets and off-balance sheet derivative financial instruments, and
an increase in provisions for future credit impairments to be included in our policy liabilities. Any of our reinsurance providers being unable
or unwilling to fulfill their contractual obligations related to the liabilities we cede to them could lead to an increase in policy liabilities.
Our invested assets primarily include investment grade bonds, private placements, commercial mortgages, asset-backed securities, and
consumer loans. These assets are generally carried at fair value, but changes in value that arise from a credit-related impairment are recorded
as a charge against income. The return assumptions incorporated in actuarial liabilities include an expected level of future asset impairments.
There is a risk that actual impairments will exceed the assumed level of impairments in the future and earnings could be adversely impacted.
Volatility may arise from defaults and downgrade charges on our invested assets and as a result, losses could potentially rise above long-
term expected levels. Net impaired fixed income assets were $313 million, representing 0.075% of total general fund invested assets as at
December 31, 2022, compared with $228 million, representing 0.053% of total general fund invested assets as at December 31, 2021.
If a counterparty fails to fulfill its obligations, we may be exposed to risks we had sought to mitigate.
• The Company uses derivative financial instruments to mitigate exposures to public equity, foreign currency, interest rate and other
market risks arising from on-balance sheet financial instruments, guarantees related to variable annuity products, selected anticipated
transactions and certain other guarantees. The Company may be exposed to counterparty risk if a counterparty fails to pay amounts
owed to us or otherwise perform its obligations to us. Counterparty risk increases during economic downturns because the probability
of default increases for most counterparties. If any of these counterparties default, we may not be able to recover the amounts due from
that counterparty. As at December 31, 2022, the largest single counterparty exposure, without taking into account the impact of
master netting agreements or the benefit of collateral held, was $1,582 million (2021 – $2,132 million). The net exposure to this
counterparty, after taking into account master netting agreements and the fair value of collateral held, was nil (2021 – nil). As at
December 31, 2022, the total maximum credit exposure related to derivatives across all counterparties, without taking into account the
impact of master netting agreements and the benefit of collateral held, was $9,072 million (2021 – $18,226 million) compared with
$215 million after taking into account master netting agreements and the benefit of fair value of collateral held (2021 – $294 million).
The exposure to any counterparty would grow if, upon the counterparty’s default, markets moved such that our derivatives with that
counterparty gain in value. Until we are able to replace that derivative with another counterparty, the gain on the derivatives subsequent
to the counterparty’s default would not be backed by collateral.
• The Company reinsures a portion of the business we enter into; however, we remain legally liable for contracts that we had reinsured. In
the event that any of our reinsurance providers were unable or unwilling to fulfill their contractual obligations related to the liabilities we
cede to them, we would need to increase actuarial reserves, adversely impacting our net income attributed to shareholders and capital
position. In addition, the Company has over time sold certain blocks of business to third-party purchasers using reinsurance. To the
extent that the reinsured contracts are not subsequently novated to the purchasers, we remain legally liable to the insureds. Should the
purchasers be unable or unwilling to fulfill their contractual obligations under the reinsurance agreement, we would need to increase
policy liabilities resulting in a charge to net income attributed to shareholders. To reduce credit risk, the Company may require
purchasers to provide collateral for their reinsurance liabilities.
• We participate in a securities lending program whereby blocks of securities are loaned to third parties, primarily major brokerage firms
and commercial banks. Collateral, which exceeds the market value of the loaned securities, is retained by the Company until the
underlying security has been returned. If any of our securities lending counterparties default and the value of the collateral is
insufficient, we would incur losses. As at December 31, 2022, the Company had loaned securities (which are included in invested
assets) valued at approximately $723 million, compared with $564 million as at December 31, 2021.
The determination of allowances and impairments on our investments is subjective and changes could materially impact our
results of operations or financial position.
• The determination of allowances and impairments is based upon a periodic evaluation of known and inherent risks associated with the
respective security. Management considers a wide range of factors about the security and uses its best judgment in evaluating the
cause of the decline, in estimating the appropriate value for the security and in assessing the prospects for near-term recovery.
Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future
earnings potential. Considerations in the impairment evaluation process include: (i) the severity of the impairment; (ii) the length of time
and the extent to which the market value of a security has been below its carrying value; (iii) the financial condition of the issuer; (iv) the
potential for impairments in an entire industry sector or sub-sector; (v) the potential for impairments in certain economically depressed
geographic locations; (vi) the potential for impairments of securities where the issuer, series of issuers or industry has suffered a
catastrophic type of loss or has exhausted natural resources; (vii) our ability and intent to hold the security for a period of time sufficient
to allow for the recovery of its value to an amount equal to or greater than cost or amortized cost; (viii) unfavourable changes in
forecasted cash flows on mortgage-backed and asset-backed securities; and (ix) other subjective factors, including concentrations and
information obtained from regulators and rating agencies.
• Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations
regularly and reflect changes in allowances and impairments as such evaluations warrant. The evaluations are inherently subjective and
incorporate only those risk factors known to us at the time the evaluation is made. There can be no assurance that management has
75
accurately assessed the level of impairments that have occurred. Additional impairments will likely need to be taken or allowances
provided for in the future as conditions evolve. Historical trends may not be indicative of future impairments or allowances.
Product Risk
We make a variety of assumptions related to the expected future level of claims, policyholder behaviour, expenses, reinsurance costs and
sales levels when we design and price products, and when we establish policy liabilities. Product risk is the risk of failure to design,
implement and maintain a product or service to achieve these expected outcomes and the risk of loss due to actual experience emerging
differently than assumed when a product was designed and priced. Assumptions for future claims are generally based on both Company
and industry experience, and assumptions for future policyholder behaviour and expenses are generally based on Company experience.
Assumptions for future policyholder behaviour include assumptions related to the retention rates for insurance and wealth products.
Assumptions for expenses include assumptions related to future maintenance expense levels and volume of the business.
Product Risk Management Strategy
Product risk is governed by the Product Oversight Committee for the insurance business. Global WAM product risk is managed by first line
product management working groups and the Global Investment Product Committee. Notable products which could introduce new and
material risks are reviewed and approved by the Global WAM Risk Committee prior to launch.
Product Oversight Committee
The Product Oversight Committee oversees the overall insurance risk management program. The Product Oversight Committee has
established a broad framework for managing insurance risk under a set of policies, standards and guidelines, to ensure that our product
offerings align with our risk-taking philosophy and risk limits, and achieve acceptable profit margins. These cover:
• product design features
• use of reinsurance
• pricing models and software
•
• target profit objectives
internal risk based capital allocations
• pricing methods and assumption setting
• stochastic and stress scenario testing
• required documentation
• review and approval processes
• experience monitoring programs
In each business unit that sells insurance, we designate individual pricing officers who are accountable for pricing activities, chief
underwriters who are accountable for underwriting activities, and chief claims risk managers who are accountable for claims activities.
Both the pricing officer and the general manager of each business unit approve the design and pricing of each product, including key
claims, policyholder behaviour, investment return and expense assumptions, in accordance with global policies and standards. Risk
management functions provide additional oversight, review and approval of material product and pricing initiatives, as well as material
underwriting initiatives. Actuarial functions provide oversight review and approval of policy liability valuation methods and assumptions. In
addition, both risk and actuarial functions review and approve new reinsurance arrangements. We perform annual risk and compliance
self-assessments of the product development, pricing, underwriting and claims activities of all insurance businesses. To leverage best
practices, we facilitate knowledge transfer between staff working with similar businesses in different geographies.
We utilize a global underwriting manual intended to ensure insurance underwriting practices for direct written life business are consistent
across the organization while reflecting local conditions. Each business unit establishes underwriting policies and procedures, including
criteria for approval of risks and claims adjudication policies and procedures.
We apply retention limits per insured life that are intended to reduce our exposure to individual large claims which are monitored in each
business unit. These retention limits vary by market and jurisdiction. We reinsure exposure in excess of these limits with other companies
(see “Risk Management and Risk Factors – Product Risk Factors – External market conditions determine the availability, terms and cost of
reinsurance protection” below). Our current global life retention limit is US$30 million for individual policies (US$35 million for
survivorship life policies) and is shared across businesses. We apply lower limits in some markets and jurisdictions. We aim to further
reduce exposure to claims concentrations by applying geographical aggregate retention limits for certain covers. Enterprise-wide, we aim
to reduce the likelihood of high aggregate claims by operating globally, insuring a wide range of unrelated risk events, and reinsuring some
risks. We seek to actively manage the Company’s aggregate exposure to each of policyholder behaviour risk and claims risk against
enterprise-wide economic capital limits. Policyholder behaviour risk limits cover the combined risk arising from policy lapses and
surrenders, withdrawals and other policyholder driven activity. The claims risk limits cover the combined risk arising from mortality,
longevity and morbidity.
Internal experience studies, as well as trends in our experience and that of the industry, are monitored to update current and projected
claims and policyholder behaviour assumptions, resulting in updates to policy liabilities as appropriate.
Global WAM Risk Management Committee
Global WAM product risk is managed by first line product management working groups and the Global Investment Product Committee. The
Global WAM Risk Management Committee reviews and approves notable new products prior to launch. The Global WAM Risk Management
Committee has established a framework for managing risk under a set of policies, standards and guidelines to ensure that notable product
offerings align with Global WAM risk-taking philosophy and risk appetite.
76 | 2022 Annual Report | Management’s Discussion and Analysis
The Global WAM Risk Management Committee also provides oversight of notable changes to existing products/solutions on the various
Global WAM platforms.
Product Risk Factors
Losses may result should actual experience be materially different than that assumed in the valuation of policy liabilities.
• Such losses could have a significant adverse effect on our results of operations and financial condition. In addition, we periodically
review the assumptions we make in determining our policy liabilities and the review may result in an increase in policy liabilities and a
decrease in net income attributed to shareholders. Such assumptions require significant professional judgment, and actual experience
may be materially different than the assumptions we make. (See “Critical Actuarial and Accounting Policies” below).
• Policyholder behaviour including premium payment patterns, policy renewals, lapse rates and withdrawal, and surrender activity are
influenced by many factors including market and general economic conditions, and the availability and relative attractiveness of other
products in the marketplace. For example, a weak or declining economic environment could increase the value of guarantees
associated with variable annuities or other embedded guarantees and contribute to adverse policyholder behaviour experience, or a
rapid rise in interest rates could increase the attractiveness of alternatives for customers holding products that offer contractual
surrender benefits that are not market value adjusted, which could also contribute to adverse policyholder behaviour experience. If
premium persistency or lapse rates are significantly different from our expectations, it could have a material adverse effect on our
business, financial condition, results of operations, and cash flows.
We may be unable to implement necessary price increases on our in-force businesses or may face delays in implementation.
• We continue to seek state regulatory approvals for price increases on existing long-term care business in the United States. We cannot
be certain whether or when each approval will be granted. For some in-force business, regulatory approval for price increases may not
be required. However, regulators or policyholders may nonetheless seek to challenge our authority to implement such increases. Our
policy liabilities reflect our estimates of the impact of these price increases, but should we be less successful than anticipated in
obtaining them, then policy liabilities could increase accordingly and reduce net income attributed to shareholders.
Evolving legislation related to genetic testing could adversely impact our underwriting abilities.
• Current or future legislation in jurisdictions where Manulife operates may restrict its right to underwrite based on access to genetic test
results. Without the obligation of disclosure, the asymmetry of information shared between applicant and insurer could increase anti-
selection in both new business and in-force policyholder behaviour. The impact of restricting insurers’ access to this information and the
associated problems of anti-selection becomes more acute where genetic technology leads to advancements in diagnosis of life-
threatening conditions that are not matched by improvements in treatment. We cannot predict the potential financial impact that this
would have on the Company or the industry as a whole. In addition, there may be further unforeseen implications as genetic testing
continues to evolve and becomes more established in mainstream medical practice.
Life and health insurance claims may be impacted unexpectedly by changes in the prevalence of diseases or illnesses, medical and
technology advances, widespread lifestyle changes, natural disasters, large-scale human-made disasters and acts of terrorism.
• Claims resulting from catastrophic events could cause substantial volatility in our financial results in any period and could materially
reduce our profitability or harm our financial condition. Large-scale catastrophic events may also reduce the overall level of economic
activity, which could hurt our business and our ability to write new business. It is possible that geographic concentration of insured
individuals could increase the severity of claims we receive from future catastrophic events. The effectiveness of external parties,
including governmental and non-governmental organizations, in combating the severity of such an event is outside of our control and
could have a material impact on the losses we experience.
• The cost of health insurance benefits may be impacted by unforeseen trends in the incidence, termination and severity rates of claims.
The ultimate level of lifetime benefits paid to policyholders may be increased by an unexpected increase in life expectancy. For
example, advances in technology could lead to longer lives through better medical treatment or better disease prevention. As well,
adverse claims experience could result from systematic anti-selection, which could arise from the development of investor owned and
secondary markets for life insurance policies, anti-selective lapse behaviour, underwriting process failures, anti-selective policyholder
behaviour due to greater consumer accessibility to home-based medical screening, or other factors.
• For information on the implications of COVID-19 on our product risk, please refer to “Pandemic risk and potential implications of
COVID-19” below.
External market conditions determine the availability, terms and cost of reinsurance protection which could impact our financial
position and our ability to write new policies.
• As part of our overall risk and capital management strategy, we purchase reinsurance protection on certain risks underwritten or
assumed by our various insurance businesses. As the global reinsurance industry continues to review and optimize their business
models, certain of our reinsurers have attempted to increase rates on our existing reinsurance contracts. The ability of our reinsurers to
increase rates depends upon the terms of each reinsurance contract. Typically, the reinsurer’s ability to raise rates is restricted by a
number of terms in our reinsurance contracts, which we seek to enforce. We believe our reinsurance provisions are appropriate;
however, there can be no assurance regarding the impact of future rate increase actions taken by our reinsurers. Accordingly, future
rate increase actions by our reinsurers could result in accounting charges, an increase in the cost of reinsurance and the assumption of
more risk on business already reinsured.
77
•
In addition, an increase in the cost of reinsurance could also adversely affect our ability to write future business or result in the
assumption of more risk with respect to policies we issue. Premium rates charged on new policies we write are based, in part, on the
assumption that reinsurance will be available at a certain cost. Certain reinsurers may attempt to increase the rates they charge us for
new policies we write, and for competitive reasons, we may not be able to raise the premium rates we charge for newly written policies to
offset the increase in reinsurance rates. If the cost of reinsurance were to increase, if reinsurance were to become unavailable and if
alternatives to reinsurance were not available, our ability to write new policies at competitive premium rates could be adversely affected.
Operational Risk
Operational risk is naturally present in all of our business activities and encompasses a broad range of risks, including regulatory
compliance failures, legal disputes, technology failures, business interruption, information security and privacy breaches, human resource
management failures, processing errors, modelling errors, business integration, theft and fraud, and damage to physical assets.
Exposures can take the form of financial losses, regulatory sanctions, loss of competitive positioning, or damage to our reputation.
Operational risk is also embedded in all the practices we use to manage other risks; therefore, if not managed effectively, operational risk
can impact our ability to manage other key risks such as credit risk, market risk, liquidity risk and product risk.
Operational Risk Management Strategy
Our corporate governance practices, corporate values, and integrated enterprise-wide approach to managing risk set the foundation for
mitigating operational risks. This base is further strengthened by internal controls and systems, compensation programs, and seeking to
hire and retain trained and competent people throughout the organization. We align compensation programs with business strategy, long-
term shareholder value and good governance practices, and we benchmark these compensation practices against peer companies.
We have an enterprise operational risk management framework that sets out the processes we use to identify, assess, manage, mitigate
and report on significant operational risk exposures. Execution of our operational risk management strategy supports the drive towards a
focus on the effective management of our key global operational risks. We have an Operational Risk Committee, which is the main decision-
making committee for all operational risk matters and which has oversight responsibility for operational risk strategy, management and
governance. We have enterprise-wide risk management programs for specific operational risks that could materially impact our ability to
do business or impact our reputation.
Legal and Regulatory Risk Management Strategy
Global Compliance oversees our regulatory compliance program and function, supported by designated Chief Compliance Officers in every
segment. The program is designed to promote compliance with regulatory obligations worldwide and to assist in making the Company’s
employees aware of the laws and regulations that affect it, and the risks associated with failing to comply. Segment Compliance groups
monitor emerging legal and regulatory issues and changes and prepare us to address new requirements. Global Compliance also
independently assesses and monitors the effectiveness of a broad range of regulatory compliance processes and business practices
against potential legal, regulatory, fraud and reputation risks, and allows significant issues to be escalated and proactively mitigated.
Among these processes and business practices are: privacy (i.e. handling of personal and other confidential information), sales and
marketing practices, sales compensation practices, asset management practices, fiduciary responsibilities, employment practices,
underwriting and claims processing, product design, the Ethics Hotline, and regulatory filings. In addition, we have policies, processes and
controls in place to help protect the Company, our customers and other related third parties from acts of fraud and from risks associated
with money laundering and terrorist financing. Audit Services, Global Compliance and Segment Compliance personnel periodically assess
the effectiveness of the system of internal controls. For further discussion of government regulation and legal proceedings, refer to
“Government Regulation” in MFC’s Annual Information Form dated February 15, 2023 and note 19 of the 2022 Annual Consolidated
Financial Statements.
Business Continuity Risk Management Strategy
We have an enterprise-wide business continuity and disaster recovery program. This includes policies, plans and procedures that seek to
minimize the impact of natural or human-made disasters, and is designed to ensure that key business functions can continue normal
operations in the event of a major disruption. Each business unit is accountable for preparing and maintaining detailed business continuity
plans and processes. The global program incorporates periodic scenario analysis designed to validate the assessment of both critical and
non-critical units, as well as the establishment and testing of appropriate business continuity plans for all critical functions. The business
continuity team establishes and regularly tests crisis management plans and global crisis communications protocols. We maintain off-site
data backup facilities and/or failover capabilities as required to manage the risk of downtime and to accelerate system recovery when
needed.
Technology & Information Security Risk Management Strategy
Our Technology Risk Management function provides strategy, direction, and oversight and facilitates governance for all technology risk
domain activities across the Company. The scope of this function includes: reducing information risk exposures by introducing a robust
enterprise information risk management framework and supporting infrastructure for proactively identifying, managing, monitoring and
reporting on critical information risk exposures; promoting transparency and informed decision-making by building and maintaining
information risk profiles and risk dashboards for Enterprise Technology & Services and segments aligned with enterprise and operational
78 | 2022 Annual Report | Management’s Discussion and Analysis
risk reporting; providing advisory services to Global Technology and the segments around current and emerging technology risks and their
impact to the Company’s information risk profile; and reducing vendor information risk exposures by incorporating sound information risk
management practices into sourcing, outsourcing and offshoring initiatives and programs.
The enterprise-wide information security program, which is overseen by the Chief Information Risk Officer, seeks to mitigate information
security risks. This program establishes the information and cyber security framework for the Company, including governance, policies and
standards, and appropriate controls to protect information and computer systems. We also have ongoing security awareness training
sessions for all employees.
Many jurisdictions in which we operate are implementing more stringent privacy legislation. Our global privacy program, overseen by our
Chief Privacy Officer, seeks to manage the risk associated with the handling of personal information, including the risk of privacy breaches.
It includes policies and standards, ongoing monitoring of emerging privacy legislation, and a network of privacy officers. Processes have
been established to provide guidance on handling personal information and for reporting privacy incidents and issues to appropriate
management for response and resolution. As a global company, Manulife is subject to a wide variety of laws and regulations throughout its
operations, including those related to privacy and information security. In many jurisdictions, privacy and information security
requirements are becoming more onerous, including stringent incident reporting requirements, and may increase our compliance costs as
well as the risks associated with any compliance failure.
In addition, the Chief Information Risk Officer, the Chief Privacy Officer, and their teams work closely on information security and privacy matters.
Human Resource Risk Management Strategy
We have a number of human resource policies, practices and programs in place that seek to manage the risks associated with attracting
and retaining top talent. These include recruiting programs at every level of the organization, training and development programs for our
individual contributors and people leaders, initiatives to help increase diversity, equity and inclusion, employee engagement surveys, and
competitive compensation programs that are designed to attract, motivate and retain high-performing and high-potential employees.
Model Risk Management Strategy
We have designated model risk management teams working closely with model owners and users that seek to manage model risk. Our
model risk oversight program includes processes intended to ensure that our critical business models are conceptually sound and used as
intended, and to assess the appropriateness of the calculations and outputs.
Third-Party Risk Management Strategy
Our governance framework to address third-party risk includes appropriate policies (such as our Global Outsourcing, GRM and Vendor
Management policies), standards and procedures, and monitoring of ongoing results and contractual compliance of third-party arrangements.
Initiatives Risk Management Strategy
To seek to ensure that key initiatives are successfully implemented and monitored by management, we have a global Transformation and
Delivery Team, which is responsible for establishing policies and standards for initiative management. Our policies, standards and
practices are benchmarked against leading practices.
Operational Risk Factors
If we are not able to attract, motivate and retain agency leaders and individual agents, our competitive position, growth and
profitability will suffer.
• We must attract and retain sales representatives to sell our products. Strong competition exists among financial services companies for
efficient and effective sales representatives. We compete with other financial services companies for sales representatives primarily on
the basis of our financial position, brand, support services, and compensation and product features. Any of these factors could change
either because we change the Company or our products, or because our competitors change theirs and we are unable or unwilling to
adapt. If we are unable to attract and retain sufficient sales representatives to sell our products, our ability to compete would suffer,
which could have a material adverse effect on our business, results of operations and financial condition.
Competition for the best people is intense and an inability to recruit qualified individuals may negatively impact our ability to
execute on business strategies or to conduct our operations.
• We compete with other insurance companies, financial institutions, and wealth management organizations for industry-specific talent
and against a broader range of companies in functional areas such as Finance, IT, HR, Legal and Operations, for qualified executives,
employees and agents. We must attract and retain top talent to maintain our competitive advantage. The risk of other organizations
outside of our geographic footprint targeting our employees is heightened with many companies now adopting flexible remote working
arrangements. Additionally, we are in an environment where pay levels have been increasing more quickly than in recent years due to
the competitive talent market, inflation and other factors. Therefore, we need to ensure we are paying competitively to both reduce key
talent turnover risk, and successfully attract new talent to the company. We also need to ensure that we adapt our recruiting practices
to draw on broader talent pools through the use of labour market intelligence and sourcing tools.
79
If we are unable to complete key projects on time, on budget, and capture planned benefits, our business strategies and plans, and
operations may be impaired.
• We must successfully deliver a number of key projects in order to implement our business strategies and plans. If we are unable to
complete these projects in accordance with planned schedules, and to capture projected benefits, there could be a material adverse
effect on our business and financial condition.
Key business processes may fail, causing material loss events and impacting our customers and reputation.
• A large number of complex transactions are performed by the organization, and there is risk that errors may have significant impact on
our customers or result in a loss to the organization. Controls are in place that seek to ensure processing accuracy for our most
significant business processes, and escalation and reporting processes have been established for when errors do occur.
The interconnectedness of our operations and risk management strategies could expose us to risk if all factors are not
appropriately considered and communicated.
• Our business operations, including strategies and operations related to risk management, asset liability management and liquidity
management, are interconnected and complex. Changes in one area may have a secondary impact in another area of our operations.
For example, risk management actions, such as the increased use of interest rate swaps, could have implications for the Company’s
Global WAM segment or its Treasury function, as this strategy could result in the need to post additional amounts of collateral. Failure
to appropriately consider these inter-relationships, or effectively communicate changes in strategies or activities across our operations,
could have a negative impact on the strategic objectives or operations of another group. Further, failure to consider these inter-
relationships in our modeling and financial and strategic decision-making processes could have a negative impact on our operations.
Our risk management policies, procedures and strategies may leave us exposed to unidentified or unanticipated risks, which could
negatively affect our business, results of operations and financial condition.
• We devote significant resources to develop our risk management policies, procedures, and strategies. Nonetheless, there is a risk that
our policies, procedures, and strategies may not be comprehensive. Many of our methods for measuring and managing risk exposures
are based upon the use of observed historical market behaviour or statistics based on historical models. Future behaviour may be very
different from past behaviour, especially if there are some fundamental changes that affect future behaviour. Other risk management
methods depend upon the evaluation and/or reporting of information regarding markets, clients, client transactions, catastrophe
occurrence or other matters publicly available or otherwise accessible to us. This information may not always be accurate, complete,
up-to-date, or properly evaluated or reported.
We are subject to tax audits, tax litigation or similar proceedings, and as a result we may owe additional taxes, interest and
penalties in amounts that may be material.
• We are subject to income and other taxes in the jurisdictions in which we do business. In determining our provisions for income taxes
and our accounting for tax related matters in general, we are required to exercise judgment. We regularly make estimates where the
ultimate tax determination is uncertain. There can be no assurance that the final determination of any tax audit, appeal of the decision
of a taxing authority, tax litigation or similar proceedings will not be materially different from that reflected in our historical financial
statements. The assessment of additional taxes, interest and penalties could be materially adverse to our current and future results of
operations and financial condition.
Our operations face political, legal, operational and other risks that could negatively affect those operations or our results of
operations and financial condition.
• Our operations face the risk of discriminatory regulation, political and economic instability, the imposition of economic or trade
sanctions, isolationist foreign policies, armed conflicts, civil unrest or disobedience, government policies or regulations adopted in
response to political or social pressures and rising populism and/or nationalism, limited protection for, or increased costs to protect
intellectual property rights, inability to protect and/or enforce contractual or legal rights, nationalization or expropriation of assets,
price controls and exchange controls or other restrictions that prevent us from transferring funds out of the countries in which we
operate and disruptions in global supply chains. In addition, as political tensions and populism and/or nationalism rise in a number of
locations, compliance with laws and regulations by global financial institutions may become challenging as complying with the
requirements in one jurisdiction may be contrary to the requirements of another.
•
• A substantial portion of our revenue and net income attributed to shareholders is derived from our operations outside of North America,
primarily in key Asian markets. Some of these key geographical markets are developing and are rapidly growing countries and markets
where these risks may be heightened.
In particular, tensions remain elevated between mainland China and Canada, the U.S. and their allies over a number of issues, including
trade, technology and human rights resulting in the imposition of sanctions and trade restrictions on companies and individuals.
Mainland China and the Hong Kong SAR are important markets for Manulife and escalating tensions may create a more challenging
operating environment for Manulife. In addition, the military conflict in Ukraine and associated sanctions imposed on Russia and its
allies has negatively impacted regional and global financial markets and economies.
• These risks could result in disruptions to our operations, unanticipated costs, increased market volatility and inflation, a contraction of
business activity and recession, diminished investor and consumer confidence, lower investment growth, insurance sales and fees
earned on managed assets, the loss of assets or a reduction in their value and reduced remittances. Failure to manage these risks could
have a significant negative impact on our operations and profitability globally.
80 | 2022 Annual Report | Management’s Discussion and Analysis
We are regularly involved in litigation.
• We are regularly involved in litigation, either as a plaintiff or defendant. These cases could result in an unfavourable resolution and
could have a material adverse effect on our results of operations and financial condition. For further discussion of legal proceedings
refer to note 19 of the 2022 Annual Consolidated Financial Statements.
We are exposed to investors trying to profit from short positions in our stock.
• Short-sellers seek to profit from a decline in the price of our common shares. Through their actions and public statements, they may
encourage the decline in price from which they profit and may encourage others to take short positions in our shares. The existence of
such short positions and the related publicity may lead to continued volatility in our common share price.
System failures or events that impact our facilities may disrupt business operations.
• Technology is used in virtually all aspects of our business and operations; in addition, part of our strategy involves the expansion of
technology to directly serve our customers. An interruption in the service of our technology resulting from system failure, cyber-attack,
human error, natural disaster, human-made disaster, pandemic, or other unpredictable events beyond reasonable control could prevent
us from effectively operating our business. We rely on the internet in order to conduct business and may be adversely impacted by
outages in critical infrastructure such as electric grids, undersea cables, satellites or other communications used by us or our third
parties.
• While our facilities and operations are distributed across the globe, we can experience extreme weather, natural disasters, civil unrest,
human-made disasters, power outages, pandemic, and other events which can prevent access to, and operations within, the facilities
for our employees, partners, and other parties that support our business operations.
• We take measures to plan, structure and protect against routine events that may impact our operations, and maintain plans to recover
from unpredictable events. The experience learned from COVID-19 has stress tested these plans and has resulted in strengthening our
continuity plans. For further information, see “Pandemic risk and potential implications of COVID-19” below. An interruption to our
operations may subject us to regulatory sanctions and legal claims, lead to a loss of customers, assets and revenues, or otherwise
adversely affect us from a financial, operational and reputational perspective.
An information security or privacy breach of our operations or of a related third party could adversely impact our business, results
of operations, financial condition, and reputation.
•
It is possible that the Company may not be able to anticipate or to implement effective preventive measures against all disruptions or
privacy and security breaches, especially because the techniques used change frequently, generally increase in sophistication, often
are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including organized crime,
hackers, terrorists, activists, and other parties, including parties sponsored by hostile foreign governments. Those parties may also
attempt to fraudulently induce employees, customers, and other users of the Company’s systems or third-party service providers to
disclose sensitive information in order to gain access to the Company’s data or that of its customers or clients. We, our customers,
regulators and other third parties have been subject to, and are likely to continue to be the target of, cyber-attacks, including computer
viruses, malicious or destructive code, phishing attacks, denial of service and other security incidents, that could result in the
unauthorized release, gathering, monitoring, misuse, loss or destruction of personal, confidential, proprietary and other information of
the Company, our employees, our customers or of third parties, or otherwise materially disrupt our or our customers’ or other third
parties’ network access or business operations. These attacks could adversely impact us from a financial, operational and reputational
perspective.
• The Company maintains an Information Risk Management Program, which includes information and cyber security defenses, to protect
our networks and systems from attacks; however, there can be no assurance that these counter measures will be successful in every
instance in protecting our networks against advanced attacks. In addition to protection, detection and response mechanisms, the
Company maintains cyber risk insurance, but this insurance may not cover all costs associated with the financial, operational and
reputational consequences of personal, confidential or proprietary information being compromised.
Model risk may arise from the inappropriate use or interpretation of models or their output, or the use of deficient models, data or
assumptions.
• We rely on highly complex models for pricing, valuation and risk measurement, and for input on decision making. Consequently, the risk
of inappropriate use or interpretation of our models or their output, or the use of deficient models, could have a material adverse effect
on our business.
Fraud risks may arise from incidents related to identity theft and account takeovers.
• Fraud incidents could adversely impact our business, results of operations, financial condition and reputation. Policies and procedures
are in place and seek to protect against ever-evolving fraud threats. However, we may nevertheless not be able to prevent and detect all
fraud incidents.
Contracted third parties may fail to deliver against contracted activities.
• We rely on third parties to perform a variety of activities on our behalf, and failure of our most significant third parties to meet their
contracted obligations may impact our ability to meet our strategic objectives or may directly impact our customers. Vendor
governance processes are in place that seek to ensure that appropriate due diligence is conducted at time of vendor contracting, and
ongoing vendor monitoring activities are in place that seek to ensure that the contracted services are being fulfilled to satisfaction, but
we may nevertheless not be able to mitigate all possible failures.
81
Damage to the natural environment may arise related to our business operations, owned property or commercial mortgage loan
portfolio.
• Environmental risk may originate from investment properties that are subject to natural or human-made environmental risk. Real estate
assets may be owned, leased and/or managed, as well as mortgaged by Manulife and we might enter into the chain of liability due to
foreclosure ownership when in default.
• Liability under environmental protection laws resulting from our commercial mortgage loan portfolio and owned property (including
commercial real estate, timberland and farmland properties) may adversely impact our reputation, results of operations and financial
condition. Under applicable laws, contamination of a property with hazardous materials or substances may give rise to a lien on the
property to secure recovery of the costs of cleanup. In some instances, this lien has priority over the lien of an existing mortgage
encumbering the property. The environmental risk may result from on-site or off-site (adjacent) due to migration of regulated pollutants
or contaminants with financial or reputational environmental risk and liability consequences by virtue of strict liability. Environmental
risk could also arise from natural disasters (e.g., climate change, weather, fire, earthquake, floods, and pests) or human activities (use
of chemicals or pesticides) conducted within the site or when impacted from adjacent sites.
• Additionally, as lender, we may incur environmental liability (including without limitation liability for clean-up, remediation and damages
incurred by third parties) similar to that of an owner or operator of the property, if we or our agents exercise sufficient control over the
operations at the property. We may also have liability as the owner and/or operator of real estate for environmental conditions or
contamination that exist or occur on the property or affecting other property.
Pandemic risk and potential implications of COVID-19
The COVID-19 pandemic continues to weigh on the global economy and it remains difficult to predict the significance of its longer-term
impacts, particularly as COVID-19 becomes endemic in the markets in which we operate. Governments continue to navigate the
implications from COVID-19 and changing circumstances may result in future legal, regulatory, tax, and other responses that could have a
significant adverse impact on our global business operations and financial results.
• COVID-19 could continue to adversely impact our financial results as a result of reduced new business, including a reduction of activity
through our distribution channels, reduced asset-based fee revenue, and net unfavourable policyholder experience including claims,
lapse and premium persistency experience.
• As COVID-19 becomes endemic, there may be unexpected changes to the business and operating environment which may present new
headwinds to our business strategy or new opportunities to pursue. The pace of recovery may continue to differ across geographies in
which we operate, which could impact the execution of our business strategies. For example, a sustained zero-COVID policy in mainland
China throughout 2022 has slowed sales growth in our Asia segment businesses due to border restrictions and immobility of our agents
and employees. As mainland China shifts away from its zero-COVID policy, we would expect to experience a rebound in sales growth
over time; however, the manner in which the government responds to future outbreaks may further delay our ability to drive sales
growth in the region. The sudden easing of restrictions could put significant strain on mainland China’s public health system, which
could increase mortality and morbidity claims. This could increase volatility in our financial results or materially reduce our profitability.
• We purchase reinsurance protection on certain risks underwritten or assumed by our various insurance businesses. As a result of
COVID-19, we may find reinsurance more difficult or costly to obtain. Reinsurers may also dispute, or seek to reduce, or eliminate
coverage on policies as a result of any COVID-19 related changes to policies or practices we make.
In pricing or repricing of new business, the impact of any COVID-19 related changes may be compounded with or offset by other pricing
inputs. These inputs include assumption changes (e.g., reinsurance, interest rates, morbidity, mortality, expense, and lapse and
surrender changes), business considerations related to retaining specific market share or client business and regulatory restrictions
impacting the approval process for price changes.
•
• The potential longer-term impacts of the pandemic may include latent morbidity impacts from the deferral of medical treatment by
policyholders. It may be a factor in increasing morbidity claims and there may be implications from other factors such as long-term post
COVID-19 symptoms.
• Previously imposed COVID-19 related restrictions have been gradually lifting in markets in which we operate but have also been
introduced or reimposed in a limited number of other markets. In the jurisdictions where the restrictions have been lifted, the majority
of our employees have returned to office on a hybrid work arrangement. The implementation of widespread remote work arrangements
has also increased other operational risks, including, but not limited to, fraud, money laundering, information security, privacy, and
third-party risks. We are relying on our risk management strategies to monitor and mitigate these and other operational risks during this
period of heightened uncertainty.
• The global recessionary environment could continue to put downward pressure on asset valuations and increase the risk of potential
impairments of investments, particularly for more exposed sectors such as transportation, services, and consumer cyclical industries.
Furthermore, reduced demand for office space as a result of widespread full-time remote or hybrid work arrangements could continue
to have a negative impact on our commercial real estate portfolio.
• Borrowers or counterparty downgrades or defaults would cause increased provisions or impairments related to our general fund
invested assets and derivative financial instruments, and an increase in provisions for future credit impairments to be included in our
policy liabilities. This could result in losses potentially above our long-term expected levels.
• Extreme market volatility and stressed conditions resulting from possible longer-term impacts of COVID-19 could result in additional
cash and collateral demands primarily from changes to policyholder termination or renewal rates, withdrawals of customer deposit
82 | 2022 Annual Report | Management’s Discussion and Analysis
balances, borrowers renewing or extending their loans when they mature, derivative settlements or collateral demands, reinsurance
settlements or collateral demands, and our willingness to support the local solvency position of our subsidiaries. Such an environment
could also limit our access to capital markets. Sustained global economic uncertainty could also result in adverse credit ratings
changes which in turn could result in more costly or limited access to funding sources. While we currently have a variety of sources of
liquidity including cash balances, short-term investments, government and highly rated corporate bonds, and access to contingent
liquidity facilities, there can be no assurance that these sources will provide us with sufficient liquidity on commercially reasonable
terms in the future.
Emerging Risks
The identification and assessment of our external environment for emerging risks is an important aspect of our ERM Framework, as these
risks, although yet to materialize, could have the potential to have a material adverse impact on our operations and/or business strategies.
We also consider taking advantage of opportunities identified to improve our competitiveness and ultimately our financial results.
Our Emerging Risk Framework facilitates the ongoing identification, assessment and monitoring of emerging risks, and includes:
maintaining a process that facilitates the ongoing discussion and evaluation of potential emerging risks with senior business and
functional management; reviewing and validating emerging risks with the ERC; creating and executing on responses to each emerging risk
based on prioritization; and monitoring and reporting on emerging risks on a regular basis to the Board’s Risk Committee.
Regulatory Capital
OSFI’s LICAT capital regime applies to our business globally on a group consolidated basis. We continue to meet OSFI’s requirements and
maintain capital in excess of regulatory expectations.
In January 2023, a revised LICAT guideline, aligning with the IFRS 17 accounting changes, took effect. This will be followed by an update to
the capital rules for Segregated Fund Guarantees, expected to be effective in January 2025.
At its annual meeting in November 2019, the IAIS adopted a risk based global ICS, that is being further developed over a five-year
monitoring period that commenced in 2020. While broadly supportive of the goals of ICS, OSFI stated that it did not support the current
ICS design, adopted by the IAIS in November 2019, citing that it was ‘not fit for purpose for the Canadian market’. Without OSFI’s consent,
the IAIS rules will not apply in Canada or to Canadian companies on a group-wide basis, while other regulators may use the ICS framework
for calculating capital in their specific markets. Limited changes have been made to ICS since the beginning of the five-year monitoring
period. We will continue to monitor developments as the ICS methodology and its applicability evolve.
In December 2022, the Financial Stability Board (FSB) adopted the IAIS Holistic Framework for the assessment and mitigation of systemic
risk and discontinued the annual identification of Global Systemically Important Insurers (G-SIIs). Manulife was supportive of this direction.
Regulators in various jurisdictions in which we operate have embarked on reforming their respective capital regulations. While the ultimate
impact of these changes remains uncertain, we closely monitor the developments.
IFRS 17 and IFRS 9
IFRS 17 “Insurance Contracts” and IFRS 9 “Financial Instruments” are effective for insurance companies in 2023.
IFRS 17 replaced IFRS 4 “Insurance Contracts” and will materially change the timing of the recognition of earnings from our insurance
business and therefore, our shareholders’ equity. Furthermore, the requirements of the new standard are complex and have necessitated
significant enhancements to finance infrastructure and processes and could impact our business strategy. IFRS 9 will impact the
measurement and timing of investment income.
A summary of some of the key differences between IFRS 17 and IFRS 4 is outlined in the “Future Accounting and Reporting Changes”
section below. The impacts of IFRS 17 are expected to include1:
• The establishment of a CSM on our in-force business, which represents unearned profits, was expected to decrease equity upon
transition. The LICAT guideline for 2023 issued on July 21, 2022 makes calibration adjustments relating to the inclusion of CSM in
available capital and the reduction of the scalar on base solvency buffer. In addition, the LICAT ratio is expected to be less sensitive to
changes in interest rates and more stable under IFRS 17 compared with IFRS 4. Given this greater stability, the impact of IFRS 17 upon
adoption on January 1, 2023 is expected to be a low single-digit percentage point increase to the LICAT ratio based on markets as of
December 31, 2022. We expect our capital position will continue to be strong under IFRS 17.
• The deferral of the recognition of new business gains via the CSM, and to a substantially lesser extent, the timing of investments results,
will shift earnings out into future periods. As a result, on transition, net income and core earnings in 2022 are expected to be lower
under IFRS 17 compared with IFRS 4. This impact will be partially offset by the amortization into income of the CSM that will be
established on our in-force business. Overall, considering these items along with the various other impacts, on transition we expect
2022 core earnings to decline by approximately 5% to 10% under IFRS 17 compared with IFRS 4. A transition impact on our net income
attributed to shareholders is difficult to predict as it is also impacted by prevailing market conditions. In addition, we expect IFRS 17 to
improve the stability of both our core earnings and net income attributed to shareholders.
1 See “Caution regarding forward-looking statements” above.
8
• Core earnings will remain a key performance metric and the definition will be adapted to align with IFRS 17. Under the revised
definition, core earnings will exclude items such as the direct impact of markets and interest rates, including investment experience
from ALDA, realized gains and losses on fixed income assets, hedge ineffectiveness, and changes in methods and assumptions
recorded directly in profit or loss. We believe that the revised core earnings definition represents our operating performance and the
long-term earnings capacity of the business.
• The treatment of new business gains under IFRS 17 is materially different from IFRS 4. The CSM is an intrinsic part of the value of an
insurance business and is a measure of growth and future earnings generation capability. This highlights the importance of the CSM as
a GAAP performance measure and as such, upon adoption, we will be adding two new medium-term targets:
i.
15% growth per year for new business CSM, and
ii. 8% to 10% growth per year in the CSM balance.
In 1Q22, we confirmed our medium-term financial and operating targets under IFRS 17, and upon adoption, will adjust certain targets as
follows1:
• Core ROE will be increased to 15%+ (from 13%+ currently) due to the expected changes to core earnings and equity,
• Common share core dividend payout ratio2 will be increased to 35% to 45% (from 30% to 40% currently) due to the expected changes
to core earnings, and
• Leverage ratio definition will be adjusted to include the CSM in the denominator given that the CSM represents unearned profit and
available capital under LICAT.
We reported $246 million (post-tax) from the impact of new business3, which is included in core earnings and net income attributed to
shareholders in 4Q22 (4Q21 – $295 million). On a year-to-date basis, the impact of new business was $879 million (post-tax) in 2022
(2021 – $1,115 million).
Risks related to the new standards include:
• The impact on our business strategy as a result of temporary volatility. The Company’s capital position and income for accounting
purposes could be influenced by prevailing market conditions, resulting in volatility of reported results, which may require changes to
business strategies. The impact to business strategy could include changes to hedging and investment strategy, product strategy and
the use of reinsurance and, as a result, could impact our exposures to other risks such as counterparty risk and liquidity risk.
• The impact of accounting mismatches from derivatives used for economic hedging purposes. Under CALM, both changes in
insurance contract liabilities and changes in the fair value of derivatives used to economically hedge these liabilities are recognized in
income, which results in a natural offset in net income. Under IFRS 17, we will elect the option to record changes in insurance contract
liabilities arising from changes in interest rates through other comprehensive income (the “OCI option”). In certain circumstances, some
derivatives that are used for economic hedging purposes do not qualify for hedge accounting under IFRS 9, and therefore the election
of the OCI option could result in a mismatch in accounting net income, as changes in the fair value of these derivatives would be
recorded in net income, while the impact of changes in discount rates on insurance contract liabilities would be recorded in other
comprehensive income. In addition, if derivatives used for economic hedging purposes qualify for hedge accounting, IFRS 9 requires
that the difference, if any, between the impact of changes in discount rates on the hedged portion of insurance contract liabilities and
the change in the fair value of the hedging derivatives be reported in net income as hedge ineffectiveness.
• The impact on tax. In certain jurisdictions, including Canada, the implementation of IFRS 17 could have a material effect on tax
positions and other financial metrics that are dependent upon IFRS accounting values.
• The impact of inconsistencies in timing of adoption among various jurisdictions. As a global insurer with subsidiaries in Asia and
other jurisdictions, regional differences in effective dates will require us to maintain more than one set of financial records to support
both consolidated financial statements and for local subsidiary reporting requirements.
Additional Risk Factors That May Affect Future Results
Other factors that may affect future results include changes in government trade policy, monetary policy or fiscal policy; including interest
rates policy from central banks; political conditions and developments in or affecting the countries in which we operate; technological
changes; public infrastructure disruptions; changes in consumer spending and saving habits; the possible impact on local, national or
global economies from public health or natural disaster emergencies, and international conflicts and other developments including those
relating to terrorist activities. Although we take steps to anticipate and minimize risks in general, unforeseen future events may have a
negative impact on our business, financial condition and results of operations.
We caution that the preceding discussion of risks that may affect future results is not exhaustive. When relying on our forward-looking
statements to make decisions with respect to our Company, investors and others should carefully consider the foregoing risks, as well as
other uncertainties and potential events, and other external and Company specific risks that may adversely affect the future business,
financial condition or results of operations of our Company.
1 See “Caution regarding forward-looking statements” above.
2 This item is a non-GAAP ratio. See “Non-GAAP and other financial measures” below for more information.
3 The impact of new business represents the financial impact of all new business written in the period, including acquisition expenses.
84 | 2022 Annual Report | Management’s Discussion and Analysis
10. Capital Management Framework
Manulife seeks to manage its capital with the objectives of:
• Operating with sufficient capital to be able to honour all commitments to its policyholders and creditors with a high degree of
confidence;
• Retaining the ongoing confidence of regulators, policyholders, rating agencies, investors and other creditors in order to ensure access
to capital markets; and
• Optimizing return on capital to meet shareholders’ expectations subject to constraints and considerations of adequate levels of capital
established to meet the first two objectives.
Capital is managed and monitored in accordance with the Capital Management Policy. The Policy is reviewed and approved by the Board
annually and is integrated with the Company’s risk and financial management frameworks. It establishes guidelines regarding the quantity
and quality of capital, internal capital mobility, and proactive management of ongoing and future capital requirements.
Our capital management framework takes into account the requirements of the Company as a whole as well as the needs of each of our
subsidiaries. Internal capital targets are set above regulatory requirements, and consider a number of factors, including results of
sensitivity and stress testing and our own risk assessments, as well as business needs. We monitor against these internal targets and
initiate actions appropriate to achieving our business objectives.
We periodically assess the strength of our capital position under various stress scenarios. The annual Financial Condition Testing (“FCT”)
typically quantifies the financial impact of economic events arising from shocks in public equity and other markets, interest rates and
credit, amongst others. Our 2022 FCT results demonstrate that we would have sufficient assets, under the various adverse scenarios
tested, to discharge our policy liabilities. This conclusion was also supported by a variety of other stress tests conducted by the Company.
We use an Economic Capital (“EC”) framework to inform our internal view of the level of required capital and available capital. The EC
framework is a key component of the ORSA process, which ties together our risk management, strategic planning and capital management
practices to confirm that our capital levels continue to be adequate from an economic perspective.
Capital management is also integrated into our product planning and performance management practices.
The composition of capital between equity and other capital instruments impacts the financial leverage ratio which is an important
consideration in determining the Company’s financial strength and credit ratings. The Company monitors and rebalances its capital mix
through capital issuances and redemptions.
Financing Activities
Securities Transactions
During 2022, we raised a total of $2.0 billion of debt and other equity (limited recourse capital notes) instruments in Canada and the U.S.,
and $1.7 billion of securities were redeemed at par.
($ millions)
3.703% MFC US Senior notes, issued on Mar 16, 2022
7.117% MFC Limited recourse capital notes Series 3, issued on Jun 16, 2022
4.85% MFC Class 1 preferred shares Series 23, redeemed on Mar 19, 2022
4.312% MFC Class 1 preferred shares Series 9, redeemed on Mar 19, 2022
3.181% MLI Subordinated debentures, redeemed on Nov 22, 2022
Total
(1) Represents carrying value, net of issuance costs.
Par value
Issued(1)
Redeemed/
Matured(1)
US$
$
$
$
$
750
1,000
475
250
1,000
1,010
991
–
–
–
–
–
467
244
1,000
$ 2,001
$ 1,711
Normal Course Issuer Bid
We announced on February 15, 2023, subject to the approval of the Toronto Stock Exchange (“TSX”), our intention to launch a normal
course issuer bid (“NCIB”) permitting the purchase for cancellation of up to 55.7 million common shares, representing approximately 3%
of our issued and outstanding common shares. Purchases under the NCIB may commence after the TSX has accepted the notice of
intention and continue for up to one year, or such earlier date as we complete our purchases.1
Our previous NCIB that was announced on February 1, 2022 expired on February 2, 2023. Under this NCIB, MFC purchased for
cancellation 85.8 million of its common shares at an average price of $23.99 per share for a total cost of $2.1 billion, which represent
4.4% of our issued and outstanding common shares.
During 2022, MFC purchased and subsequently cancelled 78.9 million of its common shares at an average price of $23.87 per common
share for a total cost of $1.9 billion.
1 See “Caution regarding forward-looking statements” above.
85
Consolidated Capital
As at December 31,
($ millions)
Non-controlling interests
Participating policyholders’ equity
Preferred shares and other equity
Common shareholders’ equity(1)
Total equity
Exclude the accumulated other comprehensive gain/(loss) on cash flow hedges
Total equity excluding accumulated other comprehensive gain/(loss) on cash flow hedges
Qualifying capital instruments
Consolidated capital(2)
2022
2021
$ 1,664
(1,346)
6,660
49,401
$ 1,694
(1,233)
6,381
52,027
56,379
8
56,371
6,122
58,869
(156)
59,025
6,980
$ 62,493
$ 66,005
(1) Common shareholders’ equity is equal to total shareholders’ equity less preferred shares and other equity.
(2) Consolidated capital does not include $6.2 billion (2021 – $4.9 billion) of MFC senior debt as this form of financing does not meet OSFI’s definition of regulatory capital at the
MFC level. The Company has down-streamed the proceeds from this financing into operating entities in a form that qualifies as regulatory capital at the subsidiary level.
MFC’s consolidated capital was $62.5 billion as at December 31, 2022, compared with $66.0 billion as at December 31, 2021, a decrease
of $3.5 billion. The decrease was driven by a decline in total equity and the redemption of capital instruments. The decline in total equity
was due to a reduction in the carrying value of AFS debt securities from higher interest rates, and common share buybacks, partially offset
by growth in retained earnings, the impact of a weaker Canadian dollar, and net capital issuance.
Remittance of Capital
As part of its capital management, Manulife promotes internal capital mobility so that Manulife’s parent company, MFC, has access to
funds to meet its obligations and to optimize capital deployment. Remittances is defined as the cash remitted or made available for
distribution to the Manulife Group from operating subsidiaries and excess capital generated by standalone Canadian operations. It is one
of the key metrics used by management to evaluate our financial flexibility. In 2022, MFC subsidiaries delivered $6.9 billion in remittances
of which Asia and U.S. operations1,2 have delivered $0.9 billion and $2.8 billion, respectively. Remittances in 2022 increased by
$2.5 billion compared with 2021 primarily due to the benefits from the reinsurance of U.S. variable annuities and other corporate actions.
Financial Leverage Ratio
MFC’s financial leverage ratio as at December 31, 2022 was 27.7%, an increase of 1.9 percentage points from 25.8% as at December 31,
2021. The increase in the ratio was driven by a reduction in the carrying value of AFS debt securities from higher interest rates, common
share buybacks, and the net issuance of securities3, partially offset by growth in retained earnings and the impact of a weaker Canadian
dollar.
Common Shareholder Dividends
The declaration and payment of shareholder dividends and the amount thereof are at the discretion of the Board and depend upon various
factors, including the results of operations, financial conditions, future prospects of the Company, dividend payout ratio and taking into
account regulatory restrictions on the payment of shareholder dividends.
Common Shareholder Dividends Paid
For the years ended December 31,
$ per share
Dividends paid
2022
2021
$ 1.32
$ 1.17
The Company offers a Dividend Reinvestment Program (“DRIP”) whereby shareholders may elect to automatically reinvest dividends in the
form of MFC common shares instead of receiving cash. The offering of the program and its terms of execution are subject to the Board’s
discretion.
During 2022, the required common shares in connection with the DRIP were purchased on the open market with no applicable discount.
1 Remittances from Asia and U.S. operations include the remittances from their respective affiliate reinsurers. In addition, U.S. operation remittances include the International
High Net Worth business written in the Bermuda branch of MLI.
2 Asia and U.S. operations include their respective insurance, and wealth and asset management segments.
3 For financial leverage ratio, net issuance of securities consisted of the issuance of Limited Recourse Capital Notes (reported as other equity instruments) of $1.0 billion and
senior debt of $1.0 billion, offset by the redemption of subordinated debt of $1.0 billion, and two series of preferred shares totaling $0.7 billion.
86 | 2022 Annual Report | Management’s Discussion and Analysis
Regulatory Capital Position1
MFC and MLI are regulated by OSFI and are subject to consolidated risk based capital requirements. Manulife monitors and manages its
consolidated capital in compliance with the OSFI LICAT guideline. Under this regime, our available capital and other eligible capital
resources are measured against a required amount of risk capital determined in accordance with the guideline. For regulatory reporting
purposes under the LICAT framework, consolidated capital is adjusted for various additions or deductions to capital as mandated by the
guidelines defined by OSFI.
Manulife’s operating activities are conducted within MLI and its subsidiaries. MLI‘s LICAT ratio was 131% as at December 31, 2022,
compared with 142% as at December 31, 2021. The eleven percentage point decrease from December 31, 2021 was driven by the
unfavourable impact of market movements on capital primarily from the large increase in risk-free interest rates, and from common share
buybacks, partly offset by favourable impacts from the U.S. variable annuity reinsurance transactions.
MFC’s LICAT ratio was 119% as at December 31, 2022, compared with 132% as at December 31, 2021, with the decrease driven by similar
factors that impacted the movement in MLI’s LICAT ratio, except for the issuance of MFC senior debt which got reflected in MLI’s LICAT
ratio but not MFC’s. The difference between the MLI and MFC ratios is largely due to the $6.2 billion (2021 – $4.9 billion) of MFC senior
debt outstanding that does not qualify as available capital at the MFC level but, based on the form it was down-streamed to MLI, it qualifies
as regulatory capital at the MLI level.
The LICAT ratios as at December 31, 2022, resulted in excess capital of $20.3 billion over OSFI’s supervisory target ratio of 100% for MLI,
and $19.1 billion over OSFI’s regulatory minimum target ratio of 90% for MFC (no supervisory target is applicable to MFC). In addition, all
MLI’s subsidiaries maintain capital levels in excess of local requirements.
Credit Ratings
Manulife’s operating companies have strong financial strength ratings from credit rating agencies. These ratings are important factors in
establishing the competitive position of insurance companies and maintaining public confidence in products being offered. Maintaining
strong ratings on debt and capital instruments issued by MFC and its subsidiaries allows us to access capital markets at competitive
pricing levels. Should these credit ratings decrease materially, our cost of financing may increase and our access to funding and capital
through capital markets could be reduced.
During 2022, S&P, Moody’s, DBRS Morningstar, Fitch and AM Best Company (“AM Best”) maintained their assigned ratings of MFC and its
primary insurance operating companies.
The following table summarizes the financial strength ratings of MLI and certain of its subsidiaries as at January 31, 2023.
Financial Strength Ratings
Subsidiary
Jurisdiction
The Manufacturers Life Insurance Company
Canada
S&P
AA-
John Hancock Life Insurance Company (U.S.A.)
United States
AA-
Moody’s
DBRS Morningstar
Fitch
AM Best
A1
A1
AA
Not Rated
AA-
AA-
A+
(Superior)
A+
(Superior)
Manulife (International) Limited
Manulife Life Insurance Company
Manulife (Singapore) Pte. Ltd.
Hong Kong
Japan
Singapore
AA-
A+
AA-
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
Not Rated
As of January 31, 2023, S&P, Moody’s, DBRS Morningstar, Fitch, and AM Best had a stable outlook on these ratings. The S&P rating and
related outlook for Manulife Life Insurance Company are constrained by the sovereign rating on Japan (A+/Stable).
1 The “Risk Management and Risk Factors” section of the MD&A outlines a number of regulatory capital risks.
87
11. Critical Actuarial and Accounting Policies
The preparation of Consolidated Financial Statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, and the disclosure of
contingent assets and liabilities as at the date of the Consolidated Financial Statements, and the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ from these estimates. The most significant estimation processes relate to
assumptions used in measuring insurance and investment contract liabilities, assessing assets for impairment, determining of pension and
other post-employment benefit obligation and expense assumptions, determining income taxes and uncertain tax positions and fair
valuation of certain invested assets. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the year in which the estimates are revised and in any future years affected. Although some variability is
inherent in these estimates, management believes that the amounts recorded are appropriate. The significant accounting policies used
and the most significant judgments made by management in applying these accounting policies in the preparation of the 2022 Annual
Consolidated Financial Statements are described in note 1 to the Consolidated Financial Statements.
Critical Actuarial Policies – Policy Liabilities (Insurance and Investment Contract Liabilities)
Policy liabilities for IFRS are valued in Canada under standards established by the ASB. These standards are designed to ensure we
establish an appropriate liability on the Consolidated Statements of Financial Position to cover future obligations to all our policyholders.
The assumptions underlying the valuation of policy liabilities are required to be reviewed and updated on an ongoing basis to reflect recent
and emerging trends in experience and changes in risk profile of the business. In conjunction with prudent business practices to manage
both product and asset related risks, the selection and monitoring of appropriate valuation assumptions is designed to minimize our
exposure to measurement uncertainty related to policy liabilities.
Policy liabilities have two major components: a best estimate amount and a provision for adverse deviation. The best estimate amount
represents the estimated value of future policyholder benefits and settlement obligations to be paid over the term remaining on in-force
policies, including the costs of servicing the policies. The best estimate amount is reduced by the future expected policy revenues and
future expected investment income on assets supporting the policies, before any consideration for reinsurance ceded. To determine the
best estimate amount, assumptions must be made for a number of key factors, including future mortality and morbidity rates, investment
returns, rates of policy termination and premium persistency, operating expenses, certain taxes (other than income taxes and includes
temporary tax timing and permanent tax rate differences on the cash flows available to satisfy policy obligations) and foreign currency.
Reinsurance is used to transfer part or all of a policy liability to another insurance company at terms negotiated with that insurance
company. A separate asset for reinsurance ceded is calculated based on the terms of the reinsurance treaties that are in-force, with
deductions taken for the credit standing of the reinsurance counterparties where appropriate.
To recognize the uncertainty involved in determining the best estimate actuarial liability assumptions, a provision for adverse deviation
(“PfAD”) is established. The PfAD is determined by including a margin of conservatism for each assumption to allow for possible
mis-estimation of, or deterioration in, future experience in order to provide greater comfort that the policy liabilities will be sufficient to pay
future benefits. The CIA establishes suggested ranges for the level of margins for adverse deviation based on the risk profile of the
business. Our margins are set taking into account the risk profile of our business. The effect of these margins is to increase policy liabilities
over the best estimate assumptions. The margins for adverse deviation decrease the income that is recognized at the time a new policy is
sold and increase the income recognized in later periods as the margins release as the remaining policy risks reduce.
Best Estimate Assumptions
We follow established processes to determine the assumptions used in the valuation of our policy liabilities. The nature of each risk factor
and the process for setting the assumptions used in the valuation are discussed below.
Mortality
Mortality relates to the occurrence of death. Mortality assumptions are based on our internal as well as industry past and emerging
experience and are differentiated by sex, underwriting class, policy type and geographic market. We make assumptions about future
mortality improvements using historical experience derived from population data. Reinsurance is used to offset some of our direct
mortality exposure on in-force life insurance policies with the impact of the reinsurance directly reflected in our policy valuation for the
determination of policy liabilities net of reinsurance. Actual mortality experience is monitored against these assumptions separately for
each business. The results are favourable where mortality rates are lower than assumed for life insurance and where mortality rates are
higher than assumed for payout annuities. Overall 2022 experience was unfavourable (2021 – unfavourable) when compared with our
assumptions.
Morbidity
Morbidity relates to the occurrence of accidents and sickness for the insured risks. Morbidity assumptions are based on our internal as
well as industry past and emerging experience and are established for each type of morbidity risk and geographic market. For our JH Long
Term Care business we make assumptions about future morbidity changes. Actual morbidity experience is monitored against these
88 | 2022 Annual Report | Management’s Discussion and Analysis
assumptions separately for each business. Our morbidity risk exposure relates to future expected claims costs for long-term care
insurance, as well as for group benefits and certain individual health insurance products we offer. Overall 2022 experience was favourable
(2021 – favourable) when compared with our assumptions.
Policy Termination and Premium Persistency
Policy termination includes lapses and surrenders, where lapses represent the termination of policies due to non-payment of premiums
and surrenders represent the voluntary termination of policies by policyholders. Premium persistency represents the level of ongoing
deposits on contracts where there is policyholder discretion as to the amount and timing of deposits. Policy termination and premium
persistency assumptions are primarily based on our recent experience adjusted for expected future conditions. Assumptions reflect
differences by type of contract within each geographic market and actual experience is monitored against these assumptions separately
for each business. Overall 2022 experience was unfavourable (2021 – unfavourable) when compared with our assumptions.
Expenses and Taxes
Operating expense assumptions reflect the projected costs of maintaining and servicing in-force policies, including associated overhead
expenses. The expenses are derived from internal cost studies and are projected into the future with an allowance for inflation. For some
developing businesses, there is an expectation that unit costs will decline as these businesses mature. Actual expenses are monitored
against assumptions separately for each business. Overall maintenance expenses for 2022 were unfavourable (2021 – unfavourable) when
compared with our assumptions. Taxes reflect assumptions for future premium taxes and other non-income related taxes. For income
taxes, policy liabilities are adjusted only for temporary tax timing and permanent tax rate differences on the cash flows available to satisfy
policy obligations.
Investment Returns
As noted in the “Risk Management and Risk Factors – Market Risk – Asset Liability Management Strategy” section above, our general fund
product liabilities are categorized into groups with similar characteristics in order to support them with a specific asset strategy. We seek
to align the asset strategy for each group to the premium and benefit pattern, policyholder options and guarantees, and crediting rate
strategies of the products they support. The projected cash flows from the assets are combined with projected cash flows from future
asset purchases and sales to determine expected rates of return for future years. The investment strategies for future asset purchases and
sales are based on our target investment policies for each segment and the reinvestment returns are derived from current and projected
market rates for fixed interest investments and our projected outlook for non-fixed interest assets. Credit losses are projected based on
our own and industry experience, as well as specific reviews of the current investment portfolio. Investment return assumptions for each
asset class also incorporate expected investment management expenses that are derived from internal cost studies. In 2022, actual
investment returns were favourable (2021 – favourable) when compared with our assumptions. Investment-related experience and the
direct impact of interest rates and equity markets are discussed in the “Manulife Financial Corporation – Profitability” section above.
Segregated Funds
We offer segregated funds to policyholders that offer certain guarantees, including guaranteed returns of principal on maturity or death, as
well as guarantees of minimum withdrawal amounts or income benefits. The on-balance sheet liability for these benefits is the expected
cost of these guarantees including appropriate valuation margins for the various contingencies including mortality and lapse. The
dominant driver of the cost of guarantees is the return on the underlying funds in which the policyholders invest. See “Risk Management
and Risk Factors – Market Risk – Hedging Strategies for Variable Annuity and Other Equity Risks” and the “Manulife Financial Corporation –
Profitability” sections above.
Foreign Currency
Foreign currency risk results from a mismatch of the currency of the policy liabilities and the currency of the assets designated to support
these obligations. We generally match the currency of our assets with the currency of the liabilities they support, with the objective of
mitigating the risk of economic loss arising from movements in currency exchange rates. Where a currency mismatch exists, the assumed
rate of return on the assets supporting the liabilities is reduced to reflect the potential for adverse movements in exchange rates.
Experience Adjusted Products
Where policies have features that allow the impact of changes in experience to be passed on to policyholders through policy dividends,
experience rating refunds, credited rates or other adjustable features, the projected policyholder benefits are adjusted to reflect the
projected experience. Minimum contractual guarantees and other market considerations are taken into account in determining the policy
adjustments.
Provision for Adverse Deviation
The total provision for adverse deviation is the sum of the provisions for adverse deviation for each risk factor. Margins for adverse
deviation are established by product type and geographic market for each assumption or factor used in the determination of the best
estimate actuarial liability. The margins are established based on the risk characteristics of the business being valued.
89
Margins for interest rate risk are included by testing a number of scenarios of future interest rates. The margin can be established by
testing a limited number of scenarios, some of which are prescribed by Canadian Actuarial Standards of Practice, and determining the
liability based on the worst outcome. Alternatively, the margin can be set by testing many scenarios which are developed according to
actuarial guidance. Under this approach the liability would be the average of the outcomes above a percentile in the range prescribed by
the Canadian Actuarial Standards of Practice.
In addition to the explicit margin for adverse deviation, the valuation basis for segregated fund liabilities explicitly limits the future revenue
recognition in the valuation basis to the amount necessary to offset acquisition expenses after allowing for the cost of any guarantee
features. The fees that are in excess of this limitation are reported as an additional margin and are shown in segregated fund
non-capitalized margins.
The provision for adverse deviation and the future revenue deferred in the valuation due to the limitations on recognition of future revenue
in the valuation of segregated fund liabilities are shown in the table below.
As at December 31,
($ millions)
Best estimate actuarial liability
Provision for adverse deviation (“PfAD”)
Insurance risks (mortality/morbidity)
Policyholder behaviour (lapse/surrender/premium persistency)
Expenses
Investment risks (non-credit)
Investment risks (credit)
Segregated funds guarantees
Total PfAD(1)
Segregated funds—additional margins
Total of PfAD and additional segregated fund margins
2022
2021
$ 255,871
$ 275,552
$ 16,068
5,665
1,665
33,865
937
720
58,920
11,656
$ 18,888
6,541
1,834
34,396
1,020
1,679
64,358
17,099
$ 70,576
$ 81,457
(1) Reported net actuarial liabilities (excluding the $4,527 million (2021 – $4,474 million) reinsurance asset related to the Company’s in-force participating life insurance closed
block that is retained on a funds withheld basis as part of the New York Life transaction) as at December 31, 2022 of $314,791 million (2021 – $339,910 million) are
comprised of $255,871 million (2021 – $275,552 million) of best estimate actuarial liabilities and $58,920 million (2021 – $64,358 million) of PfAD.
The change in the PfAD from period to period is impacted by changes in liability and asset composition, by currency and interest rate
movements and by material changes in valuation assumptions. The overall decrease in PfADs for insurance risks was primarily due to the
impact of higher interest rates in the U.S., Canada and Asia, the annual review of actuarial methods and assumptions, partially offset by
the depreciation of the Canadian dollar relative to the U.S. dollar and other major currencies, as well as the expected PfAD growth from
in-force and new business. The overall decrease in PfADs for policyholder behaviour and expenses was driven by the impact of higher
interest rates in the U.S., Canada and Asia, partially offset by the depreciation of the Canadian dollar and the expected PfAD growth from
in-force and new business. The overall decrease in PfADs for non-credit investment risks was driven by the impact of higher interest rates in
the U.S., Canada and Asia, as well as the annual review of actuarial methods and assumptions, partially offset by the expected PfAD growth
from in-force and new business and the depreciation of the Canadian dollar. The decrease in the additional segregated fund margins was
primarily due to the reduced exposure driven by the Venerable reinsurance transaction, as well as the increase in interest rates in the U.S.
and Canada.
Sensitivity of Earnings to Changes in Assumptions
When the assumptions underlying our determination of policy liabilities are updated to reflect recent and emerging experience or change
in outlook, the result is a change in the value of policy liabilities which in turn affects net income attributed to shareholders. The sensitivity
of net income attributed to shareholders to changes in non-economic and certain asset related assumptions underlying policy liabilities is
shown below and assumes that there is a simultaneous change in the assumptions across all business units. The sensitivity of net income
attributed to shareholders to a deterioration or improvement in non-economic assumptions underlying long-term care policy liabilities as at
December 31, 2022 is also shown below.
For changes in asset related assumptions, the sensitivity is shown net of the corresponding impact on income of the change in the value of
the assets supporting policy liabilities. In practice, experience for each assumption will frequently vary by geographic market and business,
and assumption updates are made on a business/geographic specific basis. Actual results can differ materially from these estimates for a
variety of reasons including the interaction among these factors when more than one changes, changes in actuarial and investment return
and future investment activity assumptions, actual experience differing from the assumptions, changes in business mix, effective tax rates
and other market factors, and the general limitations of our internal models.
90 | 2022 Annual Report | Management’s Discussion and Analysis
Potential impact on net income attributed to shareholders arising from changes to non-economic assumptions(1)
As at December 31,
($ millions)
Policy related assumptions
2% adverse change in future mortality rates(2),(4)
Products where an increase in rates increases insurance contract liabilities
Products where a decrease in rates increases insurance contract liabilities
5% adverse change in future morbidity rates (incidence and termination)(3),(4),(5)
10% adverse change in future policy termination rates(4)
5% increase in future expense levels
Decrease in after-tax net income
attributed to shareholders
2022
2021
$
(500)
(500)
(4,500)
(2,200)
(600)
$
(500)
(500)
(5,500)
(2,400)
(600)
(1) The participating policy funds are largely self-supporting and generate no material impact on net income attributed to shareholders as a result of changes in non-economic
assumptions. Experience gains or losses would generally result in changes to future dividends, with no direct impact to shareholders.
(2) An increase in mortality rates will generally increase policy liabilities for life insurance contracts whereas a decrease in mortality rates will generally increase policy liabilities for
policies with longevity risk such as payout annuities.
(3) No amounts related to morbidity risk are included for policies where the policy liability provides only for claims costs expected over a short period, generally less than one year,
such as Group Life and Health.
(4) The impacts of the sensitivities on LTC for morbidity, mortality and lapse do not assume any offsets from the Company’s ability to contractually raise premium rates in such
events, subject to state regulatory approval. In practice, we would plan to file for rate increases equal to the amount of deterioration resulting from the sensitivity.
(5) This includes a 5% deterioration in incidence rates and 5% deterioration in claim termination rates.
Potential impact on net income attributed to shareholders arising from changes to non-economic assumptions for Long Term
Care(1)
As at December 31,
($ millions)
Policy related assumptions
2% adverse change in future mortality rates(2),(3)
5% adverse change in future morbidity incidence rates(2),(3)
5% adverse change in future morbidity claims termination rates(2),(3)
10% adverse change in future policy termination rates(2),(3)
5% increase in future expense levels(3)
Decrease in after-tax net income
attributed to shareholders
2022
2021
$
(300)
(1,700)
(2,400)
(300)
(100)
$
(300)
(2,000)
(3,100)
(400)
(100)
(1) Translated from US$ at 1.3549 for 2022.
(2) The impacts of the sensitivities on LTC for morbidity, mortality and lapse do not assume any offsets from the Company’s ability to contractually raise premium rates in such
events, subject to state regulatory approval. In practice, we would plan to file for rate increases equal to the amount of deterioration resulting from the sensitivities. The
decrease in sensitivity to both future incidence and claims terminations rates is due to the impact of higher interest rates and updated assumptions as part of the 2022 Review
of Actuarial Methods and Assumptions.
(3) The impact of favourable changes to all the sensitivities is relatively symmetrical.
Potential impact on net income attributed to shareholders arising from changes to asset related assumptions supporting actuarial
liabilities(1)
As at December 31,
($ millions)
Asset related assumptions updated periodically in valuation basis changes
100 basis point change in future annual returns for public equities(1)
100 basis point change in future annual returns for ALDA(2)
100 basis point change in equity volatility assumption for stochastic segregated fund
Increase (decrease) in after-tax net income
attributed to shareholders
2022
2021
Increase
Decrease
Increase
Decrease
$
400
3,300
$
(400)
(3,600)
$ 500
3,900
$
(500)
(4,700)
modelling(3)
(100)
100
(200)
200
(1) The sensitivity to public equity returns above includes the impact on both segregated fund guarantee reserves and on other policy liabilities. Expected long-term annual market
growth assumptions for public equities are based on long-term historical observed experience and compliance with actuarial standards. As at December 31, 2022, the growth
rates inclusive of dividends in the major markets used in the stochastic valuation models for valuing segregated fund guarantees are 9.0% (9.0% as at December 31, 2021) per
annum in Canada, 9.6% (9.6% as at December 31, 2021) per annum in the U.S. and 6.2% (6.2% as at December 31, 2021) per annum in Japan. Growth assumptions for
European equity funds are market-specific and vary between 8.3% and 9.9%.
(2) ALDA include commercial real estate, timber, farmland, infrastructure and private equities, some of which relate to oil and gas. Expected long-term return assumptions for ALDA
and public equity are set in accordance with the Standards of Practice for the valuation of insurance contract liabilities and guidance published by the CIA. Annual best estimate
return assumptions for ALDA and public equity include market growth rates and annual income, such as rent, production proceeds and dividends, and will vary based on our
holding period. Over a 20-year horizon, our best estimate return assumptions range between 5.25% and 11.5% (5.25% and 11.5% as at December 31, 2021), with an average
of 9.2% (9.2% as at December 31, 2021) based on the current asset mix backing our guaranteed insurance and annuity business as of December 31, 2022. Our return
assumptions including the margins for adverse deviations in our valuation, which take into account the uncertainty of achieving the returns, range between 2.5% and 7.5%, with
an average of 6.0% (6.0% as at December 31, 2021) based on the asset mix backing our guaranteed insurance and annuity business as of December 31, 2022.
(3) Volatility assumptions for public equities are based on long-term historical observed experience and compliance with actuarial standards. As of December 31, 2022 and
December 31, 2021, unless otherwise stated, the resulting volatility assumptions are 16.5% per annum in Canada, 17.1% per annum in the U.S. for large cap public equities,
and 19.1% per annum in Japan. For European equity funds, the volatility varies between 16.3% and 17.7%.
91
Review of Actuarial Methods and Assumptions
A comprehensive review of actuarial methods and assumptions is performed annually. The review is designed to reduce the Company’s
exposure to uncertainty by ensuring assumptions for both asset related and liability related risks remain appropriate. This is accomplished
by monitoring experience and selecting assumptions which represent a current best estimate view of expected future experience, and
margins for adverse deviations that are appropriate for the risks assumed. While the assumptions selected represent the Company’s
current best estimates and assessment of risk, the ongoing monitoring of experience and changes in the economic environment are likely
to result in future changes to the actuarial assumptions, which could materially impact the measurement of insurance contract liabilities.
2022 Review of Actuarial Methods and Assumptions
The completion of the 2022 annual review of actuarial methods and assumptions resulted in a decrease in insurance contract liabilities,
net of reinsurance, of $80 million, and a net gain to net income attributed to shareholders of $36 million post-tax.
For the year ended December 31, 2022
($ millions)
Long-term care triennial review
Mortality and morbidity updates
Lapses and policyholder behaviour updates
Investment-related updates
Other updates
Net impact
Change in insurance contract liabilities, net of reinsurance
Attributed to
participating
policyholders’
account(1)
Attributed to
shareholders’
account
Change in net
income attributed
to shareholders
(post-tax)
$
$
–
(5)
74
(1)
(145)
(77)
$
$
19
162
243
(209)
(218)
(3)
$ (15)
(126)
(192)
157
212
$ 36
Total
19
157
317
(210)
(363)
(80)
$
$
(1) The change in insurance contract liabilities, net of reinsurance, attributable to the participating policyholders’ account was primarily driven by an increase in expected long-term
interest rates within the valuation models to reflect the higher interest rate environment, partially offset by the lapse assumption update in Canada.
Long-term care triennial review
U.S. Insurance completed a comprehensive long-term care (“LTC”) experience study. The review included all aspects of claim assumptions,
as well as the progress on future premium rate increases. The impact of the LTC review resulted in a net $15 million post-tax charge to net
income attributed to shareholders.
The experience study showed that claim costs established in our last triennial review remain appropriate in aggregate for our older blocks
of business1 supported by robust claims data on this mature block. Insurance contract liabilities were strengthened for claim costs on our
newer block of business2. This was driven by lower active life mortality3 supported by Company experience and a recent industry study, as
well as higher utilization of benefits, which included the impact of reflecting higher inflation in the cost-of-care up to the current year. We
also reviewed and updated incidence and claim termination assumptions which, on a net basis, provided a partial offset to the increase in
insurance contract liabilities on active life mortality and utilization. In addition, some policyholders are electing to reduce their benefits in
lieu of paying increased premiums which resulted in a reduction in insurance contract liabilities. The overall claims experience review led
to a post-tax charge to net income attributed to shareholders of approximately $2.3 billion (US$1.7 billion).
Experience continues to support the assumptions of both future morbidity and mortality improvement, resulting in no changes to these
assumptions.
As of September 30, 2022, we have received actual premium increase approvals of $2.5 billion pre-tax (US$1.9 billion pre-tax) on a
present value basis since the last triennial review in 2019. This aligns with the full amount assumed in our insurance contract liabilities at
that time and demonstrates our continued strong track record of progress in securing premium rate increases.4 In 2022, the review of
future premium increases assumed in insurance contract liabilities resulted in a post-tax gain to net income attributed to shareholders of
approximately $2.1 billion (US$1.6 billion), in comparison to a total estimated ask of $6.7 billion (US$5.1 billion). This reflects expected
future premium increases that are due to our 2022 review of morbidity, mortality, and lapse assumptions, as well as outstanding amounts
from prior state filings. Premium increases averaging approximately 30% will be sought on about one-half of the business, excluding the
carryover of 2019 amounts requested. Our assumptions reflect the estimated timing and amount of state approved premium increases.
Other refinements to LTC valuation resulted in a post-tax gain of approximately $0.2 billion (US$0.2 billion) to net income attributed to
shareholders.
1 First generation policies issued prior to 2002.
2 Second generation policies with an average issue date of 2007 and Group policies with an average issue date of 2003.
3 The mortality rate of LTC policyholders who are currently not on claim.
4 Our actual experience obtaining premium increases could be materially different than what we have assumed, resulting in further increases or decreases in insurance contract
liabilities, which could be material. See “Caution regarding forward-looking statements” above.
92 | 2022 Annual Report | Management’s Discussion and Analysis
Mortality and morbidity updates
Mortality and morbidity updates resulted in a $126 million post-tax charge to net income attributed to shareholders, driven by a detailed
review of the mortality and morbidity assumptions for our Canada insurance business, and by updates to morbidity assumptions in
Vietnam to align with experience.
Lapses and policyholder behaviour updates
Updates to lapses and policyholder behaviour assumptions resulted in a $192 million post-tax charge to net income attributed to
shareholders.
We completed a detailed review of lapse assumptions for Singapore, and increased lapse rates to align with experience on our index-linked
products, which reduced projected future fee income to be received on these products.
We also increased lapse rates on Canada’s term insurance products for policies approaching their renewal date, reflecting emerging
experience in our study.
Investment-related updates
Updates to investment return assumptions resulted in a $157 million post-tax gain to net income attributed to shareholders, primarily
driven by annual updates to our valuation models to reflect market movements during the year. No changes were made to our long-term
assumed returns.
Other updates
Other updates resulted in a $212 million post-tax gain to net income attributed to shareholders, which included refinements to the
projection of our tax and liability cash flows, as well as various other modelling updates.
Impact of changes in actuarial methods and assumptions by segment
The impact of changes in actuarial methods and assumptions in Canada resulted in a $35 million post-tax gain to net income attributed to
shareholders. The gain was primarily driven by refinements to our valuation models, due to annual updates to reflect market movements
during the year, partially offset by updates of mortality and morbidity assumptions for our insurance business and lapse assumptions for
certain term insurance products.
The impact of changes in actuarial methods and assumptions in the U.S. resulted in a $36 million post-tax gain, driven by refinements to
our valuation models, due to annual updates to reflect market movements during the year. The triennial review of long-term care was net
neutral overall.
The impact of changes in actuarial methods and assumptions in Asia resulted in a $45 million post-tax charge to net income attributed to
shareholders. The charge was primarily driven by updates to lapse assumptions in Singapore and morbidity updates in Vietnam, partially
offset by refinements to the projection of tax and liability cash flows in Vietnam.
The impact of changes in actuarial methods and assumptions in Corporate and Other (which includes our Reinsurance businesses)
resulted in a $10 million post-tax gain to net income attributed to shareholders.
2021 Review of Actuarial Methods and Assumptions
The 2021 full year review of actuarial methods and assumptions did not reflect COVID-19 experience as it is too soon to assess the impact
of COVID-19 on long-term assumptions. Experience related to COVID-19 will continue to be closely monitored, as well as emerging research
on the long-term implications of COVID-19 on mortality and other assumptions.
The completion of the 2021 annual review of actuarial methods and assumptions resulted in an increase in insurance contract liabilities of
$287 million, net of reinsurance, and a decrease in net income attributed to shareholders of $41 million post-tax.
For the year ended December 31, 2021
($ millions)
U.S. variable annuity product review
Mortality and morbidity updates
Lapses and policyholder behaviour updates
Expense updates
Investment-related updates
Other updates
Net impact
Change in insurance contract liabilities, net of reinsurance
Attributed to
participating
policyholders’
account(1)
Attributed to
shareholders’
account
Change in net
income attributed
to shareholders
(post-tax)
$
–
–
18
(25)
(2)
231
$ 222
$
$
51
350
668
(628)
(255)
(121)
65
$ (40)
(257)
(534)
503
168
119
$ (41)
Total
$
51
350
686
(653)
(257)
110
$ 287
(1) The change in insurance contract liabilities, net of reinsurance, attributable to the participating policyholders’ account was primarily driven by a reduction in the expected long-
term interest rates within the valuation models to reflect the low interest rate environment.
9
U.S. variable annuity product review
The review of our variable annuity products in the U.S. resulted in a $40 million post-tax charge to net income attributed to shareholders.
The charge was primarily driven by updates to lapse assumptions to reflect emerging experience, partially offset by refinements to our
segregated fund guaranteed minimum withdrawal benefit valuation models.
Updates to mortality and morbidity
Mortality and morbidity updates resulted in a $257 million post-tax charge to net income attributed to shareholders.
The charge was driven by updates to older age mortality on certain products in our U.S. life insurance business, mortality assumption
updates in Indonesia to reflect recent experience, as well as from refining assumptions on several reinsurance arrangements in Canada.
Updates to lapses and policyholder behaviour
Updates to lapses and policyholder behaviour assumptions resulted in a $534 million post-tax charge to net income attributed to
shareholders.
We completed a detailed review of lapse assumptions for non-participating policies within our U.S. life insurance business including those
for universal life, variable universal life, and term products. We observed a trend of low lapse rates on our protection-focused universal life
insurance products as consumers continue to value the product guarantees in the prolonged low interest rate environment. We lowered
the overall lapse assumptions for these products to reflect actual experience, which resulted in a post-tax charge to net income attributed
to shareholders.
Other updates to lapse and policyholder behaviour assumptions were made across several products in Canada and Japan to reflect recent
experience, resulting in a modest post-tax charge to net income attributed to shareholders.
Expense updates
Updates to expense assumptions resulted in a $503 million post-tax gain to net income attributed to shareholders.
We completed a detailed review of our investment expense assumptions across the Company. This resulted in a $263 million post-tax gain
to net income attributed to shareholders, primarily driven by scale benefits.
We also completed a global expense study, which resulted in a $256 million post-tax gain to net income attributed to shareholders. The
favourable result primarily reflects a reallocation of expenses across certain business lines to align with actual experience, as well as from
expense savings related to various expense efficiency initiatives.
Investment-related updates
Updates to investment return assumptions resulted in a $168 million post-tax gain to net income attributed to shareholders.
The primary driver of the gain was an update to our corporate bond default rates to reflect recent experience; we reduced default
assumptions for certain credit ratings in Canada, the U.S., and Japan. This was partially offset by a reduction to our Canadian real estate
investment return assumptions.
Other updates
Other updates resulted in a $119 million post-tax gain to net income attributed to shareholders.
This was primarily driven by Japan, whereby investment fees for certain mandates in the general fund provided by affiliate investment
managers were reviewed and updated to align with broader market levels.
Impact of changes in actuarial methods and assumptions by segment
The impact of changes in actuarial methods and assumptions in Canada resulted in a $65 million post-tax charge to net income attributed
to shareholders. The charge was primarily driven by a reduction to our real estate investment return assumptions, as well as from refining
assumptions on several reinsurance arrangements in individual insurance, largely offset by positive updates related to our company-wide
expense review and corporate bond default study.
The impact of changes in actuarial methods and assumptions in the U.S. resulted in a $314 million post-tax charge to net income
attributed to shareholders. The charge was primarily driven by updates to lapse and mortality assumptions in our U.S. life insurance
business to reflect emerging experience, partially offset by positive updates related to our company-wide expense review and corporate
bond default study.
The impact of changes in actuarial methods and assumptions in Asia resulted in a $343 million post-tax gain to net income attributed to
shareholders. The gain was primarily driven by Japan, whereby investment fees for certain mandates in the general fund provided by
affiliate investment managers were reviewed and updated to align with broader market levels, as well as from the positive updates related
to our corporate bond default study. This was partially offset by updates to the mortality assumptions in Indonesia to reflect recent
experience.
94 | 2022 Annual Report | Management’s Discussion and Analysis
The impact of changes in actuarial methods and assumptions in Corporate and Other (which includes our Reinsurance business) resulted
in a $5 million post-tax charge to net income attributed to shareholders.
Change in net insurance contract liabilities
The change in net insurance contract liabilities can be attributed to several sources: new business, acquisitions, in-force movement and
currency impact. Changes in net insurance contract liabilities are substantially offset in the financial statements by premiums, investment
income, policy benefits and other policy related cash flows. The changes in net insurance contract liabilities by business segment are
shown below:
2022 Net Insurance Contract Liability Movement Analysis
For the year ended December 31, 2022
($ millions)
Balance, January 1
New business(1),(2)
In-force movement(1),(3)
Changes in methods and assumptions(1)
Reinsurance transactions(1),(4)
Currency impact(5)
Balance, December 31
Asia
Canada
U.S.
$ 111,432
5,224
(8,222)
50
–
2,857
$ 111,341
$ 89,373
(306)
(10,353)
(71)
–
7
$ 78,650
$ 147,230
447
(19,667)
(46)
(2,419)
8,233
$ 133,778
Corporate
and Other
$ (291)
–
284
(13)
–
(18)
$ (38)
Total
$ 347,744
5,365
(37,958)
(80)
(2,419)
11,079
$ 323,731
(1) The $35,644 million decrease reported as the change in insurance contract liabilities and change in reinsurance assets on the 2022 Consolidated Statements of Income
primarily consists of changes due to normal in-force movement, new policies, changes in methods and assumptions, and reinsurance transactions. The net impact of these
items results in a decrease of $35,092 million, of which $36,116 million is included in the Consolidated Statements of Income as a decrease in insurance contract liabilities
and change in reinsurance assets, with the remaining $1,024 million increase included in net claims and benefits. The change in insurance contract liabilities amount on the
Consolidated Statements of Income also includes the change in embedded derivatives associated with insurance contracts, however these embedded derivatives are included in
other liabilities on the Consolidated Statements of Financial Position.
(2) New business policy liability impact is positive/(negative) when estimated future premiums, together with future investment income, are expected to be more/(less) than
sufficient to pay estimated future benefits, policyholder dividends and refunds, taxes (excluding income taxes) and expenses on new policies issued.
(3) The net in-force movement over the year was a decrease of $37,958 million, primarily reflecting the impact of interest rate increases in the U.S., Canada and Asia and expected
growth in insurance contract liabilities in all three geographic segments.
(4) In 2022, we completed two transactions to reinsure blocks of legacy U.S. variable annuity (“VA”) policies. Under the terms of the transactions, the Company will retain
responsibility for the maintenance of the policies with no intended impact to VA policyholders. The transactions were structured as coinsurance for the general fund liabilities
and modified coinsurance for the segregated fund liabilities.
(5) The increase in policy liabilities from currency impact reflects the depreciation of the Canadian dollar relative to the U.S. dollar, Hong Kong dollar and Singapore dollar, slightly
offset by the appreciation of the Canadian dollar relative to the Japanese yen. To the extent assets are currency matched to liabilities, the increase in insurance contract
liabilities due to currency impact is offset by a corresponding increase from currency impact in the value of assets supporting those liabilities.
2021 Net Insurance Contract Liability Movement Analysis
For the year ended December 31, 2021
($ millions)
Balance, January 1
New business(1),(2)
In-force movement(1),(3)
Changes in methods and assumptions(1)
Reinsurance transactions(1)
Currency impact(4)
Balance, December 31
Asia
Canada
U.S.
Corporate
and Other
Total
$ 102,958
5,748
6,402
(335)
–
(3,341)
$ 111,432
$ 90,346
(211)
(939)
177
–
–
$ 89,373
$ 146,939
410
348
439
–
(906)
$ 147,230
$
$
(458) $ 339,785
5,947
5,972
287
–
(4,247)
(291) $ 347,744
–
161
6
–
–
(1) The $11,473 million increase reported as the change in insurance contract liabilities and change in reinsurance assets on the 2021 Consolidated Statements of Income
primarily consists of changes due to the changes in methods and assumptions, normal in-force movement, new policies and associated embedded derivatives. The net impact of
these items resulted in an increase of $12,206 million, of which $10,923 million is included in the Consolidated Statements of Income as an increase in insurance contract
liabilities and change in reinsurance assets, with the remaining $1,283 million increase included in net claims and benefits. The change in insurance contract liabilities amount
on the Consolidated Statements of Income also includes the change in embedded derivatives associated with insurance contracts, however these embedded derivatives are
included in other liabilities on the Consolidated Statements of Financial Position.
(2) New business policy liability impact is positive/(negative) when estimated future premiums, together with future investment income, are expected to be more/(less) than
sufficient to pay estimated future benefits, policyholder dividends and refunds, taxes (excluding income taxes) and expenses on new policies issued.
(3) The net in-force movement over the year was an increase of $5,972 million, primarily reflecting the expected growth in insurance contract liabilities in all three geographic
segments, partially offset by the impact of interest rate increases.
(4) The decrease in policy liabilities from currency impact reflects the appreciation of the Canadian dollar relative to the Japanese yen and U.S. dollar. To the extent assets are
currency matched to liabilities, the decrease in insurance contract liabilities due to currency impact is offset by a corresponding decrease from currency impact in the value of
assets supporting those liabilities.
95
Critical Accounting Policies
Consolidation
The Company is required to consolidate the financial position and results of entities it controls. Control exists when the Company:
• Has the power to govern the financial and operating policies of the entity;
Is exposed to a significant portion of the entity’s variable returns; and
•
Is able to use its power to influence variable returns from the entity.
•
The Company uses the same principles to assess control over any entity it is involved with. In evaluating control, potential factors assessed
include the effects of:
• Substantive potential voting rights that are currently exercisable or convertible;
• Contractual management relationships with the entity;
• Rights and obligations resulting from policyholders to manage investments on their behalf;
• The extent of other parties’ involvement in the entity, if any, the possibility for de facto control being present; and
• The effect of any legal or contractual restraints on the Company from using its power to affect its variable returns from the entity.
An assessment of control is based on arrangements in place and the assessed risk exposures at inception. Initial evaluations are
reconsidered at a later date if:
• The Company acquires or loses power over the financial and operating policies of the entity;
• The Company acquires additional interests in the entity or its interests in an entity are diluted;
• The contractual arrangements of the entity are amended such that the Company’s involvement with the entity changes; or
• The Company’s ability to use its power to affect its variable returns from the entity changes.
Subsidiaries are consolidated from the date on which control is obtained by the Company and cease to be consolidated from the date that
control ceases. A change in control may lead to gains or losses on derecognition of a subsidiary when losing control, or on derecognition of
previous interests in a subsidiary when gaining control.
Fair Value of Invested Assets
A large portion of the Company’s invested assets are recorded at fair value. Refer to note 1 of the 2022 Annual Consolidated Financial
Statements for a description of the methods used in determining fair values. When quoted prices in active markets are not available for a
particular investment, significant judgment is required to determine an estimated fair value based on market standard valuation
methodologies including discounted cash flow methodologies, matrix pricing, consensus pricing services, or other similar techniques. The
inputs to these standard valuation methodologies include: current interest rates or yields for similar instruments, credit rating of the issuer
or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, tenor (or expected tenor) of the
instrument, management’s assumptions regarding liquidity, volatilities and estimated future cash flows. Accordingly, the estimated fair
values are based on available market information and management’s judgments about the key market factors impacting these financial
instruments. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a
reduction in asset liquidity. The Company’s ability to sell assets, or the price ultimately realized for these assets, depends upon the demand
and liquidity in the market and increases the use of judgment in determining the estimated fair value of certain assets.
Evaluation of Invested Asset Impairment
AFS debt and equity securities are carried at fair market value, with changes in fair value recorded in other comprehensive income (“OCI”)
with the exception of unrealized gains and losses on foreign currency translation of AFS fixed income securities which are included in net
income attributed to shareholders. Securities are reviewed on a regular basis and any fair value decrement is transferred out of AOCI and
recorded in net income attributed to shareholders when it is deemed probable that the Company will not be able to collect all amounts due
according to the contractual terms of a debt security or when fair value of an equity security has declined significantly below cost or for a
prolonged period of time.
Provisions for impairments of mortgage loans and private placement loans are recorded with losses reported in earnings when there is no
longer reasonable assurance as to the timely collection of the full amount of the principal and interest.
Significant judgment is required in assessing whether an impairment has occurred and in assessing fair values and recoverable values. Key
matters considered include economic factors, Company and industry specific developments, and specific issues with respect to single
issuers and borrowers.
Changes in circumstances may cause future assessments of asset impairment to be materially different from current assessments, which
could require additional provisions for impairment. Additional information on the process and methodology for determining the allowance
for credit losses is included in the discussion of credit risk in note 9 to the 2022 Consolidated Financial Statements.
96 | 2022 Annual Report | Management’s Discussion and Analysis
Derivative Financial Instruments
The Company uses derivative financial instruments (“derivatives”) including swaps, forwards and futures agreements, and options to help
manage current and anticipated exposures to changes in interest rates, foreign exchange rates, commodity prices and equity market
prices, and to replicate permissible investments. Refer to note 5 to the 2022 Consolidated Financial Statements for a description of the
methods used to determine the fair value of derivatives.
The accounting for derivatives is complex and interpretations of the primary accounting guidance continue to evolve in practice. Judgment
is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment
under such accounting guidance. Differences in judgment as to the availability and application of hedge accounting designations and the
appropriate accounting treatment may result in a differing impact on the Consolidated Financial Statements of the Company from previous
periods. Assessments of hedge effectiveness and measurements of ineffectiveness of hedging relationships are also subject to
interpretations and estimations. If it were determined that hedge accounting designations were not appropriately applied, reported net
income attributed to shareholders could be materially affected.
Employee Future Benefits
The Company maintains defined contribution and defined benefit pension plans and other post-employment plans for employees and
agents, including registered (tax qualified) pension plans that are typically funded, as well as supplemental non-registered (non-qualified)
pension plans for executives, retiree welfare plans and disability welfare plans that are typically not funded. The largest defined benefit
pension and retiree welfare plans in the U.S. and Canada are the material plans that are discussed herein and in note 16 to the 2022
Annual Consolidated Financial Statements.
Due to the long-term nature of defined benefit pension and retiree welfare plans, the calculation of the defined benefit obligation and net
benefit cost depends on various assumptions such as discount rates, salary increase rates, cash balance interest crediting rates, health
care cost trend rates and rates of mortality. These assumptions are determined by management and are reviewed annually. The key
assumptions, as well as the sensitivity of the defined benefit obligation to changes in these assumptions, are presented in note 16 to the
2022 Annual Consolidated Financial Statements.
Changes in assumptions and differences between actual and expected experience give rise to actuarial gains and losses that affect the
amount of the defined benefit obligation and OCI. For 2022, the amount recorded in OCI was a loss of $49 million (2021 – gain of $217
million) for the defined benefit pension plans and a gain of $34 million (2021 – gain of $27 million) for the retiree welfare plans.
Contributions to the registered (tax qualified) defined benefit pension plans are made in accordance with the applicable U.S. and Canadian
regulations. During 2022, the Company contributed $3 million (2021 – $2 million) to these plans. As at December 31, 2022, the
difference between the fair value of assets and the defined benefit obligation for these plans was a surplus of $441 million (2021 – surplus
of $600 million). For 2023, the contributions to the plans are expected to be approximately $3 million.1
The Company’s supplemental pension plans for executives are not funded; benefits under these plans are paid as they become due. During
2022, the Company paid benefits of $56 million (2021 – $59 million) under these plans. As at December 31, 2022, the defined benefit
obligation for these plans, which is reflected as a liability in the balance sheet, amounted to $561 million (2021 – $687 million).
The Company’s retiree welfare plans are partially funded, although there are no regulations or laws governing or requiring the funding of
these plans. As at December 31, 2022, the difference between the fair value of plan assets and the defined benefit obligation for these
plans was a surplus of $57 million (2021 – surplus of $3 million).
Income Taxes
The Company is subject to income tax laws in various jurisdictions. Tax laws are complex and potentially subject to different interpretations
by the taxpayer and the relevant tax authority. The provision for income taxes represents management’s interpretation of the relevant tax
laws and its estimate of current and future income tax implications of the transactions and events during the period. A deferred tax asset
or liability results from temporary differences between carrying values of assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are recorded based on expected future tax rates and management’s assumptions regarding the expected timing of
the reversal of such temporary differences. The realization of deferred tax assets depends upon the existence of sufficient taxable income
within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. A deferred tax asset is recognized to the
extent that future realization of the tax benefit is probable. Deferred tax assets are reviewed at each reporting date and are reduced to the
extent that it is no longer probable that the tax benefit will be realized. At December 31, 2022, we had $5,423 million of deferred tax
assets (December 31, 2021 – $5,254 million). Factors in management’s determination include, among others, the following:
• Future taxable income exclusive of reversing temporary differences and carryforwards;
• Future reversals of existing taxable temporary differences;
• Taxable income in prior carryback years; and
• Tax planning strategies.
1 See “Caution regarding forward-looking statements” above.
97
The Company may be required to change its provision for income taxes if the ultimate deductibility of certain items is successfully
challenged by taxing authorities or if estimates used in determining the amount of deferred tax assets to recognize change significantly, or
when receipt of new information indicates the need for adjustment in the recognition of deferred tax assets. Additionally, future events,
such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for
income tax, deferred tax balances, actuarial liabilities (see Critical Actuarial and Accounting Policies – Expenses and Taxes above) and the
effective tax rate. Any such changes could significantly affect the amounts reported in the Consolidated Financial Statements in the year
these changes occur.
Goodwill and Intangible Assets
At December 31, 2022, under IFRS we had $6,014 million of goodwill and $4,505 million of intangible assets ($1,861 million of which are
intangible assets with indefinite lives). Goodwill and intangible assets with indefinite lives are tested for impairment at the cash generating
unit level (“CGU”) or group of CGUs level. A CGU comprises the smallest group of assets that are capable of generating largely independent
cash flows and is either a business segment or a level below. The tests performed in 2022 demonstrated that there was no impairment of
goodwill or intangible assets with indefinite lives. Changes in discount rates and cash flow projections used in the determination of
recoverable values or reductions in market-based earnings multiples may result in impairment charges in the future, which could be
material.
Impairment charges could occur in the future as a result of changes in economic conditions. The goodwill testing for 2023 will be updated
based on the conditions that exist in 2023 and may result in impairment charges, which could be material.
Future Accounting and Reporting Changes
There are several new accounting and reporting changes issued under IFRS including those still under development by the IASB. We have
summarized below key recently issued accounting standards that are anticipated to have a significant impact on the Company. Accounting
and reporting changes are discussed in note 2 of the 2022 Consolidated Financial Statements.
IFRS 9 “Financial Instruments”
IFRS 9 “Financial Instruments” was issued in November 2009 and amended in October 2010, November 2013 and July 2014, and is
effective for years beginning on or after January 1, 2018, to be applied retrospectively, or on a modified retrospective basis. Additionally,
the IASB issued amendments in October 2017 that are effective for annual periods beginning on or after January 1, 2019. In conjunction
with the amendments to IFRS 17 “Insurance Contracts” issued in June 2020, the IASB amended IFRS 4 “Insurance Contracts” to permit
eligible insurers to apply IFRS 9 effective January 1, 2023, alongside IFRS 17. The standard replaced IAS 39 “Financial Instruments:
Recognition and Measurement”.
The project has been divided into three phases: classification and measurement, impairment of financial assets, and hedge accounting.
IFRS 9’s current classification and measurement methodology provides that financial assets are measured at either amortized cost or fair
value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the
financial assets. The classification and measurement for financial liabilities remains generally unchanged; however, for a financial liability
designated as at fair value through profit or loss, revisions have been made in the accounting for changes in fair value attributable to
changes in the credit risk of that liability. Gains or losses caused by changes in an entity’s own credit risk on such liabilities are no longer
recognized in profit or loss but instead are reflected in OCI.
Revisions to hedge accounting were issued in November 2013 as part of the overall IFRS 9 project. The amendment introduces a new
hedge accounting model, together with corresponding disclosures about risk management activity for those applying hedge accounting.
The new model represents a substantial overhaul of hedge accounting that will enable entities to better reflect their risk management
activities in their financial statements. When IFRS 9 is first adopted, entities have the option to apply the hedge accounting requirements
under IFRS 9 or to continue to apply the hedge accounting requirements under IAS 39. Such option will apply to all hedge accounting
relationships.
Revisions issued in July 2014 replaced the existing incurred loss model used for measuring the allowance for credit losses with an
expected loss model. Changes were also made to the existing classification and measurement model designed primarily to address
specific application issues raised by early adopters of the standard. They also addressed the income statement accounting mismatches
and short-term volatility issues which have been identified as a result of the insurance contracts project.
The Company has adopted IFRS 9 beginning on January 1, 2023 as permitted under the June 2020 amendments to IFRS 4 “Insurance
Contracts”. The adoption of IFRS 9 resulted in certain differences in the classification and measurement of financial assets when compared
to their classification and measurement under IAS 39.
The Company has elected to apply the hedge accounting requirements under IFRS 9 to all hedge accounting relationships prospectively.
As at January 1, 2023, all existing IAS 39 hedge accounting relationships were assessed and qualify for hedge accounting under IFRS 9.
These existing relationships are treated as continuing hedge accounting relationships under IFRS 9 beginning on January 1, 2023; and will
be disclosed with comparative information for 2022 under IAS 39.
98 | 2022 Annual Report | Management’s Discussion and Analysis
The Company also designated new hedge accounting relationships with the objective to reduce accounting mismatches between hedging
derivatives’ changes in income and financial risk changes in OCI for IFRS 17 insurance liabilities and IFRS 9 financial assets. New hedge
accounting relationships are effective prospectively on January 1, 2023; and will not have comparative disclosure in the financial
statements for 2022.
IFRS 17 “Insurance Contracts”
IFRS 17 “Insurance Contracts” was issued in May 2017 to be effective for years beginning on January 1, 2021. Amendments to IFRS 17
“Insurance Contracts” were issued in June 2020 and include a two-year deferral of the effective date. IFRS 17 as amended, is effective for
years beginning on January 1, 2023, to be applied retrospectively. If full retrospective application to a group of contracts is impractical,
the modified retrospective or fair value methods may be used. The standard replaced IFRS 4 “Insurance Contracts” and materially changed
the recognition and measurement of insurance contracts and the corresponding presentation and disclosures in the Company’s Financial
Statements.
Narrow-scope amendments to IFRS 17 “Insurance Contracts” were issued in December 2021 and were effective on initial application of
IFRS 17 and IFRS 9 “Financial Instruments” which the Company has adopted on January 1, 2023. The amendments reduce accounting
mismatches between insurance contract liabilities and financial assets in scope of IFRS 9 within comparative prior periods when initially
applying IFRS 17 and IFRS 9. The amendments allow insurers to present comparative information on financial assets as if IFRS 9 were fully
applicable during the comparative period. The amendments do not permit application of IFRS 9 hedge accounting principles to the
comparative period.
The principles underlying IFRS 17 differ from CALM as permitted by IFRS 4. While there are many differences, the following outlines some
of the key measurement differences:
• Under IFRS 17 new business gains are recorded on the Consolidated Statements of Financial Position (in the CSM component of the
insurance contract liability) and amortized into income as services are provided. New business losses are recorded into income
immediately. Under CALM, both new business gains and new business losses were recognized in income immediately.
• Under IFRS 17 the Company aggregates insurance contracts that are subject to similar risks and managed together into portfolios.
Since new business gains and losses have different accounting treatments, insurance contracts are further aggregated into groups by
profitability and issuance period to limit offsetting of new business gains and losses. Such aggregation of contracts into groups is
required on initial recognition and not reassessed subsequently. Under CALM, new business gains and new business losses offset each
other in income.
• Under IFRS 17 the discount rate used to estimate the present value of insurance contract liabilities is based on the characteristics of the
liabilities. Under CALM, the rates of returns for current and projected assets supporting insurance contract liabilities were used to value
the liabilities. The difference in the discount rate approach also impacts the timing of investment results. Under IFRS 17, the impact of
investing activities will emerge into earnings over the life of the assets. Under CALM, the impact of investing activities was capitalized
into reserves and therefore earnings in the period they occurred.
• Under IFRS 17 the insurance contract liability discount rate is not related to the expected return on our ALDA and public equity assets,
and, as a result, the earnings sensitivity of a change in return assumptions for ALDA and public equity assets will be significantly
reduced.
• Under IFRS 17 the Company has elected the option to record changes in insurance contract liabilities arising from changes in interest
rates through other comprehensive income, for substantially all insurance products, and classify debt instruments supporting these
insurance contract liabilities as fair value through other comprehensive income under IFRS 9. Under CALM, changes in insurance
contract liabilities were recorded in income and supporting debt instruments were classified as FVTPL.
• Under IFRS 17 the Company separates specific embedded derivatives and distinct investment components from insurance contracts
and accounts for them under IFRS 9. Under IFRS 4 the treatment of embedded derivatives is consistent with IFRS 17, however under
IFRS 4 the Company did not separate deposit components as this was not required by the standard.
• Under IFRS 17 insurance contracts with different features are measured by one of the three measurement models: General
Measurement Model (“GMM”), Premium Allocation Approach (“PAA”) and Variable Fee Approach (“VFA”). Under IFRS 4, insurance
contracts were generally valued by one measurement model, although an unearned premium reserve method similar to PAA was
allowed and used by Manulife for certain short duration / annually renewable business.
In addition, there are significant changes to presentation and disclosure of the financial statements. The following outlines some of the key
presentation and disclosure changes:
• Consolidated Statements of Financial Position: Under IFRS 17 the Company presents portfolios of insurance and reinsurance contracts
issued separately from portfolios of reinsurance contracts held, and portfolios in asset position are further presented separately from
portfolios in liability position. Under CALM, contracts were not split and presented by asset and liability position.
• Consolidated Statements of Comprehensive Income: Under IFRS 17 the Company separately presents insurance revenue, insurance
service expense, insurance finance income or expenses, and income or expenses from reinsurance contracts held. Under CALM the
Company reported premium income, gross claims and benefits, changes in insurance contract liabilities, benefits and expenses ceded
to reinsurers, and changes in reinsurance assets.
99
A summary of some of the key risks are outlined in the “Risk Factors and Risk Management – Emerging Risks” section above.
The Company is required to prepare an opening balance sheet as at January 1, 2022, the date of transition to IFRS 17, which forms the
starting point for its financial reporting in accordance with IFRS 17. Any differences between the carrying value and the presentation of
assets, liabilities and equity determined in accordance with CALM and IFRS 17 as at January 1, 2022 will be recorded in opening retained
earnings and accumulated other comprehensive income.
100 | 2022 Annual Report | Management’s Discussion and Analysis
12. Controls and Procedures
Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us is
recorded, processed, summarized, and reported accurately and completely and within the time periods specified under Canadian and U.S.
securities laws. Our process includes controls and procedures that are designed to ensure that information is accumulated and
communicated to management, including the CEO and CFO, to allow timely decisions regarding required disclosure.
As of December 31, 2022, management evaluated the effectiveness of its disclosure controls and procedures as defined under the rules
adopted by the U.S. Securities and Exchange Commission and the Canadian securities regulatory authorities. This evaluation was
performed under the supervision of the Audit Committee, the CEO and CFO. Based on that evaluation, the CEO and CFO concluded that our
disclosure controls and procedures were effective as at December 31, 2022.
MFC’s Audit Committee has reviewed this MD&A and the 2022 Consolidated Financial Statements and MFC’s Board approved these
reports prior to their release.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal
control system was designed to provide reasonable assurance to management and the Board regarding the preparation and fair
presentation of published financial statements in accordance with generally accepted accounting principles. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and presentation.
Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with
management’s authorization, assets are safeguarded, and financial records are reliable. Management also takes steps to ensure that
information and communication flows are effective and to monitor performance, including performance of internal control procedures.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 based on the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework in Internal Control –
Integrated Framework. Based on this assessment, management believes that, as of December 31, 2022, the Company’s internal control
over financial reporting is effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young
LLP, the Company’s independent registered public accounting firm that also audited the Consolidated Financial Statements of the
Company for the year ended December 31, 2022. Their report expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2022.
Changes in Internal Control over Financial Reporting
No changes were made in our internal control over financial reporting during the year ended December 31, 2022 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
101
13. Non-GAAP and Other Financial Measures
The Company prepares its Consolidated Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board. We use a number of non-GAAP and other financial measures to evaluate overall
performance and to assess each of our businesses. This section includes information required by National Instrument 52-112 – Non-GAAP
and Other Financial Measures Disclosure in respect of “specified financial measures” (as defined therein).
Non-GAAP financial measures include core earnings (loss); pre-tax core earnings; core earnings available to common shareholders; core
earnings before income taxes, depreciation and amortization (“core EBITDA”); core general expenses; core revenue, Manulife Bank net
lending assets; Manulife Bank average net lending assets; assets under management (“AUM”); assets under management and
administration (“AUMA”); Global WAM managed AUMA; core revenue and net annualized fee income. In addition, non-GAAP financial
measures include the following stated on a constant exchange rate (“CER”) basis: any of the foregoing non-GAAP financial measures;
Global WAM revenue; net income attributed to shareholders; and common shareholders’ net income.
Non-GAAP ratios include core ROE; diluted core earnings per common share (“core EPS”); common share core dividend payout ratio;
expense efficiency ratio; core EBITDA margin; effective tax rate on core earnings and net annualized fee income yield on average AUMA. In
addition, non-GAAP ratios include the percentage growth/decline on a CER basis in any of the above non-GAAP financial measures; Global
WAM revenue; net income attributed to shareholders; common shareholders’ net income; pre-tax net income attributed to shareholders;
general expenses; basic earnings per common share; and diluted earnings per common share.
Other specified financial measures include assets under administration (“AUA”); consolidated capital; embedded value; new business
value (“NBV”); new business value margin (“NBV margin”); sales; annualized premium equivalent (“APE”) sales; gross flows; net flows;
market value to book value ratio; average assets under management and administration (“average AUMA”), Global WAM average managed
AUMA; average assets under administration; remittances; any of the foregoing specified financial measures stated on a CER basis; and
percentage growth/decline in any of the foregoing specified financial measures on a CER basis.
Non-GAAP financial measures and non-GAAP ratios are not standardized financial measures under GAAP and, therefore, might not be
comparable to similar financial measures disclosed by other issuers. Therefore, they should not be considered in isolation or as a
substitute for any other financial information prepared in accordance with GAAP.
Core earnings (loss) is a financial measure which we believe aids investors in better understanding the long-term earnings capacity and
valuation of the business. Core earnings allows investors to focus on the Company’s operating performance by excluding the direct impact
of changes in equity markets and interest rates, changes in actuarial methods and assumptions as well as a number of other items,
outlined below, that we believe are material, but do not reflect the underlying earnings capacity of the business. For example, due to the
long-term nature of our business, the mark-to-market movements of equity markets, interest rates, foreign currency exchange rates and
commodity prices from period-to-period can, and frequently do, have a substantial impact on the reported amounts of our assets, liabilities
and net income attributed to shareholders. These reported amounts are not actually realized at the time and may never be realized if the
markets move in the opposite direction in a subsequent period. This makes it very difficult for investors to evaluate how our businesses are
performing from period-to-period and to compare our performance with other issuers.
We believe that core earnings better reflect the underlying earnings capacity and valuation of our business. We use core earnings as the
basis for management planning and reporting and, along with net income attributed to shareholders, as a key metric used in our short and
mid-term incentive plans at the total Company and operating segment level. We also base our mid and long-term strategic priorities on
core earnings.
While core earnings is relevant to how we manage our business and offers a consistent methodology, it is not insulated from
macroeconomic factors which can have a significant impact. See below for reconciliation of core earnings to net income attributed to
shareholders and income before income taxes. Net income attributed to shareholders excludes net income attributed to participating
policyholders and non-controlling interests.
The items included in core earnings and items excluded from core earnings are determined in accordance with the methodology under
OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline and are listed below.
Any future changes to the core earnings definition referred to below, will be disclosed.
Items included in core earnings:
1.
Expected earnings on in-force policies, including expected release of provisions for adverse deviation, fee income, margins on group
business and spread business such as Manulife Bank and asset fund management.
2. Macro hedging costs based on expected market returns.
3.
4.
5.
6.
New business strain and gains.
Policyholder experience gains or losses.
Acquisition and operating expenses compared with expense assumptions used in the measurement of policy liabilities.
Up to $400 million of net favourable investment-related experience reported in a single year, which are referred to as “core
investment gains”. This means up to $100 million in the first quarter, up to $200 million on a year-to-date basis in the second
102 | 2022 Annual Report | Management’s Discussion and Analysis
quarter, up to $300 million on a year-to-date basis in the third quarter and up to $400 million on a full year basis in the fourth
quarter. Any investment-related experience losses reported in a quarter will be offset against the net year-to-date investment-related
experience gains with the difference being included in core earnings subject to a maximum of the year-to-date core investment gains
and a minimum of zero, which reflects our expectation that investment-related experience will be positive through-the-business
cycle. To the extent any investment-related experience losses cannot be fully offset in a quarter, they will be carried forward to be
offset against investment-related experience gains in subsequent quarters in the same year, for purposes of determining core
investment gains. Investment-related experience relates to fixed income investing, ALDA returns, credit experience and asset mix
changes other than those related to a strategic change. An example of a strategic asset mix change is outlined below.
O This favourable and unfavourable investment-related experience is a combination of reported investment experience as well as
the impact of investing activities on the measurement of our policy liabilities. We do not attribute specific components of
investment-related experience to amounts included or excluded from core earnings.
O The $400 million threshold represents the estimated average annualized amount of net favourable investment-related
experience that the Company reasonably expects to achieve through-the-business cycle based on historical experience. It is not
a forecast of expected net favourable investment-related experience for any given fiscal year.
O Our average net annualized investment-related experience, including core investment gains, calculated from the introduction of
core earnings in 2012 to the end of 2022 was $607 million (2012 to the end of 2021 was $546 million).
O The decision announced on December 22, 2017 to reduce the allocation to ALDA in the portfolio asset mix supporting our legacy
businesses was the first strategic asset mix change since we introduced the core earnings metric in 2012. We refined our
description of investment-related experience in 2017 to note that asset mix changes other than those related to a strategic
change are taken into consideration in the investment-related experience component of core investment gains.
O While historical investment return time horizons may vary in length based on underlying asset classes generally exceeding 20
years, for purposes of establishing the threshold, we look at a business cycle that is five or more years and includes a recession.
We monitor the appropriateness of the threshold as part of our annual five-year planning process and would adjust it, either to a
higher or lower amount, in the future if we believed that our threshold was no longer appropriate.
O Specific criteria used for evaluating a potential adjustment to the threshold may include, but are not limited to, the extent to
which actual investment-related experience differs materially from actuarial assumptions used in measuring insurance contract
liabilities, material market events, material dispositions or acquisitions of assets, and regulatory or accounting changes.
Core investment gains are reported in the Corporate and Other segment, with an offsetting adjustment to investment-related
experience gains and losses in items excluded from core earnings.
7.
Earnings on surplus other than mark-to-market items. Gains on available-for-sale (“AFS”) equities and seed money investments in
segregated and mutual funds are included in core earnings.
Routine or non-material legal settlements.
All other items not specifically excluded.
8.
9.
10. Tax on the above items.
11. All tax related items except the impact of enacted or substantively enacted income tax rate changes.
Items excluded from core earnings:
1.
The direct impact of equity markets and interest rates and variable annuity guarantee liabilities includes the items listed below.
O The earnings impact of the difference between the net increase (decrease) in variable annuity liabilities that are dynamically
hedged and the performance of the related hedge assets. Our variable annuity dynamic hedging strategy is not designed to
completely offset the sensitivity of insurance and investment contract liabilities to all risks or measurements associated with the
guarantees embedded in these products for a number of reasons, including: provisions for adverse deviation, fund performance,
the portion of the interest rate risk that is not dynamically hedged, realized equity and interest rate volatilities and changes to
policyholder behaviour.
O Gains (charges) on variable annuity guarantee liabilities not dynamically hedged.
O Gains (charges) on general fund equity investments supporting policy liabilities and on fee income.
O Gains (charges) on macro equity hedges relative to expected costs. The expected cost of macro hedges is calculated using the
equity assumptions used in the valuation of insurance and investment contract liabilities.
O Gains (charges) on higher (lower) fixed income reinvestment rates assumed in the valuation of insurance and investment contract
liabilities.
O Gains (charges) on sale of AFS bonds and open derivatives not in hedging relationships in the Corporate and Other segment.
2.
Net favourable investment-related experience in excess of $400 million per annum or net unfavourable investment-related
experience on a year-to-date basis.
3. Mark-to-market gains or losses on assets held in the Corporate and Other segment other than gains on AFS equities and seed money
4.
investments in new segregated or mutual funds.
Changes in actuarial methods and assumptions. As noted in the “Critical Actuarial and Accounting Policies” section above, policy
liabilities for IFRS are valued in Canada under standards established by the Actuarial Standards Board. The standards require a
comprehensive review of actuarial methods and assumptions to be performed annually. The review is designed to reduce the
Company’s exposure to uncertainty by ensuring assumptions for both asset related and liability related risks remain appropriate and
is accomplished by monitoring experience and selecting assumptions which represent a current best estimate view of expected
10
future experience, and margins that are appropriate for the risks assumed. Changes related to ultimate reinvestment rates (“URR”)
are included in the direct impact of equity markets and interest rates and variable annuity guarantee liabilities. By excluding the
results of the annual reviews, core earnings assist investors in evaluating our operational performance and comparing our
operational performance from period to period with other global insurance companies because the associated gain or loss is not
reflective of current year performance and not reported in net income in most actuarial standards outside of Canada.
The impact on the measurement of policy liabilities of changes in product features or new reinsurance transactions, if material.
Goodwill impairment charges.
Gains or losses on disposition of a business.
5.
6.
7.
8. Material one-time only adjustments, including highly unusual/extraordinary and material legal settlements or other items that are
material and exceptional in nature.
Tax on the above items.
9.
10. Net income (loss) attributed to participating policyholders and non-controlling interests.
11.
Impact of enacted or substantially enacted income tax rate changes.
104 | 2022 Annual Report | Management’s Discussion and Analysis
Reconciliation of core earnings to net income attributed to shareholders
($ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
2022
Income (loss) before income taxes
Income tax (expense) recovery
Core earnings
Items excluded from core earnings
Income tax (expense) recovery
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings(1)
Investment-related experience outside of core earnings
Direct impact of equity markets and interest rates and variable
annuity guarantee liabilities
Change in actuarial methods and assumptions
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
$ 2,063
$ 2,621
$ 4,877
$ 1,546
$ (2,360)
$ 8,747
(309)
(1)
(310)
1,753
(4)
(467)
2,224
(482)
(295)
(777)
1,844
–
314
1,530
(332)
(553)
(885)
3,992
–
42
3,950
(218)
(5)
(223)
1,323
2
–
1,321
106
524
630
(1,730)
1
–
(1,731)
(1,235)
(330)
(1,565)
7,182
(1)
(111)
7,294
31
70
1,183
–
(467)
817
153
(45)
–
(47)
$ 2,132
309
$ 2,441
76
35
–
(10)
$ 1,359
482
$ 1,841
197
36
–
834
$ 1,700
332
$ 2,032
–
–
–
80
$ 1,241
218
$ 1,459
(1,266)
10
–
242
$ (250)
(106)
$ (356)
(840)
36
–
1,099
$ 6,182
1,235
$ 7,417
(1) These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.
Core earnings, CER basis and U.S. dollars
(Canadian $ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Core earnings (post-tax)
CER adjustment(1)
Core earnings, CER basis (post-tax)
Income tax on core earnings, CER basis(2)
Core earnings, CER basis (pre-tax)
2022
Asia
Canada
U.S.
Global WAM
$ 2,132
40
$ 2,172
313
$ 2,485
$ 1,359
–
$ 1,359
482
$ 1,841
$ 1,700
79
$ 1,779
349
$ 2,128
$ 1,241
33
$ 1,274
220
$ 1,494
Corporate
and Other
$ (250)
(2)
$ (252)
(107)
$ (359)
Total
$ 6,182
150
$ 6,332
1,257
$ 7,589
Core earnings (U.S. dollars) – Asia and U.S. segments
Core earnings (post-tax)(3), US $
CER adjustment US $(1)
Core earnings, CER basis (post-tax), US $
$ 1,637
(40)
$ 1,597
$ 1,311
–
$ 1,311
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for the four respective quarters that make up 2022 core earnings.
105
Reconciliation of core earnings to net income attributed to shareholders
($ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Asia
Canada
U.S. Global WAM
Corporate
and Other
Total
Total
2021
2020
$ 3,188 $ 1,791
$ 2,484 $ 1,641 $
(979) $ 8,125 $ 6,771
Income (loss) before income taxes
Income tax (expense) recovery
Core earnings
Items excluded from core earnings
Income tax (expense) recovery
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings(1)
Investment-related experience outside of core earnings
Direct impact of equity markets and interest rates and
variable annuity guarantee liabilities
Change in actuarial methods and assumptions
Restructuring charge
Reinsurance transactions, tax related items and other
(322)
(122)
(444)
2,744
254
(567)
3,057
313
169
343
–
56
(413)
77
(336)
1,455
–
101
1,354
(418)
32
(386)
2,098
–
18
2,080
329
1,341
(89)
(65)
–
–
(727)
(314)
–
(156)
(234)
1
(233)
1,408
2
–
1,406
–
–
–
–
–
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
$ 2,176 $ 1,179 $ 1,936 $ 1,406 $
322
413
418
234
$ 2,498 $ 1,592 $ 2,354 $ 1,640 $
(1) These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.
Core earnings, CER basis and U.S. dollars
27
159
186
(793)
(1)
–
(792)
(1,360)
147
(1,213)
6,912
255
(448)
7,105
(1,168)
(27)
(1,195)
5,576
250
(545)
5,871
(341)
1,642
(792)
(170)
(5)
(115)
–
932
(817)
(198)
(41)
–
(115)
413
(100)
(161) $ 6,536 $ 5,516
1,360
(188) $ 7,896
(27)
(Canadian $ millions, post-tax and based on actual foreign exchange
rates in effect in the applicable reporting period, unless otherwise stated)
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
2021
Core earnings (post-tax)
CER adjustment(1)
Core earnings, CER basis (post-tax)
Income tax on core earnings, CER basis(2)
Core earnings, CER basis (pre-tax)
$ 2,176
34
$ 2,210
325
$ 2,535
$ 1,179
–
$ 1,179
413
$ 1,592
$ 1,936
160
$ 2,096
453
$ 2,549
$ 1,406
76
$ 1,482
238
$ 1,720
$
$
$
Core earnings (U.S. dollars) – Asia and U.S. segments
Core earnings (post-tax)(3), US $
CER adjustment US $(1)
Core earnings, CER basis (post-tax), US $
$ 1,736
(110)
$ 1,626
$ 1,544
–
$ 1,544
(2)
(161) $ 6,536
268
(163) $ 6,804
1,403
(189) $ 8,207
(26)
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for the four respective quarters that make up 2021 core earnings.
106 | 2022 Annual Report | Management’s Discussion and Analysis
Reconciliation of core earnings to net income attributed to shareholders
($ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Income (loss) before income taxes
Income tax (expense) recovery
Core earnings
Items excluded from core earnings
Income tax (expense) recovery
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings(1)
Investment-related experience outside of core earnings
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities
Change in actuarial methods and assumptions
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
4Q22
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 690
$ 698
$ 524
$ 403
$ (173)
$ 2,142
(100)
(36)
(136)
554
6
(21)
569
(137)
(169)
(306)
392
–
72
320
(73)
(14)
(87)
437
–
27
410
(50)
(5)
(55)
348
1
–
347
58
360
418
245
–
–
245
(302)
136
(166)
1,976
7
78
1,891
(110)
(166)
(62)
–
(119)
(457)
110
–
–
–
$ 569
100
$ 669
146
–
–
(10)
$ 350
137
$ 487
63
–
–
35
$ 374
73
$ 447
–
–
–
80
$ 267
50
$ 317
(135)
–
–
313
$ 186
(58)
$ 128
184
–
–
418
$ 1,746
302
$ 2,048
(1) These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.
Core earnings, CER basis and U.S. dollars
(Canadian $ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Asia
Canada
U.S.
Global WAM
4Q22
Core earnings (post-tax)
CER adjustment(1)
Core earnings, CER basis (post-tax)
Income tax on core earnings, CER basis(2)
Core earnings, CER basis (pre-tax)
Core earnings (U.S. dollars) – Asia and U.S. segments
Core earnings (post-tax)(3), US $
CER adjustment US $(1)
Core earnings, CER basis (post-tax), US $
$ 267
–
$ 267
50
$ 317
$ 569
–
$ 569
100
$ 669
$ 418
–
$ 418
$ 350
–
$ 350
137
$ 487
$ 374
–
$ 374
73
$ 447
$ 276
–
$ 276
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 4Q22.
Corporate
and Other
$ 186
–
$ 186
(58)
$ 128
Total
$ 1,746
–
$ 1,746
302
$ 2,048
107
Reconciliation of core earnings to net income attributed to shareholders
($ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Income (loss) before income taxes
Income tax (expense) recovery
Core earnings
Items excluded from core earnings
Income tax (expense) recovery
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings(1)
Investment-related experience outside of core earnings
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities
Change in actuarial methods and assumptions
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
3Q22
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 476
$ 819
$ 766
$ 395
$
(819) $ 1,637
(61)
2
(59)
417
(19)
(85)
521
(116)
(75)
(191)
628
–
50
578
(62)
(52)
(114)
652
–
11
641
(50)
–
(50)
345
–
–
345
18
64
82
(737)
1
–
(738)
(271)
(61)
(332)
1,305
(18)
(24)
1,347
(3)
97
127
–
(96)
125
95
(45)
–
(39)
$ 513
61
$ 574
96
35
–
–
$ 350
116
$ 466
137
36
–
(43)
$ 384
62
$ 446
–
–
–
–
$ 345
50
$ 395
$
$
(382)
10
–
–
(54)
36
–
(82)
(270) $ 1,322
271
(288) $ 1,593
(18)
(1) These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.
Core earnings, CER basis and U.S. dollars
(Canadian $ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
3Q22
(8)
(270) $ 1,322
30
(278) $ 1,352
275
(296) $ 1,627
(18)
Core earnings (post-tax)
CER adjustment(1)
Core earnings, CER basis (post-tax)
Income tax on core earnings, CER basis(2)
Core earnings, CER basis (pre-tax)
$ 513
15
$ 528
62
$ 590
$ 350
–
$ 350
116
$ 466
$ 384
15
$ 399
65
$ 464
$ 345
8
$ 353
50
$ 403
$
$
$
Core earnings (U.S. dollars) – Asia and U.S. segments
Core earnings (post-tax)(3), US $
CER adjustment US $(1)
Core earnings, CER basis (post-tax), US $
$ 394
(6)
$ 388
$ 294
–
$ 294
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 3Q22.
108 | 2022 Annual Report | Management’s Discussion and Analysis
Reconciliation of core earnings to net income attributed to shareholders
($ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Income (loss) before income taxes
Income tax (expense) recovery
Core earnings
Items excluded from core earnings
Income tax (expense) recovery
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings(1)
Investment-related experience outside of core earnings
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities
Change in actuarial methods and assumptions
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
2Q22
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 216
$ 224
$ 1,010
$ 362
$ (555) $ 1,257
(74)
44
(30)
186
(11)
(164)
361
80
(119)
64
(55)
169
–
84
85
86
(92)
(82)
(174)
836
–
4
832
591
(57)
–
(57)
305
–
–
305
4
54
58
(497)
–
–
(497)
(338)
80
(258)
999
(11)
(76)
1,086
–
(166)
591
(232)
–
–
–
$ 513
74
$ 587
(346)
–
–
–
$ 345
119
$ 464
(215)
–
–
–
$ 456
92
$ 548
–
–
–
–
$ 305
57
$ 362
$
$
(274)
–
–
–
(1,067)
–
–
–
(57) $ 1,562
338
(61) $ 1,900
(4)
(1) These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.
Core earnings, CER basis and U.S. dollars
(Canadian $ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
2Q22
Core earnings (post-tax)
CER adjustment(1)
Core earnings, CER basis (post-tax)
Income tax on core earnings, CER basis(2)
Core earnings, CER basis (pre-tax)
$ 513
17
$ 530
77
$ 607
$ 345
–
$ 345
119
$ 464
$ 456
29
$ 485
98
$ 583
$ 305
11
$ 316
58
$ 374
$
$
$
Core earnings (U.S. dollars) – Asia and U.S. segments
Core earnings (post-tax)(3), US $
CER adjustment US $(1)
Core earnings, CER basis (post-tax), US $
$ 401
(11)
$ 390
$ 357
–
$ 357
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 2Q22.
3
(57) $ 1,562
60
(54) $ 1,622
347
(59) $ 1,969
(5)
109
Reconciliation of core earnings to net income attributed to shareholders
($ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Income (loss) before income taxes
Income tax (expense) recovery
Core earnings
Items excluded from core earnings
Income tax (expense) recovery
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings(1)
Investment-related experience outside of core earnings
Direct impact of equity markets and interest rates and variable annuity
guarantee liabilities
Change in actuarial methods and assumptions
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
1Q22
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 681
$ 880
$ 2,577
$ 386
$
(813) $ 3,711
(74)
(11)
(85)
596
20
(197)
773
(110)
(115)
(225)
655
–
108
547
(105)
(405)
(510)
2,067
–
–
2,067
(61)
–
(61)
325
1
–
324
26
46
72
(741)
–
–
(741)
(324)
(485)
(809)
2,902
21
(89)
2,970
64
53
527
–
(86)
558
180
–
–
(8)
$ 537
74
$ 611
180
–
–
–
$ 314
110
$ 424
212
–
–
842
$ 486
105
$ 591
–
–
–
–
$ 324
61
$ 385
$
$
(475)
–
–
(71)
97
–
–
763
(109) $ 1,552
324
(135) $ 1,876
(26)
(1) These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.
Core earnings, CER basis and U.S. dollars
(Canadian $ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
1Q22
3
(109) $ 1,552
60
(106) $ 1,612
333
(132) $ 1,945
(26)
Core earnings (post-tax)
CER adjustment(1)
Core earnings, CER basis (post-tax)
Income tax on core earnings, CER basis(2)
Core earnings, CER basis (pre-tax)
Core earnings (U.S. dollars) – Asia and U.S. segments
Core earnings (post-tax)(3), US $
CER adjustment US $(1)
Core earnings, CER basis (post-tax), US $
$ 324
14
$ 338
62
$ 400
$
$
$
$ 537
8
$ 545
74
$ 619
$ 314
–
$ 314
110
$ 424
$ 424
(23)
$ 401
$ 486
35
$ 521
113
$ 634
$ 384
–
$ 384
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 1Q22.
110 | 2022 Annual Report | Management’s Discussion and Analysis
Reconciliation of core earnings to net income attributed to shareholders
($ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
4Q21
Income (loss) before income taxes
Income tax (expense) recovery
Core earnings
Items excluded from core earnings
Income tax (expense) recovery
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings(1)
Investment-related experience outside of core earnings
Direct impact of equity markets and interest rates and variable
annuity guarantee liabilities
Change in actuarial methods and assumptions
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
$
684
$
806 $
614
$
438
$
(61) $ 2,481
(68)
(15)
(83)
601
32
(76)
645
58
32
–
–
8
547
68
615
$
$
(101)
(77)
(178)
628
–
12
616
(117)
(4)
(121)
493
–
(1)
494
(52)
2
(50)
388
1
–
387
(8)
10
2
(59)
(1)
–
(58)
(346)
(84)
(430)
2,051
32
(65)
2,084
90
58
–
(80)
126
240
–
–
–
286 $
101
387
$
125
–
–
(156)
467
117
584
–
–
–
–
387
52
439
$
$
$
$
1
–
–
–
21
8
29
398
–
–
(148)
$ 1,708
346
$ 2,054
$
$
(1) These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.
Core earnings, CER basis and U.S. dollars
(Canadian $ millions, post-tax and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Core earnings (post-tax)
CER adjustment(1)
Core earnings, CER basis (post-tax)
Income tax on core earnings, CER basis(2)
Core earnings, CER basis (pre-tax)
Core earnings (U.S. dollars) – Asia and U.S. segments
Core earnings (post-tax)(3), US $
CER adjustment US $(1)
Core earnings, CER basis (post-tax), US $
4Q21
Canada
U.S.
Global WAM
$
$
$
387
20
407
52
459
$
$
$
286
–
286
101
387
$
$
$
$
$
467
35
502
127
629
370
–
370
Asia
547
13
560
68
628
435
(23)
412
$
$
$
$
$
Corporate
and Other
$
$
$
21
3
24
8
32
Total
$ 1,708
71
$ 1,779
356
$ 2,135
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 4Q21.
111
Segment core earnings by business line or geographic source
($ millions, post-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
Asia
(US $ millions)
Hong Kong
Japan
Asia Other(1)
Mainland China
Singapore
Vietnam
Other Emerging Markets(2)
Regional Office
Total Asia core earnings
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 224
84
145
$ 217
89
115
$ 216
84
132
$ 219
77
156
$ 270
77
132
(35)
$ 418
(27)
$ 394
(31)
$ 401
(28)
$ 424
(44)
$ 435
$
876
334
548
16
161
309
62
(121)
$ 1,637
$
949
323
619
96
162
290
71
(155)
$ 1,736
(1) Core earnings for Asia Other is reported by country annually, on a full year basis.
(2) Other Emerging Markets includes Indonesia, the Philippines, Malaysia, Thailand, Cambodia and Myanmar.
(US $ millions), CER basis(1)
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
Quarterly Results
Full Year Results
Hong Kong
Japan
Asia Other(2)
Mainland China
Singapore
Vietnam
Other Emerging Markets(3)
$ 224
84
145
$ 217
87
112
$ 216
78
127
$ 219
63
147
$ 270
62
124
Regional Office
Total Asia core earnings, CER basis
(35)
$ 418
(28)
$ 388
(31)
$ 390
(28)
$ 401
(44)
$ 412
(1) Core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
(2) Core earnings for Asia Other is reported by country annually, on a full year basis.
(3) Other Emerging Markets includes Indonesia, the Philippines, Malaysia, Thailand, Cambodia and Myanmar.
$
876
312
531
14
160
298
59
(122)
$ 1,597
$
949
251
581
87
158
274
62
(155)
$ 1,626
Canada
(Canadian $ millions)
Insurance
Annuities
Manulife Bank
Total Canada core earnings
U.S.
(US $ millions)
U.S. Insurance
U.S. Annuities
Total U.S. core earnings
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 240
59
51
$ 350
$ 240
56
54
$ 350
$ 233
68
44
$ 345
$ 206
70
38
$ 314
$ 184
62
40
$ 286
$
919
253
187
$ 1,359
$
770
234
175
$ 1,179
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 235
41
$ 276
$ 244
50
$ 294
$ 316
41
$ 357
$ 328
56
$ 384
$ 274
96
$ 370
$ 1,123
188
$ 1,311
$ 1,128
416
$ 1,544
112 | 2022 Annual Report | Management’s Discussion and Analysis
Global WAM by business line
(Canadian $ millions)
Retirement
Retail
Institutional asset management
Total Global WAM core earnings
(Canadian $ millions), CER basis(1)
Retirement
Retail
Institutional asset management
Total Global WAM core earnings, CER basis
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
164
119
(16)
267
$
$
193
137
15
345
$
$
165
126
14
305
$
$
177
141
6
324
$
$
218
160
9
387
$
699
523
19
$ 1,241
$
819
551
36
$ 1,406
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
164
119
(16)
267
$
$
198
140
15
353
$
$
173
129
14
316
$
$
187
145
6
338
$
$
231
165
11
407
$
722
533
19
$ 1,274
$
873
571
38
$ 1,482
$
$
$
$
(1) Core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
Global WAM by geographic source
(Canadian $ millions)
Asia
Canada
U.S.
Total Global WAM core earnings
(Canadian $ millions), CER basis(1)
Asia
Canada
U.S.
Total Global WAM core earnings, CER basis
4Q22
66
87
114
267
4Q22
66
87
114
267
$
$
$
$
$
$
$
$
Quarterly Results
Full Year Results
3Q22
2Q22
1Q22
4Q21
2022
2021
75
116
154
345
$
$
76
109
120
305
$
$
86
108
130
324
$
$
88
119
180
387
$
303
420
518
$ 1,241
$
397
429
580
$ 1,406
Quarterly Results
Full Year Results
3Q22
2Q22
1Q22
4Q21
2022
2021
77
116
160
353
$
$
80
109
127
316
$
$
90
108
140
338
$
$
95
119
193
407
$
313
420
541
$ 1,274
$
424
429
628
$ 1,481
(1) Core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
Corporate and Other
(Canadian $ millions)
Corporate and Other excluding core investment gains
Core investment gains
Total Corporate and Other core earnings
4Q22
86
100
186
$
$
3Q22
2Q22
1Q22
4Q21
$
$
(370) $
100
(270)
$
(157) $
100
(57) $
(209) $
100
(109) $
(79) $
100
21
$
Quarterly Results
Full Year Results
2022
(650)
400
(250)
$
$
2021
(561)
400
(161)
Core earnings available to common shareholders is a financial measure that is used in the calculation of core ROE and core EPS. It is
calculated as core earnings (post-tax) less preferred share dividends.
($ millions, and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Core earnings
Less: Preferred share dividends
Core earnings available to common shareholders
CER adjustment(1)
Core earnings available to common shareholders,
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 1,746
(97)
1,649
–
$ 1,322 $ 1,562 $ 1,552 $ 1,708 $ 6,182
(260)
5,922
150
(51)
1,271
30
(60)
1,502
60
(52)
1,500
60
(71)
1,637
71
$ 6,536
(215)
6,321
268
CER basis
$ 1,649
$ 1,301 $ 1,562 $ 1,560 $ 1,708 $ 6,072
$ 6,589
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
Core ROE measures profitability using core earnings available to common shareholders as a percentage of the capital deployed to earn
the core earnings. The Company calculates core ROE using average common shareholders’ equity quarterly, as the average of common
shareholders’ equity at the start and end of the quarter, and annually, as the average of the quarterly average common shareholders’ equity
for the year.
11
Quarterly Results
Full Year Results
($ millions, unless otherwise stated)
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
Core earnings available to common shareholders
Annualized core earnings available to common
shareholders
Average common shareholders’ equity (see below)
Core ROE (annualized) (%)
Average common shareholders’ equity
Total shareholders’ and other equity
Less: Preferred shares and other equity
Common shareholders’ equity
Average common shareholders’ equity
$ 1,649
$ 1,271
$ 1,502
$ 1,500
$ 1,637
$ 5,922
$ 6,321
$ 6,538
$ 49,410
13.2%
$ 5,045
$ 49,129
10.3%
$ 6,022
$ 49,814
12.1%
$ 6,085
$ 51,407
11.8%
$ 6,483
$ 51,049
12.7%
$ 5,922
$ 49,940
11.9%
$ 6,321
$ 48,463
13.0%
$ 56,061
(6,660)
$ 49,401
$ 49,410
$ 56,078
(6,660)
$ 49,418
$ 49,129
$ 55,500
(6,660)
$ 48,840
$ 49,814
$ 56,457
(5,670)
$ 50,787
$ 51,407
$ 58,408
(6,381)
$ 52,027
$ 51,049
$ 56,061
(6,660)
$ 49,401
$ 49,940
$ 58,408
(6,381)
$ 52,027
$ 48,463
Core EPS is equal to core earnings available to common shareholders divided by diluted weighted average common shares outstanding.
($ millions, and based on actual foreign exchange rates
in effect in the applicable reporting period, unless otherwise stated)
Core EPS
Core earnings available to common shareholders
Diluted weighted average common shares outstanding
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 1,649
$ 1,271 $ 1,502 $ 1,500 $ 1,637 $ 5,922 $ 6,321
(millions)
Core earnings per share
1,881
0.88
$
1,904
1,924
1,942
1,946
1,913
$
0.67 $
0.78 $
0.77 $
0.84 $
3.10 $
1,946
3.25
Core EPS, CER basis
Core earnings available to common shareholders, CER
basis
$ 1,649
$ 1,301 $ 1,562 $ 1,560 $ 1,708 $ 6,072 $ 6,589
Diluted weighted average common shares outstanding
(millions)
Core earnings per share, CER basis
Core earnings related to strategic priorities
1,881
0.88
$
1,904
1,924
1,942
1,946
1,913
$
0.68 $
0.81 $
0.80 $
0.88 $
3.17 $
1,946
3.39
The Company measures its progress on certain strategic priorities using core earnings. These strategic priorities include core earnings
from highest potential businesses, core earnings from Asia region, and core earnings from long-term care insurance (“LTC”) and variable
annuities (“VA”) businesses. The core earnings for these businesses is calculated consistent with our definition of core earnings.
Highest potential businesses
For the years ended December 31,
($ millions, post-tax and based on actual foreign exchange rates in effect in the applicable reporting period)
Core earnings highest potential businesses(1)
Core earnings – All other businesses excl. core investment gains
Core investment gains
Core earnings
Items excluded from core earnings
Net income (loss) attributed to shareholders
Highest potential businesses core earnings contribution
2022
$ 3,875
1,907
400
6,182
1,112
2021
$ 4,111
2,025
400
6,536
569
2017(2)
$ 2,475
1,690
400
4,565
(2,461)
$ 7,294
$ 7,105
$ 2,104
63%
63%
54%
(1) Includes core earnings from Asia and Global WAM segments, Canada group benefits, and behavioural insurance products.
(2) The 2017 comparative period is presented due to its inclusion in Section 1 “Strategic priorities progress update” above.
Asia region
For the years ended December 31,
($ millions, post-tax and based on actual foreign exchange rates in effect in the applicable reporting period)
Core earnings of Asia region(1)
Core earnings – All other businesses excl. core investment gains
Core investment gains
Core earnings
Items excluded from core earnings
Net income (loss) attributed to shareholders
Asia region core earnings contribution
(1) Includes core earnings from Asia segment and Global WAM’s business in Asia.
114 | 2022 Annual Report | Management’s Discussion and Analysis
2022
$ 2,435
3,347
400
6,182
1,112
$ 7,294
39%
2021
$ 2,573
3,563
400
6,536
569
$ 7,105
39%
LTC & VA businesses
For the years ended December 31,
2022
2021
($ millions, post-tax and based on actual foreign exchange rates in effect
in the applicable reporting period)
Reported
Adjustments
Normalized
Reported
Adjustments(2)
Normalized
Core earnings of LTC and VA businesses(1)
Core earnings – All other businesses excl. core investment gains
$ 1,143
4,639
$
Core investment gains
Core earnings
Items excluded from core earnings
400
6,182
1,112
Net income (loss) attributed to shareholders
$ 7,294
$
–
–
–
–
–
–
$ 1,143
4,639
$ 1,426
4,710
$ (152)
–
$ 1,274
4,710
400
6,182
1,112
400
6,536
569
–
400
(152)
6,384
–
569
$ 7,294
$ 7,105
$ (152)
$ 6,953
LTC & VA Core Earnings contribution
18%
18%
22%
20%
(1) Includes core earnings from U.S. long-term care and Asia, Canada and U.S. variable annuities businesses.
(2) 2021 total company and U.S. LTC core earnings were normalized to remove estimated gains on U.S. LTC policyholder experience due to COVID-19.
The effective tax rate on core earnings is equal to income tax on core earnings divided by pre-tax core earnings.
The Company also uses financial performance measures that are prepared on a constant exchange rate basis, which exclude the impact
of currency fluctuations (from local currency to Canadian dollars at a total Company level and from local currency to U.S. dollars in Asia).
Such financial measures may be stated on a constant exchange rate basis or the percentage growth/decline in the financial measure on a
constant exchange rate basis, using the income statement and balance sheet exchange rates effective for the fourth quarter of 2022.
Information supporting constant exchange rate basis for GAAP and non-GAAP financial measures is presented below and throughout the
rest of this section.
115
Net income financial measures on a CER basis
($ Canadian millions, post-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise
stated)
Net income (loss) attributed to shareholders:
Asia
Canada
U.S.
Global WAM
Corporate and Other
Total net income (loss) attributed to shareholders
Preferred share dividends and other equity distributions
Common shareholders net income (loss)
CER adjustment(1)
Asia
Canada
U.S.
Global WAM
Corporate and Other
Total net income (loss) attributed to shareholders
Preferred share dividends and other equity distributions
Common shareholders net income (loss)
Net income (loss) attributed to shareholders, CER basis
Asia
Canada
U.S.
Global WAM
Corporate and Other
Total net income (loss) attributed to shareholders, CER
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$
569
320
410
347
245
1,891
(97)
$ 1,794
$
521
578
641
345
(738)
1,347
(51)
$ 1,296
$
361
85
832
305
(497)
1,086
(60)
$ 1,026
$
773
547
2,067
324
(741)
2,970
(52)
$ 2,918
$
645
616
494
387
(58)
2,084
(71)
$ 2,013
$ 2,224
1,530
3,950
1,321
(1,731)
7,294
(260)
$ 7,034
$ 3,057
1,354
2,080
1,406
(792)
7,105
(215)
$ 6,890
$
$
$
–
–
–
–
–
–
–
–
569
320
410
347
245
$
$
$
$
$
$
22
–
27
9
(19)
39
–
39
543
578
668
354
(757)
$
$
$
45
–
44
10
(17)
82
–
82
406
85
876
315
(514)
$
$
$
80
–
145
11
(33)
203
–
203
853
547
2,212
335
(774)
61
–
43
1 9
(3)
120
–
120
706
616
537
406
(61)
$
$
147
–
216
30
(69)
324
–
324
$
$
200
–
206
62
(8)
460
–
460
$ 2,371
1,530
4,166
1,351
(1,800)
$ 3,257
1,354
2,286
1,468
(800)
basis
1,891
1,386
1,168
3,173
2,204
7,618
7,565
Preferred share dividends and other equity distributions, CER
basis
Common shareholders net income (loss), CER basis
Asia net income attributed to shareholders, U.S. dollars
Asia net income (loss) attributed to shareholders, US$(2)
CER adjustment, US$(1)
Asia net income (loss) attributed to shareholders, US$,
(97)
$ 1,794
(51)
$ 1,335
(60)
$ 1,108
(52)
$ 3,121
(71)
$ 2,133
(260)
$ 7,358
(215)
$ 7,350
$
419
–
$
$
399
(1)
283
15
$
610
18
$
513
6
$ 1,711
32
$ 2,437
(42)
CER basis(1)
$
419
$
398
$
298
$
628
$
519
$ 1,743
$ 2,395
Net income (loss) attributed to shareholders (pre-tax)
Net income (loss) attributed to shareholders (post-tax)
Tax on net income attributed to shareholders
Net income (loss) attributed to shareholders (pre-tax)
CER adjustment(1)
Net income (loss) attributed to shareholders (pre-tax),
$ 1,891
91
1,982
–
$ 1,347
310
1,657
47
$ 1,086
188
1,274
98
$ 2,970
778
3,748
234
$ 2,084
440
2,524
80
$ 7,294
1,367
8,661
379
$ 7,105
1,185
8,290
273
CER basis
$ 1,982
$ 1,704
$ 1,372
$ 3,982
$ 2,604
$ 9,040
$ 8,563
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Asia net income attributed to shareholders (post-tax) in Canadian dollars is translated to U.S. dollars using the U.S. dollar Statement of Income rate for the reporting period.
116 | 2022 Annual Report | Management’s Discussion and Analysis
Basic and diluted earnings per share on a CER basis
($ millions, unless otherwise stated)
Common shareholders net income, CER basis(1)
Weighted average common shares outstanding (millions)
Basic EPS, CER basis
Common shareholders net income, CER basis(1)
Diluted weighted average common shares outstanding (millions)
Diluted EPS, CER basis
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 1,794
1,878
$ 0.95
$ 1,794
1,881
$ 0.95
$ 1,335
1,902
$ 0.70
$ 1,335
1,904
$ 0.70
$ 1,108
1,921
$ 0.58
$ 1,108
1,924
$ 0.58
$ 3,121
1,938
$ 1.61
$ 3,121
1,942
$ 1.61
$ 2,133
1,943
$ 1.10
$ 2,133
1,946
$ 1.10
$ 7,358
1,910
$ 3.85
$ 7,358
1,913
$ 3.85
$ 7,359
1,942
$ 3.79
$ 7,359
1,946
$ 3.79
(1) Common shareholders net income adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
General expenses, CER basis
($ millions, and based on actual foreign exchange rates in effect in the
applicable reporting period, unless otherwise stated)
General expenses
CER adjustment(1)
General expenses, CER basis
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 2,141
–
$ 2,141
$ 1,900
40
$ 1,940
$ 1,843
50
$ 1,893
$ 1,898
43
$ 1,941
$ 2,000
51
$ 2,051
$ 7,782
133
$ 7,915
$ 7,828
200
$ 8,028
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
Global WAM revenue, CER basis
($ millions, and based on actual foreign exchange rates in effect in the
applicable reporting period, unless otherwise stated)
Total revenue
Less: Revenue for segments other than Global WAM
Global WAM revenue
CER adjustment(1)
Global WAM revenue, CER basis
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 15,401
13,739
1,662
–
$ 1,662
$ 7,777
6,235
1,542
39
$ 1,581
$ (2,401) $ (3,630) $ 21,611
19,884
(5,216)
1,727
1,586
79
66
$ 1,806
$ 1,652
(3,922)
1,521
57
$ 1,578
$ 17,147
10,836
6,311
162
$ 6,473
$ 61,821
55,280
6,541
312
$ 6,853
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
Common share core dividend payout ratio is a ratio that measures the percentage of core earnings paid to common shareholders as
dividends. It is calculated as dividends per common share divided by core EPS.
Per share dividend
Core EPS
Common share core dividend payout ratio
Quarterly Results
Full Year Results
4Q22
$ 0.33
$ 0.88
38%
3Q22
$ 0.33
$ 0.67
49%
2Q22
$ 0.33
$ 0.78
42%
1Q22
$ 0.33
$ 0.77
43%
4Q21
$ 0.33
$ 0.84
39%
2022
$ 1.32
$ 3.10
43%
2021
$ 1.17
$ 3.25
36%
AUMA is a financial measure of the size of the Company. It is comprised of AUM and AUA. AUM includes assets of general fund, consisting
of total invested assets and segregated funds net assets, and external client assets for which we provide investment management services,
consisting of mutual fund, institutional asset management and other fund net assets. AUA are assets for which we provide administrative
services only. Assets under management and administration is a common industry metric for wealth and asset management businesses.
Our Global WAM business also manages assets on behalf of other segments of the Company. Global WAM-managed AUMA is a financial
measure equal to the sum of Global WAM’s AUMA and assets managed by Global WAM on behalf of other segments. It is an important
measure of the assets managed by Global WAM.
117
AUM and AUMA reconciliations
(Canadian $ in millions, and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
As at
Total Invested Assets
Manulife Bank net lending assets
Derivative reclassification(1)
Invested assets excluding above
items
Total
Segregated funds net assets
Segregated funds net assets –
Institutional
Segregated funds net assets –
Other(2)
Total
AUM per financial statements
Mutual funds
Institutional asset management(3)
Other funds
Total AUM
Assets under administration
Total AUMA
Total AUMA, US $(4)
Total AUMA
CER adjustment(5)
Total AUMA, CER basis
Global WAM Managed AUMA
Global WAM AUMA
AUM managed by Global WAM for
Manulife’s other segments
Total
CAD $
December 31, 2022
US $(4)
December 31, 2022
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Asia
U.S.
$
– $ 24,779 $
–
–
– $
–
– $
–
– $
5,701
24,779
5,701
$
– $
–
–
–
126,267
126,267
85,654
110,433
154,004
154,004
3,717
3,717
13,879
19,580
383,521
414,001
93,179
93,179
113,660
113,660
–
–
–
3,719
–
3,719
–
–
23,226
23,226
149,493
–
–
–
149,493
35,695
35,695
146,128
–
–
–
146,128
65,489
65,489
219,493
–
–
–
219,493
220,473
224,192
227,909
258,183
109,979
13,617
609,688
(40)
(40)
19,540
–
–
–
19,540
344,843
348,562
762,563
258,183
109,979
13,617
1,144,342
–
–
–
$ 149,493 $ 146,128 $ 219,493 $
$ 149,493 $ 146,128 $ 219,493 $
–
–
–
$ 149,493 $ 146,128 $ 219,493 $
170,224
170,224
779,912 $ 19,540 $ 1,314,566
970,196
$
–
779,912 $ 19,540 $ 1,314,566
–
779,912 $ 19,540 $ 1,314,566
–
–
17,138
17,138
110,317
–
–
–
110,317
48,333
48,333
161,993
–
–
–
161,993
–
$ 110,317 $ 161,993
–
$
779,912
229,534
$ 1,009,446
(1) Corporate and Other consolidation adjustment related to net derivative assets reclassified from total invested assets to other lines on the Statement of Financial Position.
(2) Corporate and Other segregated funds net asset represents elimination of amounts held by the Company.
(3) Institutional asset management excludes Institutional segregated funds net assets.
(4) The impact of updating foreign exchange rates to that which was used in 4Q22.
(5) US $ AUMA is calculated as total AUMA in Canadian $ divided by the US $ exchange rate in effect at the end of the quarter.
118 | 2022 Annual Report | Management’s Discussion and Analysis
As at
Total Invested Assets
CAD $
September 30, 2022
US $(4)
September 30, 2022
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Asia
U.S.
Manulife Bank net lending assets
Derivative reclassification(1)
Invested assets excluding above items
Total
$
– $ 24,637 $
–
121,285
121,285
–
85,164
109,801
– $
–
154,739
154,739
– $
–
3,741
3,741
– $
5,880
15,846
21,726
24,637
5,880
380,775
411,292
$
– $
–
88,263
88,263
–
–
112,615
112,615
Segregated funds net assets
Segregated funds net assets –
Institutional
Segregated funds net assets – Other(2)
Total
AUM per financial statements
Mutual funds
Institutional asset management(3)
Other funds
Total AUM
Assets under administration
Total AUMA
Total AUMA, US $(4)
Total AUMA
CER adjustment(5)
Total AUMA, CER basis
Global WAM Managed AUMA
Global WAM AUMA
AUM managed by Global WAM for
Manulife’s other segments
Total
–
22,032
22,032
143,317
–
–
–
143,317
–
34,773
34,773
144,574
–
–
–
144,574
–
63,996
63,996
218,735
–
–
–
218,735
4,118
210,352
214,470
218,211
249,520
100,361
12,910
581,002
–
(26)
(26)
21,700
–
–
–
21,700
4,118
331,127
335,245
746,537
249,520
100,361
12,910
1,109,328
–
16,042
16,042
104,305
–
–
–
104,305
–
46,575
46,575
159,190
–
–
–
159,190
–
$ 143,317 $ 144,574 $ 218,735 $ 748,761 $ 21,700 $ 1,277,087 $ 104,305 $ 159,190
167,759
167,759
–
–
–
–
–
$
929,433
$ 143,317 $ 144,574 $ 218,735 $ 748,761 $ 21,700 $ 1,277,087
(6,225)
$ 145,553 $ 144,574 $ 215,739 $ 743,296 $ 21,700 $ 1,270,862
(2,996)
(5,465)
2,236
–
–
$ 748,761
220,637
$ 969,398
Note: For footnotes (1) to (5), refer to the “AUM and AUMA reconciliation” table as at December 31, 2022 above.
119
As at
Total Invested Assets
CAD $
June 30, 2022
US $(4)
June 30, 2022
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Asia
U.S.
Manulife Bank net lending assets
Derivative reclassification(1)
Invested assets excluding above items
Total
$
– $ 24,500 $
–
117,128
117,128
–
82,755
107,255
– $
–
149,506
149,506
– $
–
3,967
3,967
– $
24,500 $
5,233
19,240
24,473
5,233
372,596
402,329
– $
–
90,822
90,822
–
–
115,901
115,901
Segregated funds net assets
Segregated funds net assets –
Institutional
Segregated funds net assets – Other(2)
Total
AUM per financial statements
Mutual funds
Institutional asset management(3)
Other funds
Total AUM
Assets under administration
Total AUMA
Total AUMA, US $(4)
Total AUMA
CER adjustment(5)
Total AUMA, CER basis
Global WAM Managed AUMA
Global WAM AUMA
AUM managed by Global WAM for
Manulife’s other segments
Total
–
21,874
21,874
139,002
–
–
–
139,002
–
35,577
35,577
142,832
–
–
–
142,832
–
64,200
64,200
213,706
–
–
–
213,706
4,098
209,181
213,279
217,246
250,445
100,205
12,110
580,006
–
(27)
(27)
24,446
–
–
–
24,446
4,098
330,805
334,903
737,232
250,445
100,205
12,110
1,099,992
–
16,953
16,953
107,775
–
–
–
107,775
–
49,770
49,770
165,671
–
–
–
165,671
–
$ 139,002 $ 142,832 $ 213,706 $ 744,703 $ 24,446 $ 1,264,689 $ 107,775 $ 165,671
164,697
164,697
–
–
–
–
–
$
980,379
$ 139,002 $ 142,832 $ 213,706 $ 744,703 $ 24,446 $ 1,264,689
45,621
$ 146,715 $ 142,832 $ 224,472 $ 771,845 $ 24,446 $ 1,310,310
10,766
27,142
7,713
–
–
$ 744,703
220,103
$ 964,806
Note: For footnotes (1) to (5), refer to the “AUM and AUMA reconciliation” table as at December 31, 2022 above.
120 | 2022 Annual Report | Management’s Discussion and Analysis
As at
Total Invested Assets
CAD $
March 31, 2022
US $(4)
March 31, 2022
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Asia
U.S.
Manulife Bank net lending assets
Derivative reclassification(1)
Invested assets excluding above items
Total
$
– $ 24,004 $
–
120,529
120,529
–
88,736
112,740
– $
–
150,989
150,989
– $
–
3,468
3,468
– $
(270)
21,945
21,675
24,004 $
(270)
385,667
409,401
– $
–
96,463
96,463
–
–
120,830
120,830
Segregated funds net assets
Segregated funds net assets –
Institutional
Segregated funds net assets –
Other(2)
Total
AUM per financial statements
Mutual funds
Institutional asset management(3)
Other funds
Total AUM
Assets under administration
Total AUMA
Total AUMA, US $(4)
Total AUMA
CER adjustment(5)
Total AUMA, CER basis
Global WAM Managed AUMA
Global WAM AUMA
AUM managed by Global WAM for
Manulife’s other segments
Total
–
–
–
4,338
–
4,338
–
–
23,868
23,868
144,397
–
–
–
144,397
39,649
39,649
152,389
–
–
–
152,389
71,823
71,823
222,812
–
–
–
222,812
232,276
236,614
240,082
274,665
101,105
13,269
629,121
(26)
(26)
21,649
–
–
–
21,649
367,590
371,928
781,329
274,665
101,105
13,269
1,170,368
19,108
19,108
115,571
–
–
–
115,571
57,476
57,476
178,306
–
–
–
178,306
–
–
–
$ 144,397 $ 152,389 $ 222,812 $
$ 144,397 $ 152,389 $ 222,812 $
7,757
–
18,743
$ 152,154 $ 152,389 $ 241,555 $
178,843
–
178,843
807,964 $ 21,649 $ 1,349,211 $ 115,571 $ 178,306
–
–
$ 1,079,714
807,964 $ 21,649 $ 1,349,211
72,521
853,985 $ 21,649 $ 1,421,732
46,021
–
$
807,964
231,373
$ 1,039,337
Note: For footnotes (1) to (5), refer to the “AUM and AUMA reconciliation” table as at December 31, 2022 above.
121
As at
Total Invested Assets
CAD $
December 31, 2021
US $(4)
December 31, 2021
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Asia
U.S.
Manulife Bank net lending assets
Derivative reclassification(1)
Invested assets excluding above items
Total
$
– $ 23,447 $
–
129,207
129,207
–
96,425
119,872
– $
–
164,830
164,830
– $
– $
–
(7,475)
4,458 16,206
8,731
4,458
23,447 $
(7,475)
411,126
427,098
– $
–
101,893
101,893
–
–
130,013
130,013
Segregated funds net assets
Segregated funds net assets –
Institutional
Segregated funds net assets – Other(2)
Total
AUM per financial statements
Mutual funds
Institutional asset management(3)
Other funds
Total AUM
Assets under administration
Total AUMA
Total AUMA, US $(4)
Total AUMA
CER adjustment(5)
Total AUMA, CER basis
Global WAM Managed AUMA
Global WAM AUMA
AUM managed by Global WAM for
Manulife’s other segments
Total
–
25,505
25,505
154,712
–
–
–
154,712
–
42,124
42,124
161,996
–
–
–
161,996
–
79,620
79,620
244,450
–
–
–
244,450
4,470
248,097
252,567
257,025
290,863
106,407
14,001
668,296
–
(28)
(28)
8,703
–
–
–
8,703
4,470
395,318
399,788
826,886
290,863
106,407
14,001
1,238,157
–
20,112
20,112
122,005
–
–
–
122,005
–
62,801
62,801
192,814
–
–
–
192,814
–
–
–
$ 154,712 $ 161,996 $ 244,450 $
$ 154,712 $ 161,996 $ 244,450 $
4,276
–
16,771
$ 158,988 $ 161,996 $ 261,221 $
187,631
–
187,631
855,927 $ 8,703 $ 1,425,788 $ 122,005 $ 192,814
–
–
$ 1,124,616
855,927 $ 8,703 $ 1,425,788
59,360
894,240 $ 8,703 $ 1,485,148
38,313
–
$
855,927
246,773
$ 1,102,700
Note: For footnotes (1) to (5), refer to the “AUM and AUMA reconciliation” table as at December 31, 2022 above.
122 | 2022 Annual Report | Management’s Discussion and Analysis
Global WAM AUMA and Managed AUMA by business line and geographic source
As at
Global WAM AUMA by business line
Retirement
Retail
Institutional asset management
Total
Global WAM AUMA by business line, CER basis(1)
Retirement
Retail
Institutional asset management
Total
Global WAM AUMA by geographic source
Asia
Canada
U.S.
Total
Global WAM AUMA by geographic source, CER basis(1)
Asia
Canada
U.S.
Total
Global WAM Managed AUMA by business line
Retirement
Retail
Institutional asset management
Total
Global WAM Managed AUMA by business line, CER basis(1)
Retirement
Retail
Institutional asset management
Total
Global WAM Managed AUMA by geographic source
Asia
Canada
U.S.
Total
Global WAM Managed AUMA by geographic source, CER
basis(1)
Asia
Canada
U.S.
Total
Dec 31,
2022
Sept 30,
2022
Jun 30,
2022
Mar 31,
2022
Dec 31,
2021
$
$
$
$
$
$
$
$
394,388
270,416
115,108
779,912
$ 379,687
263,106
105,968
$ 748,761
394,388
270,416
115,108
779,912
$ 375,529
261,428
106,339
$ 743,296
109,800
212,553
457,559
779,912
$ 97,083
203,988
447,690
$ 748,761
109,800
212,553
457,559
779,912
$ 97,837
203,988
441,471
$ 743,296
$
394,388
347,658
267,400
$ 1,009,446
$ 379,687
336,459
253,252
$ 969,398
$
$
$
$
$
$
$
$
$
$
377,674
261,354
105,675
744,703
392,572
269,750
109,523
771,845
96,510
206,073
442,120
744,703
101,373
206,073
464,399
771,845
$
$
$
$
$
$
$
$
412,689
289,008
106,267
807,964
439,827
303,381
110,777
853,985
98,608
227,252
482,104
807,964
103,986
227,252
522,747
853,985
$
$
$
$
$
$
$
$
440,831
303,232
111,864
855,927
464,527
314,992
114,721
894,240
104,584
238,798
512,545
855,927
107,675
238,798
547,767
894,240
377,674
335,367
251,765
964,806
$
412,689
370,999
255,649
$ 1,039,337
$
440,831
391,911
269,958
$ 1,102,700
$
394,388
347,658
267,400
$ 1,009,446
$ 375,529
334,149
251,857
$ 961,535
$
392,572
346,083
261,945
$ 1,000,600
$
439,827
389,656
270,967
$ 1,100,450
$
464,527
407,471
282,185
$ 1,154,183
$
209,111
260,899
539,436
$ 1,009,446
$ 192,004
251,603
525,791
$ 969,398
$
$
190,301
254,400
520,105
964,806
$
195,346
279,700
564,291
$ 1,039,337
$
207,827
293,902
600,971
$ 1,102,700
$
209,111
260,899
539,436
$ 1,009,446
$ 191,445
251,603
518,487
$ 961,535
$
199,884
254,400
546,316
$ 1,000,600
$
208,887
279,700
611,863
$ 1,100,450
$
218,010
293,902
642,271
$ 1,154,183
(1) AUMA adjusted to reflect the foreign exchange rates for the Statement of Financial Position in effect for 4Q22.
Average assets under management and administration (“average AUMA”) is the average of Global WAM’s AUMA during the reporting
period. It is a measure used in analyzing and explaining fee income and earnings of our Global WAM segment. It is calculated as the
average of the opening balance of AUMA and the ending balance of AUMA using daily balances where available and month-end or
quarter-end averages when daily averages are unavailable. Similarly, Global WAM average managed AUMA and average AUA are the
average of Global WAM’s managed AUMA and AUA, respectively, and are calculated in a manner consistent with average AUMA.
Manulife Bank net lending assets is a financial measure equal to the sum of Manulife Bank’s loans and mortgages, net of allowances.
Manulife Bank average net lending assets is a financial measure which is calculated as the quarter-end average of the opening and the
ending balance of net lending assets. Both of these financial measures are a measure of the size of Manulife Bank’s portfolio of loans and
mortgages and are used to analyze and explain its earnings.
12
As at
($ millions)
Mortgages
Less: mortgages not held by Manulife Bank
Total mortgages held by Manulife Bank
Loans to bank clients
Manulife Bank net lending assets
Manulife Bank average net lending assets
Beginning of period
End of period
Manulife Bank average net lending assets by quarter
Manulife Bank average net lending assets – full year
Dec 31,
2022
$ 54,638
32,640
21,998
2,781
$ 24,779
$ 24,637
24,779
$ 24,708
$ 24,113
Sept 30,
2022
$ 54,685
32,847
21,838
2,799
$ 24,637
Jun 30,
2022
$ 53,422
31,704
21,718
2,782
$ 24,500
Mar 31,
2022
$ 52,287
30,950
21,337
2,667
$ 24,004
Dec 31,
2021
$ 52,014
31,073
20,941
2,506
$ 23,447
$ 24,500
24,637
$ 24,569
$ 24,004
24,500
$ 24,252
$ 23,447
24,004
$ 23,726
$ 23,139
23,447
$ 23,293
$ 23,105
Consolidated capital serves as a foundation of our capital management activities at the MFC level. Consolidated capital is calculated as
the sum of: (i) total equity excluding accumulated other comprehensive income (“AOCI”) on cash flow hedges; and (ii) certain other capital
instruments that qualify as regulatory capital. For regulatory reporting purposes under the LICAT framework, the numbers are further
adjusted for various additions or deductions to capital as mandated by the guidelines defined by OSFI.
As at
($ millions)
Total equity
Exclude AOCI gain/(loss) on cash flow hedges
Total equity excluding AOCI on cash flow hedges
Qualifying capital instruments
Consolidated capital
Dec 31,
2022
$ 56,379
8
56,371
6,122
Sep 30,
2022
Jun 30,
2022
Mar 31,
2022
Dec 31,
2021
$ 56,307
(18)
56,325
7,118
$ 55,798
(48)
55,846
7,001
$ 56,849
(70)
56,919
6,950
$ 58,869
(156)
59,025
6,980
$ 62,493
$ 63,443
$ 62,847
$ 63,869
$ 66,005
Core EBITDA is a financial measure which Manulife uses to better understand the long-term earnings capacity and valuation of our Global
WAM business on a basis more comparable to how the profitability of global asset managers is generally measured. Core EBITDA presents
core earnings before the impact of interest, taxes, depreciation, and amortization. Core EBITDA excludes certain acquisition expenses
related to insurance contracts in our retirement businesses which are deferred and amortized over the expected lifetime of the customer
relationship under the CALM. Core EBITDA was selected as a key performance indicator for our Global WAM business, as EBITDA is widely
used among asset management peers, and core earnings is a primary profitability metric for the Company overall.
124 | 2022 Annual Report | Management’s Discussion and Analysis
Reconciliation of Global WAM core earnings to core EBITDA and Global WAM core EBITDA by business line and geographic source
($ millions, pre-tax and based on actual foreign exchange rates in
effect in the applicable reporting period, unless otherwise stated)
Global WAM core earnings (post-tax)
Addback taxes, acquisition costs, other expenses and deferred sales
commissions
Core income tax (expense) recovery (see above)
Acquisition costs, other expenses
Deferred sales commissions
Core EBITDA
CER adjustment(1)
Core EBITDA, CER basis
Core EBITDA by business line
Retirement
Retail
Institutional asset management
Total
Core EBITDA by geographic source
Asia
Canada
U.S.
Total
Core EBITDA by business line, CER basis(2)
Retirement
Retail
Institutional asset management
Total, CER basis
Core EBITDA by geographic source, CER basis(2)
Asia
Canada
U.S.
Total, CER basis
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
$ 267
$ 345
$ 305
$ 324
$ 387
$ 1,241
$ 1,406
50
89
23
$ 429
–
$ 429
50
86
23
$ 504
57
80
25
$ 467
61
81
24
$ 490
52
79
25
$ 543
218
336
95
$ 1,890
234
323
99
$ 2,062
11
$ 515
17
$ 484
21
$ 511
25
$ 568
49
$ 1,939
91
$ 2,153
$ 268
170
(9)
$ 429
$ 287
193
24
$ 504
$ 263
179
25
$ 467
$ 277
201
12
$ 490
$ 306
220
17
$ 543
$ 1,095
743
52
$ 1,890
$ 1,210
790
62
$ 2,062
$ 97
143
189
$ 429
$ 111
180
213
$ 504
$ 106
171
190
$ 467
$ 113
171
206
$ 490
$ 115
185
243
$ 543
$
427
665
798
$ 1,890
$
511
682
869
$ 2,062
$ 268
170
(9)
$ 429
$ 296
195
24
$ 515
$ 274
183
27
$ 484
$ 292
208
11
$ 511
$ 324
226
18
$ 568
$ 1,130
756
53
$ 1,939
$ 1,286
803
64
$ 2,153
$ 97
143
189
$ 429
$ 114
180
221
$ 515
$ 111
171
202
$ 484
$ 119
171
221
$ 511
$ 121
185
262
$ 568
$
441
665
833
$ 1,939
$
529
682
942
$ 2,153
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) Core EBITDA adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q22.
Core EBITDA margin is a financial measure which Manulife uses to better understand the long-term profitability of our Global WAM
business on a more comparable basis to how profitability of global asset managers are measured. Core EBITDA margin presents core
earnings before the impact of interest, taxes, depreciation, and amortization divided by core revenue from these businesses. Core revenue
is used to calculate our core EBITDA margin, and is equal to pre-tax revenue included in core EBITDA, and it excludes such items as
revenue related to integration and acquisitions. Core EBITDA margin was selected as a key performance indicator for our Global WAM
business, as EBITDA margin is widely used among asset management peers, and core earnings is a primary profitability metric for the
Company overall.
Quarterly Results
Full Year Results
($ millions, unless otherwise stated)
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
Core EBITDA margin
Core EBITDA
Global WAM core revenue
Core EBITDA margin
Global WAM Revenue
Less: Revenue reported in items excluded from core earnings
Revenue related to integration and acquisitions
Global WAM core revenue
$
429
$ 1,572
27.3%
$ 1,662
$
504
$ 1,542
32.7%
$ 1,542
$
467
$ 1,521
30.7%
$ 1,521
$
490
$ 1,586
30.9%
$ 1,586
$
543
$ 1,727
31.4%
$ 1,727
$ 1,890
$ 6,221
30.4%
$ 6,311
$ 2,062
$ 6,541
31.5%
$ 6,541
90
$ 1,572
–
$ 1,542
–
$ 1,521
–
$ 1,586
–
$ 1,727
90
$ 6,221
–
$ 6,541
Expense efficiency ratio is a financial measure which Manulife uses to measure progress towards our target to be more efficient. It is
defined as core general expenses divided by the sum of core earnings before income taxes (“pre-tax core earnings”) and core general
expenses. Core general expenses is used to calculate our expense efficiency ratio and is equal to pre-tax general expenses included in
125
core earnings and excludes such items as material legal provisions for settlements, restructuring charges and expenses related to
integration and acquisitions.
($ millions, and based on actual foreign exchange
rates in effect in the applicable reporting period,
unless otherwise stated)
Expense Efficiency Ratio
Core general expenses
Core earnings (pre-tax)
Total – Core earnings (pre-tax) and Core
general expenses
Expense Efficiency Ratio
Core general expenses
General expenses – Financial Statements
Less: General expenses included in items
excluded from core earnings
Restructuring charge
Integration and acquisition
Legal provisions and Other expenses
Total
Core general expenses
Core general expenses
CER adjustment(1)
Core general expenses, CER basis
Quarterly Results
Full Year Results
4Q22
3Q22
2Q22
1Q22
4Q21
2022
2021
2017(2)
$ 2,122
2,048
$ 1,859
1,593
$ 1,843
1,900
$ 1,877
1,876
$ 1,973
2,054
$ 7,701
7,417
$ 7,553
7,896
$
7,091
5,702
$ 4,170
50.9%
$ 3,452
53.9%
$ 3,743
49.2%
$ 3,753
50.0%
$ 4,027
49.0%
$ 15,118
50.9%
$ 15,449
48.9%
$ 12,793
55.4%
$ 2,141
$ 1,900
$ 1,843
$ 1,898
$ 2,000
$ 7,782
$ 7,828
$
7,233
–
18
1
$
19
$ 2,122
$ 2,122
–
$ 2,122
–
–
41
$
41
$ 1,859
$ 1,859
40
$ 1,899
–
–
–
$
–
$ 1,843
$ 1,843
49
$ 1,892
–
8
13
$
21
$ 1,877
$ 1,877
41
$ 1,918
–
–
27
$
27
$ 1,973
$ 1,973
49
$ 2,022
–
26
55
$
81
$ 7,701
$ 7,701
130
$ 7,831
150
–
125
$
275
$ 7,553
$ 7,553
186
$ 7,739
–
81
61
142
7,091
$
$
(1) The impact of updating foreign exchange rates to that which was used in 4Q22.
(2) The 2017 comparative period is presented due to its inclusion in Section 1 “Strategic priorities progress update” above.
Embedded value (“EV”) is a measure of the present value of shareholders’ interests in the expected future distributable earnings on
in-force business reflected in the Consolidated Statements of Financial Position of Manulife, excluding any value associated with future
new business. EV is calculated as the sum of the adjusted net worth and the value of in-force business. The adjusted net worth is the IFRS
shareholders’ equity adjusted for goodwill and intangibles, fair value of surplus assets, the carrying value of debt and preferred shares, and
local statutory balance sheet, regulatory reserve, and capital for Manulife’s Asian business. The value of in-force business in Canada and
the U.S. is the present value of expected future IFRS earnings on in-force business less the present value of the cost of holding capital to
support the in-force business under the LICAT framework. The value of in-force business in Asia reflects local statutory earnings and capital
requirements. The value of in-force business excludes our Global WAM, Manulife Bank and Property and Casualty Reinsurance businesses.
Net annualized fee income yield on average AUMA (“Net fee income yield”) is a financial measure that represents the net annualized
fee income from Global WAM channels over average AUMA. This measure provides information on Global WAM’s adjusted return generated
from managing AUMA.
Net annualized fee income is a financial measure that represents Global WAM income before income taxes, adjusted to exclude items
unrelated to net fee income, including general expenses, investment income, non-AUMA related net benefits and claims, and net premium
taxes. It also excludes the components of Global WAM net fee income from managing assets on behalf of other segments. This measure is
annualized based on the number of days in the year divided by the number of days in the reporting period.
Reconciliation of income before income taxes to net fee income yield
($ millions, unless otherwise stated)
Income before income taxes
Less: Income before income taxes for
segments other than Global WAM
Global WAM income before income taxes
Items unrelated to net fee income
Global WAM net fee income
Less: Net fee income from other segments
Global WAM net fee income excluding net fee
income from other segments
Net annualized fee income
Average Assets under Management and
Administration
Net fee income yield (bps)
Quarterly Results
Full Year Results
$
4Q22
2,142
1,739
403
564
967
110
3Q22
2Q22
1Q22
4Q21
$
1,637 $
1,257 $
3,711 $
2,481 $
1,242
395
565
960
112
895
362
580
942
112
3,325
386
600
986
118
2,043
438
616
1,054
122
$
2022
8,747
7,201
1,546
2,309
3,855
452
2021
8,125
6,484
1,641
2,324
3,965
458
857
3,400
$
848
3,362 $
830
3,328 $
868
3,516 $
932
3,698 $
3,403
3,403
$
3,507
3,507
$
$ 777,772
43.7
$ 771,812 $ 776,833 $ 820,393 $ 835,494 $ 787,842
43.2
42.9
42.8
43.6
44.3
$ 798,022
43.9
126 | 2022 Annual Report | Management’s Discussion and Analysis
New business value (“NBV”) is the change in embedded value as a result of sales in the reporting period. NBV is calculated as the present
value of shareholders’ interests in expected future distributable earnings, after the cost of capital, on actual new business sold in the
period using assumptions that are consistent with the assumptions used in the calculation of embedded value. NBV excludes businesses
with immaterial insurance risks, such as the Company’s Global WAM, Manulife Bank and the P&C Reinsurance businesses. NBV is a useful
metric to evaluate the value created by the Company’s new business franchise.
New business value margin (“NBV margin”) is calculated as NBV divided by APE excluding non-controlling interests. APE is calculated as
100% of annualized first year premiums for recurring premium products, and as 10% of single premiums for single premium products. Both
NBV and APE used in the NBV margin calculation are after non-controlling interests and exclude our Global WAM, Manulife Bank and P&C
Reinsurance businesses. NBV margin is a useful metric to help understand the profitability of our new business.
Sales are measured according to product type:
For individual insurance, sales include 100% of new annualized premiums and 10% of both excess and single premiums. For individual
insurance, new annualized premiums reflect the annualized premium expected in the first year of a policy that requires premium payments
for more than one year. Single premium is the lump sum premium from the sale of a single premium product, e.g. travel insurance. Sales
are reported gross before the impact of reinsurance.
For group insurance, sales include new annualized premiums and administrative services only premium equivalents on new cases, as well
as the addition of new coverages and amendments to contracts, excluding rate increases.
Insurance-based wealth accumulation product sales include all new deposits into variable and fixed annuity contracts. As we discontinued
sales of new variable annuity contracts in the U.S. in the first quarter of 2013, subsequent deposits into existing U.S. variable annuity
contracts are not reported as sales. Asia variable annuity deposits are included in APE sales.
APE sales are comprised of 100% of regular premiums/deposits and 10% of excess and single premiums/deposits for both insurance and
insurance-based wealth accumulation products.
Gross flows is a new business measure presented for our Global WAM business and includes all deposits into mutual funds, group
pension/retirement savings products, private wealth and institutional asset management products. Gross flows is a common industry
metric for WAM businesses as it provides a measure of how successful the businesses are at attracting assets.
Net flows is presented for our Global WAM business and includes gross flows less redemptions for mutual funds, group pension/
retirement savings products, private wealth and institutional asset management products. In addition, net flows include the net flows of
exchange traded funds and non-proprietary product sold by Manulife Securities. Net flows is a common industry metric for WAM
businesses as it provides a measure of how successful the businesses are at attracting and retaining assets. When net flows are positive,
they are referred to as net inflows. Conversely, negative net flows are referred to as net outflows.
Market value to book value ratio is calculated as the market value of one common share of the Company divided by the book value of a
common share. It is a key valuation measure used by the market for our common shares.
Remittances is defined as the cash remitted or available for distribution to the Manulife Group from operating subsidiaries and excess
capital generated by standalone Canadian operations. It is one of the key metrics used by management to evaluate our financial flexibility.
127
14. Additional Disclosures
Contractual Obligations
In the normal course of business, the Company enters into contracts that give rise to obligations fixed by agreement as to the timing and
dollar amount of payment.
As at December 31, 2022, the Company’s contractual obligations and commitments were as follows:
Payments due by period
($ millions)
Long-term debt(1)
Liabilities for capital instruments(1)
Investment commitments
Lease liabilities
Insurance contract liabilities(2)
Investment contract liabilities(1)
Deposits from Bank clients
Other
Total contractual obligations
Total
$
$
8,702
8,706
14,193
420
1,054,970
4,690
22,507
6,180
60,708
Less than 1
year
$
195
239
4,454
112
11,498
300
16,884
2,011
$ 23,895
1 to 3 years
3 to 5 years
After 5 years
$
390
1,095
5,122
154
12,365
511
3,000
2,104
$ 11,865
$
2,950
566
4,029
93
18,496
514
2,623
2,011
$ 12,272
$
$
5,167
6,806
588
61
1,012,611
3,365
–
54
12,676
(1) The contractual payments include principal, interest and distributions; and reflect the amounts payable up to and including the final contractual maturity date. The contractual
payments reflect the amounts payable from January 1, 2023 up to and including the final contractual maturity date. In the case of floating rate obligations, the floating rate
index is based on the interest rates as at December 31, 2022 and is assumed to remain constant to the final contractual maturity date. The Company may have the contractual
right to redeem or repay obligations prior to maturity and if such right is exercised, total contractual obligations paid and the timing of payment could vary significantly from the
amounts and timing included in the table.
(2) Insurance contract liabilities cash flows include estimates related to the timing and payment of death and disability claims, policy surrenders, policy maturities, annuity
payments, minimum guarantees on segregated fund products, policyholder dividends, commissions and premium taxes offset by contractual future premiums on in-force
contracts. These estimated cash flows are based on the best estimate assumptions used in the determination of insurance contract liabilities. These amounts are undiscounted
and reflect recoveries from reinsurance agreements. Due to the use of assumptions, actual cash flows may differ from these estimates (see “Policy Liabilities”). Cash flows
include embedded derivatives measured separately at fair value.
Legal and Regulatory Proceedings
We are regularly involved in legal actions, both as a defendant and as a plaintiff. Information on legal and regulatory proceedings can be
found in note 19 of the 2022 Annual Consolidated Financial Statements.
128 | 2022 Annual Report | Management’s Discussion and Analysis
Quarterly Financial Information
The following table provides summary information related to our eight most recently completed quarters:
As at and for the three months ended
($ millions, except per share amounts or otherwise
stated)
Revenue
Premium income
Life and health insurance
Annuities and pensions(1)
Net premium income
Investment income
Realized and unrealized gains and losses on
assets supporting insurance and investment
contract liabilities(2)
Other revenue
Total revenue
Income (loss) before income taxes
Income tax (expense) recovery
Net income (loss)
Net income (loss) attributed to shareholders
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Segregated funds deposits
Total assets (in billions)
Weighted average common shares
Dec 31,
2022
Sept 30,
2022
Jun 30,
2022
Mar 31,
2022
Dec 31,
2021
Sept 30,
2021
Jun 30,
2021
Mar 31,
2021
$ 8,469 $ 8,710 $ 8,783 $ 9,521 $ 9,159 $ 9,269 $ 8,716 $ 8,986
622
9,608
3,214
901
10,060
4,350
(19)
9,502
3,417
844
9,627
3,675
714
9,983
3,964
698
9,414
4,099
762
9,472
3,883
783
9,252
4,232
(166)
(332)
4,460
2,741
9,551
2,760
(822)
2,739
(958)
2,994
(7,955)
2,377
(18,540)
1,991
(17,760)
2,057
$ 15,401 $ 7,777 $
(2,401) $ (3,630) $ 21,611 $ 15,983 $ 25,824 $
$ 2,142 $ 1,637 $ 1,257 $ 3,711 $ 2,481 $ 1,480 $ 3,292 $
(809)
(17,056)
2,637
(1,597)
872
(7)
(258)
$ 1,976 $ 1,305 $
865
999 $ 2,902 $ 2,051 $ 1,314 $ 2,682 $
$ 1,891 $ 1,347 $ 1,086 $ 2,970 $ 2,084 $ 1,592 $ 2,646 $
783
$
0.38
1.33 $
$
0.38
1.33 $
$ 10,165 $ 9,841 $ 10,094 $ 12,328 $ 10,920 $ 10,929 $ 10,301 $ 12,395
$
859
0.95 $ 0.68 $
0.95 $ 0.68 $
1.04 $
1.03 $
0.80 $
0.80 $
1.51 $
1.50 $
0.53 $
0.53 $
849 $
821 $
918 $
865 $
898 $
879 $
835 $
(166)
(430)
(610)
(in millions)
1,878
1,902
1,921
1,938
1,943
1,942
1,942
1,941
Diluted weighted average common shares
(in millions)
Dividends per common share
CDN$ to US$1 – Statement of Financial
Position
CDN$ to US$1 – Statement of Income
1,881
1,945
$ 0.330 $ 0.330 $ 0.330 $ 0.330 $ 0.330 $ 0.280 $ 0.280 $ 0.280
1,946
1,946
1,924
1,942
1,904
1,946
1.3549
1.3575
1.3740
1.3057
1.2900
1.2765
1.2496
1.2663
1.2678
1.2601
1.2741
1.2602
1.2394
1.2282
1.2575
1.2660
(1) Includes lower net premium income related to the reinsurance of a block of our legacy U.S. variable annuity business of US$0.9 billion in 1Q22.
(2) For fixed income assets supporting insurance and investment contract liabilities and for equities supporting pass-through products and derivatives related to variable hedging
programs, the impact of realized and unrealized gains (losses) on the assets is largely offset in the change in insurance and investment contract liabilities.
129
Selected Annual Financial Information
As at and for the years ended December 31,
($ millions, except per share amounts)
Revenue
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total revenue
Total assets
Long-term financial liabilities
Long-term debt
Capital instruments
Total financial liabilities
Dividend per common share
Cash dividend per Class A Share, Series 2
Cash dividend per Class A Share, Series 3
Cash dividend per Class 1 Share, Series 3
Cash dividend per Class 1 Share, Series 4
Cash dividend per Class 1 Share, Series 5(1)
Cash dividend per Class 1 Share, Series 7(3)
Cash dividend per Class 1 Share, Series 9
Cash dividend per Class 1 Share, Series 11
Cash dividend per Class 1 Share, Series 13
Cash dividend per Class 1 Share, Series 15
Cash dividend per Class 1 Share, Series 17
Cash dividend per Class 1 Share, Series 19
Cash dividend per Class 1 Share, Series 21(2)
Cash dividend per Class 1 Share, Series 23(4)
Cash dividend per Class 1 Share, Series 25
2022
2021
2020
$ 14,962
3,907
(6,829)
6,311
(1,204)
$ 17,147
$ 848,941
$
6,234
6,122
$ 12,356
1.32
$
1.1625
1.125
0.5870
0.6814
–
0.2695
1.1894
1.1828
1.1035
0.9465
0.950
0.9188
–
0.3031
1.175
$ 29,571
12,366
13,256
6,541
87
$ 61,821
$ 917,643
$
4,882
6,980
$ 11,862
1.17
$
1.1625
1.125
0.5658
0.3814
0.9728
1.078
1.0878
1.1828
1.1035
0.9465
0.950
0.9188
0.70
1.2125
1.175
$ 28,455
18,638
23,361
5,749
2,705
$ 78,908
$ 880,349
$
6,164
7,829
$ 13,993
1.12
$
1.1625
1.125
0.5445
0.587
0.9728
1.078
1.0878
1.1828
1.1035
0.9465
0.950
0.9266
1.40
1.2125
1.175
(1) MFC redeemed in full the Class 1 Series 5 preferred shares at par, on December 19, 2021, the earliest redemption date.
(2) MFC redeemed in full the Class 1 Series 21 preferred shares at par, on June 19, 2021, the earliest redemption date.
(3) MFC redeemed in full the Class 1 Series 7 preferred shares at par, on March 19, 2022, the earliest redemption date.
(4) MFC redeemed in full the Class 1 Series 23 preferred shares at par, on March 19, 2022, the earliest redemption date.
Differences between IFRS and Hong Kong Financial Reporting Standards
Manulife’s Consolidated Financial Statements are presented in accordance with IFRS. IFRS differs in certain respects from Hong Kong
Financial Reporting Standards (“HKFRS”). Until IFRS 17 “Insurance Contracts” becomes effective, IFRS 4 “Insurance Contracts” permits the
use of the insurance standard in effect at the time an issuer adopts IFRS. IFRS insurance contract liabilities are valued in Canada under
standards established by the Canadian Actuarial Standards Board. In certain interest rate environments, insurance contract liabilities
determined in accordance with HKFRS may be higher than those computed in accordance with current IFRS.
IFRS and Hong Kong Regulatory Requirements
Insurers in Hong Kong are required by the Insurance Authority to meet minimum solvency requirements. As at December 31, 2022, the
Company’s business that falls within the scope of these requirements has sufficient assets to meet the minimum solvency requirements
under both Hong Kong regulatory requirements and IFRS.
Outstanding Common Shares
As at January 31, 2023, MFC had 1,858,186,149 common shares outstanding.
Additional Information Available
Additional information relating to Manulife, including MFC’s Annual Information Form, is available on the Company’s website at
www.manulife.com and on SEDAR at www.sedar.com.
1 0 | 2022 Annual Report | Management’s Discussion and Analysis
Responsibility for Financial Reporting
The accompanying consolidated financial statements of Manulife Financial Corporation are the responsibility of management and have
been approved by the Board of Directors. It is also the responsibility of management to ensure that all information in the annual report to
shareholders is consistent with these consolidated financial statements.
The consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards
and the accounting requirements of the Office of the Superintendent of Financial Institutions, Canada. When alternative accounting
methods exist, or when estimates and judgment are required, management has selected those amounts that present the Company’s
financial position and results of operations in a manner most appropriate to the circumstances.
Appropriate systems of internal control, policies and procedures have been maintained to ensure that financial information is both relevant
and reliable. The systems of internal control are assessed on an ongoing basis by management and the Company’s internal audit
department.
The actuary appointed by the Board of Directors (the “Appointed Actuary”) is responsible for ensuring that assumptions and methods used
in the determination of policy liabilities are appropriate to the circumstances and that reserves will be adequate to meet the Company’s
future obligations under insurance and annuity contracts.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately
responsible for reviewing and approving the consolidated financial statements. These responsibilities are carried out primarily through an
Audit Committee of unrelated and independent directors appointed by the Board of Directors.
The Audit Committee meets periodically with management, the internal auditors, the peer reviewers, the external auditors and the
Appointed Actuary to discuss internal control over the financial reporting process, auditing matters and financial reporting issues. The
Audit Committee reviews the consolidated financial statements prepared by management, and then recommends them to the Board of
Directors for approval. The Audit Committee also recommends to the Board of Directors and shareholders the appointment of external
auditors and approval of their fees.
The consolidated financial statements have been audited by the Company’s external auditors, Ernst & Young LLP, in accordance with
Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).
Ernst & Young LLP has full and free access to management and the Audit Committee.
Roy Gori
President and Chief Executive Officer
Philip Witherington
Chief Financial Officer
Toronto, Canada
February 15, 2023
Appointed Actuary’s Report to the Shareholders
I have valued the policy liabilities and reinsurance recoverables of Manulife Financial Corporation for its Consolidated Statements of
Financial Position as at December 31, 2022 and 2021 and their change in the Consolidated Statements of Income for the years then ended
in accordance with actuarial practice generally accepted in Canada, including selection of appropriate assumptions and methods.
In my opinion, the amount of policy liabilities net of reinsurance recoverables makes appropriate provision for all policyholder obligations
and the consolidated financial statements fairly present the results of the valuation.
Steven Finch
Appointed Actuary
Toronto, Canada
February 15, 2023
1 1
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Manulife Financial Corporation
Opinion
We have audited the consolidated financial statements of Manulife Financial Corporation (the Company), which comprise the Consolidated
Statements of Financial Position as at December 31, 2022 and 2021, and the Consolidated Statements of Income, Consolidated
Statements of Comprehensive Income, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows for the
years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at December 31, 2022 and 2021, and its consolidated financial performance and its consolidated cash flows
for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are
independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial
statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our
description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to
respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit
procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying consolidated financial statements.
Key Audit
Matter
Valuation of Insurance Contract Liabilities
The Company recorded insurance contract liabilities of $371 billion at December 31, 2022 on its consolidated statement of financial
position. Insurance contract liabilities are reported gross of reinsurance ceded and represent management’s estimate of the amount
which, together with estimated future premiums and net investment income, will be sufficient to pay estimated future benefits,
policyholder dividends and refunds, taxes (other than income taxes) and expenses on insurance policies in-force. Insurance contract
liabilities are determined using the Canadian Asset Liability Method (CALM), as required by the Canadian Institute of Actuaries (CIA).
The valuation of insurance contract liabilities is based on an explicit projection of cash flows using current assumptions for each
material cash flow item. Cash flows related to insurance contract liabilities have two major components: a best estimate assumption
and a provision for adverse deviation. Best estimates are made with respect to key assumptions including mortality, morbidity,
investment returns, policy termination rates, premium persistency, expenses, and taxes. A provision for adverse deviation is recorded
to reflect the inherent uncertainty related to the timing and amount of the best estimate assumptions and is determined by including
a margin of conservatism for each assumption. Disclosures on this matter are found in Note 1 ‘Nature of Operations and Significant
Accounting Policies’ and Note 7 ‘Insurance Contract Liabilities and Reinsurance Assets’ of the consolidated financial statements.
Auditing the valuation of insurance contract liabilities was complex and required the application of significant auditor judgment due
to the complexity of the cash flow models, the selection and use of assumptions, and the interrelationship of these variables in
measuring insurance contract liabilities. The audit effort involved professionals with specialized skill and knowledge to assist in
evaluating the audit evidence obtained.
1 2 | 2022 Annual Report | Consolidated Financial Statements
Valuation of Insurance Contract Liabilities
How Our Audit
Addressed the
Key Audit
Matter
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
valuation of insurance contract liabilities. The controls we tested related to, among other areas, actuarial methodology, integrity of
data used, controls over relevant information technology, and the assumption setting and implementation processes used by
management.
Key Audit
Matter
To test the valuation of insurance contract liabilities, our audit procedures included, among other procedures, involving our actuarial
specialists to assess the methodology and assumptions with respect to compliance with the Company’s policies. We performed audit
procedures over key assumptions, including the implementation of those assumptions into the models. These procedures included
testing underlying support and documentation, including reviewing a sample of experience studies supporting specific assumptions,
challenging the nature, timing, and completeness of changes recorded, assessing whether individual changes were errors or
refinements of estimates, and comparing the level of margins for adverse deviation to suggested ranges established by the CIA. We
also tested the methodology and calculation of the insurance contract liabilities through both review of the calculation logic within the
models, and through calculating an independent estimate of the insurance contract liability for a sample of insurance contracts and
comparing the results to the Company’s results. In addition, we assessed the adequacy of the disclosures provided in the notes to the
consolidated financial statements.
Valuation of Invested Assets with Significant Non-Observable Market Inputs
The Company recorded invested assets of $17.5 billion at December 31, 2022 on its consolidated statement of financial position
which are both (a) measured at fair value and (b) subject to a valuation estimate that includes significant non-observable market
inputs. These invested assets are classified as level 3 within the Company’s hierarchy of fair value measurements and include real
estate, timber and agriculture, high estimation uncertainty bonds, and private equities which are valued using internal models. There
is increased measurement uncertainty in determining the fair value of these invested assets due to volatility in the current economic
environment. These assets are valued based on internal models or third-party pricing sources that incorporate assumptions with a
high-level of subjectivity. Examples of such assumptions include interest rates, yield curves, credit ratings and related spreads,
expected future cash flows and transaction prices of comparable assets. Disclosures on this matter are found in Note 1 ‘Nature of
Operations and Significant Accounting Policies’ and Note 4 ‘Invested Assets and Investment Income’ of the consolidated financial
statements.
Auditing the valuation of these invested assets was complex and required the application of significant auditor judgment in assessing
the valuation methodologies and non-observable inputs used. The valuation of these assets is sensitive to the significant
non-observable market inputs described above, which are inherently forward-looking and could be affected by future economic and
market conditions. The audit effort involved professionals with specialized skill and knowledge to assist in evaluating the audit
evidence obtained.
How Our Audit
Addressed the
Key Audit
Matter
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
investment valuation process. The controls we tested related to, among other areas, management’s determination and approval of
assumptions and methodologies used in model-based valuations and management’s review of valuations provided by third-party
pricing sources.
To test the valuation of these invested assets, our audit procedures included, among other procedures, involving our valuation
specialists to assess the methodologies and significant assumptions used by management. These procedures included assessing the
valuation methodologies used with respect to the Company’s policies, valuation guidelines, and industry practice and comparing a
sample of valuation assumptions used against benchmarks, including comparable transactions and independent pricing sources
where available. We also performed independent investment valuations on a sample of investments with high estimation uncertainty
to evaluate management’s recorded values. In addition, we assessed the adequacy of the disclosures provided in the notes to the
consolidated financial statements.
IFRS 17 Insurance Contracts Adoption Disclosure
Key Audit
Matter
International Financial Reporting Standards 17, Insurance Contracts (IFRS 17) is effective for years beginning on January 1, 2023.
As described in Note 2 of the accompanying financial statements, the Company will apply the Full Retrospective Approach to most
contracts issued on or after January 1, 2021, applying the Fair Value Approach for contracts issued prior to this date. The Company
discloses that the IFRS 17 adoption will result in a $12.0 billion net of tax reduction in total equity as at January 1, 2022. Note 2 of
the accompanying financial statements also provides quantitative and qualitative information on the impact of the new standard and
certain accounting policy choices made by the Company.
Auditing the Company’s disclosure of the effects of applying IFRS 17 was complex as it related to the measurement of the Company’s
insurance contract liabilities including the transition Contractual Service Margin (transition CSM) included therein. This required the
application of significant auditor judgement due to the complexity of the cash flow models, the determination of the discount rate and
risk adjustment relating to the measurement of the insurance contract liabilities, and the development of fair value assumptions used
in the determination of the transition CSM. The audit effort involved professionals with specialized skills and knowledge to assist in
evaluating the audit evidence obtained.
1
IFRS 17 Insurance Contracts Adoption Disclosure
How Our Audit
Addressed the
Key Audit
Matter
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
disclosure of the effects of applying the new standard to insurance contract liabilities including the transition CSM. The controls we
tested included, among others, controls related to management’s selection of accounting policies and the related determination of
the transition approach, as well as controls related to the development of fair value and actuarial models, the integrity of data used,
implementation of new systems and models, and assumption setting and implementation processes.
To test the Company’s disclosure of the impact of IFRS 17 on the insurance contract liabilities including the transition CSM, our audit
procedures included, among others, involving our actuarial specialists to evaluate the related accounting policies, the elections
involved in transition, and to assess the appropriateness of the determination of where the Full Retrospective Approach was
impracticable. In relation to the assumptions used in the measurement of the insurance contract liabilities including the transition
CSM, disclosed in Note 2, we assessed the appropriateness and consistency of key assumptions by comparing to publicly available
market data, our knowledge of the products and the requirements of IFRS 17. Key assumptions assessed by us, with the involvement
of our actuarial specialists, included the discount rate and risk adjustment used in the measurement of the insurance contract
liabilities and the fair value assumptions used in the determination of the transition CSM. These procedures also included testing
underlying support and documentation, such as executed policyholder insurance contracts. We tested the methodology and
calculations of the IFRS 17 insurance contract liabilities and transition CSM either through review of the calculation logic within the
newly implemented models, or through calculating an independent estimate of the insurance contract liability for a sample of
insurance contracts and comparing the results to the Company’s results.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis; and
• The information, other than the consolidated financial statements and our auditor’s report thereon, in the 2022 Annual Report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in
the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have
nothing to report in this regard.
The 2022 Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform
on this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those
charged with governance.
1 4 | 2022 Annual Report | Consolidated Financial Statements
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence and communicate with them all relationships and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe
these matters in our report of independent registered public accounting firm unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
The partner in charge of the audit resulting in this report of independent registered public accounting firm is Michael Cox.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 15, 2023
1 5
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Manulife Financial Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying Consolidated Statements of Financial Position of Manulife Financial Corporation (the Company) as of
December 31, 2022 and 2021, the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income,
Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows for the years then ended, and the related notes
(collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company at December 31, 2022 and 2021, its consolidated financial
performance and its consolidated cash flows for the years then ended, in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
February 15, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements
that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Description of
the matter
Valuation of Insurance Contract Liabilities
The Company recorded insurance contract liabilities of $371 billion at December 31, 2022 on its consolidated statement of
financial position. Insurance contract liabilities are reported gross of reinsurance ceded and represent management’s estimate of
the amount which, together with estimated future premiums and net investment income, will be sufficient to pay estimated future
benefits, policyholder dividends and refunds, taxes (other than income taxes) and expenses on insurance policies in-force.
Insurance contract liabilities are determined using the Canadian Asset Liability Method (CALM), as required by the Canadian
Institute of Actuaries (CIA). The valuation of insurance contract liabilities is based on an explicit projection of cash flows using
current assumptions for each material cash flow item. Cash flows related to insurance contract liabilities have two major
components: a best estimate assumption and a provision for adverse deviation. Best estimates are made with respect to key
assumptions including mortality, morbidity, investment returns, policy termination rates, premium persistency, expenses, and
taxes. A provision for adverse deviation is recorded to reflect the inherent uncertainty related to the timing and amount of the
best estimate assumptions and is determined by including a margin of conservatism for each assumption. Disclosures on this
matter are found in Note 1 ‘Nature of Operations and Significant Accounting Policies’ and Note 7 ‘Insurance Contract Liabilities
and Reinsurance Assets’ of the consolidated financial statements.
Auditing the valuation of insurance contract liabilities was complex and required the application of significant auditor judgment
due to the complexity of the cash flow models, the selection and use of assumptions, and the interrelationship of these variables
in measuring insurance contract liabilities. The audit effort involved professionals with specialized skill and knowledge to assist in
evaluating the audit evidence obtained.
1 6 | 2022 Annual Report | Consolidated Financial Statements
Valuation of Insurance Contract Liabilities
How we addressed
the matter in our
audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
valuation of insurance contract liabilities. The controls we tested related to, among other areas, actuarial methodology, integrity
of data used, controls over relevant information technology, and the assumption setting and implementation processes used by
management.
Description of
the matter
To test the valuation of insurance contract liabilities, our audit procedures included, among other procedures, involving our
actuarial specialists to assess the methodology and assumptions with respect to compliance with the Company’s policies. We
performed audit procedures over key assumptions, including the implementation of those assumptions into the models. These
procedures included testing underlying support and documentation, including reviewing a sample of experience studies
supporting specific assumptions, challenging the nature, timing, and completeness of changes recorded, assessing whether
individual changes were errors or refinements of estimates, and comparing the level of margins for adverse deviation to
suggested ranges established by the CIA. We also tested the methodology and calculation of the insurance contract liabilities
through both review of the calculation logic within the models, and through calculating an independent estimate of the insurance
contract liability for a sample of insurance contracts and comparing the results to the Company’s results. In addition, we
assessed the adequacy of the disclosures provided in the notes to the consolidated financial statements.
Valuation of Invested Assets with Significant Non-Observable Market Inputs
The Company recorded invested assets of $17.5 billion at December 31, 2022 on its consolidated statement of financial position
which are both (a) measured at fair value and (b) subject to a valuation estimate that includes significant non-observable market
inputs. These invested assets are classified as level 3 within the Company’s hierarchy of fair value measurements and include real
estate, timber and agriculture, high estimation uncertainty bonds, and private equities which are valued using internal models.
There is increased measurement uncertainty in determining the fair value of these invested assets due to volatility in the current
economic environment. These assets are valued based on internal models or third-party pricing sources that incorporate
assumptions with a high-level of subjectivity. Examples of such assumptions include interest rates, yield curves, credit ratings and
related spreads, expected future cash flows and transaction prices of comparable assets. Disclosures on this matter are found in
Note 1 ‘Nature of Operations and Significant Accounting Policies’ and Note 4 ‘Invested Assets and Investment Income’ of the
consolidated financial statements.
Auditing the valuation of these invested assets was complex and required the application of significant auditor judgment in
assessing the valuation methodologies and non-observable inputs used. The valuation of these assets is sensitive to the
significant non-observable market inputs described above, which are inherently forward-looking and could be affected by future
economic and market conditions. The audit effort involved professionals with specialized skill and knowledge to assist in
evaluating the audit evidence obtained.
How we addressed
the matter in our
audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
investment valuation process. The controls we tested related to, among other areas, management’s determination and approval
of assumptions and methodologies used in model-based valuations and management’s review of valuations provided by third-
party pricing sources.
Description of
the matter
To test the valuation of these invested assets, our audit procedures included, among other procedures, involving our valuation
specialists to assess the methodologies and significant assumptions used by management. These procedures included assessing
the valuation methodologies used with respect to the Company’s policies, valuation guidelines, and industry practice and
comparing a sample of valuation assumptions used against benchmarks, including comparable transactions and independent
pricing sources where available. We also performed independent investment valuations on a sample of investments with high
estimation uncertainty to evaluate management’s recorded values. In addition, we assessed the adequacy of the disclosures
provided in the notes to the consolidated financial statements.
IFRS 17 Insurance Contracts Adoption Disclosure
International Financial Reporting Standards 17, Insurance Contracts (IFRS 17) is effective for years beginning on January 1,
2023. As described in Note 2 of the accompanying financial statements, the Company will apply the Full Retrospective Approach
to most contracts issued on or after January 1, 2021, applying the Fair Value Approach for contracts issued prior to this date.
The Company discloses that the IFRS 17 adoption will result in a $12.0 billion net of tax reduction in total equity as at January 1,
2022. Note 2 of the accompanying financial statements also provides quantitative and qualitative information on the impact of
the new standard and certain accounting policy choices made by the Company.
Auditing the Company’s disclosure of the effects of applying IFRS 17 was complex as it related to the measurement of the
Company’s insurance contract liabilities including the transition Contractual Service Margin (transition CSM) included therein.
This required the application of significant auditor judgement due to the complexity of the cash flow models, the determination of
the discount rate and risk adjustment relating to the measurement of the insurance contract liabilities, and the development of
fair value assumptions used in the determination of the transition CSM. The audit effort involved professionals with specialized
skills and knowledge to assist in evaluating the audit evidence obtained.
1 7
IFRS 17 Insurance Contracts Adoption Disclosure
How we addressed
the matter in our
audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
disclosure of the effects of applying the new standard to insurance contract liabilities including the transition CSM. The controls
we tested included, among others, controls related to management’s selection of accounting policies and the related
determination of the transition approach, as well as controls related to the development of fair value and actuarial models, the
integrity of data used, implementation of new systems and models, and assumption setting and implementation processes.
To test the Company’s disclosure of the impact of IFRS 17 on the insurance contract liabilities including the transition CSM, our
audit procedures included, among others, involving our actuarial specialists to evaluate the related accounting policies, the
elections involved in transition, and to assess the appropriateness of the determination of where the Full Retrospective Approach
was impracticable. In relation to the assumptions used in the measurement of the insurance contract liabilities including the
transition CSM, disclosed in Note 2, we assessed the appropriateness and consistency of key assumptions by comparing to
publicly available market data, our knowledge of the products and the requirements of IFRS 17. Key assumptions assessed by us,
with the involvement of our actuarial specialists, included the discount rate and risk adjustment used in the measurement of the
insurance contract liabilities and the fair value assumptions used in the determination of the transition CSM. These procedures
also included testing underlying support and documentation, such as executed policyholder insurance contracts. We tested the
methodology and calculations of the IFRS 17 insurance contract liabilities and transition CSM either through review of the
calculation logic within the newly implemented models, or through calculating an independent estimate of the insurance contract
liability for a sample of insurance contracts and comparing the results to the Company’s results.
We have served as Manulife Financial Corporation’s auditor since 1905.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 15, 2023
1 8 | 2022 Annual Report | Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Manulife Financial Corporation
Opinion on Internal Control over Financial Reporting
We have audited Manulife Financial Corporation’s internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) (the COSO criteria). In our opinion, Manulife Financial Corporation (the Company) maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Consolidated Statements of Financial Position of the Company as of December 31, 2022 and 2021, and the related Consolidated
Statements of Income, Consolidated Statements of Comprehensive Income, Consolidated Statements of Changes in Equity and
Consolidated Statements of Cash Flows for the years then ended, and the related notes and our report dated February 15, 2023,
expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in Management’s Report on Internal Control Over Financial Reporting
contained in the Management’s Discussion and Analysis. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 15, 2023
1 9
Consolidated Statements of Financial Position
As at December 31,
(Canadian $ in millions)
Assets
Cash and short-term securities
Debt securities
Public equities
Mortgages
Private placements
Policy loans
Loans to Bank clients
Real estate
Other invested assets
Total invested assets (note 4)
Other assets
Accrued investment income
Outstanding premiums
Derivatives (note 5)
Reinsurance assets (notes 7 and 8)
Deferred tax assets (note 17)
Goodwill and intangible assets (note 6)
Miscellaneous
Total other assets
Segregated funds net assets (note 23)
Total assets
Liabilities and Equity
Liabilities
Insurance contract liabilities (note 7)
Investment contract liabilities (note 8)
Deposits from Bank clients
Derivatives (note 5)
Deferred tax liabilities (note 17)
Other liabilities
Long-term debt (note 10)
Capital instruments (note 11)
Segregated funds net liabilities (note 23)
Total liabilities
Equity
Preferred shares and other equity (note 12)
Common shares (note 12)
Contributed surplus
Shareholders’ and other equity holders’ retained earnings
Shareholders’ accumulated other comprehensive income (loss) (“AOCI”):
Pension and other post-employment plans
Available-for-sale securities
Cash flow hedges
Real estate revaluation reserve
Translation of foreign operations
Total shareholders’ and other equity
Participating policyholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these Consolidated Financial Statements.
Roy Gori
President and Chief Executive Officer
John Cassaday
Chairman of the Board of Directors
140 | 2022 Annual Report | Consolidated Financial Statements
2022
2021
$ 19,153
203,904
23,519
54,638
47,057
6,894
2,781
13,272
42,783
414,001
2,813
1,448
8,588
47,712
5,423
10,519
9,875
86,378
348,562
$ 848,941
$ 371,405
3,248
22,507
14,289
2,774
17,421
431,644
6,234
6,122
348,562
792,562
$ 22,594
224,139
28,067
52,014
42,842
6,397
2,506
13,233
35,306
427,098
2,641
1,294
17,503
44,579
5,254
9,915
9,571
90,757
399,788
$ 917,643
$ 392,275
3,117
20,720
10,038
2,769
18,205
447,124
4,882
6,980
399,788
858,774
6,660
22,178
238
27,010
6,381
23,093
262
23,492
(97)
(6,472)
8
22
6,514
56,061
(1,346)
1,664
56,379
$ 848,941
(114)
848
(156)
23
4,579
58,408
(1,233)
1,694
58,869
$ 917,643
Consolidated Statements of Income
For the years ended December 31,
(Canadian $ in millions except per share amounts)
Revenue
Premium income
Gross premiums
Premiums ceded to reinsurers
Net premiums
Investment income (note 4)
Investment income
Realized and unrealized gains (losses) on assets supporting insurance and investment
contract liabilities and on the macro hedge program
Net investment income (loss)
Other revenue (note 14)
Total revenue
Contract benefits and expenses
To contract holders and beneficiaries
Gross claims and benefits (note 7)
Increase (decrease) in insurance contract liabilities (note 7)
Increase (decrease) in investment contract liabilities (note 8)
Benefits and expenses ceded to reinsurers
(Increase) decrease in reinsurance assets (note 7)
Net benefits and claims
General expenses
Investment expenses (note 4)
Commissions
Interest expense
Net premium taxes
Total contract benefits and expenses
Income before income taxes
Income tax expense (note 17)
Net income
Net income (loss) attributed to:
Non-controlling interests
Participating policyholders
Shareholders and other equity holders
Net income attributed to shareholders
Preferred share dividends and other equity distributions
Common shareholders’ net income
Earnings per share
Basic earnings per common share (note 12)
Diluted earnings per common share (note 12)
Dividends per common share
The accompanying notes are an integral part of these Consolidated Financial Statements.
2022
2021
$
44,102
(6,249)
37,853
$ 44,344
(5,279)
39,065
15,207
15,627
(45,077)
(29,870)
9,164
17,147
33,320
(34,971)
41
(7,016)
(673)
(9,299)
7,782
1,863
6,260
1,350
444
8,400
8,747
(1,565)
7,182
(1)
(111)
7,294
7,182
7,294
(260)
7,034
(4,003)
11,624
11,132
61,821
31,110
10,719
44
(6,805)
754
35,822
7,828
1,980
6,638
1,011
417
53,696
8,125
(1,213)
$ 6,912
$
255
(448)
7,105
$ 6,912
7,105
(215)
$ 6,890
$
3.68
3.68
1.32
3.55
3.54
1.17
$
$
$
$
$
141
Consolidated Statements of Comprehensive Income
For the years ended December 31,
(Canadian $ in millions)
Net income
Other comprehensive income (loss) (“OCI”), net of tax:
Items that may be subsequently reclassified to net income:
Foreign exchange gains (losses) on:
Translation of foreign operations
Net investment hedges
Available-for-sale financial securities:
Unrealized gains (losses) arising during the year
Reclassification of net realized (gains) losses and impairments to net income
Cash flow hedges:
Unrealized gains (losses) arising during the year
Reclassification of realized gains (losses) to net income
Share of other comprehensive income (losses) of associates
Total items that may be subsequently reclassified to net income
Items that will not be reclassified to net income:
Change in actuarial gains (losses) on pension and other post-employment plans
Real estate revaluation reserve
Total items that will not be reclassified to net income
Other comprehensive income (loss), net of tax
Total comprehensive income (loss), net of tax
Total comprehensive income (loss) attributed to:
Non-controlling interests
Participating policyholders
Shareholders and other equity holders
Income Taxes included in Other Comprehensive Income
For the years ended December 31,
(Canadian $ in millions)
Income tax expense (recovery) on:
Unrealized gains (losses) on available-for-sale financial securities
Reclassification of net realized (gains) losses and impairments to net income on available-for-sale financial securities
Unrealized gains (losses) on cash flow hedges
Reclassification of realized gains (losses) to net income on cash flow hedges
Unrealized foreign exchange gains (losses) on translation of foreign operations
Unrealized foreign exchange gains (losses) on net investment hedges
Share of other comprehensive income (loss) of associates
Change in actuarial gains (losses) on pension and other post-employment plans
Real estate revaluation reserve
Total income tax expense (recovery)
The accompanying notes are an integral part of these Consolidated Financial Statements.
2022
2021
$ 7,182
$ 6,912
2,350
(415)
(7,608)
288
161
3
(5)
(5,226)
(514)
100
(980)
(13)
77
(4)
(1)
(1,335)
17
(1)
16
(5,210)
$ 1,972
199
(11)
188
(1,147)
$ 5,765
$
(4)
(113)
2,089
$
252
(449)
5,962
2022
2021
$ (1,254)
30
55
1
2
(29)
(1)
9
1
$ (1,186)
$ (181)
21
15
(1)
–
21
–
61
–
(64)
$
142 | 2022 Annual Report | Consolidated Financial Statements
Consolidated Statements of Changes in Equity
For the years ended December 31,
(Canadian $ in millions)
Preferred shares and other equity
Balance, beginning of year
Issued (note 12)
Redeemed (note 12)
Issuance costs, net of tax
Balance, end of year
Common shares
Balance, beginning of year
Repurchased (note 12)
Issued on exercise of stock options and deferred share units
Balance, end of year
Contributed surplus
Balance, beginning of year
Exercise of stock options and deferred share units
Stock option expense
Acquisition of non-controlling interest
Balance, end of year
Shareholders’ and other equity holders’ retained earnings
Balance, beginning of year
Net income attributed to shareholders and other equity holders
Common shares repurchased (note 12)
Preferred share dividends and other equity distributions
Preferred shares redeemed (note 12)
Common share dividends
Acquisition of non-controlling interest
Balance, end of year
Shareholders’ accumulated other comprehensive income (loss) (“AOCI”)
Balance, beginning of year
Change in unrealized foreign exchange gains (losses) on net foreign operations
Change in actuarial gains (losses) on pension and other post-employment plans
Change in unrealized gains (losses) on available-for-sale financial securities
Change in unrealized gains (losses) on derivative instruments designated as cash flow hedges
Change in real estate revaluation reserve
Share of other comprehensive income (losses) of associates
Balance, end of year
Total shareholders’ and other equity, end of year
Participating policyholders’ equity
Balance, beginning of year
Net income (loss) attributed to participating policyholders
Other comprehensive income (losses) attributed to participating policyholders
Balance, end of year
Non-controlling interests
Balance, beginning of year
Net income attributed to non-controlling interests
Other comprehensive income (losses) attributed to non-controlling interests
Contributions (distributions and acquisition), net
Balance, end of year
Total equity, end of year
The accompanying notes are an integral part of these Consolidated Financial Statements.
2022
2021
$ 6,381
1,000
(711)
(10)
6,660
$ 3,822
3,200
(612)
(29)
6,381
23,093
(938)
23
22,178
23,042
–
51
23,093
262
(4)
5
(25)
238
23,492
7,294
(946)
(260)
(14)
(2,513)
(43)
27,010
5,180
1,935
17
(7,315)
164
(1)
(5)
(25)
56,061
(1,233)
(111)
(2)
(1,346)
261
(8)
9
–
262
18,887
7,105
–
(215)
(13)
(2,272)
–
23,492
6,323
(414)
199
(989)
73
(11)
(1)
5,180
58,408
(784)
(448)
(1)
(1,233)
1,694
(1)
(3)
(26)
1,664
$ 56,379
1,455
255
(3)
(13)
1,694
$ 58,869
14
Consolidated Statements of Cash Flows
For the years ended December 31,
(Canadian $ in millions)
Operating activities
Net income
Adjustments:
Increase (decrease) in insurance contract liabilities
Increase (decrease) in investment contract liabilities
(Increase) decrease in reinsurance assets excluding coinsurance transactions (note 7)
Amortization of (premium) discount on invested assets
Other amortization
Net realized and unrealized (gains) losses and impairment on assets
Gain on U.S. variable annuity reinsurance transaction (pre-tax) (note 7)
Gain on derecognition of Joint Venture interest during Manulife TEDA acquisition (pre-tax) (notes 3 & 6)
Deferred income tax expense (recovery)
Stock option expense
Cash provided by operating activities before undernoted items
Cash decrease due to U.S. variable annuity reinsurance transaction (note 7)
Changes in policy related and operating receivables and payables
Cash provided by (used in) operating activities
Investing activities
Purchases and mortgage advances
Disposals and repayments
Change in investment broker net receivables and payables
Net cash increase (decrease) from sale (purchase) of subsidiary (notes 3 & 6)
Cash provided by (used in) investing activities
Financing activities
Issue of long-term debt, net (note 10)
Redemption of long-term debt (note 10)
Redemption of capital instruments (note 11)
Secured borrowings (note 4(f))
Change in repurchase agreements and securities sold but not yet purchased
Change in deposits from Bank clients, net
Lease payments
Shareholders’ dividends and other equity distributions
Common shares repurchased (note 12)
Common shares issued, net (note 12)
Preferred shares and other equity issued, net (note 12)
Preferred shares redeemed, net (note 12)
Contributions from (distributions to, acquisition of) non-controlling interests, net
Cash provided by (used in) financing activities
Cash and short-term securities
Increase (decrease) during the year
Effect of foreign exchange rate changes on cash and short-term securities
Balance, beginning of year
Balance, December 31
Cash and short-term securities
Beginning of year
Gross cash and short-term securities
Net payments in transit, included in other liabilities
Net cash and short-term securities, January 1
End of year
Gross cash and short-term securities
Net payments in transit, included in other liabilities
Net cash and short-term securities, December 31
Supplemental disclosures on cash flow information
Interest received
Interest paid
Income taxes paid
The accompanying notes are an integral part of these Consolidated Financial Statements.
144 | 2022 Annual Report | Consolidated Financial Statements
2022
2021
$
7,182
$
6,912
(33,413)
41
159
(32)
538
47,270
(1,070)
(95)
731
5
21,316
(1,377)
(2,204)
17,735
10,719
44
754
181
529
4,824
–
–
(127)
9
23,845
–
(690)
23,155
(111,768)
93,407
(67)
(182)
(18,610)
(120,965)
96,728
(186)
(19)
(24,442)
946
–
(1,000)
437
(551)
1,703
(120)
(2,787)
(1,884)
23
990
(711)
(51)
(3,005)
(3,880)
585
21,930
18,635
22,594
(664)
21,930
19,153
(518)
18,635
12,133
1,248
1,238
$
$
–
(1,250)
(818)
26
186
(164)
(124)
(2,500)
–
51
3,171
(612)
(13)
(2,047)
(3,334)
(319)
25,583
21,930
26,167
(584)
25,583
22,594
(664)
21,930
11,376
981
571
$
$
Notes to Consolidated Financial Statements
Page Number
Note
146
154
160
160
168
174
176
185
187
193
194
195
197
198
199
200
205
206
208
211
212
213
215
216
221
229
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10
Note 11
Note 12
Note 13
Note 14
Note 15
Note 16
Note 17
Note 18
Note 19
Note 20
Note 21
Note 22
Note 23
Note 24
Note 25
Note 26
Nature of Operations and Significant Accounting Policies
Accounting and Reporting Changes
Acquisitions
Invested Assets and Investment Income
Derivative and Hedging Instruments
Goodwill and Intangible Assets
Insurance Contract Liabilities and Reinsurance Assets
Investment Contract Liabilities
Risk Management
Long-Term Debt
Capital Instruments
Equity Capital and Earnings Per Share
Capital Management
Revenue from Service Contracts
Stock-Based Compensation
Employee Future Benefits
Income Taxes
Interests in Structured Entities
Commitments and Contingencies
Segmented Information
Related Parties
Subsidiaries
Segregated Funds
Information Provided in Connection with Investments in Deferred Annuity Contracts and SignatureNotes Issued or
Assumed by John Hancock Life Insurance Company (U.S.A.)
Significant Accounting Policies in Accordance with IFRS 9 and IFRS 17
Comparatives
145
Notes to Consolidated Financial Statements
(Canadian $ in millions except per share amounts or unless otherwise stated)
Note 1 Nature of Operations and Significant Accounting Policies
(a) Reporting entity
Manulife Financial Corporation (“MFC”) is a publicly traded company and the holding company of The Manufacturers Life Insurance
Company (“MLI”), a Canadian life insurance company. MFC and its subsidiaries (collectively, “Manulife” or the “Company”) is a leading
financial services group with principal operations in Asia, Canada and the United States. Manulife’s international network of employees,
agents and distribution partners offers financial protection and wealth management products and services to personal and business
clients as well as asset management services to institutional customers. The Company operates as Manulife in Asia and Canada and as
John Hancock in the United States.
MFC is domiciled in Canada and incorporated under the Insurance Companies Act (Canada) (“ICA”). These Consolidated Financial
Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
These Consolidated Financial Statements should be read in conjunction with “Risk Management and Risk Factors” in the 2022
Management’s Discussion and Analysis (“MD&A”) dealing with IFRS 7 “Financial Instruments: Disclosures” as the discussion on market risk
and liquidity risk includes certain disclosures that are considered an integral part of these Consolidated Financial Statements.
These Consolidated Financial Statements as at and for the year ended December 31, 2022 were authorized for issue by MFC’s Board of
Directors on February 15, 2023.
(b) Basis of preparation
The preparation of Consolidated Financial Statements in conformity with IFRS requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, and the disclosure of
contingent assets and liabilities as at the date of the Consolidated Financial Statements, and the reported amounts of revenue and
expenses during the reporting periods. Actual results may differ from these estimates. The most significant estimation processes relate to
evaluating assumptions used in measuring insurance and investment contract liabilities, assessing assets for impairment, determining
pension and other post-employment benefit obligation and expense assumptions, determining income taxes and uncertain tax positions,
and estimating fair values of certain invested assets. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the year in which the estimates are revised and in any future years affected. Although some
variability is inherent in these estimates, management believes that the amounts recorded are appropriate. The significant accounting
policies used and the most significant judgments made by management in applying these accounting policies in the preparation of these
Consolidated Financial Statements are summarized below.
The Company’s results and operations have been and may continue to be adversely impacted by COVID-19 and the economic environment.
The adverse effects include but are not limited to recessionary economic trends in markets the Company operates in, significant market
volatility, increase in credit risk, strain on commodity markets and alternative long duration asset (“ALDA”) prices, foreign currency
exchange rate volatility, increases in insurance claims, persistency and redemptions, and disruption of business operations. The breadth
and depth of these events and their duration contribute additional uncertainty around estimates used in determining the carrying value of
certain assets and liabilities included in these Consolidated Financial Statements.
The Company has applied appropriate measurement techniques using reasonable judgment and estimates from the perspective of a
market participant to reflect current economic conditions. The impact of these techniques has been reflected in these Consolidated
Financial Statements. Changes in the inputs used could materially impact the respective carrying values.
(c) Fair value measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (not a forced
liquidation or distress sale) between market participants at the measurement date; fair value is an exit value.
When available, quoted market prices are used to determine fair value. If quoted market prices are not available, fair value is typically
based upon alternative valuation techniques such as discounted cash flows, matrix pricing, consensus pricing services and other
techniques. Broker quotes are generally used when external public vendor prices are not available.
The Company has a valuation process in place that includes a review of price movements relative to the market, a comparison of prices
between vendors, and a comparison to internal matrix pricing which uses predominately external observable data. Judgment is applied in
adjusting external observable data for items including liquidity and credit factors.
146 | 2022 Annual Report | Notes to Consolidated Financial Statements
The Company categorizes its fair value measurement results according to a three-level hierarchy. The hierarchy prioritizes the inputs used
by the Company’s valuation techniques based on their reliability. A level is assigned to each fair value measurement based on the lowest
level input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:
Level 1 – Fair value measurements that reflect unadjusted, quoted prices in active markets for identical assets and liabilities that the
Company can access at the measurement date, reflecting market transactions.
Level 2 – Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for similar assets and liabilities in active markets, quoted prices for
identical or similar assets and liabilities in inactive markets, inputs that are observable that are not prices (such as interest rates, credit
risks, etc.) and inputs that are derived from or corroborated by observable market data. Most debt securities are classified within Level 2.
Also, included in the Level 2 category are derivative instruments that are priced using models with observable market inputs, including
interest rate swaps, equity swaps, credit default swaps and foreign currency forward contracts.
Level 3 – Fair value measurements using significant non-market observable inputs. These include valuations for assets and liabilities that
are derived using data, some or all of which is not market observable, including assumptions about risk. Level 3 security valuations include
less liquid securities such as real estate properties, other invested assets, timber investments held within segregated funds, certain long-
duration bonds and other securities that have little or no price transparency. Certain derivative financial instrument valuations are also
included in Level 3.
(d) Basis of consolidation
MFC consolidates the financial statements of all entities it controls, including certain structured entities. Subsidiaries are entities
controlled by the Company. The Company has control over an entity when the Company has the power to govern the financial and
operating policies of the entity and is exposed to variable returns from its activities which are significant in relation to the total variable
returns of the entity and the Company is able to use its power over the entity to affect the Company’s share of variable returns of the entity.
In assessing control, significant judgment is applied while considering all relevant facts and circumstances. When assessing decision
making power over an entity, the Company considers the extent of its rights relative to the management of the entity, the level of voting
rights held over the entity which are potentially or presently exercisable, the existence of any contractual management agreements which
may provide the Company with power over the entity’s financial and operating policies, and to the extent of other parties’ ownership in the
entity, if any, the possibility for de facto control being present. When assessing variable returns from an entity, the Company considers the
significance of direct and indirect financial and non-financial variable returns to the Company from the entity’s activities in addition to the
proportionate significance of such returns to the total variability of the entity. The Company also considers the degree to which its interests
are aligned with those of other parties investing in the entity and the degree to which the Company may act in its own interest while
interacting with the entity.
The financial statements of subsidiaries are included in MFC’s consolidated results from the date control is established and are excluded
from consolidation from the date control ceases. The initial control assessment is performed at inception of the Company’s involvement
with the entity and is reconsidered if the Company acquires or loses power over key operating and financial policies of the entity; acquires
additional interests or disposes of interests in the entity; the contractual arrangements of the entity are amended such that the Company’s
proportionate exposure to variable returns changes; or if the Company’s ability to use its power to affect its variable returns from the entity
changes. A change in control may lead to gains or losses on derecognition of a subsidiary when losing control, or on derecognition of
previous interests in a subsidiary when gaining control.
The Company’s Consolidated Financial Statements have been prepared using uniform accounting policies for like transactions and events
in similar circumstances. Intercompany balances, and revenue and expenses arising from intercompany transactions, have been
eliminated in preparing the Consolidated Financial Statements.
Non-controlling interests are interests of other parties in the equity of MFC’s subsidiaries and are presented within total equity, separate
from the equity of MFC’s participating policyholders and shareholders. Non-controlling interests in the net income and other
comprehensive income (“OCI”) of MFC’s subsidiaries are included in total net income and total OCI, respectively. An exception to this
occurs where the subsidiary’s shares are either puttable by the other parties or are redeemable for cash on a fixed or determinable date, in
which case other parties’ interests in the subsidiary’s capital are presented as liabilities of the Company and other parties’ interests in the
subsidiary’s net income and OCI are recorded as expenses of the Company.
The equity method of accounting is used to account for entities over which the Company has significant influence or joint control
(“associates” or “joint ventures”), whereby the Company records its share of the associate’s or joint venture’s net assets and financial
results using uniform accounting policies for similar transactions and events. Significant judgment is used to determine whether voting
rights, contractual management rights and other relationships with the entity, if any, provide the Company with significant influence or
joint control over the entity. Gains and losses on the sale of associates or joint ventures are included in income when realized, while
impairment losses are recognized immediately when there is objective evidence of impairment. Gains and losses on commercial
transactions with associates or joint ventures are eliminated to the extent of the Company’s interest in the equity of the associate or joint
venture. Investments in associates and joint ventures are included in other invested assets on the Company’s Consolidated Statements of
Financial Position.
147
(e) Invested assets
Invested assets that are considered financial instruments are classified as fair value through profit or loss (“FVTPL”), loans and receivables,
or as available-for-sale (“AFS”) financial assets. The Company determines the classification of its financial assets at initial recognition.
Invested assets are recognized initially at fair value plus, in the case of investments not at FVTPL, directly attributable transaction costs.
Invested assets are classified as financial instruments at FVTPL if they are held for trading, if they are designated by management under
the fair value option, or if they are designated by management when they include one or more embedded derivatives. Invested assets
classified as AFS are non-derivative financial assets that do not fall into any of the other categories described above.
Valuation methods for the Company’s invested assets are described above. All fair value valuations are performed in accordance with IFRS
13 “Fair Value Measurement”. Disclosure of fair value valuations within the three levels of the fair value hierarchy for invested assets carried
at fair value or not carried at fair value on the Consolidated Statements of Financial Position are presented in note 4. Fair value valuations
are performed by the Company and by third-party service providers. When third-party service providers are engaged, the Company
performs a variety of procedures to corroborate pricing information. These procedures may include, but are not limited to, inquiry and
review of valuation techniques, inputs to the valuation and vendor controls reports.
Cash and short-term securities comprise of cash, current operating accounts, overnight bank and term deposits, and debt securities held
for meeting short-term cash commitments. Short-term securities are comprised of investments due to mature within one year of the date
of purchase. Short-term securities are carried at fair value. Commercial paper and discount notes are classified as Level 2 for fair value
disclosure purposes because these securities are typically not actively traded. Net payments in transit and overdraft bank balances are
included in other liabilities.
Debt securities are carried at fair value or amortized cost. Debt securities are generally valued by independent pricing vendors using
proprietary pricing models incorporating current market inputs for similar instruments with comparable terms and credit quality (matrix
pricing). The significant inputs include, but are not limited to, yield curves, credit risks and spreads, prepayment rates and volatility of
these inputs. These debt securities are classified as Level 2 for fair value disclosure purposes but can be Level 3 if significant inputs are
market unobservable. Realized gains and losses on sale of debt securities and unrealized gains and losses on debt securities designated
as FVTPL are recognized in investment income immediately. Unrealized gains and losses on AFS debt securities are recorded in OCI,
except for unrealized gains and losses on foreign currency translation which are included in income. Impairment losses on AFS debt
securities are recognized in income on an individual security basis when there is objective evidence of impairment. Impairment is
considered to have occurred, based on management’s judgment, when it is deemed probable that the Company will not be able to collect
all amounts due according to the debt security’s contractual terms. Debt securities which are classified as held-to-maturity are carried at
amortized cost. This includes debt securities with fixed or determinable payments and fixed maturities, for which the Company has both
positive intention and ability to hold to maturity, and which the Company has not designated at initial recognition as FVTPL or AFS.
Public equities are comprised of common and preferred equities and mutual fund shares and are carried at fair value. Public equities are
generally classified as Level 1 for fair value disclosure purposes, as fair values are normally based on quoted market prices. Realized gains
and losses on sale of equities and unrealized gains and losses on equities designated as FVTPL are recognized in investment income
immediately. Unrealized gains and losses on AFS equities are recorded in OCI. Impairment losses on AFS equities are recognized in income
on an individual security basis when there is objective evidence of impairment. Impairment is considered to have occurred when fair value
has declined below cost by a significant amount or for a prolonged period. Significant judgment is applied in determining whether the
decline is significant or prolonged.
Mortgages are carried at amortized cost and are classified as Level 3 for fair value disclosure purposes due to the lack of market
observability of certain significant valuation inputs. Realized gains and losses are recorded in investment income immediately. Impairment
losses are recorded on mortgages when there is no longer reasonable assurance as to the timely collection of the full amount of principal
and interest and are measured based on the discounted value of expected future cash flows at the original effective interest rates inherent
in the mortgage. Expected future cash flows of impaired mortgages are typically determined with reference to the fair value of collateral
security underlying the mortgage, net of expected costs of realization and including any applicable insurance recoveries. Significant
judgment is applied in the determination of impairment including the timing and amount of future collections.
The Company accounts for insured and uninsured mortgage securitizations as secured financing transactions since the criteria for sale
accounting are not met. For these transactions, the Company continues to recognize the mortgages and records liabilities within other
liabilities for the amounts owed at maturity. Interest income from these mortgages and interest expense on the borrowings are recorded
using the effective interest rate method.
Private placements, which include corporate loans for which there is no active market, are carried at amortized cost and are generally
classified as Level 2 for fair value disclosure purposes or Level 3 if significant inputs are market unobservable. Realized gains and losses
are recorded in income immediately. Impairment losses are recorded on private placements when there is no longer assurance as to the
timely collection of the full amount of principal and interest. Impairment is measured based on the discounted value of expected future
cash flows at the original effective interest rate inherent in the loan. Significant judgment is applied in the determination of impairment
including the timing and amount of future collections.
Policy loans are carried at an amount equal to their unpaid balances and are classified as Level 2 for fair value disclosure purposes. Policy
loans are fully collateralized by the cash surrender value of the underlying policies.
148 | 2022 Annual Report | Notes to Consolidated Financial Statements
Loans to Manulife Bank of Canada (“Manulife Bank” or “Bank”) clients are carried at amortized cost and are classified as Level 2 for fair
value disclosure purposes. A loan to a Bank client is considered impaired when there is objective evidence of impairment because of one or
more loss events that have occurred after initial recognition, with a negative impact on the estimated future cash flows of the loan.
Once established, allowances for impairment of mortgages, private placements and loans to Bank clients are reversed only if the
conditions that caused the impairment no longer exist. Reversals of impairment charges on AFS debt securities are only recognized in
income to the extent that subsequent increases in fair value can be attributed to events after the impairment loss being recorded.
Impairment losses for AFS equity instruments are not reversed through income. On disposition of an impaired asset, any allowance for
impairment is released.
In addition to impairments and provisions for loan losses (recoveries) reported in investment income, the measurement of insurance
contract liabilities, via investment return assumptions, includes expected future credit losses on fixed income investments. Refer to
note 7(d).
Interest income is recognized on debt securities, mortgages, private placements, policy loans, loans to Bank clients and certain other
invested assets as it accrues and is calculated using the effective interest rate method. Premiums, discounts and transaction costs are
amortized over the life of the underlying investment using the effective yield method for all debt securities as well as mortgages and private
placements.
The Company records purchases and sales of invested assets on a trade date basis. Loans originated by the Company are recognized on a
settlement date basis.
Real estate consists of both own use property and investment property. Own use property, held for use for the Company’s operations, is
carried at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated based on the cost of an
asset less its residual value and is recognized in income on a straight-line basis over the estimated useful life ranging from 30 to 60 years.
Impairment losses are recorded in income to the extent the recoverable amount is less than the carrying amount. Where own use property
is included in assets backing insurance contract liabilities, the fair value of the property is used in the valuation of insurance contract
liabilities. Fair value of own use property is determined using the same processes as for investment property, described below. Own use
property is classified as Level 3 for fair value disclosure purposes.
An investment property is a property held to earn rental income, for capital appreciation, or both. Investment properties are measured at
fair value, with changes in fair value recognized in income. Fair value is determined using external appraisals that are based on the highest
and best use of the property. The valuation techniques include discounted cash flows, the direct capitalization method as well as
comparable sales analysis and include both observable and unobservable inputs. Inputs include existing and assumed tenancies, market
data from recent comparable transactions, future economic outlook and market risk assumptions, capitalization rates and internal rates of
return. Investment properties are classified as Level 3 for fair value disclosure purposes.
When a property changes from own use to investment property, any gain or loss arising on the remeasurement of the property to fair value
at the date of transfer is recognized in OCI, to the extent that it is not reversing a previous impairment loss. Reversals of impairment losses
are recognized in income.
Other invested assets include private equity and property investments held in infrastructure and timber, as well as in agriculture and oil
and gas sectors. Private equity investments are accounted for as associates or joint ventures using the equity method (as described in note
1(d) above) or are classified as FVTPL or AFS and carried at fair value. Investments in oil and gas exploration and evaluation activities are
measured on the cost basis using the “successful efforts” method. Timber and agriculture properties are measured at fair value with
changes in fair value recognized in income, except for buildings, equipment and bearer plants which are measured at amortized cost. The
fair value of other invested assets is determined using a variety of valuation techniques as described in note 4. Other invested assets that
are measured or disclosed at fair value are primarily classified as Level 3.
Other invested assets also include investments in leveraged leases, which are accounted for using the equity method. The carrying value
under the equity method reflects the amortized cost of the lease receivable and related non-recourse debt using the effective yield method.
(f) Goodwill and intangible assets
Goodwill represents the difference between the fair value of purchase consideration of an acquired business and the Company’s
proportionate share of the net identifiable assets acquired. It is initially recorded at cost and subsequently measured at cost less any
accumulated impairment.
Goodwill is tested for impairment at least annually and whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable at the cash generating unit (“CGU”) or group of CGUs level. The Company allocates goodwill to CGUs or group of
CGUs for impairment testing at the lowest level within the entity where the goodwill is monitored for internal management purposes. The
allocation is made to those CGUs or group of CGUs that are expected to benefit from the business combination in which the goodwill arose.
Any potential impairment of goodwill is identified by comparing the recoverable amount with the carrying value of a CGU or group of CGUs.
Goodwill is reduced by the amount of deficiency, if any. If the deficiency exceeds the carrying amount of goodwill, the carrying values of the
remaining assets in the CGU or group of CGUs are subject to being reduced by the remaining deficiency on a pro-rata basis.
149
The recoverable amount of a CGU or group of CGUs is the higher of the estimated fair value less costs to sell or the value-in-use of the CGU
or group of CGUs. In assessing value-in-use, estimated future cash flows are discounted using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the CGU or group of CGUs. In some cases, the most recent
detailed calculation made in a prior period of a recoverable amount is used in the current period impairment testing. This is the case only if
there are no significant changes to the CGU or group of CGUs, the likelihood of impairment is remote based on the analysis of current
events and circumstances, and the most recently calculated recoverable amount substantially exceeded the current carrying amount of
the CGU or group of CGUs.
Intangible assets with indefinite useful lives include the John Hancock brand name, certain investment management contracts and certain
agricultural water rights. The indefinite useful life assessment for the John Hancock brand name is based on the brand name being protected
by indefinitely renewable trademarks in markets where branded products are sold, and for certain investment management contracts based
on the ability to renew these contracts indefinitely. In addition, there are no legal, regulatory or contractual provisions that limit the useful
lives of these intangible assets. Certain agricultural water rights are held in perpetuity. An intangible asset with an indefinite useful life is not
amortized but is subject to an annual impairment test which is performed more frequently if an indication that it is not recoverable arises.
Intangible assets with finite useful lives include acquired distribution networks, customer relationships, capitalized software, and certain
investment management contracts and other contractual rights. Distribution networks, customer relationships, and other finite life
intangible assets are amortized over their estimated useful lives, six to 68 years, either based on straight-line or in relation to other asset
consumption metrics. Software intangible assets are amortized on a straight-line basis over their estimated useful lives of three to 10
years. Finite life intangible assets are assessed for indicators of impairment at each reporting period. If indications of impairment arise,
these assets are tested for impairment.
(g) Miscellaneous assets
Miscellaneous assets include assets held in a rabbi trust with respect to unfunded defined benefit obligations, defined benefit assets, if
any, deferred acquisition costs and capital assets. Rabbi trust assets are carried at fair value. Defined benefit assets carrying value is
explained in note 1(o). Deferred acquisition costs are carried at cost less accumulated amortization and are amortized over the period
redemption fees may be charged or over the period revenue is earned. Capital assets are carried at cost less accumulated amortization
computed on a straight-line basis over their estimated useful lives, which vary from two to 10 years.
(h) Segregated funds
The Company manages segregated funds on behalf of policyholders, which are presented as segregated fund net assets with offsetting
segregated funds net liabilities to policyholders in the amount of their account balances. Amounts invested by the Company in segregated
funds for seed purposes are presented within invested asset categories based on the nature of the underlying investments. The investment
returns on these funds are passed directly to policyholders. In some cases, the Company has provided guarantees associated with these
funds.
Segregated funds net assets are measured at fair value and include investments in mutual funds, debt securities, equities, cash, short-
term investments and other investments. With respect to the consolidation requirement of IFRS, in assessing the Company’s degree of
control over the underlying investments, the Company considers the scope of its decision-making rights, the rights held by other parties,
its remuneration as an investment manager and its exposure to variability of returns from the investments. The Company has determined
that it does not have control over the underlying investments as it acts as an agent on behalf of segregated fund policyholders.
The methodology applied to determine the fair value of investments held in segregated funds is consistent with that applied to invested
assets held by the general fund, as described above in note 1(e). Segregated funds liabilities are measured based on the value of the
segregated funds net assets. Investment returns on segregated funds assets belong to policyholders and the Company does not bear the
risk associated with these assets outside of guarantees offered on certain variable life and annuity products, for which the underlying
investments are held within segregated funds. Accordingly, investment income earned by segregated funds and expenses incurred by
segregated funds are offset and are not separately presented in the Consolidated Statements of Income. Fee income earned by the
Company for managing and administering the segregated funds is included in other revenue.
Liabilities related to guarantees associated with certain segregated funds, as a result of certain variable life and annuity contracts, are
recorded within the Company’s insurance contract liabilities. The Company holds assets supporting these guarantees in the general fund,
which are included in invested assets according to their investment type.
(i) Insurance and investment contract liabilities
Most contracts issued by the Company are considered insurance, investment or service contracts. Contracts under which the Company
accepts significant insurance risk from a policyholder are classified as insurance contracts in the Consolidated Financial Statements. A
contract is considered to have significant insurance risk if, and only if, an insured event could cause an insurer to make significant
additional payments in any scenario, excluding scenarios that lack commercial substance at the inception of the contract. Contracts under
which the Company does not accept significant insurance risk are either classified as investment contracts or considered service contracts
and are accounted for in accordance with IAS 39 “Financial Instruments: Recognition and Measurement” or IFRS 15 “Revenue from
Contracts with Customers”, respectively.
150 | 2022 Annual Report | Notes to Consolidated Financial Statements
Once a contract has been classified as an insurance contract it remains an insurance contract even if the insurance risk reduces
significantly. Investment contracts can be reclassified as insurance contracts if insurance risk subsequently becomes significant.
Insurance contract liabilities, net of reinsurance assets, represent the amount which, together with estimated future premiums and net
investment income, will be sufficient to pay estimated future benefits, policyholder dividends and refunds, taxes (other than income taxes)
and expenses on policies in-force. Insurance contract liabilities are presented gross of reinsurance assets on the Consolidated Statements
of Financial Position. The Company’s Appointed Actuary is responsible for determining the amount of insurance contract liabilities in
accordance with standards established by the Canadian Institute of Actuaries. Insurance contract liabilities, net of reinsurance assets,
have been determined using the Canadian Asset Liability Method (“CALM”) as permitted by IFRS 4 “Insurance Contracts”. Refer to note 7.
Investment contract liabilities include contracts issued to retail and institutional investors that do not contain significant insurance risk.
Investment contract liabilities and deposits are measured at amortized cost or at FVTPL by election. The election reduces accounting
mismatches between FVTPL assets supporting these contracts and the related contract liabilities. Investment contract liabilities are
derecognized when the contract expires, is discharged or is cancelled.
Derivatives embedded within insurance contracts are separately accounted for as derivatives if they are not considered to be closely
related to the host insurance contract and do not meet the definition of an insurance contract. These embedded derivatives are presented
separately in other assets or other liabilities and are measured at FVTPL.
(j) Reinsurance assets
The Company uses reinsurance in the normal course of business to manage its risk exposure. Insurance ceded to a reinsurer does not
relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the
extent that any reinsurer does not meet its obligations for reinsurance ceded to it under a reinsurance agreement.
Reinsurance assets represent the benefit derived from reinsurance agreements in-force at the reporting date, considering the financial
condition of the reinsurer. Amounts recoverable from reinsurers are estimated in accordance with the terms of the relevant reinsurance
contract.
Gains or losses on reinsurance transactions are recognized in income immediately on the transaction date and are not amortized.
Premiums ceded and claims reimbursed are presented on a gross basis on the Consolidated Statements of Income. Reinsurance assets
are not offset against the related insurance contract liabilities and are presented separately on the Consolidated Statements of Financial
Position. Refer to note 7(a).
(k) Other financial instruments accounted for as liabilities
The Company issues a variety of other financial instruments classified as liabilities, including notes payable, term notes, senior notes,
senior debentures, subordinated notes, surplus notes and preferred shares. These financial liabilities are measured at amortized cost, with
issuance costs deferred and amortized using the effective interest rate method.
(l) Income taxes
The provision for income taxes is calculated based on income tax laws and income tax rates substantively enacted as at the date of the
Consolidated Statements of Financial Position. The income tax provision is comprised of current income taxes and deferred income taxes.
Current and deferred income taxes relating to items recognized in OCI and directly in equity are similarly recognized in OCI and directly in
equity, respectively.
Current income taxes are amounts expected to be payable or recoverable for the current year and any adjustments to taxes payable in
respect of previous years.
Deferred income taxes are provided for using the liability method and result from temporary differences between the carrying values of
assets and liabilities and their respective tax bases. Deferred income taxes are measured at the substantively enacted tax rates that are
expected to be applied to temporary differences when they reverse.
A deferred tax asset is recognized to the extent that future realization of the tax benefit is probable. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no longer probable that the tax benefit will be realized. Deferred tax assets and
liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities and they relate to income taxes levied by
the same tax authority on the same taxable entity.
Deferred tax liabilities are recognized for all taxable temporary differences, except in respect of taxable temporary differences associated
with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be
controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
The Company records liabilities for uncertain tax positions if it is probable that the Company will make a payment on tax positions due to
examinations by tax authorities. These provisions are measured at the Company’s best estimate of the amount expected to be paid.
Provisions are reversed to income in the period in which management assesses they are no longer required or determined by statute.
151
The Company is subject to income tax laws in various jurisdictions. Tax laws are complex and potentially subject to different interpretations
by the taxpayer and the relevant tax authority. The provision for current income taxes and deferred income taxes represents
management’s interpretation of the relevant tax laws and its estimate of current and future income tax implications of the transactions and
events during the year. The Company may be required to change its provision for income taxes or deferred income tax balances when the
ultimate deductibility of certain items is successfully challenged by taxing authorities, or if estimates used in determining the amount of
deferred tax balances to recognize change significantly, or when receipt of new information indicates the need for adjustment in the
amount of deferred income taxes to be recognized. Additionally, future events, such as changes in tax laws, tax regulations, or
interpretations of such laws or regulations, could have an impact on the provision for income taxes, deferred tax balances and the effective
tax rate. Any such changes could materially affect the amounts reported in the Consolidated Financial Statements in the period these
changes occur.
(m) Foreign currency translation
Items included in the financial statements of each of the Company’s subsidiaries, joint ventures and associates are measured by each
entity using the currency of the primary economic environment in which the entity operates (the “functional currency”). If their functional
currency is other than Canadian dollar, these entities are foreign operations of the Company.
Transactions in a foreign currency are translated to the functional currency at the exchange rate prevailing at the date of the transaction.
Assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate in effect at the
reporting date. Revenue and expenses denominated in foreign currencies are translated at the average exchange rate prevailing during the
quarter reported. Exchange gains and losses are recognized in income except for translation of net investments in foreign operations and
the results of hedging these positions, and for non-monetary items designated as AFS. These foreign exchange gains and losses are
recognized in OCI until such time that the foreign operation or non-monetary item is disposed of or control or significant influence over it is
lost.
The Consolidated Financial Statements are presented in Canadian dollars. The financial statements of the Company’s foreign operations
are translated from their functional currencies to Canadian dollars; assets and liabilities are translated at the exchange rate at the
reporting date, and revenue and expenses are translated using the average exchange rates for the period. Foreign exchange gains and
losses on these translations are recognized in OCI, subject to reclassification to income upon disposal of a foreign operation.
(n) Stock-based compensation
The Company provides stock-based compensation to certain employees and directors as described in note 15. Compensation expense of
equity instruments granted is accrued based on the best estimate of the number of instruments expected to vest, with revisions made to
that estimate if subsequent information indicates that actual forfeitures are likely to differ from initial forfeiture estimates, unless
forfeitures are due to market-based conditions.
Stock options are expensed with a corresponding increase in contributed surplus. Restricted share units and deferred share units are
expensed with a corresponding liability accrued based on the market value of MFC’s common shares at the end of each quarter.
Performance share units are expensed with a corresponding liability accrued based on specific performance conditions and the market
value of MFC’s common shares at the end of each quarter. The change in the value of the awards resulting from changes in the market
value of MFC’s common shares or changes in the specific performance conditions and credited dividends is recognized in income, offset by
the impact of total return swaps used to manage the variability of the related liabilities.
Stock-based compensation cost is recognized over the applicable vesting period, unless the employee is eligible to retire at the time of
grant or will be eligible to retire during the vesting period. Compensation costs attributable to stock options, restricted share units, and
performance share units granted to employees who are eligible to retire on the grant date or who will become eligible to retire during the
vesting period, are recognized at the grant date or over the period from the grant date to the date of retirement eligibility, respectively.
The Company’s contributions to the Global Share Ownership Plan (“GSOP”) (refer to note 15(d)), are expensed as incurred. Under the
GSOP, subject to certain conditions, the Company will match a percentage of an employee’s eligible contributions to certain maximums. All
contributions are used by the plan’s trustee to purchase MFC common shares in the open market on behalf of participating employees.
(o) Employee future benefits
The Company maintains defined contribution and defined benefit pension plans and other post-employment plans for employees and
agents including registered (tax qualified) pension plans that are typically funded as well as supplemental non-registered (non-qualified)
pension plans for executives, retiree and disability welfare plans that are typically not funded.
The Company’s obligation in respect of defined benefit pension and other post-employment benefits is calculated for each plan as the
estimated present value of future benefits that eligible employees have earned in return for their service up to the reporting date using the
projected benefit method. The discount rate used is based on the yield, as at the reporting date, of high-quality corporate debt securities
that have approximately the same term as the benefit obligations and that are denominated in the same currency in which the benefits are
expected to be paid.
152 | 2022 Annual Report | Notes to Consolidated Financial Statements
To determine the Company’s net defined benefit asset or liability, the fair value of plan assets is deducted from the defined benefit
obligations. When this calculation results in a surplus, the asset that can be recognized is limited to the present value of future economic
benefit available in the form of future refunds from the plan or reductions in future contributions to the plan (the asset limit). Defined
benefit assets are included in other assets and defined benefit liabilities are included in other liabilities.
Changes in the net defined benefit asset or liability due to re-measurement of pension and retiree welfare plans are recorded in OCI in the
period in which they occur and are not reclassified to income in subsequent periods. They consist of actuarial gains and losses, the impact
of the asset limit, if any, and the return on plan assets, excluding amounts included in net interest income or expense. Changes in the net
defined benefit asset or liability due to re-measurement of disability welfare plans are recorded in income in the period in which they occur.
The cost of defined benefit pension plans is recognized over the employee’s years of service to retirement while the cost of retiree welfare
plans is recognized over the employee’s years of service to their date of full eligibility. The net benefit cost for the year is recorded in
income and is calculated as the sum of the service cost in respect of the fiscal year, the net interest income or expense and any applicable
administration expenses, plus past service costs or credits resulting from plan amendments or curtailments. The net interest income or
expense is determined by applying the discount rate to the net defined benefit asset or liability. The current year cost of disability welfare
plans is the year-over-year change in the defined benefit obligation, including any actuarial gains or losses.
The cost of defined contribution plans is the contribution provided by the Company and is recorded in income in the periods during which
services are rendered by employees.
(p) Derivative and hedging instruments
The Company uses derivative financial instruments (“derivatives”) including swaps, forward and futures agreements, and options to
manage current and anticipated exposures to changes in interest rates, foreign exchange rates, commodity prices and equity market
prices, and to replicate permissible investments. Derivatives embedded in other financial instruments are separately recorded as
derivatives when their economic characteristics and risks are not closely related to those of the host instrument, the terms of the
embedded derivative are the same as those of a standalone derivative and the host instrument itself is not recorded at FVTPL. Derivatives
which are separate financial instruments are recorded at fair value, and those with unrealized gains reported as derivative assets and those
with unrealized losses reported as derivative liabilities.
A determination is made for each derivative as to whether to apply hedge accounting. Where hedge accounting is not applied, changes in
the fair value of derivatives are recorded in investment income. Refer to note 4(c).
Where the Company has elected to apply hedge accounting, a hedging relationship is designated and documented at inception. Hedge
effectiveness is evaluated at inception and throughout the term of the hedge. Hedge accounting is only applied when the Company expects
that the hedging relationship will be highly effective in achieving offsetting changes in fair value or changes in cash flows attributable to the
risk being hedged. The assessment of hedge effectiveness is performed at the end of each reporting period both prospectively and
retrospectively. When it is determined that a hedging relationship is no longer effective, or the hedging instrument or the hedged item has
been sold or terminated, the Company discontinues hedge accounting prospectively. In such cases, if the derivatives are not sold or
terminated, any subsequent changes in fair value of the derivatives are recognized in investment income.
For derivatives that are designated as hedging instruments, changes in fair value are recorded according to the nature of the risks being
hedged, as discussed below.
In a fair value hedging relationship, changes in fair value of the hedging instruments are recorded in investment income, offsetting
changes in fair value of the hedged items, which would otherwise not be carried at fair value. Hedge ineffectiveness is recognized in
investment income and arises from differences between changes in the fair values of hedging instruments and hedged items. When hedge
accounting is discontinued, the carrying value of the hedged item is no longer adjusted and the cumulative fair value adjustments are
amortized to investment income over the remaining term of the hedged item unless the hedged item is sold, at which time the balance is
recognized immediately in investment income.
In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging instrument is recorded in OCI while
the ineffective portion is recognized in investment income. Gains and losses in accumulated other comprehensive income (“AOCI”) are
recognized in income during the same periods that the variability in the hedged cash flows or the hedged forecasted transactions are
recognized in income. The reclassifications from AOCI are made to investment income, except for total return swaps that hedge stock-
based compensation awards, which are reclassified to general expenses.
Gains and losses on cash flow hedges in AOCI are reclassified immediately to investment income when the hedged item is sold or the
forecasted transaction is no longer expected to occur. When a hedge is discontinued, but the hedged forecasted transaction is expected to
occur, the amounts in AOCI are reclassified to investment income in the periods during which variability in the cash flows hedged or the
hedged forecasted transaction is recognized in income.
In a net investment in foreign operations hedging relationship, gains and losses relating to the effective portion of the hedge are recorded
in OCI. Gains and losses in AOCI are recognized in income during the periods when gains or losses on the underlying hedged net
investment in foreign operations are recognized in income upon disposal of the foreign operation.
15
(q) Premium income and related expenses
Gross premiums for all types of insurance contracts, and contracts with limited mortality or morbidity risk, are generally recognized as
revenue when due. Premiums are reported gross of reinsurance ceded (refer to note 7).
(r) Revenue from service contracts
The Company recognizes revenue from service contracts in accordance with IFRS 15. The Company’s service contracts generally impose
single performance obligations, each consisting of a series of similar related services for each customer. Revenue is recorded as
performance obligations are satisfied over time because the customers simultaneously receive and consume the benefits of the services
rendered, measured using an output method. Revenue for variable consideration is recognized to the extent that it is highly probable that a
significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved. Refer to
note 14.
Note 2 Accounting and Reporting Changes
(a) Changes in accounting and reporting policy
(i) Annual Improvements 2018 – 2020 Cycle
Annual Improvements 2018–2020 Cycle was issued in May 2020 and is effective on or after January 1, 2022. The IASB issued four minor
amendments to different standards as part of the Annual Improvements process, to be applied prospectively. Adoption of these
amendments did not have a significant impact on the Company’s Consolidated Financial Statements.
(ii) Amendments to IFRS 3 “Business Combinations”
Amendments to IFRS 3 “Business Combinations” were issued in May 2020, and are effective on or after January 1, 2022, with earlier
application permitted. The amendments update references within IFRS 3 to the 2018 Conceptual Framework and require that the
principles in IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” be used to identify liabilities and contingent assets arising
from a business combination. Adoption of these amendments did not have a significant impact on the Company’s Consolidated Financial
Statements.
(iii) Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”
Amendments to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” were issued in May 2020, and are effective on or after
January 1, 2022, with earlier application permitted. The amendments address identifying onerous contracts and specify the cost of
fulfilling a contract which includes all costs directly related to the contract. These include incremental direct costs and allocations of other
costs that relate directly to fulfilling the contract. Adoption of these amendments did not have a significant impact on the Company’s
Consolidated Financial Statements.
(b) Future accounting and reporting changes
(i) IFRS 17 “Insurance Contracts”
IFRS 17 “Insurance Contracts” was issued in May 2017 to be effective for years beginning on January 1, 2021. Amendments to IFRS 17
“Insurance Contracts” were issued in June 2020 and include a two-year deferral of the effective date. IFRS 17 as amended, is effective for
years beginning on January 1, 2023, to be applied retrospectively. If full retrospective application to a group of contracts is impracticable
the modified retrospective or fair value methods may be used. The standard replaced IFRS 4 “Insurance Contracts” and therefore replaced
the Canadian Asset Liability Method (“CALM”) and materially changed the recognition and measurement of insurance contracts and the
corresponding presentation and disclosures in the Company’s Consolidated Financial Statements.
Narrow-scope amendments to IFRS 17 “Insurance Contracts” were issued in December 2021 and were effective on initial application of
IFRS 17 and IFRS 9 “Financial Instruments” which the Company has adopted on January 1, 2023. The amendments reduce accounting
mismatches between insurance contract liabilities and financial assets in scope of IFRS 9 within comparative prior periods when initially
applying IFRS 17 and IFRS 9. The amendments allow insurers to present comparative information on financial assets as if IFRS 9 were fully
applicable during the comparative period. The amendments do not permit application of IFRS 9 hedge accounting principles to the
comparative period.
The principles underlying IFRS 17 differ from CALM as permitted by IFRS 4. While there are many differences, the following outlines some
of the key measurement differences:
• Under IFRS 17 new business gains are recorded on the Consolidated Statements of Financial Position (in the Contractual Service Margin
(“CSM”) component of the insurance contract liability) and amortized into income as services are provided. New business losses are
recorded into income immediately. Under CALM, both new business gains and new business losses were recognized in income
immediately.
• Under IFRS 17 the Company aggregates insurance contracts that are subject to similar risks and managed together into portfolios.
Since new business gains and losses have different accounting treatments, insurance contracts are further aggregated into groups by
154 | 2022 Annual Report | Notes to Consolidated Financial Statements
profitability and issuance period to limit offsetting of new business gains and losses. Such aggregation of contracts into groups is
required on initial recognition and not reassessed subsequently. Under CALM, new business gains and new business losses offset each
other in income.
• Under IFRS 17 the discount rate used to estimate the present value of insurance contract liabilities is based on the characteristics of the
liabilities. Under CALM, the rates of returns for current and projected assets supporting insurance contract liabilities were used to value
the liabilities. The difference in the discount rate approach also impacts the timing of investment results. Under IFRS 17, the impact of
investing activities will emerge into earnings over the life of the assets. Under CALM, the impact of investing activities was capitalized
into reserves and therefore earnings in the period they occurred.
• Under IFRS 17 the insurance contract liability discount rate is not related to the expected return on Alternative Long-Duration Assets
(“ALDA”) and public equity assets, and as a result, the earnings sensitivity of a change in return assumptions for ALDA and public equity
assets will be significantly reduced.
• Under IFRS 17 the Company has elected the option to record changes in insurance contract liabilities arising from changes in interest
rates through other comprehensive income, for substantially all insurance products, and classify debt instruments supporting these
insurance contract liabilities as fair value through other comprehensive income (“FVOCI”) under IFRS 9. Under CALM, changes in
insurance contract liabilities were recorded in income and supporting debt instruments were classified as FVTPL.
• Under IFRS 17 the Company separates specific embedded derivatives and distinct investment components from insurance contracts
and accounts for them under IFRS 9. Under IFRS 4 the treatment of embedded derivatives is consistent with IFRS 17, however under
IFRS 4 the Company did not separate deposit components as this was not required by the standard.
• Under IFRS 17 insurance contracts with different features are measured by one of the three measurement models: General
Measurement Model (“GMM”), Premium Allocation Approach (“PAA”) and Variable Fee Approach (“VFA”). Under IFRS 4, insurance
contracts were generally valued by one measurement model, although an unearned premium reserve method similar to PAA was
allowed and used by Manulife for certain short duration / annually renewable business.
In addition, there are significant changes to presentation and disclosure of the financial statements. The following outlines some of the key
presentation and disclosure changes:
• Consolidated Statements of Financial Position: Under IFRS 17 the Company presents portfolios of insurance and reinsurance contracts
issued separately from portfolios of reinsurance contracts held, and portfolios in asset position are further presented separately from
portfolios in liability position. Under CALM, contracts were not split and presented by asset and liability position.
• Consolidated Statements of Comprehensive Income: Under IFRS 17 the Company separately presents insurance revenue, insurance
service expense, insurance finance income or expenses, and income or expenses from reinsurance contracts held. Under CALM the
Company reported premium income, gross claims and benefits, changes in insurance contract liabilities, benefits and expenses ceded
to reinsurers, and changes in reinsurance assets.
IFRS 17 Transition
The Company is required to prepare an opening balance sheet as at January 1, 2022, the date of transition to IFRS 17, which forms the
starting point for its financial reporting in accordance with IFRS 17. Any differences between the carrying value and the presentation of
assets, liabilities and equity determined in accordance with CALM and IFRS 17, as at January 1, 2022, will be recorded in opening retained
earnings and accumulated other comprehensive income.
On the transition date, January 1, 2022, the Company;
•
•
Identified, recognized, and measured each group of contracts as if IFRS 17 had always applied, unless it was impracticable (see Full
Retrospective Approach and Fair Value Approach below);
Identified, recognized, and measured assets for insurance acquisition cash flows as if IFRS 17 had always applied, unless it was
impracticable. However, no recoverability assessment was performed before the transition date;
• Derecognized any balances that would not exist had IFRS 17 always applied;
• Measured own use real estate properties that were underlying items of insurance contracts with direct participation features at fair
value; and
• Recognized any resulting net difference in equity.
Full Retrospective Approach
The Company has adopted IFRS 17 retrospectively unless the full retrospective approach was deemed impracticable. The Company has
applied the full retrospective approach to most contracts issued on or after January 1, 2021, except for participating insurance contracts
and variable annuity contracts for which the fair value approach was used.
155
Fair Value Approach
The Company has applied the fair value approach to all insurance contracts issued prior to January 1, 2021, as obtaining reasonable and
supportable information to apply the full retrospective approach was deemed impracticable.
IFRS 17 allows the use of the fair value approach for groups of insurance contracts with direct participation features if the risk mitigation
option is applied prospectively from the transition date and the Company used derivatives, reinsurance contracts held or non-derivative
financial instruments held at FVTPL to mitigate financial risk on these groups of contracts. With these conditions met, the Company has
elected to apply the fair value approach to participating insurance contracts and variable annuity contracts issued on or after January 1,
2021.
Under the fair value approach, the Company has determined the CSM of the GMM and VFA liabilities for remaining coverage at the
transition date as the difference between the fair value of the groups of insurance contracts and the fulfilment cash flows measured at that
date. In determining the fair value, the Company has applied the requirements of IFRS 13 “Fair Value Measurement”, except for the demand
deposit floor requirement. The Company used the income approach to determine the fair value of the insurance contracts at the transition
date, in which future cash flows are discounted to a single amount that reflects current market expectations about those future amounts.
To determine groups of insurance contracts under the fair value approach the Company has aggregated contracts issued more than one
year apart as it did not have reasonable and supportable information to divide groups into those including only contracts issued within one
year or less.
For the application of the fair value approach, the Company has used reasonable and supportable information available at the transition
date in order to:
•
Identify groups of insurance contracts;
• Determine whether an insurance contract meets the definition of an insurance contract with direct participation features;
•
Identify discretionary cash flows for insurance contracts without direct participation features; and
• Determine whether an investment contract meets the definition of an investment contract with discretionary participation features.
For insurance contracts where the fair value approach was applied, the discount rate used to determine the fair value of the group of
insurance contracts was determined at the transition date. For cash flows of insurance contracts that do not vary based on the returns on
underlying items, the Company determines discount rates by adjusting a liquid risk-free yield curve to reflect the differences between the
liquidity characteristics of the financial instruments that underlie the rates observed in the market and the liquidity characteristics of the
insurance contracts (a bottom-up approach).
Other Comprehensive Income at Transition
Under IFRS 17 changes in the carrying amount of insurance contracts arising from the effect of and changes in the time value of money
and in financial risk are presented as insurance finance income or expense (except for some changes for insurance contracts with direct
participation features under certain circumstances). Under IFRS 17 the Company has the option to present all insurance finance income or
expense in profit or loss or disaggregated between profit or loss and OCI (the “OCI option”). The Company has elected the OCI option and
determined the cumulative OCI balance at transition as follows:
• For some GMM and PAA groups of contracts where the fair value approach was applied, the cumulative OCI was set retrospectively only
if reasonable and supportable information was available, otherwise it was set to zero at the transition date.
• For GMM groups of contracts where the full retrospective approach was applied, the cumulative balance was calculated as if the
Company had been applying the OCI option since inception of the contracts.
• For VFA contracts, the cumulative OCI at transition was set equal to the difference between the market value and carrying value of the
underlying items.
Reclassification of Financial Assets for the Comparative Period of IFRS 17 Adoption
Under the amendments to IFRS 17 with regard to the “Initial Application of IFRS 17 and IFRS 9 – Comparative Information” (“IFRS 17
amendments”), the Company has elected the option to reclassify financial assets, including those held in respect of activities not
connected to contracts within the scope of IFRS 17, on an instrument-by-instrument basis, for the comparative period in alignment with the
expected classification on initial application of IFRS 9 as at January 1, 2023. These reclassification changes also led the Company to
present certain investment results previously reported in net investment income or OCI under IAS 39, within OCI or net investment income
in alignment with the expected classifications of IFRS 9, respectively.
156 | 2022 Annual Report | Notes to Consolidated Financial Statements
The following table presents invested assets by type and measurement category as at December 31, 2021, with transitional measurement
differences and presentation differences and then invested assets by type and category as at January 1, 2022.
Cash and short-term securities
Debt securities
Public equities
Mortgages
Private placements
Policy loans
Loans to Bank clients
Other invested assets
December 31, 2021
IAS 39
Measurement
Category
AFS
FVTPL
Amortized cost
AFS
FVTPL
Amortized cost
AFS
FVTPL
AFS
FVTPL
Amortized cost
AFS
FVTPL
Amortized cost
Amortized cost
Amortized cost
AFS
FVTPL
Amortized cost
Total carrying
value
$ 14,339
2,214
6,041
22,594
33,097
189,722
1,320
224,139
2,351
25,716
28,067
–
–
52,014
52,014
–
–
42,842
42,842
6,397
2,506
89
21,157
855
22,101
Impact of IFRS 17
Amendments
January 1, 2022
Measurement
Differences
Presentation
Differences
Total carrying
value
Measurement
Category
$
–
–
–
–
–
–
–
–
$
2,214
(2,214)
–
–
184,365
(184,365)
–
–
–
–
–
1,897
37
–
1,934
4,407
40
–
4,447
–
–
(4)
(10)
–
(14)
(2,351)
2,351
–
29,901
1,166
(31,067)
–
42,175
667
(42,842)
–
(6,397)
–
238
617
(855)
–
$ 16,553
–
6,041
22,594
217,462
5,357
1,320
224,139
FVOCI(1)
FVTPL(2)
Amortized cost(3)
FVOCI(1)
FVTPL(2)
Amortized cost(3)
–
28,067
28,067
31,798
1,203
20,947
53,948
46,582
707
–
47,289
FVTPL(2)
FVOCI(1)
FVTPL(2)
Amortized cost(3)
FVOCI(1)
FVTPL(2)
Amortized cost(3)
–
N/A(4)
2,506
Amortized cost(3)
323
21,764
–
22,087
FVOCI(1)
FVTPL(2)
Amortized cost(3)
Total in-scope invested
assets
Out-of-scope invested assets(5)
Total Invested Assets
Other
400,660
26,438
$ 427,098
6,367
1,035
$ 7,402
(6,397)
–
$ (6,397)
400,630
27,473
$ 428,103
Other(5)
(1) The reclassification of unrealized gains (losses), net of tax, of $11,868 from retained earnings to accumulated other comprehensive income (AOCI) related to FVOCI
classification of debt investments classified as FVTPL under IAS 39.
(2) The reclassification of unrealized gains (losses), net of tax, of $268 from AOCI to retained earnings related to FVTPL classification of debt securities classified as FVOCI under
IAS 39.
(3) The remeasurement of debt securities from amortized cost to FVOCI or FVTPL resulted in an increase in carrying value of $6,367. The impact on AOCI and retained earnings,
net of tax, was $5,041 and $952, respectively.
(4) Policy loans were reclassified from invested assets to insurance contract liabilities under IFRS 17 with no remeasurement and no impact to equity.
(5) Own use real estate properties which are underlying items for insurance contracts with direct participating features were remeasured to fair value as if they were investment
properties, as permitted by IFRS 17. This remeasurement resulted in an increase of carrying value of $1,035. The impact to retained earnings, net of tax, was $915.
The Company has elected to apply the impairment requirements of IAS 39 (incurred losses) for the comparative period as provided for
under IFRS 17. Accordingly, for assets that were classified as FVTPL under IAS 39, where no impairment was required, but were
reclassified to FVOCI or amortized cost under IFRS 9 for the comparative period, the Company did not measure any impairment for the
comparative period since IAS 39 impairment was not calculated.
157
Opening balance sheet under IFRS 17 “Insurance Contracts” including classification and measurement changes of financial assets
Effects from applying IFRS 17 resulted in a reduction of total equity of $11,997, net of tax, as at January 1, 2022. The opening IFRS 17
balance sheet and related adjustments as at January 1, 2022 are presented below:
Assets
Total invested assets
Total other assets
Segregated funds net assets
Total assets
Liabilities and Equity
Insurance contract liabilities
Segregated funds insurance net liabilities
Total insurance contract liabilities
Total investment contract liabilities
Other liabilities
Segregated funds net liabilities
Total liabilities
Equity
Shareholders’ retained earnings
Shareholders’ accumulated other comprehensive income (loss)
Net insurance finance expenses
Net reinsurance finance income
FVOCI investments
Other equity items
Total shareholders’ equity
Participating policyholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
IFRS 4 &
IAS 39
December 31,
2021
OPENING IFRS BALANCE SHEET ADJUSTMENTS
Measurement Differences
Transition
CSM
Contract
Measurement
Presentation
Differences
IFRS 17 &
IAS 39
January 1,
2022
$ 427,098
90,757
399,788
$ 917,643
$
$
–
2,877
–
2,877
$
7,402
5,617
–
$ 13,019
$
$
(6,397)
1,078
–
(5,319)
$ 428,103
100,329
399,788
$ 928,220
$ 392,275
–
392,275
3,116
63,595
399,788
858,774
$ 21,466(1) $ 10,014
–
10,014
–
(784)
–
9,230
–
21,466
–
(2,823)
–
18,643
$ (18,134)
130,836
112,702
275,900
5,867
(399,788)
(5,319)
23,492
(13,607)
(229)
–
–
848
34,068
58,408
(1,233)
1,694
58,869
$ 917,643
–
–
–
–
(13,607)
(1,440)(1)
(719)(1)
(15,766)
2,877
$
(17,117)
984
16,916
–
554
2,774
461
3,789
$ 13,019
–
–
–
–
–
–
–
–
(5,319)
$
$ 405,621
130,836
536,457
279,016
65,855
–
881,328
9,656
(17,117)
984
17,764
34,068
45,355
101
1,436
46,892
$ 928,220
(1) The post-tax CSM in the participating policyholders’ fund of $1.4 billion is expected to be recognized in shareholder net income over time. In addition, $0.7 billion of post-tax
CSM is attributable to non-controlling interests.
The following table shows the nature and amount of the measurement adjustments made to the opening balance sheet:
Measurement
Differences
Description
Transition
CSM
Contractual Service Margin (CSM) is a new liability that represents future unearned profits on insurance contracts written. For this
measurement step, the amount recognized as at the transition date, January 1, 2022, was $21,466. The impact on equity was
$15,766, net of tax.
Contract
Measurement
Under IFRS 17 other components of insurance contracts, aside from the CSM, are also remeasured. This measurement step
includes the following changes:
Risk Adjustment (+2.1 billion to equity)(1): Changes to the provisions held within the Company’s insurance liabilities for
non-economic risk on application of the IFRS 17 standard;
Discount Rates (-1.5 billion to equity)(1): Changes in the economic assumptions used in the determination of the Company’s
insurance liabilities from the IFRS 4 CALM framework to IFRS 17, and changes in the carrying value of the Company’s assets backing
insurance liabilities under IFRS 9;
Other Revaluation Changes (+3.1 billion to equity): Includes other changes in equity created by the application of IFRS 17. This
includes changes to accounting for contract classifications, variable annuity guarantee contracts, and contract boundaries which
increases the capitalization of future profits into the CSM, changes to the provisions for future taxes, and other changes related to
the application of IFRS 17.
In previous steps all impacts to equity were shown in shareholders’ equity. This step shows the geography of the impacts between
shareholders’ equity, participating policyholders’ equity and non-controlling interests.
Participating
and
Non-Controlling
Interest (NCI)
Equity
(1) Excluding impacts on variable annuity guarantee contracts
158 | 2022 Annual Report | Notes to Consolidated Financial Statements
The presentation differences are mainly comprised of the following:
• Policy loans invested assets – Reclassified to insurance contract liabilities as they are insurance contract related.
• Contract classification – Some contracts were reclassified from insurance contracts to investment contracts or service contracts, with
some contracts reclassified from investment contracts to insurance contracts. The amount shown in presentation differences in the
table above relates to where they appear in the opening balance sheet. Any changes to these contracts’ measurement value are shown
in the contract measurement step.
Insurance receivables & payables – These amounts were previously reported either as separate line items in the financial statements
or recorded in miscellaneous assets and liabilities. These amounts have been reclassified to insurance contract liabilities as they are
insurance contract related.
•
• Embedded derivatives – These amounts were previously reported in miscellaneous assets and have been reclassified to insurance
contract liabilities as they are insurance contract related.
• Reinsurance funds withheld – These amounts were previously reported in other liabilities and have been reclassified to reinsurance
contract assets as they are reinsurance contract related.
• Deferred acquisition cost – These were previously reported in miscellaneous assets and have been reclassified to insurance contract
liabilities as they are insurance contract related.
• Segregated fund net liabilities – Segregated fund net liabilities were previously reported together, and have been separated into
segregated fund insurance net liabilities (those associated with insurance contracts) and segregated funds investment contract net
liabilities (those associated with investment contracts) which form part of total investment contract liabilities.
(ii) IFRS 9 “Financial Instruments”
IFRS 9 “Financial Instruments” was issued in November 2009 and amended in October 2010, November 2013 and July 2014, and is
effective for years beginning on or after January 1, 2018, to be applied retrospectively, or on a modified retrospective basis. Additionally,
the IASB issued amendments in October 2017 that are effective for annual periods beginning on or after January 1, 2019. In conjunction
with the amendments to IFRS 17 “Insurance Contracts” issued in June 2020, the IASB amended IFRS 4 “Insurance Contracts” to permit
eligible insurers to apply IFRS 9 effective January 1, 2023, alongside IFRS 17. The standard replaced IAS 39 “Financial Instruments:
Recognition and Measurement”.
The project has been divided into three phases: classification and measurement, impairment of financial assets, and hedge accounting.
IFRS 9’s current classification and measurement methodology provides that financial assets are measured at either amortized cost or fair
value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the
financial assets. The classification and measurement for financial liabilities remains generally unchanged; however, for a financial liability
designated as at fair value through profit or loss, revisions have been made in the accounting for changes in fair value attributable to
changes in the credit risk of that liability. Gains or losses caused by changes in an entity’s own credit risk on such liabilities are no longer
recognized in profit or loss but instead are reflected in OCI.
Revisions to hedge accounting were issued in November 2013 as part of the overall IFRS 9 project. The amendment introduces a new
hedge accounting model, together with corresponding disclosures about risk management activity for those applying hedge accounting.
The new model represents a substantial overhaul of hedge accounting that will enable entities to better reflect their risk management
activities in their financial statements. When IFRS 9 is first adopted, entities have the option to apply the hedge accounting requirements
under IFRS 9 or to continue to apply the hedge accounting requirements under IAS 39. Such option will apply to all hedge accounting
relationships.
Revisions issued in July 2014 replaced the existing incurred loss model used for measuring the allowance for credit losses with an
expected loss model. Changes were also made to the existing classification and measurement model designed primarily to address
specific application issues raised by early adopters of the standard. They also addressed the income statement accounting mismatches
and short-term volatility issues which have been identified as a result of the insurance contracts project.
The Company has adopted IFRS 9 beginning on January 1, 2023, as permitted under the June 2020 amendments to IFRS 4 “Insurance
Contracts”. Consistent with IFRS 17 amendments, the adoption of IFRS 9 resulted in certain differences in the classification and
measurement of financial assets when compared to their classification and measurement under IAS 39. The most significant changes
included approximately $184 billion of debt securities previously classified as FVTPL which are classified as FVOCI (see note 2(b)(i)).
The Company has elected to apply the hedge accounting requirements under IFRS 9 to all hedge accounting relationships prospectively.
As at January 1, 2023, all existing IAS 39 hedge accounting relationships were assessed and qualify for hedge accounting under IFRS 9.
These existing relationships are treated as continuing hedge accounting relationships under IFRS 9 beginning on January 1, 2023; and will
be disclosed with comparative information for 2022 under IAS 39.
The Company will also be designating new hedge accounting relationships with the objective to reduce accounting mismatches between
existing derivatives’ changes in income and financial risk changes in OCI for IFRS 17 insurance liabilities and IFRS 9 financial assets. New
hedge accounting relationships are effective prospectively on January 1, 2023; and will not have comparative disclosure in the financial
statements for 2022.
159
Note 3 Acquisitions
(a) Manulife TEDA Fund Management
In November, 2022 the Company acquired control of Manulife TEDA Fund Management Co., LTD through the purchase of the remaining
51% of shares that it did not already own from its joint venture partner. The transaction furthers the Company’s goals of expanding both its
Asian and asset management businesses.
The transaction included $334 of cash consideration and derecognition of the Company’s previous joint venture interest with a fair value of
$321. The Company recorded a gain of $95 on derecognition of the previous joint venture interest. The Company recognized $160 of
tangible net assets, $240 of intangible assets and $255 of goodwill.
Note 4
Invested Assets and Investment Income
(a) Carrying values and fair values of invested assets
As at December 31, 2022
Cash and short-term securities(6)
Debt securities(3),(7),(8)
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Mortgage/asset-backed securities
Public equities(9)
Mortgages
Private placements(8)
Policy loans
Loans to Bank clients
Real estate
Own use property(10)
Investment property
Other invested assets
FVTPL(1)
AFS(2)
Other(3)
Total carrying
value(4)
Total fair
value(5)
$
1,933
$ 10,926
$
6,294
$ 19,153
$ 19,153
14,798
9,440
22,986
120,897
2,152
21,989
–
–
–
–
–
–
6,468
14,384
3,487
7,745
136
1,530
–
–
–
–
–
–
–
912
–
499
–
–
54,638
47,057
6,894
2,781
1,878
11,394
21,266
24,736
26,473
129,141
2,288
23,519
54,638
47,057
6,894
2,781
21,266
24,494
26,473
128,972
2,288
23,519
51,429
41,968
6,894
2,760
1,878
11,394
3,033
11,394
Alternative long-duration assets(11)
Various other (12)
Total invested assets
26,348
131
$ 220,674
79
–
$ 44,755
12,012
4,213
$ 148,572
38,439
4,344
$ 414,001
39,225
4,344
$ 407,212
160 | 2022 Annual Report | Notes to Consolidated Financial Statements
As at December 31, 2021
Cash and short-term securities(6)
Debt securities(7),(8)
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Mortgage/asset-backed securities
Public equities(9)
Mortgages
Private placements(8)
Policy loans
Loans to Bank clients
Real estate
Own use property(10)
Investment property
Other invested assets
FVTPL(1)
AFS(2)
Other(3)
Total carrying
value(4)
Total fair
value(5)
$
2,214
$ 14,339
$
6,041
$ 22,594
$ 22,594
18,706
12,607
21,888
133,763
2,758
25,716
–
–
–
–
3,964
18,792
2,871
7,332
138
2,351
–
–
–
–
–
–
–
–
–
852
–
468
–
–
52,014
42,842
6,397
2,506
1,812
11,421
22,670
32,251
24,759
141,563
2,896
28,067
52,014
42,842
6,397
2,506
22,670
32,254
24,759
141,560
2,896
28,067
54,089
47,276
6,397
2,503
1,812
11,421
3,024
11,421
Alternative long-duration assets(11)
Various other (12)
Total invested assets
21,022
135
$ 238,809
89
–
$ 49,876
10,093
3,967
$ 138,413
31,204
4,102
$ 427,098
31,863
4,102
$ 435,475
(1) FVTPL classification was elected for securities backing insurance contract liabilities to substantially reduce any accounting mismatch arising from changes in the fair value of
these assets and changes in the value of the related insurance contract liabilities. If this election had not been made and instead the available-for-sale (“AFS”) classification was
selected, there would be an accounting mismatch because changes in insurance contract liabilities are recognized in net income rather than in OCI.
(2) Securities that are designated as AFS are not actively traded by the Company but sales do occur as circumstances warrant. Such sales result in a reclassification of any
accumulated unrealized gain (loss) in AOCI to net income as a realized gain (loss).
(3) Primarily includes assets classified as loans and carried at amortized cost, own use properties, investment properties, equity method accounted investments, and leveraged
leases. Also includes debt securities classified as held-to-maturity which are accounted for at amortized cost. Refer to note 1(e).
(4) Invested assets above include debt securities, mortgages, private placements and approximately $302 (2021 – $323) of other invested assets, which primarily have
contractual cash flows that qualify as Solely Payment of Principal and Interest (“SPPI”). Invested assets which do not have SPPI qualifying cash flows as at December 31, 2022
include debt securities, private placements and other invested assets with fair values of $nil, $98 and $507, respectively (2021 – $nil, $181 and $518, respectively). The
change in the fair value of these invested assets during the year was $(94) (2021 – $15).
(5) The methodologies used in determining fair values of invested assets are described in note 1(c) and note 4(g).
(6) Includes short-term securities with maturities of less than one year at acquisition amounting to $4,148 (2021 – $7,314) cash equivalents with maturities of less than 90 days
at acquisition amounting to $8,711 (2021 – $9,239) and cash of $6,294 (2021 – $6,041).
(7) Debt securities include securities which were acquired with maturities of less than one year and less than 90 days of $1,787 and $870, respectively (2021 – $2,196 and
$347, respectively).
(8) Floating rate invested assets above which are subject to interest rate benchmark reform, but have not yet transitioned to replacement reference rates, include debt securities
benchmarked to CDOR, USD LIBOR and AUD BBSW of $173, $892 and $15 (2021 – $176, $1,002 and $nil respectively), and private placements benchmarked to USD
LIBOR, AUD BBSW and NZD BKBM of $1,613, $199 and $43 (2021 – $1,984, $166 and $43, respectively). Exposures indexed to USD LIBOR represent floating rate invested
assets with maturity dates beyond June 30, 2023 while exposures to CDOR represent floating rate invested assets with maturity dates beyond June 28, 2024. The interest rate
benchmark reform is expected to have an impact on the valuation of invested assets whose value is tied to the affected interest rate benchmarks. The Company has assessed its
exposure at the contract level, by benchmark and instrument type. The Company is monitoring market developments with respect to alternative reference rates and the time
horizon during which they will evolve. As at December 31, 2022, the interest rate benchmark reform has not resulted in significant changes in the Company’s risk management
strategy.
(9) Includes $1 (2021 – $5) of public equities that are managed in conjunction with the Company’s ALDA strategy.
(10) Includes accumulated depreciation of $411 (2021 – $407).
(11) ALDA include investments in private equity of $14,279, infrastructure of $12,761, oil and gas of $2,221, timber and agriculture of $5,979 and various other invested assets
of $3,199 (2021 – $11,598, $9,824, $1,950, $5,259 and $2,573, respectively).
(12) Includes $3,840 (2021 – $3,457) of leveraged leases. Refer to note 1(e).
(b) Equity method accounted invested assets
Other invested assets include investments in associates and joint ventures which are accounted for using the equity method of accounting
as presented in the following table.
As at December 31,
Leveraged leases
Timber and agriculture
Real estate
Other
Total
2022
2021
Carrying
value
$ 3,840
822
1,845
3,785
$ 10,292
% of total
37
8
18
37
100
Carrying
value
$ 3,457
808
1,528
3,025
$ 8,818
% of total
40
9
17
34
100
The Company’s share of profit and dividends from these investments for the year ended December 31, 2022 were $851 and $nil,
respectively (2021 – $1,300 and $2).
161
(c) Investment income
For the year ended December 31, 2022
Cash and short-term securities
Interest income
Gains (losses)(2)
Debt securities
Interest income
Gains (losses)(2)
Recovery (impairment loss), net
Public equities
Dividend income
Gains (losses)(2)
Impairment loss, net
Mortgages
Interest income
Gains (losses)(2)
Provision, net
Private placements
Interest income
Gains (losses)(2)
Impairment loss, net
Policy loans
Loans to Bank clients
Interest income
Provision, net
Real estate
Rental income, net of depreciation(3)
Gains (losses)(2)
Impairment loss, net
Derivatives
Interest income, net
Gains (losses)(2)
Other invested assets
Interest income
Oil and gas, timber, agriculture and other income
Gains (losses)(2)
Impairment loss, net
Total investment income
Investment income
Interest income
Dividend, rental and other income
Impairments, provisions and recoveries, net
Other
Realized and unrealized gains (losses) on assets supporting insurance and investment contract
liabilities and on the macro hedge program
Debt securities
Public equities
Mortgages
Private placements
Real estate
Other invested assets
Derivatives, including macro hedge program
Total investment income
162 | 2022 Annual Report | Notes to Consolidated Financial Statements
FVTPL
AFS
Other(1)
Total
$
$
40
26
$
272
85
6,221
(32,732)
(11)
500
(3,819)
–
738
(549)
–
45
201
(14)
–
–
66
–
–
–
–
–
$
312
111
7,025
(33,281)
(11)
545
(3,618)
(14)
–
–
–
–
–
–
–
–
–
–
–
–
494
(10,628)
–
–
1,172
–
$ (38,737)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,913
57
1
2,021
335
(4)
385
138
(4)
452
(478)
–
1,913
57
1
2,021
335
(4)
385
138
(4)
452
(478)
–
(24)
(9)
470
(10,637)
–
–
13
(119)
672
26
2,846
474
–
$ 8,195
26
2,846
1,659
(119)
$ (29,870)
$
$ 6,755
500
(11)
(794)
6,450
$ 1,010
45
(133)
(216)
706
$ 4,525
3,298
(7)
235
8,051
$ 12,290
3,843
(151)
(775)
15,207
(32,599)
(3,626)
–
–
–
1,572
(10,534)
(45,187)
$ (38,737)
$
(76)
24
–
–
–
18
–
(34)
672
–
–
58
336
(471)
230
(9)
144
$ 8,195
(32,675)
(3,602)
58
336
(471)
1,820
(10,543)
(45,077)
$ (29,870)
For the year ended December 31, 2021
Cash and short-term securities
FVTPL
AFS
Other(1)
Total
Interest income
Gains (losses)(2)
Debt securities
Interest income
Gains (losses)(2)
Impairment loss, net
Public equities
Dividend income
Gains (losses)(2)
Impairment loss, net
Mortgages
Interest income
Gains (losses)(2)
Provision, net
Private placements
Interest income
Gains (losses)(2)
Impairment loss, net
Policy loans
Loans to Bank clients
Interest income
Provision, net
Real estate
Rental income, net of depreciation(3)
Gains (losses)(2)
Derivatives
Interest income, net
Gains (losses)(2)
Other invested assets
Interest income
Oil and gas, timber, agriculture and other income
Gains (losses)(2)
Impairment loss, net
Total investment income
Investment income
Interest income
Dividend, rental and other income
Impairments, provisions and recoveries, net
Other
Realized and unrealized gains (losses) on assets supporting insurance and investment contract
liabilities and on the macro hedge program
Debt securities
Public equities
Mortgages
Private placements
Real estate
Other invested assets
Derivatives, including macro hedge program
Total investment income
$
$
12
85
$
84
(22)
5,645
(5,600)
28
670
3,221
–
576
(266)
1
61
250
(3)
–
–
–
–
–
–
–
–
–
–
–
1,085
(5,925)
–
–
2,554
–
$ 1,775
$ 6,742
670
28
(76)
7,364
(5,605)
3,187
–
–
–
2,628
(5,799)
(5,589)
$ 1,775
$
$
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23
–
704
661
61
(2)
(66)
654
20
33
–
–
–
(3)
–
50
704
–
–
9
–
–
–
–
–
1,709
133
1
1,931
270
45
366
77
(2)
453
677
$
96
63
6,230
(5,866)
29
731
3,471
(3)
1,709
133
1
1,931
270
45
366
77
(2 )
453
677
(35)
(14)
1,050
(5,939)
57
2,996
527
(55)
$ 9,145
57
2,996
3,104
(55)
$ 11,624
$ 4,114
3,449
(11)
57
7,609
$ 11,517
4,180
15
(85)
15,627
–
–
133
270
696
451
(14)
1,536
$ 9,145
(5,585)
3,220
133
270
696
3,076
(5,813)
(4,003)
$ 11,624
(1) Primarily includes investment income on loans carried at amortized cost, own use real estate properties, investment properties, derivative and hedging instruments in cash flow
hedging relationships, equity method accounted investments, oil and gas investments, and leveraged leases.
(2) Includes net realized and unrealized gains (losses) for financial instruments at FVTPL, investment properties, and other invested assets measured at fair value. Also includes net
realized gains (losses) for financial instruments at AFS and other invested assets carried at amortized cost.
(3) Rental income from investment properties is net of direct operating expenses.
16
(d) Investment expenses
The following table presents total investment expenses.
For the years ended December 31,
Related to invested assets
Related to segregated, mutual and other funds
Total investment expenses
(e) Investment properties
The following table presents the rental income and direct operating expenses of investment properties.
For the years ended December 31,
Rental income from investment properties
Direct operating expenses of rental investment properties
Total
2022
2021
$
718
1,145
$ 1,863
$
633
1,347
$ 1,980
2022
2021
$ 825
(458)
$ 367
$ 837
(464)
$ 373
(f) Mortgage securitization
The Company securitizes certain insured and uninsured fixed and variable rate residential mortgages and Home Equity Lines of Credit
(“HELOC”) through creation of mortgage-backed securities under the Canadian Mortgage Bond Program (“CMB”), and the HELOC
securitization program.
Benefits received from the securitization include interest spread between the asset and associated liability. There is no credit exposure
from securitized mortgages under the Canada Mortgage and Housing Corporation (“CMHC”) sponsored CMB securitization program as
they are insured by CMHC and other third-party insurance programs against borrowers’ default. Mortgages securitized in the Platinum
Canadian Mortgage Trust II (“PCMT II”) program are uninsured.
Cash flows received from the underlying securitized assets/mortgages are used to settle the related secured borrowing liability. For CMB
transactions, receipts of principal are deposited into a trust account for settlement of the liability at time of maturity. These transferred
assets and related cash flows cannot be transferred or used for other purposes. For the HELOC transactions, investors are entitled to
periodic interest payments, and the remaining cash receipts of principal are allocated to the Company (the “Seller”) during the revolving
period of the deal and are accumulated for settlement during an accumulation period or repaid to the investor monthly during a reduction
period, based on the terms of the note.
Securitized assets and secured borrowing liabilities
As at December 31, 2022
Securitization program
HELOC securitization(1)
CMB securitization
Total
As at December 31, 2021
Securitization program
HELOC securitization(1)
CMB securitization
Total
Securitized
mortgages
$ 2,880
2,318
$ 5,198
Securitized
mortgages
$ 2,618
2,075
$ 4,693
Securitized assets
Restricted cash and
short-term securities
$ 44
–
$ 44
Securitized assets
Restricted cash and
short-term securities
$ 1
–
$ 1
Total
$ 2,924
2,318
$ 5,242
Total
$ 2,619
2,075
$ 4,694
Secured borrowing
liabilities(2)
$ 2,750
2,273
$ 5,023
Secured borrowing
liabilities(2)
$ 2,500
2,098
$ 4,598
(1) Manulife Bank, a subsidiary, securitizes a portion of its HELOC receivables through Platinum Canadian Mortgage Trust II (“PCMT II”). PCMT II funds the purchase of the
co-ownership interests from Manulife Bank by issuing term notes collateralized by an underlying pool of uninsured HELOCs to institutional investors. The restricted cash balance
for the HELOC securitization reflects a cash reserve fund established in relation to the transactions. The reserve will be drawn upon only in the event of insufficient cash flows
from the underlying HELOCs to satisfy the secured borrowing liability.
(2) The PCMT II notes payable have floating rates of interest and are secured by the PCMT II assets. Under the terms of the agreements, no principal is expected to be repaid within
one year, $1,209 within 1-3 years, $1,049 within 3-5 years and $492 beyond 5 years. There is no specific maturity date for the contractual agreements. Under the terms of
the notes, additional collateral must be provided to the series as added credit protection and the Series Purchase Agreements govern the amount of over-collateralization for
each of the term notes outstanding. Manulife Bank also securitizes insured amortizing mortgages under the National Housing Act Mortgage-Backed Securities (“NHA MBS”)
program sponsored by CMHC. Manulife Bank participates in CMB programs by selling NHA MBS securities to Canada Housing Trust (“CHT”), as a source of fixed rate funding.
As at December 31, 2022, the fair value of securitized assets and associated liabilities were $5,167 and $4,865, respectively (2021 –
$4,725 and $4,601).
164 | 2022 Annual Report | Notes to Consolidated Financial Statements
(g) Fair value measurement
The following table presents the fair values of invested assets and segregated funds net assets measured at fair value categorized by the
fair value hierarchy.
As at December 31, 2022
Cash and short-term securities
FVTPL
AFS
Other
Debt securities
FVTPL
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
AFS
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
Public equities
FVTPL
AFS
Real estate – investment property(1)
Other invested assets(2)
Segregated funds net assets(3)
Total
As at December 31, 2021
Cash and short-term securities
FVTPL
AFS
Other
Debt securities
FVTPL
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
AFS
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other asset-backed securities
Public equities
FVTPL
AFS
Real estate – investment property(1)
Other invested assets(2)
Segregated funds net assets(3)
Total
Total fair value
Level 1
Level 2
Level 3
$
$
1,933
10,926
6,294
–
–
6,294
$
1,933
10,926
–
$
14,798
9,440
22,986
120,897
7
570
1,575
6,468
14,384
3,487
7,745
1
24
111
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14,798
9,440
22,986
120,865
7
570
1,549
6,468
14,384
3,478
7,745
1
24
111
–
–
–
–
–
–
32
–
–
26
–
–
9
–
–
–
–
21,989
1,530
11,394
30,256
348,562
$ 635,377
21,918
1,530
–
26
314,436
$ 344,204
–
–
–
–
30,141
$ 245,426
71
–
11,394
30,230
3,985
$ 45,747
Total fair value
Level 1
Level 2
Level 3
$
$
2,214
14,339
6,041
–
–
6,041
$
2,214
14,339
–
$
18,706
12,607
21,888
133,763
8
1,103
1,647
3,964
18,792
2,871
7,332
1
79
58
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,706
12,607
21,888
133,723
8
1,103
1,619
3,964
18,792
2,871
7,331
1
79
58
–
–
–
–
–
–
40
–
–
28
–
–
–
1
–
–
–
25,716
2,351
11,421
24,300
399,788
$ 708,989
25,716
2,349
–
257
361,447
$ 395,810
–
2
–
–
34,060
$ 273,365
–
–
11,421
24,043
4,281
$ 39,814
165
(1) For investment properties, the significant unobservable inputs are capitalization rates (ranging from 2.25% to 9.00% during the year and ranging from 2.25% to 9.00% during
2021), terminal capitalization rates (ranging from 3.25% to 9.50% during the year and ranging from 3.25% to 9.25% during 2021) and discount rates (ranging from 3.30% to
11.00% during the year and ranging from 3.80% to 10.50% during 2021). Holding other factors constant, a higher capitalization, terminal capitalization, and/or discount rate
will decrease the fair value of an investment property; while decreases in these rates would have the opposite effect. Changes in fair value based on variations in unobservable
inputs generally cannot be extrapolated because the relationship between the directional changes of each input is not usually linear.
(2) Other invested assets measured at fair value are held primarily in infrastructure and timber sectors. The significant inputs used in the valuation of the Company’s infrastructure
investments are primarily future distributable cash flows, terminal values and discount rates. Holding other factors constant, an increase to future distributable cash flows or
terminal values would tend to increase the fair value of an infrastructure investment, while an increase in the discount rate would have the opposite effect. Discount rates during
the year ranged from 7.15% to 15.6% (2021 – ranged from 7.25% to 20.0%). Disclosure of distributable cash flow and terminal value ranges are not meaningful given the
disparity in estimates by project. The significant inputs used in the valuation of the Company’s investments in timberland are timber prices and discount rates. Holding other
factors constant, an increase to timber prices would tend to increase the fair value of a timberland investment, while an increase in the discount rates would have the opposite
effect. Discount rates during the year ranged from 4.25% to 7.0% (2021 – ranged from 4.5% to 7.0%). A range of prices for timber is not meaningful as the market price
depends on factors such as property location and proximity to markets and export yards.
(3) Segregated funds net assets are measured at fair value. The Company’s Level 3 segregated funds assets are predominantly in investment properties and timberland properties
valued as described above.
The following table presents fair value of invested assets not measured at fair value by the fair value hierarchy.
As at December 31, 2022
Mortgages(1)
Private placements(2)
Policy loans(3)
Loans to Bank clients(4)
Real estate – own use property(5)
Public Bonds HTM
Other invested assets(6)
Total invested assets disclosed at fair value
As at December 31, 2021
Mortgages(1)
Private placements(2)
Policy loans(3)
Loans to Bank clients(4)
Real estate – own use property(5)
Public Bonds HTM
Other invested assets(6)
Total invested assets disclosed at fair value
Carrying value
Total fair value
Level 1
Level 2
Level 3
$ 54,638
47,057
6,894
2,781
1,878
1,411
12,527
$ 127,186
$ 51,429
41,968
6,894
2,760
3,033
1,000
13,313
$ 120,397
$
–
–
–
–
–
–
72
$ 72
$
–
34,110
6,894
2,760
–
1,000
–
$ 44,764
$ 51,429
7,858
–
–
3,033
–
13,241
$ 75,561
Carrying value
Total fair value
Level 1
Level 2
Level 3
$ 52,014
42,842
6,397
2,506
1,812
1,320
11,006
$ 117,897
$ 54,089
47,276
6,397
2,503
3,024
1,320
11,665
$ 126,274
$
–
–
–
–
–
–
120
$ 120
$
–
42,110
6,397
2,503
–
1,320
–
$ 52,330
$ 54,089
5,166
–
–
3,024
–
11,545
$ 73,824
(1) Fair value of commercial mortgages is determined through an internal valuation methodology using both observable and unobservable inputs. Unobservable inputs include
credit assumptions and liquidity spread adjustments. Fair value of fixed-rate residential mortgages is determined using the discounted cash flow method. Inputs used for
valuation are primarily comprised of prevailing interest rates and prepayment rates, if applicable. Fair value of variable-rate residential mortgages is assumed to be their
carrying value.
(2) Fair value of private placements is determined through an internal valuation methodology using both observable and unobservable inputs. Unobservable inputs include credit
assumptions and liquidity spread adjustments. Private placements are classified within Level 2 unless the liquidity adjustment constitutes a significant price impact, in which
case the securities are classified as Level 3.
(3) Fair value of policy loans is equal to their unpaid principal balances.
(4) Fair value of fixed-rate loans to Bank clients is determined using the discounted cash flow method. Inputs used for valuation are primarily comprised of current interest rates.
Fair value of variable-rate loans is assumed to be their carrying value.
(5) Fair value of own use real estate and the fair value hierarchy are determined in accordance with the methodologies described for investment property in note 1.
(6) Primarily include leveraged leases, oil and gas properties (disposed of during 2021) and equity method accounted other invested assets. Fair value of leveraged leases is
disclosed at their carrying values as fair value is not routinely calculated on these investments. Fair value for oil and gas properties is determined using external appraisals
based on discounted cash flow methodology. Inputs used in valuation are primarily comprised of forecasted price curves, planned production, as well as capital expenditures,
and operating costs. Fair value of equity method accounted other invested assets is determined using a variety of valuation techniques including discounted cash flows and
market comparable approaches. Inputs vary based on the specific investment.
Transfers between Level 1 and Level 2
The Company records transfers of assets and liabilities between Level 1 and Level 2 at their fair values as at the end of each reporting
period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted
with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when transaction
volume and frequency are indicative of an active market. The Company had $nil of assets transferred between Level 1 and Level 2 during
the years ended December 31, 2022 (2021 – $5).
For segregated funds net assets, the Company had $nil transfers from Level 1 to Level 2 for the year ended December 31, 2022 (2021 –
$5). The Company had $nil transfers from Level 2 to Level 1 for the year ended December 31, 2022 (2021 – $249).
Invested assets and segregated funds net assets measured at fair value using significant unobservable inputs (Level 3)
The Company classifies fair values of invested assets and segregated funds net assets as Level 3 if there are no observable markets for
these assets or, in the absence of active markets, most of the inputs used to determine fair value are based on the Company’s own
assumptions about market participant assumptions. The Company prioritizes the use of market-based inputs over entity-based
166 | 2022 Annual Report | Notes to Consolidated Financial Statements
assumptions in determining Level 3 fair values. The gains and losses in the table below includes the changes in fair value due to both
observable and unobservable factors.
The following table presents a roll forward for invested assets, net derivatives and segregated funds net assets measured at fair value
using significant unobservable inputs (Level 3) for the years ended December 31, 2022 and 2021.
Total
gains
(losses)
included
in net
income(1)
Total
gains
(losses)
included
in AOCI(2) Purchases
Balance,
January 1,
2022
$
40 $
28
(1)
2
$ – $
–
27 $
–
–
1
–
–
–
–
11,421
24,043
35,533
2,101
(6)
(1)
(443)
1,922
1,473
(5,413)
4,281
475
$ 41,915 $ (3,465)
–
–
69
–
312
4,934
5,342
(109)
Sales Settlements
Transfer
in(3)
Transfer
out(3)
Currency
movement
Balance,
December 31,
2022
Change in
unrealized
gains
(losses) on
assets still
held
–
–
–
–
(84)
–
(237)
(666)
(987)
–
$
(1) $
(4)
6 $ (40) $
–
–
–
–
–
–
–
(1,474)
(1,479)
775
10
–
87
–
15
248
366
–
–
(1)
–
–
–
–
(41)
(356)
1
–
(1)
–
5
–
326
1,216
1,547
(163)
$
32 $
26
(1)
2
9
–
–
–
71
–
11,394
30,230
41,762
(3,172)
(15)
–
(446)
2,046
1,586
(3,511)
246
(1,113)
$ 1 $ 5,479 $ (2,100) $
(46)
143
(750) $ 366 $ (398) $ 1,527
(1)
–
Total
gains
(losses)
included
in net
income(1)
Total
gains
(losses)
included
in AOCI(2) Purchases
Balance,
January 1,
2021
Sales Settlements
Transfer
in(3)
Transfer
out(3)
Currency
movement
3,985
79
$ 42,575 $ (1,846)
Change in
unrealized
gains
(losses) on
assets still
held
Balance,
December 31,
2021
$
510 $
45
3
–
10,982
19,049
30,589
3,443
11
3
1
–
702
2,731
3,448
(897)
4,202
350
$ 38,234 $ 2,901
$ – $
–
11 $
–
(93) $
(9)
– $ 11 $ (409) $
(39)
28
–
(3)
–
62
186
5,058
5,317
14
(62)
(376)
(1,131)
(1,674)
–
–
–
(1,453)
(1,492)
(182)
–
–
–
5
44
–
68
(303)
(28)
–
–
$ 2 $ 5,399 $ (1,977) $ (1,702) $ 44 $ (718) $
–
–
–
–
–
(409)
(309)
(1)
–
–
–
(73)
(218)
(292)
32
$
40 $
28
1
–
11,421
24,043
35,533
2,101
(8)
(4)
–
–
626
2,569
3,183
(547)
(8)
(268)
4,281
116
$ 41,915 $ 2,752
–
–
–
1
–
7
8
(7)
–
–
–
–
2
2
–
–
For the year ended
December 31, 2022
Debt securities
FVTPL
Corporate
Other securitized assets
AFS
Other government &
agency
Corporate
Public equities
FVTPL
AFS
Investment property
Other invested assets
Total invested assets
Derivatives, net
Segregated funds net
assets
Total
For the year ended
December 31, 2021
Debt securities
FVTPL
Corporate
Other securitized assets
AFS
Corporate
Public equities
FVTPL
Investment property
Other invested assets
Total invested assets
Derivatives, net
Segregated funds net
assets
Total
(1) These amounts are included in net investment income on the Consolidated Statements of Income except for the amount related to segregated funds net assets, where the
amount is recorded in changes in segregated funds net assets, refer to notes 1(h) and 23.
(2) These amounts are included in AOCI on the Consolidated Statements of Financial Position.
(3) The Company uses fair values of the assets at the beginning of the year for assets transferred into and out of Level 3 except for derivatives, where the Company uses fair value at
the end of the year and at the beginning of the year, respectively.
Transfers into Level 3 primarily result from securities that were impaired during the year or securities where a lack of observable market
data (versus the previous period) resulted in reclassifying assets into Level 3. Transfers from Level 3 primarily result from observable
market data becoming available for the entire term structure of the debt security.
167
Note 5 Derivative and Hedging Instruments
Derivatives are financial contracts, the value of which is derived from underlying interest rates, foreign exchange rates, other financial
instruments, commodity prices or indices. The Company uses derivatives including swaps, forward and futures agreements, and options to
manage current and anticipated exposures to changes in interest rates, foreign exchange rates, commodity prices and equity market
prices, and to replicate permissible investments.
Swaps are over-the-counter (“OTC”) contractual agreements between the Company and a third party to exchange a series of cash flows
based upon rates applied to a notional amount. For interest rate swaps, counterparties generally exchange fixed or floating interest rate
payments based on a notional value in a single currency. Cross currency swaps involve the exchange of principal amounts between parties
as well as the exchange of interest payments in one currency for the receipt of interest payments in another currency. Total return swaps
are contracts that involve the exchange of payments based on changes in the values of a reference asset, including any returns such as
interest earned on these assets, in return for amounts based on reference rates specified in the contract.
Forward and futures agreements are contractual obligations to buy or sell a financial instrument, foreign currency or other underlying
commodity on a predetermined future date at a specified price. Forward contracts are OTC contracts negotiated between counterparties,
whereas futures agreements are contracts with standard amounts and settlement dates that are traded on regulated exchanges.
Options are contractual agreements whereby the holder has the right, but not the obligation, to buy (call option) or sell (put option) a
security, exchange rate, interest rate, or other financial instrument at a predetermined price/rate within a specified time.
See variable annuity dynamic hedging strategy in the “Risk Management and Risk Factors” section of the Company’s 2022 MD&A for an
explanation of the Company’s dynamic hedging strategy for its variable annuity product guarantees.
(a) Fair value of derivatives
The pricing models used to value OTC derivatives are based on market standard valuation methodologies and the inputs to these models
are consistent with what a market participant would use when pricing the instruments. Derivative valuations can be affected by changes in
interest rates, currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), and
market volatility. The significant inputs to the pricing models for most OTC derivatives are inputs that are observable or can be
corroborated by observable market data and are classified as Level 2. Inputs that are observable generally include interest rates, foreign
currency exchange rates and interest rate curves. However, certain OTC derivatives may rely on inputs that are significant to the fair value
that are not observable in the market or cannot be derived principally from, or corroborated by, observable market data and these
derivatives are classified as Level 3. Inputs that are unobservable generally include broker quoted prices, volatilities and inputs that are
outside of the observable portion of the interest rate curve or other relevant market measures. These unobservable inputs may involve
significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate
given the circumstances and consistent with what market participants would use when pricing such instruments. The credit risk of both the
counterparty and the Company are considered in determining the fair value for all OTC derivatives after considering the effects of netting
agreements and collateral arrangements.
168 | 2022 Annual Report | Notes to Consolidated Financial Statements
The following table presents gross notional amount and fair value of derivative instruments by the underlying risk exposure.
As at December 31,
Type of hedge
Instrument type
Derivatives in qualifying hedge accounting relationships
Fair value hedges
Cash flow hedges
Foreign currency swaps
Foreign currency swaps
Equity contracts
Net investment hedges
Total derivatives in qualifying hedge accounting relationships
Derivatives not designated in qualifying hedge accounting
Forward contracts
relationships
$
Notional
amount
48
1,155
173
626
2,002
2022
Fair value
Assets
Liabilities
$
$
5
40
3
–
48
–
203
–
28
231
$
Notional
amount
57
1,251
145
671
2,124
2021
Fair value
Assets
Liabilities
$
$
1
5
10
9
25
1
379
–
–
380
Interest rate swaps
Interest rate futures
Interest rate options
Foreign currency swaps
Currency rate futures
Forward contracts
Equity contracts
Credit default swaps
Equity futures
268,081
11,772
6,090
39,667
2,319
45,124
16,930
159
3,813
5,751
–
98
2,029
–
295
363
4
–
7,557
–
–
1,579
–
4,697
225
–
–
300,556
11,944
10,708
36,405
3,086
45,295
18,577
44
11,359
11,832
–
514
790
–
2,674
1,667
1
–
7,347
–
–
1,722
–
562
27
–
–
Total derivatives not designated in qualifying hedge accounting
relationships
Total derivatives
393,955
$ 395,957
8,540
$ 8,588
14,058
$ 14,289
437,974
$ 440,098
17,478
$ 17,503
9,658
$ 10,038
The total notional amount above includes $211 billion (2021 – $258 billion) of derivative instruments which reference rates that are
impacted under the interest rate benchmark reform, with a significant majority to USD LIBOR, and CDOR. Exposures indexed to USD LIBOR
and CDOR represent derivatives with maturity dates beyond June 30, 2023 and June 28, 2024, respectively. The exposure in the
Company’s hedge accounting programs is primarily to USD LIBOR and CDOR benchmarks. Compared to the overall risk exposure, the
effect of interest rate benchmark reform on existing accounting hedges is not significant. The Company continues to apply high probability
and high effectiveness expectation assumptions for cash flows and there would be no automatic de-designation of qualifying hedge
relationships due to the impact from interest rate benchmark reform.
The following table presents the fair values of the derivative instruments by the remaining term to maturity. Fair values disclosed below do
not incorporate the impact of master netting agreements (refer to note 9).
As at December 31, 2022
Derivative assets
Derivative liabilities
As at December 31, 2021
Derivative assets
Derivative liabilities
Less than
1 year
$
580
2,656
Less than
1 year
$ 2,500
294
Remaining term to maturity
1 to 3
years
3 to 5
years
Over 5
years
Total
$
556
1,956
$
556
1,146
$ 6,896
8,531
$ 8,588
14,289
Remaining term to maturity
1 to 3
years
3 to 5
years
Over 5
years
Total
$ 1,803
387
$ 1,000
379
$ 12,200
8,978
$ 17,503
10,038
169
The following table presents gross notional amount by the remaining term to maturity, total fair value (including accrued interest), credit
equivalent amount and capital requirement by contract type.
As at December 31, 2022
Interest rate contracts
OTC swap contracts
Cleared swap contracts
Forward contracts
Futures
Options purchased
Subtotal
Foreign exchange
Swap contracts
Forward contracts
Futures
Credit derivatives
Equity contracts
Swap contracts
Futures
Options purchased
Subtotal including accrued
interest
Less accrued interest
Total
As at December 31, 2021
Interest rate contracts
OTC swap contracts
Cleared swap contracts
Forward contracts
Futures
Options purchased
Subtotal
Foreign exchange
Swap contracts
Forward contracts
Futures
Credit derivatives
Equity contracts
Swap contracts
Futures
Options purchased
Subtotal including accrued
interest
Less accrued interest
Total
Remaining term to maturity (notional amounts)
Fair value
Under 1
year
1 to 5
years
Over
5 years
Total
Positive
Negative
Net
Credit
equivalent
amount(1)
Capital
requirement(2)
$ 8,817 $ 19,253 $ 98,380 $ 126,450
141,631
28,414
11,772
6,090
314,357
122,314
198
–
3,822
224,714
16,823
13,926
–
1,069
51,071
2,494
14,290
11,772
1,199
38,572
$ 5,992 $
254
70
–
98
6,414
(8,135) $ (2,143) $
(219)
(4,468)
–
–
(12,822)
35
(4,398)
–
98
(6,408)
2,026
17,336
2,319
15
547
3,813
12,634
10,475
–
–
144
396
–
3,526
28,369
–
–
–
–
–
–
40,870
17,336
2,319
159
943
3,813
16,160
2,067
226
–
4
26
–
335
(1,846)
(258)
–
–
(7)
–
(218)
221
(32)
–
4
19
–
117
419
–
8
–
64
491
1,166
89
–
–
24
–
232
77,262
–
395,957
–
$ 77,262 $ 65,612 $ 253,083 $ 395,957
253,083
–
65,612
–
9,072
484
2,002
–
$ 8,588 $ (14,289) $ (5,701) $ 2,002
(15,151)
(862)
(6,079)
(378)
$ 9
–
–
–
4
13
23
–
–
–
–
–
2
38
–
$ 38
Remaining term to maturity (notional amounts)
Fair value
Under 1
year
1 to 5
years
Over
5 years
Total
Positive
Negative
Net
Credit
equivalent
amount(1)
Capital
requirement(2)
$ 4,554 $ 21,884 $ 90,592 $ 117,030
183,526
31,168
11,944
10,708
354,376
134,139
741
–
6,513
231,985
27,665
15,791
–
2,789
68,129
21,722
14,636
11,944
1,406
54,262
$ 12,112 $
441
2,625
–
515
15,693
(7,717) $ 4,395 $ 1,582
–
299
–
113
1,994
(453)
(483)
–
–
(8,653)
(12)
2,142
–
515
7,040
1,941
14,798
3,086
11
669
11,359
10,974
8,869
–
–
33
323
–
6,716
26,903
–
–
–
–
–
40
37,713
14,798
3,086
44
992
11,359
17,730
801
58
–
1
57
–
1,616
(2,181)
(79)
–
–
(1,380)
(21)
–
1
(10)
–
(17)
47
–
1,599
1,302
85
–
–
29
–
766
97,100
–
440,098
–
$ 97,100 $ 84,070 $ 258,928 $ 440,098
258,928
–
84,070
–
18,226
723
4,176
–
$ 17,503 $ (10,038) $ 7,465 $ 4,176
(10,940)
(902)
7,286
(179)
$ 29
–
5
–
9
43
25
–
–
–
–
–
8
76
–
$ 76
(1) Credit equivalent amount is the sum of replacement cost and the potential future credit exposure less any collateral held. Replacement cost represents the current cost of
replacing all contracts with a positive fair value. The amounts take into consideration legal contracts that permit offsetting of positions. The potential future credit exposure is
calculated based on a formula prescribed by OSFI.
(2) Capital requirement represents the credit equivalent amount, weighted according to the creditworthiness of the counterparty, as prescribed by OSFI.
The total notional amount of $396 billion (2021 – $440 billion) includes $77 billion (2021 – $121 billion) related to derivatives utilized in
the Company’s variable annuity guarantee dynamic hedging and macro risk hedging programs. During 2022, the Company discontinued
the dynamic hedging program for the John Hancock Life Insurance Company (U.S.A.) (“JHUSA”) legacy variable annuities, reinsured with
Venerable Holdings, Inc. as disclosed in note 7(k). Due to the Company’s variable annuity hedging practices, many trades are in offsetting
positions, resulting in materially lower net fair value exposure to the Company than what the gross notional amount would suggest.
170 | 2022 Annual Report | Notes to Consolidated Financial Statements
Fair value and the fair value hierarchy of derivative instruments
As at December 31, 2022
Derivative assets
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit default swaps
Total derivative assets
Derivative liabilities
Interest rate contracts
Foreign exchange contracts
Equity contracts
Total derivative liabilities
As at December 31, 2021
Derivative assets
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit default swaps
Total derivative assets
Derivative liabilities
Interest rate contracts
Foreign exchange contracts
Equity contracts
Total derivative liabilities
Fair value
Level 1
Level 2
Level 3
$ 5,919
2,299
366
4
$ 8,588
$ 12,025
2,039
225
$ 14,289
$
$
$
$
–
–
–
–
–
–
–
–
–
$ 5,766
2,298
361
4
$ 8,429
$ 8,689
2,037
216
$ 10,942
$
$
153
1
5
–
159
$ 3,336
2
9
$ 3,347
Fair value
Level 1
Level 2
Level 3
$ 14,971
854
1,677
1
$ 17,503
$ 7,829
2,182
27
$ 10,038
$
$
$
$
–
–
–
–
–
–
–
–
–
$ 12,510
854
1,616
1
$ 14,981
$ 2,461
–
61
–
$ 2,522
$ 7,419
2,181
17
$ 9,617
$ 410
1
10
$ 421
Level 3 roll forward information for net derivative contracts measured using significant unobservable inputs is disclosed in note 4(g).
(b) Hedging relationships
The Company uses derivatives for economic hedging purposes. In certain circumstances, these hedges also meet the requirements of
hedge accounting. Risk management strategies eligible for hedge accounting are designated as fair value hedges, cash flow hedges or net
investment hedges, as described below.
Fair value hedges
The Company uses interest rate swaps to manage its exposure to changes in the fair value of fixed rate financial instruments due to
changes in interest rates. The Company also uses cross currency swaps to manage its exposure to foreign exchange rate fluctuations,
interest rate fluctuations, or both.
The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges in investment income. These
investment gains (losses) are shown in the following table.
For the year ended December 31, 2022
Foreign currency swaps
Total
For the year ended December 31, 2021
Foreign currency swaps
Total
Hedged items in qualifying
fair value hedging
relationships
Fixed rate assets
Hedged items in qualifying
fair value hedging
relationships
Fixed rate assets
Gains (losses)
recognized on
derivatives
Gains (losses)
recognized for
hedged items
Ineffectiveness
recognized in
investment
income
$ 7
$ 7
$ (5)
$ (5)
$ 2
$ 2
Gains (losses)
recognized on
derivatives
Gains (losses)
recognized for
hedged items
Ineffectiveness
recognized in
investment
income
$ 4
$ 4
$ (2)
$ (2)
$ 2
$ 2
171
Cash flow hedges
The Company uses interest rate swaps to hedge the variability in cash flows from variable rate financial instruments and forecasted
transactions. The Company also uses cross currency swaps and foreign currency forward contracts to hedge the variability from foreign
currency financial instruments and foreign currency expenses. Total return swaps are used to hedge the variability in cash flows
associated with certain stock-based compensation awards. Inflation swaps are used to reduce inflation risk generated from inflation-
indexed liabilities.
The effects of derivatives in cash flow hedging relationships on the Consolidated Statements of Income and the Consolidated Statements
of Comprehensive Income are shown in the following table.
For the year ended December 31, 2022
Foreign currency swaps
Equity contracts
Total
For the year ended December 31, 2021
Foreign currency swaps
Equity contracts
Total
Hedged items in qualifying
cash flow hedging
relationships
Fixed rate assets
Floating rate liabilities
Fixed rate liabilities
Stock-based compensation
Hedged items in qualifying
cash flow hedging
relationships
Fixed rate assets
Floating rate liabilities
Fixed rate liabilities
Stock-based compensation
Gains (losses)
deferred in
AOCI on
derivatives
Gains (losses)
reclassified
from AOCI into
investment
income
Ineffectiveness
recognized in
investment
income
$
(1)
175
34
2
$ 210
$ (1)
(49)
35
6
$ (9)
$ –
–
–
–
$ –
Gains (losses)
deferred in
AOCI on
derivatives
Gains (losses)
reclassified
from AOCI into
investment
income
Ineffectiveness
recognized in
investment
income
$
(1)
89
(19)
5
$ 74
$
(1)
3
(21)
5
$ (14)
$ –
–
–
–
$ –
The Company anticipates that net losses of approximately $9 will be reclassified from AOCI to net income within the next 12 months. The
maximum time frame for which variable cash flows are hedged is 14 years.
Hedges of net investments in foreign operations
The Company primarily uses forward currency contracts, cross currency swaps and non-functional currency denominated debt to manage
its foreign currency exposures to net investments in foreign operations.
The effects of net investment hedging relationships on the Consolidated Statements of Income and the Consolidated Statements of Other
Comprehensive Income are shown in the following table.
For the year ended December 31, 2022
Non-functional currency denominated debt
Forward contracts
Total
For the year ended December 31, 2021
Non-functional currency denominated debt
Forward contracts
Total
Gains (losses)
deferred in AOCI
$ (458)
14
$ (444)
Gains (losses)
deferred in AOCI
$ 61
59
$ 120
Gains (losses)
reclassified from
AOCI into
investment income
Ineffectiveness
recognized in
investment
income
$ –
–
$ –
$ –
–
$ –
Gains (losses)
reclassified from
AOCI into
investment income
Ineffectiveness
recognized in
investment
income
$ –
–
$ –
$ –
–
$ –
172 | 2022 Annual Report | Notes to Consolidated Financial Statements
(c) Derivatives not designated in qualifying hedge accounting relationships
Derivatives used in portfolios supporting insurance contract liabilities are generally not designated in qualifying hedge accounting
relationships because the change in the value of the insurance contract liabilities economically hedged by these derivatives is recorded
through net income. Since changes in fair value of these derivatives and related hedged risks are recognized in investment income as they
occur, they generally offset the change in hedged risk to the extent the hedges are economically effective. Interest rate and cross currency
swaps are used in the portfolios supporting insurance contract liabilities to manage duration and currency risks.
Investment income on derivatives not designated in qualifying hedge accounting relationships
For the years ended December 31,
Interest rate swaps
Interest rate futures
Interest rate options
Foreign currency swaps
Currency rate futures
Forward contracts
Equity futures
Equity contracts
Credit default swaps
Total
2022
2021
$ (3,428)
(431)
(258)
1,171
(103)
(7,561)
794
(818)
–
$ (10,634)
$ (1,986)
(687)
(133)
(166)
66
(1,751)
(2,140)
871
(2)
$ (5,928)
(d) Embedded derivatives
Certain insurance contracts contain features that are classified as embedded derivatives and are measured separately at FVTPL, including
reinsurance contracts related to guaranteed minimum income benefits and contracts containing certain credit and interest rate features.
Certain reinsurance contracts related to guaranteed minimum income benefits contain embedded derivatives requiring separate
measurement at FVTPL as the financial component contained in the reinsurance contracts does not contain significant insurance risk. As
at December 31, 2022, reinsurance ceded guaranteed minimum income benefits had a fair value of $585 (2021 – $734) and reinsurance
assumed guaranteed minimum income benefits had a fair value of $65 (2021 – $86). Claims recovered under reinsurance ceded
contracts offset claims expenses and claims paid on the reinsurance assumed are reported as contract benefits.
The Company’s credit and interest rate embedded derivatives promise to pay the returns on a portfolio of assets to the contract holder.
These embedded derivatives contain credit and interest rate risks that are financial risks embedded in the underlying insurance contract.
As at December 31, 2022, these embedded derivatives had a fair value of $395 (2021 – $11).
Other financial instruments classified as embedded derivatives but exempt from separate measurement at fair value include variable
universal life and variable life products’ minimum guaranteed credited rates, no lapse guarantees, guaranteed annuitization options, CPI
indexing of benefits, and segregated fund minimum guarantees other than reinsurance ceded/assumed guaranteed minimum income
benefits. These embedded derivatives are measured and reported within insurance contract liabilities and are exempt from separate fair
value measurement as they contain insurance risk and/or are closely related to the insurance host contract.
17
Note 6 Goodwill and Intangible Assets
(a) Change in the carrying value of goodwill and intangible assets
The following table presents the change in carrying value of goodwill and intangible assets.
As at December 31, 2022
Goodwill
Indefinite life intangible assets
Brand
Fund management contracts and other(3)
Finite life intangible assets(4)
Distribution networks
Customer relationships
Software
Other
Total intangible assets
Total goodwill and intangible assets
As at December 31, 2021
Goodwill
Indefinite life intangible assets
Brand
Fund management contracts and other(3)
Finite life intangible assets(4)
Distribution networks
Customer relationships
Software
Other
Total intangible assets
Total goodwill and intangible assets
Balance,
January 1
$ 5,651
761
788
1,549
888
687
1,091
49
2,715
4,264
$ 9,915
Balance,
January 1
$ 5,714
764
796
1,560
806
738
1,059
52
2,655
4,215
$ 9,929
Net additions/
(disposals)(1)(2)
Amortization
expense
Effect of changes
in foreign
exchange rates
Balance,
December 31
$ 255
$ n/a
$ 108
$ 6,014
–
228
228
6
–
192
7
205
433
$ 688
n/a
n/a
n/a
47
56
235
6
344
344
$ 344
52
32
84
34
12
20
2
68
152
$ 260
813
1,048
1,861
881
643
1,068
52
2,644
4,505
$ 10,519
Net additions/
(disposals) (5)
Amortization
expense
Effect of changes
in foreign
exchange rates
Balance,
December 31
$
(5)
$ n/a
$ (58)
$ 5,651
–
(3)
(3)
131
(2)
198
2
329
326
$ 321
n/a
n/a
n/a
44
48
148
6
246
246
$ 246
(3)
(5)
(8)
761
788
1,549
(5)
(1)
(18)
1
(23)
(31)
$ (89)
888
687
1,091
49
2,715
4,264
$ 9,915
(1) In November 2022, the Company acquired control of Manulife TEDA Fund Management Company, LTD. through the purchase of the remaining 51% of shares that it did not
already own from its joint venture partner. The transaction included cash consideration of $334 and derecognition of the Company’s previous joint venture interest with a fair
value of $321. Goodwill, indefinite life fund management contracts and distribution networks, and finite life management contracts of $255, $185, $52 and $3 were
recognized.
(2) In January 2022, the Company paid $256 to VietinBank for an extension of the life of the distribution agreement acquired from Aviva Plc in December 2021.
(3) Fund management contracts are mostly allocated to Canada WAM and U.S. WAM CGUs with carrying values of $273 (2021 – $273) and $397 (2021 – $371), respectively.
(4) Gross carrying amount of finite life intangible assets was $1,517 for distribution networks, $1,146 for customer relationships, $2,736 for software and $136 for other
(2021 – $1,456, $1,132, $2,484 and $124), respectively.
(5) In December 2021, the Company purchased the Vietnamese operations of Aviva Plc including rights to an exclusive distribution agreement with VietinBank.
(b) Goodwill impairment testing
The Company completed its annual goodwill impairment testing in the fourth quarter of 2022 by determining the recoverable amounts of
its businesses using valuation techniques discussed below (refer to notes 1(f) and 6(c)). The testing indicated that there was no impairment
of goodwill in 2022 (2021 – $nil).
174 | 2022 Annual Report | Notes to Consolidated Financial Statements
The following tables present the carrying value of goodwill by CGU or group of CGUs.
As at December 31, 2022
CGU or group of CGUs
Asia
Asia Insurance (excluding Japan)
Japan Insurance
Canada Insurance
U.S. Insurance
Global Wealth and Asset Management
Asia WAM
Canada WAM
U.S. WAM
Total
As at December 31, 2021
CGU or group of CGUs
Asia
Asia Insurance (excluding Japan)
Japan Insurance
Canada Insurance
U.S. Insurance
Global Wealth and Asset Management
Asia WAM
Canada WAM
U.S. WAM
Total
Effect of
changes in
foreign
exchange
rates
Balance,
December 31
Balance,
January 1
Net additions/
(disposals)
$
152
386
1,955
336
183
1,436
1,203
$ 5,651
$
–
–
–
–
255
–
–
$ 255
Balance,
January 1
Net additions/
(disposals)
$ 10
(26)
5
24
12
–
83
$ 108
Effect of
changes in
foreign
exchange
rates
$
159
433
1,955
338
185
1,436
1,208
$ 5,714
$
$
(5)
–
–
–
–
–
–
(5)
$
(2)
(47)
–
(2)
(2)
–
(5)
$ (58)
$
162
360
1,960
360
450
1,436
1,286
$ 6,014
Balance,
December 31
$
152
386
1,955
336
183
1,436
1,203
$ 5,651
The valuation techniques, significant assumptions and sensitivities, where applicable, applied in the goodwill impairment testing are
described below.
(c) Valuation techniques
When determining if a CGU is impaired, the Company compares its recoverable amount to the allocated capital for that unit, which is
aligned with the Company’s internal reporting practices. The recoverable amounts were based on fair value less costs to sell (“FVLCS”) for
Asia Insurance (excluding Japan) and Asia WAM. For other CGUs, value-in-use (“VIU”) was used.
Under the FVLCS approach, the Company determines the fair value of the CGU or group of CGUs using an earnings-based approach which
incorporates forecasted earnings, excluding interest and equity market impacts and normalized new business expenses multiplied by an
earnings-multiple derived from the observable price-to-earnings multiples of comparable financial institutions. The price-to-earnings
multiple used by the Company for testing was 11.6 (2021 – 11.6). These FVLCS valuations are categorized as Level 3 of the fair value
hierarchy (2021 – Level 3).
Under the VIU approach, used for CGUs with insurance business, an embedded appraisal value is determined from a projection of future
distributable earnings derived from both the in-force business and new business expected to be sold in the future, and therefore, reflects
the economic value for each CGU’s or group of CGUs’ profit potential under a set of assumptions. This approach requires assumptions
including sales and revenue growth rates, capital requirements, interest rates, equity returns, mortality, morbidity, policyholder behaviour,
tax rates and discount rates. For non-insurance CGUs, the VIU is based on discounted cash flow analysis which incorporates relevant
aspects of the embedded appraisal value approach.
(d) Significant assumptions
To calculate embedded appraisal value, the Company discounted projected earnings from in-force contracts and valued 20 years of new
business growing at expected plan levels, consistent with the periods used for forecasting long-term businesses such as insurance. In
arriving at its projections, the Company considered past experience, economic trends such as interest rates, equity returns and product
mix as well as industry and market trends. Where growth rate assumptions for new business cash flows were used in the embedded
appraisal value calculations, they ranged from zero per cent to nine per cent (2021 – zero per cent to six per cent).
Interest rate assumptions are based on prevailing market rates at the valuation date.
175
For 2022, tax rates applied to the projections include the impact of internal reinsurance treaties and amounted to 28.0 per cent,
27.5 per cent and 21.0 per cent for the Japan, Canada and U.S. jurisdictions, respectively. For 2021, tax rates applied to the projections
include the impact of internal reinsurance treaties and amounted to 28.0 per cent, 26.5 per cent and 21.0 per cent for the Japan, Canada,
and U.S. jurisdictions, respectively. Tax assumptions are sensitive to changes in tax laws as well as assumptions about the jurisdictions in
which profits are earned. It is possible that actual tax rates could differ from those assumed.
Discount rates assumed in determining the value-in-use for applicable CGUs or group of CGUs ranged from 10.0 per cent to 12.0 per cent
on an after-tax basis or 12.5 per cent to 15.0 per cent on a pre-tax basis (2021 – 8.0 per cent to 10.1 per cent on an after-tax basis or
10.0 per cent to 12.7 per cent on a pre-tax basis).
Key assumptions may change as economic and market conditions change, which may lead to impairment charges in the future. Adverse
changes in discount rates (including from changes in interest rates) and growth rate assumptions for new business cash flow projections
used in the determination of embedded appraisal values or reductions in market-based earnings multiples calculations may result in
impairment charges in the future which could be material.
Note 7
Insurance Contract Liabilities and Reinsurance Assets
(a) Insurance contract liabilities and reinsurance assets
Insurance contract liabilities are reported gross of reinsurance ceded and the ceded liabilities are reported separately as reinsurance
assets. Insurance contract liabilities include actuarial liabilities, benefits payable, provision for unreported claims and policyholder
amounts on deposit. The components of gross and net insurance contract liabilities are shown below.
As at December 31,
Insurance contract liabilities
Benefits payable and provision for unreported claims
Policyholder amounts on deposit
Gross insurance contract liabilities
Reinsurance assets(1)
Net insurance contract liabilities
2022
2021
$ 352,153
5,610
13,642
371,405
(47,674)
$ 323,731
$ 374,890
5,251
12,134
392,275
(44,531)
$ 347,744
(1) Reinsurance assets of $38 (2021 – $48) are related to investment contract liabilities, refer to note 8(b).
Net insurance contract liabilities represent the amount which, together with estimated future premiums and net investment income, will be
sufficient to pay estimated future benefits, policyholder dividends and refunds, taxes (other than income taxes) and expenses on policies
in-force net of reinsurance premiums and recoveries.
Net insurance contract liabilities are determined using CALM, as required by the Canadian Institute of Actuaries.
The determination of net insurance contract liabilities is based on an explicit projection of cash flows using current assumptions for each
material cash flow item. Investment returns are projected using the current asset portfolios and projected reinvestment strategies.
Each assumption is based on the best estimate adjusted by a margin for adverse deviation. For fixed income returns, this margin is
established by scenario testing a range of prescribed and company-developed scenarios consistent with Canadian Actuarial Standards of
Practice. For all other assumptions, this margin is established by directly adjusting the best estimate assumption.
Cash flows used in the net insurance contract liabilities valuation adjust the gross policy cash flows to reflect projected cash flows from
ceded reinsurance. The cash flow impact of ceded reinsurance varies depending upon the amount of reinsurance, the structure of
reinsurance treaties, the expected economic benefit from treaty cash flows and the impact of margins for adverse deviation. Gross
insurance contract liabilities are determined by discounting gross policy cash flows using the same discount rate as the net CALM model
discount rate.
The reinsurance asset is determined by taking the difference between the gross insurance contract liabilities and the net insurance
contract liabilities. The reinsurance asset represents the benefit derived from reinsurance arrangements in force at the date of the
Consolidated Statements of Financial Position.
The period used for the projection of cash flows is the policy lifetime for most individual insurance contracts. For other types of contracts, a
shorter projection period may be used, with the contract generally ending at the earlier of the first renewal date on or after the
Consolidated Statements of Financial Position date where the Company can exercise discretion in renewing its contractual obligations or
terms of those obligations and the renewal or adjustment date that maximizes the insurance contract liabilities. For segregated fund
products with guarantees, the projection period is generally set as the period that leads to the largest insurance contract liability. Where
the projection period is less than the policy lifetime, insurance contract liabilities may be reduced by an allowance for acquisition expenses
expected to be recovered from policy cash flows beyond the projection period used for the liabilities. Such allowances are tested for
recoverability using assumptions that are consistent with other components of the actuarial valuation.
176 | 2022 Annual Report | Notes to Consolidated Financial Statements
(b) Composition
The composition of insurance contract liabilities and reinsurance assets by the line of business and reporting segment is as follows.
Gross insurance contract liabilities
As at December 31, 2022
Asia
Canada
U.S.
Corporate and Other
Total, net of reinsurance ceded
Total reinsurance ceded
Total, gross of reinsurance ceded
As at December 31, 2021
Asia
Canada
U.S.
Corporate and Other
Total, net of reinsurance ceded
Total reinsurance ceded
Total, gross of reinsurance ceded
Individual insurance
Participating
$ 66,294
12,637
7,867
–
86,798
8,552
$ 95,350
Non-
participating
Annuities
and pensions
$ 34,684
38,325
67,789
(640)
140,158
22,434
$ 162,592
$ 6,221
13,593
11,273
24
31,111
15,793
$ 46,904
Individual insurance
Participating
$ 64,586
13,518
8,591
–
86,695
8,144
$ 94,839
Non-
participating
Annuities
and pensions
$ 36,387
44,320
71,077
(676)
151,108
20,767
$ 171,875
$ 6,869
16,554
14,007
22
37,452
14,681
$ 52,133
Other
insurance
contract
liabilities(1)
$ 4,142
14,095
46,849
578
65,664
895
$ 66,559
Other
insurance
contract
liabilities(1)
$ 3,590
14,981
53,555
363
72,489
939
$ 73,428
Total, net of
reinsurance
ceded
$ 111,341
78,650
133,778
(38)
323,731
47,674
$ 371,405
Total, net of
reinsurance
ceded
$ 111,432
89,373
147,230
(291)
347,744
44,531
$ 392,275
Total
reinsurance
ceded
$ 2,727
1,676
43,137
134
47,674
Total,
gross of
reinsurance
ceded
$ 114,068
80,326
176,915
96
371,405
Total
reinsurance
ceded
$ 2,749
430
41,150
202
44,531
Total,
gross of
reinsurance
ceded
$ 114,181
89,803
188,380
(89)
392,275
(1) Other insurance contract liabilities include group insurance and individual and group health including long-term care insurance.
Separate sub-accounts were established for participating policies in-force at the demutualization of MLI and John Hancock Mutual Life
Insurance Company. These sub-accounts permit this participating business to be operated as separate “closed blocks” of participating
policies. As at December 31, 2022, $26,289 (2021 – $29,000) of both reinsurance assets and insurance contract liabilities were related
to these closed blocks of participating policies.
(c) Assets backing insurance contract liabilities, other liabilities and capital
Assets are segmented and matched to liabilities with similar underlying characteristics by product line and major currency. The Company
has established target investment strategies and asset mixes for each asset segment supporting insurance contract liabilities which
consider the risk attributes of the liabilities supported by the assets and expectations of market performance. Liabilities with rate and term
guarantees are predominantly backed by fixed-rate instruments on a cash flow matching basis for a targeted duration horizon. Longer
duration cash flows on these liabilities as well as on adjustable products such as participating life insurance are backed by a broader range
of asset classes, including equity and alternative long-duration investments. The Company’s capital is invested in a range of debt and
equity investments, both public and private.
Changes in the fair value of assets backing net insurance contract liabilities, that the Company considers to be other than temporary,
would have a limited impact on the Company’s net income wherever there is an effective matching of assets and liabilities, as these
changes would be substantially offset by corresponding changes in the value of net insurance contract liabilities. The fair value of assets
backing net insurance contract liabilities as at December 31, 2022, excluding reinsurance assets, was estimated at $317,854
(2021 – $354,587).
As at December 31, 2022, the fair value of assets backing capital and other liabilities was estimated at $524,297 (2021 – $571,431).
177
The following table presents the carrying value of assets backing net insurance contract liabilities, other liabilities and capital.
As at December 31, 2022
Assets
Debt securities
Public equities
Mortgages
Private placements
Real estate
Other
Total
As at December 31, 2021
Assets
Debt securities
Public equities
Mortgages
Private placements
Real estate
Other
Total
Individual insurance
Participating
Non-
participating
Annuities
and pensions
$ 42,279
12,253
4,378
6,810
3,346
17,732
$ 86,798
$ 72,706
6,792
14,101
19,498
7,030
20,031
$ 140,158
$ 15,686
336
4,350
8,038
913
1,788
$ 31,111
Individual insurance
Participating
Non-
participating
Annuities
and pensions
$ 43,278
14,667
3,799
6,005
3,467
15,479
$ 86,695
$ 82,050
8,112
13,295
17,741
6,814
23,096
$ 151,108
$ 19,575
453
4,572
7,370
987
4,495
$ 37,452
Other
insurance
contract
liabilities(1)
$ 31,998
562
8,766
10,497
1,875
11,966
$ 65,664
Other
insurance
contract
liabilities(1)
$ 36,207
374
8,526
9,775
1,782
15,825
$ 72,489
Other
liabilities(2)
Capital(3)
Total
$
9,739
675
22,997
2,003
(66)
427,369
$ 462,717
$ 31,496
2,901
46
211
174
27,665
$ 62,493
$ 203,904
23,519
54,638
47,057
13,272
506,551
$ 848,941
Other
liabilities(2)
Capital(3)
Total
$ 10,723
626
21,802
1,723
6
469,014
$ 503,894
$ 32,306
3,835
20
228
177
29,439
$ 66,005
$ 224,139
28,067
52,014
42,842
13,233
557,348
$ 917,643
(1) Other insurance contract liabilities include group insurance and individual and group health including long-term care insurance.
(2) Other liabilities are non-insurance contract liabilities which include segregated funds, bank deposits, long-term debt, deferred tax liabilities, derivatives, investment contracts,
embedded derivatives and other miscellaneous liabilities.
(3) Capital is defined in note 13.
(d) Significant insurance contract liability valuation assumptions
The determination of insurance contract liabilities involves the use of estimates and assumptions. Insurance contract liabilities have two
major components: a best estimate amount and a provision for adverse deviation.
Best estimate assumptions
Best estimate assumptions are made with respect to mortality and morbidity, investment returns, rates of policy termination, operating
expenses and certain taxes. Actual experience is monitored to ensure that assumptions remain appropriate and assumptions are changed
as warranted. Assumptions are discussed in more detail in the following table.
Nature of factor and assumption methodology
Risk management
Mortality
and
morbidity
Mortality relates to the occurrence of death. Mortality is a key
assumption for life insurance and certain forms of annuities.
Mortality assumptions are based on the Company’s internal
experience as well as past and emerging industry experience.
Assumptions are differentiated by sex, underwriting class, policy
type and geographic market. Assumptions are made for future
mortality improvements.
Morbidity relates to the occurrence of accidents and sickness
for insured risks. Morbidity is a key assumption for long-term
care insurance, disability insurance, critical illness and other
forms of individual and group health benefits. Morbidity
assumptions are based on the Company’s internal experience as
well as past and emerging industry experience and are
established for each type of morbidity risk and geographic
market. Assumptions are made for future morbidity
improvements.
The Company maintains underwriting standards to determine
the insurability of applicants. Claim trends are monitored on an
ongoing basis. Exposure to large claims is managed by
establishing policy retention limits, which vary by market and
geographic location. Policies in excess of the limits are
reinsured with other companies.
Mortality is monitored monthly and the overall 2022 experience
was unfavourable (2021 – unfavourable) when compared to the
Company’s assumptions. Morbidity is also monitored monthly
and the overall 2022 experience was favourable (2021 –
favourable) when compared to the Company’s assumptions.
178 | 2022 Annual Report | Notes to Consolidated Financial Statements
Nature of factor and assumption methodology
Risk management
Investment
returns
The Company segments assets to support liabilities by business
segment and geographic market and establishes investment
strategies for each liability segment. Projected cash flows from
these assets are combined with projected cash flows from future
asset purchases/sales to determine expected rates of return on
these assets for future years. Investment strategies are based
on the target investment policies for each segment and the
reinvestment returns are derived from current and projected
market rates for fixed income investments and a projected
outlook for other alternative long-duration assets.
Investment return assumptions include expected future credit
losses on fixed income investments. Credit losses are projected
based on past experience of the Company and industry as well
as specific reviews of the current investment portfolio.
Investment return assumptions for each asset class and
geographic market also incorporate expected investment
management expenses that are derived from internal cost
studies. The costs are attributed to each asset class to develop
unitized assumptions per dollar of asset for each asset class and
geographic market.
The Company’s policy of closely matching asset cash flows with
those of the corresponding liabilities is designed to mitigate the
Company’s exposure to future changes in interest rates. The
interest rate risk positions in business segments are monitored
on an ongoing basis. Under CALM, the reinvestment rate is
developed using interest rate scenario testing and reflects the
interest rate risk positions.
In 2022, the movement in interest rates positively (2021 –
negatively) impacted the Company’s net income. This positive
impact was primarily due to increase in risk-free interest rates in
the U.S., Canada, and Asia.
The exposure to credit losses is managed against policies that
limit concentrations by issuer, corporate connections, ratings,
sectors and geographic regions. On participating policies and
some non-participating policies, credit loss experience is
passed back to policyholders through the investment return
crediting formula. For other policies, premiums and benefits
reflect the Company’s assumed level of future credit losses at
contract inception or most recent contract adjustment date. The
Company holds explicit provisions in actuarial liabilities for
credit risk including provisions for adverse deviation.
In 2022, credit loss experience on debt securities and
mortgages was favourable (2021 – favourable) when compared
to the Company’s assumptions.
Equities, real estate and other alternative long-duration assets
are used to support liabilities where investment return
experience is passed back to policyholders through dividends or
credited investment return adjustments. Equities, real estate,
and other alternative long-duration assets are also used to
support long-dated obligations in the Company’s annuity and
pension businesses and for long-dated insurance obligations on
contracts where the investment return risk is borne by the
Company.
In 2022, investment experience related to alternative long-
duration assets backing policyholder liabilities was favourable
(2021 – favourable) primarily driven by gains in private equities,
timber and agriculture properties, partially offset by losses in
real estate properties. In 2022, alternative long-duration asset
origination exceeded (2021 – did not exceed) valuation
requirements.
In 2022, for the business that is dynamically hedged,
segregated fund guarantee experience on residual,
non-dynamically hedged market risks were unfavourable (2021
– unfavourable). For the business that is not dynamically
hedged, experience on segregated fund guarantees due to
changes in the market value of assets under management was
also unfavourable (2021 – unfavourable). This excludes the
experience on the macro equity hedges.
In 2022, investment expense experience was favourable (2021
– unfavourable) when compared to the Company’s assumptions.
179
Nature of factor and assumption methodology
Risk management
Policy
termination
and
premium
persistency
Expenses
and taxes
Policyholder
dividends,
experience
rating
refunds, and
other
adjustable
policy
elements
Foreign
currency
Policies are terminated through lapses and surrenders, where
lapses represent the termination of policies due to non-payment
of premiums and surrenders represent the voluntary termination
of policies by policyholders. Premium persistency represents
the level of ongoing deposits on contracts where there is
policyholder discretion as to the amount and timing of deposits.
Policy termination and premium persistency assumptions are
primarily based on the Company’s recent experience adjusted
for expected future conditions. Assumptions reflect differences
by type of contract within each geographic market.
Operating expense assumptions reflect the projected costs of
maintaining and servicing in-force policies, including associated
overhead expenses. The expenses are derived from internal cost
studies projected into the future with an allowance for inflation.
For some developing businesses, there is an expectation that
unit costs will decline as these businesses grow.
Taxes reflect assumptions for future premium taxes and other
non-income related taxes. For income taxes, policy liabilities are
adjusted only for temporary tax timing and permanent tax rate
differences on the cash flows available to satisfy policy
obligations.
The best estimate projections for policyholder dividends and
experience rating refunds, and other adjustable elements of
policy benefits are determined to be consistent with
management’s expectation of how these elements will be
managed should experience emerge consistently with the best
estimate assumptions used for mortality and morbidity,
investment returns, rates of policy termination, operating
expenses and taxes.
The Company seeks to design products that minimize financial
exposure to lapse, surrender and premium persistency risk. The
Company monitors lapse, surrender and persistency
experience.
In aggregate, 2022 policyholder termination and premium
persistency experience was unfavourable (2021 – unfavourable)
when compared to the Company’s assumptions used in the
computation of actuarial liabilities.
The Company prices its products to cover the expected costs of
servicing and maintaining them. In addition, the Company
monitors expenses monthly, including comparisons of actual
expenses to expense levels allowed for in pricing and valuation.
Maintenance expenses for 2022 were unfavourable (2021 –
unfavourable) when compared to the Company’s assumptions
used in the computation of actuarial liabilities.
The Company prices its products to cover the expected cost of
taxes.
The Company monitors policy experience and adjusts policy
benefits and other adjustable elements to reflect this
experience.
Policyholder dividends are reviewed annually for all businesses
under a framework of Board-approved policyholder dividend
policies.
Foreign currency risk results from a mismatch of the currency of
liabilities and the currency of the assets designated to support
these obligations. Where a currency mismatch exists, the
assumed rate of return on the assets supporting the liabilities is
reduced to reflect the potential for adverse movements in
foreign exchange rates.
The Company generally matches the currency of its assets with
the currency of the liabilities they support, with the objective of
mitigating the risk of loss arising from movements in currency
exchange rates.
The Company reviews actuarial methods and assumptions on an annual basis. If changes are made to assumptions (refer to note 7(h)), the
full impact is recognized in income immediately.
(e) Sensitivity of insurance contract liabilities to changes in non-economic assumptions
The sensitivity of net income attributed to shareholders to changes in non-economic assumptions underlying insurance contract liabilities
is shown below, assuming a simultaneous change in the assumption across all business units. The sensitivity of net income attributed to
shareholders to a deterioration or improvement in non-economic assumptions for Long-Term Care (“LTC”) as at December 31, 2022 is also
shown below.
In practice, experience for each assumption will frequently vary by geographic market and business and assumption updates are made on
a business/geographic specific basis. Actual results can differ materially from these estimates for a variety of reasons including the
interaction among these factors when more than one changes; changes in actuarial and investment return and future investment activity
assumptions; changes in business mix, effective tax rates and other market factors; and the general limitations of internal models.
180 | 2022 Annual Report | Notes to Consolidated Financial Statements
Potential impact on net income attributed to shareholders arising from changes to non-economic assumptions(1)
As at December 31,
Policy related assumptions
2% adverse change in future mortality rates(2),(4)
Products where an increase in rates increases insurance contract liabilities
Products where a decrease in rates increases insurance contract liabilities
5% adverse change in future morbidity rates (incidence and termination)(3),(4),(5)
10% adverse change in future policy termination rates(4)
5% increase in future expense levels
Decrease in after-tax net
income attributed
to shareholders
2022
2021
$
(500)
(500)
(4,500)
(2,200)
(600)
$
(500)
(500)
(5,500)
(2,400)
(600)
(1) The participating policy funds are largely self-supporting and generate no material impact on net income attributed to shareholders as a result of changes in non-economic
assumptions. Experience gains or losses would generally result in changes to future dividends, with no direct impact to shareholders.
(2) An increase in mortality rates will generally increase policy liabilities for life insurance contracts whereas a decrease in mortality rates will generally increase policy liabilities for
policies with longevity risk such as payout annuities.
(3) No amounts related to morbidity risk are included for policies where the policy liability provides only for claims costs expected over a short period, generally less than one year,
such as Group Life and Health.
(4) The impacts of the adverse sensitivities on LTC for morbidity, mortality and lapse do not assume any partial offsets from the Company’s ability to contractually raise premium
rates in such events, subject to state regulatory approval. In practice, the Company would plan to file for rate increases equal to the amount of deterioration resulting from the
sensitivities.
(5) 5% deterioration in incidence rates and 5% deterioration in claim termination rates.
Potential impact on net income attributed to shareholders arising from changes to non-economic assumptions for Long-Term Care
included in the above table(1),(2)
As at December 31,
Policy related assumptions
2% adverse change in future mortality rates
5% adverse change in future morbidity incidence rates
5% adverse change in future morbidity claims termination rates
10% adverse change in future policy termination rates
5% increase in future expense levels
Decrease in after-tax net
income attributed
to shareholders
2022
2021
$
(300) $
(1,700)
(2,400)
(300)
(100)
(300)
(2,000)
(3,100)
(400)
(100)
(1) The impacts of the adverse sensitivities on LTC for morbidity, mortality and lapse do not assume any partial offsets from the Company’s ability to contractually raise premium
rates in such events, subject to state regulatory approval. In practice, the Company would plan to file for rate increases equal to the amount of deterioration resulting from the
sensitivities.
(2) The impact of favourable changes to all the sensitivities is relatively symmetrical.
(f) Provision for adverse deviation assumptions
The assumptions made in establishing insurance contract liabilities reflect expected best estimates of future experience. To recognize the
uncertainty in these best estimate assumptions, to allow for possible misestimation of and deterioration in experience and to provide a
greater degree of assurance that the insurance contract liabilities are adequate to pay future benefits, the Appointed Actuary is required to
include a margin in each assumption.
Margins are released into future earnings as the policy is released from risk. Margins for interest rate risk are included by testing a number
of scenarios of future interest rates. The margin can be established by testing a limited number of scenarios, some of which are prescribed
by the Canadian Actuarial Standards of Practice, and determining the liability based on the worst outcome. Alternatively, the margin can
be set by testing many scenarios, which are developed according to actuarial guidance. Under this approach the liability would be the
average of the outcomes above a percentile in the range prescribed by the Canadian Actuarial Standards of Practice.
Specific guidance is also provided for other risks such as market, credit, mortality and morbidity risks. For other risks which are not
specifically addressed by the Canadian Institute of Actuaries, a range is provided of five per cent to 20 per cent of the expected experience
assumption. The Company uses assumptions within the permissible ranges, with the determination of the level set considering the risk
profile of the business. On occasion, in specific circumstances for additional prudence, a margin may exceed the high end of the range,
which is permissible under the Canadian Actuarial Standards of Practice. This additional margin would be released if the specific
circumstances which led to it being established were to change.
Each margin is reviewed annually for continued appropriateness.
181
(g) Change in insurance contract liabilities
The change in insurance contract liabilities was a result of the following business activities and changes in actuarial estimates.
For the year ended December 31, 2022
Balance, January 1
New policies(2)
Normal in-force movement(2)
Changes in methods and assumptions(2)
Reinsurance transactions(2),(3)
Impact of changes in foreign exchange rates
Balance, December 31
For the year ended December 31, 2021
Balance, January 1
New policies(4)
Normal in-force movement(4)
Changes in methods and assumptions(4)
Reinsurance transactions
Impact of changes in foreign exchange rates
Balance, December 31
Other
insurance
contract
liabilities(1)
$ 15,472
–
1,216
(192)
–
640
$ 17,136
Other
insurance
contract
liabilities(1)
$ 14,377
–
1,283
–
–
(188)
$ 15,472
Net
insurance
contract
liabilities
$ 347,744
5,365
(37,958)
(80)
(2,419)
11,079
$ 323,731
Net
insurance
contract
liabilities
$ 339,785
5,947
5,972
287
–
(4,247)
$ 347,744
Gross
insurance
contract
liabilities
$ 392,275
5,481
(39,000)
269
(1,469)
13,849
$ 371,405
Gross
insurance
contract
liabilities
$ 385,554
6,223
4,160
742
–
(4,404)
$ 392,275
Reinsurance
assets
$ 44,531
116
(1,042)
349
950
2,770
$ 47,674
Reinsurance
assets
$ 45,769
276
(1,812)
455
–
(157)
$ 44,531
Net actuarial
liabilities
$ 332,272
5,365
(39,174)
112
(2,419)
10,439
$ 306,595
Net actuarial
liabilities
$ 325,408
5,947
4,689
287
–
(4,059)
$ 332,272
(1) Other insurance contract liabilities are comprised of benefits payable and provisions for unreported claims and policyholder amounts on deposit.
(2) In 2022, the $34,971 decrease reported as the change in insurance contract liabilities on the 2022 Consolidated Statements of Income primarily consists of changes due to
normal in-force movement, new policies, changes in methods and assumptions, and reinsurance transactions. These four items in the gross insurance contract liabilities were
netted off by a decrease of $34,719, of which $35,830 is included in the Consolidated Statements of Income as a decrease in insurance contract liabilities and $1,111
increase is included in gross claims and benefits. The Consolidated Statements of Income change in insurance contract liabilities also includes the change in embedded
derivatives associated with insurance contracts, however these embedded derivatives are included in other liabilities on the Consolidated Statements of Financial Position.
(3) In 2022, we completed two transactions to reinsure blocks of legacy U.S. variable annuity (“VA”) policies. Under the terms of the transactions, the Company will retain
responsibility for the maintenance of the policies with no intended impact to VA policyholders. The transactions were structured as coinsurance for the general fund liabilities
and modified coinsurance for the segregated fund liabilities.
(4) In 2021, the $10,719 increase reported as the change in insurance contract liabilities on the Consolidated Statements of Income primarily consists of changes due to normal
in-force movement, new policies and changes in methods and assumptions. These three items in the gross insurance contract liabilities were netted off by an increase of
$11,125, of which $9,868 is included in the Consolidated Statements of Income increase in insurance contract liabilities and $1,257 is included in gross claims and benefits.
The Consolidated Statements of Income change in insurance contract liabilities also includes the change in embedded derivatives associated with insurance contracts.
(h) Actuarial methods and assumptions
A comprehensive review of actuarial methods and assumptions is performed annually. The review is designed to reduce the Company’s
exposure to uncertainty by ensuring assumptions for both asset and liability related risks remain appropriate. This is accomplished by
monitoring experience and selecting assumptions which represent a current best estimate view of expected future experience, and
margins for adverse deviations that are appropriate for the risks assumed. While the assumptions selected represent the Company’s
current best estimates and assessment of risk, the ongoing monitoring of experience and changes in the economic environment are likely
to result in future changes to the actuarial assumptions, which could materially impact the measurement of insurance contract liabilities.
2022 Review of Actuarial Methods and Assumptions
The completion of the 2022 annual review of actuarial methods and assumptions resulted in a decrease in insurance contract liabilities,
net of reinsurance, of $80, and a net gain to net income attributed to shareholders of $36 post-tax.
For the year ended December 31, 2022
Long-term care triennial review
Mortality and morbidity updates
Lapses and policyholder behaviour updates
Investment related updates
Other updates
Net impact
Change in insurance contract liabilities,
net of reinsurance
Attributed to
participating
policyholders’
account(1)
–
$
(5)
74
(1)
(145)
(77)
$
Attributed to
shareholders’
account
19
$
162
243
(209)
(218)
(3)
$
Change in net
income attributed
to shareholders
(post-tax)
$ (15)
(126)
(192)
157
212
$ 36
$
Total
19
157
317
(210)
(363)
$ (80)
(1) The change in insurance contract liabilities, net of reinsurance, attributable to the participating policyholders’ account was primarily driven by an increase in expected long-term
interest rates within the valuation models to reflect the higher interest rate environment, partially offset by the lapse assumption update in Canada.
182 | 2022 Annual Report | Notes to Consolidated Financial Statements
Long-term care triennial review
U.S. Insurance completed a comprehensive long-term care (“LTC”) experience study. The review included all aspects of claim assumptions,
as well as the progress on future premium rate increases. The impact of the LTC review resulted in a net $15 post-tax charge to net income
attributed to shareholders.
The experience study showed that claim costs established in the last triennial review remain appropriate in aggregate for the older blocks
of business1 supported by robust claims data on this mature block. Insurance contract liabilities were strengthened for claim costs on the
newer block of business2. This was driven by lower active life mortality3 supported by Company experience and a recent industry study, as
well as higher utilization of benefits, which included the impact of reflecting higher inflation in the cost-of-care up to the current year. The
Company also reviewed and updated incidence and claim termination assumptions which, on a net basis, provided a partial offset to the
increase in insurance contract liabilities on active life mortality and utilization. In addition, some policyholders are electing to reduce their
benefits in lieu of paying increased premiums which resulted in a reduction in insurance contract liabilities. The overall claims experience
review led to a post-tax charge to net income attributed to shareholders of approximately $2.3 billion (US$1.7 billion).
Experience continues to support the assumptions of both future morbidity and mortality improvement, resulting in no changes to these
assumptions.
As of September 30, 2022, the Company has received actual premium increase approvals of $2.5 billion pre-tax (US$1.9 billion pre-tax)
on a present value basis since the last triennial review in 2019. This aligns with the full amount assumed in the Company’s insurance
contract liabilities at that time and demonstrates the Company’s continued strong track record of progress in securing premium rate
increases4. In 2022, the review of future premium increases assumed in insurance contract liabilities resulted in a post-tax gain to net
income attributed to shareholders of approximately $2.1 billion (US$1.6 billion). This reflects expected future premium increases that are
due to the Company’s 2022 review of morbidity, mortality, and lapse assumptions, as well as outstanding amounts from prior state filings.
Premium increases averaging approximately 30% will be sought on about one-half of the business, excluding the carryover of 2019
amounts requested. The Company’s assumptions reflect the estimated timing and amount of state approved premium increases.
Other refinements to LTC valuation resulted in a post-tax gain of approximately $0.2 billion (US$0.2 billion) to net income attributed to
shareholders.
Mortality and morbidity updates
Mortality and morbidity updates resulted in a $126 post-tax charge to net income attributed to shareholders, driven by a detailed review of
the mortality and morbidity assumptions for the Company’s Canada insurance business, and by updates to morbidity assumptions in
Vietnam to align with experience.
Lapses and policyholder behaviour updates
Updates to lapses and policyholder behaviour assumptions resulted in a $192 post-tax charge to net income attributed to shareholders.
The Company completed a detailed review of lapse assumptions for Singapore, and increased lapse rates to align with experience on
index-linked products, which reduced projected future fee income to be received on these products.
The Company also increased lapse rates on Canada’s term insurance products for policies approaching their renewal date, reflecting
emerging experience in the Company’s study.
Investment-related updates
Updates to investment return assumptions resulted in a $157 post-tax gain to net income attributed to shareholders, primarily driven by
annual updates to the Company’s valuation models to reflect market movements during the year. No changes were made to the Company’s
long-term assumed returns.
Other updates
Other updates resulted in a $212 post-tax gain to net income attributed to shareholders, which included refinements to the projection of
the Company’s tax and liability cash flows, as well as various other modelling updates.
1 First generation policies issued prior to 2002.
2 Second generation policies with an average issue date of 2007 and Group policies with an average issue date of 2003.
3 The mortality rate of LTC policyholders who are currently not on claim.
4 Actual experience obtaining premium increases could be materially different than what the Company has assumed, resulting in further increases or decreases in insurance
contract liabilities, which could be material.
18
2021 Review of Actuarial Methods and Assumptions
The completion of the 2021 annual review of actuarial methods and assumptions resulted in an increase in insurance contract liabilities of
$287, net of reinsurance, and a decrease in net income attributed to shareholders of $41 post-tax.
For the year ended December 31, 2021
U.S. variable annuity product review
Mortality and morbidity updates
Lapses and policyholder behaviour updates
Expense updates
Investment related updates
Other updates
Net impact
Change in insurance contract liabilities,
net of reinsurance
Attributed to
participating
policyholders’
account(1)
Attributed to
shareholders’
account
Change in net
income attributed
to shareholders
(post-tax)
$
–
–
18
(25)
(2)
231
$ 222
$ 51
350
668
(628)
(255)
(121)
$ 65
$ (40)
(257)
(534)
503
168
119
$ (41)
Total
$
51
350
686
(653)
(257)
110
$ 287
(1) The change in insurance contract liabilities, net of reinsurance, attributable to the participating policyholders’ account was primarily driven by a reduction in the expected long-
term interest rates within the valuation models to reflect the low interest rate environment.
U.S. variable annuity product review
The review of the Company’s variable annuity products in the U.S. resulted in a $40 post-tax charge to net income attributed to
shareholders.
The charge was primarily driven by updates to lapse assumptions to reflect emerging experience, partially offset by refinements to the
Company’s segregated fund guaranteed minimum withdrawal benefit valuation models.
Mortality and morbidity updates
Mortality and morbidity updates resulted in a $257 post-tax charge to net income attributed to shareholders.
The charge was driven by updates to older age mortality on certain products in the Company’s U.S. life insurance business, mortality
assumption updates in Indonesia to reflect recent experience, as well as from refining assumptions on several reinsurance arrangements
in Canada.
Lapses and policyholder behaviour updates
Updates to lapses and policyholder behaviour assumptions resulted in a $534 post-tax charge to net income attributed to shareholders.
The Company completed a detailed review of lapse assumptions for non-participating policies within the Company’s U.S. life insurance
business including those for universal life, variable universal life, and term products. The Company observed a trend of low lapse rates on
the protection-focused universal life insurance products as consumers continue to value the product guarantees in the prolonged low
interest rate environment. The Company lowered the overall lapse assumptions for these products to reflect actual experience, which
resulted in a post-tax charge to net income attributed to shareholders.
Other updates to lapse and policyholder behaviour assumptions were made across several products in Canada and Japan to reflect recent
experience, resulting in a modest post-tax charge to net income attributed to shareholders.
Expense updates
Updates to expense assumptions resulted in a $503 post-tax gain to net income attributed to shareholders.
The Company completed a detailed review of the investment expense assumptions across the Company. This resulted in a $263 post-tax
gain to net income attributed to shareholders, primarily driven by scale benefits.
The Company also completed a global expense study, which resulted in a $256 post-tax gain to net income attributed to shareholders. The
favourable result primarily reflects a reallocation of expenses across certain business lines to align with actual experience, as well as from
expense savings related to various expense efficiency initiatives.
Investment-related updates
Updates to investment return assumptions resulted in a $168 post-tax gain to net income attributed to shareholders.
The primary driver of the gain was an update to the Company’s corporate bond default rates to reflect recent experience; the Company
reduced default assumptions for certain credit ratings in Canada, the U.S., and Japan. This was partially offset by a reduction to the
Company’s Canadian real estate investment return assumptions.
184 | 2022 Annual Report | Notes to Consolidated Financial Statements
Other updates
Other updates resulted in a $119 post-tax gain to net income attributed to shareholders.
This was primarily driven by Japan, whereby investment fees for certain mandates in the general account provided by affiliate investment
managers were reviewed and updated to align with broader market levels.
(i) Insurance contracts contractual obligations
Insurance contracts give rise to obligations fixed by agreement. As at December 31, 2022, the Company’s contractual obligations and
commitments relating to insurance contracts are as follows.
Payments due by period
Insurance contract liabilities(1)
Less than
1 year
1 to 3
years
3 to 5
years
Over 5 years
Total
$ 11,498
$ 12,365
$ 18,496
$ 1,012,611
$ 1,054,970
(1) Insurance contract liability cash flows include estimates related to the timing and payment of death and disability claims, policy surrenders, policy maturities, annuity
payments, minimum guarantees on segregated fund products, policyholder dividends, commissions and premium taxes offset by contractual future premiums on in-force
contracts. These estimated cash flows are based on the best estimate assumptions used in the determination of insurance contract liabilities. These amounts are undiscounted
and reflect recoveries from reinsurance agreements. Due to the use of assumptions, actual cash flows may differ from these estimates. Cash flows include embedded
derivatives measured separately at fair value.
(j) Gross claims and benefits
The following table presents a breakdown of gross claims and benefits.
For the years ended December 31,
Death, disability and other claims
Maturity and surrender benefits
Annuity payments
Policyholder dividends and experience rating refunds
Net transfers from segregated funds
Total
2022
2021
$ 19,404
10,662
3,242
1,279
(1,267)
$ 33,320
$ 18,583
8,728
3,276
1,255
(732)
$ 31,110
(k) Reinsurance transaction
On November 15, 2021 and October 3, 2022, the Company, through its subsidiaries John Hancock Life Insurance Company (U.S.A.)
(“JHUSA”) and John Hancock Life Insurance Company of New York (“JHNY”) entered into reinsurance agreements with Venerable Holdings,
Inc. to reinsure blocks of legacy U.S. variable annuity (“VA”) policies. Under the terms of the transactions, the Company will retain
responsibility for the maintenance of the policies with no intended impact to VA policyholders. The transactions were structured as
coinsurance for the general fund liabilities and modified coinsurance for the segregated fund liabilities.
The transactions closed on February 1, 2022 and October 3, 2022, respectively, resulting in a cumulative after-tax gain of $806,
comprising a cumulative after-tax gain of $846 recognized in 2022, and a one-time after-tax loss of $40 recognized in the fourth quarter
2021.
Note 8
Investment Contract Liabilities
Investment contract liabilities are contractual obligations that do not contain significant insurance risk. These contracts are measured
either at fair value or at amortized cost.
(a) Investment contract liabilities measured at fair value
Investment contract liabilities measured at fair value include certain investment savings and pension products sold primarily in Hong Kong
and mainland China. The following table presents the movement in investment contract liabilities measured at fair value.
For the years ended December 31,
Balance, January 1
New policies
Changes in market conditions
Redemptions, surrenders and maturities
Impact of changes in foreign exchange rates
Balance, December 31
2022
2021
$ 802
93
(39)
(106)
46
$ 796
$ 932
54
(38)
(138)
(8)
$ 802
185
(b) Investment contract liabilities measured at amortized cost
Investment contract liabilities measured at amortized cost include several fixed annuity products sold in the U.S. and Canada that provide
guaranteed income payments for a contractually determined period and are not contingent on survivorship.
The following table presents carrying and fair values of investment contract liabilities measured at amortized cost.
As at December 31,
U.S. fixed annuity products
Canadian fixed annuity products
Investment contract liabilities
2022
2021
Amortized
cost, gross of
reinsurance
ceded(1)
$ 1,575
877
$ 2,452
Fair value
$ 1,547
956
$ 2,503
Amortized
cost, gross of
reinsurance
ceded(1)
$ 1,380
935
$ 2,315
Fair value
$ 1,602
1,016
$ 2,618
(1) As at December 31, 2022, investment contract liabilities with the carrying value and fair value of $38 and $38, respectively (2021 – $48 and $52, respectively), were
reinsured by the Company. The net carrying value and fair value of investment contract liabilities were $2,414 and $2,465 (2021 – $2,267 and $2,566), respectively.
The changes in investment contract liabilities measured at amortized cost was a result of the following business activities.
For the years ended December 31,
Balance, January 1
Policy deposits
Interest
Withdrawals
Fees
Other
Impact of changes in foreign exchange rates
Balance, December 31
2022
2021
$ 2,315
200
67
(236)
(1)
–
107
$ 2,452
$ 2,356
92
71
(191)
(1)
(5)
(7)
$ 2,315
Carrying value of fixed annuity products is amortized at a rate that exactly discounts the projected actual cash flows to the net carrying
amount of the liability at the date of issue.
Fair value of fixed annuity products is determined by projecting cash flows according to the contract terms and discounting the cash flows
at current market rates adjusted for the Company’s own credit standing. As at December 31, 2022 and 2021, fair value of all investment
contract liabilities was determined using Level 2 valuation techniques.
(c) Investment contracts contractual obligations
As at December 31, 2022, the Company’s contractual obligations and commitments relating to the investment contracts are as follows.
Payments due by period
Investment contract liabilities(1)
Less than
1 year
$ 300
1 to 3
years
3 to 5
years
Over 5
years
Total
$ 511
$ 514
$ 3,365
$ 4,690
(1) Due to the nature of the products, the timing of net cash flows may be before contract maturity. Cash flows are undiscounted.
186 | 2022 Annual Report | Notes to Consolidated Financial Statements
Note 9 Risk Management
The Company’s policies and procedures for managing risks of financial instruments are disclosed in denoted components of the “Risk
Management and Risk Factors” section of the MD&A for the year ended December 31, 2022. These MD&A disclosures are in accordance
with IFRS 7 “Financial Instruments: Disclosures” and are an integral part of these Consolidated Financial Statements.
(a) Credit risk
Credit risk is the risk of loss due to inability or unwillingness of a borrower, or counterparty, to fulfill its payment obligations. Worsening
regional and global economic conditions, segment or industry sector challenges, or company specific factors could result in defaults or
downgrades and could lead to increased provisions or impairments related to the Company’s general fund invested assets, derivative
financial instruments and reinsurance assets and an increase in provisions for future credit impairments that are included in actuarial
liabilities.
The Company’s exposure to credit risk is managed through risk management policies and procedures which include a defined credit
evaluation and adjudication process, delegated credit approval authorities and established exposure limits by borrower, corporate
connection, credit rating, industry and geographic region. The Company measures derivative counterparty exposure as net potential credit
exposure, which takes into consideration mark-to-market values of all transactions with each counterparty, net of any collateral held, and
an allowance to reflect future potential exposure. Reinsurance counterparty exposure is measured reflecting the level of ceded liabilities.
The Company also ensures where warranted, that mortgages, private placements and loans to Bank clients are secured by collateral, the
nature of which depends on the credit risk of the counterparty.
An allowance for losses on loans is established when a loan becomes impaired. Allowances for loan losses are calculated to reduce the
carrying value of the loans to estimated net realizable value. The establishment of such allowances takes into consideration normal
historical credit loss levels and future expectations, with an allowance for adverse deviations. In addition, policy liabilities include general
provisions for credit losses from future asset impairments. Impairments are identified through regular monitoring of all credit related
exposures, considering such information as general market conditions, industry and borrower specific credit events and any other relevant
trends or conditions. Allowances for losses on reinsurance contracts are established when a reinsurance counterparty becomes unable or
unwilling to fulfill its contractual obligations. The allowance for loss is based on current recoverable amounts and ceded policy liabilities.
Credit risk associated with derivative counterparties is discussed in note 9(d) and credit risk associated with reinsurance counterparties is
discussed in note 9(i).
(i) Credit exposure
The following table presents the gross carrying amount of financial instruments subject to credit exposure, without considering any
collateral held or other credit enhancements.
As at December 31,
Debt securities
FVTPL
AFS
Other
Mortgages
Private placements
Policy loans
Loans to Bank clients
Derivative assets
Accrued investment income
Reinsurance assets
Other financial assets
Total
2022
2021
$ 170,273
32,220
1,411
54,638
47,057
6,894
2,781
8,588
2,813
47,712
6,077
$ 380,464
$ 189,722
33,097
1,320
52,014
42,842
6,397
2,506
17,503
2,641
44,579
6,242
$ 398,863
As at December 31, 2022, 96% (2021 – 97%) of debt securities were investment grade-rated with ratings ranging between AAA to BBB.
(ii) Credit quality
Credit quality of commercial mortgages and private placements
Credit quality of commercial mortgages and private placements is assessed at least annually by using an internal rating based on regular
monitoring of credit-related exposures, considering both qualitative and quantitative factors.
A provision is recorded when the internal risk ratings indicate that a loss represents the most likely outcome. These assets are designated
as non-accrual and an allowance is established based on an analysis of the security and repayment sources.
187
The following table presents the credit quality of commercial mortgages and private placements.
As at December 31, 2022
Commercial mortgages
Retail
Office
Multi-family residential
Industrial
Other
Total commercial mortgages
Agricultural mortgages
Private placements
Total
As at December 31, 2021
Commercial mortgages
Retail
Office
Multi-family residential
Industrial
Other
Total commercial mortgages
Agricultural mortgages
Private placements
Total
AAA
AA
A
BBB
BB
B and lower
Total
$
113
102
500
72
180
967
–
904
$ 1,871
$ 1,526
1,460
2,213
929
990
7,118
–
6,991
$ 14,109
$ 4,872
5,950
3,751
3,312
798
18,683
119
16,534
$ 35,336
$ 2,055
1,471
892
407
764
5,589
240
17,176
$ 23,005
$
194
57
11
–
–
262
–
1,105
$ 1,367
$
2
33
–
–
–
35
–
4,347
$ 4,382
$ 8,762
9,073
7,367
4,720
2,732
32,654
359
47,057
$ 80,070
AAA
AA
A
BBB
BB
B and lower
Total
$ 113
56
557
47
212
985
–
976
$ 1,961
$ 1,340
1,256
1,869
376
1,010
5,851
–
5,720
$ 11,571
$ 5,179
6,004
3,771
2,808
787
18,549
119
16,147
$ 34,815
$ 1,936
1,291
767
328
956
5,278
242
16,220
$ 21,740
$ 228
87
32
–
47
394
–
1,161
$ 1,555
$
2
40
–
–
–
42
–
2,618
$ 2,660
$ 8,798
8,734
6,996
3,559
3,012
31,099
361
42,842
$ 74,302
Credit quality of residential mortgages and loans to Bank clients
Credit quality of residential mortgages and loans to Bank clients is assessed at least annually with the loan being performing or
non-performing as the key credit quality indicator.
Full or partial write-offs of loans are recorded when management believes that there is no realistic prospect of full recovery. Write-offs, net
of recoveries, are deducted from the allowance for credit losses. All impairments are captured in the allowance for credit losses.
The following table presents credit quality of residential mortgages and loans to Bank clients.
As at December 31,
Residential mortgages
Performing
Non-performing(1)
Loans to Bank clients
Performing
Non-performing(1)
Total
2022
2021
Insured
Uninsured
Total
Insured
Uninsured
Total
$ 7,015
8
$ 14,569
33
$ 21,584
41
$ 7,264
6
$ 13,272
12
$ 20,536
18
n/a
n/a
$ 7,023
2,778
3
$ 17,383
2,778
3
$ 24,406
n/a
n/a
$ 7,270
2,506
–
$ 15,790
2,506
–
$ 23,060
(1) Non-performing refers to payments that are 90 days or more past due.
The carrying value of government-insured mortgages was 13% of the total mortgage portfolio as at December 31, 2022 (2021 – 14%). Most
of these insured mortgages are residential loans as classified in the table above.
(iii) Past due or credit impaired financial assets
The Company provides for credit risk by establishing allowances against the carrying value of impaired loans and recognizing impairment
losses on AFS debt securities. In addition, the Company reports as impairment losses certain declines in the fair value of debt securities
designated as FVTPL which it deems represent impairments due to non-recoverability of due amounts.
188 | 2022 Annual Report | Notes to Consolidated Financial Statements
The following table presents the carrying value of financial assets with some or all of their contractual payments past due but which are not
impaired and impaired financial assets.
As at December 31, 2022
Debt securities(1),(2)
FVTPL
AFS
Private placements(1)
Mortgages and loans to Bank clients
Other financial assets
Total
As at December 31, 2021
Debt securities(1),(2)
FVTPL
AFS
Private placements(1)
Mortgages and loans to Bank clients
Other financial assets
Total
Past due but not impaired
Less than
90 days
90 days
and greater
Total
impaired
Total
$ 2,059
922
317
103
36
$ 3,437
$ 71
–
152
–
34
$ 257
$ 2,130
922
469
103
70
$ 3,694
$
9
–
229
74
1
$ 313
Past due but not impaired
Less than
90 days
90 days
and greater
Total
impaired
Total
$
2 0
–
63
61
261
$ 405
$
–
–
–
–
47
$ 47
$
20
–
63
61
308
$ 452
$
2
–
175
51
–
$ 228
(1) Payments of $12 on $3,297 (December 31, 2021 – $nil and $20, respectively) of financial assets past due less than 90 days are delayed.
(2) Payments of $4 on $224 (December 31, 2021 – $nil and $nil, respectively) of financial assets past due greater than 90 days are delayed.
The following table presents gross carrying value and allowances for loan losses for impaired loans.
As at December 31, 2022
Private placements
Mortgages and loans to Bank clients
Total
As at December 31, 2021
Private placements
Mortgages and loans to Bank clients
Total
Gross
carrying value
Allowances
for loan losses
Net carrying
value
$ 254
96
$ 350
$ 25
22
$ 47
$ 229
74
$ 303
Gross
carrying value
Allowances
for loan losses
Net carrying
value
$ 197
73
$ 270
$ 22
22
$ 44
$ 175
51
$ 226
The following table presents movement of allowance for loan losses during the year.
For the years ended December 31,
Balance, January 1
Provisions
Recoveries
Write-offs(1)
Balance, December 31
(1) Includes disposals and impact of changes in foreign exchange rates.
2022
Mortgages
and loans to
Bank clients
$ 22
4
(2)
(2)
$ 22
Total
$ 44
26
(20)
(3)
$ 47
Private
placements
$ 22
22
(18)
(1)
$ 25
2021
Mortgages
and loans to
Bank clients
$ 28
12
(16)
(2)
$ 22
Private
placements
$ 79
14
(58)
(13)
$ 22
Total
$ 107
26
(74)
(15)
$ 44
(b) Securities lending, repurchase and reverse repurchase transactions
The Company engages in securities lending to generate fee income. Collateral exceeding the market value of the loaned securities is
retained by the Company until the underlying security has been returned to the Company. The market value of the loaned securities is
monitored daily and additional collateral is obtained or refunded as the market value of the underlying loaned securities fluctuates. As at
December 31, 2022, the Company had loaned securities (which are included in invested assets) with a market value of $723 (2021 –
$564). The Company holds collateral with a current market value that exceeds the value of securities lent in all cases.
189
The Company engages in reverse repurchase transactions to generate fee income to take possession of securities to cover short positions
in similar instruments and to meet short-term funding requirements. As at December 31, 2022, the Company had engaged in reverse
repurchase transactions of $895 (2021 – $1,490) which are recorded as short-term receivables. In addition, the Company had engaged in
repurchase transactions of $895 as at December 31, 2022 (2021 – $536) which are recorded as payables.
(c) Credit default swaps
The Company replicates exposure to specific issuers by selling credit protection via credit default swaps (“CDS”) to complement its cash
debt securities investing. The Company does not write CDS protection more than its government bond holdings. A CDS is a derivative
instrument representing an agreement between two parties to exchange the credit risk of a single specified entity or an index based on the
credit risk of a group of entities (all commonly referred to as the “reference entity” or a portfolio of “reference entities”), in return for a
periodic premium. CDS contracts typically have a five-year term.
The following table presents details of the credit default swap protection sold by type of contract and external agency rating for the
underlying reference security.
As at December 31, 2022
Single name CDS(3) – Corporate debt
A
BBB
Total single name CDS
Total CDS protection sold
As at December 31, 2021
Single name CDS(3) – Corporate debt
A
BBB
Total single name CDS
Total CDS protection sold
Notional
amount(1)
Fair value
Weighted
average maturity
(in years)(2)
$ 133
26
$ 159
$ 159
$ 4
–
$ 4
$ 4
4
1
4
4
Notional
amount(1)
Fair value
Weighted
average maturity
(in years)(2)
$ 16
28
$ 44
$ 44
$ –
1
$ 1
$ 1
1
2
2
2
(1) Notional amounts represent the maximum future payments the Company would have to pay its CDS counterparties assuming a default of the underlying credit and zero recovery
on the underlying issuer obligations.
(2) The weighted average maturity of the CDS is weighted based on notional amounts.
(3) Ratings are based on S&P where available followed by Moody’s, DBRS, and Fitch. If no rating is available from a rating agency, an internally developed rating is used.
The Company held no purchased credit protection as at December 31, 2022 and 2021.
(d) Derivatives
The Company’s point-in-time exposure to losses related to credit risk of a derivative counterparty is limited to the amount of any net gains
that may have accrued with the particular counterparty. Gross derivative counterparty exposure is measured as the total fair value
(including accrued interest) of all outstanding contracts in a gain position excluding any offsetting contracts in a loss position and the
impact of collateral on hand. The Company limits the risk of credit losses from derivative counterparties by using investment grade
counterparties, entering into master netting arrangements which permit the offsetting of contracts in a loss position in the case of a
counterparty default and entering into Credit Support Annex agreements whereby collateral must be provided when the exposure exceeds
a certain threshold. All contracts are held with or guaranteed by investment grade counterparties, the majority of whom are rated A- or
higher. As at December 31, 2022, the percentage of the Company’s derivative exposure with counterparties rated AA- or higher was 36 per
cent (2021 – 17 per cent). The Company’s exposure to credit risk was mitigated by $2,194 fair value of collateral held as security as at
December 31, 2022 (2021 – $10,121).
As at December 31, 2022, the largest single counterparty exposure, without taking into consideration the impact of master netting
agreements or the benefit of collateral held, was $1,582 (2021 – $2,132). The net exposure to this counterparty, after taking into
consideration master netting agreements and the fair value of collateral held, was $nil (2021 – $nil). As at December 31, 2022, the total
maximum credit exposure related to derivatives across all counterparties, without taking into consideration the impact of master netting
agreements and the benefit of collateral held, was $9,072 (2021 – $18,226).
(e) Offsetting financial assets and financial liabilities
Certain derivatives, securities lent and repurchase agreements have conditional offset rights. The Company does not offset these financial
instruments in the Consolidated Statements of Financial Position, as the rights of offset are conditional.
190 | 2022 Annual Report | Notes to Consolidated Financial Statements
In the case of derivatives, collateral is collected from and pledged to counterparties and clearing houses to manage credit risk exposure in
accordance with Credit Support Annexes to swap agreements and clearing agreements. Under master netting agreements, the Company
has a right of offset in the event of default, insolvency, bankruptcy or other early termination.
In the case of reverse repurchase and repurchase transactions, additional collateral may be collected from or pledged to counterparties to
manage credit exposure according to bilateral reverse repurchase or repurchase agreements. In the event of default by a reverse purchase
transaction counterparty, the Company is entitled to liquidate the collateral held to offset against the same counterparty’s obligation.
The following table presents the effect of conditional master netting and similar arrangements. Similar arrangements may include global
master repurchase agreements, global master securities lending agreements, and any related rights to financial collateral pledged or
received.
As at December 31, 2022
Financial assets
Derivative assets
Securities lending
Reverse repurchase agreements
Total financial assets
Financial liabilities
Derivative liabilities
Repurchase agreements
Total financial liabilities
As at December 31, 2021
Financial assets
Derivative assets
Securities lending
Reverse repurchase agreements
Total financial assets
Financial liabilities
Derivative liabilities
Repurchase agreements
Total financial liabilities
Related amounts not set off in the
Consolidated Statements of
Financial Position
Amounts subject to
an enforceable
master netting
arrangement or
similar agreements
Financial
and cash
collateral
pledged
(received)(2)
Net
amount
including
financing
entity(3)
Net
amounts
excluding
financing
entity
Gross amounts of
financial instruments(1)
$
9,072
723
895
$ 10,690
$ (15,151)
(895)
$ (16,046)
$ (7,170)
–
(779)
$ (7,949)
$ (1,687)
(723)
(116)
$ (2,526)
$ 215
–
–
$ 215
$ 215
–
–
$ 215
$ 7,170
779
$ 7,949
$
$
7,834
116
7,950
$ (147)
–
$ (147)
$ (103)
–
$ (103)
Related amounts not set off in the
Consolidated Statements of
Financial Position
Amounts subject to
an enforceable
master netting
arrangement or
similar agreements
Financial
and cash
collateral
pledged
(received)(2)
Net
amount
including
financing
entity(3)
Net
amounts
excluding
financing
entity
Gross amounts of
financial instruments(1)
$ 18,226
564
1,490
$ 20,280
$ (10,940)
(536)
$ (11,476)
$ (8,410) $
(9,522) $ 294
–
–
$ (8,593) $ (11,393) $ 294
(564)
(1,307)
–
(183)
$ 294
–
–
$ 294
$ 8,410
183
$ 8,593
$ 2,250
353
$ 2,603
$ (280)
–
$ (280)
$ (79)
–
$ (79)
(1) Financial assets and liabilities include accrued interest of $488 and $862, respectively (2021 – $725 and $902, respectively).
(2) Financial and cash collateral exclude over-collateralization. As at December 31, 2022, the Company was over-collateralized on OTC derivative assets, OTC derivative liabilities,
securities lending and reverse repurchase agreements and repurchase agreements in the amounts of $507, $1,528, $63 and $nil, respectively (2021 – $599, $875, $36 and
$2, respectively). As at December 31, 2022, collateral pledged (received) does not include collateral-in-transit on OTC instruments or initial margin on exchange traded
contracts or cleared contracts.
(3) Includes derivative contracts entered between the Company and its financing entity which it does not consolidate. The Company does not exchange collateral on derivative
contracts entered with this entity. Refer to note 18.
The Company also has certain credit linked note assets and variable surplus note liabilities which have unconditional offsetting rights.
Under the netting agreements, the Company has rights of offset including in the event of the Company’s default, insolvency, or bankruptcy.
These financial instruments are offset in the Consolidated Statements of Financial Position.
191
A credit linked note is a fixed income instrument the term of which, in this case, is linked to a variable surplus note. A surplus note is a
subordinated debt obligation that often qualifies as surplus (the U.S. statutory equivalent of equity) by some U.S. state insurance
regulators. Interest payments on surplus notes are made after all other contractual payments are made. The following table presents the
effect of unconditional netting.
As at December 31, 2022
Credit linked note(1)
Variable surplus note
As at December 31, 2021
Credit linked note(1)
Variable surplus note
Gross amounts of
financial instruments
Amounts subject to
an enforceable
netting arrangement
Net amounts of
financial instruments
$ 1,242
(1,242)
$ (1,242)
1,242
$ –
–
Gross amounts of
financial instruments
Amounts subject to
an enforceable
netting arrangement
Net amounts of
financial instruments
$ 1,054
(1,054)
$ (1,054)
1,054
$ –
–
(1) As at December 31, 2022 and 2021, the Company had no fixed surplus notes outstanding, refer to note 19(g).
(f) Risk concentrations
The Company defines enterprise-wide investment portfolio level targets and limits to ensure that portfolios are diversified across asset
classes and individual investment risks. The Company monitors actual investment positions and risk exposures for concentration risk and
reports its findings to the Executive Risk Committee and the Risk Committee of the Board of Directors.
As at December 31,
Debt securities and private placements rated as investment grade BBB or higher(1)
Government debt securities as a per cent of total debt securities
Government private placements as a per cent of total private placements
Highest exposure to a single non-government debt security and private placement issuer
Largest single issuer as a per cent of the total equity portfolio
Income producing commercial office properties (2022 – 41% of real estate, 2021 – 47%)
Largest concentration of mortgages and real estate(2) – Ontario Canada (2022 – 27%, 2021 – 28%)
2022
2021
96%
36%
10%
$ 1,006
2%
$ 5,486
$ 18,343
97%
36%
11%
$ 1,167
2%
$ 6,244
$ 18,253
(1) Investment grade debt securities and private placements include 39% rated A, 17% rated AA and 14% rated AAA (2021 – 39%, 17% and 15%) investments based on external
ratings where available.
(2) Mortgages and real estate investments are diversified geographically and by property type.
The following table presents debt securities and private placements portfolio by sector and industry.
As at December 31,
Government and agency
Utilities
Financial
Consumer
Energy
Industrial
Other
Total
2022
2021
Carrying value
% of total
Carrying value
% of total
$ 77,236
46,315
38,808
31,556
16,314
23,823
16,909
$ 250,961
31
18
15
13
7
9
7
100
$ 84,244
48,372
38,905
32,671
19,637
24,727
18,425
$ 266,981
32
18
15
12
7
9
7
100
(g) Insurance risk
Insurance risk is the risk of loss due to actual experience for mortality and morbidity claims, policyholder behaviour and expenses emerging
differently than assumed when a product was designed and priced. A variety of assumptions are made related to these experience factors,
for reinsurance costs, and for sales levels when products are designed and priced, as well as in the determination of policy liabilities.
Assumptions for future claims are generally based on both Company and industry experience, and assumptions for future policyholder
behaviour and expenses are generally based on Company experience. Such assumptions require significant professional judgment, and
actual experience may be materially different than the assumptions made by the Company. Claims may be impacted unexpectedly by
changes in the prevalence of diseases or illnesses, medical and technology advances, widespread lifestyle changes, natural disasters, large-
scale man-made disasters and acts of terrorism. Policyholder behaviour including premium payment patterns, policy renewals, lapse rates
and withdrawal and surrender activity are influenced by many factors including market and general economic conditions, and the availability
and relative attractiveness of other products in the marketplace. Some reinsurance rates are not guaranteed and may be changed
unexpectedly. Adjustments the Company seeks to make to Non-Guaranteed elements to reflect changing experience factors may be
challenged by regulatory or legal action and the Company may be unable to implement them or may face delays in implementation.
192 | 2022 Annual Report | Notes to Consolidated Financial Statements
The Company manages insurance risk through global policies, standards and best practices with respect to product design, pricing,
underwriting and claim adjudication, and a global underwriting manual. Each business unit establishes underwriting policies and
procedures, including criteria for approval of risks and claims adjudication policies and procedures. The current global life retention limit is
US$30 for individual policies (US$35 for survivorship life policies) and is shared across businesses. Lower limits are applied in some
markets and jurisdictions. The Company aims to further reduce exposure to claims concentrations by applying geographical aggregate
retention limits for certain covers. Enterprise-wide, the Company aims to reduce the likelihood of high aggregate claims by operating
globally, insuring a wide range of unrelated risk events, and reinsuring some risk.
(h) Concentration risk
The geographic concentration of the Company’s insurance and investment contract liabilities, including embedded derivatives, is shown
below. The disclosure is based on the countries in which the business is written.
As at December 31, 2022
U.S. and Canada
Asia and Other
Total
As at December 31, 2021
U.S. and Canada
Asia and Other
Total
Gross
liabilities
Reinsurance
assets
$ 251,305
123,808
$ 375,113
$ (45,898)
(1,814)
$ (47,712)
Net liabilities
$ 205,407
121,994
$ 327,401
Gross
liabilities
Reinsurance
assets
Net liabilities
$ 271,090
124,398
$ 395,488
$ (42,806) $ 228,284
122,625
$ (44,579) $ 350,909
(1,773)
(i) Reinsurance risk
In the normal course of business, the Company limits the amount of loss on any one policy by reinsuring certain levels of risk with other
insurers. In addition, the Company accepts reinsurance from other reinsurers. Reinsurance ceded does not discharge the Company’s
liability as the primary insurer. Failure of reinsurers to honour their obligations could result in losses to the Company; consequently,
allowances are established for amounts deemed uncollectible. To minimize losses from reinsurer insolvency, the Company monitors the
concentration of credit risk both geographically and with any one reinsurer. In addition, the Company selects reinsurers with high credit
ratings.
As at December 31, 2022, the Company had $47,712 (2021 – $44,579) of reinsurance assets. Of this, 91 per cent (2021 – 94 per cent)
were ceded to reinsurers with Standard and Poor’s ratings of A- or above. The Company’s exposure to credit risk was mitigated by $25,247
fair value of collateral held as security as at December 31, 2022 (2021 – $25,466). Net exposure after considering offsetting agreements
and the benefit of the fair value of collateral held was $22,465 as at December 31, 2022 (2021 – $19,113).
Note 10 Long-Term Debt
(a) Carrying value of long-term debt instruments
As at December 31,
Issue date
3.050% Senior notes(1),(2)
5.375% Senior notes(1),(3)
3.703% Senior notes(1),(4)
2.396% Senior notes(1),(5)
2.484% Senior notes(1),(5)
3.527% Senior notes(1),(3)
4.150% Senior notes(1),(3)
Total
August 27, 2020
March 4, 2016
March 16, 2022
June 1, 2020
May 19, 2020
December 2, 2016
March 4, 2016
Maturity date
August 27, 2060
March 4, 2046
March 16, 2032
June 1, 2027
May 19, 2027
December 2, 2026
March 4, 2026
Par value
US$ 1,155
US$ 750
US$ 750
US$ 200
US$ 500
US$ 270
US$ 1,000
2022
$ 1,559
1,004
1,011
270
674
365
1,351
$ 6,234
2021
$ 1,455
939
–
253
630
342
1,263
$ 4,882
(1) These U.S. dollar senior notes have been designated as hedges of the Company’s net investment in its U.S. operations which reduces the earnings volatility that would otherwise
arise from the re-measurement of these senior notes into Canadian dollars.
(2) MFC may redeem the notes in whole, but not in part, on August 27, 2025, and thereafter on every August 27 at a redemption price equal to par, together with accrued and
unpaid interest. Issue costs are amortized to the earliest par redemption date.
(3) MFC may redeem the senior notes in whole or in part, at any time, at a redemption price equal to the greater of par and a price based on the yield of a corresponding
U.S. Treasury bond, from redemption date to the respective maturity date, plus a specified number of basis points. The specified number of basis points is as follows: 5.375% -
40 bps, 3.527% - 20 bps, and 4.150% - 35 bps. Issue costs are amortized over the term of the debt.
(4) Issued by MFC during the first quarter, interest is payable semi-annually. The Company may redeem the senior notes in whole or in part, at any time, at a redemption price equal
to the greater of par and a price based on the yield of a corresponding U.S. Treasury bond, from redemption date to December 16, 2031, plus 25 bps, together with accrued
and unpaid interest. Issue costs are amortized over the term of the debt.
(5) MFC may redeem the senior notes in whole or in part, at any time, at a redemption price equal to the greater of par and a price based on the yield of a corresponding U.S.
Treasury bond, from redemption date to two months before the respective maturity date, plus a specified number of basis points. The specified number of basis points is as
follows: 2.396% - 30 bps, and 2.484% - 30 bps. Issuance costs are amortized over the term of the debt.
19
The cash amount of interest paid on long-term debt during the year ended December 31, 2022 was $204 (2021 – $210).
(b) Fair value measurement
Fair value of long-term debt instruments is determined using the following hierarchy:
Level 1 – Fair value is determined using quoted market prices where available.
Level 2 – When quoted market prices are not available, fair value is determined with reference to quoted prices of similar debt instruments
or estimated using discounted cash flows based on observable market rates.
The Company measures long-term debt at amortized cost in the Consolidated Statements of Financial Position. As at December 31, 2022,
the fair value of long-term debt was $5,587 (2021 – $5,439). Fair value of long-term debt was determined using Level 2 valuation
techniques (2021 – Level 2).
(c) Aggregate maturities of long-term debt
As at December 31
2022
2021
Note 11 Capital Instruments
(a) Carrying value of capital instruments
Less than
1 year
1 to 3
years
3 to 5
years
Over 5
years
Total
$
$
–
–
–
–
$ 2,661
1,605
$ 3,573
3,277
$ 6,234
4,882
As at December 31,
Issuance date
Earliest par
redemption date
Maturity date
Par value
2022
2021
JHFC Subordinated notes(1),(2)
2.818% MFC Subordinated debentures(1),(3)
4.061% MFC Subordinated notes(1),(4),(5)
2.237% MFC Subordinated debentures(1),(6)
3.00% MFC Subordinated notes(1),(7)
3.049% MFC Subordinated debentures(1),(8)
3.317% MFC Subordinated debentures(1),(8)
3.181% MLI Subordinated debentures(9)
7.375% JHUSA Surplus notes(10)
Total
650 $
May 13, 2030
February 24, 2027
May 12, 2025
December 14, 2006 n/a
May 12, 2020
February 24, 2017
May 12, 2020
November 21, 2017 November 21, 2024 November 21, 2029 S$
$
August 18, 2017
May 9, 2018
$
November 20, 2015 November 22, 2022 November 22, 2027 $
February 25, 1994
December 15, 2036 $
$
May 13, 2035
1,000
US$ 750
February 24, 2032
1,000
$
May 12, 2030
500
750
600
1,000
US$ 450
August 20, 2029
May 9, 2028
August 20, 2024
May 9, 2023
February 15, 2024
n/a
647
996
1,013
998
504
749
600
–
615
$ 6,122
$ 647
995
947
997
469
748
599
999
579
$ 6,980
(1) The Company is monitoring regulatory and market developments globally with respect to the interest rate benchmark reform. As reference interest rates for these capital
instruments could potentially be discontinued in the future, the Company will take appropriate actions in due course to accomplish the necessary transitions or replacements.
As at December 31, 2022, capital instruments of $647 (2021 – $647) have interest rate referencing CDOR. In addition, capital instruments of $3,343, $1,013, and $504
(2021 – $4,338, $947, and $469, respectively) have interest rate reset in the future referencing CDOR, the USD Mid-Swap rate, and the SGD swap rate, respectively.
(2) Issued by Manulife Holdings (Delaware) LLC (“MHDLL”), now John Hancock Financial Corporation (“JHFC”), a wholly owned subsidiary of MFC, to Manulife Finance (Delaware)
LLC (“MFLLC”), a subsidiary of Manulife Finance (Delaware) L.P. (“MFLP”). MFLP and its subsidiaries are wholly owned unconsolidated related parties of the Company. The
notes bear interest at a floating rate equal to the 90-day Bankers’ Acceptance rate plus 0.72%. With regulatory approval, JHFC may redeem the note, in whole or in part, at any
time, at par, together with accrued and unpaid interest. Refer to note 18.
(3) Issued by MFC, interest is payable semi-annually. After May 13, 2030, the interest rate will reset to equal 3-month CDOR plus 1.82%. With regulatory approval, MFC may
redeem the debentures, in whole, or in part, on or after May 13, 2025, at a redemption price together with accrued and unpaid interest. If the redemption date is on or after
May 13, 2025, but prior to May 13, 2030, the redemption price shall be the greater of: (i) the Canada yield price as defined in the prospectus; and (ii) par. If the redemption
date is on or after May 13, 2030, the redemption price shall be equal to par.
(4) On the earliest par redemption date, the interest rate will reset to equal the 5-Year US Dollar Mid-Swap Rate plus 1.647%. With regulatory approval, MFC may redeem the
debentures, in whole, but not in part, on the earliest par redemption date, at a redemption price equal to par, together with accrued and unpaid interest.
(5) Designated as a hedge of the Company’s net investment in its U.S. operations which reduces the earnings volatility that would otherwise arise from the re-measurement of the
subordinated notes into Canadian dollars.
(6) Issued by MFC, interest is payable semi-annually. After May 12, 2025, the interest rate will reset to equal 3-month CDOR plus 1.49%. With regulatory approval, MFC may
redeem the debentures, in whole, or in part, on or after May 12, 2025, at a redemption price equal to par, together with accrued and unpaid interest.
(7) On the earliest par redemption date, the interest rate will reset to equal the 5-Year Singapore Dollar Swap Rate plus 0.832%. With regulatory approval, MFC may redeem the
debentures, in whole, but not in part, on the earliest par redemption date and thereafter on each interest payment date, at a redemption price equal to par, together with
accrued and unpaid interest.
(8) Interest is fixed for the period up to the earliest par redemption date, thereafter, the interest rate will reset to a floating rate equal to the 3-month CDOR plus a specified
number of basis points. The specified number of basis points is as follows: 3.049% - 105 bps, 3.317% - 78 bps. With regulatory approval, MFC may redeem the debentures, in
whole or in part, on or after the earliest par redemption date, at a redemption price equal to par, together with accrued and unpaid interest.
(9) MLI redeemed in full the 3.181% MLI subordinated debentures at par, on November 22, 2022, the earliest par redemption date.
(10) Issued by John Hancock Mutual Life Insurance Company, now John Hancock Life Insurance Company (U.S.A.). Any payment of interest or principal on the surplus notes
requires prior approval from the Department of Insurance and Financial Services of the State of Michigan. The carrying value of the surplus notes reflects an unamortized fair
value increment of US$5 (2021 – US$9), which arose as a result of the acquisition of John Hancock Financial Services, Inc. The amortization of the fair value adjustment is
recorded in interest expense.
194 | 2022 Annual Report | Notes to Consolidated Financial Statements
(b) Fair value measurement
Fair value of capital instruments is determined using the following hierarchy:
Level 1 – Fair value is determined using quoted market prices where available.
Level 2 – When quoted market prices are not available, fair value is determined with reference to quoted prices of similar debt instruments
or estimated using discounted cash flows based on observable market rates.
The Company measures capital instruments at amortized cost in the Consolidated Statements of Financial Position. As at December 31,
2022, the fair value of capital instruments was $5,737 (2021 – $7,213). Fair value of capital instruments was determined using Level 2
valuation techniques (2021 – Level 2).
Note 12 Equity Capital and Earnings Per Share
The authorized capital of MFC consists of:
• an unlimited number of common shares without nominal or par value; and
• an unlimited number of Class A, Class B and Class 1 preferred shares without nominal or par value, issuable in series.
(a) Preferred shares and other equity instruments
The following table presents information about the outstanding preferred shares and other equity instruments as at December 31, 2022
and 2021.
Issue date
Annual dividend/
distribution rate(1)
Earliest redemption
date(2),(3)
Number of
shares
(in millions)
Face
amount
Net amount(4)
2022
2021
As at December 31, 2022
Preferred shares
Class A preferred shares
Series 2
Series 3
Class 1 preferred shares
Series 3(5),(6)
Series 4(7)
Series 7(8)
Series 9(5),(6),(9)
Series 11(5),(6)
Series 13(5),(6)
Series 15(5),(6)
Series 17(5),(6)
Series 19(5),(6)
Series 23(8)
Series 25(5),(6)
February 18, 2005
January 3, 2006
March 11, 2011
June 20, 2016
February 22, 2012
May 24, 2012
December 4, 2012
June 21, 2013
February 25, 2014
August 15, 2014
December 3, 2014
November 22, 2016
February 20, 2018
Other equity instruments
Limited recourse capital notes(10)
Series 1(11)
Series 2(11)
Series 3(11)
Total
February 19, 2021
November 12, 2021
June 16, 2022
4.65%
4.50%
2.348%
floating
4.312%
5.978%
4.731%
4.414%
3.786%
3.80%
3.675%
4.85%
4.70%
3.375%
4.100%
7.117%
n/a
n/a
June 19, 2026
June 19, 2026
March 19, 2022
September 19, 2027
March 19, 2023
September 19, 2023
June 19, 2024
December 19, 2024
March 19, 2025
March 19, 2022
June 19, 2023
14
12
7
1
10
10
8
8
8
14
10
19
10
$ 350
300
$
163
37
250
250
200
200
200
350
250
475
250
344
294
160
36
–
244
196
196
195
343
246
–
245
$ 344
294
160
36
244
244
196
196
195
343
246
467
245
May 19, 2026
February 19, 2027
June 19, 2027
n/a
n/a
n/a
131
2,000
1,200
1,000
$ 7,475
1,982
1,189
990
$ 6,660
1,982
1,189
–
$ 6,381
(1) Holders of Class A and Class 1 preferred shares are entitled to receive non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of
Directors. Non-deferrable distributions are payable to all LRCN holders semi-annually at the Company’s discretion.
(2) Redemption of all preferred shares is subject to regulatory approval. MFC may redeem each series, in whole or in part, at par, on the earliest redemption date or every five
years thereafter, except for Class A Series 2, Class A Series 3 and Class 1 Series 4 preferred shares. Class A Series 2 and Series 3 preferred shares are past their respective
earliest redemption date and MFC may redeem these preferred shares, in whole or in part, at par at any time, subject to regulatory approval, as noted. MFC may redeem the
Class 1 Series 4 preferred shares, in whole or in part, at any time, at $25.00 per share if redeemed on June 19, 2026 (the earliest redemption date) and on June 19 every five
years thereafter, or at $25.50 per share if redeemed on any other date after June 19, 2021, subject to regulatory approval, as noted.
(3) Redemption of all LRCN series notes is subject to regulatory approval. MFC may at its option redeem each series in whole or in part, at a redemption price equal to par,
together with accrued and unpaid interest. The redemption period for Series 1 is every five years during the period from May 19 to and including June 19, commencing in
2026. The redemption period for Series 2 is every five years during the period from February 19 to and including March 19, commencing in 2027. After the first redemption
date, the redemption period for Series 3 is every five years during the period from May 19 to and including June 19, commencing in 2032.
(4) Net of after-tax issuance costs.
(5) On the earliest redemption date and every five years thereafter, the annual dividend rate will be reset to the five-year Government of Canada bond yield plus a yield specified for
each series. The specified yield for Class 1 preferred shares is: Series 3 – 1.41%, Series 9 – 2.86%, Series 11 – 2.61%, Series 13 – 2.22%, Series 15 – 2.16%, Series 17 –
2.36%, Series 19 – 2.30% and Series 25 – 2.55%.
(6) On the earliest redemption date and every five years thereafter, Class 1 preferred shares are convertible at the option of the holder into a new series that is one number higher
than their existing series, and the holders are entitled to non-cumulative preferential cash dividends, payable quarterly if and when declared by the Board of Directors, at a rate
equal to the three-month Government of Canada Treasury bill yield plus the rate specified in footnote 5 above.
195
(7) The floating dividend rate for the Class 1 Series 4 preferred shares equals the three-month Government of Canada Treasury bill yield plus 1.41%.
(8) MFC redeemed in full the Class 1 Series 7 and Class 1 Series 23 preferred shares at par, on March 19, 2022, which is the earliest redemption date.
(9) MFC did not exercise its right to redeem all or any of the outstanding Class 1 Series 9 preferred shares on September 19, 2022, which is the earliest redemption date. The
dividend rate was reset as specified in footnote 5 above to an annual fixed rate of 5.978%, for a five-year period commencing on September 20, 2022.
(10) Non-payment of distributions or principal on any LRCN series notes when due will result in a recourse event. The recourse of each noteholder will be limited to their
proportionate amount of the Limited Resource Trust’s assets which comprise of Class 1 Series 27 preferred shares for LRCN Series 1 notes, Class 1 Series 28 preferred
shares for LRCN Series 2 notes, and Class 1 Series 29 preferred shares for LRCN Series 3 notes. All claims of the holders of LRCN series notes against MFC will be
extinguished upon receipt of the corresponding trust assets. The Class 1 Series 27, Class 1 Series 28, and Class 1 Series 29 preferred shares are eliminated on consolidation
while being held in the Limited Recourse Trust.
(11) The LRCN Series 1 distribute at a fixed rate of 3.375% payable semi-annually, until June 18, 2026; on June 19, 2026 and every five years thereafter until June 19, 2076, the
rate will be reset at a rate equal to the five-year Government of Canada yield as defined in the prospectus, plus 2.839%. The LRCN Series 2 distribute at a fixed rate of 4.10%
payable semi-annually, until March 18, 2027; on March 19, 2027 and every five years thereafter until March 19, 2077, the rate will be reset at a rate equal to the five-year
Government of Canada yield as defined in the prospectus, plus 2.704%. The LRCN Series 3 distribute at a fixed rate of 7.117% payable semi-annually, until June 18, 2027; on
June 19, 2027 and every five years thereafter until June 19, 2077, the rate will be reset at a rate equal to the five-year Government of Canada yield as defined in the
prospectus, plus 3.95%.
(b) Common shares
The following table presents changes in common shares issued and outstanding.
For the years ended December 31,
Balance, January 1
Repurchased for cancellation
Issued on exercise of stock options and deferred share units
Total
Normal Course Issuer Bid
2022
2021
Number of
shares
(in millions)
1,943
(79)
1
1,865
Amount
$ 23,093
(938)
23
$ 22,178
Number of
shares
(in millions)
1,940
–
3
1,943
Amount
$ 23,042
–
51
$ 23,093
On February 1, 2022, the Company announced that the Toronto Stock Exchange (“TSX”) approved a normal course issuer bid (“NCIB”)
permitting the purchase for cancellation of up to 97 million common shares. Under this NCIB which commenced on February 3, 2022, and
expired on February 2, 2023, MFC purchased for cancellation 85.8 million of its common shares at an average price of $23.99 per share
for a total cost of $2,060, which represent 4.4% of its issued and outstanding common shares.
During the year ended December 31, 2022, the Company purchased and subsequently cancelled 78.9 million shares for $1,884. Of this,
$938 was recorded in common shares and $946 was recorded in retained earnings in the Consolidated Statements of Changes in Equity.
On February 15, 2023, the Company announced, subject to the approval of the TSX, its intention to launch an NCIB permitting the
purchase for cancellation of up to 55.7 million common shares, representing approximately 3% of its issued and outstanding common
shares. Purchases under the NCIB may commence after the TSX has accepted the notice of intention and continue for up to one year, or
such earlier date as the Company completes its purchases.
(c) Earnings per share
The following table presents basic and diluted earnings per common share of the Company.
For the years ended December 31,
Basic earnings per common share
Diluted earnings per common share
The following is a reconciliation of the number of shares in the calculation of basic and diluted earnings per share.
For the years ended December 31,
Weighted average number of common shares (in millions)
Dilutive stock-based awards(1) (in millions)
Weighted average number of diluted common shares (in millions)
2022
2021
$ 3.68
3.68
$ 3.55
3.54
2022
1,910
3
1,913
2021
1,942
4
1,946
(1) The dilutive effect of stock-based awards was calculated using the treasury stock method. This method calculates the number of incremental shares by assuming the
outstanding stock-based awards are (i) exercised and (ii) then reduced by the number of shares assumed to be repurchased from the issuance proceeds, using the average
market price of MFC common shares for the year. Excluded from the calculation was a weighted average of 9 million (2021 – nil million) anti-dilutive stock-based awards.
196 | 2022 Annual Report | Notes to Consolidated Financial Statements
(d) Quarterly dividend declaration subsequent to year end
On February 15, 2023, the Company’s Board of Directors approved a quarterly dividend of $0.365 per share on the common shares of
MFC, payable on or after March 20, 2023 to shareholders of record at the close of business on February 28, 2023.
The Board also declared dividends on the following non-cumulative preferred shares, payable on or after March 19, 2023 to shareholders
of record at the close of business on February 28, 2023.
Class A Shares Series 2 – $0.29063 per share
Class A Shares Series 3 – $0.28125 per share
Class 1 Shares Series 3 – $0.14675 per share
Class 1 Shares Series 4 – $0.34089 per share
Class 1 Shares Series 9 – $0.373625 per share
Class 1 Shares Series 11 – $0.295688 per share
Note 13 Capital Management
Class 1 Shares Series 13 – $0.275875 per share
Class 1 Shares Series 15 – $0.236625 per share
Class 1 Shares Series 17 – $0.2375 per share
Class 1 Shares Series 19 – $0.229688 per share
Class 1 Shares Series 25 – $0.29375 per share
(a) Capital management
The Company monitors and manages its consolidated capital in compliance with the Life Insurance Capital Adequacy Test (“LICAT”)
guideline, the capital framework issued by the Office of the Superintendent of Financial Institutions (“OSFI”). Under the capital framework,
the Company’s consolidated capital resources, including available capital, surplus allowance, and eligible deposits, are measured against
the base solvency buffer, which is the risk-based capital requirement determined in accordance with the guideline.
The Company’s operating activities are primarily conducted within MLI and its subsidiaries. MLI is also regulated by OSFI and is therefore
subject to consolidated risk-based capital requirements using the OSFI LICAT framework.
The Company seeks to manage its capital with the objectives of:
• Operating with sufficient capital to be able to honour all commitments to its policyholders and creditors with a high degree of
confidence;
• Retaining the ongoing confidence of regulators, policyholders, rating agencies, investors and other creditors in order to ensure access
to capital markets; and
• Optimizing return on capital to meet shareholders’ expectations subject to constraints and considerations of adequate levels of capital
established to meet the first two objectives.
Capital is managed and monitored in accordance with the Capital Management Policy. The policy is reviewed and approved by the Board of
Directors annually and is integrated with the Company’s risk and financial management frameworks. It establishes guidelines regarding the
quantity and quality of capital, internal capital mobility, and proactive management of ongoing and future capital requirements.
The capital management framework considers the requirements of the Company as a whole as well as the needs of each of the Company’s
subsidiaries. Internal capital targets are set above the regulatory requirements, and consider a number of factors, including expectations
of regulators and rating agencies, results of sensitivity and stress testing and the Company’s own risk assessments. The Company
monitors against these internal targets and initiates actions appropriate to achieving its business objectives.
Consolidated capital, based on accounting standards, is presented in the table below for MFC. For regulatory reporting purposes, under
the LICAT framework, the numbers are further adjusted for various additions or deductions to capital as mandated by the guidelines used
by OSFI.
Consolidated capital
As at December 31,
Total equity
Exclude AOCI gain/(loss) on cash flow hedges
Total equity excluding AOCI on cash flow hedges
Qualifying capital instruments
Consolidated capital
2022
2021
$ 56,379
8
56,371
6,122
$ 62,493
$ 58,869
(156)
59,025
6,980
$ 66,005
(b) Restrictions on dividends and capital distributions
Dividends and capital distributions are restricted under the Insurance Companies Act (“ICA”). These restrictions apply to both MFC and its
primary operating subsidiary MLI. The ICA prohibits the declaration or payment of any dividend on shares of an insurance company if there
are reasonable grounds for believing a company does not have adequate capital and adequate and appropriate forms of liquidity or the
declaration or the payment of the dividend would cause the company to be in contravention of any regulation made under the ICA
respecting the maintenance of adequate capital and adequate and appropriate forms of liquidity, or of any direction made to the company
197
by OSFI. The ICA also requires an insurance company to notify OSFI of the declaration of a dividend at least 15 days prior to the date fixed
for its payment. Similarly, the ICA prohibits the purchase for cancellation of any shares issued by an insurance company or the redemption
of any redeemable shares or other similar capital transactions, if there are reasonable grounds for believing that the company does not
have adequate capital and adequate and appropriate forms of liquidity or the payment would cause the company to be in contravention of
any regulation made under the ICA respecting the maintenance of adequate capital and adequate and appropriate forms of liquidity, or any
direction made to the company by OSFI. These latter transactions would require the prior approval of OSFI.
The ICA requires Canadian insurance companies to maintain adequate levels of capital at all times.
Since MFC is a holding company that conducts all of its operations through regulated insurance subsidiaries (or companies owned directly
or indirectly by these subsidiaries), its ability to pay future dividends will depend on the receipt of sufficient funds from its regulated
insurance subsidiaries. These subsidiaries are also subject to certain regulatory restrictions under laws in Canada, the United States and
certain other countries that may limit their ability to pay dividends or make other upstream distributions.
Note 14 Revenue from Service Contracts
The Company provides investment management services, transaction processing and administrative services and distribution and related
services to proprietary and third-party investment funds, retirement plans, group benefit plans, institutional investors and other
arrangements. The Company also provides real estate management services to tenants of the Company’s investment properties.
The Company’s service contracts generally impose single performance obligations, each consisting of a series of similar related services
for each customer.
The Company’s performance obligations within service arrangements are generally satisfied over time as the customer simultaneously
receives and consumes the benefits of the services rendered, measured using an output method. Fees typically include variable
consideration and the related revenue is recognized to the extent that it is highly probable that a significant reversal in the amount of
cumulative revenue recognized will not occur when the uncertainty is subsequently resolved.
Asset based fees vary with asset values of accounts under management, subject to market conditions and investor behaviors beyond the
Company’s control. Transaction processing and administrative fees vary with activity volume, also beyond the Company’s control. Some
fees, including distribution fees, are based on account balances and transaction volumes. Fees related to account balances and
transaction volumes are measured daily. Real estate management service fees include fixed portions plus recovery of variable costs of
services rendered to tenants. Fees related to services provided are generally recognized as services are rendered, which is when it
becomes highly probable that no significant reversal of cumulative revenue recognized will occur. The Company has determined that its
service contracts have no significant financing components because fees are collected monthly. The Company has no significant contract
assets or contract liabilities.
The following tables present revenue from service contracts by service lines and reporting segments as disclosed in note 20.
For the year ended December 31, 2022
Investment management and other related fees
Transaction processing, administration, and service fees
Distribution fees and other
Total included in other revenue
Revenue from non-service lines
Total other revenue
Real estate management services included in net investment income
Asia
Canada
$
234
292
143
669
789
$ 1,458
35
$
$
242
866
43
1,151
275
$ 1,426
136
$
$
$
$
U.S.
445
13
76
534
(76)
458
126
Global
WAM
Corporate
and Other
$ 3,079
2,416
868
6,363
(13)
$ 6,350
–
$
$ (250)
(8)
(44)
(302)
(226)
$ (528)
8
$
Total
$ 3,750
3,579
1,086
8,415
749
$ 9,164
305
$
For the year ended December 31, 2021
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Investment management and other related fees
Transaction processing, administration, and service fees
Distribution fees and other
Total included in other revenue
Revenue from non-service lines
Total other revenue
Real estate management services included in net investment income
$ 217
287
251
755
941
$ 1,696
37
$
$ 230
918
20
1,168
168
$ 1,336
$ 126
$ 499
12
65
576
1,248
$ 1,824
$ 128
$ 3,198
2,517
799
6,514
(1)
$ 6,513
–
$
198 | 2022 Annual Report | Notes to Consolidated Financial Statements
(11)
(54)
(312)
75
$ (247) $ 3,897
3,723
1,081
8,701
2,431
$ (237) $ 11,132
298
$
$
7
Note 15 Stock-Based Compensation
(a) Stock options
The Company grants stock options under its Executive Stock Option Plan (“ESOP”) to selected individuals. The options provide the holder
the right to purchase MFC common shares at an exercise price equal to the higher of the prior day, prior five-day or prior ten-day average
closing market price of the shares on the Toronto Stock Exchange on the date the options are granted. The options vest over a period not
exceeding four years and expire not more than 10 years from the grant date. Effective with the 2015 grant, options may only be exercised
after the fifth-year anniversary. A total of 73,600,000 common shares have been reserved for issuance under the ESOP.
Options outstanding
For the years ended December 31,
Outstanding, January 1
Granted
Exercised
Expired
Forfeited
Outstanding, December 31
Exercisable, December 31
2022
2021
Number of
options
(in millions)
Weighted
average
exercise price
Number of
options
(in millions)
Weighted
average
exercise price
21
–
(1)
–
–
20
10
$ 22.09
–
16.15
24.63
23.96
$ 22.42
$ 20.91
24
–
(3)
–
–
21
8
$ 21.74
–
18.34
24.73
23.96
$ 22.09
$ 18.94
For the year ended December 31, 2022
$12.64—$20.99
$21.00—$24.83
Total
No stock options were granted in 2022 or 2021.
Options outstanding
Options exercisable
Number of
options
(in millions)
Weighted
average
exercise price
4
16
20
$ 17.42
$ 23.58
$ 22.42
Weighted average
remaining
contractual life
(in years)
2.91
4.94
4.56
Number of
options
(in millions)
Weighted
average
exercise price
4
6
10
$ 17.42
$ 23.08
$ 20.91
Weighted average
remaining
contractual life
(in years)
2.91
2.95
2.93
Compensation expense related to stock options was $5 for the year ended December 31, 2022 (2021 – $9).
(b) Deferred share units
In 2000, the Company granted deferred share units (“DSUs”) on a one-time basis to certain employees under the ESOP. These DSUs vest
over a three-year period and each DSU entitles the holder to receive one common share on retirement or termination of employment. When
dividends are paid on common shares, holders of DSUs are deemed to receive dividends at the same rate, payable in the form of additional
DSUs. The number of these DSUs outstanding was 166,000 as at December 31, 2022 (2021 – 188,000).
In addition, for certain employees and pursuant to the Company’s deferred compensation program, the Company grants DSUs under the
Restricted Share Units (“RSUs”) Plan which entitle the holder to receive payment in cash equal to the value of the same number of common
shares plus credited dividends on retirement or termination of employment. In 2022, the Company granted 30,000 DSUs to certain
employees which vest after 36 months (2021 – 34,000). In 2022, 106,000 DSUs (2021 – 26,000) were granted to certain employees who
elected to defer receipt of all or part of their annual bonus. These DSUs vested immediately.
Under the Stock Plan for Non-Employee Directors, each eligible director may elect to receive his or her annual director’s retainer and fees
in DSUs (which vest immediately) or common shares in lieu of cash. In 2022, 116,000 DSUs (2021 – 101,000) were issued under this
arrangement. Upon termination of the Board service, an eligible director who has elected to receive DSUs will be entitled to receive cash
equal to the value of the DSUs accumulated in his or her account, or at his or her direction, an equivalent number of common shares. The
Company is allowed to issue up to one million common shares under this plan after which awards may be settled using shares purchased in
the open market.
199
The fair value of 252,000 DSUs issued during the year was $24.15 per unit as at December 31, 2022 (2021 – 161,000 at $24.11 per unit).
For the years ended December 31,
Number of DSUs (in thousands)
Outstanding, January 1
Issued
Reinvested
Redeemed
Forfeitures and cancellations
Outstanding, December 31
2022
2021
2,079
252
126
(75)
(9)
2,373
2,169
161
100
(345)
(6)
2,079
Of the DSUs outstanding as at December 31, 2022, 166,000 (2021 – 188,000) entitle the holder to receive common shares, 977,000
(2021 – 840,000) entitle the holder to receive payment in cash and 1,230,000 (2021 – 1,051,000) entitle the holder to receive payment in
cash or common shares, at the option of the holder.
Compensation expense related to DSUs was $7 for the year ended December 31, 2022 (2021 – $6).
The carrying and fair value of the DSUs liability as at December 31, 2022 was $53 (2021 – $46) and was included in other liabilities.
(c) Restricted share units and performance share units
For the year ended December 31, 2022, 8.6 million RSUs (2021 – 6.8 million) and 1.7 million PSUs (2021 – 1.5 million) were granted to
certain eligible employees under MFC’s Restricted Share Unit Plan. The fair value of the RSUs and PSUs granted during the year was
$24.15 per unit as at December 31, 2022 (2021 – $24.11 per unit). Each RSU and PSU entitles the holder to receive payment equal to the
market value of one common share, plus credited dividends, at the time of vesting, subject to any performance conditions.
RSUs and PSUs granted in March 2022 will vest after 36 months from their grant date and the related compensation expense is
recognized over this period, unless the employee is eligible to retire at the time of grant or will be eligible to retire during the vesting
period, in which case the cost is recognized at the grant date or over the period between the grant date and the date on which the
employee is eligible to retire, respectively. Compensation expense related to RSUs and PSUs was $158 and $23, respectively, for the year
ended December 31, 2022 (2021 – $135 and $31, respectively).
The carrying and fair value of the RSUs and PSUs liability as at December 31, 2022 was $388 (2021 – $362) and was included in other
liabilities.
(d) Global share ownership plan
The Company’s Global Share Ownership Plan allows qualifying employees to apply up to five per cent of their annual base earnings toward
the purchase of common shares. The Company matches a percentage of the employee’s eligible contributions up to a maximum amount.
The Company’s contributions vest immediately. All contributions are used to purchase common shares in the open market on behalf of
participating employees.
Note 16 Employee Future Benefits
The Company maintains defined contribution and defined benefit pension plans and other post-employment plans for employees and
agents including registered (tax-qualified) pension plans that are typically funded, as well as supplemental non-registered (non-qualified)
pension plans for executives, retiree welfare plans and disability welfare plans that are typically not funded.
(a) Plan characteristics
The Company’s final average pay defined benefit pension plans and retiree welfare plans are closed to new members. All employees may
participate in capital accumulation plans including defined benefit cash balance plans, 401(k) plans and/or defined contribution plans,
depending on the country of employment.
All pension arrangements are governed by local pension committees or management, but significant plan changes require approval from
the Company’s Board of Directors.
The Company’s funding policy for defined benefit pension plans is to make the minimum annual contributions required by regulations in the
countries in which the plans are offered. Assumptions and methods prescribed for regulatory funding purposes typically differ from those
used for accounting purposes.
The Company’s remaining defined benefit pension and/or retiree welfare plans are in the U.S., Canada, Japan and Taiwan (China). There
are also disability welfare plans in the U.S. and Canada.
The largest defined benefit pension and retiree welfare plans are the primary plans for employees in the U.S. and Canada. These are the
material plans that are discussed in the balance of this note. The Company measures its defined benefit obligations and fair value of plan
assets for accounting purposes as at December 31 each year.
200 | 2022 Annual Report | Notes to Consolidated Financial Statements
U.S. defined benefit pension and retiree welfare plans
The Company operates a qualified cash balance plan that is open to new members, a closed non-qualified cash balance plan, and a closed
retiree welfare plan.
Actuarial valuations to determine the Company’s minimum funding contributions for the qualified cash balance plan are required annually.
Deficits revealed in the funding valuations must generally be funded over a period of up to seven years. It is expected that there will be no
required funding for this plan in 2023. There are no plan assets set aside for the non-qualified cash balance plan.
The retiree welfare plan subsidizes the cost of life insurance and medical benefits. The majority of those who retired after 1991 receive a
fixed-dollar subsidy from the Company based on service. The plan was closed to all employees hired after 2004. While assets have been
set aside in a qualified trust to pay future retiree welfare benefits, this funding is optional. Retiree welfare benefits offered under the plan
coordinate with the U.S. Medicare program to make optimal use of available federal financial support.
The qualified pension and retiree welfare plans are governed by the U.S. Benefits Committee, while the non-qualified pension plan is
governed by the U.S. Non-Qualified Plans Subcommittee.
Canadian defined benefit pension and retiree welfare plans
The Company’s defined benefit plans in Canada include two registered final average pay pension plans, a non-registered supplemental final
average pay pension plan and a retiree welfare plan, all of which have been closed to new members.
Actuarial valuations to determine the Company’s minimum funding contributions for the registered pension plans are required at least
once every three years. Deficits revealed in the funding valuation must generally be funded over a period of ten years. For 2023, the
required funding for these plans is expected to be $3. The non-registered supplemental pension plan is not funded.
The retiree welfare plan subsidizes the cost of life insurance, medical and dental benefits. These subsidies are a fixed-dollar amount for
those who retired after April 30, 2013 and have been eliminated for those who retire after 2019. There are no assets set aside for this plan.
The registered pension plans are governed by Pension Committees, while the supplemental non-registered plan is governed by the Board
of Directors. The retiree welfare plan is governed by management.
(b) Risks
In final average pay pension plans and retiree welfare plans, the Company generally bears the material risks which include interest rate,
investment, longevity and health care cost inflation risks. In defined contribution plans, these risks are typically borne by the employee. In
cash balance plans, the interest rate, investment and longevity risks are partially transferred to the employee.
Material sources of risk to the Company for all plans include:
• A decline in discount rates that increases the defined benefit obligations by more than the change in value of plan assets;
• Lower than expected rates of mortality; and
• For retiree welfare plans, higher than expected health care costs.
The Company has managed these risks through plan design and eligibility changes that have limited the size and growth of the defined
benefit obligations. Investment risks for funded plans are managed by investing significantly in asset classes which are highly correlated
with the plans’ liabilities.
In the U.S., delegated committee representatives and management review the financial status of the qualified defined benefit pension plan
at least monthly, and steps are taken in accordance with an established dynamic investment policy to increase the plan’s allocation to
asset classes which are highly correlated with the plan’s liabilities and reduce investment risk as the funded status improves. As at
December 31, 2022, the target asset allocation for the plan was 30% return-seeking assets and 70% liability-hedging assets (2021 - 30%
and 70%).
In Canada, internal committees and management review the financial status of the registered defined benefit pension plans on at least a
quarterly basis. As at December 31, 2022, the target asset allocation for the plans was 20% return-seeking assets and 80% liability-
hedging assets (2021 - 20% and 80%).
Certain long-term impacts of the COVID-19 pandemic (on future mortality and inflation, for example) are still unknown. The Company will
continue to closely monitor experience related to COVID-19, as well as emerging research, and will adjust its long-term assumptions
accordingly in the future.
201
(c) Pension and retiree welfare plans
The following tables present the reconciliation of defined benefit obligation and fair value of plan assets for the pension plans and retiree
welfare plans.
For the years ended December 31,
Changes in defined benefit obligation:
Opening balance
Current service cost
Past service cost - amendment
Interest cost
Plan participants’ contributions
Actuarial losses (gains) due to:
Experience
Demographic assumption changes
Economic assumption changes
Benefits paid
Impact of changes in foreign exchange rates
Defined benefit obligation, December 31
For the years ended December 31,
Change in plan assets:
Fair value of plan assets, opening balance
Interest income
Return on plan assets (excluding interest income)
Employer contributions
Plan participants’ contributions
Benefits paid
Administration costs
Impact of changes in foreign exchange rates
Fair value of plan assets, December 31
Pension plans
Retiree welfare plans
2022
2021
2022
2021
$ 4,560
43
(6)
127
–
5
–
(835)
(299)
199
$ 3,794
$ 4,901
44
–
115
–
3
7
(194)
(303)
(13)
$ 4,560
$ 584
–
–
16
3
(13)
–
(112)
(40)
28
$ 466
$ 638
–
–
15
3
–
1
(29)
(42)
(2)
$ 584
Pension plans
Retiree welfare plans
2022
2021
2022
2021
$ 4,510
127
(869)
59
–
(299)
(11)
205
$ 3,722
$ 4,595
109
70
61
–
(303)
(9)
(13)
$ 4,510
$ 587
16
(91)
11
3
(40)
(2)
39
$ 523
$ 606
14
(1)
11
3
(42)
(2)
(2)
$ 587
(d) Amounts recognized in the Consolidated Statements of Financial Position
The following table presents the deficit (surplus) and net defined benefit liability (asset) for the pension plans and retiree welfare plans.
As at December 31,
Development of net defined benefit liability
Defined benefit obligation
Fair value of plan assets
Deficit (surplus)
Effect of asset limit(1)
Deficit (surplus) and net defined benefit liability (asset)
Deficit is comprised of:
Funded or partially funded plans
Unfunded plans
Deficit (surplus) and net defined benefit liability (asset)
Pension plans
Retiree welfare plans
2022
2021
2022
2021
$ 3,794
3,722
72
48
120
$ 4,560
4,510
50
37
87
$ 466
523
(57)
–
(57)
$ 584
587
(3)
–
(3)
(441)
561
120
(600)
687
87
$
$
(168)
111
$ (57)
(154)
151
(3)
$
(1) The asset limit relates to a registered pension plan in Canada. The surplus in that plan is above the present value of economic benefits that can be derived by the Company
through reductions in future contributions. For the other funded pension plans, the present value of the economic benefits available in the form of reductions in future
contributions to the plans remains greater than the current surplus.
(e) Disaggregation of defined benefit obligation
The following table presents components of the defined benefit obligation between active members and inactive and retired members.
As at December 31,
Active members
Inactive and retired members
Total
U.S. plans
Canadian plans
Pension plans
Retiree welfare plans
Pension plans
Retiree welfare plans
2022
2021
2022
2021
2022
2021
2022
2021
$
509
2,006
$ 2,515
$ 537
2,371
$ 2,908
$ 11
344
$ 355
$ 17
416
$ 433
$
125
1,154
$ 1,279
$ 184
1,468
$ 1,652
$
–
111
$ 111
$
–
151
$ 151
202 | 2022 Annual Report | Notes to Consolidated Financial Statements
(f) Fair value measurements
The following tables present major categories of plan assets and the allocation to each category.
As at December 31, 2022
Cash and cash equivalents
Public equity securities(3)
Public debt securities
Other investments(4)
Total
As at December 31, 2021
Cash and cash equivalents
Public equity securities(3)
Public debt securities
Other investments(4)
Total
U.S. plans(1)
Canadian plans(2)
Pension plans
Retiree welfare plans
Pension plans
Retiree welfare plans
Fair value
35
$
377
1,509
660
$ 2,581
% of total
1%
15%
58%
26%
100%
Fair value
$ 22
41
445
15
$ 523
U.S. plans(1)
% of total
4%
8%
85%
3%
100%
Fair value
9
$
233
898
1
$ 1,141
% of total
1%
20%
79%
0%
100%
Fair value
$ –
–
–
–
$ –
Canadian plans(2)
% of total
–
–
–
–
–
Pension plans
Retiree welfare plans
Pension plans
Retiree welfare plans
Fair value
90
$
600
1,863
475
$ 3,028
% of total
3%
20%
61%
16%
100%
Fair value
$ 21
57
501
8
$ 587
% of total
4%
10%
85%
1%
100%
Fair value
14
$
322
1,144
2
$ 1,482
% of total
1%
22%
77%
0%
100%
Fair value
$ –
–
–
–
$ –
% of total
–
–
–
–
–
(1) The U.S. pension and retiree welfare plan assets have daily quoted prices in active markets, except for the private debt, infrastructure, private equity, real estate, timber and
agriculture assets. In the aggregate, the latter assets represent approximately 15% of all U.S. pension and retiree welfare plan assets as at December 31, 2022 (2021 – 7%).
(2) All the Canadian pension plan assets have daily quoted prices in active markets, except for the group annuity contract assets that represent approximately 0.1% of all Canadian
pension plan assets as at December 31, 2022 (2021 – 0.1%).
(3) Equity securities include direct investments in MFC common shares of $1.2 (2021 – $1.2) in the U.S. retiree welfare plan and $nil (2021 – $nil) in Canada.
(4) Other U.S. plan assets include investment in real estate, private debt, infrastructure, private equity, timberland and agriculture, and managed futures. Other Canadian pension
plan assets include investment in the group annuity contract.
(g) Net benefit cost recognized in the Consolidated Statements of Income
The following table presents components of the net benefit cost for the pension plans and retiree welfare plans.
For the years ended December 31,
Defined benefit current service cost(1)
Defined benefit administrative expenses
Past service cost-plan amendments and curtailments
Service cost
Interest on net defined benefit (asset) liability
Defined benefit cost
Defined contribution cost
Net benefit cost
Pension plans
Retiree welfare plans
2022
2021
2022
2021
$ 43
11
(6)
48
2
50
85
$ 135
$ 44
9
–
53
6
59
90
$ 149
$ –
2
–
2
–
2
–
$ 2
$ –
2
–
2
1
3
–
$ 3
(1) There are no significant current service costs for the retiree welfare plans as they are closed and mostly frozen. The remeasurement gain or loss on these plans is due to the
volatility of discount rates and investment returns.
(h) Re-measurement effects recognized in Other Comprehensive Income
The following table presents components of the re-measurement effects recognized in Other Comprehensive Income for the pension plans
and retiree welfare plans.
For the years ended December 31,
Actuarial gains (losses) on defined benefit obligations due to:
Experience
Demographic assumption changes
Economic assumption changes
Return on plan assets (excluding interest income)
Change in effect of asset limit (excluding interest)
Total re-measurement effects
Pension plans
Retiree welfare plans
2022
2021
2022
2021
$ (5)
–
835
(869)
(10)
$ (49)
$
(3)
(7)
194
70
(37)
$ 217
$ 13
–
112
(91)
–
$ 34
$ –
(1)
29
(1)
–
$ 27
20
(i) Assumptions
The following table presents key assumptions used by the Company to determine the defined benefit obligation and net benefit cost for the
defined benefit pension plans and retiree welfare plans.
U.S. Plans
Canadian Plans
Pension plans
Retiree welfare plans
Pension plans
Retiree welfare plans
For the years ended December 31,
2022
2021
2022
2021
2022
2021
2022
2021
To determine the defined benefit obligation at end of year(1):
Discount rate
Initial health care cost trend rate(2)
To determine the defined benefit cost for the year(1):
Discount rate
Initial health care cost trend rate(2)
5.0% 2.7%
n/a
n/a
2.7% 2.4%
n/a
n/a
5.0%
7.8%
2.7%
7.0%
2.7%
7.0%
2.4%
7.3%
5.3% 3.1%
n/a
n/a
3.1% 2.5%
n/a
n/a
5.3%
5.3%
3.2%
5.4%
3.2%
5.4%
2.6%
5.5%
(1) Inflation and salary increase assumptions are not shown as they do not materially affect obligations and cost.
(2) The health care cost trend rate used to measure the U.S. based retiree welfare obligation was 7.8% grading to 4.8% for 2035 and years thereafter (2021 – 7.0% grading to
4.5% for 2032) and to measure the net benefit cost was 7.0% grading to 4.5% for 2032 and years thereafter (2021 – 7.3% grading to 4.5% for 2032). In Canada, the rate used
to measure the retiree welfare obligation was 5.3% grading to 4.8% for 2026 and years thereafter (2021 – 5.4% grading to 4.8% for 2026) and to measure the net benefit cost
was 5.4% grading to 4.8% for 2026 and years thereafter (2021 – 5.5% grading to 4.8% for 2026).
Assumptions regarding future mortality are based on published statistics and mortality tables. The following table presents current life
expectancies underlying the values of the obligations in the defined benefit pension and retiree welfare plans.
As at December 31, 2022
Life expectancy (in years) for those currently age 65
Males
Females
Life expectancy (in years) at age 65 for those currently age 45
Males
Females
U.S.
Canada
22.1
23.6
23.5
25.0
23.9
25.7
24.8
26.6
(j) Sensitivity of assumptions on obligations
Assumptions used can have a significant effect on the obligations reported for defined benefit pension and retiree welfare plans. The
following table sets out the potential impact on the obligations arising from changes in the key assumptions. The sensitivities assume all
other assumptions are held constant. In actuality, inter-relationships with other assumptions may exist.
As at December 31, 2022
Discount rate:
Impact of a 1% increase
Impact of a 1% decrease
Health care cost trend rate:
Impact of a 1% increase
Impact of a 1% decrease
Mortality rates(1)
Impact of a 10% decrease
Pension plans
Retiree welfare plans
$ (279)
322
n/a
n/a
93
$ (39)
45
10
(9)
8
(1) If the actuarial estimates of mortality are adjusted in the future to reflect unexpected decreases in mortality, the effect of a 10% decrease in mortality rates at each future age
would be an increase in life expectancy at age 65 of 0.8 years for U.S. males and females, 0.8 years for Canadian females and 0.7 years for Canadian males, respectively.
(k) Maturity profile
The following table presents weighted average duration (in years) of the defined benefit obligations.
As at December 31,
U.S. plans
Canadian plans
Pension plans
Retiree welfare plans
2022
8.2
10.6
2021
9.7
12.4
2022
8.2
11.1
2021
9.5
13.3
204 | 2022 Annual Report | Notes to Consolidated Financial Statements
(l) Cash flows – contributions
The following table presents total cash payments for all employee future benefits, comprised of cash contributed by the Company to
funded defined benefit pension and retiree welfare plans, cash payments directly to beneficiaries in respect of unfunded pension and
retiree welfare plans, and cash contributed to defined contribution pension plans.
For the years ended December 31,
Defined benefit plans
Defined contribution plans
Total
Pension plans
Retiree welfare plans
2022
2021
$ 59
85
$ 144
$ 61
90
$ 151
2022
$ 11
–
$ 11
2021
$ 11
–
$ 11
The Company’s best estimate of expected cash payments for employee future benefits for the year ending December 31, 2023 is $65 for
defined benefit pension plans, $89 for defined contribution pension plans and $13 for retiree welfare plans.
Income Taxes
Note 17
(a) Income tax expense
The following table presents income tax expense (recovery) recognized in the Consolidated Statements of Income.
For the years ended December 31,
Current tax
Current year
Adjustments related to prior years
Total current tax
Deferred tax
Change related to temporary differences
Adjustments related to prior years
Effects of change in tax rates in Canada
Total deferred tax
Income tax expense
The following table discloses income tax expense (recovery) recognized directly in equity.
For the years ended December 31,
Recognized in other comprehensive income
Current income tax expense (recovery)
Deferred income tax expense (recovery)
Total recognized in other comprehensive income
Recognized in equity, other than other comprehensive income
Current income tax expense (recovery)
Deferred income tax expense (recovery)
Total income tax recognized directly in equity
2022
2021
$ 1,097
(263)
834
$ 1,390
(50)
1,340
706
226
(201)
731
$ 1,565
(139)
12
–
(127)
$ 1,213
2022
2021
$
(323)
(863)
$ (1,186)
$
$
5
(8)
(3)
$
$
$
$
(3)
(61)
(64)
5
(15)
(10)
(b) Current tax receivable and payable
As at December 31, 2022, the Company had approximately $1,135 of current tax receivable included in other assets (2021 – $660) and a
current tax payable of $195 included in other liabilities (2021 – $357).
(c) Tax reconciliation
The effective income tax rate reflected in the Consolidated Statements of Income varies from the Canadian tax rate of 27.50 per cent for
the year ended December 31, 2022 (2021 – 26.50 per cent) for the items outlined in the following table. The Canadian tax rate became
substantively enacted in December 2022 with an effective date of April 7, 2022.
For the years ended December 31,
Income before income taxes
Income tax expense at Canadian statutory tax rate
Increase (decrease) in income taxes due to:
Tax-exempt investment income
Differences in tax rate on income not subject to tax in Canada
Adjustments to taxes related to prior years
Tax losses and temporary differences not recognized as deferred taxes
Tax rate change in Canada
Other differences
Income tax expense
2022
2021
$ 8,747
$ 2,406
$ 8,125
$ 2,153
(214)
(835)
(37)
86
(201)
360
$ 1,565
(261)
(917)
(38)
53
–
223
$ 1,213
205
(d) Deferred tax assets and liabilities
The following table presents the Company’s deferred tax assets and liabilities reflected on the Consolidated Statement of Financial
Position.
As at December, 31
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets (liabilities)
The following table presents movement of deferred tax assets and liabilities.
2022
2021
$ 5,423
(2,774)
$ 2,649
$ 5,254
(2,769)
$ 2,485
As at December 31, 2022
Loss carryforwards
Actuarial liabilities
Pensions and post-employment benefits
Tax credits
Accrued interest
Real estate
Securities and other investments
Sale of investments
Goodwill and intangible assets
Other
Total
As at December 31, 2021
Loss carryforwards
Actuarial liabilities
Pensions and post-employment benefits
Tax credits
Accrued interest
Real estate
Securities and other investments
Sale of investments
Goodwill and intangible assets
Other
Total
Balance,
January 1, 2022 Disposals
Recognized in
Income
Statement
Recognized in Other
Comprehensive
Income
Recognized
in Equity
Translation
and Other
Balance,
December 31,
2022
$
517
8,703
161
46
1
(1,171)
(5,139)
(40)
(804)
211
$ 2,485
$
$
–
–
–
–
–
–
–
–
–
–
–
$
$
184
(5,537)
(1)
63
–
(20)
4,552
10
(4)
22
(731)
$
–
–
(17)
–
–
(1)
879
–
–
2
$ 863
$
$
–
1
–
–
–
–
(1)
–
–
8
8
$
–
374
–
–
–
(36)
(250)
–
(17)
(47)
$ 24
$
701
3,541
143
109
1
(1,228)
41
(30)
(825)
196
$ 2,649
Balance,
January 1, 2021 Disposals
Recognized
in Income
Statement
Recognized in Other
Comprehensive
Income
Recognized
in Equity
Translation
and Other
Balance,
December 31,
2021
$
497
9,372
215
34
1
(1,033)
(5,950)
(56)
(849)
(3)
$ 2,228
$ (10)
–
–
–
–
–
–
–
–
1
(9)
$
$
$
22
(666)
7
11
–
(145)
643
16
29
210
127
$
–
–
(61)
1
–
–
119
–
–
2
$ 61
$
–
–
–
–
–
–
–
–
–
15
$ 15
$ 8
(3)
–
–
–
7
49
–
16
(14)
$ 63
$
517
8,703
161
46
1
(1,171)
(5,139)
(40)
(804)
211
$ 2,485
The total deferred tax assets as at December 31, 2022 of $5,423 (2021 – $5,254) include $40 (2021 – $942) where the Company has
suffered losses in either the current or preceding year and where the recognition is dependent on future taxable profits in the relevant
jurisdictions and feasible management actions.
As at December 31, 2022, tax loss carryforwards available were approximately $3,902 (2021 – $2,689) of which $3,684 expire between
the years 2025 and 2042 while $218 have no expiry date, and capital loss carryforwards available were approximately $1 (2021 – $1) and
have no expiry date. A $701 (2021 – $517) tax benefit related to these tax loss carryforwards has been recognized as a deferred tax asset
as at December 31, 2022, and a benefit of $211 (2021 – $120) has not been recognized. The Company has approximately $273 (2021 –
$200) of tax credit carryforwards which will expire between the years 2026 and 2042 of which a benefit of $164 (2021 – $154) has not
been recognized. In addition, the Company has not recognized a deferred tax asset of $507 (2021 – $490) on other temporary differences
of $1,829 (2021 – $1,867).
The total deferred tax liability as at December 31, 2022 was $2,774 (2021 – $2,769). This amount includes the deferred tax liability of
consolidated entities. The aggregate amount of taxable temporary differences associated with the Company’s own investments in
subsidiaries is not included in the Consolidated Financial Statements and was $20,625 (2021 – $24,034).
Note 18
Interests in Structured Entities
The Company is involved with both consolidated and unconsolidated structured entities (“SEs”) which are established to generate
investment and fee income. The Company is also involved with SEs that are used to facilitate financing for the Company. These entities may
have some or all the following features: control is not readily identified based on voting rights; restricted activities designed to achieve a
narrow objective; high amount of leverage; and/or highly structured capital.
206 | 2022 Annual Report | Notes to Consolidated Financial Statements
The Company only discloses its involvement in significant consolidated and unconsolidated SEs. In assessing the significance, the
Company considers the nature of its involvement with the SE, including whether it is sponsored by the Company (i.e. initially organized and
managed by the Company). Other factors considered include the Company’s investment in the SE as compared to total investments, its
returns from the SE as compared to total net investment income, the SE’s size as compared to total funds under management, and its
exposure to any other risks from its involvement with the SE.
The Company does not provide financial or other support to its SEs, when it does not have a contractual obligation to do so.
(a) Consolidated SEs
Investment SEs
The Company acts as an investment manager of timberlands and timber companies. The Company’s general fund and segregated funds
invest in many of these companies. The Company has control over one timberland company which it manages, Hancock Victoria
Plantations Holdings PTY Limited (“HVPH”). HVPH is a SE primarily because the Company’s employees exercise voting rights over it on
behalf of other investors. As at December 31, 2022, the Company’s consolidated timber assets relating to HVPH were $1,264 (2021 –
$979). The Company does not provide guarantees to other parties against the risk of loss from HVPH.
Financing SEs
The Company securitizes certain HELOC collateralized by residential property. This activity is facilitated by consolidated entities that are
SEs because their operations are limited to issuing and servicing the Company’s funding. Further information regarding the Company’s
mortgage securitization program is included in note 4.
(b) Unconsolidated SEs
Investment SEs
The following table presents the Company’s investments and maximum exposure to loss from significant unconsolidated investment SEs,
some of which are sponsored by the Company. The Company does not provide guarantees to other parties against the risk of loss from
these SEs.
As at December 31,
Leveraged leases(3)
Timberland companies(4)
Real estate companies(5)
Total
Company’s investment(1)
Company’s maximum
exposure to loss(2)
2022
2021
2022
2021
$ 3,840
816
465
$ 5,121
$ 3,457
842
513
$ 4,812
$ 3,840
816
465
$ 5,121
$ 3,457
842
513
$ 4,812
(1) The Company’s investments in these unconsolidated SEs are included in invested assets and the Company’s returns from them are included in net investment income and AOCI.
(2) The Company’s maximum exposure to loss from each SE is limited to amounts invested in each, plus unfunded capital commitments, if any. The Company’s investment
commitments are disclosed in note 19. The maximum loss is expected to occur only upon the entity’s bankruptcy/liquidation, or in case a natural disaster in the case of the
timber companies.
(3) These entities are statutory business trusts which use capital provided by the Company and senior debt provided by other parties to finance the acquisition of assets. These
assets are leased to third-party lessees under long-term leases. The Company owns equity capital in these business trusts. The Company does not consolidate any of the trusts
that are party to the lease arrangements because the Company does not have decision-making power over them.
(4) These entities own and operate timberlands. The Company invests in their equity and debt. The Company’s returns include investment income, investment advisory fees, forestry
management fees and performance advisory fees. The Company does not control these entities because it either does not have the power to govern their financial and operating
policies or does not have significant variable returns from them, or both.
(5) These entities, which include the Manulife U.S. REIT, own and manage commercial real estate. The Company invests in their equity. The Company’s returns include investment
income, investment management fees, property management fees, acquisition/disposition fees and leasing fees. The Company does not control these entities because it either
does not have the power to govern their financial and operating policies or does not have significant variable returns from them, or both.
Financing SEs
The Company’s interests in and maximum exposure to loss from significant unconsolidated financing SEs are as follows.
As at December 31,
Manulife Finance (Delaware), L.P.(2)
Total
Company’s interests(1)
2022
2021
$ 691
$ 691
$ 850
$ 850
(1) The Company’s interests include amounts borrowed from the SE; the Company’s investment in its equity and subordinated capital; and foreign currency and interest rate swaps
with it.
(2) This entity is a wholly owned partnership used to facilitate the Company’s financing. Refer to notes 11 and 19.
(i) Other invested assets
The Company has investment relationships with a variety of other entities, which result from its direct investment in their debt and/or
equity and which have been assessed for control. These other entities’ investments include but are not limited to investments in power and
207
infrastructure, oil and gas, private equity, real estate and agriculture, organized as limited partnerships and limited liability companies.
Most of these other entities are not sponsored by the Company. The Company’s involvement with these other entities is not individually
significant. As such, the Company neither provides summary financial data for these entities nor individually assesses whether they are
SEs. The Company’s maximum exposure to losses because of its involvement with these other entities is limited to its investment in them
and amounts committed to be invested but not yet funded. The Company records its income from these entities in net investment income
and AOCI. The Company does not provide guarantees to other parties against the risk of loss from these other entities.
(ii) Interest in securitized assets
The Company invests in mortgage/asset-backed securities issued by securitization vehicles sponsored by other parties, including private
issuers and government sponsored issuers, to generate investment income. The Company does not own a controlling financial interest in
any of the issuers. These securitization vehicles are SEs based on their narrow scope of activities and highly leveraged capital structures.
Investments in mortgage/asset-backed securities are reported on the Consolidated Statements of Financial Position as debt securities and
private placements, and their fair value and carrying value are disclosed in note 4. The Company’s maximum loss from these investments is
limited to amounts invested.
Commercial mortgage-backed securities (“CMBS”) are secured by commercial mortgages and residential mortgage backed securities
(“RMBS”) are secured by residential mortgages. Asset-backed securities (“ABS”) may be secured by various underlying assets including
credit card receivables, automobile loans and aviation leases. The mortgage/asset-backed securities that the Company invests in primarily
originate in North America.
The following table presents investments in securitized holdings by the type and asset quality.
As at December 31,
AAA
AA
A
BBB
BB and below
Total company exposure
2022
CMBS
RMBS
ABS
Total
$ 675
–
56
–
–
$ 731
$
$
5
3
–
–
–
8
$
$
1,095
6
534
232
3
1,870
$ 1,775
9
590
232
3
$ 2,609
2021
Total
$ 2,346
11
641
227
4
$ 3,229
(iii) Mutual funds
The Company sponsors and may invest in a range of public mutual funds with a broad range of investment styles. As sponsor, the Company
organizes mutual funds that implement investment strategies on behalf of current and future investors. The Company earns fees which are
at market rates for providing advisory and administrative services to these mutual funds. Generally, the Company does not control its
sponsored mutual funds because either the Company does not have power to govern their financial and operating policies, or its returns in
the form of fees and ownership interests are not significant, or both. Certain mutual funds are SEs because their decision-making rights
are not vested in voting equity interests and their investors are provided with redemption rights.
The Company’s relationships with these mutual funds are not individually significant. As such, the Company neither provides summary
financial data for these mutual funds nor individually assesses whether they are SEs. The Company’s interest in mutual funds is limited to
its investment and fees earned, if any. The Company’s investments in mutual funds are recorded as part of its investment in public equities
within the Consolidated Statements of Financial Position. For information regarding the Company’s invested assets, refer to note 4. The
Company does not provide guarantees to other parties against the risk of loss from these mutual funds.
As sponsor, the Company’s investment in (“seed”) startup capital of mutual funds as at December 31, 2022 was $1,296 (2021 – $1,361).
The Company’s retail mutual fund assets under management as at December 31, 2022 were $258,183 (2021 – $290,863).
Note 19 Commitments and Contingencies
(a) Legal proceedings
The Company is regularly involved in legal actions, both as a defendant and as a plaintiff. The legal actions where the Company is a party
ordinarily relate to its activities as a provider of insurance protection or wealth management products, reinsurance, or in its capacity as an
investment adviser, employer, or taxpayer. Other life insurers and asset managers, operating in the jurisdictions in which the Company
does business, have been subject to a wide variety of other types of actions, some of which resulted in substantial judgments or
settlements against the defendants; it is possible that the Company may become involved in similar actions in the future. In addition,
government and regulatory bodies in Canada, the United States, Asia and other jurisdictions where the Company conducts business
regularly make inquiries and, from time to time, require the production of information or conduct examinations concerning the Company’s
compliance with, among other things, insurance laws, securities laws, and laws governing the activities of broker-dealers.
In June 2018, a class action was initiated against John Hancock Life Insurance Company (U.S.A.) (“JHUSA”) and John Hancock Life
Insurance Company of New York (“JHNY”) in the U.S. District Court for the Southern District of New York on behalf of owners of
208 | 2022 Annual Report | Notes to Consolidated Financial Statements
approximately 1,500 Performance Universal Life (“PerfUL”) policies issued between 2003 and 2010 whose policies were subject to a Cost
of Insurance (“COI”) increase announced in 2018. On May 17, 2022, at a Fairness Hearing, the Court approved the class Settlement
Agreement that it had preliminary approved on January 5, 2022. The settlement has been implemented. In the Class Notice process, an
institutional investor which owns approximately 150 of the policies that met the class definition “opted out” of the settlement. No
subsequent action has thus far been taken with respect to those opt out policies.
In addition to the class action, eleven individual lawsuits opposing the Performance UL COI increases were also filed. Each of the lawsuits,
except two, is brought by plaintiffs owning multiple policies and/or by entities managing them for investment purposes. Three of the
pending federal cases have now been settled and these involved a combined 46 PerfUL policies. On September 8, 2022, two new
individual lawsuits were filed in New York and California federal courts, with respect to the 16 policies owned by Skellig Capital. There are
now five lawsuits pending in federal courts in New York and California and three in New York state court. In the aggregate, approximately
135 PerfUL policies are involved in these cases. There are also approximately 140 policies that have been “opted out” of the class
settlement, and although no litigation is pending with respect to those policies, future litigation is possible if not probable. Of the remaining
non-class/individual lawsuits, discovery has commenced. With respect to the non-class/individual lawsuits pending in the New York federal
district court (not including the recently filed Skellig lawsuits), the court has approved a briefing schedule and set the final pre-trial hearing
for February 23, 2023. The Company continues to defend the individual lawsuits. In 2021, the Company recorded an accrual in relation to
the class and individual lawsuits. In Q3 2022, the accrual was increased.
(b) Investment commitments
In the normal course of business, various investment commitments are outstanding which are not reflected in the Consolidated Financial
Statements. There were $14,193 (2021 – $12,233) of outstanding investment commitments as at December 31, 2022, of which $1,095
(2021 – $957) mature in 30 days, $3,359 (2021 – $3,205) mature in 31 to 365 days and $9,739 (2021 – $8,071) mature after one year.
(c) Letters of credit
In the normal course of business, third-party relationship banks issue letters of credit on the Company’s behalf. The Company’s businesses
utilize letters of credit for which third parties are the beneficiaries, as well as for affiliate reinsurance transactions between its subsidiaries.
As at December 31, 2022, letters of credit for which third parties are beneficiary, in the amount of $215 (2021 – $99), were outstanding.
(d) Guarantees
(i) Guarantees regarding Manulife Finance (Delaware), L.P. (“MFLP”)
MFC has guaranteed the payment of amounts on the $650 subordinated debentures due on December 15, 2041 issued by MFLP, a wholly
owned unconsolidated financing entity.
The following table presents certain condensed consolidated financial information for MFC and MFLP.
Condensed Consolidated Statements of Income Information
For the year ended December 31, 2022
Total revenue
Net income (loss) attributed to shareholders
For the year ended December 31, 2021
Total revenue
Net income (loss) attributed to shareholders
Other
subsidiaries of
MFC on a
combined basis
$ 17,732
7,071
Other
subsidiaries on
a combined
basis
$ 62,323
6,842
MFC
(Guarantor)
$ 518
7,294
MFC
(Guarantor)
$ 563
7,105
Consolidation
adjustments
$ (1,103)
(7,071)
Total
consolidated
amounts
$ 17,147
7,294
Consolidation
adjustments
$ (1,065)
(6,842)
Total
consolidated
amounts
$ 61,821
7,105
MFLP
$ 64
21
MFLP
$ 41
3
209
Condensed Consolidated Statements of Financial Position
As at December 31, 2022
Invested assets
Total other assets
Segregated funds net assets
Insurance contract liabilities
Investment contract liabilities
Segregated funds net liabilities
Total other liabilities
As at December 31, 2021
Invested assets
Total other assets
Segregated funds net assets
Insurance contract liabilities
Investment contract liabilities
Segregated funds net liabilities
Total other liabilities
Other
subsidiaries
on a
combined basis
$ 413,938
90,687
348,562
371,405
3,248
348,562
58,246
Other
subsidiaries
on a
combined basis
$ 427,020
94,615
399,788
392,275
3,117
399,788
53,962
MFC
(Guarantor)
$
63
67,543
–
–
–
–
11,545
MFC
(Guarantor)
$
78
68,866
–
–
–
–
10,536
Consolidation
adjustments
$
–
(71,852)
–
–
–
–
(444)
Consolidation
adjustments
$
–
(72,724)
–
–
–
–
(904)
Total
consolidated
amounts
$ 414,001
86,378
348,562
371,405
3,248
348,562
69,347
Total
consolidated
amounts
$ 427,098
90,757
399,788
392,275
3,117
399,788
63,594
$
MFLP
21
950
–
–
–
–
712
$
MFLP
3
1,088
–
–
–
–
852
(ii) Guarantees regarding John Hancock Life Insurance Company (U.S.A.) (“JHUSA”)
Details of guarantees regarding certain securities issued or to be issued by JHUSA are outlined in note 24.
(e) Pledged assets
In the normal course of business, the Company pledges its assets in respect of liabilities incurred, strictly for providing collateral to the
counterparty. In the event of the Company’s default, the counterparty is entitled to apply the collateral to settle the liability. The pledged
assets are returned to the Company if the underlying transaction is terminated or, in the case of derivatives, if there is a decrease in the net
exposure due to market value changes.
The amounts pledged are as follows.
As at December 31,
In respect of:
Derivatives
Secured borrowings
Regulatory requirements
Repurchase agreements
Non-registered retirement plans in trust
Other
Total
2022
2021
Debt securities
Other
Debt securities
Other
$ 11,944
–
320
886
–
–
$ 13,150
$
23
2,385
77
–
326
404
$ 3,215
$ 5,525
–
367
535
–
2
$ 6,429
$
23
2,575
78
–
377
414
$ 3,467
(f) Participating business
In some territories where the Company maintains participating accounts, there are regulatory restrictions on the amounts of profit that can
be transferred to shareholders. Where applicable, these restrictions generally take the form of a fixed percentage of policyholder
dividends. For participating businesses operating as separate “closed blocks”, transfers are governed by the terms of MLI’s and John
Hancock Mutual Life Insurance Company’s plans of demutualization.
(g) Fixed surplus notes
A third party contractually provides standby financing arrangements for the Company’s U.S. operations under which, in certain
circumstances, funds may be provided in exchange for the issuance of fixed surplus notes. As at December 31, 2022, the Company had no
fixed surplus notes outstanding.
210 | 2022 Annual Report | Notes to Consolidated Financial Statements
Note 20 Segmented Information
The Company’s reporting segments are Asia, Canada, U.S., Global WAM and Corporate and Other. Each reporting segment is responsible
for managing its operating results, developing products, defining strategies for services and distribution based on the profile and needs of
its business and market. The Company’s significant product and service offerings by the reporting segments are mentioned below.
Wealth and asset management businesses (Global WAM) – branded as Manulife Investment Management, provides investment advice
and innovative solutions to retirement, retail, and institutional clients. Products and services are distributed through multiple distribution
channels, including agents and brokers affiliated with the Company, independent securities brokerage firms and financial advisors pension
plan consultants and banks.
Insurance and annuity products (Asia, Canada and U.S.) – include a variety of individual life insurance, individual and group long-term
care insurance and guaranteed and partially guaranteed annuity products. Products are distributed through multiple distribution channels,
including insurance agents, brokers, banks, financial planners and direct marketing. Manulife Bank of Canada offers a variety of deposit
and credit products to Canadian customers.
Corporate and Other Segment – comprised of investment performance of assets backing capital, net of amounts allocated to operating
segments; costs incurred by the corporate office related to shareholder activities (not allocated to the operating segments); financing
costs; Property and Casualty Reinsurance Business; and run-off reinsurance operations including variable annuities and accident and
health.
Reporting segments
The following table presents results by reporting segments.
As at and for the year ended December 31, 2022
Asia
Canada
U.S.
Global WAM
Revenue
Life and health insurance
Annuities and pensions
Net premium income
Net investment income (loss)
Other revenue
Total revenue
Contract benefits and expenses
Life and health insurance
Annuities and pensions
Net benefits and claims
Interest expense
Other expenses
Total contract benefits and expenses
Income (loss) before income taxes
Income tax recovery (expense)
Net income (loss)
Less net income (loss) attributed to:
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders
Total assets
$
$ 18,690
2,786
21,476
(7,972)
1,458
14,962
4,976
2,667
7,643
234
5,024
12,901
2,061
(308)
1,753
$
9,945
447
10,392
(7,911)
1,426
3,907
5,945
(8,738)
(2,793)
573
3,506
1,286
2,621
(777)
1,844
$
6,579
(863)
5,716
(13,003)
458
(6,829)
(11,868)
(2,753)
(14,621)
67
2,847
(11,707)
4,878
(886)
3,992
–
–
–
(39)
6,350
6,311
–
41
41
7
4,717
4,765
1,546
(223)
1,323
Corporate
and Other
Total
$
269
–
269
(945)
(528)
(1,204)
431
–
431
469
255
1,155
(2,359)
629
(1,730)
$ 35,483
2,370
37,853
(29,870)
9,164
17,147
(516)
(8,783)
(9,299)
1,350
16,349
8,400
8,747
(1,565)
7,182
(4)
(467)
$
2,224
$ 158,036
–
314
$
1,530
$ 155,049
–
42
$
3,950
$ 267,653
2
–
$
1,321
$ 231,154
1
–
$ (1,731)
$ 37,049
(1)
(111)
$
7,294
$ 848,941
211
As at and for the year ended December 31, 2021
Asia
Canada
U.S.
Global WAM
Revenue
Life and health insurance
Annuities and pensions
Net premium income
Net investment income (loss)
Other revenue
Total revenue
Contract benefits and expenses
Life and health insurance
Annuities and pensions
Net benefits and claims
Interest expense
Other expenses
Total contract benefits and expenses
Income (loss) before income taxes
Income tax recovery (expense)
Net income (loss)
Less net income (loss) attributed to:
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders
Total assets
$
$ 20,428
2,558
22,986
4,889
1,696
29,571
18,240
2,638
20,878
232
5,273
26,383
3,188
(445)
2,743
$
9,217
344
9,561
1,469
1,336
12,366
10,276
(3,371)
6,905
269
3,401
10,575
1,791
(336)
1,455
$
6,338
33
6,371
5,061
1,824
13,256
9,307
(1,528)
7,779
47
2,947
10,773
2,483
(385)
2,098
–
–
–
28
6,513
6,541
–
101
101
1
4,798
4,900
1,641
(233)
1,408
253
(567)
$
3,057
$ 162,970
–
101
$
1,354
$ 169,736
–
18
$
2,080
$ 290,838
2
–
$
1,406
$ 259,363
Corporate
and Other
Total
$
147
–
147
177
(237)
87
$ 36,130
2,935
39,065
11,624
11,132
61,821
159
–
159
462
444
1,065
(978)
186
(792)
37,982
(2,160)
35,822
1,011
16,863
53,696
8,125
(1,213)
6,912
–
–
(792) $
255
(448)
7,105
$ 917,643
$
$ 34,736
Geographical location
The results of the Company’s reporting segments differ from its geographical location primarily due to the allocation of Global WAM and
Corporate and Other segments into the geographical location to which its businesses relate.
The following table presents results by geographical location.
For the year ended December 31, 2022
Asia
Canada
U.S.
Other
Total
Revenue
Life and health insurance
Annuities and pensions
Net premium income
Net investment income (loss)
Other revenue
Total revenue
$ 18,786
2,786
21,572
(8,468)
2,702
$ 15,806
$ 9,615
447
10,062
(8,435)
3,246
$ 4,873
$ 6,580
(863)
5,717
(13,288)
3,217
$ (4,354)
$ 502
–
502
321
(1)
$ 822
$ 35,483
2,370
37,853
(29,870)
9,164
$ 17,147
For the year ended December 31, 2021
Asia
Canada
U.S.
Other
Total
Revenue
Life and health insurance
Annuities and pensions
Net premium income
Net investment income (loss)
Other revenue
Total revenue
Note 21 Related Parties
$ 20,515
2,558
23,073
5,313
2,818
$ 31,204
$ 8,905
344
9,249
1,255
3,363
$ 13,867
$ 6,340
33
6,373
4,830
4,952
$ 16,155
$ 370
–
370
226
(1)
$ 595
$ 36,130
2,935
39,065
11,624
11,132
$ 61,821
The Company enters into transactions with related parties in the normal course of business and at the terms that would exist in
arm’s-length transactions.
(a) Transactions with certain related parties
Transactions with MFLP, a wholly owned unconsolidated partnership, are described in notes 11, 18 and 19.
212 | 2022 Annual Report | Notes to Consolidated Financial Statements
(b) Compensation of key management personnel
The Company’s key management personnel are those personnel who have the authority and responsibility for planning, directing and
controlling the activities of the Company. Directors (both executive and non-executive) and senior management are considered key
management personnel. A summary of compensation of key management personnel is as follows.
For the years ended December 31,
Short-term employee benefits
Post-employment benefits
Share-based payments
Termination benefits
Other long-term benefits
Total
Note 22 Subsidiaries
2022
73
6
73
–
3
155
$
$
2021
$ 65
5
57
–
2
$ 129
The following is a list of Manulife’s directly and indirectly held major operating subsidiaries.
As at December 31, 2022
(100% owned unless otherwise noted in brackets beside company name)
Equity
Interest
Address
Description
The Manufacturers Life Insurance Company
$ 65,848
Toronto, Canada
Manulife Holdings (Alberta) Limited
John Hancock Financial Corporation
The Manufacturers Investment Corporation
John Hancock Reassurance Company Ltd.
$ 21,640
Calgary, Canada
Boston, U.S.A.
Boston, U.S.A.
Boston, U.S.A.
John Hancock Life Insurance Company (U.S.A.)
Boston, U.S.A.
Leading Canadian-based financial services
company that offers a diverse range of financial
protection products and wealth management
services
Holding company
Holding company
Holding company
Captive insurance subsidiary that provides life,
annuity and long-term care reinsurance to
affiliates
U.S. life insurance company licensed in all
states, except New York
John Hancock Subsidiaries LLC
Boston, U.S.A.
Holding company
John Hancock Financial Network, Inc.
Boston, U.S.A.
Financial services distribution organization
John Hancock Investment Management LLC
Boston, U.S.A.
Investment advisor
John Hancock Investment Management
Boston, U.S.A.
Broker-dealer
Distributors LLC
Manulife Investment Management (US) LLC
Boston, U.S.A.
Investment advisor
Manulife Investment Management Timberland and
Boston, U.S.A.
Agriculture Inc.
John Hancock Life Insurance Company of New York
New York, U.S.A.
Manager of globally diversified timberland and
agricultural portfolios
U.S. life insurance company licensed in
New York
John Hancock Variable Trust Advisers LLC
Boston, U.S.A.
Investment advisor for open-end mutual funds
John Hancock Life & Health Insurance Company
Boston, U.S.A.
U.S. life insurance company licensed in all states
John Hancock Distributors LLC
John Hancock Insurance Agency, Inc.
Manulife Reinsurance Limited
Boston, U.S.A.
Broker-dealer
Boston, U.S.A.
Insurance agency
Hamilton, Bermuda
Provides life and financial reinsurance to
affiliates
Manulife Reinsurance (Bermuda) Limited
Manulife Bank of Canada
$ 1,788
Hamilton, Bermuda
Waterloo, Canada
Manulife Investment Management Holdings (Canada) Inc.
$ 1,179
Toronto, Canada
Manulife Investment Management Limited
Toronto, Canada
Provides life and annuity reinsurance to affiliates
Provides integrated banking products and service
options not available from an insurance company
Holding company
Provides investment counseling, portfolio and
mutual fund management in Canada
First North American Insurance Company
Manulife Securities Investment Services Inc.
$ 7
$ 80
Toronto, Canada
Property and casualty insurance company
Oakville, Canada
Mutual fund dealer for Canadian operations
Manulife Holdings (Bermuda) Limited
$ 22,841
Hamilton, Bermuda
Holding company
Manufacturers P&C Limited
Manulife Financial Asia Limited
St. Michael, Barbados
Provides property and casualty reinsurance
Hong Kong, China
Holding company
21
As at December 31, 2022
(100% owned unless otherwise noted in brackets beside company name)
Equity
Interest
Address
Description
Manulife (Cambodia) PLC
Phnom Penh, Cambodia
Life insurance company
Manulife Myanmar Life Insurance Company Limited
Yangon, Myanmar
Life insurance company
Manufacturers Life Reinsurance Limited
St. Michael, Barbados
Provides life and annuity reinsurance to affiliates
Manulife (Vietnam) Limited
Ho Chi Minh City, Vietnam Life insurance company
Manulife Investment Fund Management (Vietnam)
Ho Chi Minh City, Vietnam Fund management company
Company Limited
Manulife International Holdings Limited
Hong Kong, China
Holding company
Manulife (International) Limited
Hong Kong, China
Life insurance company
Manulife-Sinochem Life Insurance Co. Ltd. (51%)
Shanghai, China
Life insurance company
Manulife Investment Management International
Hong Kong, China
Holding company
Holdings Limited
Manulife Investment Management (Hong Kong)
Hong Kong, China
Limited
Investment management and advisory company
marketing mutual funds
Manulife Investment Management (Taiwan)
Taipei, Taiwan (China)
Investment management company
Co., Ltd.
Manulife Life Insurance Company (Japan)
Tokyo, Japan
Life insurance company
Manulife Investment Management (Japan) Limited
Tokyo, Japan
Investment management and advisory company
and mutual fund business
Manulife Holdings Berhad (61.6%)
Kuala Lumpur, Malaysia Holding company
Manulife Insurance Berhad (61.6%)
Kuala Lumpur, Malaysia
Life insurance company
Manulife Investment Management (Malaysia) Berhad
Kuala Lumpur, Malaysia
Asset management company
(61.6%)
Manulife (Singapore) Pte. Ltd.
Manulife Investment Management (Singapore) Pte. Ltd.
Singapore
Singapore
Life insurance company
Asset management company
The Manufacturers Life Insurance Co. (Phils.), Inc.
Makati City, Philippines
Life insurance company
Manulife Chinabank Life Assurance Corporation
Makati City, Philippines
Life insurance company
(60%)
PT Asuransi Jiwa Manulife Indonesia
Jakarta, Indonesia
Life insurance company
PT Manulife Aset Manajemen Indonesia
Jakarta, Indonesia
Investment management and investment advisor
Manulife TEDA Fund Management Co., Ltd
Beijing, China
Mutual fund company in China
Manulife Investment Management (Europe) Limited
$ 34
London, England
Investment management company for Manulife
Financial’s international funds
Manulife Assurance Company of Canada
$ 64
Toronto, Canada
Life insurance company
EIS Services (Bermuda) Limited
Berkshire Insurance Services Inc.
JH Investments (Delaware) LLC
Manulife Securities Incorporated
$ 902
Hamilton, Bermuda
Investment holding company
$ 1,868
Toronto, Canada
Investment holding company
Boston, U.S.A.
Investment holding company
$ 151
Oakville, Canada
Investment dealer
Manulife Investment Management (North America) Limited
$ 4
Toronto, Canada
Investment advisor
214 | 2022 Annual Report | Notes to Consolidated Financial Statements
Note 23 Segregated Funds
The Company manages a number of segregated funds on behalf of policyholders. Policyholders are provided with the opportunity to invest
in different categories of segregated funds that respectively hold a range of underlying investments. The Company retains legal title to the
underlying investments; however, returns from these investments belong to the policyholders. Accordingly, the Company does not bear the
risk associated with these assets outside of guarantees offered on certain variable life and annuity products. The “Risk Management and
Risk Factors” section of the Company’s 2022 MD&A provides information regarding the variable annuity and segregated fund guarantees.
The composition of net assets by categories of segregated funds was within the following ranges for the years ended December 31, 2022
and 2021.
Type of fund
Money market funds
Fixed income funds
Balanced funds
Equity funds
Ranges in per cent
2022
2021
2% to 3%
2% to 3%
13% to 14% 14% to 15%
22% to 23% 22% to 23%
61% to 62% 60% to 62%
Money market funds consist of investments that have a term to maturity of less than one year. Fixed income funds primarily consist of
investments in fixed grade income securities and may contain smaller investments in diversified equities or high-yield bonds. Relative to
fixed income funds, balanced funds consist of fixed income securities and a larger equity investment component. The types of equity funds
available to policyholders range from low volatility equity funds to aggressive equity funds. Equity funds invest in a varying mix of Canadian,
U.S. and global equities.
The underlying investments of the segregated funds consist of both individual securities and mutual funds (collectively “net assets”), some
of which may be structured entities. The carrying value and change in segregated funds net assets are as follows. Fair value related
information of segregated funds is disclosed in note 4(g).
Segregated funds net assets
As at December 31,
Investments at market value
Cash and short-term securities
Debt securities
Equities
Mutual funds
Other investments
Accrued investment income
Other assets and liabilities, net
Total segregated funds net assets
Composition of segregated funds net assets
Held by policyholders
Held by the Company
Total segregated funds net assets
Changes in segregated funds net assets
For the years ended December 31,
Net policyholder cash flows
Deposits from policyholders
Net transfers to general fund
Payments to policyholders
Investment related
Interest and dividends
Net realized and unrealized investment gains (losses)
Other
Management and administration fees
Impact of changes in foreign exchange rates
Net additions (deductions)
Segregated funds net assets, beginning of year
Segregated funds net assets, end of year
2022
2021
$
4,280
15,270
15,499
308,707
4,293
1,680
(796)
$ 348,933
$
3,955
18,651
16,844
354,882
4,613
2,340
(1,089)
$ 400,196
$ 348,562
371
$ 348,933
$ 399,788
408
$ 400,196
2022
2021
$ 42,427
(1,267)
(46,333)
(5,173)
$ 44,548
(732)
(52,182)
(8,366)
21,900
(78,017)
(56,117)
24,092
21,549
45,641
(3,886)
13,913
10,027
(51,263)
400,196
$ 348,933
(4,115)
(773)
(4,888)
32,387
367,809
$ 400,196
215
Segregated funds assets may be exposed to a variety of financial and other risks. These risks are primarily mitigated by investment
guidelines that are actively monitored by professional and experienced portfolio advisors. The Company is not exposed to these risks
beyond the liabilities related to the guarantees associated with certain variable life and annuity products included in segregated funds.
Accordingly, the Company’s exposure to loss from segregated fund products is limited to the value of these guarantees.
These guarantees are recorded within the Company’s insurance contract liabilities. Assets supporting these guarantees are recognized in
invested assets according to their investment type.
Note 24
SignatureNotes Issued or Assumed by John Hancock Life Insurance Company (U.S.A.)
Information Provided in Connection with Investments in Deferred Annuity Contracts and
The following condensed consolidated financial information, presented in accordance with IFRS, and the related disclosure have been
included in these Consolidated Financial Statements with respect to JHUSA in compliance with Regulation S-X and Rule 12h-5 of the United
States Securities and Exchange Commission (the “Commission”). These financial statements are incorporated by reference in certain of
the MFC and its subsidiaries registration statements that are described below and relate to MFC’s guarantee of certain securities to be
issued by its subsidiaries.
JHUSA maintains a book of deferred annuity contracts that feature a market value adjustment, some of which are registered with the
Commission. The deferred annuity contracts may contain variable investment options along with fixed investment period options, or may
offer only fixed investment period options. The fixed investment period options enable the participant to invest fixed amounts of money for
fixed terms at fixed interest rates, subject to a market value adjustment if the participant desires to terminate a fixed investment period
before its maturity date. The annuity contract provides for the market value adjustment to keep the parties whole with respect to the fixed
interest bargain for the entire fixed investment period. These fixed investment period options that contain a market value adjustment
feature are referred to as “MVAs”.
JHUSA has sold medium-term notes to retail investors under its SignatureNotes program.
Effective December 31, 2009, John Hancock Variable Life Insurance Company (the “Variable Company”) and John Hancock Life Insurance
Company (the “Life Company”) merged with and into JHUSA. In connection with the mergers, JHUSA assumed the Variable Company’s
rights and obligations with respect to the MVAs issued by the Variable Company and the Life Company’s rights and obligations with respect
to the SignatureNotes issued by the Life Company.
MFC fully and unconditionally guaranteed the payment of JHUSA’s obligations under the MVAs and under the SignatureNotes (including
the MVAs and SignatureNotes assumed by JHUSA in the merger), and such MVAs and the SignatureNotes were registered with the
Commission. The SignatureNotes and MVAs assumed or issued by JHUSA are collectively referred to in this note as the “Guaranteed
Securities”. JHUSA is, and each of the Variable Company and the Life Company was, a wholly owned subsidiary of MFC.
MFC’s guarantees of the Guaranteed Securities are unsecured obligations of MFC and are subordinated in right of payment to the prior
payment in full of all other obligations of MFC, except for other guarantees or obligations of MFC which by their terms are designated as
ranking equally in right of payment with or subordinate to MFC’s guarantees of the Guaranteed Securities.
The laws of the State of New York govern MFC’s guarantees of the SignatureNotes issued or assumed by JHUSA and the laws of the
Commonwealth of Massachusetts govern MFC’s guarantees of the MVAs issued or assumed by JHUSA. MFC has consented to the
jurisdiction of the courts of New York and Massachusetts. However, because a substantial portion of MFC’s assets are located outside the
United States, the assets of MFC located in the United States may not be sufficient to satisfy a judgment given by a federal or state court in
the United States to enforce the subordinate guarantees. In general, the federal laws of Canada and the laws of the Province of Ontario,
where MFC’s principal executive offices are located, permit an action to be brought in Ontario to enforce such a judgment provided that
such judgment is subsisting and unsatisfied for a fixed sum of money and not void or voidable in the United States and a Canadian court
will render a judgment against MFC in a certain dollar amount, expressed in Canadian dollars, subject to customary qualifications
regarding fraud, violations of public policy, laws limiting the enforcement of creditor’s rights and applicable statutes of limitations on
judgments. There is currently no public policy in effect in the Province of Ontario that would support avoiding the recognition and
enforcement in Ontario of a judgment of a New York or Massachusetts court on MFC’s guarantees of the SignatureNotes issued or
assumed by JHUSA or a Massachusetts court on guarantees of the MVAs issued or assumed by JHUSA.
MFC is a holding company. MFC’s assets primarily consist of investments in its subsidiaries. MFC’s cash flows primarily consist of dividends
and interest payments from its operating subsidiaries, offset by expenses and shareholder dividends and MFC stock repurchases. As a
holding company, MFC’s ability to meet its cash requirements, including, but not limited to, paying any amounts due under its guarantees,
substantially depends upon dividends from its operating subsidiaries.
These subsidiaries are subject to certain regulatory restrictions under laws in Canada, the United States and certain other countries, which
may limit their ability to pay dividends or make contributions or loans to MFC. For example, some of MFC’s subsidiaries are subject to
restrictions prescribed by the ICA on their ability to declare and pay dividends. The restrictions related to dividends imposed by the ICA are
described in note 13.
216 | 2022 Annual Report | Notes to Consolidated Financial Statements
In the United States, insurance laws in Michigan, New York, and Massachusetts, the jurisdictions in which certain of MFC’s U.S. insurance
company subsidiaries are domiciled, impose general limitations on the payment of dividends and other upstream distributions or loans by
these insurance subsidiaries. These limitations are described in note 13.
In Asia, the insurance laws of the jurisdictions in which MFC operates either provide for specific restrictions on the payment of dividends or
other distributions or loans by subsidiaries or impose solvency or other financial tests, which could affect the ability of subsidiaries to pay
dividends in certain circumstances.
There can be no assurance that any current or future regulatory restrictions in Canada, the United States or Asia will not impair MFC’s
ability to meet its cash requirements, including, but not limited to, paying any amounts due under its guarantees.
The following condensed consolidated financial information, presented in accordance with IFRS, reflects the effects of the mergers and is
provided in compliance with Regulation S-X and in accordance with Rule 12h-5 of the Commission.
Condensed Consolidated Statement of Financial Position
As at December 31, 2022
Assets
Invested assets
Investments in unconsolidated subsidiaries
Reinsurance assets
Other assets
Segregated funds net assets
Total assets
Liabilities and equity
Insurance contract liabilities
Investment contract liabilities
Other liabilities
Long-term debt
Capital instruments
Segregated funds net liabilities
Shareholders’ and other equity holders’ equity
Participating policyholders’ equity
Non-controlling interests
Total liabilities and equity
Condensed Consolidated Statement of Financial Position
As at December 31, 2021
Assets
Invested assets
Investments in unconsolidated subsidiaries
Reinsurance assets
Other assets
Segregated funds net assets
Total assets
Liabilities and equity
Insurance contract liabilities
Investment contract liabilities
Other liabilities
Long-term debt
Capital instruments
Segregated funds net liabilities
Shareholders’ and other equity holders’ equity
Participating policyholders’ equity
Non-controlling interests
Total liabilities and equity
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$
63 $ 116,463 $ 297,996 $
(521) $ 414,001
–
22,053
47,712
12,137
38,666
48,135
348,562
177,361
$ 67,606 $ 369,666 $ 557,682 $ (146,013) $ 848,941
(98,081)
(25,936)
(19,259)
(2,216)
8,819
61,511
9,456
173,417
67,209
–
334
–
–
$
(18,923)
$ 156,205 $ 241,830 $
–
–
451
6,234
4,860
–
56,061
–
–
(26,630) $ 371,405
3,248
56,991
6,234
6,122
348,562
56,061
(1,346)
1,664
$ 67,606 $ 369,666 $ 557,682 $ (146,013) $ 848,941
1,830
55,304
–
648
177,361
80,391
(1,346)
1,664
1,418
20,159
–
614
173,417
17,853
–
–
(2,216)
(98,244)
–
–
–
–
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$
78
68,655
–
211
–
$ 68,944
$
–
–
899
4,882
4,755
–
58,408
–
–
$ 68,944
$ 116,705
9,107
63,838
18,085
204,493
$ 412,228
$ 166,535
1,227
21,806
–
579
204,493
17,588
–
–
$ 412,228
$ 310,679
20,788
11,309
49,956
197,220
$ 589,952
$ 257,044
1,890
50,836
–
1,646
197,220
80,855
(1,233)
1,694
$ 589,952
$
(364) $ 427,098
–
44,579
46,178
399,788
$ (153,481) $ 917,643
(98,550)
(30,568)
(22,074)
(1,925)
$
(31,304) $ 392,275
3,117
51,732
4,882
6,980
399,788
58,408
(1,233)
1,694
$ (153,481) $ 917,643
–
(21,809)
–
–
(1,925)
(98,443)
–
–
217
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$
–
–
–
554
(36)
518
–
42
440
482
36
32
68
7,226
$ 7,294
$
–
–
7,294
$ 7,294
$ 7,924
(2,561)
5,363
(9,714)
281
(4,070)
(8,505)
3,099
264
(5,142)
1,072
(23)
1,049
997
$ 2,046
$ 37,041
(4,662)
32,379
(19,446)
7,871
20,804
(1,572)
13,798
939
13,165
7,639
(1,574)
6,065
2,046
$ 8,111
$
(863)
974
111
(1,264)
1,048
(105)
778
(1,034)
151
(105)
–
–
–
(10,269)
$ (10,269)
$
–
(236)
2,282
$ 2,046
$
(1)
125
7,987
$ 8,111
$
–
–
(10,269)
$ (10,269)
$ 44,102
(6,249)
37,853
(29,870)
9,164
17,147
(9,299)
15,905
1,794
8,400
8,747
(1,565)
7,182
–
$ 7,182
$
(1)
(111)
7,294
$ 7,182
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$
–
–
–
530
33
563
$ 7,782
(3,243)
4,539
3,779
2,042
10,360
$ 37,563
(3,031)
34,532
8,440
9,605
52,577
–
12
390
402
161
(28)
133
6,972
$ 7,105
6,478
3,451
212
10,141
219
115
334
1,218
$ 1,552
28,467
14,419
1,946
44,832
7,745
(1,300)
6,445
1,552
$ 7,997
$ (1,001)
995
(6)
(1,125)
(548)
(1,679)
877
(1,436)
(1,120)
(1,679)
–
–
–
(9,742)
$ (9,742)
$ 44,344
(5,279)
39,065
11,624
11,132
61,821
35,822
16,446
1,428
53,696
8,125
(1,213)
6,912
–
$ 6,912
$
–
–
7,105
$ 7,105
$
–
(4)
1,556
$ 1,552
$
255
(448)
8,190
$ 7,997
$
–
4
(9,746)
$ (9,742)
$
255
(448)
7,105
$ 6,912
Condensed Consolidated Statement of Income
For the year ended December 31, 2022
Revenue
Gross premiums
Premiums ceded to reinsurers
Net premium income
Net investment income (loss)
Other revenue
Total revenue
Contract benefits and expenses
Net benefits and claims
Commissions, investment and general expenses
Other expenses
Total contract benefits and expenses
Income (loss) before income taxes
Income tax (expense) recovery
Income (loss) after income taxes
Equity in net income (loss) of unconsolidated subsidiaries
Net income (loss)
Net income (loss) attributed to:
Non-controlling interests
Participating policyholders
Shareholders and other equity holders
Condensed Consolidated Statement of Income
For the year ended December 31, 2021
Revenue
Gross premiums
Premiums ceded to reinsurers
Net premium income
Net investment income (loss)
Other revenue
Total revenue
Contract benefits and expenses
Net benefits and claims
Commissions, investment and general expenses
Other expenses
Total contract benefits and expenses
Income (loss) before income taxes
Income tax (expense) recovery
Income (loss) after income taxes
Equity in net income (loss) of unconsolidated subsidiaries
Net income (loss)
Net income (loss) attributed to:
Non-controlling interests
Participating policyholders
Shareholders
218 | 2022 Annual Report | Notes to Consolidated Financial Statements
Consolidated Statement of Cash Flows
For the year ended December 31, 2022
Operating activities
Net income (loss)
Adjustments:
Equity in net income of unconsolidated subsidiaries
Increase (decrease) in insurance contract liabilities
Increase (decrease) in investment contract liabilities
(Increase) decrease in reinsurance assets excluding coinsurance
transactions
Amortization of (premium) discount on invested assets
Other amortization
Net realized and unrealized (gains) losses and impairment on assets
Gain on U.S. variable annuity reinsurance transaction (pre-tax)
Gain on derecognition of Joint Venture interest during Manulife TEDA
acquisition (pre-tax)
Deferred income tax expense (recovery)
Stock option expense
Cash provided by (used in) operating activities before undernoted items
Dividends from unconsolidated subsidiary
Cash decrease due to U.S. variable annuity reinsurance transaction
Changes in policy related and operating receivables and payables
Cash provided by (used in) operating activities
Investing activities
Purchases and mortgage advances
Disposals and repayments
Changes in investment broker net receivables and payables
Net cash increase (decrease) from sale (purchase) of subsidiary
Investment in common shares of subsidiaries
Capital contribution to unconsolidated subsidiaries
Return of capital from unconsolidated subsidiaries
Notes receivable from parent
Notes receivable from subsidiaries
Cash provided by (used in) investing activities
Financing activities
Issue of long-term debt, net
Redemption of capital instruments
Secured borrowings
Change in repurchase agreements and securities sold but not yet purchased
Changes in deposits from Bank clients, net
Lease payments
Shareholders’ dividends and other equity distributions
Common shares repurchased
Common shares issued, net
Preferred shares and other equity issued, net
Preferred shares redeemed, net
Contributions from (distributions to) non-controlling interests, net
Dividends paid to parent
Capital contributions by parent
Return of capital to parent
Notes payable to parent
Notes payable to subsidiaries
Cash provided by (used in) financing activities
Cash and short-term securities
Increase (decrease) during the year
Effect of foreign exchange rate changes on cash and short-term securities
Balance, beginning of year
Balance, end of year
Cash and short-term securities
Beginning of year
Gross cash and short-term securities
Net payments in transit, included in other liabilities
Net cash and short-term securities, beginning of year
End of year
Gross cash and short-term securities
Net payments in transit, included in other liabilities
Net cash and short-term securities, end of year
Supplemental disclosures on cash flow information:
Interest received
Interest paid
Income taxes paid
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$ 7,294
$ 2,046
$ 8,111
$(10,269)
$ 7,182
(7,226)
–
–
(997)
(20,032)
44
(2,046)
(13,381)
(3)
10,269
–
–
–
(33,413)
41
–
–
9
(36)
–
–
(33)
–
8
6,200
–
45
6,253
–
1
–
–
(2,479)
–
–
–
46
(2,432)
946
–
–
–
–
–
(2,787)
(1,884)
23
990
(711)
–
–
–
–
–
(415)
(3,838)
(17)
2
78
63
78
–
78
63
–
63
$
6,869
46
125
15,150
(1,026)
–
294
(3)
2,516
399
(1,263)
2,805
4,457
(28,798)
23,505
(11)
–
–
(1)
19
–
(7)
(5,293)
–
–
–
–
–
(5)
–
–
–
–
–
–
(734)
–
–
–
–
(739)
(1,575)
225
3,565
2,215
(6,710)
(78)
404
32,156
(44)
(95)
470
8
18,792
734
(114)
(5,054)
14,358
(82,970)
69,901
(56)
(182)
–
–
–
415
–
(12,892)
–
(1,000)
437
(551)
1,703
(115)
–
–
2,479
–
–
(51)
(6,599)
1
(19)
(39)
–
(3,754)
(2,288)
358
18,287
16,357
4,087
(522)
3,565
18,429
(142)
18,287
2,614
(399)
$ 2,215
16,476
(119)
$ 16,357
$
–
–
–
–
–
–
–
–
–
(7,333)
–
–
(7,333)
–
–
–
–
2,479
1
(19)
(415)
(39)
2,007
–
–
–
–
–
–
–
–
(2,479)
–
–
–
7,333
(1)
19
39
415
5,326
–
–
–
–
–
–
–
–
–
–
159
(32)
538
47,270
(1,070)
(95)
731
5
21,316
–
(1,377)
(2,204)
17,735
(111,768)
93,407
(67)
(182)
–
–
–
–
–
(18,610)
946
(1,000)
437
(551)
1,703
(120)
(2,787)
(1,884)
23
990
(711)
(51)
–
–
–
–
–
(3,005)
(3,880)
585
21,930
18,635
22,594
(664)
21,930
19,153
(518)
$18,635
$ 512
424
–
$ 4,050
118
124
$ 8,732
1,867
1,114
$ (1,161)
(1,161)
–
$12,133
1,248
1,238
219
Consolidated Statement of Cash Flows
For the year ended December 31, 2021
Operating activities
Net income (loss)
Adjustments:
Equity in net income of unconsolidated subsidiaries
Increase (decrease) in insurance contract liabilities
Increase (decrease) in investment contract liabilities
(Increase) decrease in reinsurance assets excluding coinsurance
transactions
Amortization of (premium) discount on invested assets
Other amortization
Net realized and unrealized (gains) losses and impairment on assets
Deferred income tax expense (recovery)
Stock option expense
Cash provided by (used in) operating activities before undernoted items
Dividends from unconsolidated subsidiary
Changes in policy related and operating receivables and payables
Cash provided by (used in) operating activities
Investing activities
Purchases and mortgage advances
Disposals and repayments
Changes in investment broker net receivables and payables
Investment in common shares of subsidiaries
Net cash flows from acquisition and disposal of subsidiaries and businesses
Capital contribution to unconsolidated subsidiaries
Return of capital from unconsolidated subsidiaries
Notes receivable from parent
Notes receivable from subsidiaries
Cash provided by (used in) investing activities
Financing activities
Redemption of long-term debt
Redemption of capital instruments
Secured borrowings
Change in repurchase agreements and securities sold but not yet purchased
Changes in deposits from Bank clients, net
Lease payments
Shareholders’ dividends and other equity distributions
Contributions from (distributions to) non-controlling interests, net
Common shares issued, net
Preferred shares and other equity issued, net
Preferred shares redeemed, net
Dividends paid to parent
Capital contributions by parent
Return of capital to parent
Notes payable to parent
Notes payable to subsidiaries
Cash provided by (used in) financing activities
Cash and short-term securities
Increase (decrease) during the year
Effect of foreign exchange rate changes on cash and short-term securities
Balance, beginning of year
Balance, end of year
Cash and short-term securities
Beginning of year
Gross cash and short-term securities
Net payments in transit, included in other liabilities
Net cash and short-term securities, beginning of year
End of year
Gross cash and short-term securities
Net payments in transit, included in other liabilities
Net cash and short-term securities, end of year
Supplemental disclosures on cash flow information:
Interest received
Interest paid
Income taxes paid (refund)
220 | 2022 Annual Report | Notes to Consolidated Financial Statements
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$ 7,105
$ 1,552
$ 7,997
$ (9,742) $
6,912
(6,972)
–
–
–
–
16
62
34
–
245
5,000
(22)
5,223
–
–
–
(3,700)
–
–
–
–
(13)
(3,713)
(1,250)
(468)
–
–
–
–
(2,500)
–
51
3,171
(612)
–
–
–
–
129
(1,479)
31
–
47
78
47
–
47
78
–
78
(1,218)
(562)
50
1,544
57
124
1,533
190
(2)
3,268
489
424
4,181
(31,746)
27,194
(202)
–
–
(1)
1
–
–
(4,754)
–
–
–
–
–
(7)
–
–
–
–
–
(742)
–
–
–
–
(749)
(1,552)
11,281
(6)
(790)
124
389
3,229
(351)
11
20,332
742
(1,092)
19,982
(89,219)
69,534
16
–
(19)
–
–
(129)
–
(19,817)
–
(350)
26
186
(164)
(117)
–
(13)
3,700
–
–
(5,489)
1
(1)
13
–
(2,208)
(1,322)
(20)
4,907
3,565
(2,043)
(299)
20,629
18,287
5,213
(306)
4,907
20,907
(278)
20,629
4,087
(522)
$ 3,565
18,429
(142)
$ 18,287
$
9,742
–
–
–
–
–
–
–
–
–
(6,231)
–
(6,231)
–
–
–
3,700
–
1
(1)
129
13
3,842
–
–
–
–
–
–
–
–
(3,700)
–
–
6,231
(1)
1
(13)
(129)
2,389
–
–
–
–
–
–
–
–
–
–
–
10,719
44
754
181
529
4,824
(127)
9
23,845
–
(690)
23,155
(120,965)
96,728
(186)
–
(19)
–
–
–
–
(24,442)
(1,250)
(818)
26
186
(164)
(124)
(2,500)
(13)
51
3,171
(612)
–
–
–
–
–
(2,047)
(3,334)
(319)
25,583
21,930
26,167
(584)
25,583
22,594
(664)
$ 21,930
499
396
–
$ 4,112
73
(118)
$ 7,847
1,594
689
$ (1,082) $ 11,376
981
571
(1,082)
–
$
$
Note 25 Significant accounting policies in accordance with IFRS 9 and IFRS 17
As discussed in note 2 “Accounting and Reporting Changes”, the Company adopted IFRS 9 (“Financial Instruments”) and IFRS 17
(“Insurance Contracts”) as a replacement of IAS 39 and IFRS 4 effective January 1, 2023. The Consolidated Financial Statements starting
from January 1, 2023, and any required comparatives, will be prepared in accordance with the new standards. This note outlines the
Company’s accounting policies on invested assets, derivatives and hedging instruments that are in accordance with IFRS 9, as well as the
accounting policies on insurance contract liabilities and reinsurance contract assets that are in accordance with IFRS 17. Refer to note 2
for adoption impacts of IFRS 9 and IFRS 17.
Invested assets
Invested assets are recognized initially at fair value plus, in the case of investments not at FVTPL, directly attributable transaction costs.
Invested assets that are considered financial instruments are classified as fair value through other comprehensive income (“FVOCI”), fair
value through profit or loss (“FVTPL”) or as amortized cost. The Company determines the classification of its financial assets at initial
recognition.
The classification of invested assets which are financial instruments depends on their contractual terms and the Company’s business
model for managing the assets.
The Company assesses the contractual terms of the assets to determine whether their contractual terms give rise on specified dates to
cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. Only debt instruments may have
SPPI cash flows. The most significant elements of interest within a lending arrangement are typically the consideration for the time value of
money and credit risk. To make the SPPI assessment, the Company applies judgment and considers relevant factors such as prepayment
and redemption rights, conversion features, and subordination of the instrument to other instruments of the issuer. Contractual terms that
introduce a more than de minimis exposure to risks of not collecting principal or interest would not meet the SPPI test.
Debt instruments which qualify as having SPPI cash flows are classified as amortized cost or FVOCI based on the business model under
which they are held. If held within a business model whose objective is to hold the assets in order to collect contractual cash flows, they are
classified as amortized cost. If held within a business model whose objective is achieved by both collecting contractual cash flows and
selling the assets, they are classified as FVOCI. In either case, the company may designate them as FVTPL in order to reduce accounting
mismatches with FVTPL liabilities they support. Debt instruments which fail the SPPI test are required to be measured at FVTPL. To identify
the business model financial assets are held within, considerations include the business purpose of the portfolio holding them, the risks
that are being managed and the business activities which manage the risks, the basis on which performance of the portfolio is being
evaluated, and the frequency and significance of sales activity within the portfolio.
Realized and unrealized gains and losses on debt instruments classified as FVTPL and realized gains and losses on debt instruments held
at amortized cost and FVOCI are recognized in investment income immediately. Unrealized gains and losses on FVOCI debt securities are
recorded in OCI, except for unrealized gains and losses on foreign currency translation which are included in income.
Investments in equity which are financial instruments are not subject to the SPPI test and are accounted for as FVTPL unless the option to
designate them as FVOCI is taken.
Valuation methods for the Company’s invested assets are described above in note 1(c). All fair value valuations are performed in
accordance with IFRS 13 “Fair Value Measurement”. Disclosure of financial instruments carried at fair value within the three levels of the
fair value hierarchy and disclosure of the fair value for financial instruments not carried at fair value on the Consolidated Statements of
Financial Position are presented in note 4. Fair value valuations are performed by the Company and by third-party service providers. When
third-party service providers are engaged, the Company performs a variety of procedures to corroborate pricing information. These
procedures may include, but are not limited to, inquiry and review of valuation techniques, inputs to the valuation and vendor controls
reports.
Cash and short-term securities comprise of cash, current operating accounts, overnight bank and term deposits, and fixed income
securities held for meeting short-term cash commitments. Short-term securities are carried at fair value. Short-term securities are
comprised of investments due to mature within one year of the date of purchase. Commercial paper and discount notes are classified as
Level 2 because these securities are typically not actively traded. Net payments in transit and overdraft bank balances are included in
other liabilities.
Debt securities are carried at fair value or amortized cost. Debt securities are generally valued by independent pricing vendors using
proprietary pricing models incorporating current market inputs for similar instruments with comparable terms and credit quality (matrix
pricing). The significant inputs include, but are not limited to, yield curves, credit risks and spreads, prepayment rates and volatility of
these inputs. These debt securities are classified as Level 2 but can be Level 3 if significant inputs are market unobservable.
Public equities are comprised of common and preferred equities and are carried at fair value. Public equities are generally classified as
Level 1, as fair values are normally based on quoted market prices. Realized and unrealized gains and losses on equities designated as
FVTPL are recognized in investment income immediately. Unrealized gains and losses on equity securities designated as FVOCI are
221
recorded in OCI and are never reclassified to investment income. Upon sale of an FVOCI equity security, related AOCI is reclassified to
retained earnings. The Company’s risk management policies and procedures related to equities can be found in the denoted components
of the “Risk Management and Risk Factors” section of the MD&A.
Mortgages are classified as Level 3 for fair value purposes due to the lack of market observability of certain significant valuation inputs.
The Company accounts for insured and uninsured mortgage securitizations as secured financing transactions since the criteria for sale
accounting are not met. For these transactions, the Company continues to recognize the mortgages and records a liability in other
liabilities for the amounts owed at maturity. Interest income from these mortgages and interest expense on the borrowings are recorded
using the effective interest rate method.
Private placements, which include corporate loans for which there is no active market, are generally classified as Level 2 for fair value
disclosure purposes or as Level 3 if significant inputs are market unobservable.
Loans to Manulife Bank of Canada (“Manulife Bank” or “Bank”) clients are carried at amortized cost and are classified as Level 2 for fair
value disclosure purposes.
Interest income is recognized on debt securities, mortgages, private placements, policy loans and loans to Bank clients as it accrues and is
calculated using the effective interest rate (“EIR”) method. Premiums, discounts, and transaction costs are amortized over the life of the
underlying investment using the effective yield method for all debt securities as well as mortgages and private placements.
The Company records purchases and sales of invested assets on a trade date basis. Loans originated by the Company are recognized on a
settlement date basis.
Real estate consists of both own use and investment property. Own use property is carried at cost less accumulated depreciation and any
accumulated impairment losses, or at revalued amount which is the fair value as at the most recent revaluation date minus accumulated
amortization and any accumulated impairment losses. Depreciation is calculated based on the cost of an asset less its residual value and
is recognized in income on a straight-line basis over the estimated useful life ranging from 30 to 60 years. Impairment losses are recorded
in income to the extent the recoverable amount is less than the carrying amount. Own use property is classified as Level 3 for fair value
disclosure purposes. Own use real estate properties which are underlying items for insurance contracts with direct participating features
are measured at fair value as if they were investment properties, as permitted by IFRS 17.
An investment property is a property held to earn rental income, for capital appreciation, or both. Investment properties are measured at
fair value, with changes in fair value recognized in income. Fair value of own use properties and investment properties is determined using
the same processes. Fair value for properties is determined using external appraisals that are based on the highest and best use of the
property. The valuation techniques include discounted cash flows, the direct capitalization method as well as comparable sales analysis
and include both observable and unobservable inputs. Inputs include existing and assumed tenancies, market data from recent
comparable transactions, future economic outlook and market risk assumptions, capitalization rates and internal rates of return.
Investment properties are classified as Level 3 for fair value disclosure purposes.
When a property changes from own use to investment property, any gain or loss arising on the remeasurement of the property to fair value
at the date of transfer is recognized in OCI, to the extent that it is not reversing a previous impairment loss. Reversals of impairment losses
are recognized in income. When a property changes from investment property to own use, the property’s deemed cost for subsequent
accounting is its fair value as at the date of change in use.
Other invested assets include private equity investments and property investments held in infrastructure and timber, as well as in
agriculture and oil and gas sectors. Private equity investments are accounted for as associates or joint ventures using the equity method
(as described in note 1(d) above) or are classified as FVTPL and carried at fair value. Timber and agriculture properties are measured at fair
value with changes in fair value recognized in income, except for buildings, equipment and bearer plants which are measured at amortized
cost. The fair value of other invested assets is determined using a variety of valuation techniques as described in note 4. Other invested
assets that are measured or disclosed at fair value are classified as Level 3.
Other invested assets also include investments in leveraged leases, which are accounted for using the equity method. The carrying value
under the equity method reflects the amortized cost of the lease receivable and related non-recourse debt using the effective yield method.
Expected Credit Loss Impairment
The expected credit loss (“ECL”) impairment allowance model applies to invested assets which are debt instruments and measured at
FVOCI or amortized cost. ECL allowances are measured under four probability-weighted macroeconomic scenarios, which measure the
difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the
Company expects to receive, discounted at the original EIR. This process includes consideration of past events, current market conditions
and reasonable supportable information about future economic conditions. Forward-looking macroeconomic variables used within the
estimation models represent variables that are the most closely related with credit losses in the relevant portfolio.
The estimation and measurement of impairment losses requires significant judgment. These estimates are driven by many elements,
changes in which can result in different levels of allowances. Elements include the estimation of the amount and timing of future cash
flows, the Company’s criteria for assessing if there has been a significant increase in credit risk (“SICR”), the selection of forward-looking
222 | 2022 Annual Report | Notes to Consolidated Financial Statements
macroeconomic scenarios and their probability weights, the application of expert credit judgment in the development of the models, inputs
and, when applicable, overlay adjustments. It is the Company’s process to regularly review its models in the context of actual loss
experience and adjust when necessary. The Company has implemented formal policies, procedures, and controls over all significant
impairment processes.
The Company’s definitions of default and credit-impaired are based on quantitative and qualitative factors. A financial instrument is
considered to be in default when significant payments of interest, principal or fees are past due for more than 90 days, unless remedial
arrangements with the issuer are in place. A financial instrument may be credit impaired as a result of one or more loss events that
occurred after the date of initial recognition of the instrument and the loss event has a negative impact on the estimated future cash flows
of the instrument. This includes events that indicate or include: significant financial difficulty of the counterparty; a breach of contract; for
economic or contractual reasons relating to the counterparty’s financial difficulty, concessions are granted that would not otherwise be
considered; it is becoming probable that the counterparty will enter bankruptcy or other financial reorganization; the disappearance of an
active market for that financial asset because of the counterparty’s financial difficulties; or the counterparty is considered to be in default
by any of the major rating agencies such as S&P, Moody’s and Fitch.
The ECL calculations include the following elements:
• Probability of default (“PD”), is an estimate of the likelihood of default over a given time horizon.
• Loss given default (“LGD”), is an estimate of the loss arising on a future default. This is based on the difference between the contractual
cash flows due and those that the Company expects to receive, including from collateral. It is based on credit default studies performed
based on internal credit experience.
• Exposure at default (“EAD”), is an estimate of the exposure at a future default date, considering both the period of exposure and the
amount of exposure at a given reporting date. The EADs are determined by modelling the range of possible exposure outcomes at
various points in time, corresponding to the multiple economic scenarios. The probabilities are then assigned to each economic
scenario based on the outcome of the models.
The Company measures ECLs using a three-stage approach:
• Stage 1 comprises all performing financial instruments that have not experienced an SICR since initial recognition. The determination of
SICR varies by product and considers the relative change in the risk of default since origination. 12-month ECLs are recognized for all
Stage 1 financial instruments.
• 12-month ECLs represent the portion of lifetime ECLs that result from default events possible within 12 months of the reporting date.
These expected 12-month default probabilities are applied to a forecast EAD, multiplied by the expected LGD, and discounted by the
original EIR. This calculation is made for each of four macroeconomic scenarios.
• Stage 2 comprises all performing financial instruments that have experienced an SICR since original recognition or have become 30
days in arrears for principal or interest payments, whichever happens first. When assets move to Stage 2, full lifetime ECLs are
recognized, which represent ECLs that result from all possible default events over the remaining lifetime of the financial instrument. The
mechanics are consistent with Stage 1, except PDs and LGDs are estimated over the remaining lifetime of the instrument instead of over
the coming year. In subsequent reporting periods, if the credit risk of a financial instrument improves such that there is no longer a
SICR compared to credit risk at initial recognition, the financial instrument will migrate back to Stage 1 and 12-month ECLs will be
recognized; and
• Stage 3 comprises financial instruments identified as credit-impaired. Similar to Stage 2 assets, full lifetime ECLs are recognized for
Stage 3 financial instruments, but the PD is set at 100%. A Stage 3 ECL is calculated using the unpaid principal balance multiplied by
LGD which reflects the difference between the asset’s carrying amount and its discounted expected future cash flows.
Interest income is calculated based on the gross carrying amount for both Stage 1 and 2 exposures. Interest income on Stage 3 financial
instruments is determined by applying the EIR to the amortized cost of the instrument, which represents the gross carrying amount
adjusted for any credit loss allowance.
For Stage 1 and Stage 2 exposures, an ECL is generated for each individual exposure; however, the relevant parameters are modelled on a
collective basis with all collective parameters captured by the individual security level. The exposures are grouped into smaller
homogeneous portfolios, based on a combination of internal and external characteristics, such as origination details, balance history,
sector, geographic location, and credit history. Stage 3 ECLs are either individually or collectively assessed, depending on the nature of
the instrument and impairment.
In assessing whether credit risk has increased significantly, the risk of default occurring is compared over the remaining expected life from
the reporting date and as of the date of initial recognition. The assessment varies by product and risk segment. The assessment
incorporates internal credit risk ratings and a combination of security-specific and portfolio-level assessments, including the incorporation
of forward-looking macroeconomic data. The assessment of SICR considers both absolute and relative thresholds. If contractual payments
are more than 30 days past due, the credit risk is automatically deemed to have increased significantly since initial recognition.
22
When estimating ECLs, the four probability-weighted macroeconomic scenarios are considered. Economic forward-looking inputs include
stock price indices (“SPI”), unemployment rates (“UEs”), oil prices and the 7-10 year BBB US Corporate Index. Application of each input
varies by product. Depending on their usage in the models, macroeconomic inputs are projected at the country, province, or more granular
level. Each macroeconomic scenario used includes a projection of all relevant macroeconomic variables for a five-year period,
subsequently reverting to long-run averages. In order to achieve an unbiased estimate, economic data used in the models is supplied by an
external source. This information is compared to other publicly available forecasts, and the scenarios are assigned a probability weighting
based on statistical analysis and management judgment.
The inputs and models used for calculating ECLs may not always capture all characteristics of the market at the date of the Consolidated
Financial Statements.
Changes in the required ECL allowance are recorded in the provision for credit losses in the Consolidated Statements of Income. Invested
assets are written off, either partially or in full, against the related allowance for credit losses when there is no realistic prospect of
recovery in respect of those amounts. This is considered a (partial) derecognition of the financial asset. In subsequent periods, any
recoveries of amounts previously written off are credited to the provision for credit losses.
Derivative and hedging instruments
The Company uses derivative financial instruments (“derivatives”) including swaps, forward and futures agreements, and options to
manage current and anticipated exposures to changes in interest rates, foreign exchange rates, commodity prices and equity market
prices, and to replicate permissible investments. Derivatives embedded in other financial instruments are separately recorded as
derivatives when their economic characteristics and risks are not closely related to those of the host instrument, the terms of the
embedded derivative are the same as those of a standalone derivative and the host instrument itself is not recorded at FVTPL. Derivatives
which are separate financial instruments are recorded at fair value, and those with unrealized gains reported as derivative assets and those
with unrealized losses reported as derivative liabilities.
A determination is made for each derivative as to whether to apply hedge accounting. Where hedge accounting is not applied, changes in
the fair value of derivatives are recorded in investment income.
Where the Company has elected to apply hedge accounting, a hedging relationship is designated and documented at inception. Hedge
effectiveness is evaluated at inception and throughout the term of the hedge. Hedge accounting is only applied when the Company expects
that the risk management objective will be met and the hedging relationship will qualify for hedge accounting requirements both at
inception and throughout the hedging period. The assessment of hedge effectiveness is performed at the end of each reporting period
prospectively. When it is determined that the risk management objective is no longer met, a hedging relationship is no longer effective, or
the hedging instrument or the hedged item ceased to exist, the Company discontinues hedge accounting prospectively. In such cases, if
the derivatives are not sold or terminated, any subsequent changes in fair value of the derivatives are recognized in investment income.
For derivatives that are designated as hedging instruments, changes in fair value are recorded according to the nature of the risks being
hedged, as discussed below.
In a fair value hedging relationship, changes in fair value of the hedging instruments are recorded in investment income, offsetting
changes in fair value of the hedged items attributable to the hedged risk, which would otherwise not be carried at fair value through profit
or loss. Hedge ineffectiveness is recognized in total investment results and arises from differences between changes in the fair values of
hedging instruments and hedged items. When hedge accounting is discontinued, the carrying value of the hedged item is no longer
adjusted and the cumulative fair value adjustments are amortized to total investment results over the remaining term of the hedged item
unless the hedged item ceased to exist, at which time the balance is recognized immediately in total investment results.
In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging instrument is recorded in OCI while
the ineffective portion is recognized in total investment results. Gains and losses in accumulated other comprehensive income (“AOCI”) are
recognized in income during the same periods that the variability in the hedged cash flows or the hedged forecasted transactions are
recognized in income. The reclassifications from AOCI are made to total investment results, except for total return swaps that hedge stock-
based compensation awards, which are reclassified to general expenses.
Gains and losses on cash flow hedges in AOCI are reclassified immediately to total investment results when the hedged item ceased to
exist or the forecasted transaction is no longer expected to occur. When a hedge is discontinued, but the hedged forecasted transaction is
expected to occur, the amounts in AOCI are reclassified to total investment results in the periods during which variability in the cash flows
hedged or the hedged forecasted transaction is recognized in income.
In a net investment in foreign operations hedging relationship, gains and losses relating to the effective portion of the hedge are recorded
in OCI. Gains and losses in AOCI are recognized in income during the periods when gains or losses on the underlying hedged net
investment in foreign operations are recognized in income upon disposal of the foreign operation.
224 | 2022 Annual Report | Notes to Consolidated Financial Statements
Insurance contract liabilities and reinsurance contract assets
Classification and separation of components
Most contracts issued by the Company are considered insurance, investment, or service contracts. Contracts under which the Company
accepts significant insurance risk from a policyholder are classified as insurance contracts in the Consolidated Financial Statements. A
contract is considered to have significant insurance risk if, and only if, an insured event could cause an insurer to pay additional amounts
that are significant in any single scenario, excluding scenarios that lack commercial substance. The additional amounts refer to the
present value of amounts that exceed those that would be payable if no insured event had occurred. Contracts held by the Company under
which it transfers significant insurance risk related to underlying insurance contracts to other parties are classified as reinsurance
contracts. Both insurance and reinsurance contracts are accounted for in accordance with IFRS 17 “Insurance Contracts”. Contracts under
which the Company does not accept significant insurance risk are either classified as investment contracts or considered service contracts
and are accounted for in accordance with IFRS 9 “Financial Instruments” or IFRS 15 “Revenue from Contracts with Customers”,
respectively.
Insurance contracts are classified as direct participation contracts or contracts without direct participation features based on specific
criteria. Insurance contracts with direct participation features are insurance contracts that are substantially investment-related service
contracts under which an entity promises an investment return based on underlying items. They are viewed as creating an obligation to pay
policyholders an amount that is equal to the fair value of the underlying items, less a variable fee for service.
At inception of insurance and reinsurance contracts, the Company analyses whether they contain the following components that should be
separated and accounted for under other IFRS standards: derivatives embedded within insurance contracts that are required to be
separated (IFRS 9); cash flows relating to distinct investment components (IFRS 9); and promises to transfer distinct goods or distinct non-
insurance services (IFRS 15). Investment components of an insurance (or reinsurance held) contract represent cash flows paid (received)
in all circumstances regardless of whether an insurance event has occurred or not. Investment components are distinct if they are not
interrelated with insurance component cash flows and if they could be issued on a standalone basis. The Company applies IFRS 17 to all
remaining components of the insurance and reinsurance contracts.
There are three measurement models that insurance contracts can be measured under: the variable fee approach (“VFA”), the general
measurement model (“GMM”) and the premium allocation approach (“PAA”). For insurance contracts with direct participation features
such as participating life insurance contracts, unit linked type contracts, and variable annuity contracts the Company applies the VFA
measurement model. For many group benefits contracts that have a one-year (or shorter) term of coverage, the Company generally applies
the PAA measurement model. For the remainder of the Company’s insurance contracts the GMM measurement model is applied.
Level of aggregation/unit of account
Insurance contracts are aggregated into portfolios of insurance contracts which are managed together and are subject to similar risks. The
Company has defined portfolios by considering various factors such as legal entities, measurement model, major product line and type of
insurance risk. The portfolios of insurance contracts are further grouped into annual cohorts and by expected profitability at inception into
one of three categories: onerous contracts, contracts with no significant risk of becoming onerous and other remaining contracts. Onerous
contracts are those contracts that at initial inception, the Company expects to generate net outflow, without considering investment
returns or the benefit of any reinsurance held.
Initial recognition and subsequent measurement
The Company includes in the measurement of a group of insurance contracts all future cash flows within the boundary of the contracts in
the group. Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist
during the reporting period and in which the Company can compel the policyholder to pay the premiums or has a substantive obligation to
provide services to the policyholder. A substantive obligation to provide services ends when:
• The Company has the practical ability to reassess the risks of the particular policyholder and as a result, can set a price or level of
benefits that fully reflects those risks, or
• The Company has the practical ability to reassess the risks of the portfolio of insurance contracts that contain the contract and, as a
result, can set a price or level of benefits that fully reflects the risk of that portfolio, and the pricing of the premiums up to the date when
the risks are reassessed does not take into account the risks that relate to periods after the reassessment date.
The Company recognizes groups of insurance contracts that it issues from the earliest of the following:
• The beginning of the coverage period of the group of contracts,
• The date when the first payment from a policyholder in the group is due or when the first payment is received if there is no due date, and
• For a group of onerous contracts, as soon as facts and circumstances indicate that the group is onerous.
Insurance contracts measured under the VFA and the GMM measurement model
At initial recognition, the Company measures a group of insurance contracts as the total of: (a) fulfilment cash flows, which comprise of
estimates of future cash flows, adjusted to reflect the time value of money and financial risks, and a risk adjustment for non-financial risk;
and (b) a contractual service margin (“CSM”), which represents the unearned profit the Company will recognize as it provides service under
the insurance contracts. For reinsurance contracts, the CSM represents the reinsurance gain or cost at initial recognition.
225
In determining the fulfilment cash flows, the Company uses estimates and assumptions considering a range of scenarios which have
commercial substance and give a good representation of possible outcomes. The Company’s CSM is a component of the insurance asset
or liability for the group of insurance contracts and results in no income at initial recognition. The unit of account for CSM is on a group of
contracts basis consistent with the level of aggregation specified above. If the fulfilment cash flows are allocated to the group of insurance
contracts, any previously recognized insurance acquisition cash flows and any cash flows arising from the contracts at the date of initial
recognition in total are a net outflow, then the group of contracts is considered to be onerous. A loss from onerous insurance contracts is
recognized in profit and loss immediately. The Company establishes the groups at initial recognition and may add contracts to the groups
after the end of a reporting period, however, the Company does not reassess the composition of the groups subsequently.
In the subsequent periods, the carrying amount of a group of insurance contracts at each reporting date is the sum of the liability for
remaining coverage (“LRC”) and the liability for incurred claims (“LIC”). The LRC comprises the fulfilment cash flows that relate to services
to be provided in the future and any remaining CSM at that date. The LIC comprises the fulfilment cash flows for incurred claims and
expenses that have not yet been paid. The fulfilment cash flows at the reporting dates are measured using the current estimates of
expected cash flows and current discount rates.
The carrying amount of CSM at end of the reporting period is adjusted to reflect the following changes under the GMM for contracts
without direct participation features: (a) effect of new contracts added to the group; (b) interest accreted on the carrying amount of CSM,
measured at locked-in rate; (c) effect of any currency exchange differences on the CSM; (d) changes in fulfilment cash flows that relate to
future services (non-financial), except for loss component; and (e) recognition of insurance revenue for services provided in the year. The
CSM is recognized into insurance revenue over the duration of the group of insurance contracts based on the respective coverage units.
The locked-in discount rate is the weighted average of the rates applicable at the date of initial recognition of contracts that joined a group
over a 12-month period. The discount rate used for accretion of interest on the CSM is determined using the bottom-up approach.
The changes in fulfilment cash flows relating to future services (non-financial) that adjust the CSM comprise of:
• Experience adjustments that arise from the difference between the premium receipts (and any related cash flows such as insurance
acquisition cash flows and insurance premium taxes) and the expected amounts at the beginning of the period. Differences related to
premiums received (or due) related to current or past services are recognized immediately in profit or loss while differences related to
premiums received (or due) for future services are adjusted against the CSM.
• Changes in estimates of the present value of future cash flows in the LRC, except those relating to the time value of money and changes
in financial risk that are recognized in profit or loss and OCI.
• Differences between any investment component expected to become payable in the period and the actual investment component that
becomes payable in the period. Those differences are determined by comparing (i) the actual investment component that becomes
payable in the period with (ii) the payment in the period that was expected at the start of the period plus any insurance finance income
or expenses related to that expected payment before it becomes payable. The same applies to a policyholder loan that becomes
repayable.
• Changes in the risk adjustment for non-financial risk that relate to future service.
A loss is created when there is an increase in fulfilment cash flows that exceeds the carrying amount of the CSM. Once a change in
fulfilment cash flows reduces CSM to nil, the excess establishes a loss which is recognized in profit and loss immediately. Any subsequent
decrease in the fulfilment cash flows will reverse the losses previously recognized in profit or loss. Any remaining loss will be released
based on a systematic allocation of subsequent changes relating to future service in the fulfilment cash flows (refer to Presentation and
Disclosure below).
For contracts with direct participation features under the VFA measurement model, the cash flows impacting policyholders and
shareholders are treated differently. The change in the policyholders’ share of the fair value of underlying items does not impact CSM. The
change in the effect of the time value of money and financial risk not arising from the underlying items, such as financial guarantees,
adjust the CSM. The change in fulfilment cash flows that do not vary with the return of underlying items and that do not relate to future
service does not impact CSM consistent with the GMM. In contrast, under the VFA measurement model, the change in the amount of
shareholders’ share of the fair value of underlying items does impact CSM, except to the extent that the Company has elected the risk
mitigation option. The Company uses derivatives, non-derivative financial instruments measured at fair value through profit or loss, and
reinsurance contracts to mitigate the financial risk arising from interest rate guarantees in certain contracts with direct participation
features. Under the risk mitigation option, the Company recognizes changes in the shareholders’ share of the underlying items and the
changes in fulfilment cash flows in profit or loss or OCI instead of adjusting CSM. For groups of insurance contracts applying the VFA
measurement model, in addition to those conditions (both loss recognition and reversal) previously described for groups of contracts
applying the GMM, a loss in profit or loss is also recognized when declines in the shareholder’s share of fair value of underlying items
exceeds the carrying value of CSM. Any subsequent increase in the shareholder’s share of fair value of underlying items will reverse the
losses previously recognized in profit or loss.
226 | 2022 Annual Report | Notes to Consolidated Financial Statements
Reinsurance contracts measured under the GMM measurement model
The measurement of reinsurance contracts follows the same principles as the GMM, with the following exceptions or modifications
specified in this section below. Reinsurance contracts held and assumed cannot use the VFA measurement model.
The Company recognizes a group of reinsurance contracts held it has entered into from the earliest of the following:
• The beginning of the coverage period of the group of reinsurance contracts held. However, the Company delays the recognition of a
group of reinsurance contracts held that provide proportionate coverage until the date when any underlying insurance contract is
initially recognized, if that date is later than the beginning of the coverage period of the group of reinsurance contracts held, and
• The date the Company recognizes an onerous group of underlying insurance contracts if the Company entered into the related
reinsurance contract held in the group of reinsurance contracts held at or before that date.
At initial recognition, the Company recognizes any net gain or net cost as a CSM in the consolidated statement of financial position, with
some exceptions. If any net cost of obtaining a reinsurance contract relates to an insured event that occurred before initial recognition of
any insurance contract, it is recognized immediately in profit or loss. In addition, if the underlying insurance contracts are in an onerous
position, the Company is allowed to recognize a reinsurance gain immediately in profit or loss for the portion of claims that the Company
expects to recover from the reinsurance, if the reinsurance held was entered into prior to or at the same time as the onerous contract.
Consequently, a loss-recovery is created and adjusted for the group of reinsurance contracts. This determines the amounts that are
subsequently presented in profit or loss as reversals of recoveries of losses from the reinsurance contracts and are excluded from the
allocation of reinsurance premiums paid. The Company adjusts the loss-recovery to reflect changes in the loss of an onerous group of
underlying insurance contracts. The carrying amount of the loss-recovery must not exceed the portion of the carrying amount of the loss of
the onerous group of underlying insurance contracts that the Company expects to recover from the group of reinsurance contracts (refer
to Presentation and Disclosure below).
Measurement of reinsurance contract cash flows is consistent with the underlying insurance contracts, but with an adjustment for any risk
of non-performance by the reinsurer. The risk adjustment for non-financial risk is the amount of risk being transferred by the Company to
the reinsurer.
Subsequently, the carrying amount of a group of reinsurance contracts at each reporting date is the sum of the asset for remaining
coverage and the asset for incurred claims. The asset for remaining coverage comprises: (a) the fulfilment cash flows that relate to
services that will be received under the contracts in future periods and (b) any remaining CSM at that date.
Insurance and reinsurance contracts measured under the PAA measurement model
The Company applies the PAA to all insurance contracts it issues and reinsurance contracts that it holds if the coverage period of the
contract is one year or less; or the coverage period is longer than one year and the measurement of the LRC for the contracts under the
PAA does not differ materially from the measurement that would be produced applying the GMM approach under possible future scenarios.
For insurance contracts, generally, the LRC is measured as the premium received at initial recognition minus any insurance acquisition
cash flows at that date. There is no allowance for time value of money as the premiums are received within one year of the coverage period.
Subsequently, the Company measures the carrying amount of the LRC at the end of each reporting period as: (a) the LRC balance at
beginning of the period; plus (b) premium received in the period; minus (c) directly attributable acquisition costs net of related
amortization (unless expensed as incurred); minus (d) amount recognized as insurance revenue for the period; minus (e) investment
component paid or transferred to the LIC. The amount recognized as insurance revenue for the period is typically based on the passage of
time. For the Company’s property and casualty reinsurance business, the expected pattern of release of risk during the coverage period
differs significantly from the passage of time and as such the amount recognized as insurance revenue is on the basis of the expected
timing of incurred service expenses.
Under the PAA measurement method, entities are permitted to either defer directly attributable acquisition costs to future periods for a
group of contracts that are one year or less, or recognize the costs in profit or loss as incurred. This election can be made at the level of
each group of insurance contracts. For most of the PAA products such as Canadian Group Benefit, some Canadian Affinity products, and
some Asia short-term individual and group products, the Company has elected to defer directly attributable acquisition costs to future
periods. Where directly attributable acquisition costs are deferred, insurance acquisition cash flows are allocated to the group of
insurance contracts, in which the Company expects to recover the acquisition costs. Insurance acquisition costs arising before the
recognition of the related group of contracts are recognized as an asset or contra insurance contract liability as part of the same portfolio
that the related group of contracts is expected to be included. When facts and circumstances indicate the asset maybe impaired, the
Company conducts impairment tests. If the asset is impaired, an impairment loss will be recognized in profit or loss.
If at any time during the coverage period, facts and circumstances indicate that a group of contracts is onerous, the Company will
recognize a loss in profit or loss and an increase in the LRC to the extent that the current estimate of the fulfilment cash flows that relate to
remaining coverage (including the risk adjustment for non-financial risk) exceed the carrying amount of the LRC.
The Company estimates the LIC as the fulfilment cash flows related to incurred claims. The Company does not adjust the future cash flows
for the time value of money, except when claims are expected to settle more than one year after the actual claim occurs.
227
For reinsurance contracts held applying the PAA, the Company measures them on the same basis as insurance contracts that it issues,
adapted to reflect the features of reinsurance contracts held that differ from insurance contracts issued. If a loss-recovery is created for a
group of reinsurance contracts measured under the PAA, the Company adjusts the carrying amount of the asset for remaining coverage
instead of adjusting the CSM.
Derecognition of insurance contracts
The Company derecognizes insurance contracts when the rights and obligations relating to the contract are extinguished (i.e., discharged,
cancelled, or expired) or the contract is modified such that the modification results in a change in the measurement model, or the
applicable standard for measuring a component of the contract. In such cases, the Company derecognizes the initial contract and
recognizes the modified contract as a new contract.
Presentation and Disclosure
The Company presents the carrying amount of portfolios of insurance contracts that are in a net asset or liability position, and portfolios of
reinsurance contracts that are in a net asset or liability position separately in the consolidated statements of financial position.
The Company separately presents the insurance service results, which comprises of insurance revenue and insurance service expenses,
from investment results, which comprises of insurance finance income or expenses in the consolidated statements of income. The
standard allows the option on whether to disaggregate the changes in risk adjustment between insurance service results and insurance
finance income. The Company elected to disaggregate the change in risk adjustment for non-financial risk between the insurance service
expenses and insurance finance income or expenses.
The insurance revenue depicts the performance of insurance services and excludes investment components. For the GMM and the VFA
contracts, the insurance revenue represents the change in the LRC relating to services for which the Company expects to receive
consideration, comprising of: (a) expected claims and other insurance expenses; (b) changes in risk adjustment for non-financial risk; (c)
release of CSM based on coverage units; and (d) portion of premiums that relate to recovering of insurance acquisition cash flows. For
contracts measured under the PAA, the insurance revenue for each period is the amount of expected premium receipts for providing
services in the period.
The insurance service expenses arising from insurance contracts are recognized in profit or loss generally as they are incurred and
excludes repayment of investment components. The insurance service expenses comprise of: (a) incurred claims and other insurance
service expenses; (b) losses on onerous contracts and reversal of such losses; (c) adjustments to LIC; (d) amortization of insurance
acquisition cash flows; and (e) impairment losses on assets for insurance acquisition cash flows, if any, and reversals of such impairment
losses.
The amortization of insurance acquisition cash flows is equal to the recovery of insurance acquisition cash flows in insurance revenue for
contracts measured under the GMM. For contracts measured under the PAA with deferred acquisition cash flows, the Company amortizes
insurance acquisition cash flows over the duration of the group of insurance contracts based on the respective coverage units.
Net expenses from reinsurance contracts comprise of allocation of reinsurance premiums paid and the amounts expected to be recovered
from reinsurers. Reinsurance cash flows that are contingent on claims on the underlying contracts are treated as part of the claims
expected to be recovered from reinsurers, whereas reinsurance cash flows that are not contingent on claims on the underlying contracts
(for example, some types of ceding commissions) are treated as a reduction in reinsurance premiums paid. For reinsurance contracts
measured under the GMM, the allocation of reinsurance premiums paid represents the total of the changes in the asset for remaining
coverage that relate to services for which the Company expects to pay consideration. For reinsurance contracts measured under the PAA,
the allocation of reinsurance premiums paid is the amount of expected premium payments for receiving services in the period.
Insurance finance income or expenses comprise the change in the carrying amount of the group of insurance contracts arising from: (a)
the effect of the time value of money and changes in the time value of money; and (b) the effect of financial risk and changes in financial
risk.
The Company disaggregates insurance finance income or expenses on insurance contracts issued for most of its group of insurance
contracts measured under the GMM between profit or loss and OCI. The impact of changes in market interest rates on the value of the life
insurance and related reinsurance assets and liabilities are reflected in OCI in order to minimize accounting mismatches between the
accounting for insurance assets and liabilities and supporting financial assets. The impacts from differences between current period rates
and locked-in rates are presented in OCI.
228 | 2022 Annual Report | Notes to Consolidated Financial Statements
The Company’s invested assets which are debt instruments (including bonds, private placements, mortgages, and loans) backing the
groups of insurance contracts measured under the GMM are predominantly measured at FVOCI. As a result, the effect of the time value of
money for the groups of insurance contracts and supporting fixed maturity assets are reflected in profit or loss and the effect of financial
risk and changes in financial risk is reflected in OCI.
The systematic allocation of expected total insurance finance income or expenses depends on whether changes in assumptions that relate
to financial risk have a substantial effect on the amount paid to the policyholder.
• For groups of insurance contracts for which changes in assumptions that relate to financial risk do not have a substantial effect on the
amounts paid to the policyholder, the Company systematically allocates expected total insurance finance income or expenses over the
duration of the group of contracts to profit or loss using discount rates determined on initial recognition of the group of contracts.
• For groups of insurance contracts for which changes in assumptions that relate to financial risk have a substantial effect on the
amounts paid to the policyholders, the Company systematically allocates expected total insurance finance income or expenses over the
duration of the group of contracts to profit or loss using an allocation that is based on the amounts credited in the period and expected
to be credited in future periods for fulfilment cash flows, and using the discount rates determined on initial recognition of the group of
contracts for contractual service margin.
In the event of transfer of a group of insurance contracts or derecognition of an insurance contract, the Company reclassifies any amounts
that were previously recognized in OCI to profit or loss as insurance income finance or expense. There are no changes in the basis of
disaggregation of insurance finance expenses between profit or loss and OCI in the period.
The Company groups contracts that are onerous at initial recognition separately from contracts in the same portfolio that are not onerous
at initial recognition. Groups that were not onerous at initial recognition can also subsequently become onerous if assumptions and
experience changes. The Company has established a loss component of the LRC for any onerous group representing the future losses
recognized.
A loss component represents a notional record of the losses attributable to each group of onerous insurance contracts (or contracts
profitable at inception that have become onerous). The loss component is released based on a systematic allocation of the subsequent
changes relating to future service in the fulfilment cash flows to: (i) the loss component; and (ii) the LRC excluding the loss component. The
loss component is also updated for subsequent changes relating to future service in estimates of the fulfilment cash flows and the risk
adjustment for non-financial risk. The systematic allocation of subsequent changes to the loss component results in the total amounts
allocated to the loss component being equal to zero by the end of the coverage period of a group of contracts (since the loss component
will have been occurred in the form of incurred claims). The Company uses the proportion on initial recognition to determine the
systematic allocation of subsequent changes in future cash flows between the loss component and the liability for remaining coverage
excluding the loss component.
For reinsurance contracts, when the Company recognizes a loss on initial recognition of an onerous group of underlying insurance
contracts or when further onerous underlying insurance contracts are added to a group, the Company establishes a loss-recovery
component of the asset for remaining coverage for a group of reinsurance contracts held representing the recovery of losses.
Where a loss component has been set up subsequent to initial recognition of a group of underlying insurance contracts, the portion of
income that has been recognized from related reinsurance contracts held is disclosed as a loss-recovery component.
Where a loss-recovery component has been set up at initial recognition or subsequently, the Company adjusts the loss-recovery
component to reflect changes in the loss component of an onerous group of underlying insurance contracts.
The carrying amount of the loss-recovery component must not exceed the portion of the carrying amount of the loss component of the
onerous group of underlying insurance contracts that the Company expects to recover from the group of reinsurance contracts. On this
basis, the loss-recovery component recognized at initial recognition is reduced to zero in line with reductions in the onerous group of
underlying insurance contracts and is nil when the loss component of the onerous group of underlying insurance contracts is nil.
Note 26 Comparatives
Certain comparative amounts have been reclassified to conform to the current year’s presentation.
229
Additional Actuarial Disclosures
Source of Earnings
Manulife uses a Source of Earnings (“SOE”) to identify the primary sources of gains or losses in each reporting period. It is one of the key
tools the Company uses to understand and manage its business. The SOE is prepared following OSFI’s regulatory guidelines, and in
accordance with educational notes published by the Canadian Institute of Actuaries (“CIA”). The SOE attributes each component of
earnings to one of ten categories: expected profit from in-force business, the impact of new business, experience gains or losses
(comparing actual to expected outcomes), the impact of management actions and changes in assumptions, earnings on surplus funds,
other insurance earnings, Global Wealth and Asset Management earnings, Manulife Bank earnings, unallocated overhead expenses, and
income taxes. In aggregate, these elements explain the $7,294 million of net income attributed to shareholders in 2022.
Each of these ten categories is described below:
Expected profit from in-force business represents the formula-driven release of Provisions for Adverse Deviation (“PfADs”) on non-fee
income insurance businesses, the expected net income on fee businesses, and the planned margins on one-year renewable businesses
such as Group Benefits. PfADs are a requirement of the Canadian Actuarial Standards of Practice, and represent additional amounts held
in excess of the expected cost of discharging policy obligations in order to provide a margin of conservatism. These amounts are released
over time as the Company is released from the risks associated with the policy obligations.
The increase in 2022 over 2021 was driven by in-force business growth in Asia and Canada, partially offset by lower in-force earnings in
U.S. Annuities related to the two transactions to reinsure over 80% of the Company’s U.S. variable annuity block in 2022.
Impact of new business represents the financial impact of new business written in the period, including acquisition expenses. Writing
new business creates economic value, which is offset by PfADs and other limits on capitalization of this economic value in actuarial
liabilities.
The new business gain in 2022 declined compared to 2021, driven by Asia and the U.S.
Experience gains or losses arise from items such as claims, policy persistency, fee income, and expenses, where the actual experience
in the current period differs from the expected results assumed in the insurance and investment contract liabilities. It also includes
experience gains or losses associated with actual investment returns and movements in investment markets differing from those expected
on assets supporting insurance and investment contract liabilities. For most businesses, the expected future investment returns
underlying policy valuations are updated quarterly for investment market movements and this impact is also included in experience gains
and losses. This component also includes the impact of currency changes to the extent they are separately quantified. Experience gains do
not include the impact of management actions or changes in assumptions during the reporting period, which are reported in “Management
actions and changes in assumptions”.
The experience gains in 2022 were driven by favourable investment related experience on general fund liabilities, partially offset by the
unfavourable equity market performance, as well as unfavourable policyholder experience. The favourable investment related experience
on general fund liabilities reflected the favourable impact of fixed income reinvestment activities, strong credit experience and higher-than-
expected returns (including fair value changes) on alternative long duration assets (“ALDA”) primarily driven by private equity,
infrastructure, and timberland, partially offset by real estate. The favourable impact of fixed income reinvestment was primarily due to the
increase in risk-free interest rates and the overall flattening of the yield curve in the U.S. and Canada. The experience gains were partially
offset by net charge related to gross equity exposure and dynamic hedge experience, unfavourable policyholder experience mainly in the
U.S., China and Vietnam, as well as a charge in the P&C Reinsurance business.
The experience gains in 2021 were primarily driven by favourable investment related experience on general fund liabilities and favourable
impact from gross equity markets exposure, partially offset by the unfavourable impact from interest rate movements, a net charge related
to the impact of updated ultimate reinvestment rate (“URR”) assumptions issued by the Canadian Actuarial Standards Board (“ASB”), as
well as unfavourable policyholder experience. The favourable investment related experience on general fund liabilities was driven by
higher-than-expected returns (including fair value changes) on alternative long-duration assets (“ALDA”) primarily driven by gains on
private equity and infrastructure, strong credit experience, and the favourable impact of fixed income reinvestment activities. The
unfavourable impact of interest rate movements was primarily due to the increase in risk-free interest rates and the overall steepening of
the yield curve in U.S. and Canada. The experience gains were partially offset by a charge in the P&C Reinsurance business for losses
related to Hurricane Ida and the European floods.
Management actions and changes in assumptions reflect the income impact of changes to valuation methods and assumptions for
insurance and investment contract liabilities and other management-initiated actions in the year that are outside the normal course of
business.
The 2022 pre-tax earnings impact of changes in methods and assumptions was a $41 million gain compared to a $128 million charge in
2021. The $41 million gain in 2022 included a comprehensive study of the Company’s U.S. LTC experience, including all aspects of claims
assumptions and future premium rate increases. Other assumptions reviewed included mortality and certain lapse assumptions for
Canada’s life insurance business, as well as lapse and mortality assumptions for certain Asia markets. Note 7 of the Consolidated Financial
Statements provides additional detail on the changes in actuarial methods and assumptions.
2 0 | 2022 Annual Report | Additional Actuarial Disclosures
Impacts from material management action items reported in 2022 included gains related to the two U.S. variable annuity reinsurance
transactions and the favourable impact of an increase in the Canadian corporate tax rate, partially offset by losses from the sale of bonds
designated as available for sale (“AFS”).
Earnings on surplus funds reflect the actual investment returns on assets supporting the Company’s surplus (shareholders’ equity).
These assets comprise a diversified portfolio and returns will vary with the underlying asset categories.
Other represents pre-tax earnings items on insurance business that are not included in any other line of the SOE.
Global Wealth and Asset Management (“Global WAM”) represents pre-tax net income from the Global Wealth and Asset Management
segment.
Manulife Bank represents pre-tax net income from Manulife Bank.
Unallocated overhead represents pre-tax unallocated overhead expenses from the Corporate and Other segments.
Income taxes represent tax charges to earnings based on the varying tax rates in the jurisdictions in which Manulife conducts business.
Manulife’s net income attributed to shareholders for the full year 2022 increased to $7,294 million from $7,105 million the previous year.
For the year ended December 31, 2022
(C$ millions)
Expected Profit from In-force Business
Impact of New Business
Experience gains (losses)
Management actions and changes in assumptions
Earnings on surplus
Other
Insurance
Global Wealth and Asset Management
Manulife Bank
Unallocated overhead
Income (loss) before income taxes
Income tax (expense) recovery
Net income (loss) attributed to shareholders
For the year ended December 31, 2021
(C$ millions)
Expected Profit from In-force Business
Impact of New Business
Experience gains (losses)
Management actions and changes in assumptions
Earnings on surplus
Other
Insurance
Global Wealth and Asset Management
Manulife Bank
Unallocated overhead
Income (loss) before income taxes
Income tax (expense) recovery
Net income (loss) attributed to shareholders
Asia
Canada
U.S.
$ 1,492
611
156
(94)
259
98
2,522
–
–
–
$ 2,522
(298)
$ 2,224
$ 1,209
52
268
153
218
1
1,901
–
258
–
$ 2,159
(629)
$ 1,530
$ 1,604
329
1,454
1,102
316
(9)
4,796
–
–
–
$ 4,796
(846)
$ 3,950
Asia
Canada
U.S.
$ 1,361
832
534
426
188
138
3,479
–
–
–
$ 3,479
(422)
$ 3,057
$ 1,125
46
153
(88)
203
8
1,447
–
237
–
$ 1,684
(330)
$ 1,354
$ 1,797
394
578
(608)
266
38
2,465
–
–
–
$ 2,465
(385)
$ 2,080
Corporate
and Other
$
135
2
(155)
(529)
(1,437)
28
(1,956)
–
–
(404)
$ (2,360)
629
$ (1,731)
Global
WAM
$
–
–
–
–
–
–
–
1,544
–
–
$ 1,544
(223)
$ 1,321
Corporate
and Other
Global
WAM
$
$
$
$
–
104
–
2
–
(143)
–
(470)
–
(10)
–
39
–
(478)
1,640
–
–
–
(500)
–
(978) $ 1,640
186
(234)
(792) $ 1,406
Total
$ 4,440
994
1,723
632
(644)
118
7,263
1,544
258
(404)
$ 8,661
(1,367)
$ 7,294
Total
$ 4,387
1,274
1,122
(740)
647
223
6,913
1,640
237
(500)
$ 8,290
(1,185)
$ 7,105
Embedded Value
The embedded value (“EV”) as of December 31, 2022 will be disclosed later.
2 1
Board of Directors
Current as of March 1, 2023
“Director Since” refers to the year of first election to the Board of Directors of The Manufacturers Life Insurance Company.
Nicole S. Arnaboldi
Corporate Director
Greenwich, CT, U.S.A.
Director Since: 2020
Julie E. Dickson
Corporate Director
Ottawa, ON, Canada
Director Since: 2019
C. James Prieur
Corporate Director
Chicago, IL, U.S.A.
Director Since: 2013
Guy L.T. Bainbridge
Corporate Director
Edinburgh, Midlothian,
United Kingdom
Director Since: 2019
Roy Gori
President and Chief
Executive Officer
Manulife
Toronto, ON, Canada
Director Since: 2017
Andrea S. Rosen
Corporate Director
Toronto, ON, Canada
Director Since: 2011
Joseph P. Caron
Corporate Director
West Vancouver, BC,
Canada
Director Since: 2010
Tsun-yan Hsieh
Chairman
LinHart Group PTE Ltd.
Singapore, Singapore
Director Since: 2011
May Tan
Corporate Director
Hong Kong
Director Since: 2021
Donald R. Lindsay
Chair of the Board
Manulife
Toronto, ON, Canada
Director Since: 2010
Susan F. Dabarno
Corporate Director
Bracebridge, ON, Canada
Director Since: 2013
Vanessa Kanu
Chief Financial Officer
TELUS International
Ottawa, ON, Canada
Director Since: 2022
Leagh E. Turner
Co-Chief Executive Officer
Ceridian HCM Holding Inc.
Toronto, ON, Canada
Director Since: 2020
2 2 | 2022 Annual Report | Board of Directors
Executive Leadership Team
Current as of March 1, 2023
Roy Gori
President and Chief
Executive Officer
Damien Green
President and Chief
Executive Officer,
Manulife Asia
Naveed Irshad
President and Chief
Executive Officer,
Manulife Canada
Paul R. Lorentz
President and Chief
Executive Officer,
Global Wealth and
Asset Management
Marc Costantini
Global Head of Inforce
Management
Marianne Harrison1
President and Chief
Executive Officer,
John Hancock
Rahul M. Joshi
Chief Operations Officer
Steven A. Finch
Chief Actuary
James D. Gallagher
General Counsel
Scott S. Hartz
Chief Investment Officer
Rahim Hirji2
Chief Risk Officer
Pamela O. Kimmet
Chief Human Resources
Officer
Karen A. Leggett
Chief Marketing Officer
Shamus E. Weiland
Chief Information Officer
Philip J. Witherington
Chief Financial Officer
1 Effective April 1, 2023, Brooks Tingle will be President and Chief Executive Officer, John Hancock.
2 Effective April 1, 2023, Rahim Hirji will be Chief Auditor. Effective June 1, 2023, Halina K. von dem Hagen will be Chief Risk Officer.
233
Office Listing
Corporate Headquarters
Manulife Financial Corporation
200 Bloor Street East
Toronto, ON M4W 1E
Canada
Tel: +1 416-926-3000
Belgium
International Group Program –
Europe
John Hancock International
Services S.A.
Avenue de Tervueren 270
11 0 Woluwe-Saint-Pierre
B-11 0 Brussels
Belgium
Tel: +32 02 77 2940
Cambodia
Manulife (Cambodia) PLC
14/F, TK Central
No. 12, Street 289
Sangkat Boeung Kak 1
Khan Toul Kork
Phnom Penh, Cambodia
Tel: 1-800-211-211
Canada
Canada Head Office
00 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 19-747-7000
Affinity Markets
200 Bloor Street East
Toronto, ON M4W 1E
Canada
Tel: +1 800-668-019
Group Benefits
00 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 19-747-7000
Individual Insurance
00 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 19-747-7000
Manulife Bank of Canada
00 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 19-747-7000
234 | 2022 Annual Report | Office Listing
Manulife Investment Management
th Floor
200 Bloor Street East
Toronto, ON M4W 1E
Canada
Public Markets Tel: +1 416-8 2-2204
1 th Floor
2 0 Bloor Street East
Toronto, ON M4W 1E
Canada
Real Estate Tel: +1 416-926- 00
00 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 19-747-7000
Manulife Quebec
Maison Manuvie
900 de Maisonneuve Ouest
Montréal, QC H3A 0A8
Canada
Tel: +1 14-499-7999
Manulife Securities
123 North Service Road West
Oakville, ON L6M 2W2
Canada
Tel: +1 90 -469-2100
China
Manulife-Sinochem Life
Insurance Co., Ltd.
6/F, Jin Mao Tower
88 Century Boulevard
Pudong New Area
Shanghai 200121
P.R. China
Tel: +86 21 2069-8888
+86 21 2069-8930
Manulife-Teda Fund
Management Co., Ltd.
Unit 2-7, 6/F,
China Life Financial Center
No. 23, Zhenzhi Road,
Chaoyang District
Beijing 10026
P.R. China
Tel: +86 10 66 7-7777
Germany
Manulife Investment
Management (Ireland) Ltd.
23/F, Messeturm
Friedrich-Ebert-Anlage 49
D-60308 Frankfurt am Main
Germany
Tel: +49 69 09 - 676
Hong Kong
Asia Head Office
10/F, The Lee Gardens
33 Hysan Avenue
Causeway Bay, Hong Kong
Tel: +8 2 2 10- 888
Manulife Investment
Management (Asia),
a division
of Manulife Investment
Management (Hong Kong)
Ltd.
16/F, The Lee Gardens
33 Hysan Avenue
Causeway Bay, Hong Kong
Tel: +8 2 2910-2600
Manulife (International) Ltd.
22/F, Tower A
Manulife Financial Centre
223-231 Wai Yip Street
Kwun Tong, Kowloon
Hong Kong
Tel: +8 2 2310- 600
Manulife Provident Funds
Trust Co., Ltd.
22/F, Tower A
Manulife Financial Centre
223-231 Wai Yip Street
Kwun Tong, Kowloon
Hong Kong
Tel: +8 2 2310- 600
Indonesia
PT Asuransi Jiwa Manulife
Indonesia
Sampoerna Strategic Square
Jl. Jend. Sudirman Kav 4 -46
South Tower
Jakarta 12930
Indonesia
Tel: +62 21 2 -7788
PT Manulife Aset Manajemen
Indonesia
Sampoerna Strategic Square
Jl. Jend, Sudirman Kav. 4 -46
31/F, South Tower
Jakarta 12930
Indonesia
Tel: +62 21 2 -7788
Ireland
Manulife Investment
Management (Ireland) Ltd.
The Exchange
George’s Dock, IFSC, Dublin 1
D01 P2V6
Ireland
Tel: +3 3 1 84-1 03
International Group Program
200 Berkeley Street
Boston, MA 02116- 023
U.S.A.
Tel: +1 617- 72-6000
John Hancock Insurance
200 Berkeley Street
Boston, MA 02116- 023
U.S.A.
Tel: +1 617- 72-6000
Manulife Investment
Management
(US) LLC
197 Clarendon Street
Boston, MA 02116- 010
U.S.A.
Tel: +1 617-37 -1 00
Vietnam
Manulife Investment Fund
Management
(Vietnam) Co., Ltd.
4/F, Manulife Plaza
7 Hoang Van Thai Street
Tan Phu Ward, District 7
Ho Chi Minh City
Vietnam
Tel: +84 8 416-6777
Manulife (Vietnam) Ltd.
Manulife Plaza
7 Hoang Van Thai Street
Tan Phu Ward, District 7
Ho Chi Minh City
Vietnam
Tel: +84 8 416-6888
West Indies
Manulife Re
Manulife P&C Limited
The Goddard Building
Haggatt Hall
St. Michael, BB-110 9
Barbados, West Indies
Tel: +246 228-4910
Japan
Manulife Investment Management
(Japan) Ltd.
1 /F Marunouchi Trust Tower
North Building
1-6-1 Marunouchi, Chiyoda-ku
Tokyo, Japan 100-000
Tel: +81 3 6267-19
Manulife Life Insurance Co.
30th Floor, Tokyo Opera City
3-20-2 Nishi Shinjuku, Shinjuku-ku
Tokyo, Japan 160-0023
Tel: +81 3 6331-7000
Macau
Manulife (International) Ltd.
Avenida De Almeida Ribeiro No. 61
Circle Square, 14 andar A
Macau
Tel: +8 3 8398-0388
Malaysia
Manulife Investment
Management
(M) Berhad
16th Floor, Menara Manulife
No. 6 Jalan Gelenggang
Damansara Heights
0490 Kuala Lumpur, Malaysia
Tel: +60 3 2719-9228
Manulife Holdings Berhad
Menara Manulife
No. 6 Jalan Gelenggang
Damansara Heights
0490 Kuala Lumpur, Malaysia
Tel: +60 3 2719-9228
Myanmar
Manulife Myanmar Life
Insurance Company Limited
16/F Kantharyar Office Tower
Cor. Kan Yeik Thar Road & U Aung Myat
Road
Mingalar Taung Nyunt Township
Yangon
Myanmar
Tel: +09 76 467 110
Philippines
The Manufacturers Life
Insurance Co. (Phils.), Inc.
10/F, NEX Tower
6786 Ayala Avenue,
1229 Makati City,
Metro Manila
Philippines
Tel: +632 8884 7000
Singapore
Manulife Investment Management
(Singapore) Pte. Ltd.
8 Cross Street
#1 -01 Manulife Tower
Singapore 048424
Tel: +6 6 01- 411
Manulife (Singapore) Pte Ltd.
8 Cross Street
#1 -01 Manulife Tower
Singapore 048424
Tel: +6 6 01- 411
Switzerland
Manulife IM (Switzerland) LLC
Europaallee 41
CH-8004 Zurich
Switzerland
+41 44 214 69 30
Taiwan
Manulife Investment
Management
(Taiwan) Co., Ltd.
6/F No., 1 Exchange Square,
89 Songren Road
Taipei 11073,
Northern Taiwan, R.O.C.
Tel: +886 2 27 7- 969
United Kingdom
Manulife Investment
Management
(Europe) Ltd.
One London Wall
London EC2Y EA
United Kingdom
Tel: +44 20 72 6 3 00
United States
John Hancock Head Office
and
John Hancock Investment
Management
197 Clarendon Street
Boston, MA 02116- 010
U.S.A.
Tel: +1 617-663-3000
Tel: +1 617- 72-6000
Hancock Natural Resource
Group
197 Clarendon Street,
8th Floor
Boston, MA 02116- 010
U.S.A.
Tel: +1 617-747-1600
235
Glossary of Terms
Note: Refer to “Non-GAAP and Other Financial Measures” in
Section 13 of the Management’s Discussion and Analysis for
additional terms.
Accumulated Other Comprehensive Income (AOCI): A
separate component of shareholders’ equity which includes net
unrealized gains and losses on available-for-sale (AFS) securities,
net unrealized gains and losses on derivative instruments
designated within an effective cash flow hedge, and unrealized
foreign currency translation gains and losses. These items have
been recognized in other comprehensive income and may be
subsequently reclassified to net income. AOCI also includes
remeasurement of pension and other post-employment plans and
real estate revaluation reserve. These items are recognized in
other comprehensive income and will never be reclassified to net
income.
Available-For-Sale Financial Assets: Non-derivative financial
assets that are designated as available-for-sale or that are not
classified as loans and receivables, held-to-maturity investments,
or held for trading.
Book Value per Share: Ratio obtained by dividing common
shareholders’ equity by the number of common shares
outstanding at the end of the period.
Cash Flow Hedges: A hedge of the exposure to variability in cash
flows associated with a recognized asset or liability, a forecasted
transaction or a foreign currency risk in an unrecognized firm
commitment that is attributable to a particular risk and could
affect reported net income.
Deferred Acquisition Costs (DAC): Costs directly attributable
to the acquisition of new business, principally agents’
compensation, which are capitalized on the Company’s
Consolidated Statements of Financial Position and amortized into
income over a specified period.
Guarantee Value: Typically within variable annuity products, the
guarantee value refers to the level of the policyholder’s protected
account balance which is unaffected by market fluctuations.
Hedging: The practice of making an investment in a market or
financial instrument for the purpose of offsetting or limiting
potential losses from other investments or financial exposures.
Dynamic Hedging: A hedging technique which seeks to
limit an investment’s market exposure by adjusting the
hedge as the underlying security changes (hence,
“dynamic”).
Macro Hedging: An investment technique used to offset
the risk of an entire portfolio of assets. A macro hedge
reflects a more broad-brush approach which is not
frequently adjusted to reflect market changes.
2 6 | 2022 Annual Report | Glossary of Terms
Impaired Assets: Mortgages, debt securities and other
investment securities in default where there is no longer
reasonable assurance of collection.
In-Force: Refers to the policies that are currently active.
Insurance and Investment Contract Liabilities: The amount
of money set aside today, together with the expected future
premiums and investment income, that will be sufficient to
provide for future expected policyholder obligations and expenses
while also providing some conservatism in the assumptions.
Expected assumptions are reviewed and updated annually.
Long Term Care (LTC) Insurance: Insurance coverage available
on an individual or group basis to provide reimbursement for
medical and other services to the chronically ill, disabled, or
mentally challenged.
New Business Strain: The initial expense of writing an insurance
policy that is incurred when the policy is written, and has an
immediate negative impact on the Company’s financial position.
Over the life of the contract, future income (premiums, investment
income, etc.) is expected to repay this initial outlay.
Policyholder Experience: The actual cost in a reporting period
from contingent events such as mortality, lapse and morbidity
compared to the expected cost in that same reporting period.
Provisions for Adverse Deviation (PfAD): The amounts
contained in the insurance and investment contract liabilities that
represent conservatism against potential future deterioration of
best estimate assumptions. These PfADs are released into income
over time, and the release of these margins represents the future
expected earnings stream.
Return on Common Shareholders’ Equity: A profitability
measure that presents the net income available to common
shareholders as a percentage of the average capital deployed to
earn the income.
Universal Life Insurance: A form of permanent life insurance
with flexible premiums. The customer may vary the premium
payment and death benefit within certain restrictions. The
contract is credited with a rate of interest based on the return of a
portfolio of assets held by the Company, possibly with a minimum
rate guarantee, which may be reset periodically at the discretion
of the Company.
Variable Annuity: Funds are invested in segregated funds (also
called separate accounts in the U.S.) and the return to the
contract holder fluctuates according to the earnings of the
underlying investments. In some instances, guarantees are
provided.
Variable Universal Life Insurance: A form of permanent life
insurance with flexible premiums in which the cash value and
possibly the death benefit of the policy fluctuate according to the
investment performance of segregated funds (or separate
accounts).
Shareholder Information
MANULIFE FINANCIAL CORPORATION
HEAD OFFICE
200 Bloor Street East
Toronto, ON Canada M4W 1E5
Telephone: 416 926-3000
Website: www.manulife.com
ANNUAL MEETING OF SHAREHOLDERS
Shareholders are invited to attend the annual
meeting of Manulife Financial Corporation to
be held on May 11, 2023 at 11:00 a.m.
STOCK EXCHANGE LISTINGS
Manulife Financial Corporation’s common
shares are listed on:
Toronto Stock Exchange (MFC)
The New York Stock Exchange (MFC)
The Stock Exchange of Hong Kong (945)
Philippine Stock Exchange (MFC)
INVESTOR RELATIONS
Financial analysts, portfolio managers and
other investors requiring financial information
may contact our Investor Relations department
or access our website at www.manulife.com.
Email: investrel@manulife.com
SHAREHOLDER SERVICES
For information or assistance regarding your
share account, including dividends, changes of
address or ownership, lost certificates, to
eliminate duplicate mailings or to receive
shareholder material electronically, please
contact our Transfer Agents in Canada, the
United States, Hong Kong or the Philippines. If
you live outside one of these countries, please
contact our Canadian Transfer Agent.
Direct Deposit of Dividends
Shareholders resident in Canada, the United
States and Hong Kong may have their Manulife
common share dividends deposited directly
into their bank account. To arrange for this
service please contact our Transfer Agents.
Dividend Reinvestment Program
Canadian and U.S. resident common
shareholders may purchase additional
common shares without incurring brokerage or
administrative fees by reinvesting their cash
dividend through participation in Manulife’s
Dividend Reinvestment and Share Purchase
Programs. For more information, please
contact our stock transfer agents: in Canada –
TSX Trust Company; in the United States—
American Stock Transfer & Trust Company,
LLC
For other shareholder issues please contact
Manulife Shareholder Services via e-mail to
shareholder_services@manulife.com
More information
Information about Manulife Financial
Corporation, including electronic versions of
documents and share and dividend information
is available online at www.manulife.com
TRANSFER AGENTS
Canada
TSX Trust Company
P.O. Box 700 Station B
Montreal, QC
Canada H3B 3K3
Toll Free: 1 800 783-9495
Collect: 416 682-3864
E-mail: manulifeinquiries@tmx.com
Website: www.tsxtrust.com
TSX Trust Company offices are also located in
Toronto, Vancouver and Calgary.
United States
American Stock Transfer & Trust Company,
LLC
P.O. Box 199036
Brooklyn, NY
United States 11219
Toll Free: 1 800 249-7702
Collect: 416 682-3864
E-mail: manulifeinquiries@tmx.com
Website: www.astfinancial.com
Hong Kong
Tricor Investor Services Limited
17/F, Far East Finance Centre
16 Harcourt Road
Hong Kong
Telephone: 852 2980-1333
E-mail: is-enquiries@hk.tricorglobal.com
Website: www.tricoris.com
Philippines
Rizal Commercial Banking Corporation
Ground Floor, West Wing,
GPL (Grepalife) Building,
221 Senator Gil Puyat Avenue,
Makati City, Metro Manila, Philippines
Telephone: 632 5318-8567
E-mail: rcbcstocktransfer@rcbc.com
Website: www.rcbc.com/stocktransfer
AUDITORS
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants
Toronto, Canada
MFC DIVIDENDS
Common Share Dividends Paid for 2022 and 2021
Common and Preferred Share Dividend Dates in 2023*
Year 2022
Record Date
Payment Date
Fourth Quarter
Third Quarter
Second Quarter August 23, 2022
First Quarter
February 28, 2023 March 20, 2023
November 22, 2022 December 19, 2022
September 19, 2022
June 20, 2022
May 25, 2022
Year 2021
February 23, 2022 March 21, 2022
December 1, 2021
Fourth Quarter
Third Quarter
Second Quarter August 17, 2021
First Quarter
May 18, 2021
December 20, 2021
September 20, 2021
June 21, 2021
* Dividends are not guaranteed and are subject to approval by the Board of Directors.
Record Date
Common and
Preferred Shares
Payment Date
Common Shares
Preferred Shares
February 28, 2023
May 24, 2023
August 22, 2023
November 21, 2023
March 20, 2023
June 19, 2023
September 19, 2023
December 19, 2023
March 19, 2023
June 19, 2023
September 19, 2023
December 19, 2023
Per Share
Amount
Canadian ($)
0.365
0.330
0.330
0.330
0.330
0.330
0.280
0.280
2 7
Manulife Financial Corporation
M
a
n
u
l
i
f
e
F
i
n
a
n
c
i
a
l
C
o
r
p
o
r
a
t
i
o
n
|
A
n
n
u
a
l
R
e
p
o
r
t
2
0
2
2
Decisions made easier.
Lives made beter.
Manulife, Manulife & Stylized M Design, and Stylized M Design are trademarks of The Manufacturers Life Insurance Company
and are used by it, and by its affiliates, including Manulife Financial Corporation, under license.
E
5
3
9
3
R
I
Cover.indd 1
Cover.indd 1
2023-03-09 11:59 PM
2023-03-09 11:59 PM