Manulife Financial Corporation
ANNUAL REPORT
ANNUAL REPORT
ANNUAL REPORT
ANNUAL REPORT
Where will better take you
Decisions made easier. Lives made better.
That’s our mission and we work every day to bring it to life for our more than
35 million customers around the world. Within that is a promise of Better that drives
our colleagues and gives us purpose. We help customers live longer, healthier, better
lives, and we create better investment opportunities to secure financial incomes
and futures. Better fuels us, inspires us, and is an investment in our shared future as
we push to deliver for our customers, shareholders, colleagues, and communities.
Manulife by the numbers
Net Income Attributed to Shareholders
$5.1 billion
Net income attributed to shareholders up $1.6 billion from
2022 transitional net income.
5.1
3.5
2022
2023
5.8
6.7
Core Earnings
$6.7 billion
Core earnings of $6.7 billion up 13% on a constant
exchange rate basis from 2022.
2022
2023
New Business Value
$2.3 billion
2.1
2.3
New business value increased 10% compared with 2022.
2022
2023
Common Share Dividend
$1.46/share
Common share dividend increase of 11% from 2022.
$1.32/sh
$1.46/sh
2022
2023
Assets Under Management and Administration: $1.4 trillion
Total invested assets: $417 billion
Segregated funds net assets: $378 billion
Mutual funds: $277 billion
Institutional asset management: $120 billion
Other funds: $15 billion
Assets under administration: $182 billion
Note: 2022 transitional net income attributed to shareholders (2022 transitional net income), 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 2023 Management’s Discussion and Analysis below.
1
Under the leadership of Roy Gori and the
Executive Leadership Team, Manulife
today is a very different company than it
was six years ago.
The strategy introduced in 2018
has served us tremendously well in
navigating the pandemic and a volatile
macroeconomic backdrop. Our enviable
geographic footprint, diverse business, and
most importantly, our winning team and
values-based culture have helped us stay
resilient as we become a higher-growth
and less capital-intensive business. Roy
and Manulife’s 38,000 colleagues have
pursued Manulife’s ambition tenaciously,
achieving significant momentum in 2023.
Our continued focus on execution has
helped us deliver strong financial results,
including double-digit growth in key topline
metrics, and also another year of positive
net flows generated by Global WAM. Our
milestone year was underscored by our
historic reinsurance transaction, which
will release $1.2 billion of capital to
shareholders, bringing our cumulative
total capital released to shareholders to
over $10 billion pro forma since 2018.
Our results have contributed to our
position as the top performer in our peer
group with 28 percent total shareholder
return on the Toronto Stock Exchange.
2023 was also marked by the
impact that we have on our
customers, communities,
and colleagues.
Manulife is committed to empowering
customers to live longer, healthier, and
better lives, and we are focused not only
on improving how long people live but how
well they live. In Canada, we expanded
our Personalized Medicine program to all
Group Benefits extended healthcare plans
in 2023. By making the service available
to more customers, we are also enabling
them to learn about medications that best
meet their needs and work with healthcare
providers on customized treatment plans
that can lead to better outcomes.
Don Lindsay
Board Chair
Fellow shareholders:
As I reflect on my first year as Chair, and
on behalf of the entire Board, I’m incredibly
proud of the progress we have made and
the opportunity ahead as we begin 2024.
| 2023 Annual Report
2
As the world’s largest institutional
manager of natural capital, consisting of
nature-based assets, such as timber and
agriculture that benefit our world and
our business, sustainability is core to our
values. In 2023, we were appointed to the
Dow Jones Sustainability North America
Index, ranking in the 93rd percentile of its
GICS® Industry Group, and we were one of
only eight insurers across North America
to be included in the index overall.
Within our communities, we worked to build
a better business and world through our
Impact Agenda. Through a partnership with
Kiva, a global not-for-profit organization
that crowdfunds loans, we supported
borrowers like Roeurm, a Cambodian
farmer and mother of two who aspires to
grow her business and fix up her home.
To accomplish that, she needed help
purchasing more seeds and fertilizer to
keep her farm going. Our partnership
enables both.
As we ended the year, we asked our
colleagues to share their stories of how
they connect to our mission, either
personally or professionally. The response
has been outstanding, with hundreds of
submissions from every corner of the
organization. You can see some of them
highlighted on our website.
Board Activities
The Board oversees the long-term
success of the company, and our activities
across 2023 focused on supporting
and guiding the leadership team as they
made decisions easier and lives better for
colleagues, customers, and communities
while driving total shareholder return.
We remain focused on providing
guidance to the leadership team and
spent significant time on stakeholder
outreach, meeting with shareholders and
industry organizations to understand
and draw on their perspectives on what
matters most.
“ Manulife is committed to
empowering customers to live a
longer, healthier, and better life,
and we are focused not only on
improving how long people live
but how well they live.”
This year, we came together for our
annual Board strategy offsite in Hong
Kong and visited four additional markets
across Asia. It was exciting to have the
entire Board in Asia again, and during our
time there, we saw firsthand the vibrant
market dynamics, including the mainland
Chinese visitors traffic in Hong Kong. Our
strong presence, team, and capabilities
on the ground all give us confidence in
capturing the tremendous opportunities
across the region.
Succession planning is always a key
priority for the Board, but it is particularly
top of mind for us with six Board
members either having completed or
completing their terms over a two-year
period between 2023 and 2025. We
are delighted to welcome Mike Durland
and Don Kanak to the Board. These
accomplished executives bring a mix
of deep experience in insurance, Asia,
audit, and risk. Their expertise will
be valuable to the Board as Manulife
continues to transform itself in this
complex geopolitical and macroeconomic
environment. In 2024, Mike Durland and
Don Kanak joined the Board in March
and Anna Manning and John Wong will
join in May at our Annual Meeting.
Thank You
On behalf of the Board of Directors,
I want to thank Manulife colleagues for
their resilience, creativity, and passion.
Thank you to Roy and the Executive
Leadership Team for their leadership
anchored in a shared commitment
to embracing a change mindset and
moving with speed and urgency.
To our two Board members who
retire this year, Andrea Rosen and
Tsun-yan Hsieh, who both joined the
Board in 2011: we greatly appreciate
your years of dedication and many
contributions to Manulife during
significant transformation.
Finally, thank you to our fellow shareholders
and our customers for your continued trust
and support. I look forward to what we will
achieve together in 2024 and beyond.
Sincerely,
Don Lindsay
Board Chair
3
Guided by our strategy, values, and
mission, we have created greater
shareholder value and are moving faster
than ever on our ambition of becoming
the most digital, customer-centric
company in our industry.
Since 2018, we have focused on
transforming Manulife, and 2023
was a milestone year in that journey.
We announced a historic reinsurance
transaction in our legacy Long-Term Care
(LTC) business, adopted our industry’s
most significant accounting standard
change in decades, and continued
accelerating growth with double-digit
increases in our key profit and new
business metrics.
Our Transformation
Journey
Today we are a radically different
company than when we began our efforts
to reshape our portfolio toward lower
risk and higher returns and enhance
Manulife’s attractiveness to investors.
We’re delivering greater
shareholder value.
Following the closing of our reinsurance
transaction announced in 2023, we will
have freed up more than $10 billion
of capital, improved core return on
equity (ROE) by 4.6 percentage
points from 11.3 percent in 2017 to
15.9 percent, and returned $18.9 billion
to shareholders through dividends and
buybacks since 2018. In 2023, we
became the top performer in our peer
group with 28 percent total shareholder
return on the Toronto Stock Exchange.
We’re optimizing our portfolio.
In 2023, we announced a sale of some of
our lowest return businesses at 9.5 times
core earnings, showcasing our potential.
Roy Gori
President and CEO
Fellow shareholders:
Over the past year, our team has
driven significant momentum and
strong results.
| 2023 Annual Report
4
This historic reinsurance transaction
transfers the risk on $13 billion of
insurance and investment reserves,
including $6 billion of LTC insurance
reserves, making it the largest deal of
its kind in the industry. Along with our
U.S. Variable Annuity (VA) reinsurance
transactions in 2022, this has helped
reduce our risk profile and brought core
earnings contributions from LTC and VA
to an expected 11 percent, down from 24
percent in 2017.
We’re driving additional organic actions,
including launching new wellness
programs to help better manage claims,
implementing additional anti-fraud efforts
with digital claim controls and advanced
analytical modeling, and investing in
self-service and increased automation to
improve expense efficiency.
But we aren’t stopping here. We believe
we have taken an important step in
establishing an active LTC reinsurance
market and that, organically and
inorganically, we can create additional
shareholder value.
We’re accelerating growth
in our highest potential
businesses.
In Asia, we are now a top three pan-Asian
life insurer, up from number six, and
Global Wealth and Asset Management
(Global WAM) has delivered positive net
flows across 13 of the past 14 years.
Canada Group Benefits expanded
partnerships to provide increased access
for customers to preventative care, and
our Behavioural Insurance offerings are
helping two million customers across the
globe live longer, healthier, better lives. We
are a top ten insurer globally and a leader
in Canada and the U.S. with our innovative
Behavioural Insurance offering, and we
serve 17 million customers across Global
WAM’s diverse and scaled business.
“ Guided by our strategy, values,
and mission, we have created
greater shareholder value and
are moving faster than ever on
our ambition of becoming the
most digital, customer-centric
company in our industry.”
We are embracing the power
of digital and improving
customer experience.
We have increased our straight-through
processing from 68 percent in 2018 to
85 percent, speeding up our processing
times and reducing the volume of
paperwork. We’re using advanced
analytics to improve how we serve our
customers, providing them holistic and
personalized advice, and leveraging
our partnership ecosystems to meet
their health and wellness needs. These
efforts have contributed to a 22-point
improvement in our Net Promoter Score
since 2017, and we are leading or on
par with peers across the majority of our
business lines.
We are driving expense
efficiency.
Our global scale and expense discipline
are driving improved returns and have
allowed us to provide more compelling
products and services to our customers.
We have achieved an expense efficiency
ratio of 45.5 percent, which exceeds our
target and is an improvement from our
55.4 percent pre-IFRS 17 2017 baseline.
Our team and culture
continue to be our long-term
competitive advantage.
Since 2019, we have achieved and
maintained top-quartile employee
engagement results against Gallup’s
financial and insurance company
benchmark, enabled by our diverse and
inclusive culture, and commitment to
learning and development. Our team is
passionate about making our customers’
lives better and continues to show
resilience and tenacity in driving our
accomplishments to date.
5
As part of our Digital, Customer
Leader ambitions, we launched a
unified global onboarding platform for
our High Net Worth business in Bermuda,
Singapore, and Hong Kong to deliver
a consistent, high-touch experience.
Across our Group Benefits business in
Canada, we are leveraging strategic
partnerships to meet customer needs,
like the one we announced with League,
a leading healthcare technology provider.
This partnership will provide members
with a personalized and digital healthcare
experience that is fully integrated with
Manulife’s Group Benefits ecosystem.
We also further enhanced our focus on
Behavioural Insurance, expanding access
to the GRAIL Galleri® multi-cancer early
detection test through our John Hancock
Vitality Program and hosting our “Longer.
Healthier. Better.” symposium in the
U.S. This first-of-its-kind event brought
together life insurance brokers, leaders
from reinsurance companies, media, and
local government officials to give them
a first-hand look at the innovations and
science shaping the future of longevity.
As artificial intelligence (AI) begins to
have a transformative effect across
industries, we want to be a leader in
ours. Over the past year, we’ve launched
a series of initiatives to familiarize our
colleagues with the technology and
identify more significant, scalable
opportunities that will allow us to
accelerate our digital agenda. We’re
exploring more than 80 use cases,
from driving greater efficiency in
day-to-day tasks to imagining AI’s impact
on the agent of the future. And we’re
experimenting responsibly, guided by
our values and ensuring the protection
of our customer and colleague data.
Our mission,
“Decisions made easier.
Lives made better,”
is what motivates us
to deliver for our
customers every day.
The impact we have is clear from the
stories our customers share with
us. Take one of our John Hancock
customers, whose Vitality policy gave
him access to the GRAIL Galleri®
multi-cancer early detection test. The
test helped his cancer be diagnosed
early, improving his chance of survival.
We’re proud to be helping our customers
live longer, healthier, and better lives
by offering access to this technology.
When cancer is diagnosed before it
has time to spread, the overall five-year
cancer-specific survival rate is four times
higher. Thankfully for this customer, the
cancer was caught early enough for a
treatment plan.
I’m proud of what our team accomplished
in 2023, but great teams push for
extraordinary. We have a relentless focus
on our mission and a dedicated team that
is driving superior results.
As we look to 2024 and beyond,
with a backdrop of geopolitical and
macroeconomic uncertainty, our unique
and diverse geographic footprint and
all-weather strategy positions us well to
continue delivering superior value for
our customers, shareholders, and the
communities we operate in.
Focused Execution
in 2023
Our continued focus on execution
helped us deliver strong financial
results in 2023. We drove double-
digit increases in core earnings per
share, core earnings, annualized
premium equivalent sales, new
business contractual service margin,
and new business value. We generated
$4.5 billion of net inflows in Global
WAM despite a challenging year for the
retail fund industry. Additionally, our
LICAT ratio increased from 131 percent
to 137 percent, and we returned
$4.3 billion of capital to shareholders
through dividends and share buybacks
throughout the year.
As we continue to accelerate
growth, we launched and expanded
new products and partnerships across
our four operating segments and
increased our customer base by one
million, for a total of more than 35
million customers in 2023.
Our Asia markets, among the hardest
hit by the pandemic, made a noteworthy
recovery with the reopening of borders.
This was especially true in Hong Kong,
where sales from mainland Chinese
visitors doubled compared to 2019
pre-pandemic levels.
In Global WAM, we entered into an
agreement to acquire CQS, whose
multi-sector alternative credit
capabilities complement our existing
fixed-income and multi-asset solutions
business. We also further enhanced and
broadened our retail wealth planning
and advice in Canada through strategic
agreements that will provide access to
industry-leading advisor technology and
portfolio management platforms.
| 2023 Annual Report
6
“ I’m proud of what our team
accomplished in 2023, but great
teams push for extraordinary.
We have a relentless focus on our
mission and a dedicated team
that is driving superior results.”
I speak on behalf of our entire team in
saying it’s an incredible privilege to serve
an organization where what we do every
day truly matters. As we begin 2024,
we’re moving faster than ever in pursuit
of better and the future we all share.
Sincerely,
Roy Gori
President and CEO
Thank You
I would like to thank Don Lindsay, our
Board Chair, and our Board of Directors
for their continued strategic guidance
and trust.
Thank you to the entire Executive
Leadership Team, and welcome to our
newest members, Colin Simpson, Group
Chief Financial Officer, Brooks Tingle,
President and CEO of John Hancock,
and Halina von dem Hagen, Chief Risk
Officer, who are already making a
strategic impact.
Thank you to our more than 38,000
colleagues and 98,000 agents for their
dedication to our mission, customers,
and values, which has made our
progress possible. Finally, thank you
to our shareholders and customers for
your trust in us.
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, the Company’s strategic priorities and
targets for its highest potential businesses,
net promoter score, straight-through
processing, ongoing expense efficiency,
portfolio optimization, core earnings
contribution from LTC and VA businesses,
employee engagement, its medium-term
financial and operating targets, its ability
to achieve our financed emissions and
absolute scope 1 and 2 emissions targets,
the estimated timing and amount of state
approved future premium increases on
our U.S. LTC business, the closing of the
reinsurance transaction in respect of certain
legacy blocks and the associated capital
release, the closing of the acquisition of
CQS, the impact of changes in tax laws, the
probability and impact of LICAT scenario
switches, and our journey to net zero, 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.
Certain material factors or assumptions
are applied in making forward-looking
statements and actual results may differ
| 2023 Annual Report
8
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
fair value through other comprehensive
income; 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; our
inability to withdraw cash from subsidiaries;
the fact that the amount and timing of any
future common share repurchases will
depend on the earnings, cash requirements
and financial condition of Manulife, market
conditions, capital requirements (including
under LICAT capital standards), common
share issuance requirements, applicable
law and regulations (including Canadian and
U.S. securities laws and Canadian insurance
company regulations), and other factors
deemed relevant by Manulife, and may be
subject to regulatory approval or conditions;
and the timing to close the reinsurance
transactions and CQS transaction described
in this document.
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 Annual
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
25 Asia
29 Canada
31 U.S.
34 Global Wealth and Asset Management
38 Corporate and Other
39
Investments
44 Fourth Quarter Financial Highlights
48 Risk Management and Risk Factors
85 Capital Management Framework
88 Critical Actuarial and Accounting Practices
99 Controls and Procedures
100 Non-GAAP and Other Financial Measures
151 Additional Disclosures
155 Consolidated Financial Statements
169 Notes to Consolidated Financial Statements
277 Modern Slavery Act Statement
281 Board of Directors
281 Executive Leadership Team
282 Office Listing
284 Glossary of Terms
285 Shareholder Information
285 Dividend Information
9
Management’s Discussion
and Analysis
This Management’s Discussion and Analysis (“MD&A”) is current as of February 14, 2024.
1. Manulife Financial Corporation
Manulife Financial Corporation is a leading international financial services provider, helping people make their decisions easier
and lives better. With our global headquarters in Toronto, Canada, we provide financial advice and insurance, operating as
Manulife across Canada, Asia, and Europe, and primarily as John Hancock in the United States. Through Manulife Investment
Management, the global brand for our Global Wealth and Asset Management segment, we serve individuals, institutions and
retirement plan members worldwide. At the end of 2023, we had more than 38,000 employees, over 98,000 agents, and thousands
of distribution partners, serving over 35 million customers. At the end of 2023, we had $1.4 trillion (US$1.1 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 $0.4 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.
Implementation of IFRS 17 and IFRS 9
Manulife adopted IFRS 17 “Insurance Contracts” and IFRS 9 “Financial Instruments” effective January 1, 2023, applied retrospectively. See
notes 2 and 25 of the Consolidated Financial Statements for the year ended December 31, 2023. Our quarterly and full year 2022 results
have been restated in accordance with IFRS 17, including the other comprehensive income option2, and IFRS 9.
The 2022 comparative results restated in this MD&A may not be fully representative of our market risk profile, as the transition of our
general fund portfolio for asset-liability matching purposes under IFRS 17 and IFRS 9 was not completed until early 2023. Consequently,
year-over-year variations between our 2023 results compared with the 2022 results should be viewed in this context.
In addition, our 2022 results are also not directly comparable with 2023 results because IFRS 9 hedge accounting and expected credit
loss (“ECL”) principles are applied prospectively effective January 1, 2023. Accordingly, we have also presented comparative quarterly and
full year 2022 results as if IFRS had allowed such principles to be implemented for 2022 (the “IFRS 9 transitional impacts”). This
presentation will only be reported in our MD&A for 2023 for certain 2022 comparative results.
These 2022 comparative results are non-GAAP and denoted as being “transitional” and include the financial measures noted below:
Transitional net income (loss) attributed to shareholders;
•
• Transitional net income (loss) before income taxes;
• Transitional net income (loss);
• Transitional net income (loss) attributed to shareholders before income taxes;
• Common shareholders’ transitional net income (loss);
• Transitional return on common shareholders’ equity (“Transitional ROE”);
• Transitional basic earnings (loss) per common share; and
• Transitional diluted earnings (loss) per common share.
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
2 More information about the other comprehensive income option can be found in note 25 of the Consolidated Financial Statements for the year ended December 31, 2023.
10 | 2023 Annual Report | Management’s Discussion and Analysis
Adoption of IFRS 17 and IFRS 9 has also resulted in additional definitions and revisions to the following financial measures:
•
New non-GAAP financial measures: post-tax contractual service margin (“post-tax CSM”); post-tax contractual service margin net
of non-controlling interests (“NCI”) (“post-tax CSM net of NCI”); Drivers of Earnings (“DOE”) line items for net investment result, other,
income tax (expenses) recoveries and transitional net income attributed to participating policyholders and NCI; and core DOE line
items for core net insurance service result, core net investment result, other core earnings, and core income tax (expenses)
recoveries.
• New non-GAAP ratios: expenditure efficiency ratio with its component non-GAAP financial measures: total expenditures and core
expenditures (for 2022 and 2023 quarterly and full year results only); and adjusted book value per common share.
• Revised definitions of non-GAAP and other financial measures: core earnings; expense efficiency ratio with its new component
non-GAAP financial measures: total expenses and core expenses; consolidated capital; and financial leverage ratio.
Profitability
Profitability
As at and for the years ended December 31,
($ millions, unless otherwise stated)
Net income (loss) attributed to shareholders(1)
Return on common shareholders’ equity (“ROE”)(1)
Diluted earnings (loss) per common share ($)(1)
As at and for the years ended December 31,
($ millions, unless otherwise stated)
Net income (loss) attributed to shareholders(1)
Core earnings(2)
Diluted earnings (loss) per common share ($)
Diluted core earnings per common share (“Core EPS”) ($)(3)
ROE
Core return on shareholders’ equity (“Core ROE”)(3)
Expense efficiency ratio(3)
Expenditure efficiency ratio(3)
General expenses
Core expenses(2)
Core expenditures(2)
2023
$ 5,103
11.9%
$ 2.61
2023
$ 5,103
$ 6,684
$ 2.61
$ 3.47
11.9%
15.9%
45.5%
52.2%
$ 4,330
$ 6,550
$ 8,571
2022
Transitional
$ 3,498
8.2%
$ 1.69
2022
$ (1,933)
$ 5,801
$
(1.15)
$ 2.90
(5.5)%
14.0%
45.7%
52.8%
$ 3,731
$ 5,762
$ 7,671
(1) 2022 results for transitional net income attributed to shareholders, transitional diluted earnings per common share and transitional ROE are adjusted to include IFRS 9 hedge
accounting and expected credit loss principles (“IFRS 9 transitional impacts”). See “Implementation of IFRS 17 and IFRS 9” above for more information. For 2023, there are no
IFRS 9 transitional adjustments as ECL and hedge accounting is effective January 1, 2023 and therefore the impact is included in net income attributed to shareholders.
(2) This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
(3) 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 $5.1 billion in 2023 compared with a net loss attributed to shareholders of $1.9
billion in 2022 and transitional net income attributed to shareholders of $3.5 billion in 2022. The 2022 transitional net income
attributed to shareholders includes $5.4 billion of IFRS 9 transitional impacts. 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 $6.7 billion in 2023
compared with $5.8 billion in 2022, and items excluded from core earnings of $1.6 billion of net charges in 2023 compared with a net
charge of $7.7 billion in 2022. Items excluded from core earnings in 2022 on a transitional basis amounted to a net charge of $2.3
billion.
The $1.6 billion increase in net income attributed to shareholders in 2023 compared with the transitional net income attributed to
shareholders in 2022 was primarily driven by growth in core earnings and a smaller net charge from market experience. The net charge
from market experience in 2023 was primarily related to lower-than-expected returns (including fair value changes) relative to long-term
assumptions on alternative long-duration assets (“ALDA”) mainly related to real estate, private equity and energy, as well as a charge from
derivatives and hedge accounting ineffectiveness. Net income attributed to shareholders in 2023 increased by $7.0 billion compared with
2022, driven by the factors noted above and the $5.4 billion of IFRS 9 transitional impacts (transitional impacts are geography-related and
do not impact total shareholders’ equity as the corresponding offset is in other comprehensive income).
In 2023, core earnings increased $0.9 billion or 13%1 on a constant exchange rate basis compared with 2022. The increase was driven by
an increase in expected investment earnings related to higher investment yields and business growth, gains in our P&C Reinsurance
business from updates to prior years’ hurricane provisions of $95 million in 2023 compared with a charge of $256 million in 2022
including Hurricane Ian, improved insurance experience reflecting more favourable experience in Canada and improved, although
unfavourable, experience in the U.S., and higher returns on surplus assets net of higher cost of debt financing. These were partially offset
by higher performance-related costs in Corporate and Other and Global WAM, and higher investments in technology, an increase in the
1 Percentage growth / declines in core earnings, pre-tax core earnings, total expenses, core expenses, total expenditures, core expenditures, general expenses, contractual
service margin net of NCI, new business CSM, assets under management and administration, assets under management, core EBITDA, and Manulife Bank average net lending
assets are stated on a constant exchange rate basis, a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.
11
2023 ECL provision, and lower expected earnings on insurance contracts due to a slower contractual service margin (“CSM”) amortization
on certain variable fee approach (“VFA”) contracts and the impact of the 2022 U.S. variable annuity reinsurance transactions, partially
offset by the net impact of updates to actuarial methods and assumptions and business growth in Canada. In addition, 2023 core earnings
benefited from growth in Global WAM’s net fee income, from higher fee spreads and average assets under management and administration
(“average AUMA”)1, as well as higher performance fees in Institutional Asset Management, partially offset by lower earnings from its seed
capital investments due to repatriations. Actions to improve the capital efficiency of our legacy business resulted in $29 million lower core
earnings in 2023 compared with 2022.
Core earnings by segment is presented in the following table. See Asia, Canada, U.S., and Global WAM sections below.
For the years ended December 31,
($ millions)
Core earnings by segment(2)
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total core earnings
2023
2022
% change(1)
2023 vs 2022
$ 2,048
1,487
1,759
1,321
69
$ 6,684
$ 1,812
1,387
1,566
1,299
(263)
$ 5,801
13%
7%
12%
2%
–
15%
(1) Percentage change is on an actual exchange rate basis.
(2) Effective January 1, 2023, we have made a number of changes to the composition of reporting segments to better align our financial reporting with our business strategy and
operations. Our international high net worth business was reclassified from the U.S. segment to the Asia segment to reflect the contributions of our Bermuda operations
alongside the high net worth business that we report in our Singapore and Hong Kong operations. Our investment in the start-up capital of segregated and mutual funds, and
investment-related revenue and expense were reclassified from the Corporate and Other segment to the Global WAM segment to more closely align with Global WAM’s
management practices. Refinements were made to the allocations of corporate overhead and interest on surplus among segments. Prior period comparative information has
been restated to reflect the changes in segment reporting.
The table below presents transitional net income attributed to shareholders and net income attributed to shareholders consisting of core
earnings and items excluded from core earnings.
For the years ended December 31,
($ millions)
Core earnings
Items excluded from core earnings:
Market experience gains (losses)(1)
Realized gains (losses) on debt instruments
Derivatives and hedge accounting ineffectiveness
Actual less expected long-term returns on public equity
Actual less expected long-term returns on ALDA
Other investment results
Changes in actuarial methods and assumptions that flow directly through income(2)
Restructuring charge(3)
Reinsurance transactions, tax-related items and other(4)
Total items excluded from core earnings
Transitional net income attributed to shareholders
Less: IFRS 9 transitional impacts:
Change in expected credit loss
Hedge accounting
Total IFRS 9 transitional impacts (pre-tax)
Tax on IFRS 9 transitional impacts
Total IFRS 9 transitional impacts (post-tax)
Net income (loss) attributed to shareholders
2023
$ 6,684
2022
$ 5,801
(1,790)
(130)
(152)
103
(1,623)
12
105
(36)
140
(1,581)
n/a
$
$ 5,103
(2,585)
(1,161)
267
(1,291)
(32)
(368)
26
–
256
(2,303)
$ 3,498
(35)
7,356
7,321
(1,890)
5,431
$ (1,933)
(1) Market experience was a net charge of $1,790 million in 2023 primarily driven by lower-than-expected returns (including fair value changes) relative to long-term assumptions
on ALDA mainly related to real estate, private equity and energy, a net charge from derivatives and hedge accounting ineffectiveness, as well as net realized losses from the sale
of debt instruments which are classified as fair value through other comprehensive income (“FVOCI”) partially offset by gains from higher-than-expected returns relative to long
term assumptions on public equity. Market experience was a net charge of $2,585 million in 2022 consisting of lower-than-expected returns relative to long-term assumptions
on public equity, net realized losses from the sale of debt instruments which are classified as FVOCI, and a net loss from changes in foreign currency exchange rates, partially
offset by a net gain on derivatives and hedge accounting ineffectiveness. A modest net charge from ALDA was driven by lower-than-expected returns (including fair value
changes) relative to long-term assumptions on real estate, partially offset by private equity.
(2) See “Critical Actuarial and Accounting Policies – Review of Actuarial Methods and Assumptions” section below for further information on the 2023 and the 2022 net gain.
(3) In the fourth quarter of 2023 (“4Q23”) we reported a restructuring charge of $36 million post-tax ($46 million pre-tax) in Global WAM.
(4) In 2023, the net gain of $140 million included a one-time tax benefit of $290 million. This was partially offset by $46 million related to a provision for the cancellation of certain
policies in our Vietnam operations, other tax related net true-ups of $39 million, a $38 million charge for an investment impairment in Asia and a charge of $33 million related
to legal settlements in the U.S. In 2022, the net gain of $256 million consisted of tax benefits of $269 million as a result of an increase in the Canadian corporate tax rate, and
a net gain of $86 million related to acquiring full ownership interest of Manulife Fund Management Co., Ltd. (“MFM”), 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 $15 million resulting from actuarial model adjustments
in Asia, and a $13 million increase to an existing legal provision in the U.S.
1 For more information on this metric, see “Non-GAAP and Other Financial Measures” below.
12
| 2023 Annual Report | Management’s Discussion and Analysis
Transitional net income attributed to shareholders by segment and net income attributed to shareholders by segment is presented
in the following tables. See Asia, Canada, U.S., and Global WAM sections below.
For the years ended December 31,
($ millions)
Transitional net income (loss) attributed to shareholders by segment(2)
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total transitional net income (loss) attributed to shareholders
For the years ended December 31,
($ millions)
Net income (loss) attributed to shareholders by segment(2)
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total net income (loss) attributed to shareholders
2023
2022
Transitional
% change(1)
2023 vs 2022
Transitional
$ 1,348
1,191
639
1,297
628
$ 5,103
$
647
1,198
1,448
1,121
(916)
$ 3,498
108%
(1)%
(56)%
16%
–
46%
2023
2022
% change(1)
2023 vs 2022
$ 1,348
1,191
639
1,297
628
$ 5,103
$
683
(503)
(2,316)
1,121
(918)
$ (1,933)
97%
–
–
16%
–
–
(1) Percentage change is on an actual exchange rate basis.
(2) Effective January 1, 2023, we have made a number of changes to the composition of reporting segments to better align our financial reporting with our business strategy and
operations. Our international high net worth business was reclassified from the U.S. segment to the Asia segment to reflect the contributions of our Bermuda operations
alongside the high net worth business that we report in our Singapore and Hong Kong operations. Our investment in the start-up capital of segregated and mutual funds, and
investment-related revenue and expense were reclassified from the Corporate and Other segment to the Global WAM segment to more closely align with Global WAM’s
management practices. Refinements were made to the allocations of corporate overhead and interest on surplus among segments. Prior period comparative information has
been restated to reflect the changes in segment reporting.
Diluted earnings (loss) per common share (“EPS”) was $2.61 in 2023, compared with $(1.15) in 2022 and a transitional diluted earnings
per common share of $1.69 in 2022. The increase compared with 2022 diluted EPS and 2022 transitional diluted EPS is primarily related
to the increase in net income attributed to common shareholders. Diluted core earnings per common share was $3.47 in 2023, compared
with $2.90 in 2022 primarily related to the increase in core earnings. The diluted weighted average common shares outstanding was
1,838 million in 2023 and 1,913 million in 2022.
Return on common shareholders’ equity (“ROE”) for 2023 was 11.9%, compared with (5.5)% for 2022 and a transitional ROE of 8.2% in
2022. The increase in ROE reflects higher net income attributed to common shareholders in 2023 compared with a net loss attributed to
common shareholders in 2022, and the increase in ROE in 2023 compared with transitional ROE in 2022 is primarily due to higher net
income attributed to common shareholders. The core return on common shareholders’ equity (“core ROE”) was 15.9% in 2023 compared
with 14.0% in 2022. The increase in 2023 core ROE was primarily driven by an increase in common shareholders’ core earnings.
Expenditure efficiency ratio and expense efficiency ratio
In 2018 we introduced our strategic priority of expense efficiency.
The expense efficiency ratio is a financial measure which we use to measure progress on this priority. The expense efficiency ratio reflects
only those expenses that flow directly through core earnings (“core expenses”). Due to changes introduced by IFRS 17, certain costs that
are directly attributable to acquire new business are capitalized into the CSM instead of directly flowing through core earnings and are now
excluded from the ratio.
To provide a reference point to our expense efficiency ratio prior to the adoption of IFRS 17, we are temporarily introducing an additional
efficiency ratio, the expenditure efficiency ratio, for 2022 and 2023 only, which captures all expenses, including costs that are directly
attributable to the acquisition of new business (“core expenditures”).
The expenditure efficiency ratio was 52.2% in 2023, compared with 52.8% in 2022. The 0.6 percentage point decrease in the ratio
compared with 2022 was driven by a 12% increase in pre-tax core earnings1, partially offset by a 10% increase in core expenditures. 2023
core expenditures increased as a result of higher performance-related costs, investments in technology, higher distribution costs
reflecting stronger top-line growth, additional expenses related to the impact of now consolidating 100% of MFM and higher travel and
return to pre-pandemic activities. Costs directly attributable to the acquisition of new business that are capitalized into the CSM
represented approximately 24% and 25% of total core expenditures in 2023 and 2022, respectively.
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
13
The expense efficiency ratio was 45.5% in 2023, compared with 45.7% in 2022. The 0.2 percentage point decrease in the ratio
compared with 2022 was driven by the items noted above related to the decrease in the expenditure efficiency ratio excluding those costs
that are directly attributable to the acquisition of new business which are reflected in the CSM under IFRS 17.
Total 2023 general expenses increased 16% on an actual exchange rate basis and 14% on a constant exchange rate basis compared with
2022 driven by the items noted above related to the decrease in the expenditure efficiency ratio and items excluded from core earnings.
General expenses excluded from core earnings consisted primarily of a true-up of an existing legal provision and a restructuring charge in
Global WAM in 2023 compared with a true-up of an existing legal provision and acquisition and integration expenses in 2022. General
expenses are also net of directly attributable maintenance expenses and directly attributable acquisition expenses for products measured
using the premium allocation approach (“PAA”) which are included in insurance service expenses on our financial statements. Directly
attributable maintenance expenses and directly attributable acquisition expenses for products measured using the PAA increased 11% on a
constant exchange rate basis and 12% on an actual exchange rate basis in 2023 compared with 2022.
Business Performance
Business performance1
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),(2)
Asia new business CSM(3)
Canada new business CSM
U.S. new business CSM
Total new business CSM(3)
Asia CSM net of NCI
Canada CSM
U.S. CSM
Corporate and Other CSM
Total CSM net of NCI
Post-tax CSM net of NCI(4)
Global WAM gross flows ($ billions)(1)
Global WAM net flows ($ billions)(1)
Global WAM assets under management and administration ($ billions)(4),(5)
Global WAM total invested assets ($ billions)
Global WAM segregated funds net assets ($ billions)(5)
Total assets under management and administration ($ billions)(4)
Total invested assets ($ billions)
Total net segregated funds net assets ($ billions)
$
2023
4,469
1,409
562
6,440
1,627
490
207
2,324
1,549
224
394
2,167
12,617
4,060
3,738
25
20,440
17,748
143.4
4.5
849.2
7.1
248.1
1,388.8
417.2
377.5
$
2022
3,793
1,261
599
5,653
1,537
362
164
2,063
1,309
199
387
1,895
9,420
3,675
4,136
52
17,283
14,659
136.9
3.2
782.3
5.8
224.2
1,301.1
400.1
348.6
(1) For more information on this metric, see “Non-GAAP and Other Financial Measures” below.
(2) 2022 new business value (“NBV”) has not been restated as a result of the adoption of IFRS 17. The impact of not restating 2022 is not material.
(3) New business CSM is net of NCI.
(4) This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
(5) The Global WAM portion of AUMA as at December 31, 2023 was $849.2 billion, an increase of 11% compared with December 31, 2022, driven by the net favourable impact of
interest rate and equity markets and net inflows. The Global WAM segregated funds net assets were $248.1 billion as at December 31, 2023, an increase of 11% compared with
December 31, 2022 on an actual exchange rate basis driven by the net favourable impact of interest rate and equity markets.
Annualized premium equivalent (“APE”) sales were $6.4 billion in 2023, an increase of 12%2 compared with 2022. In Asia, APE sales
increased 15% compared with 2022, driven by growth in Hong Kong, mainland China and Singapore, partially offset by a decrease in
Vietnam and Japan. The increase was led by demand across various markets in Asia after the lifting of all COVID-19 containment measures
in early 2023. In Hong Kong, APE sales increased 58% compared with 2022, reflecting strong growth in our broker, bancassurance and
agency channels, primarily driven by a return of demand from mainland Chinese visitor (“MCV”) customers following the reopening of the
border between Hong Kong and mainland China. Mainland China APE sales increased 62% compared with 2022, reflecting growth in
1 Effective January 1, 2023, our international high net worth business was reclassified from the U.S. segment to the Asia segment to reflect the contributions of our Bermuda
operations alongside the high net worth business that we report in our Singapore and Hong Kong operations. Prior period comparative information has been restated to reflect
the reclassification.
2 Percentage growth / declines in APE sales, gross flows and NBV are stated on a constant exchange rate basis.
14
| 2023 Annual Report | Management’s Discussion and Analysis
bancassurance and agency channels. Singapore APE sales were up 4% compared with 2022, reflecting growth in the broker channel.
Vietnam APE sales were down 56% compared with 2022, reflecting a decline in agency and bancassurance channels, driven by the
industry and macro-economic environment in this market. Japan APE sales decreased 9% compared with 2022, reflecting lower
corporate-owned life insurance (“COLI”) and other wealth sales. Other Emerging Markets1
sales were in line with 2022. In Canada, APE sales increased 12% in 2023 compared with 2022, driven by a large affinity markets sale,
higher Group Insurance sales in all group benefits markets, partially offset by lower sales of segregated fund products. In the U.S., APE
sales were down 10% compared with 2022 due to the adverse impact of higher short-term interest rates on accumulation insurance
products for most of 2023, particularly for our affluent customers.
and International High Net Worth business APE
New business value (“NBV”) was $2.3 billion in 2023, an increase of 10% compared with 2022. In Asia, NBV increased 3% compared with
2022, driven by growth in Hong Kong, mainland China, Japan and our International High Net Worth business, partially offset by lower NBV
in Vietnam, Singapore and Other Emerging Markets. In Canada, NBV increased 35% compared with 2022, driven by higher sales volumes
in Individual Insurance and Group Insurance and higher margins in Group Insurance and Annuities, partially offset by lower segregated
funds sales. In the U.S., NBV increased 21% compared with 2022, primarily due to pricing actions, product mix and higher interest rates,
partially offset by lower sales volumes.
New business contractual service margin (“New business CSM”) was $2,167 million in 2023, an increase of 12% compared with 2022. Asia new
business CSM increased 16% in 2023 compared with 2022, reflecting growth in Hong Kong, mainland China, Singapore, the International High Net
Worth business and Other Emerging Markets, partially offset by decreases in Vietnam and Japan. In Canada, new business CSM increased 13%
compared with 2022, driven by higher margins in Individual Insurance and Annuities, partially offset by lower sales volumes in Annuities. Under
IFRS 17, the majority of Group Insurance and affinity products are classified as premium allocation approach and do not generate CSM. In the U.S.,
new business CSM decreased 2% compared with 2022 driven by lower sales volumes, partially offset by pricing actions.
The contractual service margin (“CSM”) net of NCI was $20,440 million as at December 31, 2023, an increase of $3,157 million or 21%
compared with December 31, 2022. The increase in CSM net of NCI reflects an increase in total CSM movement of $3,324 million, net of an
increase in NCI of $167 million. Organic CSM movement was an increase of $890 million or 5%2 in 2023, driven by the impact of new
insurance business and expected movements related to finance income or expenses, partially offset by amounts recognized for service
provided in 2023 earnings and a net reduction from insurance experience. Inorganic CSM movement was an increase of $2,434 million in
2023, primarily driven by changes in actuarial methods and assumptions that adjust the CSM, partially offset by changes in foreign currency
exchange rates.
Global WAM gross flows of $143.4 billion increased $6.5 billion or 2% compared with 2022, primarily driven by higher gross flows in
Institutional Asset Management and Retirement, partially offset by lower gross flows in Retail. See “Global Wealth and Asset Management”
section below for further details.
Global WAM net inflows were $4.5 billion in 2023, compared with net inflows of $3.2 billion in 2022. Net outflows in Retirement were
$4.0 billion in 2023, compared with net outflows of $0.1 billion in 2022, driven by large case pension plan redemptions by a single
sponsor in the U.S. in the third quarter of 2023 (“3Q23”) and 4Q23. This was partially offset by growth in member contributions. Net
outflows in Retail were $0.5 billion in 2023, compared with net outflows of $1.6 billion in 2022, driven by lower mutual fund redemption
rates and the launch of our Global Semiconductors strategy in Japan in 3Q23. This was partially offset by lower demand as investors
continued to favour short-term cash and money market instruments amid market volatility and higher interest rates. Net inflows in
Institutional Asset Management were $9.0 billion in 2023, compared with net inflows of $4.9 billion in 2022, driven by higher net inflows
in timberland, real estate, private equity and credit mandates, and the impact of acquiring full ownership of MFM in 4Q223, as well as new
institutional product launches totaling $1.6 billion in 2023.
Assets under Management and Administration (“AUMA”)
AUMA as at December 31, 2023 was $1.4 trillion, an increase of 9% compared with December 31, 2022, primarily due to the favourable
impact of markets and net inflows. Total invested assets and segregated funds net assets increased 4% and 8%, respectively, on an actual
exchange rate basis, primarily due to the net impact of interest rate and equity markets.
Assets under Management and Administration
As at December 31,
($ 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
2023
2022
$ 417,210
377,544
411,961
1,206,715
182,046
$ 1,388,761
$ 400,142
348,562
381,630
1,130,334
170,768
$ 1,301,102
(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.
1 Other Emerging Markets includes Indonesia, the Philippines, Malaysia, Thailand, Cambodia and Myanmar.
2 Percentage growth / decline in organic CSM is stated on a constant exchange rate basis.
3 Manulife Fund Management (“MFM”) was formerly known as Manulife TEDA Fund Management Co., Ltd (“MTEDA”). In 4Q22, we acquired full ownership of MTEDA by purchasing
the remaining 51% of the shares from our joint venture partner. In 2023, we report 100% of the gross and net flows from MFM, compared with reporting only 49% of the joint
venture’s gross and net flows in 2022.
15
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(2)
Consolidated capital ($ billions)(3)
Book value per common share ($)
Adjusted book value per common share ($)(2)
2023
2022
137%
24.3%
$ 73.9
$ 22.36
$ 32.19
131%
25.1%
$ 69.6
$ 21.56
$ 29.42
(1) This item is disclosed under the Office of the Superintendent of Financial Institutions (“OSFI”) Life Insurance Capital Adequacy Test Public Disclosure Requirements guideline.
The comparative 2022 LICAT ratio is as reported in 2022 and has not been restated for the implementation of IFRS 17.
(2) This item is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.
(3) 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 137% as at December 31, 2023, compared with 131% as at
December 31, 2022. The six percentage point increase from December 31, 2022 was primarily driven by the transition to the IFRS 17
accounting basis. Other positive movements included earnings and capital initiatives, partially offset by the capital impacts of market
movements, capital market actions and shareholder dividends.
MFC’s financial leverage ratio1 as at December 31, 2023 was 24.3%, a decrease of 0.8 percentage points from 25.1% as at
December 31, 2022. The decrease in the ratio was driven by higher post-tax CSM and an increase in total equity, partially offset by the net
issuance of subordinated debt2. The increase in total equity was due to growth in retained earnings, partially offset by common share
buybacks.
MFC’s consolidated capital1 was $73.9 billion as at December 31, 2023, an increase of $4.3 billion compared with $69.6 billion as at
December 31, 2022. The increase was driven by higher post-tax CSM, an increase in total equity, and the net issuance of subordinated
debt2. The increase in total equity was due to growth in retained earnings, partially offset by common share buybacks.
Remittances3 were $5.5 billion in 2023 of which Asia and U.S. operations delivered $1.7 billion and $1.5 billion, respectively. Remittances
in 2023 decreased by $1.4 billion compared with 2022 as prior year remittances benefited from the U.S. variable annuity transaction.
Refer to “Remittance of Capital” below for more information.
Cash and cash equivalents and marketable securities4 were $250.7 billion as at December 31, 2023 compared with $241.1 billion as at
December 31, 2022. The increase of $9.6 billion was primarily driven by the higher market value of fixed income instruments due to
interest rate movement and an increase in the market value of public equities due to higher equity markets. Refer to “Liquidity Risk
Management Strategy” below for more information.
Book value per common share as at December 31, 2023 was $22.36, a 4% increase compared with $21.56 as at December 31, 2022.
The number of common shares outstanding was 1,806 million as at December 31, 2023, a decrease of 59 million common shares from
1,865 million as at December 31, 2022, primarily due to common share buybacks.
Adjusted book value per common share as at December 31, 2023 was $32.19, a 9% increase compared with $29.42 as at
December 31, 2022, driven by an increase in adjusted book value5 and a lower number of common shares outstanding. Adjusted book
value increased $3.3 billion due to an increase in post-tax CSM and growth in common shareholder’s equity. The increase in common
shareholder’s equity reflects the growth in retained earnings, partially offset by common share buybacks.
Impact of Foreign Currency 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
currency exchange rates is to movements in the U.S. dollar.
1 Effective January 1, 2022, the calculation of financial leverage ratio and consolidated capital now includes the impact of post-tax CSM. See “Non-GAAP and Other Financial
Measures” below for more information.
2 The net issuance of subordinated debt consists of the issuance of $1.2 billion in the first quarter of 2023 and the redemption of $0.6 billion in the second quarter of 2023.
3 For more information on this metric, see “Non-GAAP and Other Financial Measures” below.
4 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.
5 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
16
| 2023 Annual Report | Management’s Discussion and Analysis
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 currency exchange rates for 2023 and 2022.
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
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
1.3612
0.0092
0.1742
1.3411
0.0093
0.1714
1.3430
0.0098
0.1713
1.3524
0.0102
0.1726
1.3575
0.0096
0.1736
1.3494
0.0096
0.1724
1.3015
0.0099
0.1662
1.3186
0.0094
0.1689
1.3520
0.0091
0.1726
1.3233
0.0092
0.1689
1.3534
0.0102
0.1724
1.3549
0.0103
0.1736
1.3186
0.0094
0.1689
1.3549
0.0103
0.1736
(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, transitional 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, transitional 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 currency 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 increased core earnings by $136 million in 2023 compared with the same period of 2022,
due to a weaker Canadian dollar compared with the U.S. dollar. The impact of foreign currency exchange rates on items excluded from
core earnings does not provide relevant information given the nature of these items.
17
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
Efficiency
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.
1 As compared to a baseline of 1 in 2017. 2023 results are discussed in the “Strategic Priorities” section below.
2 Top quartile employee engagement compared to global financial services companies and insurance peers. 2023 results are discussed in the “Strategic Priorities” section
below.
3 MFC’s Total Shareholder Return was 67th percentile compared with our performance peer group for the five-year period ended December 31, 2023. Please refer to Manulife’s
most recent Management Information Circular for more information on our performance peer group.
18
| 2023 Annual Report | Management’s Discussion and Analysis
Strategic Priorities
Our strategy is underpinned by five strategic priorities which we introduced in 2018, and we have made substantial progress on the
ambitious targets that we set for ourselves.
Accelerate Growth
We strive to increase the core earnings contribution from our highest potential businesses1 and the Asia region (our Asia segment
and Asia wealth and asset management (“Asia WAM”)).
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 benefits in Canada
Core earnings from highest potential businesses
Core earnings from Asia region
Baseline
Targets2
2023
2022
2017 (IFRS 4)3
2025
60%
37%
61%
37%
54%
36%
75%
50%
In 2023, 60% of core earnings were generated from our highest potential businesses compared with 61% in 2022, as the increase in core
earnings from highest potential businesses was mostly in line with the increase in total company core earnings.
Since 2017, these businesses have been 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 a strong and
professional agency force, successful bancassurance partnerships, transformational digital offerings, and strategic expansion into high-
potential markets in Asia.
In addition, inorganic optimization actions to transform our portfolio will further shift our focus and business mix towards our highest-
potential businesses. In December 2023, we entered into an agreement with Global Atlantic to reinsure a combined $13 billion4
insurance and investment contract net liabilities across four in-force blocks of legacy and low ROE business. The blocks include portions of
U.S. LTC, U.S. structured settlements, and two Japan whole life products; the transaction is expected to close by the end of February
2024.2
of
Asia segment core earnings in 2023 increased 11% compared with 2022 after adjusting for the impact of changes in foreign currency
exchange rates, primarily reflecting higher investment yields and business growth, as well as the net impact of updates to actuarial
methods and assumptions on our CSM and risk adjustment. Due to an uneven recovery following the pandemic, a challenging
macroeconomic environment, and the conversion to IFRS 17 which defers the recognition of new business into CSM, we are extending our
2025 target of Asia region’s 50% contribution to total company core earnings, to 2027.2 Asia contributed to over 60%5 of the total
company CSM balance as at December 31, 2023 and over 70%5 of the total company increase in CSM from new business in 2023,
demonstrating that accelerating growth is at the heart of our ambition and our commitment to delivering 50% of total company core
earnings from the Asia region.
Global WAM core earnings increased $22 million, a decline of 1% compared with 2022 on a constant exchange rate basis, reflecting an
increase in performance-related costs and lower earnings from seed capital investments due to repatriations were offset by growth in net
fee income, from higher fee spreads and average AUMA, as well as higher performance fees in Institutional Asset Management, and a
lower effective tax rate in 2023.
Canada group insurance core earnings in 2023 benefited from more favourable insurance experience, business growth, and higher
expected investment earnings from higher yields and business growth.
We continue to innovate and scale our behavioural insurance offerings in North America.
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.
1 Highest potential businesses include Asia segment, Global WAM, Canada group benefits and North American behavioural insurance products.
2 See “Caution regarding forward-looking statements” above.
3 2017 core earnings is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below.
4 Insurance and investment contract net liabilities amounts are as at September 30, 2023.
5 CSM closing balance and 2023 new business recognized into CSM are net of non-controlling interests (pre-tax).
19
2023 Highlights
•
In Asia:
O
Continued to enhance our MCV capabilities to complement our prominent domestic franchise in Hong Kong with the support from
the launch of an expanded hospital network covering more than 3,000 hospitals in mainland China and the opening of our second
prestige service centre in Hong Kong. Our continued investments in MCV capabilities have contributed to robust MCV APE sales in
2023, more than double that of our 2019 pre-pandemic levels; and
O
Continued to drive agency productivity and professionalization across the region, with the initial roll out of Manulife Pro in Singapore
and Vietnam, a comprehensive premier recognition and activation program, providing selected agents with differentiated resources
and tools, including dedicated underwriting support and enhanced customer engagement services with access to customer leads.
•
In Global WAM:
O
Entered an agreement to acquire multi-sector alternative credit manager CQS, headquartered in London. The acquisition will give
MIM and CQS clients enhanced access to our combined global investment solutions. We will retain CQS’s rigorous investment
philosophy and process and bring its differentiated capabilities to new investors by leveraging our global footprint. The CQS credit
platform has approximately $18.8 billion in assets under management as of October 31, 2023, and the transaction is expected to
close in the first half of 2024 subject to customary closing conditions and regulatory approvals; and
O
Continued to meet investor needs for wealth solutions through the expansion of our product offerings with the launch of the Global
Semiconductors strategy in Japan Asia Retail which garnered more than $0.8 billion in net flows since its launch in 3Q23.
• In Canada:
O
Partnered with League, a leading healthcare technology provider, to offer our group benefits members more personalized and
integrated digital healthcare experiences, enabling them to connect their benefits directly with healthcare options; and
O
Partnered with Cleveland Clinic Canada, using its global healthcare expertise to enhance product offering and services to over five
million group benefits plan members, including their families, by providing industry research, thought leadership, and education
materials.
•
In the U.S.:
O
Expanded our reach into the employer market by introducing a Premier Benefit Indexed Universal Life product. This permanent life
insurance product, available through the workplace, offers a streamlined digital process for employees to purchase individual
coverage and includes our John Hancock Vitality PLUS feature;
O
Launched a distribution relationship with JPMorgan Chase & Co. enabling new sales of our suite of products, including our John
Hancock Vitality Program, through its network of more than 6,900 advisors; and
O
Enhanced our John Hancock Vitality Program by extending eligibility to access GRAIL’s Galleri® multi-cancer early detection test to
additional members, expanding eligibility for preventative care and early detection behaviours through annual skin cancer
screenings, and introducing a personalized way to incentivize members to be more physically active through a new Active Rewards
feature.
Digital, Customer Leader
We strive to continue improving our digital, customer leadership through the NPS and straight-through-processing (“STP”)1 lens.
Focus areas:
• Harness customer feedback to enhance the experience delivered
• Build differentiated, market-leading priority customer experiences
• Extend customer relationships through value-added advice, and new services in health and wellness
• Drive NPS through a robust NPS system that spans across the customer journey
Net promoter score
Straight-through-processing (STP)
Baseline
Targets2
2023
2022
2018
2017
2025
23
85%
20
83%
n/a
68%
1
n/a
37
88%
We have made significant progress against our NPS ambition, driving a 3-point improvement from 2022 and a 22-point improvement from
our 2017 baseline of 1, leading or on par with peers3 across the majority of our business lines. Despite this progress, headwinds
experienced in select markets have impacted our momentum, and while we remain committed to digital, customer leadership as a
strategic priority, we are extending our 2025 NPS target of 37, to 2027. We are focused on driving customer experience improvements
across our business portfolio and progressing our mission to make decisions easier, lives better.
1 Straight-through processing represents customer interactions that are completely digital, and includes money movement.
2 See “Caution regarding forward-looking statements” above.
3 Based on studies conducted in 2023 by IPSOS, a global market research company.
20 | 2023 Annual Report | Management’s Discussion and Analysis
We are making consistent progress on our global STP objective, with a 2 percentage point improvement from 2022 and a 17 percentage
point improvement from the 2018 baseline across segments in a variety of areas. In 2023, we continued to invest in digital capabilities
through the delivery of multiple technology transformation initiatives across segments, notably the group benefits claims system
transformation in Canada, enhancement of websites/portals enabling customer self service capabilities globally, and the launch of
targeted campaigns to drive digital adoption globally.
Customer centricity is at the heart of our ambition and we remain focused on achieving our NPS and STP targets of 37 and 88%,
respectively.
2023 Highlights
•
In Asia:
O
Completed Phase 1 of the policy administration system modernization in mainland China, launching new business and underwriting
modules on the new cloud-native solution, together with the seamless data migration of more than three million customers. This
enables scale and efficiency, and lays the foundation for improved customer, distributor and partner experience; this milestone will
enable faster speed to market through collaborative product development and easier integration with our digital partners’
ecosystems;
O
Made it easier for customers to manage their policies through the continued enhancement of our voice bot capabilities at our
contact center in Japan, including the migration of our telephony systems to Amazon Connect1. This has contributed to a year-over
year 13 percentage point increase in 2023 in the proportion of customer-initiated interactions that are handled by interactive voice
response system without any human intervention; and
O
Enhanced customer experience at point of sales in Vietnam through the roll-out of a first-in-market digital pre-issuance verification
tool, providing customers with an easier way to review their policy before issuance, and ensure that it fully addresses their insurance
needs.
In Global WAM:
O
Continued to enhance and broaden our wealth planning and advice business in Canada Retail through strategic agreements with
•
O
Fidelity Clearing Canada and Envestnet that will provide access to leading advisory technology and portfolio management platforms,
which combined will deliver an enhanced digital client experience and improved advisor productivity;
Increased our mobile application user count in Canada Retirement by 38% in 2023 following the delivery of new features (fund
switch and TFSA lump sum contributions) and experience enhancements (deep linking and personalized nudges enhancements);
O
Continued to improve “Join Now”, our digital enrolment process in Canada Retirement, with features that have enabled us to deploy
it to 92% of eligible sponsors, representing an increase of 10% compared with 2022. This contributed to 49,500 new digital
enrolments in 2023; and
O
Accelerated customer adoption of digital applications in Canada Retirement through our “Say Goodbye to Paper” campaign which
contributed to a 165% increase in members converting to e-statements over the campaign period, which spanned from June to
August, and an increase in satisfaction with their digital experience.
•
In Canada:
O
Grew our annual Manulife mobile app downloads by 18%, supported by upgrades designed to enhance our customers’ digital
experience and a successful communication campaign highlighting the ease and speed of online claims submissions;
O
Expanded our Personalized Medicine program to all group benefits extended healthcare plans, making this service available to more
customers, while enabling them to learn about medications that best meet their needs and work with healthcare providers on
customized treatment plans that can lead to better outcomes; and
O
Increased our use of Amazon Connect1, which enabled a more holistic digital customer experience and drove operational efficiency.
This contributed to a 25% reduction of call transfer rates year over year for contact centres that had moved to Amazon Connect.
• In the U.S.:
O
Optimized the customer registration experience across our customer websites resulting in a 26% increase in online registrations in
2023, contributing to a 19% improvement in unique website traffic;
O
Eliminated over 7.8 million pieces of paper and mail by automating key back-end processes and increasing digital communications,
including our first e-delivery of life insurance policy prospectuses; and
O
Enhanced our interactive voice response authentication enabling 29% of inbound calls to be completed with no human interaction.
Expense Efficiency
We remain focused on driving efficient growth by effectively managing expense growth at a rate below the pace of our topline growth,
while ensuring 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 Amazon Connect from Amazon Web Services Inc.
21
Expense efficiency ratio
Baseline
2017
(IFRS 4)2
Target1
2022 and onwards
2023
2022
45.5%
45.7%
55.4%
<50%
We previously delivered on our 2022 target of $1 billion in expense efficiencies in 2020, two years ahead of schedule. 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 45.5% for 2023, compared with 45.7% in 2022. The 0.2 percentage point decrease in the ratio
compared with 2022 was driven by a 12% increase in pre-tax core earnings, offset by a 12% increase in core expenses. Core expenses
increased in comparison with 2022 as a result of higher performance-related costs, investments in technology, additional expenses
related to the impact of now consolidating 100% of MFM and higher travel and return to pre-pandemic activities.
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%.
2023 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 approximately $250 million (pre-tax) in 2023 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.
Focus areas:
• Deliver capital release from legacy or low ROE 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 for customers and shareholders through in-force management initiatives
Core earnings contribution from LTC and VA
Baseline
Target1
2017
(IFRS 4)
2025
2023
2022
12%
16%
24%
<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. In 2022, we completed two transactions to reinsure over 80% of our legacy U.S. variable annuity block,
releasing $2.5 billion of capital and significantly reducing our risk. In December 2023, we entered into an agreement with Global Atlantic
to reinsure four in-force blocks of legacy or low ROE businesses, including $6 billion3 of LTC insurance contract net liabilities; in 2024, this
transaction is expected to release $1.2 billion of capital4, reducing our risk profile and unlocking significant value for shareholders. With
this transaction and other portfolio optimization efforts, we have released over $10 billion4 of capital since 2018.
1 See “Caution regarding forward-looking statements” above.
2 2017 expense efficiency ratio is a non-GAAP ratio.
3 Insurance contract net liabilities amounts are as at September 30, 2023.
4 Pro-forma. Includes $9 billion of capital release from 2018 to 2022 under IFRS 4, $0.2 billion from 2023 initiatives under IFRS 17, and an estimated $1.2 billion capital release
under IFRS 17 from this transaction to be recognized in 2024.
22 | 2023 Annual Report | Management’s Discussion and Analysis
In 2023, we achieved our 2025 target of less than 15% of core earnings contribution from LTC and VA, two years ahead of schedule.
Contribution to core earnings from these businesses was 12% in 2023, a decrease of 4 percentage points as compared with 2022,
primarily driven by core earnings growth in other businesses and lower combined core earnings from LTC and VA. The decrease in
combined core earnings from LTC and VA was driven by lower CSM recognized and more unfavourable LTC insurance experience in 2023
compared to 2022. The reinsurance transaction noted above is expected to further reduce the core earnings contribution from LTC and VA
by 1 percentage point1. A dedicated team working exclusively on portfolio optimization, and our proactive, disciplined approach in
optimizing the in-force business, are key success factors to these achievements.
We aim to create strategic and financial flexibility to deliver on our Total Shareholder Return objectives by continuing to assess inorganic
options, taking into account policyholder considerations and the impacts to our risk profile and ROE. We are also confident in our ability to
effectively manage the LTC and VA blocks of business to maturity, most importantly by seeking premium increases for LTC for which we
have a strong track record of success1. We are also investing and leveraging technologies to transform the LTC customer experience,
providing significant value to our customers and shareholders.
2023 Highlights
• Entered into an agreement to reinsure $13 billion2 of insurance and investment contract net liabilities:
O
U.S. LTC ($6 billion), and structured settlements ($1.6 billion) and two Japan whole life products ($5.6 billion);
O
In 2024, this transaction is expected to release $1.2 billion3 of capital;
• Released $217 million of capital through various other reinsurance optimization opportunities in 2023; and
• In the LTC business, expanded anti-fraud, waste and abuse initiatives, as well as wellness programs, and began buyout offerings while
continuing to gain approval on the assumed premium increases.
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
Target1
2023
2022
20174
2022 and onwards
1st quartile
1st quartile
2nd quartile
1st quartile
We achieved a top quartile employee engagement rank5 in each of 2020, 2021, 2022 and 2023. Our employee engagement score has
improved steadily from 2017 to 2022, and in 2023 we have maintained our top quartile position.
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.
2023 Highlights
•
Awarded the Gallup Exceptional Workplace Award, recognizing our focus on engagement and prioritization of the employee experience
that creates an authentic, unique culture that empowers our colleague population to do and achieve more;
• Named to Bloomberg’s 2023 Gender-Equality Index for the fifth consecutive year, highlighting our commitment to support gender
equality through policy development, representation, and transparency;
• Recognized globally across various markets by a number of organizations:
O
By Mediacorp Canada Inc. as one of Canada’s Top 100 Employers for the third year in a row, and as one of Canada’s Top Employers
for Young People in 2023;
O
By Forbes as one of Canada’s Best Employers for the seventh consecutive year, one of Canada’s Best Employers for Diversity in
2023, and as one of the World’s Best Employers for the fourth consecutive year; and,
O
By HR Asia as one of the “Best Companies to work for in Asia 2023” across six of our Asian markets6; and
1 See “Caution regarding forward-looking statements” above.
2 Insurance and investment contract net liabilities amounts are as at September 30, 2023.
3 Pro-forma. Estimated capital release under IFRS 17 from this transaction to be recognized in 2024.
4 Starting in 2019, engagement surveys were transitioned to the Gallup methodology.
5 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.
6 mainland China, Hong Kong, Malaysia, Vietnam, Indonesia and the Philippines.
23
• Appointed to the Dow Jones Sustainability North America Index ranking in the 93rd percentile of its GICS® Industry Group, as one of only
eight insurers across North America to be included in the index overall; this recognition underscores our leading sustainable business
practices and proven ability to deliver long-term shareholder value.
Medium-term financial and operating targets1
Core EPS growth of 10% to 12%;
Our medium-term financial targets, as communicated in May 2022, remain unchanged:
•
• Core ROE of 15%+;
• Leverage ratio of 25%;
• Common share core dividend payout ratio2 range of 35% to 45%;
• CSM balance growth of 8% to 10% per year; and
• New business CSM growth of 15% per year.
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.
24
| 2023 Annual Report | Management’s Discussion and Analysis
2. Asia1
Our Asia segment is a leading provider of insurance products and insurance-based wealth accumulation products, driven by a
customer-centric strategy, and 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 12 markets: Hong Kong, Macau, Japan, Bermuda, mainland China, Singapore, Vietnam, Indonesia,
the Philippines, Malaysia, Cambodia, and Myanmar.
We have a diversified multi-channel distribution network, including approximately 98,000 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 our recently extended partnership with Alliance Bank in Malaysia, that give us access to over 35 million
bank customers.
In 2023, our Asia segment contributed 31%2 of the Company’s core earnings from operating segments and, as at December 31, 2023,
accounted for 12% of the Company’s assets under management and administration.
Profitability
Asia reported net income attributed to shareholders of $1,348 million in 2023 compared with net income attributed to shareholders of
$683 million and transitional net income attributed to shareholders of $647 million in 2022. The 2022 transitional net income attributed
to shareholders includes a charge of $36 million from IFRS 9 transitional impacts. Net income attributed to shareholders is comprised of
core earnings, which were $2,048 million in 2023 compared with $1,812 million in 2022, and items excluded from core earnings, which
amounted to a net charge of $700 million for 2023 compared with a net charge of $1,129 million in 2022. Items excluded from core
earnings in 2022 on a transitional basis amounted to a net charge of $1,165 million. See section 13 “Non-GAAP and Other Financial
Measures” below, for a reconciliation of core earnings to net income (loss) attributed to shareholders for 2023 and core earnings and
transitional net income (loss) attributed to shareholders to net income (loss) attributed to shareholders for 2022. 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 $38 million favourable impact due to changes in various 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$995 million in 2023
compared with net income attributed to shareholders of US$516 million and transitional net income attributed to shareholders of US$481
million in 2022. Core earnings were US$1,518 million in 2023 compared with US$1,392 million in 2022 and items excluded from core
earnings amounted to a net charge of US$523 million in 2023 compared with a net charge of US$876 million in 2022. Items excluded
from core earnings in 2022 on a transitional basis were a net charge of US$911 million. Items excluded from core earnings are outlined in
the table below.
Core earnings in 2023 increased 11% compared with 2022, after adjusting for the impact of changes in foreign currency exchange rates.
The changes in core earnings by geography are primarily due to the following:
•
Hong Kong increased 9% driven by improved insurance experience, an increase in expected earnings on insurance contracts, primarily
reflecting the net impact of updates to actuarial methods and assumptions on our CSM and risk adjustment partially offset by slower
CSM amortization on certain VFA contracts, and higher expected investment income due to business growth;
• Singapore increased 15% driven by favourable insurance experience and an increase in CSM amortization reflecting the impact of
updates to actuarial methods and assumptions, partially offset by lower investment results;
• Vietnam increased 23% benefiting from higher investment yields and improved claims experience, partially offset by lower CSM
amortization;
• Mainland China increased 77% reflecting higher expected investment income due to business growth, and improved new business
results on onerous contracts as a result of product actions;
• Other Emerging Markets increased 15% reflecting higher investment yields;
• Japan increased 8% reflecting higher expected investment income due to higher investment yields and business growth; and
• International High Net Worth business decreased 4% due to modestly unfavourable claims experience, partially offset by an increase in
CSM amortization reflecting the impact of updates to actuarial methods and assumptions.
1 Effective January 1, 2023, we have made a change to the composition of reporting segments to better align our financial reporting with our business strategy and operations.
Our international high net worth business was reclassified from the U.S. segment to the Asia segment (in Asia Other) to reflect the contributions of our Bermuda operations
alongside the high net worth business that we report in our Singapore and Hong Kong operations. Refinements were made to the allocations of corporate overhead and interest
on surplus among segments. Prior period comparative information has been restated to reflect the changes in segment reporting.
2 This item is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.
25
The table below presents net income attributed to shareholders (2023 and 2022) and transitional net income attributed to shareholders
(2022) for Asia 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)
Market experience gains (losses)
Realized gains (losses) on debt instruments
Derivatives and hedge accounting ineffectiveness
Actual less expected long-term returns on public equity
Actual less expected long-term returns on ALDA
Other investment results
Changes in actuarial methods and assumptions that flow directly through income
Reinsurance transactions, tax-related items and other
Total items excluded from core earnings
Transitional net income attributed to shareholders
Less: IFRS 9 transitional impacts:
Change in expected credit loss
Hedge accounting
Total IFRS 9 transitional impacts (pre-tax)
Tax on IFRS 9 transitional impacts
Total IFRS 9 transitional impacts (post-tax)
Net income (loss) attributed to shareholders
Canadian $
US $
2023
2022
2023
2022
$ 2,048
$ 1,812
$ 1,518
$ 1,392
(553)
(113)
(264)
12
(72)
(116)
(68)
(79)
(700)
n/a
$ 1,348
(1,141)
(241)
(135)
(488)
42
(319)
(9)
(15)
(1,165)
$ 647
(34)
(80)
(114)
78
(36)
$ 683
(413)
(83)
(197)
8
(54)
(87)
(51)
(59)
(523)
n/a
$ 995
(893)
(183)
(100)
(385)
36
(261)
(7)
(11)
(911)
$ 481
(26)
(71)
(97)
62
(35)
$ 516
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
Business Performance
(All percentages quoted are on a constant exchange rate basis)
APE sales in 2023 were US$3,313 million in 2023, representing an increase of 15% compared with 2022. APE sales increased in
Hong Kong, mainland China, and Singapore, and were partially offset by a decrease in Vietnam and Japan. The increase was led by
demand across various markets in Asia after the lifting of all COVID-19 containment measures in early 2023.
In Hong Kong, APE sales were US$904 million in 2023, a 58% increase compared with 2022, reflecting strong growth in our broker,
bancassurance and agency channels, primarily driven by a return of demand from MCV customers following the reopening of the border
between Hong Kong and mainland China. Mainland China APE sales were US$738 million in 2023, a 62% increase compared with 2022,
reflecting growth in bancassurance and agency channels. Singapore APE sales were US$817 million in 2023, a 4% increase compared
with 2022, reflecting growth in the broker channel. Vietnam APE sales were US$147 million in 2023, a 56% decrease compared with
2022, reflecting a decline in agency and bancassurance channels, driven by the industry and macro-economic environment in this market.
Japan APE sales were US$262 million in 2023, a decrease of 9% compared with 2022, reflecting lower COLI and other wealth sales. Other
Emerging Markets and International High Net Worth business APE sales in 2023 were in line with 2022.
New business value (“NBV”) was US$1,206 million in 2023, an increase of 3% compared with 2022. NBV was higher in Hong Kong,
mainland China, Japan, and our International High Net Worth business, partially offset by lower NBV in Vietnam, Singapore, and Other
Emerging Markets.
•
In Hong Kong, NBV was US$538 million in 2023, a 20% increase compared with 2022, reflecting higher sales volumes, partially offset
by a higher proportion of lower margin savings products.
• In mainland China, NBV was US$111 million in 2023, a 139% increase compared with 2022, reflecting higher sales volumes and
product mix.
• In Japan, NBV was US$117 million in 2023, an increase of 22% compared with 2022 due to product mix and management actions,
partially offset by lower sales volume.
• NBV of International High Net Worth business was US$155 million in 2023, an 8% increase compared with 2022 due to product mix.
• In Vietnam, NBV was US$25 million in 2023, an 86% decrease compared with 2022, reflecting lower sales volumes and the impact of
updates to actuarial methods and assumptions.
• In Singapore, NBV was US$207 million in 2023, a 2% decrease compared with 2022 due to increase in the cost of reinsurance,
partially offset by higher sales volumes and product mix.
• NBV of Other Emerging Markets was US$53 million, a 4% decrease compared with 2022 due to changes in product mix.
26 | 2023 Annual Report | Management’s Discussion and Analysis
The new business value margin (“NBV margin”)1 was 41.2% in 2023, a decrease of 3.3 percentage points compared with 2022.
New business CSM was US$1,148 million in 2023, a 16% increase compared with 2022. New business CSM was higher in Hong Kong,
mainland China, Singapore, the International High Net Worth business and Other Emerging Markets, partially offset by lower new business
CSM in Vietnam and Japan.
•
In Hong Kong, new business CSM was US$501 million in 2023, a 49% increase compared with 2022, reflecting higher sales volumes
and the impact of updates to actuarial methods and assumptions, partially offset by higher proportion of lower margin savings
products.
• In mainland China, new business CSM was US$103 million in 2023, a nine-fold increase compared with the US$10 million reported in
2022, reflecting higher sales volumes, product mix and the impact of updates to actuarial methods and assumptions.
• In Singapore, new business CSM was US$181 million in 2023, a 21% increase compared with 2022, reflecting higher sales volumes,
product mix and the impact of updates to actuarial methods and assumptions.
• New business CSM of International High Net Worth business was US$172 million in 2023, a 15% increase compared with 2022,
reflecting product mix.
• New business CSM of Other Emerging Markets was US$34 million, a 59% increase compared with 2022, reflecting product mix and the
impact of updates to actuarial methods and assumptions.
• In Vietnam, new business CSM was US$64 million in 2023, a 73% decrease compared with 2022, reflecting lower sales volumes and
the impact of updates to actuarial methods and assumptions.
• In Japan, new business CSM was US$93 million in 2023, a decrease of 7% compared with 2022 due to lower sales volume and model
refinements, partially offset by product mix.
CSM net of NCI was US$9,570 million as at December 31, 2023, an increase of US$2,760 million net of a US$141 million increase
attributed to NCI compared with December 31, 2022. Organic CSM movement was an increase of US$537 million in 2023 driven by the
impact of new insurance business and expected movements related to finance income or expenses, partially offset by amounts recognized
for service provided in 2023 earnings and a net reduction from insurance experience. Inorganic CSM movement was an increase of
US$2,223 million in 2023 largely due to changes in actuarial methods and assumptions that adjust the CSM.
Business Performance
For the years ended December 31,
($ millions)
Annualized premium equivalent sales
New business value
New business contractual service margin net of NCI
Contractual service margin net of NCI
Canadian $
US $
2023
2022
2023
2022
$ 4,469
$ 1,627
$ 1,549
$ 12,617
$ 3,793
$ 1,537
$ 1,309
$ 9,420
$ 3,313
$ 1,206
$ 1,148
$ 9,570
$ 2,920
$ 1,181
$ 1,006
$ 6,951
Assets under Management2 (“AUM”)
Asia’s assets under management were US$128.4 billion as at December 31, 2023, an increase of US$13.2 billion or 13% compared with
December 31, 2022. The increase was driven by lower interest rates and positive equity market performance in 2023 on invested assets
and segregated funds net assets, and business growth.
Assets under Management
As at December 31,
($ millions)
Total invested assets
Segregated funds net assets
Total assets under management
Canadian $
US $
2023
2022
2023
2022
$ 144,433
24,854
$ 169,287
$ 132,808
23,227
$ 156,035
$ 109,533
18,846
$ 128,379
$ 98,007
17,138
$ 115,145
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 12 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 20303 driving continued demand for
financial solutions.
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.
3 Closing Asia’s mortality protection gap, Swiss Re, July 2020.
27
We continued to invest in our diversified distribution platform to accelerate growth. In 2023 we:
•
Continued to enhance our MCV capabilities to complement our prominent domestic franchise in Hong Kong with support from the
launch of an expanded hospital network covering more than 3,000 hospitals in mainland China and the opening of our second prestige
service centre in Hong Kong. Our continued investments in MCV capabilities have contributed to robust MCV APE sales in 2023, more
than double that of our 2019 pre-pandemic levels;
• Launched a unified high net worth onboarding platform in Bermuda, Hong Kong, and Singapore. The new platform makes new business
application, underwriting and compliance processes simpler and faster, enabling more streamlined interactions and an overall
enhanced experience for both our brokers and customers;
• Continued to drive agency productivity and professionalization across the region, with the initial roll out of Manulife Pro in Singapore
and Vietnam, a comprehensive premier recognition and activation program, providing selected agents with differentiated resources and
tools, including dedicated underwriting support and enhanced customer engagement services with access to customer leads; and
• Further leveraged our exclusive partnership with a general insurer to generate cross-referrals in Hong Kong by promoting our partner’s
travel insurance solutions, capturing the increased demand for travel post-pandemic. This has provided us with a further opportunity to
address the life insurance needs of our customers.
In 2023, we continued to invest in our digital capabilities to enhance the customer and distributor experience.
•
Completed Phase 1 of the policy administration system modernization in mainland China, launching new business and underwriting
modules on the new cloud-native solution, together with the seamless data migration of more than three million customers. This
enables scale and efficiency, and lays the foundation for improved customer, distributor and partner experience; this milestone will
enable faster speed to market through collaborative product development and easier integration with our digital partners’ ecosystems;
• Made it easier for customers to manage their policies through the continued enhancement of our voice bot capabilities at our contact
center in Japan, including the migration of our telephony systems to Amazon Connect1. This has contributed to a year-over-year
13 percentage point increase in 2023 in the proportion of customer-initiated interactions that are handled by interactive voice response
system without any human intervention; and
• Enhanced customer experience at point of sales in Vietnam through the roll-out of a first-in-market digital pre-issuance verification tool,
providing customers with an easier way to review their policy before issuance, and ensure that it fully addresses their insurance needs.
In addition, in 4Q23 we entered into an agreement to reinsure two whole-life products in Japan, representing insurance contract net
liabilities of $5.6 billion as of September 30, 2023, as part of a reinsurance transaction with Global Atlantic that includes legacy long-term
care and structured settlement businesses in the U.S.
We continued to maintain a diverse and engaged 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 2023” in six of our Asian markets—mainland China, Hong Kong, Malaysia, Vietnam,
Indonesia and the Philippines.
1 Amazon Connect from Amazon Web Services Inc.
28 | 2023 Annual Report | Management’s Discussion and Analysis
3. Canada1
Our Canada segment is a leading financial services provider, offering insurance products, insurance-based wealth accumulation
and decumulation 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 27,000 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 2023, our Canada segment contributed 22% of the Company’s core earnings from operating segments and, as at December 31, 2023,
accounted for 11% of the Company’s assets under management and administration.
Profitability
Canada’s reported net income attributed to shareholders of $1,191 million in 2023 compared with a net loss attributed to shareholders of
$503 million and transitional net income attributed to shareholders of $1,198 million in 2022. The 2022 transitional net income includes
a gain of $1,701 million from IFRS 9 transitional impacts. Net income attributed to shareholders is comprised of core earnings, which were
$1,487 million in 2023 compared with $1,387 million in 2022, and items excluded from core earnings, which amounted to a net charge of
$296 million in 2023 compared with a net charge of $1,890 million in 2022. Items excluded from core earnings in 2022 on a transitional
basis amounted to a net charge of $189 million. Items excluded from core earnings are outlined in the table below. See section 13 “Non-
GAAP and Other Financial Measures” below, for a reconciliation of core earnings to net income (loss) attributed to shareholders for 2023
and core earnings and transitional net income (loss) attributed to shareholders to net income (loss) attributed to shareholders for 2022.
The $100 million increase in core earnings was driven by more favourable insurance experience, higher expected investment earnings
from higher yields and business growth, and business growth in Group Insurance, partially offset by slower CSM amortization on certain
VFA contracts.
The table below presents net income attributed to shareholders (2023 and 2022) and transitional net income attributed to shareholders
(2022) for Canada consisting of core earnings and items excluded from core earnings.
For the years ended December 31,
($ millions)
Core earnings
Items excluded from core earnings:(1)
Market experience gains (losses)
Realized gains (losses) on debt instruments
Derivatives and hedge accounting ineffectiveness
Actual less expected long-term returns on public equity
Actual less expected long-term returns on ALDA
Other investment results
Changes in actuarial methods and assumptions that flow directly through income
Reinsurance transactions, tax-related items and other
Total items excluded from core earnings
Transitional net income attributed to shareholders
Less: IFRS 9 transitional impacts:
Change in expected credit loss
Hedge accounting
Total IFRS 9 transitional impacts (pre-tax)
Tax on IFRS 9 transitional impacts
Total IFRS 9 transitional impacts (post-tax)
Net income (loss) attributed to shareholders
2023
2022
$ 1,487
$ 1,387
(341)
(10)
65
(13)
(327)
(56)
41
4
(296)
n/a
(196)
(74)
93
(90)
(278)
153
47
(40)
(189)
$ 1,198
(22)
2,690
2,668
(967)
1,701
(503)
$ 1,191
$
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
1 Effective January 1, 2023, refinements were made to the allocations of corporate overhead and interest on surplus among segments. Prior period comparative information has
been restated to reflect the changes in segment reporting.
29
Business Performance
APE sales were $1,409 million in 2023, an increase of 12% compared with 2022. Individual Insurance APE sales of $564 million in 2023
increased 36% compared with 2022, driven by a large affinity markets sale, partially offset by lower participating insurance sales. Group
Insurance APE sales of $644 million in 2023 increased 12% compared with 2022, reflecting higher sales in all group benefits markets.
Annuities APE sales of $201 million in 2023 decreased 26% compared with 2022, primarily due to lower sales of segregated fund
products, partially offset by higher fixed product sales.
CSM was $4,060 million as at December 31, 2023, an increase of $385 million compared with December 31, 2022. Organic CSM
movement was an increase of $71 million in 2023 driven by the impact of new insurance business, expected movements related to finance
income or expenses, and insurance experience gains, partially offset by amounts recognized for service provided in 2023 earnings.
Inorganic CSM movement was an increase of $314 million in 2023 largely due to changes in actuarial methods and assumptions, partially
offset by the unfavourable impact of markets, primarily driven by high interest rates on certain variable annuity contracts.
Manulife Bank average net lending assets1 were $25.1 billion in 2023, up $0.9 billion or 4% compared with 2022, driven by improved
retention and business growth.
Business Performance
For the years ended December 31,
($ millions)
APE sales
Contractual service margin
Manulife Bank average net lending assets(1)
2023
2022
$
1,409
4,060
$
$ 25,050
$
1,261
3,675
$
$ 24,113
(1) This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
Assets under Management
Canada’s assets under management of $147.5 billion as at December 31, 2023 increased $4.9 billion or 3% from $142.6 billion as at
December 31, 2022, due to higher total invested assets from business growth and the impact of changes in interest rates.
Assets under Management
As at December 31,
($ millions)
Total invested assets
Segregated funds net assets
Total assets under management
2023
2022
$ 111,456
36,085
$ 147,541
$ 106,929
35,695
$ 142,624
Strategic Highlights
We added innovative customer-centric enhancements across our product shelf and formed key external partnerships to help Canadians
focus on improving their health and wellness. During 2023, we:
• Improved our customer experiences across our various businesses:
O
Grew our annual Manulife mobile app downloads by 18%, supported by upgrades designed to enhance our customers’ digital
experience and a successful communication campaign highlighting the ease and speed of online claims submissions;
O Expanded our Personalized Medicine program to all group benefits extended healthcare plans, making this service available to more
customers, while enabling them to learn about medications that best meet their needs and work with healthcare providers on
customized treatment plans that can lead to better outcomes; and
O Increased our use of Amazon Connect2, which enabled a more holistic digital customer experience and drove operational efficiency.
This contributed to a 25% reduction of call transfer rates year over year for contact centres that had moved to Amazon Connect;
• Established strategic partnerships to provide meaningful and customized health and wellness information to our clients:
O
Partnered with League, a leading healthcare technology provider, to offer our group benefits members more personalized and
integrated digital healthcare experiences, enabling them to connect their benefits directly with healthcare options; and
O Partnered with Cleveland Clinic Canada, using its global healthcare expertise to enhance product offering and services to over five
million group benefits plan members, including their families, by providing industry research, thought leadership, and education
materials; and
• Re-entered the individual payout annuities market in Canada to new sales, reflecting our commitment to better address our customers’
demand for stable income with an enhanced suite of products for Canadians seeking retirement income solutions.
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.
Amazon Connect from Amazon Web Services Inc.
2
30 | 2023 Annual Report | Management’s Discussion and Analysis
4. U.S.1
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 customers with estate, business and income-protection solutions, and to
leverage the asset management expertise and products managed by our Global Wealth and Asset Management segment. The
primary distribution channel of our products is licensed financial advisors. We aim to establish lifelong customer relationships that
benefit from our holistic protection and wealth product offerings.
As a life insurer, we believe we can and should help our customers live longer, healthier, better lives, and are a leader in making
behavioural insurance features standard on all our insurance product offerings. Those features are primarily available through the
John Hancock Vitality Program, which rewards customers for the everyday steps they take toward better long-term health. The
program is underpinned by a network of companies, including Verily, Amazon, Apple, GRAIL, and ŌURA, who share our commitment
to helping people gain a better understanding of their personal health and achieve better outcomes.
Our in-force business includes long-term care insurance policies which provide coverage for the cost of long-term services and
support, and fixed deferred, variable deferred, and payout annuity products.
In 2023, our U.S. segment contributed 27% of the Company’s core earnings from operating segments and, as at December 31, 2023,
accounted for 15% of the Company’s assets under management and administration.
Profitability
U.S. reported net income attributed to shareholders of $639 million in 2023 compared with a net loss attributed to shareholders of
$2,316 million and transitional net income attributed to shareholders of $1,448 million in 2022. The 2022 transitional net income
includes a gain of $3,764 million from IFRS 9 transitional impacts. Net income attributed to shareholders is comprised of core earnings,
which was $1,759 million in 2023 compared with $1,566 million in 2022, and items excluded from core earnings, which amounted to a
net charge of $1,120 million in 2023 compared with a net charge of $3,882 million in 2022. Items excluded from core earnings in 2022
on a transitional basis amounted to a net charge of $118 million. See section 13 “Non-GAAP and Other Financial Measures” below, for a
reconciliation of core earnings to net income (loss) attributed to shareholders for 2023 and core earnings and transitional net income
(loss) attributed to shareholders to net income (loss) attributed to shareholders for 2022. The changes in core earnings expressed in
Canadian dollars were due to the factors described below and additionally, reflected a $60 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, net income attributed to shareholders was US$473 million in 2023
compared with a net loss attributed to shareholders of US$1,809 million and transitional net income attributed to shareholders of
US$1,139 million in 2022. Core earnings were US$1,304 million in 2023 compared with US$1,202 million in 2022 and items excluded
from core earnings amounted to a net charge of US$831 million in 2023 compared with a net charge of US$3,011 million in 2022. Items
excluded from core earnings on a transitional basis in 2022 were a net charge of US$63 million. Items excluded from core earnings are
outlined in the table below.
The US$102 million or 8% increase in core earnings was driven by increased expected investment earnings due to higher investment yields
and business growth as well as improved, although unfavourable, net insurance experience primarily driven by the non-recurrence of
excess mortality claims related to COVID-19 in the first quarter of 2022. These impacts were partially offset by an increase in the ECL
provision in 2023 primarily related to certain commercial mortgages, electric utility bonds and private placements compared with a
reduction in the provision in 2022, and lower CSM recognized into earnings. The lower CSM recognized is due to a slower CSM
amortization on certain VFA contracts, the reinsurance of a significant portion of the variable annuities block in the prior year, and the
impact of the update of actuarial methods and assumptions. Long-term care insurance experience included in core earnings was more
unfavourable in 2023 compared with 2022.
1 Effective January 1, 2023, we have made a number of changes to the composition of reporting segments to better align our financial reporting with our business strategy and
operations. Our international high net worth business was reclassified from U.S. Insurance in the U.S. segment to the Asia segment to reflect the contributions of our Bermuda
operations alongside the high net worth business that we report in our Singapore and Hong Kong operations. Refinements were made to the allocations of corporate overhead
and interest on surplus among segments. Prior period comparative information has been restated to reflect the changes in segment reporting.
31
The table below presents net income attributed to shareholders (2023 and 2022) and transitional net income attributed to shareholders
(2022) for the U.S. consisting of core earnings and items excluded from core earnings.
For the years ended December 31,
($ millions)
Core earnings
Items excluded from core earnings:(1)
Market experience gains (losses)
Realized gains (losses) on debt instruments
Derivatives and hedge accounting ineffectiveness
Actual less expected long-term returns on public equity
Actual less expected long-term returns on ALDA
Other investment results
Changes in actuarial methods and assumptions that flow directly through income
Reinsurance transactions, tax-related items and other
Total items excluded from core earnings
Transitional net income attributed to shareholders
Less: IFRS 9 transitional impacts:
Change in expected credit loss
Hedge accounting
Total IFRS 9 transitional impacts (pre-tax)
Tax on IFRS 9 transitional impacts
Total IFRS 9 transitional impacts (post-tax)
Net income (loss) attributed to shareholders
Canadian $
US $
2023
2022
2023
2022
$ 1,759
$ 1,566
$ 1,304
$ 1,202
(1,196)
(6)
(14)
6
(1,212)
30
132
(56)
(1,120)
n/a
$
639
(93)
(426)
285
(136)
167
17
(12)
(13)
(118)
$ 1,448
19
4,745
4,764
(1,000)
3,764
$ (2,316)
(887)
(5)
(10)
5
(899)
22
98
(42)
(831)
n/a
$
473
(44)
(325)
225
(107)
150
13
(9)
(10)
(63)
$ 1,139
14
3,718
3,732
(784)
2,948
$ (1,809)
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
Business Performance
U.S. APE sales of US$416 million in 2023 decreased 10% compared with 2022 due to the adverse impact of higher short-term interest
rates on accumulation insurance products for most of 2023, particularly for our affluent customers. APE sales of products with the John
Hancock Vitality PLUS feature decreased 5%, and represented 75% of overall U.S. sales compared with 72% in 2022.
CSM was US$2,828 million as at December 31, 2023, a decrease of US$225 million compared with December 31, 2022. Organic CSM
movement was an increase of US$88 million in 2023 driven by the impact of new insurance business and expected movements related to
finance income or expenses, partially offset by amounts recognized for service provided in 2023 earnings and a net reduction from
insurance experience. The net reduction in insurance experience was modestly unfavourable, with unfavourable life experience offset by
favourable long-term care experience. Inorganic CSM movement was a decrease of US$313 million in 2023 due to changes in actuarial
methods and assumptions primarily related to life insurance, partially offset by favourable market impacts from equity market experience
and higher interest rates mainly on variable annuity contracts.
Business Performance
For the years ended December 31,
($ millions)
APE sales
Contractual service margin
Canadian $
US $
2023
562
3,738
$
$
2022
599
4,136
$
$
2023
416
2,828
$
$
2022
461
3,053
$
$
Assets under Management
U.S. assets under management of US$154 billion as at December 31, 2023 increased 5% from December 31, 2022. The increase in total
invested assets and segregated funds net assets was primarily due to the net impact from interest rate and equity markets.
Assets under Management
As at December 31,
($ millions)
Total invested assets
Segregated funds net assets
Total assets under management
32
| 2023 Annual Report | Management’s Discussion and Analysis
Canadian $
US $
2023
2022
2023
2022
$ 133,959
68,585
$ 202,544
$ 133,635
65,490
$ 199,125
$ 101,592
52,014
$ 153,606
$ 98,628
48,333
$ 146,961
Strategic Highlights
At John Hancock, we are focused on growing our insurance business by expanding our product offerings, modernizing the buying and
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 2023, we:
•
Entered into an agreement to reinsure approximately $6.0 billion of long-term care and $1.6 billion of structured settlements insurance
and investment contract net liabilities1 with Global Atlantic as noted above. This is the largest ever long-term care reinsurance
transaction;
• Expanded our reach into the employer market by introducing a Premier Benefit Indexed Universal Life product. This permanent life
insurance product, available through the workplace, offers a streamlined digital process for employees to purchase individual coverage
and includes our John Hancock Vitality PLUS feature;
• Furthered our mission of helping customers live longer, healthier, better lives and differentiating ourselves from other U.S. life
insurance carriers by hosting ‘Longer.Healthier.Better.’ – the first longevity symposium in the industry – that brought together 250 life
insurance brokers, leadership from reinsurance companies, media, and local government officials to give them a first-hand look at the
innovations and science shaping the future of longevity;
• Launched a distribution relationship with JPMorgan Chase & Co. enabling new sales of our suite of products, including our John
Hancock Vitality Program, through its network of more than 6,900 advisors; and
• Enhanced our John Hancock Vitality Program by extending eligibility to access GRAIL’s Galleri® multi-cancer early detection test to
additional members, expanding eligibility for preventative care and early detection behaviours through annual skin cancer screenings,
and introducing a personalized way to incentivize members to be more physically active through a new Active Rewards feature.
In 2023, we achieved the following digital successes, improving the producer and customer experience while also contributing to a more
cost-efficient operation:
• Optimized the customer registration experience across our customer websites resulting in a 26% increase in online registrations in
2023, contributing to a 19% improvement in unique website traffic;
• Eliminated over 7.8 million pieces of paper and mail by automating key back-end processes and increasing digital communications,
including our first e-delivery of life insurance policy prospectuses;
• Enhanced our interactive voice response authentication enabling 29% of inbound calls to be completed with no human interaction; and
• Created a more seamless, digital customer experience through the launch of single sign-on for John Hancock Vitality Program members
between John Hancock Life and Vitality websites as well as the expansion of our JH.com Enterprise Chatbot’s self-service capabilities.
Our focus on continual digital improvements contributed to being recognized by LIBRA Insurance Partners, the largest independently
owned life insurance marketing organization in the U.S.2, as one of the carriers who provide a best-in-class experience on an electronic
platform for permanent life insurance products.
1 Insurance and investment contract net liabilities amounts are as at September 30, 2023.
2 Based on gross annual production according to Paradigm Partners International, a third-party research firm specializing in the insurance landscape.
33
5. Global Wealth and Asset Management1
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 geographies2, including 10 in Asia where we have over 120 years of on-the
ground experience in the region.
In Retirement, we provide financial guidance, advice, investment solutions and recordkeeping services to nearly 9 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 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.
Sustainable asset management is integral to our investment approach. We believe that identifying and assessing material
sustainability factors helps us manage systemic risks and explore related investment opportunities for our clients. We endeavor to
enhance the resiliency of our clients’ assets through our robust program of stewardship, which includes company engagement,
responsible asset operations, and participation in the development of global sustainability standards.
In 2023, our Global WAM segment contributed 20% of the Company’s core earnings from operating segments and, as at December 31,
2023, represented 61% of the Company’s total assets under management and administration.
Profitability
Global WAM’s net income attributed to shareholders was $1,297 million in 2023 compared with $1,121 million in 2022, and core earnings
were $1,321 million in 2023 compared with $1,299 million in 2022. Items excluded from core earnings are outlined in the table below and
amounted to a net charge of $24 million in 2023 compared with a net charge of $178 million in 2022. See section 13 “Non-GAAP and
Other Financial Measures” below, for a reconciliation of quarterly core earnings to net income (loss) attributed to shareholders for 2023
and quarterly core earnings and transitional net income (loss) attributed to shareholders to net income (loss) attributed to shareholders for
2022.
Core earnings increased $22 million, a decline of 1% compared with 2022 on a constant exchange rate basis. An increase in performance-
related costs and lower earnings from seed capital investments due to repatriations were offset by growth in net fee income, from higher
fee spreads and average AUMA, as well as higher performance fees in Institutional Asset Management, and a lower effective tax rate in
2023.
1 Effective January 1, 2023, we have made a number of changes to the composition of reporting segments to better align our financial reporting with our business strategy and
operations. Our investment in the start-up capital of segregated and mutual funds, and investment-related revenue and expense were reclassified from the Corporate and Other
segment to the Global WAM segment to more closely align with Global WAM’s management practices. Refinements were made to the allocations of corporate overhead and
interest on surplus among segments. Prior period comparative information has been restated to reflect the changes in segment reporting.
2 United States, Canada, Japan, Hong Kong, Singapore, Taiwan, Indonesia, Vietnam, Malaysia, India, the Philippines, England, Ireland, Switzerland, Germany, and mainland
China. In addition, we have timberland/farmland operations in Australia, New Zealand, and Chile.
34
| 2023 Annual Report | Management’s Discussion and Analysis
The table below presents net income attributed to shareholders for the Global WAM segment for 2023 and 2022 consisting of core
earnings and items excluded from core earnings.
For the years ended December 31,
($ millions)
Core earnings
Retirement
Retail
Institutional
Core earnings
Items excluded from core earnings:(1)
Market experience gains (losses)
Realized gains (losses) on debt instruments
Derivatives and hedge accounting ineffectiveness
Actual less expected long-term returns on public equity
Actual less expected long-term returns on ALDA
Other investment results
Reinsurance transactions, tax-related items and other
Total items excluded from core earnings
Net income attributed to shareholders
2023
2022
$
745
502
74
1,321
$
673
571
55
1,299
10
–
–
10
–
–
(34)
(24)
$ 1,297
(260)
–
–
(260)
–
–
82
(178)
$ 1,121
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
In 2023, core EBITDA1 for Global WAM was $1,771 million, $450 million higher than core earnings. In 2022, core EBITDA was $1,773
million, $474 million higher than core earnings. Core EBITDA decreased $2 million or 2%, compared with 2022, driven by higher
performance-related costs and lower earnings from seed capital investments, partially offset by higher net fee income.
Core EBITDA margin2 was 24.9% in 2023 compared with 27.2% in 2022. The 230 basis point decrease was primarily driven by higher
performance-related costs. See section 13 “Non-GAAP and Other Financial Measures” below, for additional information on core EBITDA and
core EBITDA margin.
Core EBITDA
For the years ended December 31,
($ millions)
Core earnings
Amortization of deferred acquisition costs and other depreciation
Amortization of deferred sales commissions
Core income tax expenses (recoveries)
Core EBITDA
Core EBITDA margin (%)
Business Performance
2023
2022
$ 1,321
166
80
204
$ 1,771
24.9%
$ 1,299
154
98
222
$ 1,773
27.2%
Gross Flows and Net Flows
Gross flows were $143.4 billion in 2023, an increase of 2% compared with 2022. By business line, the results were:
• Retirement gross flows were $55.4 billion in 2023, an increase of 3% compared with 2022, driven by growth in member contributions.
• Retail gross flows were $60.7 billion in 2023, a decrease of 12% compared with 2022, reflecting lower demand as investors continued
to favor short-term cash and money market instruments amid market volatility and higher interest rates. This was partially offset by
higher gross flows in mainland China where full year 2023 gross flows reflected the impact of acquiring full ownership interest of MFM
in 4Q22 and the launch of our Global Semiconductors strategy in Japan in 3Q23.
• Institutional Asset Management gross flows were $27.3 billion in 2023, an increase of 57% compared with 2022, driven by higher
sales in mainland China and the impact of acquiring full ownership interest of MFM as noted above, new product launches totaling $1.6
billion in 2023 and higher sales of real estate, private equity and credit mandates.
Net inflows were $4.5 billion in 2023, compared with net inflows of $3.2 billion in 2022. By business line, the results were:
• Retirement net outflows were $4.0 billion in 2023 compared with net outflows of $0.1 billion in 2022, driven by large case pension plan
redemptions by a single sponsor in the U.S. in 3Q23 and 4Q23. This was partially offset by growth in member contributions.
• Retail net outflows were $0.5 billion in 2023 compared with net outflows of $1.6 billion in 2022, driven by lower mutual fund
redemption rates and the launch of our Global Semiconductors strategy in Japan in 3Q23. This was partially offset by lower demand as
investors continued to favour short-term cash and money market instruments amid market volatility and higher interest rates.
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.
35
• Institutional Asset Management net inflows were $9.0 billion in 2023 compared with net inflows of $4.9 billion in 2022, driven by
higher net inflows of timberland, real estate, private equity and credit mandates, the impact of acquiring full ownership interest of MFM,
as well as new product launches totaling $1.6 billion in 2023.
Gross Flows and Net Flows
For the years ended December 31,
($ millions)
Gross flows
Net flows
2023
2022
$ 143,389
4,548
$
$ 136,933
3,189
$
Assets under Management and Administration
As of December 31, 2023, AUMA for our wealth and asset management businesses were $849.2 billion, an increase of 11% compared with
December 31, 2022, driven by the net impact of interest rates and equity markets, and net inflows. As of December 31, 2023, Global WAM
also managed $205.8 billion in assets for the Company’s non-WAM reporting segments. Including those assets, AUMA managed by Global
WAM1 were $1,055.0 billion compared with $984.3 billion as at December 31, 2022.
Segregated funds net assets were $248.1 billion for December 31, 2023, 11% higher compared with December 31, 2022 on an actual
exchange rate basis, driven by the favourable net impact of interest rates and equity markets. Total invested assets in our general fund
form a small portion of Global WAM AUMA.
Changes in Assets under Management and Administration
For the years ended December 31,
($ millions)
Balance January 1,
Acquisitions/Dispositions
Net flows
Investment income (loss) 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
2023
2022
$ 782,340
(410)
4,548
62,685
$ 849,163
$ 812,662
$ 855,926
8,789
3,189
(85,564)
$ 782,340
$ 790,268
2023
2022
$
7,090
248,066
411,961
667,117
182,046
$ 849,163
$
5,752
224,190
381,630
611,572
170,768
$ 782,340
(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.
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 2023, we:
• Entered an agreement to acquire multi-sector alternative credit manager CQS, headquartered in London. The acquisition will give MIM
and CQS clients enhanced access to our combined global investment solutions. We will retain CQS’s rigorous investment philosophy
and process and bring its differentiated capabilities to new investors by leveraging our global footprint. The CQS credit platform has
approximately $18.8 billion in assets under management as of October 31, 2023, and the transaction is expected to close in the first
half of 2024 subject to customary closing conditions and regulatory approvals; and
• Continued to meet investor needs for wealth solutions through the expansion of our product offerings with the launch of the Global
Semiconductors strategy in Japan Asia Retail which garnered more than $0.8 billion in net flows since its launch in 3Q23.
1 This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below.
36 | 2023 Annual Report | Management’s Discussion and Analysis
We continued to make progress on our digital customer leader strategy. In 2023, we:
• Continued to enhance and broaden our wealth planning and advice business in Canada Retail through strategic agreements with
Fidelity Clearing Canada and Envestnet that will provide access to leading advisory technology and portfolio management platforms,
which combined will deliver an enhanced digital client experience and improved advisor productivity;
• Increased our mobile application user count in Canada Retirement by 38% in 2023 following the delivery of new features (fund switch
and TFSA lump sum contributions) and experience enhancements (deep linking and personalized nudges enhancements);
• Continued to improve “Join Now”, our digital enrolment process in Canada Retirement, with features that have enabled us to deploy it to
92% of eligible sponsors, representing an increase of 10% compared with 2022. This contributed to 49,500 new digital enrolments in
2023; and
• Accelerated customer adoption of digital applications in Canada Retirement through our “Say Goodbye to Paper” campaign which
contributed to a 165% increase in members converting to e-statements over the campaign period, which spanned from June to August,
and an increase in satisfaction with their digital experience.
In addition, we received numerous industry awards and recognition in 2023. Most notably, Institutional Asset Management was recognized
as the world’s largest natural capital investment manager1 by IPE Real Assets. Our Hong Kong Retirement business won a total of 19
awards in “The 2023 MPF Awards”, including “People’s Choice” for the fifth consecutive year, and our U.S. Retail’s thought leadership
content, Market Intelligence, was named “Digital Marketing Campaign of the Year” at the With Intelligence Mutual Fund & ETF Awards.
1 Ranking based on total Natural Capital AUM, which includes forestry/timberland and agriculture/farmland AUM.
37
6. Corporate and Other1
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. In addition, for segment reporting purposes, consolidations and eliminations of transactions between operating
segments are also included in Corporate and Other earnings.
Profitability
Corporate and Other reported net income attributed to shareholders of $628 million in 2023 compared with a net loss attributed to
shareholders of $918 million and a transitional net loss attributed to shareholders of $916 million in 2022. The 2022 transitional net loss
includes a gain of $2 million from IFRS 9 transitional impacts. Net income (loss) attributed to shareholders is comprised of core earnings
and items excluded from core earnings. Core earnings was $69 million in 2023 compared with a core loss of $263 million in 2022. Items
excluded from core earnings amounted to a net gain of $559 million in 2023 compared with a net charge of $655 million in 2022. Items
excluded from core loss in 2022 on a transitional basis amounted to a net charge of $653 million. Items excluded from core earnings are
outlined in the table below. See section 13 “Non-GAAP and Other Financial Measures” below, for a reconciliation of core earnings to net
income (loss) attributed to shareholders for 2023 and core earnings and transitional net income (loss) attributed to shareholders to net
income (loss) attributed to shareholders for 2022.
The favourable variance in core earnings of $332 million was primarily attributable to the non-recurrence of a $256 million charge in our
P&C Reinsurance business for estimated losses relating to Hurricane Ian in 2022 followed by favourable updates to our prior years’
hurricane provisions of $95 million in 2023 and higher yields on debt instruments, net of higher cost of debt financing. These items were
partially offset by higher core expenses due to performance-related costs as well as investments in technology.
The table below presents net income (loss) attributed to shareholders (2023 and 2022) and transitional net income (loss) attributed to
shareholders (2022) for Corporate and Other consisting of core earnings (loss) and items excluded from core earnings (loss).
For the years ended December 31,
($ millions)
Core earnings (loss)
Items excluded from core earnings (loss):
Market experience gains (losses)
(1)
Realized gains (losses) on debt instruments
Derivatives and hedge accounting ineffectiveness
Actual less expected long-term returns on public equity
Actual less expected long-term returns on ALDA
Other investment results
Changes in actuarial methods and assumptions that flow directly through income
Reinsurance transactions, tax-related items and other
Total items excluded from core earnings (loss)
Transitional net income (loss) attributed to shareholders
Less: IFRS 9 transitional impacts:
Change in expected credit loss
Hedge accounting
Total IFRS 9 transitional impacts (pre-tax)
Tax on IFRS 9 transitional impacts
Total IFRS 9 transitional impacts (post-tax)
Net income (loss) attributed to shareholders
2023
2022
$ 69
$ (263)
290
(1)
61
88
(12)
154
–
269
559
n/a
$ 628
(895)
(420)
24
(317)
(26)
(156)
–
242
(653)
$ (916)
2
1
3
(1)
2
$ (918)
(1) For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.
Strategic Highlights
Our P&C Reinsurance business provides substantial retrocessional capacity for a 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 2024 for a single event to be approximately US$250 million (net
of reinstatement premiums) and for multiple events to be approximately US$500 million (net of all premiums).2
1 Effective January 1, 2023, we have made a number of changes to the composition of reporting segments to better align our financial reporting with our business strategy and
operations. Our investment in the start-up capital of segregated and mutual funds, and investment-related revenue and expense were reclassified from the Corporate and Other
segment to the Global WAM segment to more closely align with Global WAM’s management practices. Refinements were made to the allocations of corporate overhead and
interest on surplus among segments. Prior period comparative information has been restated to reflect the changes in segment reporting.
2 See “Caution regarding forward-looking statements” above.
38
| 2023 Annual Report | Management’s Discussion and Analysis
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, 2023, our general fund invested assets totaled $417.2 billion compared with $400.1 billion at the end of 2022. The
following table shows the asset class composition as at December 31, 2023 and December 31, 2022.
As at December 31,
($ billions)
Cash and short-term securities
Debt securities and private placement debt
Government bonds
Corporate bonds
Mortgage / asset-backed securities
Private placement debt
Mortgages
Loans to Bank clients
Public equities
Alternative long-duration assets (“ALDA”)
Real estate
Infrastructure
Timber and agriculture
Private equity
Energy
Various other ALDA
Leveraged leases and other
Total general fund invested assets
2023
2022
Carrying value
% of total
Fair value
Carrying value
% of total
Fair value
$ 20.3
5
$ 20.3
$ 19.2
5 $ 19.2
80.1
130.1
2.0
45.6
52.4
2.4
25.5
13.0
15.0
5.7
15.4
1.9
3.5
4.3
$ 417.2
19
31
1
10
13
1
6
3
3
1
4
1
1
1
100
79.9
129.9
2.0
45.6
52.3
2.4
25.5
13.2
15.3
6.3
15.4
1.9
3.4
4.3
$ 417.7
72.5
129.1
2.3
42.0
51.8
2.8
23.5
14.3
12.8
5.9
14.2
2.3
3.2
4.2
$ 400.1
18
32
1
10
13
1
6
4
3
1
3
1
1
1
100
72.2
129.0
2.3
42.0
51.4
2.8
23.5
14.4
13.0
6.5
14.2
2.3
3.2
4.2
$ 400.2
The carrying values for invested assets are generally equal to their fair values, however, residential mortgages and some commercial
mortgages are carried at amortized cost; company own use properties, with the exception of one property which is held at depreciated
cost, are held at fair value; loans to Bank clients are carried at unpaid principal balances less allowance for credit losses; and private
equity investments, including power and infrastructure, energy, and timber, are accounted for as associates using the equity method, or at
fair value. Certain public bonds are classified as held to maturity and held at amortized cost, with the remaining public and private bonds
being classified as either “fair value through other comprehensive income” or as “fair value through profit or loss”.
As at December 31, 2023, the carrying value of renewable energy assets was $13.4 billion (2022 – $13.6 billion). These assets include
renewable bonds, renewable private equity, and energy efficient bonds.
Shareholders’ accumulated other comprehensive pre-tax income (loss) at December 31, 2023 consisted of a $15.4 billion loss for bonds
(2022 – loss of $24.2 billion), a $2.8 billion loss for private placements (2022 – loss of $5.0 billion), and a $1.7 billion loss for mortgages
(2022 – loss of $2.8 billion). Included in the $15.4 billion loss for bonds was a $411 million loss related to the fair value hedge basis
adjustments attributable to the hedged risk of certain FVOCI bonds that are in a gain position (2022 – loss of $276 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, 2023, our fixed income portfolio of $257.8 billion (2022 – $245.9 billion)
was 96% investment grade (rated BBB or better) and 71% was rated A or higher (2022 – 96% and 71%, respectively). Our private
placement debt holdings provide diversification benefits (issuer, industry, and geography) and, because they often have stronger
protective covenants and collateral than debt securities, they typically provide better credit protection and potentially higher recoveries in
the event of default. Geographically, our fixed income portfolio is well-diversified. 22% is invested in Canada (2022 – 22%), 48% is
invested in the U.S. (2022 – 48%), 6% is invested in Europe (2022 – 5%) and the remaining 24% is invested in Asia and other geographic
areas (2022 – 25%).
39
Debt Securities and Private Placement Debt – by Credit Quality(1)
As at December 31,
($ billions)
AAA
AA
A
BBB
BB
B & lower, and unrated
Total carrying value
2023
Private
placement
debt
Total
$ 0.7 $ 38. 9
7.8
15.2
16.3
0.8
4.8
$ 45.6
43.6
99.8
63.9
5.6
6.0
$ 257.8
% of
Total
15
17
39
25
2
2
100
Debt
securities
$ 38.2
35.8
84.6
47.6
4.8
1.2
$ 212.2
2022
Private
placement
debt
Debt
securities
$ 33.7 $ 0.8
6.2
14.3
15.5
0.9
4.3
$ 42.0
36.3
83.6
46.1
3.9
0.3
$ 203.9
Total
$ 34.5
42.5
97.9
61.6
4.8
4.6
$ 245.9
% of
Total
14
17
40
25
2
2
100
(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 (“Morningstar DBRS”), 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
Consumer (cyclical)
Securitized (MBS/ABS)
Telecommunications
Basic materials
Technology
Media and internet and other
Total per cent
Total carrying value ($ billions)
2023
Private
placement
debt
10
35
12
15
14
4
6
1
0
3
0
0
100
$ 45.6
Debt
securities
38
14
16
8
8
6
3
1
2
2
1
1
100
$ 212.2
Total
33
18
15
9
9
6
3
1
2
2
1
1
100
$ 257.8
2022
Private
placement
debt
11
37
11
13
14
4
6
1
0
3
0
0
100
$ 42.0
Debt
securities
36
14
16
9
8
7
3
1
2
2
1
1
100
$ 203.9
Total
31
18
16
9
9
7
3
1
2
2
1
1
100
$ 245.9
As at December 31, 2023, gross unrealized losses on our fixed income holdings were $23.6 billion or 9% of the amortized cost of these
holdings (2022 – $33.3 billion or 12%). Of this amount, $10.7 billion (2022 – $8.4 billion) related to debt securities trading below 80% of
amortized cost for more than 6 months. Securitized assets represented $141 million of the gross unrealized losses and $6 million of the
amounts traded below amortized cost for more than 6 months (2022 – $228 million and $nil, 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 $8.3 billion as at December 31, 2023 (2022 – $6.6 billion).
40
| 2023 Annual Report | Management’s Discussion and Analysis
Mortgages
As at December 31, 2023, our mortgage portfolio of $52.4 billion represented 13% of invested assets (2022 – $51.8 billion and 13%,
respectively). Geographically, 69% of the portfolio is invested in Canada (2022 – 66%) and 31% is invested in the U.S. (2022 – 34%). The
overall portfolio is also diversified by geographic region, property type, and borrower. Of the total mortgage portfolio, 14% is insured (2022
– 13%), primarily by the Canada Mortgage and Housing Corporation (“CMHC”) – Canada’s AAA rated government-backed national housing
agency, with 32% of residential mortgages insured (2022 – 31%) and 1% of commercial mortgages insured (2022 – 1%).
As at December 31,
($ billions)
Commercial
Retail
Office
Multi-family residential
Industrial
Other commercial
Other mortgages
Manulife Bank single-family residential
Agricultural
Total mortgages
2023
2022
Carrying value
% of total
Carrying value
% of total
$ 7.9
7.7
6.5
4.9
2.6
29.6
22.5
0.3
$ 52.4
15
15
12
9
5
56
43
1
100
$ 8.1
8.4
6.5
4.3
2.6
29.9
21.6
0.3
$ 51.8
16
16
12
8
5
57
42
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, 2023 there were six loans in arrears, one loan with missed payments in the U.S. and five loans
(two in Canada and three in the U.S.) in the process of foreclosure. Geographically, of the total commercial mortgage loans, 45% are in
Canada and 55% are in the U.S. (2022 – 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)
2023
2022
Canada
63%
1.60x
4.08
21.6
0.70%
$
U.S.
60%
1.89x
5.90
20.1
0.99%
$
Canada
60%
1.57x
4.27
21.5
0.00%
$
U.S.
56%
1.90x
6.31
21.1
0.00%
$
(1) Excludes Manulife Bank commercial mortgage loans of $338 million (2022 – $381 million).
(2) Loan-to-Value and Debt-Service Coverage are based on re-underwritten cash flows.
(3) Arrears defined as three or more missed monthly payments or in the process of foreclosure in Canda and two or more missed monthly payments or in the process of foreclosure
in the U.S.
Public Equities
As at December 31, 2023, public equity holdings of $25.5 billion represented 6% (2022 – $23.5 billion and 6%) of invested assets and,
when excluding assets supporting participating policyholder and pass-through products, represented 1% (2022 – 1%) of invested assets.
The portfolio is diversified by industry sector and issuer. Geographically, 26% (2022 – 29%) is held in Canada; 29% (2022 – 31%) is held in
the U.S.; and the remaining 45% (2022 – 40%) is held in Asia, Europe, and other geographic areas.
Public Equities – classified by type of product-line supported(1)
As at December 31,
($ billions)
Participating policyholders
Non-participating products and pass-through products
Global Wealth and Asset Management(2)
Corporate and Other segment
Total public equities
2023
2022
Carrying value
% of total
Carrying value
% of total
$ 14.6
8.3
1.5
1.1
$ 25.5
57
33
6
4
100
$ 12.3
8.4
1.5
1.3
$ 23.5
52
36
6
6
100
(1) Effective January 1, 2023, we have made a number of changes to the composition of reporting segments to better align our financial reporting with our business strategy and
operations. Our investment in the start-up capital of segregated and mutual funds was reclassified from the Corporate and Other segment to the Global WAM segment to more
closely align with Global WAM’s management practices. Prior period comparative information has been restated to reflect the changes in segment reporting.
(2) Includes $1.3 billion of seed money investments in new segregated and mutual funds.
41
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 majority of our ALDA
are managed in-house.
As at December 31, 2023, carrying value of ALDA of $54.5 billion represented 13% (2022 – $52.7 billion and 13%) of invested assets. The
fair value of total ALDA was $55.5 billion at December 31, 2023 (2022 – $53.6 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, 43% is located in the U.S., 39% in
Canada, and 18% in Asia and Other as at December 31, 2023 (2022 – 44%, 39%, and 17%, respectively). This high-quality portfolio has
very low leverage and is well-diversified by property type, including industrial, multi-family, urban office, suburban office, and company own
use buildings. The portfolio is well-positioned with an average occupancy rate of 87% (2022 – 89%) and an average lease term of
4.9 years (2022 – 5.1 years). During 2023, we executed 2 acquisitions representing $0.17 billion market value of commercial real estate
assets (2022 – 2 acquisitions and $0.09 billion). As part of ongoing portfolio management initiatives, 8 commercial real estate assets
totaling $0.12 billion were sold during 2023.
The composition of our real estate portfolio based on fair value is as follows:
As at December 31,
($ billions)
Company Own Use
Office – Downtown
Office – Suburban
Industrial
Residential
Retail
Other
Total real estate(1)
2023
2022
Fair value
$ 2.7
3.9
0.9
2.3
2.1
0.3
1.0
$ 13.2
% of total
20
30
7
17
16
2
8
100
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
(1) These figures represent the fair value of the real estate portfolio excluding real estate interests. The carrying value of the portfolio was $13.0 billion and $14.3 billion as at
December 31, 2023 and December 31, 2022, respectively.
Infrastructure
We invest both directly and through funds in a variety of industry specific asset classes, listed below. The portfolio is well-diversified with
over 600 portfolio companies. The portfolio is predominantly invested in the U.S. and Canada, but also in Western Europe, the United
Kingdom, Australia, Asia and Latin America. Our power and infrastructure holdings are as follows:
As at December 31,
($ billions)
Renewable power generation
Thermal power generation
Transportation (including roads, ports)
Electric and gas regulated utilities
Electricity transmission
Water distribution
Midstream gas infrastructure
Maintenance service, efficiency and social infrastructure
Digital infrastructure
Other infrastructure
Total infrastructure
2023
2022
Carrying value
$ 3.2
1.4
3.9
0.8
–
0.4
0.8
1.0
3.4
0.1
$ 15.0
% of total
22
9
26
5
–
3
5
6
23
1
100
Carrying value
$ 3.0
1.3
3.6
0.6
0.2
0.4
0.8
0.4
2.3
0.2
$ 12.8
% of total
24
10
28
5
2
3
6
3
18
1
100
Timber and Agriculture
Our timber and agriculture 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 timber holdings comprised 21% of MIM’s total timberland
AUM (2022 – 22%). The farmland portfolio includes annual (row) crops, fruit crops, wine grapes, and nut crops. The general fund’s
farmland holdings comprised 41% of MIM’s total farmland AUM (2022 – 41%).
1 Based on the global timber investment management organization ranking in the RISI International Timberland Ownership and Investment Database.
42
| 2023 Annual Report | Management’s Discussion and Analysis
Private Equities
Our private equity portfolio of $15.4 billion (2022 – $14.2 billion) includes both directly held private equity and private equity funds. Both
are diversified across vintage years and industry sectors.
Energy
This category is comprised of $1.9 billion (2022 – $2.3 billion), which includes legacy oil and gas equity interests related to upstream and
midstream assets that are in runoff, and Energy Transition private equity interests in areas supportive of the transition to lower carbon
forms of energy, such as wind, solar, batteries, and magnets.
Investment Income
For the years ended December 31,
($ millions, unless otherwise stated)
Interest income
Dividend, rental income and other income(1)
Impairments, provisions and recoveries, net(2)
Other
Realized and unrealized gains (losses) on assets supporting insurance and
investment contract liabilities
Debt securities
Public equities
Mortgages
Private placements
Real estate
Other invested assets
Derivatives
Investment expenses
Total investment income (loss)
2023
2022
$ 12,802
3,318
(304)
364
16,180
$ 12,063
3,900
(77)
(682)
15,204
430
2,157
99
375
(1,289)
491
875
3,138
(1,297)
$ 18,021
(504)
(3,825)
(52)
234
(578)
1,791
(10,712)
(13,646)
(1,221)
337
$
(1) Rental income from investment properties is net of direct operating expenses.
(2) The Company adopted IFRS 9’s ECL impairment requirements as at January 1, 2023 without restating the comparative period. Impairments for 2023 are based on IFRS 9’s ECL
requirements and impairments for 2022 are based on IAS 39’s incurred loss impairment requirements.
In 2023, the $18.0 billion of investment income (2022 – income of $0.3 billion) consisted of:
•
$16.2 billion of investment income before net realized and unrealized gains on assets supporting insurance and investment contract
liabilities (2022 – gains of $15.2 billion);
• $3.1 billion of net realized and unrealized gains on assets supporting insurance and investment contract liabilities (2022 – losses of
$13.6 billion); and
• $1.3 billion of investment expenses (2022 – $1.2 billion).
The $1.0 billion increase in net investment income before unrealized and realized gains was primarily due to the impact of a higher interest
rate environment.
In 2023, net realized and unrealized gains on assets supporting insurance and investment contract liabilities were $3.1 billion compared
with losses of $13.6 billion in 2022. The 2023 gains were primarily due to higher equity markets, partially offset by losses on real estate
relating to declining office property values. The 2022 losses were primarily due to the impact of interest rate increases and lower equity
markets.
43
8. Fourth Quarter Financial Highlights
Profitability
($ millions, unless otherwise stated)
Net income (loss) attributed to shareholders(1)
Return on common shareholders’ equity (“ROE”) (1)
Diluted earnings (loss) per common share ($)(1)
($ millions, unless otherwise stated)
Net income (loss) attributed to shareholders(1)
Core earnings
Diluted earnings (loss) per common share ($)
Diluted core earnings per common share (“Core EPS”) ($)
ROE
Core return on shareholders’ equity (“Core ROE”)
Expense efficiency ratio
Expenditure efficiency ratio
General expenses
Core expenses
Core expenditures
Quarterly Results
4Q23
$ 1,659
15.3%
$ 0.86
4Q22
Transitional
$ 1,228
11.0%
$ 0.60
Quarterly Results
4Q23
$ 1,659
$ 1,773
$ 0.86
$ 0.92
15.3%
16.4%
45.5%
52.1%
$ 1,180
$ 1,725
$ 2,249
4Q22
$ 915
$ 1,543
$ 0.43
$ 0.77
8.0%
14.1%
47.0%
54.2%
$ 1,002
$ 1,576
$ 2,108
(1) 2022 results for transitional net income attributed to shareholders, transitional diluted earnings per common share and transitional ROE are adjusted to include IFRS 9 hedge accounting
and expected credit loss principles (“IFRS 9 transitional impacts”). See section 1 “Implementation of IFRS 17 and IFRS 9” of the MD&A above for more information. For 2023, there are no
IFRS 9 transitional adjustments as ECL and hedge accounting is effective January 1, 2023 and therefore the impact is included in net income attributed to shareholders.
Manulife’s 4Q23 net income attributed to shareholders was $1,659 million compared with net income attributed to shareholders of
$915 million and transitional net income attributed to shareholders of $1,228 million in 4Q22. The 4Q22 transitional net income
attributed to shareholders includes $313 million of IFRS 9 transitional impacts. 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 $1,773 million in
4Q23 compared with $1,543 million in 4Q22, and items excluded from core earnings, which amounted to a net charge of $114 million in
4Q23 compared with a net charge of $628 million in 4Q22. Items excluded from core earnings in 4Q22 on a transitional basis amounted
to a net charge of $315 million.
Net income attributed to shareholders in 4Q23 increased $431 million compared with 4Q22 transitional net income attributed to
shareholders primarily driven by a smaller net charge from market experience, growth in core earnings and the favourable impact of
updates to actuarial methods and assumptions in 4Q23. In addition, 4Q22 included the favourable impact on our deferred tax assets due
to an increase in the Canadian corporate tax rate. The net charge from market experience in 4Q23 was primarily related to lower-than
expected returns (including fair value changes) relative to long-term assumptions on ALDA mainly related to real estate and private equity,
partially offset by higher-than-expected returns relative to long-term assumptions on public equity. Net income attributed to shareholders
in 4Q23 increased $744 million compared with 4Q22, driven by the factors noted above and the $313 million of IFRS 9 transitional
impacts (transitional impacts are geography-related and do not impact total shareholders’ equity as the corresponding offset is in other
comprehensive income).
The 15% increase in core earnings on a constant exchange rate basis compared with 4Q22 was driven by the net favourable impact of
rising interest rates, higher average AUMA and fee spreads in Global WAM, the impact of updates to actuarial methods and assumptions,
primarily in Asia, as well as higher earnings in our P&C Reinsurance business as a result of a $60 million reduction to our prior years’
provisions. Business growth contributed to the increase in expected earnings on investments and on Group Insurance and affinity markets
businesses in Canada. These are partially offset by higher performance-related costs.
Core earnings by segment is presented in the table below for the periods presented.
For the quarters ended December 31,
($ millions)
Core earnings by segment(1)
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total core earnings
2023
2022
$ 564
352
474
353
30
$ 1,773
$ 496
296
408
274
69
$ 1,543
(1) Effective January 1, 2023, we have made a number of changes to the composition of reporting segments to better align our financial reporting with our business strategy and operations.
Our international high net worth business was reclassified from the U.S. segment to the Asia segment to reflect the contributions of our Bermuda operations alongside the high net worth
business that we report in our Singapore and Hong Kong operations. Our investment in the start-up capital of segregated and mutual funds, and investment-related revenue and expense
were reclassified from the Corporate and Other segment to the Global WAM segment to more closely align with Global WAM’s management practices. Refinements were made to the
allocations of corporate overhead and interest on surplus among segments. Prior period comparative information has been restated to reflect the changes in segment reporting.
44
| 2023 Annual Report | Management’s Discussion and Analysis
In Asia, core earnings were $564 million in 4Q23 compared with $496 million in 4Q22. The 14% increase on a constant exchange rate
basis was driven by an increase in expected earnings on insurance contracts, primarily reflecting the net impact of updates to actuarial
methods and assumptions on our CSM and risk adjustment and higher expected investment income due to business growth and higher
investment yields.
In Canada, core earnings were $352 million in 4Q23 compared with $296 million in 4Q22. The 19% increase primarily reflected business
growth in Group Insurance and affinity markets, a lower ECL provision, improved insurance experience gains, and the year-to-date impact
of changes in corporate tax rates recorded in 4Q22.
In the U.S., core earnings were $474 million in 4Q23 compared with $408 million in 4Q22. The 16% increase on a constant exchange rate basis
was primarily due to an increase in expected investment earnings driven by higher investment yields and business growth. Insurance experience
improved compared with 4Q22 primarily due to net favourable life experience, partially offset by unfavourable long-term care experience.
Global WAM core earnings were $353 million in 4Q23 compared with $274 million in 4Q22. The 29% increase was driven by growth in net
fee income from higher average AUMA reflecting the favourable impact of markets in 2023 and higher fee spreads, as well as a lower
effective tax rate in 4Q23.
Corporate and Other core earnings were $30 million in 4Q23 compared with $69 million in 4Q22. The $39 million decrease in core
earnings was primarily driven by higher core expenses due to performance-related costs and higher cost of debt financing. These items
were partially offset by gains in our P&C Reinsurance business from a $60 million update in the quarter to prior years’ provisions for
estimated losses, primarily related to Hurricane Ian.
The table below presents transitional net income attributed to shareholders and net income attributed to shareholders consisting of core
earnings and the items excluded from core earnings.
For the quarters ended December 31,
($ millions)
Core earnings
Items excluded from core earnings:
Market experience gains (losses)(1)
Realized gains (losses) on debt instruments
Derivatives and hedge accounting ineffectiveness
Actual less expected long-term returns on public equity
Actual less expected long-term returns on ALDA
Other investment results
Changes in actuarial methods and assumptions that flow directly through income
Restructuring charge
Reinsurance transactions, tax-related items and other(2)
Total items excluded from core earnings
Transitional net income attributed to shareholders
Less: IFRS 9 transitional impacts:
Change in expected credit loss
Hedge accounting
Total IFRS 9 transitional impacts (pre-tax)
Tax on IFRS 9 transitional impacts
Total IFRS 9 transitional impacts (post-tax)
Net income (loss) attributed to shareholders
2023
2022
$ 1,773
$ 1,543
(133)
(51)
34
182
(381)
83
119
(36)
(64)
(114)
n/a
$ 1,659
(655)
(453)
(182)
274
(634)
340
–
–
340
(315)
$ 1,228
(27)
461
434
(121)
313
$ 915
(1) Market experience was a net charge of $133 million in 4Q23 primarily driven by lower-than-expected returns (including fair value changes) relative to long-term assumptions on
ALDA related to real estate and private equity, partially offset by higher-than-expected returns relative to long-term assumptions on public equity. Market experience was a net
charge of $655 million in 4Q22 consisting of lower-than-expected returns (including fair value changes) relative to long-term assumptions on ALDA mainly related to real estate,
net realized losses from the sale of debt instruments which are classified as FVOCI and a charge from derivatives and hedge accounting ineffectiveness, partially offset by a net
gain primarily from changes in foreign currency exchange rates and higher-than-expected returns relative to long-term assumptions on public equity.
(2) The 4Q23 net charge of $64 million mainly included a $38 million for an investment impairment in Asia and a charge for tax-related true-ups of $23 million. The 4Q22 net gain
of $340 million included a net gain of $86 million related to acquiring full ownership interest of Manulife Fund Management Co., Ltd. (“MFM”), formerly known as 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 $15 million resulting from
actuarial model adjustments in Asia. In addition, 4Q22 included the favourable impact of $269 million on our deferred tax assets due to an increase in the Canadian corporate
tax rate.
45
Transitional net income attributed to shareholders by segment and net income attributed to shareholders by segment are presented in the
following tables.
Transitional net income (loss) attributed to shareholders by segment(1)
($ millions)
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total transitional net income (loss) attributed to shareholders
Net income (loss) attributed to shareholders by segment(1)
($ millions)
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total net income (loss) attributed to shareholders
Quarterly Results
4Q23
$ 615
365
198
365
116
$ 1,659
4Q22
Transitional
$ 493
120
(106)
401
320
$ 1,228
Quarterly Results
4Q23
4Q22
$ 615
365
198
365
116
$ 1,659
$ 315
(73)
(44)
401
316
$ 915
(1) Effective January 1, 2023, we have made a number of changes to the composition of reporting segments to better align our financial reporting with our business strategy and
operations. Our international high net worth business was reclassified from the U.S. segment to the Asia segment to reflect the contributions of our Bermuda operations
alongside the high net worth business that we report in our Singapore and Hong Kong operations. Our investment in the start-up capital of segregated and mutual funds, and
investment-related revenue and expense were reclassified from the Corporate and Other segment to the Global WAM segment to more closely align with Global WAM’s
management practices. Refinements were made to the allocations of corporate overhead and interest on surplus among segments. Prior period comparative information has
been restated to reflect the changes in segment reporting.
Expenditure efficiency ratio and expense efficiency ratio
The expenditure efficiency ratio was 52.1% in 4Q23, compared with 54.2% in 4Q22. The 2.1 percentage point decrease in the ratio
compared with 4Q22 was driven by a 16% increase in pre-tax core earnings, partially offset by a 7% increase in core expenditures. 4Q23
core expenditures increased as a result of higher performance-related costs and investments in technology. Costs directly attributable to
the acquisition of new business that are capitalized into the CSM represented approximately 23% and 25% of total core expenditures in
4Q23 and 4Q22, respectively.
The expense efficiency ratio was 45.5% in 4Q23, compared with 47.0% in 4Q22. The 1.5 percentage point decrease in the ratio
compared with 4Q22 was driven by the items noted above related to the decrease in the core expenditures efficiency ratio but is net of
costs directly attributable to the acquisition of new business.
Total general expenses in 4Q23 increased 18% on an actual exchange rate basis and 17% on a constant exchange rate basis compared
with 4Q22 driven by the items noted above related to the decrease in the expenditure efficiency ratio and items excluded from core
earnings. In 4Q23, the items excluded from core earnings primarily reflected a restructuring charge of $46 million pre-tax in Global WAM
and were not material in 4Q22. General expenses are also net of directly attributable maintenance expenses and directly attributable
acquisition expenses for products measured using the PAA which are included in insurance service expenses on our financial statements.
Directly attributable maintenance expenses and directly attributable acquisition expenses for products measured using the PAA increased
3% on a constant exchange rate basis and 2% on an actual exchange rate basis in 4Q23 compared with 4Q22.
46
| 2023 Annual Report | Management’s Discussion and Analysis
Business Performance1
As at and for the quarters ended December 31,
($ 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
Asia new business CSM
Canada new business CSM
U.S. new business CSM
Total new business CSM
Asia CSM net of NCI
Canada CSM
U.S. CSM
Corporate and Other CSM
Total CSM net of NCI
Post-tax CSM net of NCI
Global WAM gross flows ($ billions)
Global WAM net flows ($ billions)
Global WAM assets under management and administration ($ billions)
Global WAM total invested assets ($ billions)
Global WAM segregated funds net assets ($ billions)
Total assets under management and administration ($ billions)
Total invested assets ($ billions)
Total net segregated funds net assets ($ billions)
$
2023
995
363
192
1,550
417
139
74
630
414
70
142
626
12,617
4,060
3,738
25
20,440
17,748
35.1
(1.3)
849.2
7.1
248.1
1,388.8
417.2
377.5
$
2022
893
252
143
1,288
395
87
42
524
324
47
71
442
9,420
3,675
4,136
52
17,283
14,659
32.5
(8.4)
782.3
5.8
224.2
1,301.1
400.1
348.6
APE sales were $1.6 billion in 4Q23, an increase of 20% compared with 4Q22. In Asia, APE sales increased 11%, driven by growth in Hong Kong
and Asia Other2, partially offset by lower sales in Japan. In Hong Kong, APE sales increased 55% compared with 4Q22, reflecting growth in our
broker, agency and bancassurance channels, primarily driven by a return of demand from MCV customers. In Japan, APE sales decreased 12%,
compared with 4Q22 due to lower other wealth sales. APE sales in Asia Other increased 1% compared with 4Q22. Higher bancassurance sales in
mainland China and higher broker sales in Singapore were partially offset by lower agency and bancassurance sales in Vietnam, and lower
broker sales in our International High Net Worth business. In Canada, APE sales increased 44% compared with 4Q22, primarily due to higher
large-case and mid-size sales in Group Insurance and higher fixed annuity sales, partially offset by lower travel sales. U.S. APE sales increased
34% compared with 4Q22, reflecting a rebound in demand from affluent customers.
New business value (“NBV”) was $630 million in 4Q23, an increase of 20% compared with 4Q22. In Asia, NBV increased 5% compared
with 4Q22, driven by higher sales volumes partially offset by business mix. In Canada, NBV increased 60% compared with 4Q22 driven by
higher sales volumes in Group Insurance and higher margins in Individual Insurance and Annuities. In the U.S., NBV increased 74%
compared with 4Q22, driven by higher sales volumes, product mix and pricing actions.
New business contractual service margin (“New business CSM”) was $626 million in 4Q23, an increase of 41% compared with 4Q22. Asia
new business CSM increased 27% compared with 4Q22, primarily due to higher sales volumes and the impact of updates to actuarial methods
and assumptions. In Canada, new business CSM increased 49% compared with 4Q22, driven by higher margins in Individual Insurance and
Annuities. In the U.S., new business CSM increased 102% compared with 4Q22, driven by higher sales volumes, pricing actions and product mix.
Global WAM net outflows were $1.3 billion in 4Q23 compared with net outflows of $8.4 billion in 4Q22. Net outflows in Retirement were
$2.5 billion in 4Q23 compared with net outflows of $4.6 billion in 4Q22, driven by lower pension plan redemptions in the U.S. and growth
in new pension plan sales and member contributions. Net outflows in Retail were $1.0 billion in 4Q23 compared with net outflows of $4.7
billion in 4Q22, driven by lower mutual fund redemption rates. Net inflows in Institutional Asset Management were $2.1 billion compared
with net inflows of $0.9 billion in 4Q22, driven by higher sales of real estate, private equity and credit mandates.
Global WAM gross flows were $35.1 billion in 4Q23, an increase of 8% compared with 4Q22. Retirement gross flows were $13.3 billion in
4Q23, an increase of 9% compared with 4Q22, driven by higher new pension plan sales and growth in member contributions. Retail gross
flows were $15.2 billion in 4Q23, in line with 4Q22, driven by higher equity fund sales in Canada and higher separately managed accounts
sales in the U.S., offset by lower money market sales in mainland China. Institutional Asset Management gross flows were $6.7 billion in
4Q23, an increase of 31% compared with 4Q22, primarily driven by higher sales of real estate, private equity and credit mandates.
1 Effective January 1, 2023, our international high net worth business was reclassified from the U.S. segment to the Asia segment to reflect the contributions of our Bermuda
operations alongside the high net worth business that we report in our Singapore and Hong Kong operations. Prior period comparative information has been restated to reflect
the reclassification.
2 Asia Other excludes Hong Kong and Japan.
47
9. Risk Management and Risk Factors
This section provides an overview of our overall risk management approach along with detailed description of specific 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
Management of Principal Risks
Evolving Risks
• Risk Appetite and Limits
• Stress Testing
• Capital Management
Evolving Risk Program
Our ERM Framework provides a structured approach to risk taking and risk management activities across the enterprise. It is
communicated through risk policies and standards, which are intended to enable consistent design and execution of strategies across the
organization. Our risk policies and standards cover:
•
Governance, 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 and risk appetite, which drives risk limits and
policies;
• Strategy – The types and levels of risk the Company faces given its strategic plan, and the risk assessment of the internal and external
environment;
• Execution – Risk identification, measurement, assessment, and mitigation which enable those accountable for risks to manage and
monitor the risk profile; and
• Evaluation – Validation and oversight to confirm the Company’s risk profile, root cause analysis of any notable variation, and any action
required to maintain risk at its desired level.
Our risk management practices are influenced by external and internal factors, including 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 addresses relevant risk drivers and assessments, as well as mitigating actions, as
appropriate.
Three Lines of Defense Model
A strong risk culture and a consistent approach 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 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. 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 Company’s Chief Compliance Officer, and the
Company’s Chief Actuary, each with their respective teams, as well as other global oversight functions. Collectively, this group provides
independent oversight of risk taking and risk management activities across the enterprise. Risk oversight committees, through broad-
based membership, are an integral part of the risk oversight and management governance infrastructure.
48 | 2023 Annual Report | Management’s Discussion and Analysis
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 – Assess 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 part of 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 colleagues feel comfortable communicating openly,
taking accountability and making decisions that align to the Company’s goals and values.
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 the risk committee of 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:
•
Communication – The potential range of outcomes are discussed openly to arrive at informed decisions. Issues are escalated before
they become significant problems. Mistakes and failures are used as lessons learned to be shared broadly.
• Accountability – Individuals have a clear understanding of their roles and responsibilities, take ownership of their decisions and
behaviours, and are held accountable for them.
• Incentives – Incentives are aligned to the Company’s objectives and encourage behaviours aligned with the Company’s values, while
discouraging undesired behaviours or inappropriate risk taking.
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 corporate 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 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 evolving
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, hedging, and asset liability management programs and
strategies. Also monitors market risk profile, risk exposures, risk mitigation activities and compliance with related policies.
49
•
Operational Risk Committee – Oversees operational risk appetite, exposures and associated governance, risk processes, risk
management activities and compliance with related policies.
• Capital Outlook Committee – Oversees capital management policy and capital positions. Provides direction on strategic capital
matters. Identifies key evolving risks impacting capital and the ability to remit earnings from subsidiaries.
We also have segment risk committees, each with mandates similar to the ERC except with a focus at the applicable segment.
Global Risk Management (“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.
Risk Appetite
The Company’s strategic direction drives and is informed by our 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 prudent risk taking. As such, when making decisions about risk taking and risk management, the Company places a priority on
the following objectives:
Safeguarding the commitments and expectations established with our customers, creditors, regulators, shareholders and employees;
•
• Operating within the Company’s risk governance structure as defined by our risk frameworks and policies;
• Supporting the successful design and delivery of customer solutions through the development and deployment of innovative product
solutions, and through providing customer-centric digital experiences while remaining within risk appetite;
• Prudently and effectively deploying shareholder capital invested in the Company to achieve appropriate risk/return profiles;
• Maintaining the Company’s targeted financial strength rating;
• Achieving and maintaining a high level of operational and financial resilience;
• Investing all assets, including in the wealth and asset management business, consistent with customers’ objectives;
• Safeguarding the well-being of our employees, and promoting a diverse, equitable and inclusive business environment;
• Considering environmental, social, and governance (“ESG”) impacts across our business activities; and
• Safeguarding or enhancing the Company’s reputation and brand.
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, prudence, and organizational learning. While we only pursue risks
that we believe we can appropriately analyze and monitor, we accept that we are exposed to risks both within our control and outside of our
direct influence. We manage each risk by taking actions designed to keep exposures within desired levels, and in accordance with the risk
objectives articulated above.
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 the level of 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;
• 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 believes a diversified investment portfolio reduces overall risk and enhances returns; therefore, it accepts credit and
alternative long-duration asset related risks;
• Capital market risks are acceptable when they are managed within specific risk limits and tolerances;
• Manulife accepts that operational risks are an inherent part of the business and are managed by implementing appropriate controls
that provide reasonable assurance that we are within our risk thresholds and tolerances. Management will protect its business and
customers’ assets through cost-effective operational risk mitigation; and
• Manulife expects its directors, 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 capital and earnings.
Risk Identification, Measurement and Assessment
We have a consistent 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
50 | 2023 Annual Report | Management’s Discussion and Analysis
comparable risk adjusted basis. Segments and functional groups are responsible for identifying and assessing key and evolving risks on an
ongoing basis. A standard inventory of risks is used in all aspects of risk identification, measurement and assessment, as well as
monitoring and reporting.
Risk exposures are evaluated using a variety of measures focused on both short-term and long-term economic value, with certain
measures used across all risk categories, and others applied only to some risks or a single risk type. Evaluation tools 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 and earnings-at-risk, regulatory and economic capital, as well as liquidity. We also perform
integrated complex scenario tests to assess key risks and their interaction.
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 specified 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 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 review 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 annually the results of our internal audits’ assessment of risk management
processes and controls to the Board’s Audit Committee and the Board’s Risk Committee. Management reviews annually the
implementation of key risk management strategies, and their effectiveness, with the Board’s Risk Committee.
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 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. Authority for
assuming risk at the transaction level is delegated to specific individuals based on their mandates.
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 key risks 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
impair our businesses, operations and financial condition in the future. If any 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.
We 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 innovation.
51
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 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, 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.
The Company’s Global 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 Manulife’s
reputation is of high priority and senior management is to be alerted. An essential component of the Global Reputation Risk Policy
requires that all employees should conduct themselves in accordance with our values, as well as the Code of Business Conduct and 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. Each member of the CGNC also participates in at least one externally facilitated
ESG-related education session every two years. The CGNC’s oversight complements Manulife’s Executive Sustainability Council (“ESC”),
which consists of the CEO, the Chief Sustainability Officer, the CRO 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 through which it 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 but are not limited to: 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 insurance contract liabilities arising from
climate-related impacts on morbidity or mortality.
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 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 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 evolving 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
52
| 2023 Annual Report | Management’s Discussion and Analysis
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 2023, we continued to monitor climate-
related risks and opportunities within our business strategy over short (1-5 years), medium (5-15 years), 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 focuses on three areas: our operations, our general fund investments, and the products and services we offer to
clients. It includes a commitment to achieve net zero financed emissions by 2050, and a commitment to reduce our absolute scope 1 and
2 emissions by 40% by 20351. In our General Account, we have set near term decarbonization targets for general fund invested assets in
support of our net zero commitment. In-scope asset classes currently covered by science-based targets include project finance of power
generation and listed debt and equity (excluding sovereigns). Our interim targets are developed in line with the ambition of Science-based
Target Initiative guidance for Financial Institutions with criteria for well-below 2 degrees celsius of warming. Through our general fund we
continue to target investment in green and transition assets, directing funds with known use of proceeds to aspects such as energy
efficiency projects, sustainably certified timberlands, and renewable energy development. Through MIM, development of investment
strategies for climate change mitigation and resilience remains ongoing.
Our total exposure to carbon-related assets, held in our General Account, was $68.0 billion, or 16% of the total portfolio as of
December 31, 2023. Carbon-related assets are identified based on internal sub-sector classifications. Sub-sectors in scope are informed
by TCFD guidance and at this time, include oil and gas; oil and gas services; pipelines; coal; electric and gas utilities; building materials,
and basic materials. Carbon-related assets are based on sectors recommended by the TCFD and represent sectors that may be financially
vulnerable to climate transition risks such as rising costs of carbon, that could lead to possible devaluation, impairment or stranding of
assets.
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 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, balance
sheet, and capital projections are based on certain assumptions with respect to future interest rates and spreads on fixed income
assets, and 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, changes in the macroeconomic environment may
result in changes to financial assumptions, 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 as higher interest rates may facilitate financial product
development and exceed our product pricing assumptions, but can adversely affect valuations of some ALDA assets, especially those
that have expected returns substantially dependent on long-dated contractual cash flows.
• A rise in geopolitical tensions and political risk either within or outside of jurisdictions in which we operate can trigger changes in the
macroeconomic environment and overall regulatory landscape 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. 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.”
• 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.
1 See “Caution regarding forward-looking statements” above.
53
• 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 noted 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, on whose services and representations our customers rely. 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 14, 2024 and note 19 of the 2023 Annual 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, broker-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.
• 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, which could impact our net income attributed to
shareholders and/or capital position are provided below.
O
OSFI published the Parental Stand-alone (Solo) Capital Framework in September 2023 with an effective date of January 1, 2024. The
Solo Capital Framework applies to all life insurers designated by OSFI as internationally active insurance groups (IAIGs). The
objective of this framework is to assess the sufficiency of capital that is readily available to the domestic parent operating life insurer
on a solo basis and to assess the parent’s ability to act as a source of strength for its subsidiaries and/or other affiliates. MLI is in
scope for this framework and meets the requirement.
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. 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.
O
O
At its annual meeting in November 2019, the IAIS adopted a risk based global Insurance Capital Standard (“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
54 | 2023 Annual Report | Management’s Discussion and Analysis
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’. While the IAIS intend to adopt ICS in November 2024, the final form and timing of ICS that will be
implemented in different jurisdictions, remains the sole responsibility of the local regulators. Without OSFI’s adoption, 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,
adapted for their local market, for calculating capital in their specific markets. We will continue to monitor developments as the ICS
methodology and its applicability evolve.
O
The National Association of Insurance Commissioners (“NAIC”) continues to review and revise reserving and capital methodologies
as well as the overall risk management framework as required to keep pace with an evolving landscape. 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 GCC model language and the Michigan Department of Insurance and
Financial Services (“DIFS”) is promulgating the associated rules. OSFI has been working with the NAIC to achieve mutual recognition
and treatment of internationally active insurance groups domiciled in Canada with U.S. operations. Mutual recognition will avoid
redundant group oversight, and Manulife and John Hancock have taken a leadership role to ensure the NAIC process could
accommodate a process that OSFI could and would undertake. With the ongoing NAIC mutual recognition process, Michigan DIFS
issued guidance providing a narrowly tailored waiver that relieves John Hancock of any additional reporting obligations in 2024.
O
Regulators in various jurisdictions in which we operate continue to reform their respective capital regulations. We continue to closely
monitor the developments.
• 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 been engaging 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 and have begun releasing guidance. 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.
• Manulife operates in numerous jurisdictions in Asia. These operations are subject to the regulations and laws in each local jurisdiction,
with the structure or model for oversight of insurance differing by jurisdiction. We are encouraged to see further regional economic and
trade integration in Asia, with most jurisdictions supportive of foreign investment and many regulators’ increasing willingness to
benchmark domestic law and regulation against international standards and best practices. However, the increasing geopolitical
complexity, rising political and regulatory uncertainty, and regulatory tightening in some jurisdictions have created heightened
complexity and risk for Manulife to mitigate and navigate, which may adversely impact shareholder value.
55
•
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
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 14, 2024 and note 19 of the
2023 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.
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 insurance and investment contract 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 July 12, 2023, the Canadian government reaffirmed its commitment to the two-pillar solution and the target date of
December 31, 2023 for implementation of the Pillar 2 global minimum tax. This would first apply to the Company’s 2024 fiscal year if
enacted on this timeline. 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.
• In Canada, the 1.5% corporate tax rate increase on Canadian taxable income over $100 million effective in 2022, 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.
56 | 2023 Annual Report | Management’s Discussion and Analysis
•
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.
• Canada’s 2023 Budget statement proposed to deny financial institutions of the traditional tax deduction of dividends received on
shares of Canadian corporations when such shares are held as mark-to-market property. The affected property is a small component of
the investment portfolio that supports the Company’s business. Should this rule be enacted as proposed, the Company would expect its
tax expense on investment income to increase starting in 2024, though not significantly1. The resulting negative impact on net
investment income would also reduce the value of certain in-force insurance policies and could result in upward pressure on policy
pricing going forward.
• On December 27, 2023, Bermuda enacted a 15% domestic corporate income tax regime applicable to large multinational entities that
will come into force in 2025. Bermuda has also introduced a transition process intended to phase in the tax impact to affected
taxpayers over a number of years. There are no immediate consequences to Manulife from the passage of this tax reform and the
longer-term impact on the Company’s income tax expense is not expected to be material.
Access to capital may be negatively impacted by market conditions.
• Disruptions, uncertainty or volatility in the financial markets may limit or delay our access to the capital markets to raise capital
required to operate our business, satisfy regulatory capital requirements or meet our refinancing needs. 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, 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
d vidends. Subsidiaries’ remittance of capital depends on subsidiaries’ earnings, regulatory requirements and restrictions,
macroeconomic and market conditions.
i
• 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 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.
• 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.
1 See “Caution regarding forward-looking statements” above.
5
7
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
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, asset managers, 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 (e.g., big technology competitors
providing financial products and services) 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 past and may be negatively affected in the future.
We may face unforeseen liabilities or asset impairments arising from possible mergers with, or acquisitions and dispositions of, or
strategic investments in, businesses or difficulties integrating acquired businesses.
• We have engaged in mergers with, acquisitions and dispositions of, or strategic investments in, 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, acquisitions and dispositions of, or strategic
investments in, 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
58 | 2023 Annual Report | Management’s Discussion and Analysis
from our day-to-day business. Mergers with, acquisitions and dispositions of, or strategic investments in, 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.
• 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 2024 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.
59
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
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 impacts
to our business operations and reputation.
• 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 on 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 long-term commitments. 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 litigation resulting from inaccurate or misleading statements,
often referred to as “greenwashing”. As a result, we may face adverse investor, media, or public scrutiny which may negatively impact
our financial results and reputation.
• With respect to our asset management business, we may be subject to competing demands from investors who have divergent views on
ESG matters and may choose to invest or not invest in our products based on their assessment of how we address ESG in our
investment process. This divergence increases the risk that action, or inaction, on ESG matters will be perceived negatively by at least
some stakeholders and impact their investment decisions potentially adversely impacting our business.
60 | 2023 Annual Report | Management’s Discussion and Analysis
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 currency 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 2023 Annual Consolidated Financial
Statements. The fact that certain text and tables are considered an integral part of the 2023 Annual 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 currency exchange management
Liquidity risk management
Public
Equity Risk
✓
✓
✓
✓
Interest Rate
and Spread Risk
✓
✓
ALDA
Risk
✓
✓
✓
Foreign Currency
Exchange Risk
✓
✓
✓
✓
✓
Liquidity Risk
✓
✓
✓
✓
✓
✓
Public Equity Risk – To manage public equity risk from our insurance and annuity businesses, we primarily use a variable annuity and
segregated fund 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 dynamic hedging of variable annuity and segregated fund
guarantees 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.
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 energy assets. We further diversify risk by managing
investments against established investment and risk limits.
Foreign Currency 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, customer withdrawals, reinsurance settlements, derivative
instrument settlements/collateral pledging, expenses, and investment and hedging activities. Under stressed conditions, additional cash
and collateral demands could arise 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.
61
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. All
material new product, reinsurance and 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 contract 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 contract 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.
Variable Annuity Dynamic Hedging Strategy
The variable annuity dynamic hedging strategy is designed to hedge the sensitivity of variable annuity guarantee insurance contract
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.
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 insurance contract 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 insurance contract
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;
• Risk adjustment related to cost of guarantees in the insurance contract liabilities is largely 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.
62
| 2023 Annual Report | Management’s Discussion and Analysis
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
• Host contract fees related to variable annuity guarantees are not 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 currency 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
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 Currency 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 earnings and 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 currency exchange rate movements, determined to represent a specified likelihood of occurrence
based on internal models.
63
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 consider 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 premiums. We design the policyholder termination features 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 pools consist of cash or near-cash, high quality short-term investments that are continually monitored
for their credit quality and market liquidity.
As at December 31, 2023, the Company held $250.7 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 securities 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 $241.1 billion as at December 31, 2022 as noted in the table below.
As at December 31,
($ millions, unless otherwise stated)
Cash and cash equivalents
Marketable securities
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 securities(1)
2023
2022
$
20,338
$
19,153
77,191
126,992
1,971
24,211
230,365
$ 250,703
70,508
126,893
2,286
22,221
221,908
$ 241,061
(1) Including $11.0 billion encumbered cash and cash equivalents and marketable securities as at December 31, 2023 (2022 – $13.3 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, 2023 (2022 – $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, 2023, JHUSA had an estimated maximum borrowing capacity of US$4.3 billion (2022 – US$3.8 billion) based on
regulatory limitations with an outstanding balance of US$500 million (2022 – US$500 million), under the FHLBI facility.
The following table outlines the maturity of the Company’s significant financial liabilities.
Maturity of financial liabilities(1)
As at December 31, 2023
($ millions)
Long-term debt
Capital instruments
Derivatives
Deposits from
Lease liabilities
Bank clients(2)
Less than
1 year
$
–
594
1,561
16,814
100
1 to 3
years
3 to 5
years
Over 5
years
$ 1,672
–
1,982
2,963
133
$ 920
–
717
1,839
68
$ 3,479
6,073
7,427
–
49
Total
$ 6,071
6,667
11,687
21,616
350
(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, 2023 was $21,616 million and $21,518 million, respectively (2022 – $22,507 million and
$22,271 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 (2022 – Level 2).
64
| 2023 Annual Report | Management’s Discussion and Analysis
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 $470.2 billion as at December 31,
2023 (2022 – $477.7 billion).
Market Risk Sensitivities and Market Risk Exposure Measures
Variable Annuity and Segregated Fund Guarantees Sensitivities and Risk Exposure Measures
Guarantees on variable annuity products and segregated funds may include one or more of death, maturity, income and withdrawal
guarantees. Variable annuity and segregated fund guarantees are contingent and only payable upon the occurrence of the relevant event,
if fund values at that time are below guarantee values. Depending on future equity market levels, liabilities on current in-force business
would be due primarily in the period from 2023 to 2043.
We seek to mitigate a portion of the risks embedded in our retained (i.e. net of reinsurance) variable annuity and segregated fund
guarantee business through the combination of our dynamic and macro hedging strategies (see “Publicly Traded Equity Performance Risk”
below).
The table below shows selected information regarding the Company’s variable annuity and segregated fund investment-related guarantees
gross and net of reinsurance.
Variable annuity and segregated fund guarantees, net of reinsurance
As at December 31,
($ 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
2023
2022
Guarantee
value(1)
$ 3,864
34,833
18,996
57,693
9,133
66,826
24,208
3,400
27,608
$ 39,218
Fund value
$ 2,735
33,198
19,025
54,958
17,279
72,237
23,146
2,576
25,722
$ 46,515
Net
amount at
risk(1),(2),(3)
$ 1,156
4,093
116
5,365
975
6,340
3,395
482
3,877
$ 2,463
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
(1) Guarantee Value and Net Amount at Risk in respect of guaranteed minimum withdrawal business in Canada and the U.S. 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, 2023 was $2,463 million (December 31, 2022 – $3,829 million) of which: US$391 million (December 31, 2022 –
US$737 million) was on our U.S. business, $1,559 million (December 31, 2022 – $2,154 million) was on our Canadian business, US$140 million (December 31, 2022 – US$275
million) was on our Japan business and US$155 million (December 31, 2022 – US$224 million) was related to Asia (other than Japan) and our run-off reinsurance business.
(4) Where a policy includes both living and death benefits, the guarantee in excess of the living benefit is included in the death benefit category as outlined in footnote 5.
(5) Death benefits include standalone guarantees and guarantees in excess of living benefit guarantees where both death and living benefits are provided on a policy.
Investment categories for variable contracts with guarantees
Variable contracts with guarantees, including variable annuities and variable life, are invested, at the policyholder’s discretion subject to
contract limitations, in various fund types within the segregated fund accounts and other investments. The account balances by investment
category are set out below.
As at December 31,
($ millions)
Investment category
Equity funds
Balanced funds
Bond funds
Money market funds
Other fixed interest rate investments
Total
2023
2022
$ 45,593
35,801
8,906
1,559
1,907
$ 93,766
$ 42,506
36,290
9,336
1,924
2,029
$ 92,085
65
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. 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 liabilities from updates to non-economic
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
contractual service margin (“CSM”), net income attributed to shareholders, other comprehensive income attributed to shareholders, and
total comprehensive income attributed to shareholders or on MLI’s LICAT ratio will be as indicated.
Market movements affect LICAT capital sensitivities through the available capital, surplus allowance and required capital components of
the regulatory capital framework. The LICAT available capital component is primarily affected by total comprehensive income and the CSM.
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 insurance contract 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 contracts.
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 tables below include the potential impacts from an immediate 10%, 20% and 30% change in market values of publicly traded equities
on CSM, net income attributed to shareholders, other comprehensive income attributed to shareholders, and total comprehensive income
attributed to shareholders. 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 change in 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 offset 95% of the hedged variable annuity liability movement that occurs as a result of
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 adoption of IFRS 17 did not change the method or assumptions used for deriving sensitivity information.
Changes in equity markets impact our available and required components of the LICAT ratio. The second set of tables shows the potential
impact to MLI’s LICAT ratio resulting from changes in public equity market values.
66
| 2023 Annual Report | Management’s Discussion and Analysis
Potential immediate impact on net income attributed to shareholders arising from changes to public equity returns(1)
As at December 31, 2023
($ millions)
Underlying sensitivity
Variable annuity guarantees(2)
General fund equity investments(3)
Total underlying sensitivity before hedging
Impact of macro and dynamic hedge assets(4)
Net potential impact on net income attributed to shareholders after
impact of hedging and before impact of reinsurance
Impact of reinsurance
Net potential impact on net income attributed to shareholders after
Net income attributed to shareholders
-30%
-20%
-10%
+10%
+20%
+30%
$ (2,370) $ (1,460) $
(1,170)
(3,540)
880
(770)
(2,230)
530
(670) $
(390)
(1,060)
240
550
380
930
(190)
$ 1,010
760
1,770
(340)
$
(2,660)
1,470
(1,700)
900
(820)
420
740
(350)
1,430
(650)
1,390
1,140
2,530
(460)
2,070
(910)
impact of hedging and reinsurance
$ (1,190) $
(800) $
(400) $ 390
$
780
$ 1,160
As at December 31, 2022
($ millions)
Underlying sensitivity
Variable annuity guarantees(2)
General fund equity investments(3)
Total underlying sensitivity before hedging
Impact of macro and dynamic hedge assets(4)
Net potential impact on net income attributed to shareholders after
impact of hedging and before impact of reinsurance
Impact of reinsurance
Net potential impact on net income attributed to shareholders after
Net income attributed to shareholders
-30%
-20%
-10%
+10%
+20%
+30%
$ (2,110)
(1,450)
(3,560)
930
$ (1,310) $
(920)
(2,230)
570
(610)
(420)
(1,030)
260
$ 530
400
930
(220)
$
980
780
1,760
(400)
$ 1,360
1,170
2,530
(540)
(2,630)
1,170
(1,660)
740
(770)
350
710
(310)
1,360
(580)
1,990
(810)
impact of hedging and reinsurance
$ (1,460) $
(920) $
(420) $
400
$
780
$
1,180
(1) See “Caution related to sensitivities” above.
(2) For variable annuity contracts measured under VFA the impact of financial risk and changes in interest rates adjusts CSM, unless the risk mitigation option applies. The
Company has elected to apply risk mitigation and therefore a portion of the impact is reported in net income attributed to shareholders instead of adjusting the CSM. If the
CSM for a group of variable annuity contracts is exhausted the full impact is reported in net income attributed to shareholders.
(3) This impact for general fund equity investments includes general fund investments supporting our insurance contract liabilities, investment in seed money investments (in
segregated and mutual funds made by Global WAM segment) and the impact on insurance contract liabilities related to the projected future fee income on variable universal
life and other unit linked products. The impact does not include any potential impact on public equity weightings. 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.
(4) Includes the impact of assumed rebalancing of equity hedges in the macro and dynamic hedging program. The impact of dynamic hedge represents the impact of equity
hedges offsetting 95% of the dynamically hedged variable annuity liability movement that occurs as a result of market changes, but does not include any impact in respect of
other sources of hedge accounting ineffectiveness (e.g. fund tracking, realized volatility and equity, interest rate correlations different from expected among other factors).
67
Potential immediate impact on contractual service margin, other comprehensive income to shareholders, total comprehensive
income to shareholders and MLI’s LICAT ratio from changes to public equity market values(1),(2),(3)
As at December 31, 2023
-30%
-20%
-10%
+10%
+20%
+30%
Variable annuity guarantees reported in CSM
Impact of risk mitigation — hedging(4)
Impact of risk mitigation — reinsurance(4)
VA net of risk mitigation
General fund equity
Contractual service margin ($ millions, pre-tax)
Other comprehensive income attributed to shareholders
($ millions, post-tax)(5)
Total comprehensive income attributed to shareholders
($ millions, post-tax)
MLI’s LICAT ratio (change in percentage points)
As at December 31, 2022, except MLI LICAT,
which is as at January 1, 2023(6)
Variable annuity guarantees reported in CSM
Impact of risk mitigation — hedging(4)
Impact of risk mitigation — reinsurance(4)
VA net of risk mitigation
General fund equity
Contractual service margin ($ millions, pre-tax)
Other comprehensive income attributed to shareholders
($ millions, post-tax)(5)
Total comprehensive income attributed to shareholders
($ millions, post-tax)
MLI’s LICAT ratio (change in percentage points)(6)
$ (3,810) $ (2,370) $ (1,100) $
700
1,140
1,150
1,850
(810)
(940)
(530)
(610)
$ (1,750) $ (1,140) $
310
530
(260)
(300)
(560) $
940
(250)
(450)
240
290
530
$ 1,760
(450)
(830)
480
590
$ 1,070
$ 2,470
(600)
(1,150)
720
870
$ 1,590
$
(730) $
(490) $
(240) $
230
$
460
$
680
$ (1,920) $ (1,290) $
(3)
(2)
(640) $
(1)
620
1
$ 1,240
2
$ 1,840
2
-30%
-20%
-10%
+10%
+20%
+30%
$ (3,410) $ (2,140) $ (1,010) $ 890
(280)
(390)
220
240
$ 460
1,200
1,480
(730)
(520)
$ (1,250) $
740
930
(470)
(370)
(840) $
340
440
(230)
(210)
(440)
$ 1,670
(510)
(730)
430
490
920
$
$ 2,360
(690)
(1,030)
640
730
$ 1,370
$
(620)
$
(410)
$
(210)
$ 210
$
400
$
600
$ (2,080) $ (1,330) $
(3)
(2)
(630) $ 610
1
(1)
$ 1,180
2
$ 1,780
3
(1) See “Caution related to sensitivities” above.
(2) 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 offset 95% of the
hedged variable annuity liability movement that occur as a result of market changes.
(3) The Office of the Superintendent of Financial Institutions (“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.
(4) For variable annuity contracts measured under VFA the impact of financial risk and changes in interest rates adjusts CSM, unless the risk mitigation option applies. The
Company has elected to apply risk mitigation and therefore a portion of the impact is reported in net income attributed to shareholders instead of adjusting the CSM. If the
CSM for a group of variable annuity contracts is exhausted the full impact is reported in net income attributed to shareholders.
(5) The impact of financial risk and changes to interest rates for variable annuity contracts is not expected to generate sensitivity in Other Comprehensive Income.
(6) LICAT capital sensitivity is based on the 2023 LICAT guideline that became effective January 1, 2023.
Interest Rate and Spread Risk Sensitivities and Exposure Measures
As at December 31, 2023, we estimated the sensitivity of our net income attributed to shareholders to a 50 basis point parallel decline in
interest rates to be a benefit of $100 million, and to a 50 basis point parallel increase in interest rates to be a charge of $100 million.
The table below shows the potential impacts from a 50 basis point parallel move in interest rates on CSM, net income attributed to
shareholders, other comprehensive income attributed to shareholders, and total comprehensive income attributed to shareholders. This
includes a change 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. Also shown separately are the potential impacts from a 50 basis point parallel move in
corporate spreads and a 20 basis point parallel move in swap spreads. The impacts reflect the net impact of movements in asset values in
liability and surplus segments and movements in the present value of cash flows for insurance contracts including those with cash flows
that vary with the returns of underlying items where the present value is measured by stochastic modelling. The method used for deriving
sensitivity information and significant assumptions made did not change from the previous period.
The disclosed interest rate sensitivities reflect the accounting designations of our financial assets and corresponding insurance contract
liabilities. In most cases these assets and liabilities are designated as fair value through other comprehensive income (“FVOCI”) and as a
result, impacts from changes to interest rates are largely in other comprehensive income. There are also changes in interest rates that
impact the CSM for VFA contracts that relate to amounts that are not passed through to policyholders. In addition, changes in interest rates
impact net income as it relates to derivatives not in hedge accounting relationships and on VFA contracts where the CSM has been
exhausted.
The disclosed interest rate sensitivities assume no hedge accounting ineffectiveness, as our hedge accounting programs are optimized for
parallel movements in interest rates, leading to immaterial net income impacts under these shocks. However, the actual hedge accounting
ineffectiveness is sensitive to non-parallel interest rate movements and will depend on the shape and magnitude of the interest rate
movements which could lead to variations in the impact to net income attributed to shareholders.
68
| 2023 Annual Report | Management’s Discussion and Analysis
Our sensitivities vary across all regions in which we operate, and the impacts of yield curve changes will vary depending upon the
geography where the change occurs. Furthermore, the impacts from non-parallel movements may be materially different from the
estimated impacts of parallel movements.
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 impacts also do not take into account other potential effects of changes in interest rate levels, for example, CSM at
recognition on the sale of new business or lower interest earned on future fixed income asset purchases.
The impacts do not reflect any potential effect of changing interest rates on the value of our ALDA. 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 below under “Alternative long-duration asset performance risk sensitivities and exposure measures”.
The impact to the LICAT ratio from a change in interest rates reflects the impacts on total comprehensive income, the LICAT adjustments
to earnings for the CSM, the surplus allowance and required capital components of the regulatory capital framework.
Potential impacts on contractual service margin, net income attributed to shareholders, other comprehensive income attributed to
shareholders, and total comprehensive income attributed to shareholders of an immediate parallel change in interest rates,
corporate spreads or swap spreads relative to current rates(1),(2),(3),(4)
As at December 31, 2023
($ millions, post-tax except CSM)
CSM
Net income attributed to shareholders
Other comprehensive income attributed to shareholders
Total comprehensive income attributed to shareholders
As at December 31, 2022
($ millions, post-tax except CSM)
CSM
Net income attributed to shareholders
Other comprehensive income attributed to shareholders
Total comprehensive income attributed to shareholders
Interest rates
Corporate spreads
Swap spreads
-50bp
+50bp
-50bp
+50bp
-20bp
+20bp
$
–
100
(300)
(200)
$ (100) $
(100)
300
200
–
–
(200)
(200)
$ (100)
–
300
300
$
–
100
(100)
–
$
–
(100)
100
–
Interest rates
Corporate spreads
Swap spreads
-50bp
+50bp
-50bp
+50bp
-20bp
+20bp
$ (100) $
1,700
(1,900)
(200)
–
(1,500)
1,600
100
$ (100) $
–
–
–
$
$
–
–
–
–
–
–
–
–
–
–
–
–
(1) See “Caution related to sensitivities” above.
(2) Estimates include changes to the net actuarial gains/losses with respect to the Company’s pension obligations as a result of changes in interest rates.
(3) 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.
(4) The Company adopted IFRS 9 hedge accounting prospectively from January 1, 2023, as such the sensitivity results for 2023 and 2022 are based on different accounting
basis in which 2023 includes the impacts of hedge accounting and 2022 does not.
Swap spreads remain at low levels, and if they were to rise, this could generate material changes to net income attributed to shareholders.
Potential impact on MLI’s LICAT ratio of an immediate parallel change in interest rates, corporate spreads or swap spreads relative
to current rates(1),(2),(3),(4),(5)
As at December 31, 2023
(change in percentage points)
MLI’s LICAT ratio
As at January 1, 2023
(change in percentage points)
(6)
MLI’s LICAT ratio
Interest rates
Corporate spreads
Swap spreads
-50bp
+50bp
-50bp
+50bp
-20bp
+20bp
–
–
(4)
4
–
–
Interest rates
Corporate spreads
Swap spreads
-50bp
+50bp
-50bp
+50bp
-20bp
+20bp
(1)
1
(3)
3
–
–
(1) See “Caution related to sensitivities” above.
(2) In addition, estimates include changes to the net actuarial gains/losses with respect to the Company’s pension obligations as a result of changes in interest rates.
(3) 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.
(4) LICAT impacts reflect the impact of anticipated scenario switches.
(5) 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 reflect the impact of anticipated scenario switches.
(6) LICAT capital sensitivity is based on the 2023 LICAT guideline that became effective January 1, 2023.
69
LICAT Scenario Switch
When interest rates change 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’s
LICAT guideline.
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 current level of interest rates in 2023, the probability of a scenario switch that could materially impact our LICAT ratio is low2.
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 LICAT guideline. The LICAT interest rate, corporate spread and swap spread
sensitivities presented above reflect the impact of scenario switches, if any, for each disclosed sensitivity.
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
changes 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 CSM, net income attributed to shareholders, other comprehensive income attributed to
shareholders, and total comprehensive income attributed to shareholders resulting from an immediate 10% change in market values of
ALDA. The method used for deriving sensitivity information and significant assumptions made did not change from the previous period.
ALDA includes commercial real estate, timber and farmland real estate, infrastructure, and private equities, some of which relate to
energy3.
The impacts do not reflect any future potential changes to non-fixed income return volatility. Refer to “Publicly traded equity performance
risk sensitivities and exposure measures” above for more details.
Potential immediate impacts on contractual service margin, net income attributed to shareholders, other comprehensive income
attributed to shareholders, and total comprehensive income attributed to shareholders from changes in ALDA market values(1)
As at
($ millions, post-tax except CSM)
CSM excluding NCI
Net income attributed to shareholders(2)
Other comprehensive income attributed to shareholders
Total comprehensive income attributed to shareholders
December 31, 2023
December 31, 2022
-10%
+10%
-10%
+10%
$
(100) $ 100
2,400
200
2,600
(2,400)
(200)
(2,600)
$
(100) $ 100
2,500
100
2,600
(2,500)
(100)
(2,600)
(1) See “Caution related to sensitivities” above.
(2) Net income attributed to shareholders includes core earnings and the amounts excluded from core earnings.
Potential immediate impact on MLI LICAT ratio arising from changes in ALDA market values(1)
(change in percentage points)
MLI’s LICAT ratio
(1) See “Caution Related to Sensitivities” above.
(2) LICAT capital sensitivity is based on the 2023 LICAT guideline that became effective January 1, 2023.
December 31, 2023
January 1, 2023(2)
-10%
(2)
+10%
2
-10%
(3)
+10%
3
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 currency exchange rate changes. As at December 31, 2023, 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.
1 LICAT geographic locations to determine the most adverse scenario include North America, the United Kingdom, Europe, Japan and Other Region.
2 See “Caution regarding forward-looking statements” above.
3 Energy includes legacy oil and gas equity interests related to upstream and midstream assets that are in runoff, and Energy Transition private equity interests in areas
supportive of the transition to lower carbon forms of energy, such as wind, solar, batteries, and magnets.
70
| 2023 Annual Report | Management’s Discussion and Analysis
Potential impact on core earnings of changes in foreign exchange rates(1),(2)
As at December 31,
($ millions)
2023
2022
+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
$ (390)
(40)
$ 390
40
$ (320)
(40)
$ 320
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 varying 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.
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 have 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 the risk-free rate plus an adjustment for
product illiquidity assumed in our actuarial valuation, additional liabilities may need to be established to cover the contingent liabilities,
resulting in reductions that could impact net income attributed to shareholders, the contractual service margin, 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, unit linked products, and other wealth and insurance
products.
• Where publicly traded equity investments are used to support general fund product liabilities, adverse public equity returns and
associated impacts to insurance contract liabilities from certain product features such as universal life minimum crediting rate
guarantees, or participating product zero dividend floor implicit guarantees, could result in a reduction to the contractual services
margin or total comprehensive income.
We experience interest rate and spread risk within the general fund primarily due to differences in how our assets and liabilities
respond to changes in these variables.
• Interest rate and spread risk arises from differences in the movements of our assets and liabilities due to changes in these variables.
For our assets, changes in value from movements in interest rates and spreads would vary by asset and would be impacted by factors
such as duration and credit rating. For insurance contract liabilities, which are discounted using risk-free yields adjusted by an illiquidity
premium, changes in the value would be impacted by factors such as the duration of the liability, and the spread exposure through the
71
illiquidity premium. To the extent that there are mismatches between the assets and liabilities such as through differences in duration,
or differences in spread exposure, interest rate or spread movements could result in a reduction in the contractual service margin or
total comprehensive income.
• 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”.
We experience ALDA performance risk from the risk of low returns, including lower valuations.
•
ALDA performance risk arises from general fund investments in directly-owned real estate, timber properties, farmland properties,
infrastructure, private equities, and oil and gas and energy transition assets.
• 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. Continual advances in the digitization of work and the
transformation of physical retail may have further negative impact to our commercial real estate investments. 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.
• The value of oil and gas and energy transition 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.
• Higher interest rates, in combination with uncertain economic environments, could precipitate higher ALDA discount rates as buyers
begin to demand higher current returns to invest in ALDA. Since ALDA cash flows may, to some degree, be fixed in the near to medium
term, some ALDA values may initially decline in order for the asset returns to meet the desired higher discount rates in future periods,
resulting in lowered current portfolio returns.
• 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 valuations are based on external 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.
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.
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 and interest rates 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 and segregated
funds 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”.
72 | 2023 Annual Report | Management’s Discussion and Analysis
•
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 and segregated funds 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 and segregated funds being hedged.
• 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.
Prolonged 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 lower net investment results and a decrease in new
business CSM until products are repositioned for the lower rate environment. Other potential consequences of low interest rates include:
Negative impact on sales and reduced new business profitability;
O
O Increased cost of hedging and as a result, the offering of guarantees could become uneconomic;
O 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 Negative impacts to other macroeconomic factors including unfavourable economic growth and lower returns on other asset
classes;
O Potential impairments of goodwill;
O Lower expected earnings on in-force policies;
O Potential risk of lowering the ultimate spot rate within our discount rates that would increase our liabilities;
O A switch in the prescribed interest stress scenario that impacts LICAT capital. See “LICAT Scenario Switch” above; and
O Reduced ability of MFC’s insurance subsidiaries to pay dividends to MFC.
• While higher interest rates are generally good for our business, there are some associated risks. A rapid rise in interest rate or a
prolonged high-rate environment may result in material changes in policyholder behavior such as higher surrenders, withdrawals,
changes in fund contributions or fund transfers. Other potential consequences of rapid rise in or prolonged high interest rates include:
O
Decrease in value of existing fixed income assets supporting general account surplus and liabilities, including the employee
benefit plans;
O Losses attributable to early liquidation of fixed income instruments supporting contractual surrender benefits;
O Decline in value of some of our ALDA investments, particularly those with fixed contractual cash flows such as long-leased real
estate and certain infrastructure investments;
O Increase in collateral demands, especially for our interest rate hedging book which incurs market-to-market losses in a rising rate
environment;
O Adverse effect on the local solvency ratio for some countries in which we operate;
O A switch in the prescribed interest stress scenario that impacts LICAT capital. See “LICAT Scenario Switch” above;
O Shift in new sales mix from competitive pressure on wealth products that are less attractive on a yield basis;
O Increase in funding costs on repurchase agreements (i.e., repo transactions); and
O Increase in borrowing costs as we refinance our debt.
The global interest rate benchmark reform, leading to the transition away from IBORs to alternative reference rates based on risk-
free rates, may impact the value of our IBOR-based financial instruments.
• Various interest rate benchmarks, including Interbank Offered Rates (IBORs) such as London Interbank Offered Rate (LIBOR) and
Canadian Dollar Offered Rate (CDOR), are the subject of international regulatory guidance and proposals for reform. Regulators in
various jurisdictions have pushed for the transition of IBORs to alternative reference rates based on risk-free rates. Manulife holds
different types of instruments, including derivatives, bonds, loans, and other floating rate instruments that reference IBORs. Changes
from IBORs to alternative reference rates that have different characteristics compared to IBORs 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 IBORs or to
IBOR alternatives. There can be no assurance that alternative reference rates will perform in the same way as IBORs 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.
73
•
Further to previous announcements by various regulators, the publication of GBP, EUR, CHF and JPY LIBOR settings, as well as one-
week and two-month USD LIBOR settings was discontinued on December 31, 2021. The publication of the remaining USD LIBOR tenors
(overnight and one, three, six and twelve-month USD LIBOR) was discontinued on June 30, 2023. We have successfully transitioned our
exposures to the LIBOR rates that decommissioned on December 31, 2021 and June 30, 2023.
• In December 2021, the Canadian Alternative Reference Rate (CARR) working group recommended that the administrator of CDOR,
Refinitiv Benchmark Services (UK) Limited (RBSL), cease publication of CDOR after the end of June 2024. On May 16, 2022, RBSL
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, with limited
exceptions. OSFI also expects Federally Regulated Financial Institutions (FRFIs) to transition all loan agreements referencing CDOR by
June 28, 2024, including prioritizing system and model updates to accommodate the use of Canadian Overnight Repo Rate Average
(CORRA), the alternative reference rate to which CDOR is expected to transition, or any alternative reference rates, as necessary. In July
2023, CARR announced that there should be no new CDOR or Banker’s Acceptance (BA) loans after November 1, 2023 to facilitate a
tapered transition for the loan market. Manulife has incorporated these developments in its project plan to align with updated timelines
and ensure an orderly transition. We continue to monitor market developments, changes, and guidance from regulators on the interest
rate benchmark reform.
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 deposits sensitive to confidence or broad macroeconomic factors.
• 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 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, combined 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 further increase our liquidity needs.
• 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, 2023, letters of credit for which third parties are
beneficiaries, in the amount of $466 million, were outstanding. There were no assets pledged against these outstanding letters of
credit as at December 31, 2023.
• 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 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, 2023, total pledged assets were $13,840 million, compared with $16,221 million as at December 31, 2022.
74 | 2023 Annual Report | Management’s Discussion and Analysis
• Our bank subsidiary relies on deposits sensitive to confidence as well as macroeconomic conditions.
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 company 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 and home equity lines of credit, which represent long-term funding obligations. Manulife Bank is a member of
the Canadian Deposit Insurance Corporation (CDIC) which insures demand deposits up to $100,000 per eligible depositor. Insured
demand deposits are less susceptible to runoff and a significant proportion of Manulife Bank’s deposits are CDIC insured. If deposit
withdrawal speeds exceed our extreme stress test assumptions, mitigation strategies outlined in the Bank’s liquidity contingency plan
will be executed and the Bank may choose to sell or securitize assets with third parties. There is no guarantee that the Bank will be able
to sell or securitize the assets or that its customers will be able to repay their indebtedness. In such circumstances, Manulife Bank may
consider the use of Bank of Canada facilities to generate liquidity to pay depositors; however, access to these facilities is at the sole
discretion of the Bank of Canada and they provide only short-term liquidity.
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 14, 2024 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.
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 the replacement cost,
which reflects mark-to-market values of the exposure adjusted for the effects of net collateral, and the potential future exposure, which
reflects the potential increase in exposure until the closure or replacement of the transactions. Reinsurance counterparty exposure is
measured reflecting the level of ceded liabilities on a best estimate basis 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 prompt identification of changes to credit quality
and, where appropriate, taking corrective action.
75
We establish Expected Credit Loss (“ECL”) allowances for investments in debt instruments which are measured at FVOCI or amortized cost.
On an ongoing basis, ECL allowances are monitored for changes in credit quality and adjusted accordingly. Credit risk which arises from
reinsurance counterparties is included in the valuation models of reinsurance contract assets. There is no assurance that the ECL
allowances or valuation results will be adequate to cover future potential losses.
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 as a result.
Credit Risk Exposure Measures
We use the ECL impairment allowance model in accordance with IFRS to establish and maintain allowances on our invested assets which
are debt instruments measured at FVOCI or amortized cost. ECL allowances are measured on a probability-weighted basis, based on four
macroeconomic scenarios, and incorporate consideration of past events, current market conditions, and reasonable supportable
information about future economic conditions.
We measure ECL allowances using a three-stage approach. We recognize ECL on performing financial instruments that have not
experienced significant increases in credit risk since acquisition to the extent of losses expected to result from defaults occurring within 12
months of the reporting date (Stage 1). Full lifetime ECLs are recognized for financial instruments experiencing significant increase in
credit risk since acquisition or having become 30 days in arrears in principal or interest payments (Stage 2). Full lifetime ECLs are also
recognized for financial instruments which have become credit-impaired (Stage 3), with a probability of default set at 100%. Interest
income on Stage 3 financial instruments is determined based on the carrying amount of the asset, net of any credit loss allowance.
For more information on our ECL allowances, refer to notes 1 and 9 of the 2023 Annual Consolidated Financial Statements.
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 allowances or impairments related to our general fund invested assets and derivative financial instruments, and an increase in
the credit risk factored into modeling of our reinsurance contract assets and insurance contract liabilities.
Our invested assets subject to credit risk primarily include investment grade bonds, private placements, commercial mortgages, asset-
backed securities, and consumer loans. These assets are generally carried at FVOCI, and as a result of ECL modeling changes in various
elements used in ECL calculations would be recorded as a charge against income. The return cash inflow 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. The ECL impairment allowance was $929 million, representing 0.22% of total general fund invested assets as at
December 31, 2023, compared with $724 million, representing 0.18% of total general fund invested assets on implementation of IFRS 9,
effective January 1, 2023.
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, 2023, the largest single counterparty exposure, without taking into account the impact of
master netting agreements or the benefit of collateral held, was $1,357 million (2022 – $1,582 million). The net exposure to this
counterparty, after taking into account master netting agreements and the fair value of collateral held, was $nil (2022 – $nil). As at
December 31, 2023, 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 $9,044 million (2022 – $9,072 million) compared with
$154 million after taking into account master netting agreements and the benefit of fair value of collateral held (2022 – $215 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 those derivatives 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 decrease reinsurance contract held assets, 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
76 | 2023 Annual Report | Management’s Discussion and Analysis
to the insureds. Should the purchasers be unable or unwilling to fulfill their contractual obligations under the reinsurance agreement,
we would need to decrease reinsurance contract held assets 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, 2023, the Company had loaned securities (which are included in invested
assets) valued at approximately $626 million, compared with $723 million as at December 31, 2022.
The determination of loss allowances and impairments on our investments is subjective and changes could materially impact our
results of operations or financial position.
•
The determination of impairment losses on debt investments measured at FVOCI or amortized cost is based upon the expected credit
loss (“ECL”) model which is applied quarterly. ECL allowances are measured under four probability-weighted macroeconomic scenarios
and are estimated as the differences between all contractual cash flows that are due in accordance with the contract and all the cash
flows that we expect to receive, discounted at the original effective interest rates of the contracts. 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 loss
expectations for the relevant issuance.
• The estimation and measurement of ECL 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, our criteria for assessing if there has been a significant increase in credit risk (“SICR”), the selection of forward-
looking 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 our process to regularly review our models in the context of actual loss
experience and adjust when necessary. We have implemented formal policies, procedures, and controls over all significant impairment
processes.
• 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 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 insurance and investment contract 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
• internal risk based capital allocations
• target profit objectives
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
77
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 insurance and investment contract 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 insurance contract 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 to ensure that notable product offerings align with Global WAM risk taking
philosophy and risk appetite.
Product Risk Factors
Losses may result should actual experience be materially different than that assumed in the valuation of insurance contract
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 insurance contract liabilities and the review may result in an increase in insurance
contract 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
insurance contract liabilities reflect our estimates of the impact of these price increases, but should we be less successful than
anticipated in obtaining them, then insurance contract liabilities could increase accordingly and reduce net income attributed to
shareholders.
78 | 2023 Annual Report | Management’s Discussion and Analysis
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 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 financial impacts including charges to earnings and/or CSM, an increase in the
cost of reinsurance and the assumption of more risk on business already reinsured.
• In addition, an increase in the cost of reinsurance could also adversely affect our ability to write future new 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, or 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 talent
management 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
79
focus on the effective management of our key global operational risks. An Operational Risk Committee oversees all operational risk
matters, including 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,
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 14, 2024 and note 19 of the 2023 Annual Consolidated Financial Statements.
Business Continuity Risk Management Strategy
Our enterprise-wide business continuity and disaster recovery program includes policies, plans and procedures that seek to minimize the
impact of disruptions resulting from internal or external factors (including natural or human-made disasters), and is designed to ensure
that key business services and 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 which through regular monitoring and
assessment, are recalibrated to meet evolving environment conditions and business requirements. 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
risk reporting; providing advisory services to Global Technology and the segments around current and evolving 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. The Board’s Risk Committee regularly reviews the Company’s information security program, including cyber security risks, mitigation
and resilience, and engages in discussions regarding the effectiveness of the program for identifying and addressing relevant risks.
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 multiple 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
80
| 2023 Annual Report | Management’s Discussion and Analysis
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, 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
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.
• Market fluctuations aside, the competition for top talent and key capabilities continues to be fierce. Our ability to attract external talent
while developing our own internal capabilities is core to our high performing team ambitions. Our industry continues to require specific
core capabilities and in meeting those talent needs we compete against other insurance companies, financial institutions, and wealth
management organizations to attract talent. We also compete against organizations across many industries for digital talent, functional
experts, leaders, and sales talent. To find the talent we need to deliver on our strategic objectives and maintain our competitive
advantage, our core approach is focused on building enhanced talent networks to entice top candidates in the market. The risk of other
organizations both inside and outside of our geographic footprint targeting our employees is heightened as companies maintain 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. We help ensure that our value proposition remains
competitive and current through offerings such as flexible work arrangements, learning investments, wellbeing, recognition & incentive
programs, and a culture that strives to be recognized as a top employer within the markets we operate.
If we are not able to attract, motivate and retain agency leaders and individual agents, our competitive position, growth and
profitability will suffer.
• The attraction and motivation of productive and engaged sales representatives (agents) is critical to achieving our financial targets and
a positive customer experience and brand. We compete with other financial services companies for sales representatives primarily
based on the opportunity available, our brand and culture, support services, compensation and product features. Negative changes to
any of these factors, or falling below market competitive levels, could impact our ability to attract, retain and engage sufficient sales
representatives which could pose a risk to our business objectives and ambitions and could have a material adverse effect on our
business, results of operations and financial condition.
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 several key projects in order to implement our business strategies and successfully achieve 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 processed by the organization and third parties, 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 the necessary monitoring, 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 liquidity risk
management, 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.
81
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 differ
from past behaviour. Furthermore, data or models we use 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 Asian markets. Some of these markets are developing and are rapidly growing countries 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 tensions may create a more challenging operating
environment for Manulife. In addition, the military conflicts in the Middle East and in Ukraine may negatively impact 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.
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 2023 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.
82 | 2023 Annual Report | Management’s Discussion and Analysis
• We take measures to plan, structure and protect against routine events that may impact our operations, and maintain plans to recover
from unpredictable events. 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 many external threats.
• Fraud incidents could adversely impact our business, results of operations, financial condition, and reputation. Anti-Fraud policies and
standards are in place to guide our organization in the implementation of controls to protect against, detect and recover from ever-
evolving fraud risks, such as distributor, underwriting, disbursement, account take-over, claims, bank, and others. The Global Anti-Fraud
Office with Global Compliance is responsible for governance and oversight of external fraud risks.
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.
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 cleanup, 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.
83
Pandemic risk and potential implications of COVID-19
Governments and businesses continue to navigate the longer-term implications from COVID-19, including economic, legal, regulatory, tax,
and other responses that could have a significant adverse impact on our global business operations and financial results. The pace of
recovery, or any resurgence of COVID-19, may continue to differ across geographies in which we operate, which could impact the execution
of our business strategies.
•
We purchase reinsurance protection on certain risks underwritten or assumed by our various insurance businesses. As either a direct or
indirect result of COVID-19, we may find reinsurance more difficult or costly to obtain.
• 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 implementation of widespread remote or hybrid work arrangements continues to heighten operational risks, including, but not
limited to, cyber, fraud, money laundering, information security, privacy, and third-party risks. We rely on our risk management
strategies to monitor and mitigate these and other operational risks.
• 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 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.
Evolving Risks
The identification and assessment of our external environment for evolving risks is an important aspect of our ERM Framework, as these
risks could have the potential to have a material adverse impact on our operations and/or business strategies.
Our Evolving Risk Framework facilitates the ongoing identification, assessment and monitoring of evolving risks, and includes: maintaining
a process for the ongoing discussion and evaluation of such risks with senior leaders; reviewing and validating evolving risks with the ERC;
developing and executing on responses to each evolving risk based on materiality and prioritization; and monitoring and reporting on
evolving risks on a regular basis to the Board’s Risk Committee.
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.
84 | 2023 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 2023 FCT results demonstrate that we would have sufficient assets, under the various adverse scenarios
tested, to discharge our insurance and investment contract 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 Own Risk and Solvency Assessment (“ORSA”) process, which is an internal assessment of an insurer’s
risks, capital needs and solvency position, and is used for setting Internal Capital Targets.
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 2023, we raised a total of $1.2 billion of subordinated debt in Canada, and $0.6 billion of subordinated debt was redeemed at par.
($ millions)
5.409% MFC Subordinated debentures, issued on Mar 10, 2023
3.317% MFC Subordinated debentures, redeemed on May 9, 2023
Total
(1) Represents carrying value, net of issuance costs.
Par value
Issued(1)
$ 1,200
600
$
$ 1,195
–
$ 1,195
Redeemed/
Matured(1)
$
–
600
$ 600
Normal Course Issuer Bid
We announced on February 21, 2023, that the Toronto Stock Exchange (“TSX”) approved a normal course issuer bid (the “2023 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 2023 NCIB commenced on February 23, 2023 and were completed in December
2023. As of December 31, 2023, MFC purchased for cancellation under the 2023 NCIB 55.7 million of its common shares at an average
price of $25.48 per common share for a total cost of $1.4 billion.
Our previous NCIB (the “2022 NCIB”) that was announced on February 1, 2022, expired on February 2, 2023. Under the 2022 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
represented approximately 4.4% of our issued and outstanding common shares.
During 2023, MFC purchased for cancellation 62.6 million of its common shares at an average price of $25.47 per common share for a
total cost of $1.6 billion, including 6.9 million shares for a total cost of $0.2 billion that were purchased under the 2022 NCIB.
85
We have received approval from OSFI to launch an NCIB (the “2024 NCIB”) that permits the purchase for cancellation of up to 50 million
common shares, representing approximately 2.8% of our issued and outstanding common shares, commencing in February 2024. The
2024 NCIB remains subject to the approval of the TSX.
Consolidated Capital
As at December 31,
($ 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
Post-tax CSM
Qualifying capital instruments
Consolidated capital(2)
2023
2022
$ 1,431
257
6,660
40,379
$ 1,427
(77)
6,660
40,216
48,727
26
48,701
18,503
6,667
48,226
8
48,218
15,251
6,122
$ 73,871
$ 69,591
(1) Common shareholders’ equity is equal to total shareholders’ equity less preferred shares and other equity.
(2) Consolidated capital does not include $6.1 billion (2022 – $6.2 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 $73.9 billion as at December 31, 2023, an increase of $4.3 billion compared with $69.6 billion as at
December 31, 2022. The increase was driven by higher post-tax CSM, an increase in total equity, and the net issuance of subordinated
debt. The increase in total equity was due to growth in retained earnings, partially offset by common share buybacks.
Remittance of Capital
As part of its capital management, Manulife promotes internal capital mobility so that 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 MFC from its subsidiaries.
It is a key metric used by management to evaluate our financial flexibility. In 2023, MFC subsidiaries delivered $5.5 billion in remittances
of which Asia and U.S. operations delivered $1.7 billion and $1.5 billion, respectively. This result was driven by underlying cash generation
and some benefits from the impact of markets, particularly on our Canadian surplus bonds, due to the decline in interest rates over the
year. Remittances were $1.4 billion lower than 2022 as prior year remittances benefited from the U.S. variable annuity transaction.
Financial Leverage Ratio
MFC’s financial leverage ratio as at December 31, 2023 was 24.3%, a decrease of 0.8 percentage points from 25.1% as at December 31,
2022. The decrease in the ratio was driven by higher post-tax CSM and an increase in total equity, partially offset by the net issuance of
subordinated debt.
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
2023
2022
$ 1.46
$ 1.32
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 2023, the required common shares in connection with the DRIP were purchased on the open market with no applicable discount.
Regulatory Capital Position
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.
86
| 2023 Annual Report | Management’s Discussion and Analysis
Manulife’s operating activities are conducted within MLI and its subsidiaries. MLI’s LICAT ratio was 137% as at December 31, 2023,
compared with 131% as at December 31, 2022. The six percentage point increase from December 31, 2022 was primarily driven by the
transition to the IFRS 17 accounting basis. Other positive movements included earnings and capital initiatives, partially offset by the capital
impacts of market movements, capital market actions, and shareholder dividends.
MFC’s LICAT ratio was 124% as at December 31, 2023, compared with 119% as at December 31, 2022, with the increase driven by similar
factors that impacted the movement in MLI’s LICAT ratio. The difference between the MLI and MFC ratios is largely due to the $6.1 billion
(2022 – $6.2 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, 2023, resulted in excess capital of $22.3 billion over OSFI’s supervisory target ratio of 100% for MLI,
and $20.7 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 2023, S&P, Moody’s, Morningstar DBRS, 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, 2024.
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
Morningstar DBRS
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
On October 23, 2023, Fitch revised Manulife’s outlook to positive from stable; the positive outlook remained unchanged as of January 31,
2024.
As of January 31, 2024, S&P, Moody’s, Morningstar DBRS, and AM Best had a stable outlook on these ratings. The S&P rating and outlook
for Manulife Life Insurance Company are constrained by the sovereign rating on Japan (A+/Stable).
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 insurance service,
investment result, and other revenues 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 and
reinsurance contract held 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 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 material accounting policies used and the most significant
judgments made by management in applying these accounting policies in the preparation of the 2023 Annual Consolidated Financial
Statements are described in note 1 to the Consolidated Financial Statements.
Critical Actuarial Policies – Insurance and Investment Contract Liabilities
Insurance contract liabilities are determined in Canada under IFRS 17 “Insurance Contracts”, which was issued by the International
Accounting Standards Board (“IASB”) in May 2017 to be effective for years beginning on January 1, 2021. Amendments to IFRS 17 were
issued in June 2020 and included a two-year deferral of the effective date. IFRS 17, as amended, was effective for years beginning on
January 1, 2023, and applies to insurance contracts, reinsurance contracts issued, reinsurance contracts held, and investment contracts
with discretionary participation features.
IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of
the Standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts.
This information provides a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s
financial position, financial performance, and cash flows.
Insurance contract liabilities include the fulfilment cash flows and the contractual service margin. The fulfilment cash flows comprise:
• An estimate of future cash flows
• An adjustment to reflect the time value of money and the financial risk related to the future cash flows if not included in the estimate of
future cash flows
• A risk adjustment for non-financial risk
Estimates of future cash flows including any adjustments to reflect the time value of money and financial risk represent the estimated value
of future policyholder benefits and settlement obligations to be paid over the term remaining on in-force policies, including costs of
servicing the policies, reduced by any future amounts paid by policyholders to the Company for their policies. The determination of
estimates of future cash flows involves the use of estimates and assumptions. To determine the best estimate amount, assumptions must
be made for several key factors, including future mortality and morbidity rates, rates of policy termination and premium persistency,
operating expenses, and certain taxes (other than income taxes). Further information on best estimate assumptions is provided in the
“Best Estimate Assumptions” section below.
To reflect the time value of money and financial risk, estimates of future cash flows are generally discounted using risk-free yield curves
adjusted by an illiquidity premium to reflect the liquidity characteristics of the liabilities. The Company primarily uses a deterministic
projection using best estimate assumptions to determine the present value of future cash flows. However, where there are financial
guarantees such as universal life minimum crediting rates guarantees, participating life zero dividend floor implicit guarantees and
variable annuities guarantees, a stochastic approach to capture the asymmetry of the risk is used. For the stochastic approach the cash
flows are both projected and discounted at scenario specific rates calibrated on average to be the risk-free yield curves adjusted for
illiquidity. The Company disaggregates insurance finance income or expenses on insurance contracts issued for most of its group of
insurance contracts between profit or loss and other comprehensive income (“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 to minimize accounting mismatches between
the accounting for insurance assets and liabilities and supporting financial assets.
Risk adjustments for non-financial risk represent the compensation an entity requires for bearing the uncertainty about the amount and
timing of the cash flows that arises from non-financial risk as the entity fulfills insurance contracts. The risk adjustment considers
insurance, lapse and expense risks, includes both favourable and unfavourable outcomes, and reflects diversification benefits from the
insurance contracts issued. The Company has estimated the risk adjustment using a margin approach. This approach applies a margin for
adverse deviation, typically in terms of a percentage of best estimate assumptions, where future cash flows are uncertain. The resulting
cash flows are discounted at rates consistent with the best estimate cash flows to arrive at the total risk adjustment. The ranges of these
margins are set by the Company and reviewed periodically. The risk adjustment for non-financial risk for insurance contracts correspond to
a 90 - 95% confidence level for all segments. The risk adjustment for non-financial risk leads to higher insurance contract liabilities, but
increases the income recognized in later periods as the risk adjustment releases as the non-financial risk on policies decreases.
88
| 2023 Annual Report | Management’s Discussion and Analysis
The contractual service margin represents the present value of unearned profits the entity will recognize as services are provided in the
future.
Total net insurance contract liabilities were $482.0 billion as at December 31, 2023 (December 31, 2022 – $464.4 billion), reflecting
business growth and foreign exchange impacts.
Best Estimate Assumptions
We follow established processes to determine the assumptions used in the determination of insurance contract liabilities. The nature of
each risk factor and the process for setting the assumptions used in the determination 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 separately accounted for in our reinsurance contract assets or liabilities. 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 and long-term care. Overall 2023
experience was favourable (2022 – 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
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 2023 experience was favourable
(2022 – 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 2023 experience was unfavourable (2022 – unfavourable) when compared with our assumptions.
Directly Attributable Expenses and Taxes
Directly attributable operating expense assumptions reflect the projected costs of maintaining and servicing in-force policies, including
associated directly attributable 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 2023 were unfavourable (2022 –
unfavourable) when compared with our assumptions. Taxes reflect assumptions for future premium taxes and other non-income related taxes.
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 considered in determining the policy adjustments.
Sensitivity of Earnings to Changes in Assumptions
The following tables present information on how reasonably possible changes in assumptions made by the Company on insurance
contracts’ non-economic risk variables and certain economic risk variables impact contractual service margin, net income attributed to
shareholders, other comprehensive income attributed to shareholders, and total comprehensive income attributed to shareholders. For
non-economic risk variables, the impacts are shown separately gross and net of the impacts of reinsurance contracts held. The method
used for deriving sensitivity information and significant assumptions made did not change from the previous period.
The analysis is based on a simultaneous change in assumptions across all businesses and holds all other assumptions constant. In
practice, experience for each assumption will frequently vary by geographic market and business, and assumption updates are specifically
made on a business and geographic 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, actual experience differing from the assumptions, changes in business mix,
effective tax rates, and the general limitations of our internal models.
89
Potential impact on contractual service margin, net income attributed to shareholders, other comprehensive income attributed to
shareholders, and total comprehensive income attributed to shareholders arising from changes to non-economic assumptions(1)
As at December 31, 2023
($ millions, post-tax except CSM)
Policy related assumptions
2% adverse change in future mortality rates(2),(3),(5)
Portfolios where an increase in rates
increases insurance contract liabilities
Portfolios where a decrease in rates increases
insurance contract liabilities
5% adverse change in future morbidity
CSM net of NCI
Net income
attributed to shareholders
Other
comprehensive
income attributed to
shareholders
Total comprehensive
income attributed to
shareholders
Gross
Net
Gross
Net
Gross
Net
Gross
Net
$
(800) $
(200) $
(400) $
(200) $
–
$
–
$
(400) $
(200)
–
(500)
–
–
100
100
–
100
rates(4),(5),(6) (incidence and termination)
(1,500)
(1,300)
(3,300)
(3,300)
500
400
(2,800)
(2,900)
10% change in future policy termination rates(3),(5)
Portfolios where an increase in rates
increases insurance contract liabilities
Portfolios where a decrease in rates increases
(600)
(500)
(100)
(100)
(100)
(100)
(200)
(200)
insurance contract liabilities
5% increase in future expense levels
(1,200)
(600)
(800)
(600)
(400)
–
(300)
–
300
–
200
–
(100)
–
(100)
–
CSM net of NCI
Net income
attributed to shareholders
Other
comprehensive
income attributed to
shareholders
Total comprehensive
income attributed to
shareholders
Gross
Net
Gross
Net
Gross
Net
Gross
Net
As at December 31, 2022
($ millions, post-tax except CSM)
Policy related assumptions
2% adverse change in future mortality rates(2),(3),(5)
Portfolios where an increase in rates
increases insurance contract liabilities
Portfolios where a decrease in rates increases
$ (1,400) $
(600) $
100
$
–
–
$ 100
$
–
$
200
$
–
100
100
–
100
insurance contract liabilities
–
(500)
(100)
5% adverse change in future morbidity
rates(4),(5),(6) (incidence and termination)
10% change in future policy termination rates(3),(5)
Portfolios where an increase in rates
increases insurance contract liabilities
Portfolios where a decrease in rates increases
insurance contract liabilities
5% increase in future expense levels
(1,100)
(1,000)
(3,600)
(3,600)
600
600
(3,000)
(3,000)
(500)
(400)
(100)
(100)
(100)
(100)
(200)
(200)
(1,800)
(800)
(1,200)
(700)
–
–
(100)
–
400
–
300
–
400
–
200
–
(1) The participating policy funds are largely self-supporting and experience gains or losses would generally result in changes to future dividends reducing the direct impact to
the CSM and shareholder income.
(2) An increase in mortality rates will generally increase insurance contract liabilities for life insurance contracts, whereas a decrease in mortality rates will generally increase
insurance contract liabilities for policies with longevity risk such as payout annuities.
(3) The sensitivity is measured for each direct insurance portfolio net of the impacts of any reinsurance held on the policies within that portfolio to determine if the overall
insurance contract liabilities increased.
(4) No amounts related to morbidity risk are included for policies where the insurance contract liability provides only for claims costs expected over a short period, generally less
than one year, such as Group Life and Health.
(5) 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.
(6) This includes a 5% deterioration in incidence rates and 5% deterioration in claim termination rates.
90
| 2023 Annual Report | Management’s Discussion and Analysis
Potential impact on contractual service margin, net income attributed to shareholders, other comprehensive income attributed to
shareholders, and total comprehensive income attributed to shareholders arising from changes to non-economic assumptions on
Long Term Care(1)
As at December 31, 2023
($ millions, post-tax except CSM)
Policy related assumptions
2% adverse change in future mortality rates(2),(3)
5% adverse change in future morbidity incidence
CSM net of NCI
Net income
attributed to shareholders
Other
comprehensive
income attributed to
shareholders
Total comprehensive
income attributed to
shareholders
Gross
Net
Gross
Net
Gross
Net
Gross
Net
$ (300) $ (300) $
–
$
–
$
–
$
–
$
–
$
–
rates(2),(3)
(900)
(900)
(800)
(800)
100
100
(700)
(700)
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)
(900)
(900)
(1,600)
(1,600)
300
300
(1,400)
(1,400)
(400)
(100)
(400)
(100)
–
–
–
–
–
–
–
–
–
–
–
–
As at December 31, 2022
($ millions, post-tax except CSM)
Policy related assumptions
2% adverse change in future mortality rates(2),(3)
5% adverse change in future morbidity incidence
CSM net of NCI
Net income attributed to
shareholders
Other
comprehensive
income attributed
to shareholders
Total comprehensive
income attributed to
shareholders
Gross
Net
Gross
Net
Gross
Net
Gross
Net
$ (400) $ (400) $
–
$
–
$
–
$
–
$
–
$
–
rates(2),(3)
(700)
(700)
(1,100)
(1,100)
200
200
(900)
(900)
5% adverse change in future morbidity claims
termination rates(2),(3)
(700)
(700)
(1,800)
(1,800)
300
300
(1,500)
(1,500)
10% adverse change in future policy termination
rates(2),(3)
5% increase in future expense levels(3)
(400)
(100)
(400)
(100)
–
–
–
–
100
–
100
–
100
–
100
–
(1) Translated from US$ at 1.3186 for 2023 and 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.
(3) The impact of favourable changes to all the sensitivities is relatively symmetrical.
Potential impact on contractual service margin, net income attributed to shareholders, other comprehensive income attributed to
shareholders, and total comprehensive income attributed to shareholders arising from changes to certain economic financial
assumptions used in the determination of insurance contract liabilities(1)
As at December 31, 2023
($ millions, post-tax except CSM)
Financial assumptions
10 basis point reduction in ultimate spot rate
50 basis point increase in interest rate volatility(2)
50 basis point increase in non-fixed income return volatility(2)
As at December 31, 2022
($ millions, post-tax except CSM)
Financial assumptions
10 basis point reduction in ultimate spot rate
50 basis point increase in interest rate volatility(2)
50 basis point increase in non-fixed income return volatility(2)
Net income
attributed to
shareholders
Other
comprehensive
income attributed
to shareholders
Total
comprehensive
income attributed
to shareholders
CSM net of NCI
$ (200)
–
(100)
$ –
–
–
$ (300)
–
–
$ (300)
–
–
Net income
attributed to
shareholders
Other
comprehensive
income attributed
to shareholders
Total
comprehensive
income attributed
to shareholders
CSM net of NCI
$ (300)
(100)
(100)
$ –
–
–
$ (300)
$ (300)
–
–
–
–
(1) Note that the impact of these assumptions are not linear.
(2)
Used in the determination of insurance contract liabilities with financial guarantees. This includes universal life minimum crediting rate guarantees, participating life zero
dividend floor implicit guarantees, and variable annuities guarantees, where a stochastic approach is used to capture the asymmetry of the risk.
91
Review of Actuarial Methods and Assumptions
The Company performs a comprehensive review of actuarial methods and assumptions annually. The review is designed to reduce the
Company’s exposure to uncertainty by ensuring assumptions for liability risks remain appropriate. This is accomplished by monitoring
experience and updating assumptions that represent a best estimate of expected future experience, and margins that are appropriate for
the risks assumed. While the assumptions selected represent the Company’s 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 insurance contract liabilities. The changes implemented from the review are generally implemented in
the third quarter of each year, though updates may be made outside the third quarter in certain circumstances.
2023 Review of Actuarial Methods and Assumptions
On a full year basis, the 2023 review of actuarial methods and assumptions resulted in a decrease in pre-tax fulfilment cash flows of
$3,197 million.1 These changes resulted in an increase in pre-tax net income attributed to shareholders of $171 million ($105 million post-
tax), an increase in pre-tax net income attributed to participating policyholders of $173 million ($165 million post-tax), an increase in CSM
of $2,754 million, and an increase in pre-tax other comprehensive income of $99 million ($73 million post-tax).
In 3Q23, the completion of the 2023 annual review of actuarial methods and assumptions resulted in a decrease in pre-tax fulfilment cash
flows of $347 million. These changes resulted in an increase in pre-tax net income attributed to shareholders of $27 million (a decrease of
$14 million post-tax), an increase in pre-tax net income attributed to participating policyholders of $58 million ($74 million post-tax), an
increase in CSM of $116 million, and an increase in pre-tax other comprehensive income of $146 million ($110 million post-tax).
In 4Q23, we also updated our actuarial methods and assumptions which decreased the overall level of the risk adjustment for non-financial
risk. This change moves the risk adjustment to approximately the middle of our existing 90 - 95% confidence level range. The risk
adjustment would have exceeded the 95% confidence level in 4Q23 without making the change. This change led to a decrease in pre-tax
fulfilment cash flows of $2,850 million, an increase in pre-tax net income attributed to shareholders of $144 million ($119 million post-tax),
an increase in pre-tax net income attributed to participating policyholders of $115 million ($91 million post-tax), an increase in CSM of
$2,638 million, and a decrease in pre-tax other comprehensive income of $47 million ($37 million post-tax).
Since the beginning of 2020, some lines of business have seen impacts to mortality and policyholder behaviour driven by the COVID-19
pandemic. Given the long-term nature of our assumptions, our 2023 experience studies have excluded experience that was materially
impacted by COVID-19 as this is not seen to be indicative of the levels of actual future claims or lapses.
Impact of changes in actuarial methods and assumptions on pre-tax fulfilment cash flows(1)
($ millions)
Canada variable annuity product review
Mortality and morbidity updates
Lapse and policyholder behaviour updates
Methodology and other updates
Impact of changes in actuarial methods and assumptions, pre-tax
For the three
and nine
months ended
September 30,
2023
For the three
months
ended
December 31,
2023
For the year
ended
December 31,
2023
$ (133)
265
98
(577)
$ (347)
$
–
–
–
(2,850)
$ (2,850)
$
(133)
265
98
(3,427)
$ (3,197)
(1) Excludes the portion related to non-controlling interests of $103 million for the three and nine months ended September 30, 2023, and $97 million for the three months ended
December 31, 2023, respectively.
1 Fulfilment cash flows include an estimate of future cash flows; an adjustment to reflect the time value of money and the financial risk related to future cash flows if not included
in the estimate of future cash flows; and a risk adjustment for non-financial risk. Additional information on fulfilment cash flows can be found in note 7 of our 2023 Annual
Consolidated Financial Statements.
92
| 2023 Annual Report | Management’s Discussion and Analysis
Impact of changes in actuarial methods and assumptions on pre-tax net income attributed to shareholders, pre-tax net income
attributed to participating policyholders, OCI and CSM(1)
($ millions)
Portion recognized in net income (loss) attributed to:
Participating policyholders
Shareholders
Portion recognized in OCI attributed to:
Participating policyholders
Shareholders
Portion recognized in CSM
Impact of changes in actuarial methods and assumptions, pre-tax
For the three
and nine
months ended
September 30,
2023
For the three
months
ended
December 31,
2023
For the year
ended
December 31,
2023
$ 58
27
85
–
146
146
116
$ 347
$
115
144
259
(21)
(26)
(47)
2,638
$ 2,850
$
173
171
344
(21)
120
99
2,754
$ 3,197
(1) Excludes the portion related to non-controlling interests, of which $72 million is related to CSM for the three and nine months ended September 30, 2023, and $87 million is
related to CSM for the three months ended December 31, 2023.
Canada variable annuity product review
The review of our variable annuity products in Canada resulted in a decrease in pre-tax fulfilment cash flows of $133 million.
The decrease was driven by a reduction in investment management fees, partially offset by updates to product assumptions, including
surrenders, incidence, and utilization, to reflect emerging experience.
Mortality and morbidity updates
Mortality and morbidity updates resulted in an increase in pre-tax fulfilment cash flows of $265 million.
The increase was driven by a strengthening of incidence rates for certain products in Vietnam to align with emerging experience and
updates to mortality assumptions in our U.S. life insurance business to reflect industry trends, as well as emerging experience. This was
partially offset by updates to morbidity assumptions for certain products in Japan to reflect actual experience.
Lapse and policyholder behaviour updates
Updates to lapses and policyholder behaviour assumptions resulted in an increase in pre-tax fulfilment cash flows of $98 million.
The increase was primarily driven by a detailed review of lapse assumptions for our universal life level cost of insurance products in
Canada, which resulted in a reduction to the lapse rates to align with emerging trends.
Methodology and other updates
Methodology and other updates resulted in a decrease in pre-tax fulfilment cash flows of $3,427 million.
In 3Q23, methodology and other updates resulted in a decrease in pre-tax fulfilment cash flows of $577 million. The decrease was driven
by the impact of cost-of-guarantees for participating policyholders across all segments from annual updates related to parameters,
dividend recalibration, and market movements during the year, as well as modelling refinements for certain products in Asia. This was
partially offset by a modelling methodology update to project future premiums on our U.S. life insurance business.
In 4Q23, methodology and other updates resulted in a decrease in pre-tax fulfilment cash flows of $2,850 million. The decrease was
driven by a decrease in the overall level of the risk adjustment for non-financial risk. This change moves the risk adjustment to
approximately the middle of our existing 90-95% confidence level range.
93
Impact of changes in actuarial methods and assumptions on pre-tax fulfilment cash flows, net income attributed to shareholders,
CSM and OCI by segment1
For the three and nine months ended September 30, 2023
The impact of changes in actuarial methods and assumptions in Canada resulted in a decrease in pre-tax fulfilment cash flows of $159
million. The decrease was driven by updates to our variable annuity product assumptions, as well as by updates to our valuation models for
participating products, driven by the annual dividend recalibration, partially offset by a reduction in lapse rates on our universal life level
cost of insurance products to reflect emerging trends. These changes resulted in an increase in pre-tax net income attributed to
shareholders of $52 million ($37 million post-tax), an increase in CSM of $142 million, and an increase in pre-tax other comprehensive
income of $2 million ($1 million post-tax).
The impact of changes in actuarial methods and assumptions in the U.S. resulted in an increase in pre-tax fulfilment cash flows of $270
million. The increase was related to our life insurance business and primarily driven by a modelling methodology update to project future
premiums, as well as updates to mortality assumptions. These changes resulted in an increase in pre-tax net income attributed to
shareholders of $134 million ($106 million post-tax), a decrease in CSM of $600 million, and an increase in pre-tax other comprehensive
income of $196 million ($155 million post-tax).
The impact of changes in actuarial methods and assumptions in Asia resulted in a decrease in pre-tax fulfilment cash flows of $457
million. The decrease largely relates to participating products, primarily driven by model refinements, dividend recalibration updates, as
well as annual updates to reflect market movements during the year. This, and the updates to morbidity assumptions on certain products
in Japan, were partially offset by updates to incidence rates on certain products in Vietnam. These changes resulted in a decrease in pre
tax net income attributed to shareholders of $159 million ($157 million post-tax), an increase in CSM of $574 million, and a decrease in
pre-tax other comprehensive income of $53 million ($47 million post-tax).
The impact of changes in actuarial methods and assumptions in Corporate and Other (which includes our Reinsurance businesses)
resulted in a decrease in pre-tax fulfilment cash flows of $1 million. These changes resulted in no impacts to pre-tax net income attributed
to shareholders or CSM, and an increase in pre-tax other comprehensive income of $1 million ($1 million post-tax).
For the three months ended December 31, 2023
The reduction in the risk adjustment level resulted in the following impacts by segment:
The impact of changes in actuarial methods and assumptions in Canada resulted in a decrease in pre-tax fulfilment cash flows of $246
million. These changes resulted in an increase in pre-tax net income attributed to shareholders of $4 million ($3 million post-tax), an
increase in pre-tax net income attributed to policyholder of $40 million ($29 million post-tax), an increase in CSM of $213 million, and a
decrease in pre-tax other comprehensive income of $11 million ($8 million post-tax).
The impact of changes in actuarial methods and assumptions in the U.S. resulted in a decrease in pre-tax fulfilment cash flows of $91
million. These changes resulted in an increase in pre-tax net income attributed to shareholders of $33 million ($26 million post-tax), an
increase in CSM of $78 million, and a decrease in pre-tax other comprehensive income of $20 million ($15 million post-tax).
The impact of changes in actuarial methods and assumptions in Asia resulted in a decrease in pre-tax fulfilment cash flows of $2,513
million. These changes resulted in an increase in pre-tax net income attributed to shareholders of $107 million ($90 million post-tax), an
increase in pre-tax net income attributed to policyholders of $75 million ($62 million post-tax), an increase in CSM of $2,348 million, and
a decrease in pre-tax other comprehensive income of $17 million ($14 million post-tax).
2022 Review of Actuarial Methods and Assumptions
The completion of the 2022 annual review of actuarial methods and assumptions resulted in an increase in pre-tax fulfilment cash flows of
$192 million. These changes resulted in an increase in pre-tax net income attributed to shareholders of $23 million ($26 million post-tax),
a decrease in pre-tax net income attributed to participating policyholders of $26 million ($18 million post-tax), a decrease in CSM of $279
million, and an increase in pre-tax other comprehensive income of $90 million ($73 million post-tax).
Since the beginning of 2020, some lines of business have seen impacts to mortality and policyholder behaviour driven by the COVID-19
pandemic. Given the long-term nature of our assumptions, our 2022 experience studies have excluded experience that was materially
impacted by COVID-19 as this is not seen to be indicative of the levels of actual future claims or lapses.
1 Our review of actuarial methods and assumptions also impacts net income attributed to participating policyholders. The total company impact can be found in the above table.
94
| 2023 Annual Report | Management’s Discussion and Analysis
Impact of changes in actuarial methods and assumptions on pre-tax fulfilment cash flows(1)
For the year ended December 31, 2022
($ millions)
Long-term care triennial review
Mortality and morbidity updates
Lapse and policyholder behaviour updates
Methodology and other updates
Impact of changes in actuarial methods and assumptions, pre-tax
(1) Excludes the portion related to non-controlling interests of $8 million.
Total
$ 118
83
234
(243)
$ 192
Impact of changes in actuarial methods and assumptions on pre-tax net income attributed to shareholders, pre-tax net income
attributed to participating policyholders, OCI and CSM(1)
For the year ended December 31, 2022
($ millions)
Portion recognized in net income (loss) attributed to:
Participating policyholders
Shareholders
Portion recognized in OCI attributed to:
Participating policyholders
Shareholders
Portion recognized in CSM
Impact of changes in actuarial methods and assumptions, pre-tax
(1) Excludes the portion related to non-controlling interests, of which $nil million is related to CSM.
Total
$
(26)
23
(3)
–
90
90
(279)
$ (192)
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 was an increase in pre-tax fulfilment cash flows of $118 million.
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. Pre-tax fulfilment cash flows were increased 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 2022. We also
reviewed and updated incidence and claim termination assumptions which, on a net basis, provided a partial offset to the increase in pre
tax fulfilment cash flows 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 pre-tax fulfilment cash flows.
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 had 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 pre-tax fulfilment cash flows at that time
and demonstrates our continued strong track record of securing premium rate increases4. In 2022, the review of future premium
increases assumed in fulfilment cash flows resulted in a net $2.5 billion (US$1.9 billion) decrease in pre-tax fulfilment cash flows. 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.
Mortality and morbidity updates
Mortality and morbidity updates resulted in an increase in pre-tax fulfilment cash flows of $83 million, driven by updates to morbidity assumptions
in Vietnam to align with experience, partially offset by a detailed review of the mortality assumptions for our Canada insurance business.
Lapse and policyholder behaviour updates
Updates to lapses and policyholder behaviour assumptions resulted in an increase in pre-tax fulfilment cash flows of $234 million.
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. See “Caution regarding forward-looking statements” above.
95
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.
Methodology and other updates
Other updates resulted in a decrease in pre-tax fulfilment cash flows of $243 million, which included updates to discount rates and
policyholder dividends on participating products, as well as various other modelling and projection updates.
Impact of changes in actuarial methods and assumptions on pre-tax fulfilment cash flows, net income attributed to
shareholders, CSM and OCI by segment
The impact of changes in actuarial methods and assumptions in Canada resulted in an increase in pre-tax fulfilment cash flows of $22
million. The increase was driven by updates to the lapse assumptions for certain term insurance products, largely offset by updates to
discount rates and policyholder dividends on participating products, as well as updates to mortality assumptions for our insurance
business. These changes resulted in an increase in pre-tax net income attributed to shareholders of $64 million ($47 million post-tax), an
increase in CSM of $43 million, and a decrease in pre-tax other comprehensive income of $96 million ($71 million post-tax).
The impact of changes in actuarial methods and assumptions in the U.S. resulted in an increase in pre-tax fulfilment cash flows of $108
million, driven by the triennial review of long-term care. These changes resulted in a decrease in pre-tax net income attributed to
shareholders of $16 million ($12 million post-tax), a decrease in CSM of $202 million, and an increase in pre-tax other comprehensive
income of $110 million ($86 million post-tax).
The impact of changes in actuarial methods and assumptions in Asia resulted in an increase in pre-tax fulfilment cash flows of $62 million.
The increase was driven by updates to lapse assumptions in Singapore and morbidity updates in Vietnam, partially offset by various other
modelling and projection updates. These changes resulted in a decrease in pre-tax net income attributed to shareholders of $25 million
($9 million post-tax), a decrease in CSM of $120 million, and an increase in pre-tax other comprehensive income of $76 million ($58
million post-tax).
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 voting rights that are potentially or currently exercisable;
• 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 of the relationship. Initial
evaluations are reconsidered at a later date if:
• The contractual arrangements of the entity are amended such that the Company’s involvement with the entity changes;
• 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; 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 2023 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
96
| 2023 Annual Report | Management’s Discussion and Analysis
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 which increases the use of
judgment in determining the estimated fair value of certain assets.
Evaluation of Invested Asset Impairment
FVOCI debt investments 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 foreign currency denominated FVOCI debt investments
which are included in net income.
Debt investments classified as FVOCI or amortized cost are reviewed on a regular basis for expected credit loss (“ECL”) impairment
allowances. ECL allowances are measured as the difference between amounts due according to the contractual terms of the debt security
and the discounted value of cash flows that the Company expects to receive. Changes in ECL impairment allowances are recorded in the
provision for credit losses included in net income.
Significant judgment is required in assessing ECL impairment allowances and fair values and recoverable values. Key matters considered
include macroeconomic factors, industry specific developments, and specific issues with respect to single issuers and borrowers.
Changes in circumstances may cause future assessments of invested asset ECL impairment allowances 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 expected credit losses is included in the discussion of credit risk in notes 1 and 9 to the 2023 Annual
Consolidated Financial Statements.
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 2023 Annual 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.
Hedge Accounting
The Company applies hedge accounting principles under IFRS 9 to certain economic hedge transactions that qualify for hedge accounting.
The Company evaluates the economic relationship between the hedged item and the hedging instrument, assesses the effect of credit risk
on the economic relationship and determines the hedge ratio between the hedged item and hedging instrument to identify qualifying
hedge accounting relationships.
The Company designates fair value hedges to hedge interest rate exposure on fixed rate assets and liabilities. In certain instances, the
Company hedges fair value exposure due to both foreign exchange and interest rate risk using cross currency swaps.
The Company designates interest rate derivatives under cash flow hedges to hedge interest rate exposure in variable rate financial
instruments. In addition, the Company may use non-functional currency denominated long-term debt, forward currency contracts and
cross currency swaps to mitigate the foreign exchange translation risk of net investments in foreign operations.
The Company applies the cost of hedging option for certain hedge accounting relationships, as such changes in forward points and foreign
currency basis spreads are excluded from the hedge accounting relationships and are accounted for as a separate component in equity.
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 2023
Annual Consolidated Financial Statements.
97
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
2023 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 2023, the amount recorded in OCI was a loss of $5 million (2022 – loss of $49
million) for the defined benefit pension plans and a gain of $10 million (2022 – gain of $34 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 2023, the Company contributed $3 million (2022 – $3 million) to these plans. As at December 31, 2023, the
difference between the fair value of assets and the defined benefit obligation for these plans was a surplus of $422 million (2022 – surplus
of $441 million). For 2024, the contributions to the plans are expected to be approximately $2 million.
The Company’s supplemental pension plans for executives are not funded; benefits under these plans are paid as they become due. During
2023, the Company paid benefits of $56 million (2022 – $56 million) under these plans. As at December 31, 2023, the defined benefit
obligation for these plans, which is reflected as a liability in the balance sheet, amounted to $546 million (2022 – $561 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, 2023, the difference between the fair value of plan assets and the defined benefit obligation for these
plans was a surplus of $76 million (2022 – surplus of $57 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, 2023, we had $6,739 million of deferred tax
assets (December 31, 2022 – $6,708 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.
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, 2023, under IFRS we had $5,919 million of goodwill (December 31, 2022 – $6,014 million) and $4,391 million of
intangible assets ($1,825 million of which are intangible assets with indefinite lives) (December 31, 2022 – $4,505 million and $1,861
million, respectively). 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 2023 demonstrated that there was no impairment of goodwill or
intangible assets with indefinite lives (2022 – $nil). 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 2024 will be updated
based on the conditions that exist in 2024 and may result in impairment charges, which could be material.
98
| 2023 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, 2023, 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 of December 31, 2023.
MFC’s Audit Committee has reviewed this MD&A and the 2023 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, 2023 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, 2023, 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, 2023 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, 2023. Their report expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2023.
Changes in Internal Control over Financial Reporting
No changes were made in our internal control over financial reporting during the year ended December 31, 2023 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting except that, in connection with the
adoption of IFRS 17 and IFRS 9, the Company made significant updates and modifications to existing internal controls and implemented a
number of new internal controls. These changes include controls over new and existing systems, including technological systems, and
controls that were implemented or modified in our actuarial and accounting processes to address the risks associated with the newly
adopted accounting standards.
99
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”); total expenses; core expenses; total expenditures; core
expenditures; transitional net income (loss) attributed to shareholders; transitional net income (loss) attributed to shareholders (before
tax); transitional net income (loss) before income taxes; transitional net income (loss); common shareholders’ transitional net income;
Drivers of Earnings (“DOE”) line items for net investment result, other, income tax (expenses) recoveries and transitional net income
attributed to participating policyholders and NCI; core DOE line items for core net insurance service result, core net investment result,
other core earnings, and core income tax (expenses) recoveries; post-tax contractual service margin (“post-tax CSM”); post-tax contractual
service margin net of NCI (“post-tax CSM net of NCI”); 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;
adjusted book value; 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; net income attributed to shareholders; and common
shareholders’ net income.
Non-GAAP ratios include core return on shareholders’ equity (“core ROE”); diluted core earnings per common share (“core EPS”);
transitional return on common shareholders’ equity (“transitional ROE”); transitional basic earnings per common share (“transitional basic
EPS”); transitional diluted earnings per common share (“transitional diluted EPS”); financial leverage ratio; adjusted book value per
common share; common share core dividend payout ratio (“dividend payout ratio”); expense efficiency ratio; expenditure efficiency ratio;
core EBITDA margin; effective tax rate on core earnings; effective tax rate on transitional net income attributed to shareholders; 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 and non-GAAP ratios; net income attributed to shareholders; common shareholders’ net
income; pre-tax net income attributed to shareholders; general expenses; DOE line item for net insurance service result; CSM; CSM net of
NCI; impact of new insurance business; new business CSM net of NCI; basic earnings per common share (“basic EPS”); and diluted
earnings per common share (“diluted EPS”).
Other specified financial measures include assets under administration (“AUA”); consolidated capital; embedded value (“EV”); new
business value (“NBV”); new business value margin (“NBV margin”); sales; annualized premium equivalent (“APE”) sales; gross flows; net
flows; 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. In addition, we provide an explanation below of the
components of core DOE line items other than the change in expected credit loss, the items that comprise certain items excluded from
core earnings, and the components of CSM movement other than the new business CSM.
Our reporting currency for the Company is Canadian dollars and U.S. dollars is the functional currency for Asia and U.S. segment results.
Financial measures presented in U.S. dollars are calculated in the same manner as the Canadian dollar measures. These amounts are
translated to U.S. dollars using the period end rate of exchange for financial measures such as AUMA and the CSM balance and the
average rates of exchange for the respective quarter for periodic financial measures such as our income statement, core earnings and
items excluded from core earnings, transitional net income measures, and line items in our CSM movement schedule and DOE. Year-to
date or full year periodic financial measures presented in U.S. dollars are calculated as the sum of the quarterly results translated to U.S.
dollars. See section 1 “Impact of Foreign Currency Exchange Rates” of the MD&A above for the Canadian to U.S. dollar quarterly and full
year rates of exchange.
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 impact of
market related gains or losses, changes in actuarial methods and assumptions that flow directly through income 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 in equity markets, interest rates including impacts on hedge
accounting ineffectiveness, foreign currency exchange rates and commodity prices as well as the change in the fair value of ALDA from
period-to-period can, and frequently do, have a substantial impact on the reported amounts of our assets, insurance contract liabilities and
net income attributed to shareholders. These reported amounts may not be realized if 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.
100
| 2023 Annual Report | Management’s Discussion and Analysis
We believe that core earnings better reflect the underlying earnings capacity and valuation of our business. We use core earnings and core
EPS as key metrics in our short-term incentive plans at the total Company and operating segment level. We also base our mid- and long
term strategic priorities on core earnings.
We have updated our definition of core earnings to reflect the change in the recognition, measurement and presentation of insurance
contract liabilities and financial assets and liabilities under IFRS 17 and IFRS 9, respectively, and have also replaced the nomenclature of
the items included in core earnings and the net income items excluded from core earnings to conform with the nomenclature under IFRS
17 and IFRS 9.
Core earnings includes the expected return on our invested assets and any other gains (charges) from market experience are included in
net income but excluded from core earnings. The expected return for fixed income assets is based on the related book yields. For ALDA
and public equities, the expected return reflects our long-term view of asset class performance. These returns for ALDA and public equities
vary by asset class and range from 3.25% to 11.5%, leading to an average return of between 9.0% to 9.5% on these assets as of
December 31, 2023.
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.
Any future changes to the core earnings definition referred to below, will be disclosed.
Items included in core earnings:
1.
2.
3.
4.
5.
Expected insurance service result on in-force policies, including expected release of the risk adjustment, CSM recognized for service
provided, and expected earnings from short-term products measured under the premium allocation approach (“PAA”).
Impacts from the initial recognition of new contracts (onerous contracts, including the impact of the associated reinsurance
contracts).
Insurance experience gains or losses that flow directly through net income.
Operating and investment expenses compared with expense assumptions used in the measurement of insurance and investment
contract liabilities.
Expected investment earnings, which is the difference between expected return on our invested assets and the associated finance
income or expense from the insurance contract liabilities.
Net provision for ECL on FVOCI and amortized cost debt instruments.
Expected asset returns on surplus investments.
All earnings for the Global WAM segment, except for applicable net income items excluded from core earnings as noted below.
All earnings for the Manulife Bank business, except for applicable net income items excluded from core earnings as noted below.
6.
7.
8.
9.
10. Routine or non-material legal settlements.
11. All other items not specifically excluded.
12.
13.
Tax on the above items.
All tax related items except the impact of enacted or substantively enacted income tax rate changes and taxes on items excluded
from core earnings.
Net income items excluded from core earnings:
1.
Market experience gains (losses) including the items listed below:
Gains (charges) on general fund public equity and ALDA investments from returns being different than expected.
•
• Gains (charges) on derivatives not in hedging relationships, or gains (charges) resulting from hedge accounting ineffectiveness.
• Realized gains (charges) from the sale of FVOCI debt instruments.
• Market related gains (charges) on onerous contracts measured using the variable fee approach (e.g. variable annuities, unit
linked, participating insurance) net of the performance on any related hedging instruments.
• Gains (charges) related to certain changes in foreign exchange rates.
2.
Changes in actuarial methods and assumptions used in the measurement of insurance contract liabilities that flow directly through
income.
•
The Company reviews actuarial methods and assumptions annually, and this process is designed to reduce the Company’s
exposure to uncertainty by ensuring assumptions remain appropriate. This is accomplished by monitoring experience and
selecting assumptions which represent a current view of expected future experience and ensuring that the risk adjustment is
appropriate for the risks assumed.
• Changes related to the ultimate spot rate within the discount curves are included in the market experience gains (losses).
3.
The impact on the measurement of insurance and investment contract assets and liabilities and reinsurance contract held assets
and liabilities from changes in product features and new or changes to in-force reinsurance contracts, if material.
101
4.
5.
6.
7.
8.
9.
10.
The fair value changes in long-term investment plan (“LTIP”) obligations for Global WAM investment management.
Goodwill impairment charges.
Gains or losses on acquisition and disposition of a business.
Material one-time only adjustments, including highly unusual/extraordinary and material legal settlements and restructuring
charges, or other items that are material and exceptional in nature.
Tax on the above items.
Net income (loss) attributed to participating shareholders and non-controlling interests.
Impact of enacted or substantially enacted income tax rate changes.
As noted in section 1 “Implementation of IFRS 17 and IFRS 9” above, our 2022 quarterly and full year results are not directly comparable
with 2023 results because IFRS 9 hedge accounting and expected credit loss (“ECL”) principles are applied prospectively effective
January 1, 2023. Accordingly, we have presented comparative quarterly and full year 2022 core earnings and our transitional net income
metrics (see “Transitional net income to shareholders” paragraph below) inclusive of IFRS 9 hedge accounting and expected credit loss
principles as if IFRS had allowed such principles to be implemented for 2022 (the “IFRS 9 transitional impacts”).
Transitional net income (loss) attributed to shareholders is a financial measure where our 2022 net income attributed to shareholders
includes the effects of the IFRS 9 transitional impacts which we believe will assist investors in evaluating our operational performance
because the associated adjustments are reported in our 2023 net income attributed to shareholders. Transitional net income (loss)
before income taxes, Transitional net income (loss), Transitional net income (loss) attributed to shareholders before income taxes
and Common shareholders’ transitional net income (loss) similarly include the effect of the IFRS 9 transitional impacts on our income
(loss) before income taxes, net income (loss), net income (loss) attributed to shareholders before income taxes and common shareholders’
net income (loss), respectively. Transitional financial measures are temporary and will only be reported for 2022 comparative periods in
our annual 2023 MD&A.
102
| 2023 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
2023
Income (loss) before income taxes
Income tax (expenses) recoveries
Core earnings
Items excluded from core earnings
Income tax (expenses) recoveries
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests (“NCI”)
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings (post-tax)
Market experience gains (losses)
Changes in actuarial methods and assumptions that flow directly
through income
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
Core earnings, CER basis and U.S. dollars
$ 2,244
$ 1,609
$
751
$ 1,497
$ 351
$ 6,452
(279)
(161)
(440)
1,804
141
315
1,348
(378)
5
(373)
1,236
–
45
1,191
(402)
290
(112)
639
–
–
639
(204)
6
(198)
1,299
2
–
1,297
99
179
278
629
1
–
628
(1,164)
319
(845)
5,607
144
360
5,103
(553)
(341)
(1,196)
10
290
(1,790)
(68)
–
(79)
$ 2,048
279
$ 2,327
41
–
4
$ 1,487
378
$ 1,865
132
–
(56)
$ 1,759
402
$ 2,161
–
(36)
2
$ 1,321
204
$ 1,525
105
–
(36)
–
140
269
$ 6,684
69
(99)
1,164
(30) $ 7,848
$
$
(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)
2023
Asia
Canada
U.S.
Global WAM
$ 2,048
(10)
$ 2,038
277
$ 2,315
$ 1,487
–
$ 1,487
378
$ 1,865
$ 1,759
15
$ 1,774
405
$ 2,179
$ 1,321
7
$ 1,328
204
$ 1,532
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 $
$ 1,518
(21)
$ 1,497
$ 1,304
–
$ 1,304
Corporate
and Other
Total
$ 69
2
$ 71
$ 6,684
14
$ 6,698
1,165
(99)
(28) $ 7,863
$
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
(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 2023 core
earnings.
103
Reconciliation of core earnings and transitional net income attributed to shareholders 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 (expenses) recoveries
Core earnings
Items excluded from core earnings
Income tax (expenses) recoveries
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
IFRS 9 transitional impacts (post-tax)
Transitional net income (loss) attributed to shareholders
2022
Asia
910
$
Canada
U.S.
Global WAM
Corporate
and Other
Total
$
(969) $ (3,011)
$ 1,291
$
(1,359)
$ (3,138)
(264)
(54)
(318)
592
120
(211)
683
(36)
(335)
845
510
(459)
–
44
(503)
1,701
(341)
1,036
695
(2,316)
–
–
(2,316)
3,764
(222)
52
(170)
1,121
–
–
1,121
–
116
326
442
(917)
1
–
(918)
2
(1,046)
2,205
1,159
(1,979)
121
(167)
(1,933)
5,431
(post-tax)
647
1,198
1,448
1,121
(916)
3,498
Less: Items excluded from core earnings (post-tax)
Market experience gains (losses)
Changes in actuarial methods and assumptions that flow
directly through income
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
Core earnings, CER basis and U.S. dollars
(1,141)
(196)
(93)
(260)
(895)
(2,585)
(9)
–
(15)
$ 1,812
263
$ 2,075
47
–
(40)
$ 1,387
335
$ 1,722
(12)
–
(13)
$ 1,566
341
$ 1,907
–
–
82
$ 1,299
222
$ 1,521
$
$
26
–
–
–
242
256
(263) $ 5,801
(116)
1,045
(379) $ 6,846
(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
$ 1,812
30
$ 1,842
267
$ 2,109
$ 1,387
–
$ 1,387
335
$ 1,722
$ 1,566
69
$ 1,635
356
$ 1,991
$ 1,299
40
$ 1,339
226
$ 1,565
Corporate
and Other
Total
$
$
$
(263) $ 5,801
134
(5)
$ 5,935
(268)
(116)
1,068
(384) $ 7,003
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 $
$ 1,392
(39)
$ 1,353
$ 1,202
–
$ 1,202
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
(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.
104
| 2023 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 (expenses) recoveries
Core earnings
Items excluded from core earnings
Income tax (expenses) recoveries
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests (“NCI”)
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings (post-tax)
Market experience gains (losses)
Changes in actuarial methods and assumptions that flow directly
through income
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
Core earnings, CER basis and U.S. dollars
4Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 847
$ 498
$ 244
$ 424
$ 110
$ 2,123
(76)
(33)
(109)
738
37
86
615
(87)
(29)
(116)
382
–
17
365
(113)
67
(46)
198
–
–
198
(55)
(3)
(58)
366
1
–
365
37
(30)
7
117
1
–
116
(294)
(28)
(322)
1,801
39
103
1,659
–
9
(279)
51
86
(133)
89
–
(38)
$ 564
76
$ 640
4
–
–
$ 352
87
$ 439
26
–
(23)
$ 474
113
$ 587
–
(36)
(3)
$ 353
55
$ 408
–
–
–
30
(37)
119
(36)
(64)
$ 1,773
294
(7) $ 2,067
$
$
(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)
4Q23
Asia
Canada
U.S.
Global WAM
$ 564
–
$ 564
76
$ 640
$ 352
–
$ 352
87
$ 439
$ 474
–
$ 474
113
$ 587
$ 353
–
$ 353
55
$ 408
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 $
$ 414
–
$ 414
$ 349
–
$ 349
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 4Q23.
Corporate
and Other
Total
$ 30
–
$ 30
$ 1,773
–
$ 1,773
294
(7) $ 2,067
(37)
$
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
3Q23
Income (loss) before income taxes
Income tax (expenses) recoveries
Core earnings
Items excluded from core earnings
Income tax (expenses) recoveries
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests (“NCI”)
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings (post-tax)
Market experience gains (losses)
Changes in actuarial methods and assumptions that flow directly through
income
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
Core earnings, CER basis and U.S. dollars
$ 439
$ 376
$
68
$ 366
$ (75)
$ 1,174
(62)
(73)
(135)
304
25
195
84
(109)
15
(94)
282
–
(8)
290
(93)
97
4
72
–
–
72
(59)
11
(48)
318
–
–
318
30
294
324
249
–
–
249
(293)
344
51
1,225
25
187
1,013
(286)
(159)
(476)
(43)
(58)
(1,022)
(157)
–
5
$ 522
62
$ 584
37
–
4
$ 408
109
$ 517
106
–
–
$ 442
93
$ 535
–
–
–
$ 361
59
$ 420
–
–
297
$ 10
(30)
$ (20)
(14)
–
306
$ 1,743
293
$ 2,036
(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
3Q23
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 $
$ 361
4
$ 365
59
$ 424
$ 408
–
$ 408
109
$ 517
$ 522
5
$ 527
62
$ 589
$ 390
(3)
$ 387
$ 442
6
$ 448
95
$ 543
$ 329
–
$ 329
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 3Q23.
Corporate
and Other
$ 10
–
$ 10
(30)
$ (20)
Total
$ 1,743
15
$ 1,758
295
$ 2,053
106
| 2023 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
2Q23
Income (loss) before income taxes
Income tax (expenses) recoveries
Core earnings
Items excluded from core earnings
Income tax (expenses) recoveries
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests (“NCI”)
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings (post-tax)
Market experience gains (losses)
Changes in actuarial methods and assumptions that flow directly
through income
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
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)
$ 345
$ 312
$ 220
$ 362
$ 197
$ 1,436
(73)
(18)
(91)
254
25
99
130
(97)
33
(64)
248
–
21
227
(110)
73
(37)
183
–
–
183
(45)
1
(44)
318
1
–
317
18
(47)
(29)
168
–
–
168
(307)
42
(265)
1,171
26
120
1,025
(297)
(147)
(275)
(7)
156
(570)
–
–
(46)
$ 473
73
$ 546
–
–
–
$ 374
97
$ 471
–
–
–
$ 458
110
$ 568
–
–
4
$ 320
45
$ 365
–
–
–
12
(18)
(6)
$
$
–
–
(42)
$ 1,637
307
$ 1,944
2Q23
Asia
Canada
U.S.
Global WAM
$ 473
(5)
$ 468
71
$ 539
$ 374
–
$ 374
97
$ 471
$ 458
8
$ 466
111
$ 577
$ 320
2
$ 322
45
$ 367
Corporate
and Other
$ 12
–
$ 12
(17)
(5)
$
Total
$ 1,637
5
$ 1,642
307
$ 1,949
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 $
$ 353
(9)
$ 344
$ 341
–
$ 341
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 2Q23.
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 (expenses) recoveries
Core earnings
Items excluded from core earnings
Income tax (expenses) recoveries
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests (“NCI”)
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings (post-tax)
Market experience gains (losses)
Changes in actuarial methods and assumptions that flow directly through
income
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
Core earnings, CER basis and U.S. dollars
1Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 613
$ 423
$ 219
$ 345
$ 119
$ 1,719
(68)
(37)
(105)
508
54
(65)
519
(85)
(14)
(99)
324
–
15
309
(86)
53
(33)
186
–
–
186
(45)
(3)
(48)
297
–
–
297
14
(38)
(24)
95
–
–
95
30
(44)
(166)
9
106
–
–
–
$ 489
68
$ 557
–
–
–
$ 353
85
$ 438
–
–
(33)
$ 385
86
$ 471
–
–
1
$ 287
45
$ 332
(270)
(39)
(309)
1,410
54
(50)
1,406
(65)
–
–
(60)
–
–
(28)
$ 17
(14)
3
$
$ 1,531
270
$ 1,801
Corporate
and Other
$ 17
–
$ 17
(14)
$ 3
Total
$ 1,531
(6)
$ 1,525
269
$ 1,794
(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
1Q23
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 $
$ 287
1
$ 288
45
$ 333
$ 489
(10)
$ 479
67
$ 546
$ 353
–
$ 353
85
$ 438
$ 361
(9)
$ 352
$ 385
3
$ 388
86
$ 474
$ 285
–
$ 285
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 1Q23.
108
| 2023 Annual Report | Management’s Discussion and Analysis
Reconciliation of core earnings and transitional net income attributed to shareholders 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 (expenses) recoveries
Core earnings
Items excluded from core earnings
Income tax (expenses) recoveries
Net income (post-tax)
Less: Net income (post-tax) attributed to
Non-controlling interests
Participating policyholders
Net income (loss) attributed to shareholders (post-tax)
IFRS 9 transitional impacts (post-tax)
Transitional net income (loss) attributed to shareholders (post-tax)
Less: Items excluded from core earnings (post-tax)
Market experience gains (losses)
Changes in actuarial methods and assumptions that flow directly through
income
Restructuring charge
Reinsurance transactions, tax related items and other
Core earnings (post-tax)
Income tax on core earnings (see above)
Core earnings (pre-tax)
Core earnings, CER basis and U.S. dollars
4Q22
Asia
Canada
U.S.
Global WAM
Corporate
and Other
$
403
$
(37) $
(68)
$ 461
$
(62) $
(82)
(21)
(103)
300
32
(47)
315
178
493
(81)
67
(14)
(51)
–
22
(73)
193
120
(96)
120
24
(44)
–
–
(44)
(62)
(106)
(47)
(13)
(60)
401
–
–
401
–
401
71
308
379
317
1
–
316
4
320
Total
697
(235)
461
226
923
33
(25)
915
313
1,228
12
(136)
(514)
45
(62)
(655)
–
–
(15)
$ 496
82
$ 578
–
–
(40)
$ 296
81
$ 377
–
–
–
$ 408
96
$ 504
–
–
82
$ 274
47
$ 321
–
–
313
$ 69
(71)
(2)
$
–
–
340
$ 1,543
235
$ 1,778
(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 $
$ 274
–
$ 274
48
$ 322
$ 496
(1)
$ 495
81
$ 576
$ 296
–
$ 296
82
$ 378
$ 365
(1)
$ 364
$ 408
1
$ 409
95
$ 504
$ 301
–
$ 301
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Income tax on core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
(3) Core earnings (post-tax) in Canadian $ is translated to US $ using the US $ Statement of Income exchange rate for 4Q22.
Corporate
and Other
$ 69
–
$ 69
(71)
(2)
$
Total
$ 1,543
–
$ 1,543
235
$ 1,778
109
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)
International High Net Worth
Mainland China
Singapore
Vietnam
Other Emerging Markets(2)
Regional Office
Total Asia core earnings
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 218
79
119
$ 190
87
119
$ 161
81
119
$ 159
62
137
$ 153
76
126
(2)
$ 414
(6)
$ 390
(8)
$ 353
3
$ 361
10
$ 365
$
728
309
494
72
49
161
133
79
(13)
$ 1,518
$
668
308
419
75
29
136
109
70
(3)
$ 1,392
(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)
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
Quarterly Results
Full Year Results
Hong Kong
Japan
Asia Other(2)
International High Net Worth
Mainland China
Singapore
Vietnam
Other Emerging Markets(3)
Regional Office
Total Asia core earnings, CER basis
$ 218
79
119
$ 190
85
118
$ 161
76
115
$ 159
56
134
$ 152
74
128
(2)
$ 414
(6)
$ 387
(8)
$ 344
3
$ 352
10
$ 364
$
728
296
486
72
47
160
129
78
(13)
$ 1,497
$
668
274
414
75
27
140
105
67
(3)
$ 1,353
(1) Core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
(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.
Canada
(Canadian $ in millions)
Insurance
Annuities
Manulife Bank
Total Canada core earnings
U.S.
(US $ in millions)
U.S. Insurance
U.S. Annuities
Total U.S. core earnings
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 258
48
46
$ 352
$ 310
48
50
$ 408
$ 276
55
43
$ 374
$ 257
53
43
$ 353
$ 206
45
45
$ 296
$ 1,101
204
182
$ 1,487
$
984
238
165
$ 1,387
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 300
49
$ 349
$ 283
46
$ 329
$ 293
48
$ 341
$ 257
28
$ 285
$ 259
42
$ 301
$ 1,133
171
$ 1,304
$ 1,016
186
$ 1,202
110
| 2023 Annual Report | Management’s Discussion and Analysis
Global WAM by business line
(Canadian $ in millions)
Retirement
Retail
Institutional asset management
Total Global WAM core earnings
(Canadian $ in millions), CER basis(1)
Retirement
Retail
Institutional asset management
Total Global WAM core earnings, CER basis
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 203
127
23
$ 353
$ 192
135
34
$ 361
$ 186
119
15
$ 320
$ 164
121
2
$ 287
$ 156
130
(12)
$ 274
$
745
502
74
$ 1,321
$
673
571
55
$ 1,299
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 203
127
23
$ 353
$ 195
136
34
$ 365
$ 187
120
15
$ 322
$ 165
121
2
$ 288
$ 155
130
(11)
$ 274
$
750
504
74
$ 1,328
$
697
583
59
$ 1,339
(1) Core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
Global WAM by geographic source
(Canadian $ in millions)
Asia
Canada
U.S.
Total Global WAM core earnings
(Canadian $ in millions), CER basis(1)
Asia
Canada
U.S.
Total Global WAM core earnings, CER basis
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 109
100
144
$ 353
$ 108
94
159
$ 361
$ 103
96
121
$ 320
$ 84
88
115
$ 287
$ 79
78
117
$ 274
$
404
378
539
$ 1,321
$
336
401
562
$ 1,299
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 109
100
144
$ 353
$ 110
94
161
$ 365
$ 104
96
122
$ 322
$ 84
88
116
$ 288
$ 80
78
116
$ 274
$
407
378
543
$ 1,328
$
350
401
588
$ 1,339
(1) Core earnings adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
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, post-tax 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, CER
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 1,773
(99)
1,674
–
$ 1,743
(54)
1,689
15
$ 1,637
(98)
1,539
5
$ 1,531
(52)
1,479
(6)
$ 1,543
(97)
1,446
–
$ 6,684
(303)
6,381
14
$ 5,801
(260)
5,541
134
basis
$ 1,674
$ 1,704
$ 1,544
$ 1,473
$ 1,446
$ 6,395
$ 5,675
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
111
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.
($ millions, unless otherwise stated)
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
Core earnings available to common shareholders
Annualized core earnings available to common
$
1,674
$ 1,689
$ 1,539
$ 1,479
$ 1,446
$
6,381
$
5,541
shareholders (post-tax)
$ 6,641
$ 6,701
$ 6,173
$ 5,998
$
5,737
$ 6,381
$ 5,541
Quarterly Results
Full Year Results
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
$ 40,563
16.4%
$ 39,897
16.8%
$ 39,881
15.5%
$ 40,465
14.8%
$ 40,667
14.1%
$ 40,201
15.9%
$ 39,726
14.0%
$ 47,039
6,660
$ 40,379
$ 40,563
$ 47,407
6,660
$ 40,747
$ 39,897
$ 45,707
6,660
$ 39,047
$ 39,881
$ 47,375
6,660
$ 40,715
$ 40,465
$ 46,876
6,660
$ 40,216
$ 40,667
$ 47,039
6,660
$ 40,379
$ 40,201
$ 46,876
6,660
$ 40,216
$ 39,726
Core EPS is equal to core earnings available to common shareholders divided by diluted weighted average common shares outstanding.
Core earnings related to strategic priorities
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 and post-tax, unless otherwise stated)
Core earnings highest potential businesses(1)
Core earnings – All other businesses
Core earnings
Items excluded from core earnings
Net income (loss) attributed to shareholders / Transitional
Less: IFRS 9 transitional impacts (post-tax)
Net income (loss) attributed to shareholders
Highest potential businesses core earnings contribution
(1) Includes core earnings from Asia and Global WAM segments, Canada Group Benefits, and behavioural insurance products.
Asia region
For the years ended December 31,
($ millions and post-tax, unless otherwise stated)
Core earnings of Asia region(1)
Core earnings – All other businesses
Core earnings
Items excluded from core earnings
Net income (loss) attributed to shareholders / Transitional
Less: IFRS 9 transitional impacts (post-tax)
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.
112
| 2023 Annual Report | Management’s Discussion and Analysis
2023
$ 4,039
2,645
6,684
(1,581)
2022
$ 3,556
2,245
5,801
(2,303)
$ 5,103
$ 3,498
–
5,431
$ 5,103
$
(1,933)
60%
61%
2023
$ 2,452
4,232
6,684
(1,581)
2022
$ 2,147
3,654
5,801
(2,303)
$ 5,103
$ 3,498
–
5,431
$ 5,103
$
(1,933)
37%
37%
LTC and VA businesses
For the years ended December 31,
($ millions and post-tax, unless otherwise stated)
Core earnings of LTC & VA businesses(1)
Core earnings – All other businesses
Core earnings
Items excluded from core earnings
Net income (loss) attributed to shareholders / Transitional
Less: IFRS 9 transitional impacts (post-tax)
Net income (loss) attributed to shareholders
LTC and VA core earnings contribution
$
2023
821
5,863
6,684
$
2022
932
4,869
5,801
(1,581)
(2,303)
$ 5,103
$ 3,498
–
5,431
$ 5,103
$
(1,933)
12%
16%
(1) Includes core earnings from U.S. long-term care and Asia, Canada and U.S. variable annuities businesses.
The effective tax rate on core earnings is equal to income tax on core earnings divided by pre-tax core earnings. The effective tax rate
on transitional net income attributed to shareholders is equal to income tax on transitional net income attributed to shareholders
divided by pre-tax transitional net income attributed to shareholders.
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
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 0.37
$ 0.92
40%
$ 0.37
$ 0.92
40%
$ 0.37
$ 0.83
44%
$ 0.37
$ 0.79
46%
$ 0.33
$ 0.77
43%
$ 1.46
$ 3.47
42%
$ 1.32
$ 2.90
46%
Drivers of Earnings (“DOE”) is used to identify the primary sources of gains or losses in each reporting period. It is one of the key tools we
use to understand and manage our business. The DOE has replaced the Source of Earnings that was disclosed under OSFI’s Source of
Earnings Disclosure (Life Insurance Companies) guideline. The DOE line items are comprised of amounts that have been included in our
financial statements. The DOE shows the sources of net income (loss) attributed to shareholders and the core DOE shows the sources of
core earnings and the items excluded from core earnings, reconciled to net income attributed to shareholders. We have included
transitional non-GAAP financial measures for our 2022 comparative quarterly results. The elements of the core earnings view are
described below:
Net Insurance Service Result represents the net income attributed to shareholders associated with providing insurance service to
policyholders within the period. This includes lines attributed to core earnings including:
•
Expected earnings on insurance contracts which includes the release of risk adjustment for expired non-financial risk, the CSM
recognized for service provided and expected earnings on short-term PAA insurance business.
• Impact of new insurance business relates to income at initial recognition from new insurance contracts. Losses would occur if the
group of new insurance contracts was onerous at initial recognition. If reinsurance contracts provide coverage for the direct
insurance contracts, then the loss is offset by a corresponding gain on reinsurance contracts held.
• Insurance experience gains (losses) arise from items such as claims, persistency, and expenses, where the actual experience in
the current period differs from the expected results assumed in the insurance and investment contract liabilities. Generally, this line
would be driven by claims and expenses, as persistency experience relates to future service and would be offset by changes to the
carrying amount of the contractual service margin unless the group is onerous, in which case the impact of persistency experience
would be included in core earnings.
• Other represents pre-tax net income on residual items in the insurance result section.
Net Investment Result represents the net income attributed to shareholders associated with investment results within the period. Note
that results associated with Global WAM and Manulife Bank are shown on separate DOE lines. However within the income statement, the
results associated with these businesses would impact the total investment result. This section includes lines attributed to core earnings
including:
•
Expected investment earnings, which is the difference between expected asset returns and the associated finance income or
expense from insurance contract liabilities, net of investment expenses.
• Change in expected credit loss, which is the gain or charge to net income attributed to shareholders for credit losses to bring the
allowance for credit losses to a level management considers adequate for expected credit-related losses on its portfolio.
• Expected earnings on surplus reflects the expected investment return on surplus assets.
• Other represents pre-tax net income on residual items in the investment result section.
113
Global WAM is the pre-tax net income from the Global Wealth and Asset Management segment, adjusted for applicable items excluded
from core earnings as noted in the core earnings (loss) section above.
Manulife Bank is the pre-tax net income from Manulife Bank, adjusted for applicable items excluded from core earnings as noted in the
core earnings (loss) section above.
Other represents net income associated with items outside of the net insurance service result, net investment result, Global WAM and
Manulife Bank. Other includes lines attributed to core earnings such as:
•
Non-directly attributable expenses are expenses incurred by the Company which are not directly attributable to fulfilling insurance
contracts. Non-directly attributable expenses excludes non-directly attributable investment expenses as they are included in the net
investment result.
• Other represents pre-tax net income on residual items in the Other section. Most notably this would include the cost of financing debt
issued by Manulife.
Net income attributed to shareholders includes the following items excluded from core earnings:
•
Market experience gains (losses) related to items excluded from core earnings that relate to changes in market variables.
• Changes in actuarial methods and assumptions that flow directly through income related to updates in the methods and
assumptions used to value insurance contract liabilities.
• Restructuring charges includes a charge taken to reorganize operations.
• Reinsurance transactions, tax-related items and other include the impacts of new or changes to in-force reinsurance contracts, the
impact of enacted or substantially enacted income tax rate changes and other amounts defined as items excluded from core earnings
not specifically captured in the lines above.
All of the above items are discussed in more detail in our definition of items excluded from core earnings.
114
| 2023 Annual Report | Management’s Discussion and Analysis
Drivers of Earnings (“DOE”) – 2023
($ millions, pre-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes
Income tax (expenses) recoveries
Net income (loss)
Less: Net income (loss) attributed to NCI
Less: Net income (loss) attributed to participating policyholders
Net income (loss) attributed to shareholders (post-tax)
2023
Asia
Canada
U.S.
$ 1,941
478
–
–
(175)
2,244
(440)
1,804
(141)
(315)
$ 1,348
$ 1,193
252
–
251
(87)
1,609
(373)
1,236
–
(45)
$ 1,191
$ 607
233
–
–
(89)
751
(112)
639
–
–
$ 639
Global
WAM
Corporate
and Other
$
–
–
1,497
–
–
1,497
(198)
1,299
(2)
–
$ 1,297
$ 236
919
–
–
(804)
351
278
629
(1)
–
$ 628
Total
$ 3,977
1,882
1,497
251
(1,155)
6,452
(845)
5,607
(144)
(360)
$ 5,103
Reconciliations of DOE line items to the consolidated financial statements and DOE presentation
Net insurance service result reconciliation
Total insurance service result—financial statements
Less: Insurance service result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net insurance result
Core net insurance result, CER adjustment(1)
Core net insurance result, CER basis
Total investment result reconciliation
Total investment result per financial statements
Less: Reclassify net investment result in each of Manulife Bank in
Canada and Global WAM to its own line of the DOE
Less: Consolidation adjustments(2)
Less: Other
Net investment result
Less: Net investment result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net investment result
Core net investment result, CER adjustment(1)
Core net investment result, CER basis
Manulife Bank and Global WAM by DOE line reconciliation
Manulife Bank and Global WAM net income attributed to shareholders
Less: Manulife Bank and Global WAM attributed to:
Items excluded from core earnings
Core earnings in Manulife Bank and Global WAM
Core earnings in Manulife Bank and Global WAM, CER adjustment(1)
Core earnings in Manulife Bank and Global WAM, CER basis
2023
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
$ 1,941
$ 1,193
$
607
$
–
87
308
$ 1,546
(3)
$ 1,543
19
–
107
$ 1,067
–
$ 1,067
$
$
(55)
–
–
662
6
668
$
$
–
–
–
–
–
–
–
$
236
$ 3,977
(3)
1
–
238
2
240
(39)
88
415
$ 3,513
5
$ 3,518
$
$
$
478
$ 1,717
$
233
$
(946) $ 1,476
$ 2,958
–
–
–
478
(605)
92
74
917
(11)
906
–
–
–
–
–
$
$
(1,445)
–
(20)
252
–
–
–
233
(345)
–
(17)
614
–
614
(1,296)
–
–
1,529
13
$ 1,542
$
946
–
–
–
–
–
–
–
–
–
251
2
249
–
249
$
–
–
–
–
–
1,496
(29)
1,525
7
$ 1,532
–
(557)
–
919
298
–
–
621
–
621
–
–
–
–
–
(499)
(557)
(20)
1,882
(1,948)
92
57
3,681
2
$ 3,683
1,747
(27)
1,774
7
$ 1,781
$
$
$
$
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
115
Drivers of Earnings (“DOE”) – 2023 (continued)
Other reconciliation
Other revenue per financial statements
General expenses per financial statements
Commission related to non-insurance contracts
Interest expense per financial statements
Total financial statements values included in Other
Less: Reclassify Other in each of Manulife Bank in Canada and Global WAM
to its own line of the DOE
Less: Consolidation adjustments(1)
Other
Other
Less: Other attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Add: Par earnings transfer to shareholders
Core Other
Core Other, CER adjustment(2)
Core Other, CER basis
Income tax recoveries (expenses) reconciliation
Income tax recoveries (expenses) per financial statements
Less: Income tax recoveries (expenses) attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core income tax recoveries (expenses)
Core income tax recoveries (expenses), CER adjustment(2)
Core income tax recoveries (expenses), CER basis
Net income (loss) before income taxes, CER basis(3)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes, CER basis
2023
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
$
67
(220)
(10)
(12)
(175)
–
–
–
(175)
(7)
4
(2)
34
(136)
2
(134) $
$
$
272
(514)
(55)
(1,004)
(1,301)
$
79
(156)
3
(15)
(89)
$ 6,709
(2,931)
(1,322)
(13)
2,443
$ (381) $ 6,746
(4,330)
(1,345)
(1,554)
(483)
(509)
39
(510)
(1,361)
1,194
–
20
(87)
(2)
–
(12)
8
(65)
–
–
–
–
(89)
(59)
–
–
–
(30)
(1)
(65) $
(31) $
(2,443)
–
–
–
–
557
–
(804)
(1,249)
557
20
(1,155)
(2)
2
–
–
–
–
–
85
–
–
–
(889)
–
$ (889)
15
6
(14)
42
(1,120)
1
$ (1,119)
$
(440) $
(373) $ (112) $
(198)
$ 278
$
(845)
(89)
(42)
(30)
(279)
2
(277) $
$
30
–
(25)
(378)
–
290
–
–
(402)
(3)
(378) $ (405) $
7
(1)
–
(204)
–
(204)
179
–
–
99
–
99
417
(43)
(55)
(1,164)
(1)
$ (1,165)
$
$ 1,940
484
–
–
(174)
$ 2,250
$ 1,194
252
–
251
(87)
$ 1,610
$ 611
235
–
–
(90)
$ 756
$
–
–
1,502
–
2
$ 1,504
$ 239
919
–
–
(805)
$ 353
$ 3,984
1,890
1,502
251
(1,154)
$ 6,473
(1) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
(3) DOE on a CER basis adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
116
| 2023 Annual Report | Management’s Discussion and Analysis
Drivers of Earnings (“DOE”) – 2022
($ millions, pre-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
Net insurance service result
Transitional net investment result
Global WAM
Manulife Bank
Other
Transitional net income (loss) before income taxes
Transitional income tax (expenses) recoveries
Transitional net income (loss)
Less: Transitional net income (loss) attributed to NCI
Less: Transitional net income (loss) attributed to participating
policyholders
2022
Asia
Canada
U.S.
Global WAM
$ 1,554
(484)
–
–
(275)
795
(237)
558
(114)
$ 1,190
380
–
215
(85)
1,700
(458)
1,242
–
$
533
1,272
–
–
(52)
1,753
(305)
1,448
–
$
–
–
1,291
–
–
1,291
(170)
1,121
–
Corporate
and Other
Total
$
(117) $ 3,160
776
(392)
1,291
–
215
–
(1,259)
(847)
4,183
(1,356)
(729)
441
3,454
(915)
(115)
(1)
Transitional net income (loss) attributed to shareholders (post-tax)
$
203
647
(44)
$ 1,198
–
$ 1,448
–
$ 1,121
–
159
(916) $ 3,498
$
Reconciliations of DOE line items to the consolidated financial statements and DOE presentation
Net insurance service result reconciliation
Total insurance service result—financial statements
Less: Insurance service result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net insurance result
Core net insurance result, CER adjustment(1)
Core net insurance result, CER basis
Transitional net investment result reconciliation
Total investment result per financial statements
IFRS 9 transitional impacts
Total including transitional impacts
Less: Reclassify net investment result in each of Manulife Bank in
Canada and Global WAM to its own line of the DOE
Less: Consolidation adjustments(2)
Less: Other
Transitional net investment result
Less: Transitional net investment result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net investment result
Core net investment result, CER adjustment(1)
Core net investment result, CER basis
Manulife Bank and Global WAM by DOE line reconciliation
Manulife Bank and Global WAM net income attributed to shareholders
Less: Manulife Bank and Global WAM attributed to:
Items excluded from core earnings
Core earnings in Manulife Bank and Global WAM
Core earnings in Manulife Bank and Global WAM, CER adjustment(1)
Core earnings in Manulife Bank and Global WAM, CER basis
2022
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 1,554
$ 1,190
$
533
$
–
$
(117) $ 3,160
(34)
70
(73)
$ 1,591
34
$ 1,625
28
–
132
$ 1,030
–
$ 1,030
$
$
179
–
–
354
14
368
$
$
–
–
–
–
–
–
(2)
–
–
(115)
(6)
171
70
59
$ 2,860
42
(121) $ 2,902
$
$
$
(370) $ (1,300) $ (3,493)
4,765
2,667
(114)
1,272
1,367
(484)
$ (1,200) $
–
(1,200)
(6) $ (6,369)
7,322
4
953
(2)
–
–
–
(484) $
(1,158)
51
(54)
677
3
680
–
–
–
–
–
$
$
$
$
$
$
$
$
$
(977)
–
(10)
380
(131)
–
(31)
542
–
542
–
–
–
1,272
$
1,200
–
–
–
$
–
(390)
–
(392) $
223
(390)
(10)
776
$
(316)
–
–
1,588
72
$ 1,660
$
–
–
–
–
–
–
(717)
–
–
325
–
$ 325
(2,322)
51
(85)
3,132
75
$ 3,207
215
$
(15)
230
–
230
$
$
–
–
–
–
–
$ 1,291
$
–
$ 1,506
(230)
$ 1,521
44
$ 1,565
$
$
–
–
–
–
(245)
$ 1,751
44
$ 1,795
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
117
Drivers of Earnings (“DOE”) – 2022 (continued)
Other reconciliation
Other revenue per financial statements
General expenses per financial statements
Commission related to non-insurance contracts
Interest expense per financial statements
Total financial statements values included in Other
Less: Reclassify Other in each of Manulife Bank in Canada and Global
WAM to its own line of the DOE
Less: Consolidation adjustments(1)
Other
Other
Less: Other attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Add: Par earnings transfer to shareholders
Core Other
Core Other, CER adjustment(2)
Core Other, CER basis
Income tax recoveries (expenses) reconciliation
Income tax recoveries (expenses) per financial statements
IFRS 9 transitional impacts
Transitional income tax recoveries (expenses)
Less: Transitional income tax recoveries (expenses) attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core income tax recoveries (expenses)
Core income tax recoveries (expenses), CER adjustment(2)
Core income tax recoveries (expenses), CER basis
Net income (loss) attributed to NCI
IFRS 9 transitional impacts
Transitional net income (loss) to NCI
Net income (loss) attributed to participating policyholders
IFRS 9 transitional impacts
Transitional net income (loss) to participating policyholders
Transitional net income (loss) before income taxes, CER basis(3)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Transitional net income (loss) before income taxes, CER basis
2022
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$
101
(140)
4
(16)
(51)
$ 6,391
(2,583)
(1,310)
(7)
2,491
$
(624) $
(187)
43
(468)
(1,236)
6,186
(3,731)
(1,333)
(1,051)
71
$
$
56
(303)
(15)
(12)
(274)
–
–
(1)
(275)
(29)
7
(14)
46
(193)
(3)
(196) $
$
262
(518)
(55)
(548)
(859)
762
–
12
(85)
–
–
(1)
4
(80)
–
(80) $
$
(318) $
81
(237)
510
(968)
(458)
$
695
(1,000)
(305)
54
(12)
(16)
(263)
(4)
(267) $
120
$
(6)
114
$
(211) $
8
(203) $
$
$
$
$
$
(71)
–
(52)
(335)
–
(335) $
–
$
–
–
44
–
44
$
$
$
36
–
–
(341)
(15)
(356)
–
–
–
–
–
–
–
–
(1)
(52)
(17)
–
–
–
(35)
(2)
(37)
(2,491)
–
–
–
–
–
–
–
–
–
–
$
–
389
–
(847)
(1,729)
389
10
(1,259)
(258)
–
–
–
(589)
1
(588) $
(304)
7
(15)
50
(897)
(4)
(901)
(170) $
–
(170)
442
(1)
441
$ 1,159
(1,888)
(729)
52
–
–
(222)
(4)
(226) $
–
$
–
–
–
–
–
$
$
$
325
–
–
116
–
116
1
–
1
–
–
–
396
(12)
(68)
(1,045)
(23)
$ (1,068)
121
$
(6)
115
(167)
8
(159)
$
$
$
$
$
$
$
$
$
$
$ 1,572
(466)
–
–
(280)
826
$
$ 1,190
380
–
215
(85)
$ 1,700
$
560
1,375
–
–
(56)
$ 1,879
$
–
–
1,332
–
–
$ 1,332
$
(122) $ 3,200
898
(391)
1,332
–
215
–
(1,268)
(847)
$ (1,360) $ 4,377
(1) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
(3) DOE on a CER basis adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
118
| 2023 Annual Report | Management’s Discussion and Analysis
Drivers of Earnings (“DOE”) – 4Q23
($ millions, pre-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes
Income tax (expenses) recoveries
Net income (loss)
Less: Net income (loss) attributed to NCI
Less: Net income (loss) attributed to participating policyholders
Net income (loss) attributed to shareholders (post-tax)
4Q23
Asia
Canada
U.S.
Global WAM
$ 644
285
–
–
(82)
847
(109)
738
(37)
(86)
$ 615
$ 306
137
–
72
(17)
498
(116)
382
–
(17)
$ 365
$ 195
72
–
–
(23)
244
(46)
198
–
–
$ 198
$
–
–
425
–
(1)
424
(58)
366
(1)
–
$ 365
Corporate
and Other
$ 91
182
–
–
(163)
110
7
117
(1)
–
$ 116
Total
$ 1,236
676
425
72
(286)
2,123
(322)
1,801
(39)
(103)
$ 1,659
Reconciliations of DOE line items to the consolidated financial statements and DOE presentation
Net insurance service result reconciliation
Total insurance service result—financial statements
Less: Insurance service result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net insurance result
Core net insurance result, CER adjustment(1)
Core net insurance result, CER basis
Total investment result reconciliation
Total investment result per financial statements
Less: Reclassify net investment result in each of Manulife Bank in Canada and
Global WAM to its own line of the DOE
Less: Consolidation adjustments(2)
Less: Other
Net investment result
Less: Net investment result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net investment result
Core net investment result, CER adjustment(1)
Core net investment result, CER basis
Manulife Bank and Global WAM by DOE line reconciliation
Manulife Bank and Global WAM net income attributed to shareholders
Less: Manulife Bank and Global WAM attributed to:
Items excluded from core earnings
Core earnings in Manulife Bank and Global WAM
Core earnings in Manulife Bank and Global WAM, CER adjustment(1)
Core earnings in Manulife Bank and Global WAM, CER basis
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
4Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 644
$ 306
$ 195
$
130
19
60
435
–
$ 435
12
–
39
255
–
$ 255
21
–
–
174
–
$ 174
$
–
–
–
–
–
–
–
$ 91
$ 1,236
(2)
1
–
92
–
$ 92
$
161
20
99
956
–
956
$ 285
$ 511
$
72
$ (139)
$ 344
$ 1,073
–
–
–
285
(377)
–
3
137
–
–
–
72
(47)
37
50
245
–
$ 245
9
–
(10)
138
–
$ 138
(359)
–
–
431
–
$ 431
139
–
–
–
–
–
–
–
–
–
$
–
(162)
–
182
39
–
–
143
–
$ 143
(238)
(162)
3
676
(358)
37
40
957
–
957
$
$
–
$
72
$
–
–
–
–
8
64
–
64
$
$
$
–
–
–
–
–
$
424
$
–
$
496
16
408
–
408
$
–
–
–
–
24
472
–
472
$
$
119
Drivers of Earnings (“DOE”) – 4Q23 (continued)
Other reconciliation
Other revenue per financial statements
General expenses per financial statements
Commission related to non-insurance contracts
Interest expense per financial statements
Total financial statements values included in Other
Less: Reclassify Other in each of Manulife Bank in Canada and Global WAM to
its own line of the DOE
Less: Consolidation adjustments(1)
Other
Other
Less: Other attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Add: Par earnings transfer to shareholders
Core Other
Core Other, CER adjustment(2)
Core Other, CER basis
Income tax recoveries (expenses) reconciliation
Income tax recoveries (expenses) per financial statements
Less: Income tax recoveries (expenses) attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core income tax recoveries (expenses)
Core income tax recoveries (expenses), CER adjustment(2)
Core income tax recoveries (expenses), CER basis
Net income (loss) before income taxes, CER basis(3)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes, CER basis
4Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$
$
(16) $
(59)
(3)
(4)
(82)
75
(136)
(12)
(246)
(319)
–
–
–
(82)
(26)
(2)
(4)
10
(40)
–
(40)
305
–
(3)
(17)
4
–
(1)
2
(18)
–
(18)
$
$
$
8
(28)
1
(4)
(23)
–
–
–
(23)
(5)
–
–
–
(18)
–
(18)
$ (109)
$ (116)
$
(46)
(6)
(17)
(10)
(76)
–
(76)
$
(20)
–
(9)
(87)
–
(87)
$
$ 644
285
–
–
(82)
$ 847
$ 306
137
–
72
(17)
$ 498
67
–
–
(113)
–
$ (113)
$ 195
72
–
–
(23)
$ 244
$ 1,688
(793)
(330)
(2)
563
$
(36) $ 1,719
(1,180)
(335)
(390)
(186)
(164)
9
(134)
(325)
(564)
–
–
(1)
(2)
1
–
–
–
–
–
–
162
–
(163)
79
–
–
–
(242)
–
$ (242)
(259)
162
(3)
(286)
50
(1)
(5)
12
(318)
–
$
(318)
(58)
$
7
$
(322)
(3)
–
–
(55)
–
(55)
–
–
425
–
(1)
424
(30)
–
–
37
–
37
$
$
8
(17)
(19)
(294)
–
(294)
$
91
182
–
–
(163)
$ 110
$ 1,236
676
425
72
(286)
$ 2,123
$
$
$
$
$
(1) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
(3) DOE on a CER basis adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
120
| 2023 Annual Report | Management’s Discussion and Analysis
Drivers of Earnings (“DOE”) – 3Q23
($ millions, pre-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes
Income tax (expenses) recoveries
Net income (loss)
Less: Net income (loss) attributed to NCI
Less: Net income (loss) attributed to participating policyholders
Net income (loss) attributed to shareholders (post-tax)
3Q23
Asia
Canada
U.S.
Global WAM
$ 467
4
–
–
(32)
439
(135)
304
(25)
(195)
84
$
$ 366
(14)
–
55
(31)
376
(94)
282
–
8
$ 290
$ 108
(45)
–
–
5
68
4
72
–
–
72
$
$
$
–
–
365
–
1
366
(48)
318
–
–
318
Corporate
and Other
$
64
142
–
–
(281)
(75)
324
249
–
–
$ 249
Total
$ 1,005
87
365
55
(338)
1,174
51
1,225
(25)
(187)
$ 1,013
Reconciliations of DOE line items to the consolidated financial statements and DOE presentation
Net insurance service result reconciliation
Total insurance service result - financial statements
Less: Insurance service result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net insurance result
Core net insurance result, CER adjustment(1)
Core net insurance result, CER basis
Total investment result reconciliation
Total investment result per financial statements
Less: Reclassify net investment result in each of Manulife Bank in Canada and
Global WAM to its own line of the DOE
Less: Consolidation adjustments(2)
Less: Other
Net investment result
Less: Net investment result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net investment result
Core net investment result, CER adjustment(1)
Core net investment result, CER basis
Manulife Bank and Global WAM by DOE line reconciliation
Manulife Bank and Global WAM net income attributed to shareholders
Less: Manulife Bank and Global WAM attributed to:
Items excluded from core earnings
Core earnings in Manulife Bank and Global WAM
Core earnings in Manulife Bank and Global WAM, CER adjustment(1)
Core earnings in Manulife Bank and Global WAM, CER basis
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
3Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 467
$ 366
$ 108
$
(112)
15
177
387
4
$ 391
11
–
21
334
–
$ 334
(51)
–
–
159
2
$ 161
$
–
–
–
–
–
–
–
$
64
$ 1,005
(1)
–
–
65
1
66
(153)
15
198
945
7
952
$
$
$
4
$ 389
$
(45)
$ (303)
$ 273
$
318
–
–
–
4
(274)
17
28
233
1
$ 234
(380)
–
(23)
(14)
(130)
–
(21)
137
(1)
$ 136
–
–
–
(45)
(418)
–
–
373
6
$ 379
303
–
–
–
–
–
–
–
–
–
$
–
(131)
–
142
(5)
–
–
147
–
$ 147
(77)
(131)
(23)
87
(827)
17
7
890
6
896
$
$
$
–
–
–
–
–
$
55
$
(11)
66
–
66
$
$
–
–
–
–
–
$
365
$
(55)
420
4
424
$
$
–
–
–
–
–
$
420
(66)
486
4
490
$
121
Drivers of Earnings (“DOE”) – 3Q23 (continued)
Other reconciliation
Other revenue per financial statements
General expenses per financial statements
Commission related to non-insurance contracts
Interest expense per financial statements
Total financial statements values included in Other
Less: Reclassify Other in each of Manulife Bank in Canada and Global WAM
to its own line of the DOE
Less: Consolidation adjustments(1)
Other
Other
Less: Other attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Add: Par earnings transfer to shareholders
Core Other
Core Other, CER adjustment(2)
Core Other, CER basis
Income tax recoveries (expenses) reconciliation
Income tax recoveries (expenses) per financial statements
Less: Income tax recoveries (expenses) attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core income tax recoveries (expenses)
Core income tax recoveries (expenses), CER adjustment(2)
Core income tax recoveries (expenses), CER basis
Net income (loss) before income taxes, CER basis(3)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes, CER basis
3Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$
$
26
(52)
(3)
(3)
(32)
–
–
–
(32)
5
2
3
6
(36)
–
(36)
$
$
53
(128)
(14)
(290)
(379)
325
–
23
(31)
(4)
–
(5)
2
(20)
1
(19)
$
$
31
(29)
6
(3)
5
$ 1,709
(703)
(334)
(1)
671
–
–
–
5
2
–
–
–
3
–
3
$
(670)
–
–
1
–
1
–
–
–
–
–
$
$
(174)
(129)
9
(119)
(413)
–
132
–
(281)
(49)
–
–
–
(232)
(1)
(233)
$ 1,645
(1,041)
(336)
(416)
(148)
(345)
132
23
(338)
(46)
3
(2)
8
(285)
–
$
(285)
$
(135) $
(94)
$
4
$
(48)
$ 324
$
51
(58)
(9)
(6)
(62)
–
(62)
16
–
(1)
(109)
–
(109)
$
$
97
–
–
(93)
(2)
$
(95) $
$ 473
3
–
–
(33)
$ 443
$ 366
$ 109
$
(14)
–
55
(31)
$ 376
$
(45)
–
–
6
70
$
12
(1)
–
(59)
–
(59)
–
–
369
–
–
369
294
–
–
30
–
30
66
141
–
–
(281)
(74)
$
$
$
361
(10)
(7)
(293)
(2)
(295)
$
$ 1,014
85
369
55
(339)
$ 1,184
(1) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
(3) DOE on a CER basis adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
122
| 2023 Annual Report | Management’s Discussion and Analysis
Drivers of Earnings (“DOE”) – 2Q23
($ millions, pre-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes
Income tax (expenses) recoveries
Net income (loss)
Less: Net income (loss) attributed to NCI
Less: Net income (loss) attributed to participating policyholders
Net income (loss) attributed to shareholders (post-tax)
2Q23
Asia
Canada
U.S.
Global WAM
$ 460
(96)
–
–
(19)
345
(91)
254
(25)
(99)
$ 130
$ 262
12
–
59
(21)
312
(64)
248
–
(21)
$ 227
$ 131
105
–
–
(16)
220
(37)
183
–
–
$ 183
$
$
–
–
362
–
–
362
(44)
318
(1)
–
317
Corporate
and Other
$ 34
351
–
–
(188)
197
(29)
168
–
–
$ 168
$
Total
887
372
362
59
(244)
1,436
(265)
1,171
(26)
(120)
$ 1,025
Reconciliations of DOE line items to the consolidated financial statements and DOE presentation
Net insurance service result reconciliation
Total insurance service result - financial statements
Less: Insurance service result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net insurance result
Core net insurance result, CER adjustment(1)
Core net insurance result, CER basis
Total investment result reconciliation
Total investment result per financial statements
Less: Reclassify net investment result in each of Manulife Bank in Canada
and Global WAM to its own line of the DOE
Less: Consolidation adjustments(2)
Less: Other
Net investment result
Less: Net investment result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net investment result
Core net investment result, CER adjustment(1)
Core net investment result, CER basis
Manulife Bank and Global WAM by DOE line reconciliation
Manulife Bank and Global WAM net income attributed to shareholders
Less: Manulife Bank and Global WAM attributed to:
Items excluded from core earnings
Core earnings in Manulife Bank and Global WAM
Core earnings in Manulife Bank and Global WAM, CER adjustment(1)
Core earnings in Manulife Bank and Global WAM, CER basis
2Q23
Asia
Canada
U.S.
Global WAM
$ 460
$ 262
$ 131
$
(44)
13
122
369
(3)
$ 366
(4)
–
21
245
(1)
$ 244
(26)
–
–
157
4
$ 161
$
–
–
–
–
–
–
–
Corporate
and Other
Total
$
34
$ 887
1
–
–
33
1
34
(73)
13
143
804
1
$ 805
$
$
(96) $ 354
$ 105
$
(244) $ 478
$ 597
–
–
–
(96)
(342)
–
–
12
–
–
–
105
244
–
–
–
–
(127)
–
351
(98)
(127)
–
372
(318)
14
(7)
215
(5)
$ 210
(184)
–
14
182
1
$ 183
(319)
–
–
424
5
$ 429
$
–
–
–
–
–
–
183
–
–
168
–
$ 168
(638)
14
7
989
1
$ 990
$
$
–
–
–
–
–
$
59
$
–
59
–
59
$
$
–
–
–
–
–
$
362
$
–
$
421
(3)
365
2
367
$
$
–
–
–
–
(3)
424
2
426
$
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
123
Drivers of Earnings (“DOE”) – 2Q23 (continued)
Other reconciliation
Other revenue per financial statements
General expenses per financial statements
Commission related to non-insurance contracts
Interest expense per financial statements
Total financial statements values included in Other
Less: Reclassify Other in each of Manulife Bank in Canada and Global WAM
$
to its own line of the DOE
Less: Consolidation adjustments(1)
Other
Other
Less: Other attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Add: Par earnings transfer to shareholders
Core Other
Core Other, CER adjustment(2)
Core Other, CER basis
Income tax recoveries (expenses) reconciliation
Income tax recoveries (expenses) per financial statements
Less: Income tax recoveries (expenses) attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core income tax recoveries (expenses)
Core income tax recoveries (expenses), CER adjustment(2)
Core income tax recoveries (expenses), CER basis
Net income (loss) before income taxes, CER basis (3)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes, CER basis
2Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
$
47
(61)
(2)
(3)
(19)
–
–
–
(19)
23
4
1
9
(38)
1
$
72
(127)
(13)
(236)
(304)
283
–
–
(21)
(1)
–
(3)
2
(15)
–
$
(37) $
(15) $
16
(25)
(3)
(4)
(16)
–
–
–
(16)
(3)
–
–
–
(13)
–
(13)
$ 1,647
$
(709)
(329)
(5)
604
(604)
–
–
–
(91)
(101)
11
(133)
(314)
–
126
–
(188)
–
–
–
–
–
–
–
19
–
–
–
(207)
–
(207) $
$
$
$
Total
1,691
(1,023)
(336)
(381)
(49)
(321)
126
–
(244)
38
4
(2)
11
(273)
1
(272)
$
(91) $
(64) $
(37)
$
(44) $
(29)
$
(265)
(4)
(6)
(8)
(73)
2
42
–
(9)
(97)
–
$
(71) $
(97) $
73
–
–
(110)
(1)
(111)
1
–
–
(45)
–
(45)
$
$ 457
(81)
–
–
(19)
$ 357
$ 262
12
–
59
(21)
$ 312
$ 134
106
–
–
(17)
$ 223
$
–
–
364
–
–
$ 364
(47)
–
–
18
(1)
17
34
352
–
–
(188)
$
$
$ 198
65
(6)
(17)
(307)
–
(307)
$
$
887
389
364
59
(245)
$ 1,454
(1) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
(3) DOE on a CER basis adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
124
| 2023 Annual Report | Management’s Discussion and Analysis
Drivers of Earnings (“DOE”) – 1Q23
($ millions, pre-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes
Income tax (expenses) recoveries
Net income (loss)
Less: Net income (loss) attributed to NCI
Less: Net income (loss) attributed to participating policyholders
Net income (loss) attributed to shareholders (post-tax)
1Q23
Asia
Canada
U.S.
Global WAM
$ 370
285
–
–
(42)
613
(105)
508
(54)
65
$ 519
$ 259
117
–
65
(18)
423
(99)
324
–
(15)
$ 309
$ 173
101
–
–
(55)
219
(33)
186
–
–
$ 186
$
$
–
–
345
–
–
345
(48)
297
–
–
297
Corporate
and Other
$
$
47
244
–
–
(172)
119
(24)
95
–
–
95
$
Total
849
747
345
65
(287)
1,719
(309)
1,410
(54)
50
$ 1,406
Reconciliations of DOE line items to the consolidated financial statements and DOE presentation
Net insurance service result reconciliation
Total insurance service result - financial statements
Less: Insurance service result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net insurance result
Core net insurance result, CER adjustment(1)
Core net insurance result, CER basis
Total investment result reconciliation
Total investment result per financial statements
Less: Reclassify net investment result in each of Manulife Bank in Canada and
Global WAM to its own line of the DOE
Less: Consolidation adjustments(2)
Less: Other
Net investment result
Less: Net investment result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net investment result
Core net investment result, CER adjustment(1)
Core net investment result, CER basis
Manulife Bank and Global WAM by DOE line reconciliation
Manulife Bank and Global WAM net income attributed to shareholders
Less: Manulife Bank and Global WAM attributed to:
Items excluded from core earnings
Core earnings in Manulife Bank and Global WAM
Core earnings in Manulife Bank and Global WAM, CER adjustment(1)
Core earnings in Manulife Bank and Global WAM, CER basis
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
1Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$ 370
$ 259
$ 173
$
26
40
(51)
355
(5)
$ 350
$
–
–
26
233
1
234
1
–
–
172
–
$ 172
$
–
–
–
–
–
–
–
$
47
$ 849
(1)
–
–
48
–
48
26
40
(25)
808
(4)
$ 804
$
$ 285
$ 463
$ 101
$
(260) $ 381
$ 970
–
–
–
285
(346)
–
–
117
–
–
–
101
260
–
–
–
–
(137)
–
244
(86)
(137)
–
747
34
24
3
224
(8)
$ 216
(40)
–
–
157
–
$ 157
(200)
–
–
301
2
$ 303
$
–
–
–
–
–
–
81
–
–
163
1
$ 164
$
–
$
65
$
–
–
–
–
$
5
60
–
60
$
$
–
–
–
–
–
$
345
$
13
332
1
333
$
$
–
–
–
–
–
(125)
24
3
845
(5)
$ 840
$ 410
18
392
1
$ 393
125
Drivers of Earnings (“DOE”) – 1Q23 (continued)
Other reconciliation
Other revenue per financial statements
General expenses per financial statements
Commission related to non-insurance contracts
Interest expense per financial statements
Total financial statements values included in Other
Less: Reclassify Other in each of Manulife Bank in Canada and Global WAM
$
to its own line of the DOE
Less: Consolidation adjustments(1)
Other
Other
Less: Other attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Add: Par earnings transfer to shareholders
Core Other
Core Other, CER adjustment(2)
Core Other, CER basis
Income tax recoveries (expenses) reconciliation
Income tax recoveries (expenses) per financial statements
Less: Income tax recoveries (expenses) attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core income tax recoveries (expenses)
Core income tax recoveries (expenses), CER adjustment(2)
Core income tax recoveries (expenses), CER basis
Net income (loss) before income taxes, CER basis(3)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Net income (loss) before income taxes, CER basis
1Q23
Asia
Canada
U.S.
Global WAM
Corporate
and Other
Total
$
10
(48)
(2)
(2)
(42)
–
–
–
(42)
(9)
–
(2)
9
(22)
2
72
(123)
(16)
(232)
(299)
281
–
–
(18)
(1)
–
(3)
2
(12)
(1)
(13)
$
$
24
(74)
(1)
(4)
(55)
–
–
–
(55)
(53)
–
–
–
(2)
1
(1)
$ 1,665
$
(726)
(329)
(5)
605
(605)
–
–
–
–
–
–
–
–
–
–
$
$
(80)
(115)
10
(124)
(309)
–
137
–
(172)
36
–
–
–
(208)
(1)
(209)
$ 1,691
(1,086)
(338)
(367)
(100)
(324)
137
–
(287)
(27)
–
(5)
11
(244)
1
(243)
$
$
(20) $
$
(105) $
(99)
$
(33) $
(48)
$
(24)
$
(309)
(21)
(10)
(6)
(68)
1
$
(67) $
(8)
–
(6)
(85)
–
(85)
$
53
–
–
(86)
–
(86)
$ 365
278
–
–
(41)
$ 602
$ 259
117
–
65
(18)
$ 174
101
–
–
(54)
$ 423
$ 221
$
$
$
(3)
–
–
(45)
–
(45)
–
–
345
–
–
345
(38)
–
–
14
–
14
48
244
–
–
(173)
$
$
$ 119
(17)
(10)
(12)
(270)
1
(269)
$
$
846
740
345
65
(286)
$ 1,710
(1) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
(3) DOE on a CER basis adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
126
| 2023 Annual Report | Management’s Discussion and Analysis
Drivers of Earnings (“DOE”) – 4Q22
($ millions, pre-tax and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
Net insurance service result
Transitional net investment result
Global WAM
Manulife Bank
Other
Transitional net income (loss) before income taxes
Transitional income tax (expenses) recoveries
Transitional net income (loss)
Less: Transitional net income (loss) attributed to NCI
Less: Transitional net income (loss) attributed to participating policyholders
Transitional net income (loss) attributed to shareholders (post-tax)
4Q22
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
$ 485
169
–
–
(39)
615
(122)
493
(34)
34
$ 493
$ 301
(69)
–
72
(27)
277
(135)
142
–
(22)
$ 120
$ 126
(259)
–
–
(15)
(148)
42
(106)
–
–
$ (106)
$
–
–
461
–
–
461
(60)
401
–
–
$ 401
$ 49
62
–
–
(167)
(56)
377
321
(1)
–
$ 320
$
Total
961
(97)
461
72
(248)
1,149
102
1,251
(35)
12
$ 1,228
Reconciliations of DOE line items to the consolidated financial statements and DOE presentation
4Q22
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Net insurance service result reconciliation
Total insurance service result—financial statements
Less: Insurance service result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net insurance result
Core net insurance result, CER adjustment(1)
Core net insurance result, CER basis
Transitional net investment result reconciliation
Total investment result per financial statements
IFRS 9 transitional impacts
Total including transitional impacts
Less: Reclassify net investment result in each of Manulife Bank in Canada and Global
WAM to its own line of the DOE
Less: Consolidation adjustments(2)
Less: Other
Transitional net investment result
Less: Transitional net investment result attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core net investment result
Core net investment result, CER adjustment(1)
Core net investment result, CER basis
Manulife Bank and Global WAM by DOE line reconciliation
Manulife Bank and Global WAM net income attributed to shareholders
Less: Manulife Bank and Global WAM attributed to:
Items excluded from core earnings
Core earnings in Manulife Bank and Global WAM
Core earnings in Manulife Bank and Global WAM, CER adjustment(1)
Core earnings in Manulife Bank and Global WAM, CER basis
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
$ 485
$ 301
$ 126
$
69
18
15
383
1
$ 384
1
–
84
216
–
$ 216
10
–
–
116
–
$ 116
$
–
–
–
–
–
–
–
$
(45) $ (60) $ (179) $ (149)
–
214
(149)
169
(80)
(259)
312
252
$ 49
$ 961
(1)
–
–
50
(1)
$ 49
79
18
99
765
–
$ 765
$ 157
7
164
$ (276)
453
177
–
–
–
169
(324)
–
3
(69)
–
–
–
(259)
149
–
–
–
(54)
31
(15)
207
(2)
$ 205
(189)
–
(2)
122
1
$ 123
(662)
–
–
403
1
$ 404
$
–
–
–
–
–
–
–
(102)
–
62
(75)
–
–
137
–
$ 137
$
$
–
–
–
–
–
$ 72
$
–
$ 461
$
5
67
–
$ 67
$
–
–
–
–
140
321
1
$ 322
$
–
–
–
–
–
(175)
(102)
3
(97)
(980)
31
(17)
869
–
$ 869
$ 533
145
388
1
$ 389
127
Drivers of Earnings (“DOE”) – 4Q22 (continued)
4Q22
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Other reconciliation
Other revenue per financial statements
General expenses per financial statements
Commission related to non-insurance contracts
Interest expense per financial statements
Total financial statements values included in Other
Less: Reclassify Other in each of Manulife Bank in Canada and Global WAM to its
$
own line of the DOE
Less: Consolidation adjustments(1)
Other
Other
Less: Other attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Add: Par earnings transfer to shareholders
Core Other
Core Other, CER adjustment(2)
Core Other, CER basis
Income tax recoveries (expenses) reconciliation
Income tax recoveries (expenses) per financial statements
IFRS 9 transitional impacts
Transitional income tax recoveries (expenses)
Less: Transitional income tax recoveries (expenses) attributed to:
Items excluded from core earnings
NCI
Participating policyholders
Core income tax recoveries (expenses)
Core income tax recoveries (expenses), CER adjustment(2)
Core income tax recoveries (expenses), CER basis
Net income (loss) attributed to NCI
IFRS 9 transitional impacts
Transitional net income (loss) to NCI
Net income (loss) attributed to participating policyholders
IFRS 9 transitional impacts
Transitional net income (loss) to participating policyholders
Transitional net income (loss) before income taxes, CER basis(3)
Net insurance service result
Net investment result
Global WAM
Manulife Bank
Other
Transitional net income (loss) before income taxes, CER basis
$ 1,646
$
$ 1,671
(1,002)
(320)
(337)
12
(74)
(81)
11
(124)
(268)
–
101
–
(167)
15
(42)
(3)
(8)
(38)
–
–
(1)
(39)
–
–
(7)
20
(12)
(1)
$
$
67
(135)
(14)
(196)
(278)
252
–
(1)
(27)
–
–
(1)
(2)
(28)
–
(28)
$
$
(13) $
$ (102) $
(20)
(122)
(14) $
(121)
(135)
(18)
(13)
(9)
(82)
1
(81)
32
2
34
(47)
13
(34)
$
$
$
$
$
$
$
$
$
$
6
–
(60)
(81)
(1)
–
–
–
22
–
22
(82) $
$
$
$
$
17
(29)
2
(4)
(14)
–
–
(1)
(15)
–
–
–
–
(15)
(1)
(16)
23
19
42
138
–
–
(96)
1
(95)
–
–
–
–
–
–
$ 487
166
–
–
(41)
$ 612
$ 301
$ 127
(69)
–
72
(27)
$ 277
(260)
–
–
(16)
$ (149)
(715)
(316)
(5)
610
(610)
–
–
–
–
–
–
–
–
–
–
(60)
–
(60)
(13)
–
–
(47)
(1)
(48)
–
–
–
–
–
–
–
–
458
–
–
458
$
$
$
$
$
$
$
$
$
(358)
101
(3)
(248)
22
–
(8)
18
(244)
(1)
(245)
226
(124)
102
419
(13)
(69)
(235)
–
(235)
33
2
35
(25)
13
(12)
22
–
–
–
(189)
1
$ (188) $
$
$ 379
(2)
377
306
–
–
71
–
71
1
–
1
–
–
–
$
$
$
$
$
$
$
$
$
$
$
$
49
62
–
–
(167)
(56)
$
964
(101)
458
72
(251)
$ 1,142
(1) Consolidation adjustments in Other DOE line reclassified to net investment result DOE line.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
(3) DOE on a CER basis adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
128
| 2023 Annual Report | Management’s Discussion and Analysis
The contractual service margin (“CSM”) is a liability that represents future unearned profits on insurance contracts written. It is a
component of our insurance and reinsurance contract liabilities on our Statement of Financial Position. Organic and inorganic changes in
CSM include amounts attributed to participating shareholders and non-controlling interests. CSM growth is the percentage change in the
CSM net of NCI compared with a prior period on a constant exchange rate basis.
Changes in CSM that are classified as organic include the following impacts:
•
Impact of new business is the impact on CSM from insurance contracts initially recognized in the period and includes acquisition
expense related gains (losses) which impact the CSM in the period. It excludes the impact on CSM from entering into new in-force
reinsurance contracts which would generally be considered a management action;
• Expected movement related to finance income or expenses includes interest accreted on the CSM during the period and the
expected change in the CSM on VFA contracts if returns are as expected;
• CSM recognized for service provided is the portion of the CSM that is recognized in net income for service provided in the period;
and
• Insurance experience gains (losses) and other is primarily the change in the CSM balance from experience variances that relate to
future periods. This includes persistency experience and changes in future period cash flows caused by other current period
experience.
Changes in CSM that are classified as inorganic include:
Changes in actuarial methods and assumptions that adjust the CSM;
•
• Effect of movement in exchange rates over the reporting period;
• Impact of markets; and
• Reinsurance transactions, tax-related and other items that reflects the impact related to future cash flows from items such as
gains or losses on disposition of a business, the impact of enacted or substantially enacted income tax rate changes, material one
time only adjustments that are exceptional in nature and other amounts not specifically captured in the previous inorganic items.
Post-tax CSM is used in the definition of financial leverage ratio and consolidated capital and is calculated as the CSM adjusted for the
marginal income tax rate in the jurisdictions that report a CSM balance. Post-tax CSM net of NCI is used in the adjusted book value per
share calculation and is calculated as the CSM excluding non-controlling interests adjusted for the marginal income tax rate in the
jurisdictions that report this balance.
New business CSM is the impact of new business defined above, excluding CSM attributed to non-controlling interests. New business
CSM growth is the percentage change in the New business CSM net of NCI compared with a prior period on a constant exchange rate
basis.
129
CSM and post-tax CSM information
($ millions and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
As at
CSM
Less: CSM for NCI
CSM, net of NCI
CER adjustment(1)
CSM, net of NCI, CER basis
CSM by segment
Asia
Asia NCI
Canada
U.S.
Corporate and Other
CSM
CSM, CER adjustment(1)
Asia
Asia NCI
Canada
U.S.
Corporate and Other
Total
CSM, CER basis
Asia
Asia NCI
Canada
U.S.
Corporate and Other
Total CSM, CER basis
Post-tax CSM
CSM
Marginal tax rate on CSM
Post-tax CSM
CSM, net of NCI
Marginal tax rate on CSM net of NCI
Post-tax CSM net of NCI
Dec 31,
2023
Sept 30,
2023
June 30,
2023
Mar 31,
2023
Dec 31,
2022
$ 21,301
(861)
$ 20,440
380
$ 20,820
$ 18,149
(780)
$ 17,369
116
$ 17,485
$ 18,103
(680)
$ 17,423
324
$ 17,747
$ 18,200
(733)
$ 17,467
(171)
$ 17,296
$ 17,977
(694)
$ 17,283
(138)
$ 17,145
$ 12,617
861
4,060
3,738
25
$ 21,301
$ 10,030
780
3,662
3,651
26
$ 18,149
$ 9,630
680
3,656
4,106
31
$ 18,103
$ 9,678
733
3,659
4,080
50
$ 18,200
$ 9,420
694
3,675
4,136
52
$ 17,977
$
$
269
12
–
110
–
391
$
$
100
12
–
16
–
128
$
$
207
22
–
117
–
346
$
$
(195)
(33)
–
24
–
(204)
$
$
(157)
(23)
–
19
–
(161)
$ 12,886
873
4,060
3,848
25
$ 21,692
$ 10,130
792
3,662
3,667
26
$ 18,277
$ 9,837
702
3,656
4,223
31
$ 18,449
$ 9,483
700
3,659
4,104
50
$ 17,996
$ 9,263
671
3,675
4,155
52
$ 17,816
$ 21,301
(2,798)
$ 18,503
$ 20,440
(2,692)
$ 17,748
$ 18,149
(2,474)
$ 15,675
$ 17,369
(2,377)
$ 14,992
$ 18,103
(2,645)
$ 15,458
$ 17,423
(2,546)
$ 14,877
$ 18,200
(2,724)
$ 15,476
$ 17,467
(2,617)
$ 14,850
$ 17,977
(2,726)
$ 15,251
$ 17,283
(2,624)
$ 14,659
(1) The impact of reflecting CSM and CSM net of NCI using the foreign exchange rates for the Statement of Financial Position in effect for 4Q23.
130
| 2023 Annual Report | Management’s Discussion and Analysis
New business CSM detail, CER basis
($ millions pre-tax, and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
New business CSM, net of NCI
Hong Kong
Japan
Asia Other
International High Net Worth
Mainland China
Singapore
Vietnam
Other Emerging Markets
Asia
Canada
U.S.
Total new business CSM net of NCI
Asia NCI
Total impact of new insurance business in CSM
New business CSM, net of NCI, CER adjustment(1),(2)
Hong Kong
Japan
Asia Other
International High Net Worth
Mainland China
Singapore
Vietnam
Other Emerging Markets
Asia
Canada
U.S.
Total new business CSM net of NCI
Asia NCI
Total impact of new insurance business in CSM
New business CSM net of NCI, CER basis
Hong Kong
Japan
Asia Other
International High Net Worth
Mainland China
Singapore
Vietnam
Other Emerging Markets
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 199
42
173
$ 167
29
206
$ 191
19
222
$ 119
36
146
$ 110
28
186
$
676
126
747
231
138
244
87
47
$
437
140
732
197
12
189
305
29
414
70
142
626
39
$ 665
402
51
54
507
46
$ 553
432
57
103
592
38
$ 630
301
46
95
442
19
$ 461
324
47
71
442
–
$ 442
1,549
224
394
2,167
142
$ 2,309
1,309
199
387
1,895
20
$ 1,915
$
$
3
(1)
5
$
3
(1)
(1)
$
1
(3)
(3)
–
(1)
2
$
$
$
–
–
–
–
–
–
–
–
–
7
–
1
8
–
8 $
$
1
–
1
2
–
(5)
–
1
(4)
(1)
2 $
(5)
$
1
–
–
1
(1)
–
$
$
$ 199
42
173
$ 170
28
211
$ 194
18
221
$ 120
33
143
$ 110
27
188
7
(5)
1
3
–
2
(2)
(2)
3
–
3
6
(1)
5
683
121
748
234
138
246
85
45
$
$
$
20
(10)
22
7
–
13
3
(1)
32
–
20
52
(1)
51
457
130
754
204
12
202
308
28
1,341
199
407
1,947
19
$ 1,966
Asia
Canada
U.S.
Total new business CSM net of NCI, CER basis
Asia NCI, CER basis
Total impact of new insurance business in CSM, CER basis
414
70
142
626
39
$ 665
409
51
55
515
46
$ 561
433
57
104
594
38
$ 632
296
46
96
438
18
$ 456
325
47
71
443
(1)
$ 442
1,552
224
397
2,173
141
$ 2,314
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) New business CSM for Asia Other is reported by country annually, on a full year basis. Other Emerging Markets within Asia Other include Indonesia, the Philippines, Malaysia,
Thailand, Cambodia and Myanmar.
131
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 2023.
Information supporting constant exchange rate basis for GAAP and non-GAAP financial measures is presented below and throughout this
section.
Basic EPS and diluted EPS, CER basis is equal to common shareholders’ net income on a CER basis divided by the weighted average
common shares outstanding and diluted weighted common shares outstanding, respectively.
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
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 1,180
–
$ 1,180
$ 1,042
9
$ 1,051
$ 1,022
8
$ 1,030
$ 1,086
3
$ 1,089
$ 1,002
4
$ 1,006
$ 4,330
20
$ 4,350
$ 3,731
100
$ 3,831
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
132
| 2023 Annual Report | Management’s Discussion and Analysis
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
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$
$
$
$
$
$
615
365
198
365
116
1,659
(99)
$ 1,560
$
$
$
–
–
–
–
–
–
–
–
615
365
198
365
116
$
$
$
$
$
84
290
72
318
249
1,013
(54)
959
2
1
–
4
(7)
–
–
–
86
291
72
322
242
130
227
183
317
168
1,025
(98)
927
$
519
309
186
297
95
1,406
(52)
$ 1,354
$ 315
(73)
(44)
401
316
915
(97)
$ 818
$ 1,348
1,191
639
1,297
628
5,103
(303)
$ 4,800
$
683
(503)
(2,316)
1,121
(918)
(1,933)
(260)
$ (2,193)
$
(
$
13
1
11
4
(9)
20
–
20 $
143
228
194
321
159
$
1
(2)
1
–
(1)
(1)
–
1) $
19
(2)
(2)
(1)
(11)
3
–
3
$
$
16
–
12
8
(17)
19
–
19
520
307
187
297
94
$ 334
(75)
(46)
400
305
$ 1,364
1,191
651
1,305
611
$
$
$
274
78
(160)
16
(86)
122
–
122
957
(425)
(2,476)
1,137
(1,004)
basis
1,659
1,013
1,045
1,405
918
5,122
(1,811)
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, U.S. $,
(99)
$ 1,560
$
452
–
$
$
(54)
959
63
–
$
$
(98)
947
(52)
$ 1,353
(97)
$ 821
(303)
$ 4,819
(260)
$ (2,071)
96
9
$
384
(2)
$ 231
14
$
995
7
$
516
186
CER basis(1)
$
452
$
63
$
105
$
382
$ 245
$ 1,002
$
702
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),
$ 1,659
288
1,947
–
$ 1,013
(67)
946
7
$ 1,025
242
1,267
21
$ 1,406
287
1,693
(9)
$ 915
(307)
608
4
$ 5,103
750
5,853
19
$ (1,933)
(1,241)
(3,174)
(110)
CER basis
$ 1,947
$
953
$ 1,288
$ 1,684
$ 612
$ 5,872
$ (3,284)
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(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.
133
Transitional 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)
Transitional net income (loss) attributed to shareholders:
Asia
Canada
U.S.
Global WAM
Corporate and Other
Total transitional net income (loss) attributed to shareholders
Preferred share dividends and other equity distributions
Common shareholders’ transitional net income (loss)
CER adjustment(1)
Asia
Canada
U.S.
Global WAM
Corporate and Other
Total CER adjustment–transitional net income attributed to shareholders
Preferred share dividends and other equity distributions
Common shareholders’ transitional net income (loss)
Transitional net income (loss) attributed to shareholders, CER basis
Asia
Canada
U.S.
Global WAM
Corporate and Other
Total transitional net income (loss) attributed to shareholders, CER basis
Preferred share dividends and other equity distributions, CER basis
Common shareholders’ net income (loss), CER basis
Asia transitional net income attributed to shareholders, U.S. dollars
Asia transitional net income (loss) attributed to shareholders, US $(2)
CER adjustment, US $(1)
Asia transitional net income (loss) attributed to shareholders, U.S. $, CER basis(1)
Transitional net income (loss) attributed to shareholders (pre-tax)
Transitional net income (loss) attributed to shareholders (post-tax)
Tax on transitional net income attributed to shareholders
Transitional net income (loss) attributed to shareholders (pre-tax)
CER adjustment(1)
Transitional net income (loss) attributed to shareholders (pre-tax), CER basis
Quarterly Results
Full Year
Results
4Q22
3Q22
2Q22
1Q22
2022
$
493
120
(106)
401
320
1,228
(97)
$ 1,131
$
$
176
481
314
287
(481)
777
(51)
726
$ (227) $
271
355
150
(381)
168
(60)
$ 108
205
326
885
283
(374)
1,325
(52)
$ 1,273
$
647
1,198
1,448
1,121
(916)
3,498
(260)
$ 3,238
$
$
$
14
(3)
(2)
(1)
(10)
(2)
–
(2) $
$
507
117
(108)
400
310
1,226
(97)
$ 1,129
$
$
363
9
372
$
$
$
$
32
13
16
8
(23)
46
–
46
208
494
330
295
(504)
823
(51)
772
$
$
34
7
(4)
2
(22)
17
–
17
$
$
62
12
58
8
(31)
109
–
109
$
$
142
29
68
17
(86)
170
–
170
$ (193) $
278
351
152
(403)
185
(60)
$ 125
267
338
943
291
(405)
1,434
(52)
$ 1,382
$
789
1,227
1,516
1,138
(1,002)
3,668
(260)
$ 3,408
134
19
153
$ (177) $
35
$ (142) $
161
35
196
$
$
481
98
579
$ 1,228
(184)
1,044
(6)
$ 1,038
$
777
200
977
29
$ 1,006
$ 168
230
398
62
$ 460
$ 1,325
403
1,728
121
$ 1,849
$ 3,498
649
4,147
206
$ 4,353
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Asia transitional 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.
134
| 2023 Annual Report | Management’s Discussion and Analysis
Transitional ROE measures profitability in 2022 using common shareholders’ transitional net income (loss) as a percentage of capital
deployed to earn that income. The Company calculates transitional 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. Transitional ROE is a temporary measure and will only be reported for 2022 comparative periods in our
annual 2023 MD&A.
($ millions, unless otherwise stated)
Total transitional net income (loss) attributed to shareholders
Preferred share dividends and other equity distributions
Common shareholders transitional net income (loss)
Annualized common shareholders transitional net income (loss)
Average common shareholders’ equity
Transitional ROE (annualized) (%)
Quarterly Results
Full Year
Results
4Q22
3Q22
2Q22
1Q22
2022
$ 1,228
(97)
$ 1,131
$ 4,487
$ 40,667
11.0%
$
777
(51)
726
$
$ 2,876
$ 40,260
7.1%
$
168
(60)
108
$
$
437
$ 39,095
1.1%
$ 1,325
(52)
$ 1,273
$ 5,163
$ 38,881
13.3%
$ 3,498
(260)
$ 3,238
$ 3,238
$ 39,726
8.2%
Transitional basic EPS and transitional diluted EPS is equal to transitional common shareholders’ net income divided by the weighted
average common shares outstanding and diluted weighted common shares outstanding, respectively. Transitional basic EPS and
transitional diluted EPS, CER basis is equal to transitional common shareholders’ net income on a CER basis divided by the weighted
average common shares outstanding and diluted weighted common shares outstanding, respectively. Each of these EPS measures are
temporary and will only be reported for 2022 comparative periods in our annual 2023 MD&A.
AUMA is a financial measure of the size of the Company. It is comprised of AUM and AUA. AUM includes assets of the General Account,
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.
135
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, 2023
US $(4)
December 31, 2023
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Asia
U.S.
$
– $ 25,321
–
–
$
– $
–
– $
–
– $
25,321
$
3,201
3,201
– $
–
–
–
144,433
144,433
86,135
111,456
133,959
133,959
7,090
7,090
17,071
20,272
388,688
417,210
109,533
109,533
101,592
101,592
–
–
–
3,328
–
3,328
–
–
24,854
24,854
169,287
–
–
–
169,287
36,085
36,085
147,541
–
–
–
147,541
68,585
68,585
202,544
–
–
–
202,544
244,738
248,066
255,156
277,365
119,161
15,435
667,117
(46)
(46)
20,226
–
–
–
20,226
374,216
377,544
794,754
277,365
119,161
15,435
1,206,715
18,846
18,846
128,379
–
–
–
128,379
52,014
52,014
153,606
–
–
–
153,606
–
–
–
$ 169,287 $ 147,541 $ 202,544 $
182,046
–
182,046
849,163 $ 20,226 $ 1,388,761 $ 128,379 $ 153,606
–
–
$ 169,287 $ 147,541 $ 202,544 $
849,163 $ 20,226 $ 1,388,761
–
–
–
$ 169,287 $ 147,541 $ 202,544 $
–
–
–
849,163 $ 20,226 $ 1,388,761
$ 1,053,209
$
849,163
205,814
$ 1,054,977
(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) US $ AUMA is calculated as total AUMA in Canadian $ divided by the US $ exchange rate in effect at the end of the quarter.
(5) The impact of updating foreign exchange rates to that which was used in 4Q23.
136
| 2023 Annual Report | Management’s Discussion and Analysis
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 $
September 30, 2023
US $(4)
September 30, 2023
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Asia
U.S.
$
– $ 25,123 $
–
–
– $
–
– $
–
– $
25,123 $
8,141
8,141
– $
–
–
–
135,820
135,820
78,377
103,500
128,790
128,790
6,723
6,723
15,762
23,903
365,472
398,736
100,438
100,438
95,259
95,259
–
–
–
3,477
–
3,477
–
–
23,769
23,769
159,589
–
–
–
159,589
34,448
34,448
137,948
–
–
–
137,948
64,796
64,796
193,586
–
–
–
193,586
230,469
233,946
240,669
266,069
111,754
14,359
632,851
(47)
(47)
23,856
–
–
–
23,856
353,435
356,912
755,648
17,587
17,587
118,025
266,069
111,754
14,359
1,147,830
–
–
–
118,025
47,926
47,926
143,185
–
–
–
143,185
–
–
–
$ 159,589 $ 137,948 $ 193,586 $
173,897
–
173,897
806,748 $ 23,856 $ 1,321,727 $ 118,025 $ 143,185
977,609
$
–
–
$ 159,589 $ 137,948 $ 193,586 $
(1,150)
–
(4,758)
$ 158,439 $ 137,948 $ 188,828 $
806,748 $ 23,856 $ 1,321,727
(12,683)
–
794,065 $ 23,856 $ 1,303,136
(18,591)
$
806,748
201,407
$ 1,008,155
Note: For footnotes (1) to (5), refer to the “AUM and AUMA reconciliation” table as at December 31, 2023 above.
137
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 $
June 30, 2023
US $(4)
June 30, 2023
Asia
Canada
U.S.
Global
WAM
Corporate
and Other
Total
Asia
U.S.
$
– $ 25,003 $
–
–
– $
–
– $
–
– $
25,003 $
3,895
3,895
– $
–
–
–
135,208
135,208
83,026
108,029
132,133
132,133
5,464
5,464
18,699
22,594
374,530
403,428
102,166
102,166
99,855
99,855
–
–
–
3,564
–
3,564
–
–
24,052
24,052
159,260
–
–
–
159,260
35,993
35,993
144,022
–
–
–
144,022
67,303
67,303
199,436
–
–
–
199,436
235,113
238,677
244,141
267,835
112,491
14,674
639,141
(44)
(44)
22,550
–
–
–
22,550
362,417
365,981
769,409
267,835
112,491
14,674
1,164,409
18,182
18,182
120,348
–
–
–
120,348
50,862
50,862
150,717
–
–
–
150,717
–
$ 159,260
–
–
$ 144,022 $ 199,436 $
$ 159,260 $ 144,022 $ 199,436 $
844
–
(691)
$ 160,104 $ 144,022 $ 198,745 $
180,430
–
180,430
819,571 $ 22,550 $ 1,344,839 $ 120,348 $ 150,717
–
–
$ 1,016,277
819,571 $ 22,550 $ 1,344,839
(1,036)
818,382 $ 22,550 $ 1,343,803
(1,189)
–
$
819,571
203,825
$ 1,023,396
Note: For footnotes (1) to (5), refer to the “AUM and AUMA reconciliation” table as at December 31, 2023 above.
138
| 2023 Annual Report | Management’s Discussion and Analysis
As at
Total invested assets
CAD $
March 31, 2023
US $(4)
March 31, 2023
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
$
– $ 24,747 $
–
138,029
138,029
–
82,733
107,480
– $
–
136,454
136,454
– $
–
5,565
5,565
– $
24,747 $
3,488
21,460
24,948
3,488
384,241
412,476
– $
–
102,014
102,014
–
–
100,827
100,827
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
–
–
–
3,718
–
3,718
–
–
24,203
24,203
162,232
–
–
–
162,232
36,374
36,374
143,854
–
–
–
143,854
67,935
67,935
204,389
–
–
–
204,389
231,860
235,578
241,143
267,767
113,781
14,302
636,993
(46)
(46)
24,902
–
–
–
24,902
360,326
364,044
776,520
17,893
17,893
119,907
267,767
113,781
14,302
1,172,370
–
–
–
119,907
50,197
50,197
151,024
–
–
–
151,024
–
$ 162,232 $ 143,854 $ 204,389
–
–
$
177,510
814,503 $ 24,902 $ 1,349,880
997,399
177,510
$
–
$ 162,232 $ 143,854
–
(5,870)
$ 204,389 $
(5,241)
$ 156,362 $ 143,854 $ 199,148 $
814,503
(16,714)
797,789 $ 24,902 $ 1,322,055
$ 24,902 $ 1,349,880
(27,825)
–
$
814,503
208,013
$ 1,022,516
Note: For footnotes (1) to (5), refer to the “AUM and AUMA reconciliation” table as at December 31, 2023 above.
–
$ 119,907 $ 151,024
–
139
As at
Total invested assets
CAD $
December 31, 2022
US $(4)
December 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
$
– $ 24,779 $
–
132,808
132,808
–
82,150
106,929
– $
–
133,635
133,635
– $
–
5,752
5,752
– $
5,701
15,317
21,018
$
24,779
5,701
369,662
400,142
– $
–
98,007
98,007
–
–
98,628
98,628
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
–
23,227
23,227
156,035
–
–
–
156,035
–
35,695
35,695
142,624
–
–
–
142,624
–
65,490
65,490
199,125
–
–
–
199,125
3,719
220,471
224,190
229,942
258,273
109,740
13,617
611,572
–
(40)
(40)
20,978
–
–
–
20,978
3,719
344,843
348,562
748,704
258,273
109,740
13,617
1,130,334
–
17,138
17,138
115,145
–
–
–
115,145
–
48,333
48,333
146,961
–
–
–
146,961
–
$ 156,035 $ 142,624
–
$ 156,035 $ 142,624
–
$ 150,403 $ 142,624
(5,632)
–
170,768
170,768
$ 199,125 $ 782,340 $ 20,978 $ 1,301,102
960,259
$
–
–
$ 115,145 $ 146,961
–
$ 199,125 $ 782,340 $ 20,978 $ 1,301,102
(5,343)
(27,412)
$ 193,782 $ 765,903 $ 20,978 $ 1,273,690
(16,437)
–
$ 782,340
201,920
$ 984,260
Note: For footnotes (1) to (5), refer to the “AUM and AUMA reconciliation” table as at December 31, 2023 above.
140
| 2023 Annual Report | Management’s Discussion and Analysis
Global WAM AUMA and Managed AUMA by business line and geographic source
($ millions, and based on actual foreign exchange rates in effect in the applicable reporting period, unless otherwise stated)
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,
2023
Sept 30,
2023
June 30,
2023
Mar 31,
2023
Dec 31,
2022
$ 431,601
292,629
124,933
$ 849,163
$ 410,433
278,372
117,943
$ 806,748
$ 419,380
281,814
118,377
$ 819,571
$ 413,769
281,198
119,536
$ 814,503
$ 395,108
271,351
115,881
$ 782,340
$
$
$
$
431,601
292,629
124,933
849,163
$ 402,570
274,485
117,010
$ 794,065
$ 418,219
281,457
118,706
$ 818,382
$ 405,460
275,827
116,502
$ 797,789
$ 386,836
266,039
113,028
$ 765,903
115,523
233,351
500,289
849,163
$ 113,642
219,518
473,588
$ 806,748
$ 112,283
226,087
481,201
$ 819,571
$ 115,819
223,045
475,639
$ 814,503
$ 110,724
213,802
457,814
$ 782,340
$
115,523
233,351
500,289
$ 849,163
$ 112,655
219,518
461,892
$ 794,065
$ 112,784
226,087
479,511
$ 818,382
$ 111,316
223,045
463,428
$ 797,789
$ 106,562
213,802
445,539
$ 765,903
$ 431,601
368,843
254,533
$ 1,054,977
$ 410,433
351,384
246,338
$ 1,008,155
$ 419,380
357,539
246,477
$ 1,023,396
$ 413,769
358,098
250,649
$ 1,022,516
$ 395,108
346,200
242,952
$ 984,260
$ 431,601
368,843
254,533
$ 1,054,977
$ 402,570
346,349
242,718
$ 991,637
$ 418,219
357,003
246,427
$ 1,021,649
$ 405,460
351,516
244,753
$ 1,001,729
$ 386,836
339,646
237,206
$ 963,688
$ 191,238
282,487
581,252
$ 1,054,977
$ 188,098
266,935
553,122
$ 1,008,155
$ 185,198
274,957
563,241
$ 1,023,396
$ 191,720
272,101
558,695
$ 1,022,516
$ 183,893
261,756
538,611
$ 984,260
$ 191,238
282,487
581,252
$ 1,054,977
$ 185,278
266,935
539,424
$ 991,637
$ 185,448
274,957
561,244
$ 1,021,649
$ 185,276
272,101
544,352
$ 1,001,729
$ 177,764
261,756
524,168
$ 963,688
(1) AUMA adjusted to reflect the foreign exchange rates for the Statement of Financial Position in effect for 4Q23.
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.
141
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.
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,
2023
$ 52,421
29,536
22,885
2,436
$ 25,321
Sept 30,
2023
$ 51,012
28,402
22,610
2,513
$ 25,123
June 30,
2023
$ 51,459
29,088
22,371
2,632
$ 25,003
Mar 31,
2023
$ 52,128
30,087
22,041
2,706
$ 24,747
Dec 31,
2022
$ 51,765
29,767
21,998
2,781
$ 24,779
$ 25,123
25,321
$ 25,222
$ 25,050
$ 25,003
25,123
$ 25,063
$ 24,747
25,003
$ 24,875
$ 24,779
24,747
$ 24,763
$ 24,637
24,779
$ 24,708
$ 24,113
Financial leverage ratio is a debt-to-equity ratio. With the adoption of IFRS 17 on January 1, 2023, the calculation of financial leverage
ratio was updated to include the CSM on a post-tax basis, and prior period comparatives were updated. The ratio is calculated as the sum
of long-term debt, capital instruments and preferred shares and other equity instruments divided by the sum of long-term debt, capital
instruments, equity and post-tax CSM.
Adjusted book value is the sum of common shareholders’ equity and post-tax CSM net of NCI. It is an important measure for monitoring
growth and measuring insurance businesses’ value. Adjusted book value per common share is calculated by dividing adjusted book value
by the number of common shares outstanding at the end of the period.
As at
($ millions)
Common shareholders’ equity
Post-tax CSM, net of NCI
Adjusted book value
Dec 31,
2023
Sept 30,
2023
June 30,
2023
Mar 31,
2023
Dec 31,
2022
$ 40,379
17,748
$ 40,747
14,992
$ 39,047
14,877
$ 40,715
14,850
$ 40,216
14,659
$ 58,127
$ 55,739
$ 53,924
$ 55,565
$ 54,875
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; (ii) post-tax CSM; and
(iii) 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
Less: AOCI gain/(loss) on cash flow hedges
Total equity excluding AOCI on cash flow hedges
Post-tax CSM
Qualifying capital instruments
Consolidated capital
Dec 31,
2023
$ 48,727
26
48,701
18,503
6,667
Sept 30,
2023
$ 49,035
47
48,988
15,675
6,702
June 30,
2023
$ 47,156
–
47,156
15,458
6,662
Mar 31,
2023
$ 48,751
(38)
48,789
15,476
7,317
Dec 31,
2022
$ 48,226
8
48,218
15,251
6,122
$ 73,871
$ 71,365
$ 69,276
$ 71,582
$ 69,591
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. 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.
142
| 2023 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)
Add back taxes, acquisition costs, other expenses and deferred sales
commissions
Core income tax (expenses) recoveries (see above)
Amortization of deferred acquisition costs and other depreciation
Amortization of 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
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$ 353
$ 361
$ 320
$ 287
$ 274
$ 1,321
$ 1,299
55
45
21
$ 474
–
$ 474
59
41
19
$ 480
4
$ 484
45
40
19
$ 424
3
$ 427
45
40
21
$ 393
1
$ 394
47
43
25
$ 389
1
$ 390
204
166
80
$ 1,771
8
$ 1,779
222
154
98
$ 1,773
51
$ 1,824
$ 265
175
34
$ 474
$ 242
190
48
$ 480
$ 233
168
23
$ 424
$ 217
171
5
$ 393
$ 211
181
(3)
$ 389
$
957
704
110
$ 1,771
$
883
796
94
$ 1,773
$ 135
152
187
$ 474
$ 132
146
202
$ 480
$ 125
148
151
$ 424
$ 113
136
144
$ 393
$ 108
129
152
$ 389
$
505
582
684
$ 1,771
$
455
617
701
$ 1,773
$ 265
175
34
$ 474
$ 244
191
49
$ 484
$ 235
168
24
$ 427
$ 218
171
5
$ 394
$ 211
183
(4)
$ 390
$
962
705
112
$ 1,779
$
912
813
99
$ 1,824
$ 135
152
187
$ 474
$ 133
146
205
$ 484
$ 127
148
152
$ 427
$ 112
136
146
$ 394
$ 108
$
129
153
$ 390
507
582
690
$ 1,779
(1) The impact of updating foreign exchange rates to that which was used in 4Q23.
(2) Core EBITDA adjusted to reflect the foreign exchange rates for the Statement of Income in effect for 4Q23.
$
472
617
735
$ 1,824
143
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 the sum of pre-tax other revenue and investment income in Global WAM
included in core EBITDA, and it excludes such items as revenue related to integration and acquisitions and market experience gains
(losses). 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.
($ millions, unless otherwise stated)
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
Quarterly Results
Full Year Results
Core EBITDA margin
Core EBITDA
Core revenue
Core EBITDA margin
Global WAM core revenue
Other revenue per financial statements
Less: Other revenue in segments other than Global WAM
Other revenue in Global WAM (fee income)
Investment income per financial statements
Realized and unrealized gains (losses) on assets supporting
insurance and investment contract liabilities per financial
statements
Total investment income
Less: Investment income in segments other than Global WAM
$
474
$ 1,842
25.7%
$ 480
$ 1,783
26.9%
$ 424
$ 1,722
24.6%
$ 393
$ 1,756
22.4%
$
389
$1,646
23.6%
$ 1,771
$ 7,103
24.9%
$ 1,773
$ 6,516
27.2%
$ 1,719
31
$ 1,688
$ 4,497
$ 1,645
(64)
$ 1,709
$ 4,028
$ 1,691
44
$ 1,647
$ 4,135
$ 1,691
26
$ 1,665
$ 3,520
$1,671
26
$1,645
$4,271
$ 6,746
37
$ 6,709
$16,180
$ 6,186
(205)
$ 6,391
$15,204
2,674
7,171
6,941
(2,430)
950
1,944
(2,453)
3,138
(13,646)
1,598
1,578
5,085
5,010
5,464
5,357
1,818
1,672
19,318
18,886
1,558
1,659
Investment income in Global WAM
$
230
$
20
$
75
$ 107
$
146
$
432
$
(101)
Total other revenue and investment income in Global WAM
Less: Total revenue reported in items excluded from core earnings
Market experience gains (losses)
Revenue related to integration and acquisitions
$ 1,918
$ 1,729
$ 1,722
$ 1,772
$1,791
$ 7,141
$ 6,290
63
13
(54)
–
7
(7)
12
4
55
90
28
10
(316)
90
Global WAM core revenue
$ 1,842
$ 1,783
$ 1,722
$ 1,756
$1,646
$ 7,103
$ 6,516
Expense measures
With the adoption of IFRS 17, we have replaced core general expenses with two new measures: core expenses and core expenditures.
Under IFRS 17, expenses previously reported in general expenses are now reported as:
General expenses that flow directly through income;
1.
2. Directly attributable maintenance expenses, which are reported in insurance service expenses and flow directly through income;
3. Directly attributable acquisition expenses for contracts measured using the PAA method which are reported in insurance service
expenses, and flow directly through income; and
4. Directly attributable acquisition expenses that are capitalized into the CSM.
144 | 2023 Annual Report | Management’s Discussion and Analysis
Total expenses include items 1 to 3 above and total expenditures include items 1 to 4 above.
Core expenses is used to calculate our expense efficiency ratio and is equal to total expenses that are included in 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)
Core expenses
General expenses – Statements of Income
Directly attributable acquisition expense for contracts
measured using the PAA method(1)
Directly attributable maintenance expense(1)
Total expenses
Less: General expenses included in items excluded
from core earnings
Restructuring charge
Integration and acquisition
Legal provisions and Other expenses
Total
Core expenses
CER adjustment(2)
Core expenses, CER basis
Total expenses
CER adjustment(2)
Total expenses, CER basis
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$
1,180
$ 1,042
$ 1,022
$ 1,086
$
1,002
$
4,330
$
3,731
42
565
1,787
37
544
1,623
35
550
1,607
33
546
1,665
15
577
1,594
147
2,205
6,682
58
2,039
5,828
$
46
8
8
62
1,725
–
$
1,725
$ 1,787
–
$ 1,787
–
–
1
1
$ 1,622
12
$ 1,634
$ 1,623
12
$ 1,635
–
–
9
9
$ 1,598
8
$ 1,606
$ 1,607
7
$ 1,614
–
–
60
60
$ 1,605
(4)
$ 1,601
$ 1,665
(3)
$ 1,662
–
18
–
18
$ 1,576
3
$ 1,579
$ 1,594
3
$ 1,597
$
46
8
78
132
6,550
16
6,566
6,682
16
$ 6,698
$
$
$
–
26
40
66
5,762
119
5,881
5,828
121
$ 5,949
$
$
(1) Expenses are components of insurance service expenses on the Statements of Income that flow directly through income.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
Core expenditures is used to calculate our expenditure efficiency ratio and is equal to total expenditures excluding such items as material
legal provisions for settlements, restructuring charges and expenses related to integration and acquisitions. Total expenditures is equal to
the sum of total expenses and costs that are directly attributable to the acquisition of new business that are capitalized into the CSM.
($ millions, and based on actual foreign exchange rates in
effect in the applicable reporting period, unless otherwise
stated)
Core expenditures
Total expenses
Directly attributable acquisition expenses capitalized
through the CSM(1)
Total expenditures
Less: General expenses included in items excluded
from core earnings (see core expenses reconciliation
above)
Core expenditures
CER adjustment(2)
Core expenditures, CER basis
Total expenditures
CER adjustment(2)
Total expenditures, CER basis
Quarterly Results
Full Year Results
4Q23
3Q23
2Q23
1Q23
4Q22
2023
2022
$
1,787
$ 1,623
$ 1,607
$ 1,665
$
1,594
$
6,682
$
5,828
524
2,311
489
2,112
501
2,108
507
2,172
532
2,126
2,021
8,703
1,909
7,737
$
62
2,249
–
$ 2,249
2,311
$
–
2,311
$
1
$ 2,111
16
$ 2,127
$ 2,112
15
$ 2,127
9
$ 2,099
5
$ 2,104
$ 2,108
3
$ 2,111
60
$ 2,112
(12)
$ 2,100
$ 2,172
(10)
$ 2,162
18
$ 2,108
1
$ 2,109
$ 2,126
1
$ 2,127
$
132
8,571
9
$ 8,580
8,703
$
8
8,711
$
$
66
7,671
136
$ 7,807
7,737
$
138
7,875
$
(1) Expenses are components of insurance service expenses on the Statements of Income and are then capitalized to CSM.
(2) The impact of updating foreign exchange rates to that which was used in 4Q23.
145
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 expenses divided by the sum of core earnings before income taxes (“pre-tax core earnings”) and core expenses.
Expenditure efficiency ratio is a financial measure which Manulife uses to measure progress towards our target to be more efficient. It is
defined as core expenditures divided by the sum of core earnings before income taxes (“pre-tax core earnings”) and core expenditures.
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 calculated as at December 31. The
adjusted net worth is the IFRS shareholders’ equity adjusted for goodwill and intangible assets, fair value of surplus assets, the fair value of
debt, preferred shares, and other equity, and local statutory balance sheet, regulatory reserve, and capital for our Asian businesses. The
value of in-force business in Canada and the U.S. is the present value of expected future IFRS earnings, on an IFRS 4 basis, 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 Global WAM, Bank
or P&C 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)
4Q23
3Q23
2Q23
1Q23
Quarterly Results
$
2,123
$
1,174
$
1,436
$
1,719
$
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)
1,699
424
648
1,072
174
808
366
717
1,083
171
1,074
362
674
1,036
142
898
3,563
$
912
3,618
$
894
3,584
$
$
1,374
345
676
1,021
136
885
3,589
Full Year Results
2023
2022
$
6,452
$
(3,138)
4,955
1,497
2,715
4,212
623
(4,429)
1,291
2,653
3,944
547
4Q22
697
236
461
527
988
134
854
3,388
$
3,589
3,589
$
3,397
3,397
$
$ 816,706
43.6
$ 813,157
44.5
$ 814,945
44.0
$ 804,455
44.6
$ 779,642
43.5
$ 812,662
44.2
$ 790,268
43.0
New business value (“NBV”) is the change in embedded value as a result of sales in the reporting period. The definition of NBV has
changed for periods beginning after 2022 as follows:
•
adopting IFRS 17 in the calculation of expected future distributable earnings in Canada, and international high net worth business,
which was reclassified to the Asia segment in 2023; and
• changing the basis for calculating expected future distributable earnings in the U.S. from IFRS to local capital requirements.
146
| 2023 Annual Report | Management’s Discussion and Analysis
NBV for periods beginning after December 31, 2022 is calculated as the present value of shareholders’ interests in expected future
distributable earnings in accordance with IFRS 17, after the cost of capital calculated under the LICAT framework in Canada and the local
capital requirements in the U.S. and Asia, on actual new business sold in the period using assumptions that are consistent with the
assumptions used in the calculation of embedded value.
NBV for periods prior to January 1, 2023 is calculated as the present value of shareholders’ interests in expected future distributable
earnings in accordance with IFRS 4 “Insurance Contracts”, after the cost of capital calculated under the LICAT framework in Canada and
the U.S. and the local capital requirements in Asia, 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 sales excluding non-controlling interests. APE sales are
calculated as 100% of regular premiums and deposits sales and 10% of single premiums and deposits sales. 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 and deposits and 10% of excess and single premiums and 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 products 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.
Remittances is defined as the cash remitted or made available for distribution to MFC from its subsidiaries. It is a key metric used by
management to evaluate our financial flexibility.
Non-GAAP Measures for 2017
Non-GAAP financial measures include 2017 core earnings (loss), pre-tax 2017 core earnings and 2017 core general expenses.
Non-GAAP ratios include the 2017 expense efficiency ratio.
With the implementation of IFRS 17 and IFRS 9 in 2023, we have made revisions to the definition of the above non-GAAP financial
measures and non-GAAP ratios. Please refer to Section 1 for an explanation of the implementation of IFRS 17 and IFRS 9 for more
information and the above definitions of 2023 core earnings and expense measures for an explanation of the change to the definition of
core earnings and the expense efficiency ratio in 2023.
The definitions and reconciliations of the above measures for 2017 are included below.
2017 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. 2017 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
147
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.
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 2017 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 2017 core earnings and items excluded from 2017 core earnings are determined in accordance with the
methodology under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline that was in effect at that time, and are
listed below.
Items included in 2017 core earnings:
1.
2.
3.
4.
5.
6.
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.
Macro hedging costs based on expected market returns.
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
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 2017 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 2017 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 2017 was $475 million (2012 to the end of 2016 was $456 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 2017 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 2017 core earnings.
Routine or non-material legal settlements.
All other items not specifically excluded.
Tax on the above items.
8.
9.
10.
11. All tax related items except the impact of enacted or substantively enacted income tax rate changes.
148
| 2023 Annual Report | Management’s Discussion and Analysis
Items excluded from 2017 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.
3.
4.
5.
6.
7.
8.
9.
10
.
11.
Net favourable investment-related experience in excess of $400 million per annum or net unfavourable investment-related
experience on a year-to-date basis.
Mark-to-market gains or losses on assets held in the Corporate and Other segment other than gains on AFS equities and seed money
investments in new segregated or mutual funds.
Changes in actuarial methods and assumptions. Policy liabilities for IFRS are valued in Canada under standards established by the
Actuarial Standards Board that were in effect at that time. 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 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, 2017 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.
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.
Net income (loss) attributed to participating policyholders and non-controlling interests.
Impact of enacted or substantially enacted income tax rate changes.
Reconciliation of income (loss) before income taxes to 2017 core earnings
For the year ended December 31, 2017, our financial statements reported income before income taxes of $2,501 million, income tax
expense of $239 million and net income of $2,262 million. Income tax expense was comprised of an income tax expense of $1,137 million
on 2017 core earnings and an income tax recovery of $898 million on items excluding 2017 core earnings. Net income of $2,262 million
was comprised of net income attributed to shareholders of $2,104 million and net income attributed to NCI of $194 million partially offset
by a net loss attributed to participating policyholders of $36 million.
2017 core earnings for the year ended December 31, 2017 of $4,565 million reflected total net income attributed to shareholders of
$2,104 million less a charge of $2,461 million from items excluded from 2017 core earnings. Items excluded from 2017 core earnings
primarily consisted of a charge from the impact related to U.S. tax reform of $1,777 million, and a charge related to the decision to change
portfolio asset mix supporting our legacy businesses of $1,032 million, partially offset by a gain from the direct impact of markets of
$209 million, investment-related experience gains outside of 2017 core earnings of $167 million and a number of smaller items. Items
excluded from 2017 core earnings were disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline that
was in effect at that time.
Pre-tax 2017 core earnings was $5,702 million, equal to the sum of 2017 core earnings of $4,565 million and tax on 2017 core earnings
of $1,137 million.
2017 core earnings related to strategic priorities for the year ended December 31, 2017
The Company measures its progress on certain strategic priorities using 2017 core earnings. These strategic priorities include 2017 core
earnings from highest potential businesses, 2017 core earnings from Asia region, and 2017 core earnings from long-term care insurance
149
(“LTC”) and variable annuities (“VA”) businesses. The 2017 core earnings for these businesses is calculated consistent with our definition of
2017 core earnings.
Highest potential businesses
For the year ended December 31, 2017
($ millions, post-tax and based on actual foreign exchange rates in effect in the applicable reporting period)
2017 core earnings of highest potential businesses(1)
2017 core earnings – All other businesses excl. core investment gains
Core investment gains(2)
2017 core earnings
Items excluded from 2017 core earnings
Net income (loss) attributed to shareholders
Highest potential businesses 2017 core earnings contribution
(1) Includes 2017 core earnings from Asia and Global WAM segments, Canada group benefits, and behavioural insurance products.
(2) This item is disclosed under OSFI’s Source of Earnings guideline in effect at such time.
Asia region
For the year ended December 31, 2017
($ millions, post-tax and based on actual foreign exchange rates in effect in the applicable reporting period)
2017 core earnings of Asia region(1)
2017 core earnings – All other businesses excl. core investment gains
Core investment gains(2)
2017 core earnings
Items excluded from 2017 core earnings
Net income (loss) attributed to shareholders
Asia region 2017 core earnings contribution
(1) Includes 2017 core earnings from Asia segment and Global WAM’s business in Asia.
(2) This item is disclosed under OSFI’s Source of Earnings guideline in effect at such time.
LTC and VA businesses
For the year ended December 31, 2017
($ millions, post-tax and based on actual foreign exchange rates in effect in the applicable reporting period)
2017 core earnings of LTC and VA businesses(1)
2017 core earnings – All other businesses excl. core investment gains
Core investment gains(2)
2017 core earnings
Items excluded from 2017 core earnings
Net income (loss) attributed to shareholders
LTC and VA businesses 2017 core earnings contribution
(1) Includes 2017 core earnings from U.S. long-term care and Asia, Canada and U.S. variable annuities businesses.
(2) This item is disclosed under OSFI’s Source of Earnings guideline in effect at such time.
$ 2,475
1,690
400
4,565
(2,461)
$ 2,104
54%
$ 1,663
2,502
400
4,565
(2,461)
$ 2,104
36%
$ 1,112
3,053
400
4,565
(2,461)
$ 2,104
24%
2017 expense efficiency ratio is a financial measure which Manulife uses to measure progress towards our target to be more efficient. It
is defined as 2017 core general expenses divided by the sum of 2017 core earnings before income taxes (“pre-tax 2017 core earnings”)
and 2017 core general expenses. 2017 core general expenses is used to calculate our 2017 expense efficiency ratio and is equal to
pre-tax general expenses included in 2017 core earnings and excludes such items as material legal provisions for settlements,
restructuring charges and expenses related to integration and acquisitions.
The 2017 expense efficiency ratio for the year ended December 31, 2017 was 55.4%. 2017 core general expenses were $7,091 million
consisting of total general expenses on our financial statements for the year ended December 31, 2017 of $7,233 million less $142 million
of general expenses included in items excluded from 2017 core earnings. General expenses included in items excluded from 2017 core
earnings include integration and acquisition costs of $81 million and legal provisions and other of $61 million. Pre-tax 2017 core earnings
were $5,702 million as noted above.
2017 core earnings available to common shareholders
2017 core earnings available to common shareholders is $4,406 million consisting of 2017 core earnings of $4,565 million less preferred
share dividends of $159 million.
150
| 2023 Annual Report | Management’s Discussion and Analysis
14. Additional Disclosures
Contractual Obligations
In the normal course of business, the Company enters into contracts that give rise to obligations fixed by agreement as to the timing and
dollar amount of payment.
As at December 31, 2023, the Company’s contractual obligations and commitments were as follows:
Payments due by period
($ millions)
Long-term debt(1)
Liabilities for capital instruments
(1)
Investment commitments
Lease liabilities
Insurance contract liabilities(2)
Reinsurance contract held liabilities(2)
Investment contract liabilities(1)
Deposits from Bank clients
Other
Total contractual obligations
Total
Less than 1 year
1 to 3 years
3 to 5 years
Over 5 years
$
9,578
9,644
15,117
350
1,110,645
8,448
276,411
21,616
26,590
$ 1,478,399
$
226
861
5,408
100
3,400
332
268,537
16,814
7,612
$ 303,290
$
2,099
597
4,570
133
12,312
952
2,978
2,963
5,173
$ 31,777
$
1,207
671
3,953
68
20,169
1,067
1,408
1,839
12,677
$ 43,059
$
6,046
7,515
1,186
49
1,074,764
6,097
3,488
–
1,128
$ 1,100,273
(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, 2024 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, 2023 and is assumed to remain constant to the final contractual maturity date. For the 4.061% MFC Subordinated
notes, the reset rate is equal to the Secured Overnight Financing Rate (“SOFR”) Swap Rate as at December 31, 2023, plus a spread adjustment of 0.26161%, plus 1.647%. For
the 3.00% MFC Subordinated notes, the reset rate is equal to the Singapore Overnight Rate Average (“SORA”) Swap Rate as at December 31, 2023, plus a spread adjustment of
0.31120%, plus 0.832%. 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 and exclude amounts from insurance contract liabilities for account of segregated fund holders. These estimated cash flows are based on the best estimate
assumptions used in the determination of insurance contract liabilities. These amounts are undiscounted. Reinsurance contract held liabilities cash flows include estimates
related to the timing and payment of future reinsurance premiums offset by recoveries on in-force reinsurance agreements. Due to the use of assumptions, actual cash flows
may differ from these estimates (see “Insurance and Investment Contract 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 2023 Annual Consolidated Financial Statements.
1
51
Quarterly Financial Information
The following table provides summary information related to our eight most recently completed quarters. With the adoption of IFRS 17 and
IFRS 9 on January 1, 2023, we have provided quarterly 2023 and restated quarterly 2022 information based on the new standards. See
section 1 “Implementation of IFRS 17 and IFRS 9” above for additional information.
As at and for the three months ended
($ millions, except per share amounts or
otherwise stated)
Revenue
Insurance revenue
Net investment result
Other revenue
Total revenue
Income (loss) before income taxes
Income tax (expense) recovery
Net income (loss)
Net income (loss) attributed to
Dec 31,
2023
Sept 30,
2023
June 30,
2023
Mar 31,
2023
Dec 31,
2022
Sept 30,
2022
June 30,
2022
Mar 31,
2022
$ 6,414
6,784
1,719
$ 14,917
$ 2,123
(322)
$ 1,801
$ 6,215
1,265
1,645
$ 9,125
$ 1,174
51
$ 1,225
$ 5,580
4,819
1,691
$ 12,090
$ 1,436
(265)
$ 1,171
$ 5,763
5,153
1,691
$ 12,607
$ 1,719
(309)
$ 1,410
$ 6,128
1,440
1,671
$ 9,239
697
$
226
923
$
$ 5,560
2,439
1,547
$ 9,546
$ 484
(60)
$ 424
$ 5,732
(2,454)
1,446
$ 4,724
$ (2,656) $
553
$ (2,103) $
$ 5,698
(1,088)
1,522
$ 6,132
(1,663)
440
(1,223)
shareholders
$ 1,659
$ 1,013
$ 1,025
$ 1,406
$
915
$ 491
$ (2,119) $
(1,220)
Basic earnings (loss) per common
share
Diluted earnings (loss) per
common share
Segregated funds deposits
Total assets (in billions)
Weighted average common shares
$
0.86
$
0.53
$
0.50
$
0.73
$
0.43
$ 0.23
$
(1.13) $
(0.66)
$
0.86
$ 10,361
876
$
$
0.52
$ 10,172
836
$
$
0.50
$ 10,147
851
$
$
0.73
$ 11,479
862
$
$
0.43
$ 10,165
834
$
$ 0.23
$ 9,841
$ 818
(1.13) $
$
$ 10,094
810
$
(0.66)
$ 12,328
865
$
(in millions)
1,810
1,826
1,842
1,858
1,878
1,902
1,921
1,938
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
1,814
$ 0.365
1,829
$ 0.365
1,846
$ 0.365
1,862
$ 0.365
1,881
$ 0.330
1,904
$ 0.330
1,924
$ 0.330
1,942
$ 0.330
1.3186
1.3520
1.3233
1.3534
1.3549
1.3740
1.2900
1.2496
1.3612
1.3411
1.3430
1.3524
1.3575
1.3057
1.2765
1.2663
152
| 2023 Annual Report | Management’s Discussion and Analysis
Selected Annual Financial Information
The following table provides selected annual financial information related to our three most recently completed years. With the adoption of
IFRS 17 and IFRS 9 on January 1, 2023, we have provided 2023 and restated 2022 information based on the new standards. See section 1
“Implementation of IFRS 17 and IFRS 9” above for additional information. Information has not been restated prior to January 1, 2022 and
as a result, 2021 information is based on what was reported in that year.
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
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
(2)
Cash dividend per Class 1 Share, Series 7(4)
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(3)
Cash dividend per Class 1 Share, Series 23(5)
Cash dividend per Class 1 Share, Series 25
2023
2022
2021(1)
$
11,996
13,793
15,322
5,896
1,732
$ 48,739
$ 875,574
$
6,051
7,299
11,048
5,267
(24)
$ 29,641
$ 833,689
$ 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
$
6,071
6,667
$ 12,738
1.46
$
1.1625
1.125
0.5870
1.4946
–
–
1.4945
1.4505
1.2245
0.9465
0.950
0.9188
–
–
1.3303
$
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
(1) 2021 total revenue and total assets results are not restated for IFRS 17 and IFRS 9.
(2) MFC redeemed in full the Class 1 Series 5 preferred shares at par, on December 19, 2021, the earliest redemption date.
(3) MFC redeemed in full the Class 1 Series 21 preferred shares at par, on June 19, 2021, the earliest redemption date.
(4) MFC redeemed in full the Class 1 Series 7 preferred shares at par, on March 19, 2022, the earliest redemption date.
(5) MFC redeemed in full the Class 1 Series 23 preferred shares at par, on March 19, 2022, the earliest redemption date.
Revenue
Total revenue in 4Q23 was $14.9 billion compared with $9.2 billion in 4Q22. The increase in total revenue of $5.7 billion was primarily due
to an increase in net investment income due to net realized and unrealized gains in 4Q23 compared with losses in 4Q22. Results by
segment include:
• Asia total revenue increased $2.6 billion in 4Q23 compared with 4Q22, due to higher net investment income driven by higher net
realized and unrealized gains on invested assets and higher investment income.
• Canada total revenue increased $2.0 billion in 4Q23 compared with 4Q22, driven by higher net investment income due to net
realized and unrealized gains on invested assets in 4Q23 compared with losses in 4Q22.
153
•
U.S. total revenue increased $0.8 billion in 4Q23 compared with 4Q22, driven by higher net investment income due to net realized
and unrealized losses on invested assets in 4Q22, partially offset by lower investment income.
• Global WAM total revenue increased $0.1 billion in 4Q23 compared with 4Q22, primarily due to higher fee income from growth in
average AUMA and an increase in fee spreads, partially offset by the non-recurrence of a gain on our acquisition of the remaining
equity interest in MFM in 2022.
• Corporate and Other total revenue increased $0.2 billion in 4Q23 compared with 4Q22, primarily driven by an increase in net
investment income from lower realized losses on the sale of FVOCI debt instruments in 4Q23 compared with 4Q22, a more
favourable impact of markets on derivatives and other assets, and higher yields on debt instruments.
On a full year basis, total revenue in 2023 was $48.7 billion compared with $29.6 billion in 2022. The increase in total revenue of $19.1
billion was due to higher net investment income mainly from net realized and unrealized gains in 2023 compared with losses in 2022,
along with higher insurance revenue and other revenue. Results by segment include:
•
Asia total revenue increased $5.9 billion in 2023 compared with 2022 due to similar reasons as noted above.
• Canada total revenue increased $6.5 billion in 2023 compared with 2022, driven by higher net investment income, due to net
realized and unrealized gains on invested assets in 2023 compared with losses in 2022 and higher investment income, as well as
higher insurance revenue.
• U.S. total revenue increased $4.3 billion in 2023 compared with 2022, driven by higher net investment income due to similar
reasons as noted above.
• Global WAM total revenue increased $0.6 billion in 2023 compared with 2022, primarily driven by higher fee income, from an
increase in fee spreads, growth in average AUMA and higher performance fees in Institutional Asset Management, as well as the
favourable impact of a weaker Canadian dollar compared with the U.S. dollar, and gains on seed money investments in 2023
compared with losses in 2022. This was partially offset by the non-recurrence of a gain on our acquisition of the remaining equity
interest in MFM in 2022.
• Corporate and Other total revenue increased $1.8 billion in 2023 compared with 2022, primarily driven by similar reasons noted
above and a more favourable impact of markets on equities.
Revenue
Revenue
($ millions)
Insurance revenue
Net investment income
Other revenue
Total revenue
Asia
Canada
U.S.
Global Wealth and Asset Management
Corporate and Other
Total revenue
Quarterly Results
Full Year Results
4Q23
4Q22
2023
2022
$
6,414
6,784
1,719
$ 14,917
3,572
$
4,663
4,566
1,632
484
$ 14,917
$ 6,128
1,440
1,671
$ 9,239
990
$
2,648
3,814
1,530
257
$ 9,239
$ 23,972
18,021
6,746
$ 48,739
$ 11,996
13,793
15,322
5,896
1,732
$ 48,739
$ 23,118
337
6,186
$ 29,641
6,051
$
7,299
11,048
5,267
(24)
$ 29,641
Differences between IFRS and Hong Kong Financial Reporting Standards
Manulife’s Consolidated Financial Statements are presented in accordance with IFRS. Upon issuance of IFRS 17 “Insurance Contracts”
effective January 1, 2023, there is no longer any material difference between IFRS and Hong Kong Financial Reporting Standards.
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, 2023, 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, 2024, MFC had 1,806,118,020 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 the SEDAR+ website at www.sedarplus.ca.
154
| 2023 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.
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 for approval the appointment of external auditors
and 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
Colin Simpson
Chief Financial Officer
Toronto, Canada
February 14, 2024
Appointed Actuary’s Report to the Policyholders and Shareholders
I have valued the policy liabilities of Manulife Financial Corporation for its Consolidated Statements of Financial Position as at
December 31, 2023 and 2022 and their change in the Consolidated Statements of Income for the years then ended in accordance with
International Financial Reporting Standards.
In my opinion, the amount of policy liabilities is appropriate for this purpose. The valuation conforms to accepted actuarial practice in
Canada and the Consolidated Financial Statements fairly present the results of the valuation.
Steven Finch
Appointed Actuary
Toronto, Canada
February 14, 2024
155
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, 2023, December 31, 2022, and January 1, 2022 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 ended December 31, 2023 and 2022, and notes to the consolidated financial statements, including material
accounting policy information.
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, 2023, December 31 2022, and January 1, 2022, and its consolidated financial performance
and its consolidated cash flows for the years ended December 31, 2023 and 2022, 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
IFRS 17 Insurance Contracts Adoption
On January 1, 2023, the Company adopted IFRS 17 ‘Insurance Contracts’ which replaced IFRS 4 ‘Insurance Contracts’ with an
effective date of January 1, 2022. As described in Note 25 ‘Adoption of IFRS 17’ of the accompanying financial statements, the
Company applied the Full Retrospective Approach to most contracts issued on or after January 1, 2021, and applied the Fair Value
Approach for contracts issued prior to this date. Note 25 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 transition to 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 judgment due to the complexity of the models, and in the determination of key assumptions, specifically 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.
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
transition to the new standard for 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 audit the impact of the Company’s adoption 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 key assumptions used in the measurement of the insurance contract liabilities including the
transition CSM, with the involvement of our actuarial specialists, 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.
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 those determined by the Company. In addition,
we assessed the adequacy of the disclosures related to the adoption of IFRS 17.
156
| 2023 Annual Report | Consolidated Financial Statements
Key Audit
Matter
Valuation of Insurance Contract Liabilities
The Company recorded insurance contract liabilities of $482 billion at December 31, 2023 on its consolidated statement of
financial position, of which $355 billion as disclosed in Note 7 has been measured under the variable fee approach (VFA) and the
general measurement model (GMM). 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 estimate of
unearned profit the Company will recognize as it provides service under the insurance contracts. When projecting future cash flows
for these insurance contract liabilities, the Company primarily uses deterministic projections using best estimate assumptions. Key
assumptions are subjective and complex and include mortality, morbidity, investment returns, policy termination rates, premium
persistency, directly attributable expenses, taxes, and policyholder dividends. Disclosures on this matter are found in Note 1
‘Nature of Operations and Material Accounting Policy Information’ and Note 7 ‘Insurance and Reinsurance Contract Assets and
Liabilities’ of the consolidated financial statements.
Auditing the valuation of these 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 skills 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
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.
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, and assessing whether individual
changes were errors or refinements of estimates. 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
fulfillment cashflows for a sample of insurance contracts and comparing the results to those determined by the Company.
Additionally, we have performed an independent calculation of the CSM for a sample of groups of insurance contracts and
compared the amounts to the Company’s results. In addition, we assessed the adequacy of the disclosures related to the valuation
of insurance contract liabilities.
Valuation of Invested Assets and Derivatives with Significant Non-Observable Market Inputs
The Company recorded invested assets of $87.6 billion, as disclosed in Note 4 ‘Invested Assets and Investment Income’, and
derivative assets and liabilities of $0.6 billion and $2.7 billion, respectively, as disclosed in Note 5 ‘Derivative and Hedging
Instruments’ at December 31, 2023 within its consolidated statement of financial position which are both (a) measured at fair value
and (b) classified as Level 3 within the Company’s hierarchy of fair value measurements. The Level 3 invested assets include private
placements, commercial mortgages, real estate, timber and agriculture, and private equities valued using internal models. There is
increased measurement uncertainty in determining the fair value of these invested assets and derivatives due to volatility in the
current economic environment. Fair values are based on internal models or third-party appraisals that incorporate assumptions
with a high-level of subjectivity. Examples of such assumptions include discount rates, credit ratings and related spreads, expected
future cash flows, transaction prices of comparable assets, volatilities, and correlations. Disclosures on this matter are found in
Note 1 ‘Nature of Operations and Material Accounting Policy Information’, Note 4 ‘Invested Assets and Investment Income’, and
Note 5 ‘Derivative and Hedging Instruments’ of the consolidated financial statements.
Auditing the valuation of these invested assets and derivatives was complex and required the application of significant auditor
judgment in assessing the valuation methodologies and non-observable inputs used. The valuation 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 skills and knowledge to assist in evaluating the audit
evidence obtained.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
valuation processes. The controls we tested related to, among other areas, management’s determination and approval of
assumptions and methodologies used in model-based valuations.
To test the valuation, 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 where applicable. We also performed
independent investment valuations on a sample basis to evaluate management’s recorded values. In addition, we assessed the
adequacy of the disclosures related to the valuation of invested assets and derivatives.
Key Audit
Matter
How Our Audit
Addressed the
Key Audit
Matter
157
Key Audit
Matter
IFRS 9 Hedge Accounting
The Company has designated new hedge accounting relationships with the objective to reduce potential accounting mismatches
between changes in the fair value of derivatives in income and financial risk of insurance contract liabilities and financial assets in
other comprehensive income. Specifically, the Company has established relationships to hedge the fair value changes of a group of
the Company’s insurance contract liabilities due to changes in the benchmark interest rate. Related to the application of this hedge,
the Company recognized changes in value of the hedged items of ($53) million for the year ended December 31, 2023. The
Company has also established relationships to hedge the risk of fair value changes of foreign currency denominated debt
instruments attributable to changes in the benchmark interest rate and foreign exchange rates. Related to the application of this
hedge, the Company recognized changes in value of the hedged items of $742 million for the year ended December 31, 2023.
Disclosures on this matter are found in Note 1 ‘Nature of Operations and Material Accounting Policy Information’ and Note 5
‘Derivative and Hedging Instruments’ of the consolidated financial statements.
Auditing the design and application of hedge accounting was complex and required the application of significant auditor judgment
related to assessing the appropriateness of the designation of a risk component such as the benchmark interest rate and foreign
exchange rate as eligible hedged items, that the hedge ratio between the hedging instrument and the hedged item was consistent
with the risk objectives, and the determination and amortization of the resulting accumulated fair value adjustments. The audit
effort involved professionals with specialized skills 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
implementation of the above hedge strategies, the application and execution of those strategies, and the measurements of the
accumulated fair value adjustments. The controls we tested included, among others, controls related to management’s
development and approval of the new strategies, the review of the completeness, accuracy, and eligibility of the hedged items and
hedging instruments included in the hedging relationships, determination of the hedge ratio between the hedging instrument and
the hedged item with reference to the risk objectives, and the determination and amortization of the resulting accumulated fair
value adjustments.
To assess the Company’s consistent application of these new hedge accounting strategies under IFRS 9, our audit procedures
included, among other procedures, involving our actuarial specialists to support our assessment of the eligibility of hedging the
specific risk components. Our derivative specialists also supported our independent testing of the application of the hedge ratio by
the Company and the valuation of a sample of the accumulated fair value adjustments. Other procedures performed include testing
over the completeness and accuracy of the hedged items and hedging instruments designated in these relationships and the
determination and amortization of the resulting accumulated fair value adjustments. In addition, we assessed the adequacy of the
disclosures related to hedge accounting.
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 2023 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 2023 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.
158
| 2023 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 14, 2024
159
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, 2023 and 2022, 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, 2023 and 2022, 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, 2023, 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 14, 2024, expressed an unqualified opinion thereon.
Adoption of New Accounting Standards
Adoption of IFRS 17 ‘Insurance Contracts’
As discussed in Note 2 ‘Accounting and Reporting Changes’ to the accompanying consolidated financial statements, the Company adopted
IFRS 17 ‘Insurance Contracts’ on January 1, 2023, with an effective date of January 1, 2022. As explained below, auditing the Company’s
adoption of IFRS 17 was a critical audit matter.
Adoption of IFRS 9 ‘Financial Instruments’
As discussed in Note 2 ‘Accounting and Reporting Changes’ to the accompanying consolidated financial statements, the Company
changed its method of accounting for the classification and measurement of financial instruments due to the adoption of IFRS 9 ‘Financial
Instruments’.
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.
160
| 2023 Annual Report | Consolidated Financial Statements
Description of the
matter
IFRS 17 Insurance Contracts Adoption
On January 1, 2023, the Company adopted IFRS 17 ‘Insurance Contracts’ which replaced IFRS 4 ‘Insurance Contracts’ with an
effective date of January 1, 2022. As described in Note 25 ‘Adoption of IFRS 17’ of the accompanying financial statements, the
Company applied the Full Retrospective Approach to most contracts issued on or after January 1, 2021, and applied the Fair
Value Approach for contracts issued prior to this date. Note 25 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 transition to 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 judgment due to the complexity of the models, and in the determination of key assumptions,
specifically 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.
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
transition to the new standard for 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.
Description of
the matter
To audit the impact of the Company’s adoption 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 key assumptions used in the measurement of the insurance contract liabilities
including the transition CSM, with the involvement of our actuarial specialists, 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. 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 those
determined by the Company. In addition, we assessed the adequacy of the disclosures related to the adoption of IFRS 17.
Valuation of Insurance Contract Liabilities
The Company recorded insurance contract liabilities of $482 billion at December 31, 2023 on its consolidated statement of
financial position, of which $355 billion as disclosed in Note 7 has been measured under the variable fee approach (VFA) and
the general measurement model (GMM). 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 estimate of unearned profit the Company will recognize as it provides service under the insurance contracts. When
projecting future cash flows for these insurance contract liabilities, the Company primarily uses deterministic projections using
best estimate assumptions. Key assumptions are subjective and complex and include mortality, morbidity, investment returns,
policy termination rates, premium persistency, directly attributable expenses, taxes, and policyholder dividends. Disclosures
on this matter are found in Note 1 ‘Nature of Operations and Material Accounting Policy Information’ and Note 7 ‘Insurance and
Reinsurance Contract Assets and Liabilities’ of the consolidated financial statements.
Auditing the valuation of these 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 skills 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
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.
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, and assessing
whether individual changes were errors or refinements of estimates. 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 fulfillment cashflows for a sample of insurance contracts and comparing the results to those
determined by the Company. Additionally, we have performed an independent calculation of the CSM for a sample of groups of
insurance contracts and compared the amounts to the Company’s results. In addition, we assessed the adequacy of the
disclosures related to the valuation of insurance contract liabilities.
161
Description of the
matter
How we addressed
the matter in our
audit
Description of the
matter
How we addressed
the matter in our
audit
Valuation of Invested Assets and Derivatives with Significant Non-Observable Market Inputs
The Company recorded invested assets of $87.6 billion, as disclosed in Note 4 ‘Invested Assets and Investment Income’, and
derivative assets and liabilities of $0.6 billion and $2.7 billion, respectively, as disclosed in Note 5 ‘Derivative and Hedging
Instruments’ at December 31, 2023 within its consolidated statement of financial position which are both (a) measured at fair
value and (b) classified as Level 3 within the Company’s hierarchy of fair value measurements. The Level 3 invested assets
include private placements, commercial mortgages, real estate, timber and agriculture, and private equities valued using
internal models. There is increased measurement uncertainty in determining the fair value of these invested assets and
derivatives due to volatility in the current economic environment. Fair values are based on internal models or third-party
appraisals that incorporate assumptions with a high-level of subjectivity. Examples of such assumptions include discount rates,
credit ratings and related spreads, expected future cash flows, transaction prices of comparable assets, volatilities, and
correlations. Disclosures on this matter are found in Note 1 ‘Nature of Operations and Material Accounting Policy Information’,
Note 4 ‘Invested Assets and Investment Income’, and Note 5 ‘Derivative and Hedging Instruments’ of the consolidated financial
statements.
Auditing the valuation of these invested assets and derivatives was complex and required the application of significant auditor
judgment in assessing the valuation methodologies and non-observable inputs used. The valuation 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 skills and knowledge to assist in evaluating the
audit evidence obtained.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
valuation processes. The controls we tested related to, among other areas, management’s determination and approval of
assumptions and methodologies used in model-based valuations.
To test the valuation, 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 where applicable. We also
performed independent investment valuations on a sample basis to evaluate management’s recorded values. In addition, we
assessed the adequacy of the disclosures related to the valuation of invested assets and derivatives.
IFRS 9 Hedge Accounting
The Company has designated new hedge accounting relationships with the objective to reduce potential accounting
mismatches between changes in the fair value of derivatives in income and financial risk of insurance contract liabilities and
financial assets in other comprehensive income. Specifically, the Company has established relationships to hedge the fair value
changes of a group of the Company’s insurance contract liabilities due to changes in the benchmark interest rate. Related to
the application of this hedge, the Company recognized changes in value of the hedged items of ($53) million for the year ended
December 31, 2023. The Company has also established relationships to hedge the risk of fair value changes of foreign
currency denominated debt instruments attributable to changes in the benchmark interest rate and foreign exchange rates.
Related to the application of this hedge, the Company recognized changes in value of the hedged items of $742 million for the
year ended December 31, 2023. Disclosures on this matter are found in Note 1 ‘Nature of Operations and Material Accounting
Policy Information’ and Note 5 ‘Derivative and Hedging Instruments’ of the consolidated financial statements.
Auditing the design and application of hedge accounting was complex and required the application of significant auditor
judgment related to assessing the appropriateness of the designation of a risk component such as the benchmark interest rate
and foreign exchange rate as eligible hedged items, that the hedge ratio between the hedging instrument and the hedged item
was consistent with the risk objectives, and the determination and amortization of the resulting accumulated fair value
adjustments. The audit effort involved professionals with specialized skills and knowledge to assist in evaluating the audit
evidence obtained.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over the
implementation of the above hedge strategies, the application and execution of those strategies, and the measurements of the
accumulated fair value adjustments. The controls we tested included, among others, controls related to management’s
development and approval of the new strategies, the review of the completeness, accuracy, and eligibility of the hedged items
and hedging instruments included in the hedging relationships, determination of the hedge ratio between the hedging
instrument and the hedged item with reference to the risk objectives, and the determination and amortization of the resulting
accumulated fair value adjustments.
To assess the Company’s consistent application of these new hedge accounting strategies under IFRS 9, our audit procedures
included, among other procedures, involving our actuarial specialists to support our assessment of the eligibility of hedging the
specific risk components. Our derivative specialists also supported our independent testing of the application of the hedge
ratio by the Company and the valuation of a sample of the accumulated fair value adjustments. Other procedures performed
include testing over the completeness and accuracy of the hedged items and hedging instruments designated in these
relationships and the determination and amortization of the resulting accumulated fair value adjustments. In addition, we
assessed the adequacy of the disclosures related to hedge accounting.
Chartered Professional Accountants
Licensed Public Accountants
We have served as Manulife Financial Corporation’s auditor since 1905.
Toronto, Canada
February 14, 2024
162
| 2023 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, 2023, 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, 2023, 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, 2023 and 2022, 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 14, 2024,
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 14, 2024
163
Consolidated Statements of Financial Position
December 31, 2023
Restated (note 2)
December 31, 2022
Restated (note 2)
January 1, 2022
As at
(Canadian $ in millions)
Assets
Cash and short-term securities
Debt securities
Public equities
Mortgages
Private placements
Loans to Bank clients
Real estate
Other invested assets
Total invested assets (note 4)
Other assets
Accrued investment income
Derivatives (note 5)
Insurance contract assets (note 7)
Reinsurance contract held assets (note 7)
Deferred tax assets
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, excluding those for account of segregated fund holders
(note 7)
Reinsurance contract held liabilities (note 7)
Investment contract liabilities (note 8)
Deposits from Bank clients
Derivatives (note 5)
Deferred tax liabilities
Other liabilities
Long-term debt (note 10)
Capital instruments (note 11)
Total liabilities, excluding those for account of segregated fund holders
Insurance contract liabilities for account of segregated fund holders (note 7)
Investment contract liabilities for account of segregated fund holders
Insurance and investment contract liabilities for account of segregated fund holders
(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 and other equity holders’ accumulated other comprehensive income (loss) (“AOCI”):
Insurance finance income (expenses)
Reinsurance finance income (expenses)
Fair value through other comprehensive income (“OCI”) investments
Translation of foreign operations
Other
Total shareholders and other equity holders’ 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.
$ 20,338
212,149
25,531
52,421
45,606
2,436
13,049
45,680
417,210
2,678
8,546
145
42,651
6,739
10,310
9,751
80,820
377,544
$ 875,574
$ 367,996
2,831
11,816
21,616
11,730
1,697
18,879
6,071
6,667
449,303
114,143
263,401
377,544
826,847
6,660
21,527
222
4,819
30,010
(4,634)
(16,262)
4,801
(104)
47,039
257
1,431
48,727
$ 875,574
$ 19,153
203,842
23,519
51,765
42,010
2,781
14,269
42,803
400,142
2,635
8,588
673
45,871
6,708
10,519
9,991
84,985
348,562
$ 833,689
$ 354,849
2,391
10,079
22,507
14,289
1,536
18,894
6,234
6,122
436,901
110,216
238,346
$ 22,594
224,139
28,067
53,948
47,289
2,506
14,269
35,291
428,103
2,428
17,503
972
52,829
7,767
9,919
8,911
100,329
399,788
$ 928,220
$ 405,621
2,079
10,064
20,720
10,038
1,713
19,443
4,882
6,980
481,540
130,836
268,952
348,562
785,463
399,788
881,328
6,660
22,178
238
3,947
38,057
(5,410)
(24,645)
5,918
(67)
46,876
(77)
1,427
48,226
$ 833,689
6,381
23,093
262
9,656
(17,117)
984
17,764
4,578
(246)
45,355
101
1,436
46,892
$ 928,220
Roy Gori
President and Chief Executive Officer
Don Lindsay
Chair of the Board of Directors
164
| 2023 Annual Report | Consolidated Financial Statements
Consolidated Statements of Income
For the years ended December 31,
(Canadian $ in millions except per share amounts)
Insurance service result
Insurance revenue (note 7)
Insurance service expenses (note 7)
Net expenses from reinsurance contracts held (note 7)
Total insurance service result
Investment result
Investment income (note 4)
Investment income
Realized and unrealized gains (losses) on assets supporting insurance and investment contract liabilities
Investment expenses
Net investment income (loss)
Insurance finance income (expenses) and effect of movement in foreign exchange rates (note 7)
Reinsurance finance income (expenses) and effect of movement in foreign exchange rates (note 7)
Decrease (increase) in investment contract liabilities
2023
Restated (note 2)
2022
$ 23,972
(19,382)
(613)
3,977
$ 23,118
(19,335)
(623)
3,160
16,180
3,138
(1,297)
18,021
(13,894)
(734)
(435)
2,958
15,204
(13,646)
(1,221)
337
(6,616)
309
(399)
(6,369)
Segregated funds investment result (note 23)
Investment income related to segregated funds net assets
Financial changes related to insurance and investment contract liabilities for account of segregated fund
49,346
(56,487)
holders
Net segregated funds investment result
Total investment result
Other revenue (note 14)
General expenses
Commissions related to non-insurance contracts
Interest expenses
Net income (loss) before income taxes
Income tax recoveries (expenses)
Net income (loss)
Net income (loss) attributed to:
Non-controlling interests
Participating policyholders
Shareholders and other equity holders
Net income (loss) attributed to shareholders
Preferred share dividends and other equity distributions
Common shareholders’ net income (loss)
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.
(49,346)
–
2,958
6,746
(4,330)
(1,345)
(1,554)
6,452
(845)
5,607
144
360
5,103
5,607
5,103
(303)
4,800
2.62
2.61
1.46
$
$
$
$
$
$
56,487
–
(6,369)
6,186
(3,731)
(1,333)
(1,051)
(3,138)
1,159
(1,979)
121
(167)
(1,933)
(1,979)
(1,933)
(260)
(2,193)
(1.15)
(1.15)
1.32
$
$
$
$
$
$
165
Consolidated Statements of Comprehensive Income
For the years ended December 31,
(Canadian $ in millions)
Net income (loss)
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
Insurance finance income (expenses)
Reinsurance finance income (expenses)
Fair value through OCI investments:
Unrealized gains (losses) arising during the year on assets supporting insurance and investment contract liabilities
Reclassification of net realized gains (losses) and provision for credit losses recognized in income
Other
Total items that may be subsequently reclassified to net income
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
2023
Restated (note 2)
2022
$
5,607
$
(1,979)
(1,301)
183
(9,745)
787
9,251
256
37
(532)
(70)
(602)
5,005
18
334
4,653
$
$
1,755
(415)
58,772
(6,364)
(47,494)
1,347
159
7,760
16
7,776
5,797
17
(177)
5,957
$
$
Income Taxes included in Other Comprehensive Income
For the years ended December 31,
(Canadian $ in millions)
Income tax expenses (recoveries) on:
Unrealized foreign exchange gains (losses) on translation of foreign operations
Unrealized foreign exchange gains (losses) on net investment hedges
Insurance / reinsurance finance income (expenses)
Unrealized gains (losses) on fair value through OCI investments
Reclassification of net realized gains (losses) on fair value through OCI investments
Other
Total income tax expenses (recoveries)
The accompanying notes are an integral part of these Consolidated Financial Statements.
2023
Restated (note 2)
2022
$
$
(1)
13
(1,853)
1,863
(8)
(20)
(6)
$
$
2
(29)
12,002
(9,599)
270
65
2,711
166
| 2023 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
Opening adjustment of insurance contracts at adoption of IFRS 17
Opening adjustment of financial assets at adoption of IFRS 9 / IFRS 17
Restated balance, beginning of year
Net income (loss) 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’ and other equity holders’ accumulated other comprehensive income (loss) (“AOCI”)
Balance, beginning of year
Opening adjustment of insurance contracts at adoption of IFRS 17
Opening adjustment of financial assets at adoption of IFRS 9 / IFRS 17
Restated balance, beginning of year
Change in unrealized foreign exchange gains (losses) on net foreign operations
Changes in insurance / reinsurance finance income (expenses)
Change in unrealized gains (losses) on fair value through OCI investments
Other changes in OCI attributed to shareholders and other equity holders
Balance, end of year
Total shareholders’ and other equity holders’ equity, end of year
Participating policyholders’ equity
Balance, beginning of year
Opening adjustment of insurance contracts at adoption of IFRS 17
Opening adjustment of financial assets at adoption of IFRS 9 / IFRS 17
Restated balance, beginning of year
Net income (loss) attributed to participating policyholders
Other comprehensive income (losses) attributed to policyholders
Balance, end of year
Non-controlling interests
Balance, beginning of year
Opening adjustment of insurance contracts at adoption of IFRS 17
Opening adjustment of financial assets at adoption of IFRS 9 / IFRS 17
Restated balance, beginning of year
Net income (loss) 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.
2023
Restated (note 2)
2022
$
6,660
–
–
–
6,660
22,178
(745)
94
21,527
238
(18)
2
–
222
3,947
–
(409)
3,538
5,103
(850)
(303)
–
(2,669)
–
4,819
13,853
–
408
14,261
(1,117)
(7,222)
7,923
(34)
13,811
47,039
(77)
–
–
(77)
360
(26)
257
$
6,381
1,000
(711)
(10)
6,660
23,093
(938)
23
22,178
262
(4)
5
(25)
238
23,492
(3,191)
(10,645)
9,656
(1,933)
(946)
(260)
(14)
(2,513)
(43)
3,947
5,180
(16,133)
16,916
5,963
1,340
48,780
(42,407)
177
13,853
46,876
(1,233)
707
626
100
(167)
(10)
(77)
1,427
–
–
1,427
144
(126)
(14)
1,431
$ 48,727
1,694
(258)
–
1,436
121
(104)
(26)
1,427
$ 48,226
167
Consolidated Statements of Cash Flows
For the years ended December 31,
(Canadian $ in millions)
Operating activities
Net income (loss)
Adjustments:
Increase (decrease) in net insurance contract liabilities (note 7)
Increase (decrease) in investment contract liabilities
(Increase) decrease in reinsurance contract assets, excluding reinsurance transaction noted below (note 7)
Amortization of (premium) discount on invested assets
Contractual service margin (“CSM”) amortization
Other amortization
Net realized and unrealized (gains) losses and impairment on assets
Deferred income tax expenses (recoveries)
Stock option expense
Gain on U.S. variable annuity reinsurance transaction (pre-tax) (note 7)
Gain on derecognition of joint venture interest during Manulife Fund Management Co., Ltd. acquisition (pre-tax)
(notes 3 & 6)
Cash provided by operating activities before undernoted items
Changes in policy related and operating receivables and payables
Cash decrease due to U.S. variable annuity reinsurance transaction (note 7)
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 subsidiaries
Cash provided by (used in) investing activities
Financing activities
Change in repurchase agreements and securities sold but not yet purchased
Issue of long-term debt (note 10)
Issue of capital instruments, net (note 11)
Redemption of capital instruments (note 11)
Secured borrowing from securitization transactions
Change in deposits from Bank clients, net
Lease payments
Shareholders’ dividends and other equity distributions
Contributions from (distributions to) non-controlling interests, net
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)
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
The accompanying notes are an integral part of these Consolidated Financial Statements.
168
| 2023 Annual Report | Consolidated Financial Statements
2023
Restated (note 2)
2022
$
5,607
$
(1,979)
10,697
435
974
(141)
(1,998)
581
(2,845)
470
2
–
–
13,782
6,641
–
20,423
(84,021)
70,281
21
(1)
(13,720)
(693)
–
1,194
(600)
537
(895)
(98)
(2,972)
(14)
(1,595)
94
–
–
(5,042)
1,661
(412)
18,635
19,884
19,153
(518)
18,635
20,338
(454)
19,884
12,768
1,548
436
$
$
5,016
399
710
(131)
(1,993)
519
13,660
(1,994)
5
(1,070)
(95)
13,047
4,958
(1,377)
16,628
(111,558)
93,407
(67)
(182)
(18,400)
346
946
–
(1,000)
437
1,703
(120)
(2,787)
(51)
(1,884)
23
990
(711)
(2,108)
(3,880)
585
21,930
18,635
22,594
(664)
21,930
19,153
(518)
18,635
11,873
955
1,238
$
$
Notes to Consolidated Financial Statements
Page Number Note
170
184
187
187
196
205
207
229
230
243
244
246
248
249
250
251
256
258
260
262
264
265
266
266
272
276
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
Acquisition
Invested Assets and Investment Income
Derivative and Hedging Instruments
Goodwill and Intangible Assets
Insurance and Reinsurance Contract Assets and Liabilities
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.)
Adoption of IFRS 17
Comparatives
169
Notes to Consolidated Financial Statements
(Canadian $ in millions except per share amounts or unless otherwise stated)
Note 1 Nature of Operations and Material Accounting Policy Information
(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, including 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 and Manulife 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 as at and for the year ended December 31, 2023 were authorized for issue by MFC’s Board of
Directors on February 14, 2024.
(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 insurance service,
investment result, and other 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 and
reinsurance contracts held 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 material 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 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 predominantly external observable data. Judgment is applied in
adjusting external observable data for items including liquidity and credit factors.
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.
170
| 2023 Annual Report | Notes to Consolidated Financial Statements
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 investments 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 investments such as real estate, other invested assets, timber investments held within segregated funds, certain long-duration
bonds and other investments 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.
(e) Invested assets
Invested assets are recognized initially at fair value plus, in the case of investments not classified as fair value through profit or loss
(“FVTPL”), directly attributable transaction costs. Invested assets that are considered financial instruments are classified as fair value
through other comprehensive income (“FVOCI”), FVTPL or as amortized cost. The Company determines the classification of its financial
assets at initial recognition.
171
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 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 judgement and considers relevant factors such as prepayment and
redemption rights, conversion features, and subordination of the instrument to other instruments of the issuer. An asset with 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 they are held within, 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 FVOCI or amortized cost are recognized in investment income immediately. Unrealized gains and losses on FVOCI debt investments are
recorded in OCI, except for unrealized gains and losses on foreign currency translation which are included in income.
Investments in equities which are accounted for as financial instruments are not subject to the SPPI test and are accounted for as FVTPL.
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, and of inputs to the valuation and vendor
controls reports.
Cash and short-term securities comprise cash, current operating accounts, overnight bank and term deposits, and debt instruments held for
meeting short-term cash commitments. Short-term securities are carried at fair value. Short-term securities comprise investments due to
mature within one year of the date of purchase. Commercial paper and discount notes are classified as Level 2 for fair value purposes because
these instruments 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 investments are generally valued by independent pricing vendors using
proprietary pricing models incorporating current market inputs for similar investments 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. Debt investments are classified as Level 2 but can be Level 3 if significant inputs are not market observable.
Public equities comprise of common and preferred equities and shares or units of mutual funds 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. 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
Company’s 2023 Management’s Discussion and Analysis (“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 of securitized mortgages 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 (“EIR”) 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 not market observable.
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 all debt instruments including securities, private placements, mortgages, and loans to Bank clients as it
accrues and is calculated using the 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 private placements and mortgages.
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.
172
| 2023 Annual Report | Notes to Consolidated Financial Statements
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 IAS 16 “Property, Plant and Equipment” which was
amended by IFRS 17 “Insurance Contracts” (“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 all 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 employ both observable and non-market observable 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 transfers from own use held at cost to investment property, any gain or loss arising on the re-measurement of the
property and any associated leases to fair value as at the date of change in use 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 held at cost, 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, timber, agriculture and energy 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 which are own use properties are carried at cost except for their
biological assets which are measured at fair value. Timber and agriculture properties which are investment properties are measured at fair value
with changes in fair value recognized in income. 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 judgement. 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 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 practice 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.
173
• 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 comprise all performing financial instruments that have not experienced a SICR since initial recognition. The determination of
SICR varies by instrument 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 comprise all performing financial instruments that have experienced a 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.
• Stage 3 comprise 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 the 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 at the date of initial recognition. The assessment varies by instrument 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.
When estimating ECLs, the four probability-weighted macroeconomic scenarios are considered. Economic forward-looking inputs vary by
market. 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. Refer to note 9 (c).
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 or full derecognition of the financial asset. In subsequent periods, any
recoveries of amounts previously written off are credited to the provision for credit losses.
(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 Company 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
174
| 2023 Annual Report | Notes to Consolidated Financial Statements
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.
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 indication of impairment arises,
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 and capital
assets. Rabbi trust assets are carried at fair value. Defined benefit assets carrying value is explained in note 1 (o). 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 funds net assets with offsetting
insurance and investment contract liabilities for account of segregated fund holders in the amount of their account balances. The
investment returns on these funds are passed directly to policyholders. In some cases, the Company has provided guarantees associated
with these funds. 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.
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 are passed directly 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.
Some of the Company’s liabilities for account of segregated fund holders arise from insurance contracts that it issues. These are reported
as Insurance contract liabilities for account of segregated fund holders, representing the Company’s obligation to pay the policyholder an
amount equal to the fair value of the underlying items, and are measured at the aggregate of policyholder account balances. Changes in
fair value of these liabilities are reported as Financial changes related to insurance and investment contract liabilities for account of
segregated fund holders in the Consolidated Statements of Income. Other liabilities associated with these insurance contracts, such as
those associated with guarantees provided by the Company as a result of certain variable life and annuity contracts, are included in
Insurance contract assets or Insurance contract liabilities, excluding those for account of segregated fund holders on the Consolidated
Statements of Financial Position. The Company holds assets supporting these guarantees in the general fund, which are included in
invested assets according to their investment type.
The remaining liabilities for account of segregated fund holders do not arise from insurance contracts that the Company issues, and are
reported as Investment contract liabilities for account of segregated fund holders on the Consolidated Statements of Financial Position.
These are also measured at the aggregate of policyholder account balances and changes in fair value of these liabilities are reported as
Financial changes related to insurance and investment contract liabilities for account of segregated fund holders in the Consolidated
Statements of Income.
175
(i) Insurance contract liabilities and reinsurance contract assets
Scope and Classification
Contracts issued by the Company are classified as insurance, investment, or service contracts at initial recognition. Insurance contracts are
contracts under which the Company accepts significant insurance risk from a policyholder. A contract is considered to have significant insurance
risk if an insured event could cause the Company to pay significant additional amounts in any single scenario with 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.
Reinsurance contracts held are contracts held by the Company under which it transfers significant insurance risk related to underlying
insurance contracts to other parties, along with the associated premiums. The purpose of the reinsurance contracts held is to mitigate the
significant insurance risk that the Company may have from the underlying insurance contracts.
Both insurance and reinsurance contracts are accounted for in accordance with IFRS 17. Contracts under which the Company does not
accept significant insurance risk are either classified as investment contracts or considered as service contracts and are accounted for in
accordance with IFRS 9 “Financial Instruments” (“IFRS 9”) or IFRS 15 “Revenue from Contracts with Customers” (“IFRS 15”), 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 the Company 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.
Separation of components
At inception of insurance and reinsurance contracts held, the Company analyses whether they contain the following components that are
separated and accounted for under other IFRS standards:
•
Derivatives embedded within insurance contracts which contains risks and characteristics that are not closely related to those of the
host contract, unless the embedded derivative itself meets the definition of an insurance contract;
• Distinct investment components which represent cash flows paid (received) in all circumstances regardless of whether an insured event
has occurred or not. Investment components are distinct if they are not highly interrelated with insurance component cash flows and if
they could be issued on a standalone basis; and
• Distinct service components which are promises to transfer goods or non-insurance services if the policyholder can benefit from it
either on its own or with other resources that are readily available to the policyholder. The service components are distinct if they are
not highly interrelated with the insurance components and the Company provides no significant service in integrating the service
component with the insurance component.
The Company applies IFRS 17 to all remaining components of the insurance and reinsurance contracts held.
Level of aggregation
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 the issuing subsidiary, measurement model, major product line and
type of insurance risk. The portfolios of insurance contracts are further grouped by:
•
Date of issue: the period cannot be longer than one year. Most of the Company’s insurance contracts are aggregated into annual
cohorts; and
• 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 contracts held.
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 subsequently reassess the composition of the groups.
For reinsurance contracts held, the portfolios align with the direct insurance contract portfolios. Groups of reinsurance contracts typically
comprise a single reinsurance contract, and similar to direct groups they do not contain contracts issued more than one year apart.
Cash flows within the contract boundaries
The Company includes in the measurement of a group of insurance contracts and reinsurance contracts held, all future cash flows within
the boundary of the contracts in the group. Cash flows are within the boundary of an insurance contract (and a reinsurance contract held)
if they arise from substantive rights and obligations that exist in which the Company can compel the policyholder to pay the premiums (or
is compelled to pay amounts to a reinsurer) or has a substantive obligation to provide services to policyholder (or a substantive right to
receive services from a reinsurer).
For insurance contracts, a substantive obligation to provide services ends when the Company has the practical ability to reassess the risks
and as a result, can set a new price or level of benefits that fully reflects those risks.
For reinsurance contracts held, a substantive right to receive services ends when the reinsurer has the practical ability to reassess the risk
transferred to it and can set a new price or level of benefits that fully reflects those risks, or the reinsurer can terminate the coverage.
176
| 2023 Annual Report | Notes to Consolidated Financial Statements
Measurement models
There are three measurement models for insurance contracts:
•
Variable fee approach (“VFA”): The Company applies this approach to insurance contracts with direct participation features such as
participating life insurance contracts, unit linked contracts, and variable annuity contracts. The direct participating feature is identified
at inception, where the Company has the obligation to pay the policyholder an amount equal to the fair value of the underlying items
less a variable fee in exchange for investment services provided.
• Premium allocation approach (“PAA”): The Company applies this simplified approach for certain insurance contracts and reinsurance
contracts with duration of typically one year or less, such as Canadian Group Benefit products, some Canadian Affinity products, and
some Asia short-term individual and group products.
• General measurement model (“GMM”): The Company applies this model to the remaining insurance contracts and reinsurance
contracts not measured using the VFA or the PAA.
Recognition of insurance contracts
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 GMM and VFA measurement model
Initial measurement
The measurement of insurance contracts at initial recognition is the same for GMM or VFA. At initial recognition, the Company measures a
group of insurance contracts as the total of: (a) fulfilment cash flows, and (b) a contractual service margin (“CSM”).
Fulfilment cash flows comprise estimates of future cash flows, adjusted to reflect the time value of money and financial risks, and a risk
adjustment for non-financial risk. In determining the fulfilment cash flows, the Company uses estimates and assumptions considering a
range of scenarios which have commercial substance and give a fair representation of possible outcomes.
If fulfilment cash flows generate a total of net cash inflows at initial recognition, a CSM is set up to fully offset the fulfilment cash flows, and
results in no impact on income at initial recognition. The CSM represents the unearned profit the Company will recognize as it provides
services under the insurance contracts. However, if fulfilment cash flows generate a total of net cash outflows at initial recognition, a loss
is recognized in income or expenses immediately and the group of contracts is considered to be onerous.
For Contracts with fulfillment cash flows in multiple foreign currencies the group of insurance contracts, including the contractual service
margin, is considered to be denominated in a single currency. If a group of insurance contracts has cash flows in more than one currency,
on initial recognition the company determines a single currency in which the multicurrency group of contracts is denominated. The
Company determines the single currency to be the currency of the predominant cash flows.
The unit of account for CSM or loss is on a group of contracts basis consistent with the level of aggregation specified above.
Subsequent measurement of fulfilment cash flows
The fulfilment cash flows at each reporting date are measured using the current estimates of expected cash flows and current discount
rates. 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”), which comprise the fulfilment cash flows that relate to services to be provided in the future
and any remaining CSM at that date; and
• The liability for incurred claims (“LIC”), which comprise the fulfilment cash flows for incurred claims and expenses that have not yet been paid.
For onerous contracts, the LRC is further divided into a loss component, which represents the remaining net outflow for the group of
insurance contracts; and the LRC excluding the loss component, which represents the amount of liability with offsetting inflows.
Premiums received increases the LRC. Where a third-party administrator is involved in the collection and remittance of premiums, amounts
receivable from the third-party are included in the measurement of insurance contract liabilities until actual cash is remitted to the Company.
Subsequent measurement of the CSM under the GMM measurement model
For contracts without direct participation features, when applying the GMM measurement model, the carrying amount of the CSM at end of
the reporting period is adjusted to reflect the following changes:
(a) effect of new contracts added to the group;
(b) interest accreted on the carrying amount of CSM, measured at the locked-in discount rate. 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,
and is determined using the bottom-up approach;
177
(c) changes in fulfilment cash flows that relate to future services such as:
•
Experience differences between actual and expected premiums and related cash flows at the beginning of the period measured at
the locked-in rate.
• Non-financial changes in estimates of the present value of future cash flows measured at the locked-in rate.
• Changes in the risk adjustment for non-financial risk that relate to future service measured at the locked-in rate.
• Differences between actual and expected investment component that becomes payable in the period. The same applies to a
policyholder loan that becomes repayable;
(d) effect of any currency exchange differences on the CSM;
(e) CSM amortization, which is the recognition of unearned profit into insurance revenue for services provided in the period. The CSM is
recognized into insurance revenue over the duration of the group of insurance contracts based on the respective coverage units as
insurance services are provided. The number of coverage units is the quantity of services provided by the contracts in the group,
determined by considering the quantity of benefits provided and its expected coverage period. The coverage units are reviewed and
updated at each reporting date. The Company allocates the CSM equally to each coverage unit and recognizes the amount allocated
to coverage units provided and expected to be provided in each period.
When measuring the fulfilment cash flows, changes that relate to future services are measured using the current discount rate, however,
the CSM is adjusted for these changes using the locked-in rate at initial recognition. The application of the two different discount rates
gives rise to a gain or loss that is recognized as part of insurance finance income or expense.
Subsequent measurement of the CSM under the VFA measurement model
For contracts with direct participation features applying the VFA measurement model, subsequent measurement of the CSM is similar to
the GMM model with the following exceptions or modifications:
For changes in fulfillment cash flows that do not vary with the underlying items:
•
Non-financial changes adjust the CSM at the current discount rate, there is no interest accretion on CSM at the locked-in rate,
• Changes in the effect of the time value of money and financial risks such as the effect of financial guarantees adjust the CSM, however,
income or expenses would be impacted if the risk mitigation option is elected.
For changes in fulfillment cash flows that vary with the fair value of the underlying items:
• Changes in the shareholders’ share adjust the CSM, however, income or expenses would be impacted if the risk mitigation option is elected,
• Changes in the policyholders’ share are recognized in income or expenses or OCI.
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 direct participation contracts applying the VFA measurement model. The Company may
elect the risk mitigation option to recognize some or all changes of financial guarantees and shareholders’ share of the underlying items in
income or expenses instead of adjusting CSM.
Groups of GMM or VFA insurance contracts with a CSM at initial recognition can subsequently become onerous when increases in
fulfilment cash flows that do not vary with the underlying items or declines in the shareholder’s share of the underlying items exceed the
carrying amount of the CSM. The excess establishes a loss which is recognized in income or expenses immediately, and the LRC is then
divided into the loss component and the LRC excluding the loss component.
Subsequent measurement of the loss component
The loss component represents the net outflow attributable to each group of onerous insurance contracts (or contracts profitable at
inception that have subsequently become onerous), any subsequent decrease relating to future service in estimates of future cash flows
and risk adjustment for non-financial risk or any subsequent increase the shareholders’ share of the fair value of underlying items will
reverse the loss component. Any remaining loss component will be reversed systematically as actual cash flows are incurred.
When actual cash flows are incurred, the LIC is recognized and the LRC is derecognized accordingly. The Company uses the proportion on
initial recognition to determine the systematic allocation of LRC release between the loss component and the LRC excluding the loss
component, resulting in both components being equal to zero by the end of the coverage period.
Insurance contracts measured under the PAA measurement
The Company applies the PAA to all insurance contracts it issues 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.
The LRC is initially measured as the premium received at initial recognition minus any insurance acquisition cash flows at that date. There
is generally no allowance for the time value of money as the premiums are mostly received within one year of the coverage period.
For acquisition cash flows allocated to recognized groups of contracts applying the PAA, the Company is permitted to defer and amortize
the amount over the coverage period or recognize the amount as an expense as incurred provided that the coverage period of the
178
| 2023 Annual Report | Notes to Consolidated Financial Statements
contracts in the group is no more than one year. This election can be made at the level of each group of insurance contracts. For the
majority of the Company’s insurance contracts applying the PAA, such as Canadian Group Benefit products, some Canadian Affinity
products, and some Asia short term individual and group products, the Company has elected to defer directly attributable acquisition
costs and recognize in net income over the coverage period in a systematic way based on the passage of time.
In these lines of business, directly attributable insurance acquisition cash flows paid are to acquire the current contract with an
expectation of a number of renewals over future years. As such, directly attributable insurance acquisition cash flows are allocated to the
group in which the current contract belongs to as well as to future groups that will include expected renewals applying a systematic
methodology. If facts and circumstances indicate that there are onerous group of contracts at initial measurement, a loss is immediately
recognized in the income or expenses for the net outflow and a loss component of the LRC is created for the group.
Subsequent measurement
Subsequently, the Company measures the carrying amount of the LRC at the end of each reporting period as:
•
The LRC at beginning of the period; plus
• Premium received in the period; minus
• Directly attributable acquisition costs net of related amortization (unless expensed as incurred); minus
• Amount recognized as insurance revenue for the period; minus
• 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 &
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.
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 income or expenses 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.
Assets for insurance acquisition cash flows
Insurance acquisition cash flows arise from the costs of selling, underwriting and starting a group of insurance contracts (issued or
expected to be issued) that are directly attributable to the portfolio of insurance contracts to which the group belongs.
Insurance acquisition cash flows paid or incurred before the recognition of the related group of contracts are recognized as an asset within
the portfolio of insurance contract liabilities in which the group of contracts is expected to be included. The Company applies a systematic
basis to allocate these costs which includes:
•
Insurance acquisition cash flows directly attributable to a group of contracts that will include future expected renewals of in-force
contracts; and
• Insurance acquisition cash flows directly attributable to a portfolio of insurance contracts, which will include future new business.
When facts and circumstances indicate the assets for insurance acquisition cash flows might be impaired, the Company conducts
impairment tests. If an asset is impaired, an impairment loss will be recognized in income or expenses, which can be subsequently
reversed when the impairment condition no longer exists.
Recognition of reinsurance contracts held
The Company recognizes a group of reinsurance contracts held 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.
Reinsurance contracts held measured under the GMM model
Initial measurement
The measurement of reinsurance contracts held follows the same principles as the GMM for insurance contracts issued, with the following
exceptions or modifications specified in this section below. Reinsurance contracts held and assumed cannot use the VFA measurement model.
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 reinsurance contracts held relates to insured events that occurred before initial recognition of any
179
insurance contracts, it is recognized immediately in income or expenses. In addition, if the underlying insurance contracts are in an onerous
position, the Company is required to recognize a reinsurance gain immediately in income for the portion of claims that the Company expects to
recover from the reinsurance, if the reinsurance contract held was entered into prior to or at the same time as the onerous contracts.
For contracts with fulfilment cash flows in multiple foreign currencies, the group is denominated in a single currency as defined by the
predominant cash flows.
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 represents the amount of risk being transferred by the
Company to the reinsurer.
Subsequent measurement
Subsequently, the carrying amount of a group of reinsurance contracts held at each reporting date is the sum of:
•
The asset for remaining coverage (“ARC”), which comprise the fulfilment cash flows that relate to services to be received under the
contracts in future periods, and any remaining CSM at that date; and
• The asset for incurred claims (“AIC”), which comprise the fulfilment cash flows for incurred claims and expenses that have not yet been
received.
If the underlying insurance contracts are onerous at inception and a reinsurance gain is recognized in income as described above, the
asset for remaining coverage is made up of a loss-recovery component and the ARC excluding the loss-recovery component. The loss-
recovery component reflects changes in the loss component of the underlying onerous insurance contracts and determines the amounts
that are subsequently presented in income or expenses as reversals of recoveries of losses from the reinsurance contracts held and are
excluded from the allocation of reinsurance premiums paid.
The Company adjusts the carrying amount of the CSM of a group of reinsurance contracts held to reflect changes in the fulfillment cash
flows applying the same approach as for insurance contracts issued, except:
•
Income recognized to cover the losses from onerous underlying contracts also adjusts the carrying amount of CSM;
• Reversals of the loss-recovery component, to the extent that those reversals are not changes in fulfilment cash flows of the group of
reinsurance contract held, also adjusts the carrying amount of CSM; and
• Changes in fulfilment cash flows related to future services also adjusts the carrying amount of CSM provided that changes in fulfillment
cash flows related to the group of underlying insurance contracts also adjust the CSM.
Where a loss component has been set up subsequent to initial recognition of a group of underlying insurance contracts, the reinsurance
gain that has been recognized adjusts the loss-recovery component of the reinsurance asset for remaining coverage. 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 is reduced to zero when the loss component of underlying insurance contracts is reduced to zero.
Reinsurance contracts held measured under the PAA model
Reinsurance contracts held may be classified and measured under the PAA model if they meet the eligibility requirements, which are
similar to the PAA requirements for direct insurance contracts.
For reinsurance contracts held applying the PAA model, 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
ARC as there is no CSM to adjust under PAA.
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 the case of modification, the Company derecognizes the initial contract
and recognizes the modified contract as a new contract.
Presentation and Disclosure
The Company has presented 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 result, which comprise insurance revenue and insurance service expenses, from the
investment result, which comprise insurance finance income or expenses in the Consolidated Statements of Income. IFRS 17 provides an option
to disaggregate the changes in risk adjustment between insurance service results and insurance finance income. The Company disaggregates
the change in risk adjustment for non-financial risk between the insurance service expenses and insurance finance income or expenses.
180
| 2023 Annual Report | Notes to Consolidated Financial Statements
Net insurance service result
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 insurance services for which the Company expects to
receive consideration. This insurance revenue comprises: (a) expected claims and other insurance expenses including policyholder taxes
where applicable; (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 insurance services in the period.
The insurance service expenses arising from insurance contracts are recognized in income or expenses generally as they are incurred and
excludes repayment of investment components. The insurance service expenses comprise: (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 within insurance service expense is equal to the recovery of insurance acquisition
cash flows in insurance revenue for contracts measured under the GMM and VFA. 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 held comprise 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
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 groups of insurance
contracts between income or expenses 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 the supporting financial assets. The impacts from differences between current period rates and
locked-in rates are presented in OCI.
The Company’s invested assets which are debt instruments (including bonds, private placements, mortgages, and loans) 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 is reflected in income or expenses 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 expected amounts paid to the policyholders.
•
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 policyholders, the Company systematically allocates expected total insurance finance income or expenses over the
duration of the group of contracts to income or expenses 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 income or expenses using either a constant rate, or an allocation that is based on the amounts
credited in the period and expected to be credited in future periods for fulfillment cash flows. The CSM accretion rate would use 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 income or expenses as insurance finance income or expense. There are no changes in the basis
of disaggregation of insurance finance income or expenses between income or expenses and OCI in the period.
(j) Investment contract liabilities
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 is made when these
liabilities as well as the related assets are managed, and their performance is evaluated, on a fair value basis or when doing so reduces the
accounting mismatches between assets supporting these contracts and the related policy liabilities. Investment contract liabilities are
derecognized when the contract expires, is discharged or is cancelled.
181
(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.
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 amortized cost or FVOCI. 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, when they are reclassified to income.
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.
(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.
182
| 2023 Annual Report | Notes to Consolidated Financial Statements
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, and 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.
To determine the Company’s net defined benefit asset or liability, the defined benefit obligations are deducted from the fair value of plan
assets. 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, changes in
the effect 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 employees’ years of service to retirement while the cost of retiree welfare
plans is recognized over the employees’ 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 exposure to different types of 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 that 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
183
the hedging instrument or the hedged item ceases 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 total investment result, 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 result 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 result over the remaining term of the hedged item
unless the hedged item ceases to exist, at which time the balance is recognized immediately in total investment result.
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 result. Gains and losses in 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 result, 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 result when the hedged item ceases 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 result 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 operation 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 operation are recognized in income upon disposal of the foreign operation or upon loss of control or significant influence over it.
(q) 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) IFRS 17 “Insurance Contracts”
IFRS 17 was issued in May 2017 to be effective for years beginning on January 1, 2021. Amendments to IFRS 17 were issued in June 2020
and included a two-year deferral of the effective date. IFRS 17 as amended, became 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” (“IFRS 4”) 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 were issued in December 2021 and were effective on initial application of IFRS 17 and IFRS 9 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 Company adopted IFRS 17 on January 1, 2023, with an effective date of January 1, 2022. The Company has prepared an opening
balance sheet as at January 1, 2022 under IFRS 17 in the Consolidated Statements of Financial Position. 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, have been recorded in opening retained earnings and accumulated other comprehensive income. Refer to note 25 for adoption
impact of IFRS 17.
The 2022 comparative figures and the opening Consolidated Statement of Financial Position as at January 1, 2022 as presented in these
Consolidated Financial Statements have been restated, where indicated, for the adoption of IFRS 17. For the Company’s accounting
policies for applying IFRS 17 to the Company’s insurance and reinsurance contracts, refer to note 1 (i) and (j).
(II) IFRS 9 “Financial Instruments” and IFRS 7 “Financial Instruments: Disclosures”
IFRS 9 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
184
| 2023 Annual Report | Notes to Consolidated Financial Statements
in October 2017 that are effective for annual periods beginning on or after January 1, 2019. In conjunction with the amendments to IFRS 17
issued in June 2020, the IASB amended IFRS 4 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” (“IAS 39”). IFRS 9 addresses accounting and
reporting principles for the classification and measurement of financial assets and financial liabilities, the impairment of financial assets
and hedge accounting. IFRS 7 “Financial Instruments: Disclosures” (“IFRS 7”) was amended in conjunction with IFRS 9 and IFRS 17, with
expanded qualitative and quantitative disclosures related to financial instruments and became effective along with IFRS 9 and IFRS 17 on
January 1, 2023.
The Company adopted IFRS 9 on January 1, 2023, as permitted under the June 2020 amendments to IFRS 4 “Insurance Contracts”. The
Company’s accounting policies for invested assets, and derivative and hedging instruments in accordance with IFRS 9 are presented in
note 1.
IFRS 9 does not require restatement of comparative periods and the Company has not done so. The Company elected the option under
IFRS 17 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 2022 comparatives in order to align with the classifications on initial application of IFRS 9 as at
January 1, 2023. These classification changes 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 under IFRS 9, respectively. For 2022 comparative information, the
Company did not apply IFRS 9’s ECL impairment model or hedge accounting principles. With respect to these matters, the guidance
contained in IAS 39 was maintained. In the case of assets previously classified as FVTPL under IAS 39 and classified as FVOCI or amortized
cost under IFRS 9, no IAS 39 impairment was calculated for these Consolidated Financial Statements.
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 classification changes
included approximately $184 billion of debt securities previously classified as FVTPL which were classified as FVOCI under IFRS 9.
The Company has elected to apply the hedge accounting requirements under IFRS 9 to all designated hedge accounting relationships
prospectively, with the exception to the cost of hedging guidance, that has been applied retrospectively for certain cash flow hedge and net
investment hedge relationships. As at January 1, 2023, all existing IAS 39 hedge accounting relationships were assessed and qualified for
hedge accounting under IFRS 9. These existing relationships are treated as continuing hedge accounting relationships under IFRS 9 on
January 1, 2023 and are disclosed with comparative information for 2022 under IAS 39. Refer to note 5.
The Company has designated new hedge accounting relationships with the objective to reduce potential accounting mismatches between
changes in the fair value of derivatives in income, and changes in fair value due to financial risk of insurance liabilities and financial assets
in OCI. The incremental notional of derivatives designated in new hedge accounting relationships amounted to $232,637 on transition
date. New hedge accounting relationships are effective prospectively on January 1, 2023.
The effects of adoption were as follows:
•
Effects from applying IFRS 17 asset classification changes among FVTPL, AFS and amortized cost under IAS 39 to FVOCI and FVTPL
under IFRS 9 resulted in a reduction in retained earnings of $10,645, net of tax, and an increase in OCI of $16,916, net of tax, as at
January 1, 2022 when IFRS 17’s transition option was elected. These were presented under “Opening adjustment of financial assets at
adoption of IFRS 9 / IFRS 17” in the Consolidated Statements of Changes in Equity.
• The adoption of IFRS 9 resulted in recognition of ECL of $724. Loss allowances when applied to assets held at amortized cost reduce
the carrying value of the assets and reduce equity. Loss allowances do not affect the fair value of assets held at FVOCI and therefore do
not affect their carrying value. Loss allowances for assets held at FVOCI do not change total equity, instead result in movement between
OCI and retained earnings.
• The impact of adopting IFRS 9’s ECL impairment methodology resulted in a reduction to retained earnings of $409, net of tax, and an
increase to AOCI of $408 net of tax, on January 1, 2023. This results from the derecognition of loss allowances in accordance with IAS
39, and the recognition of ECL on FVOCI assets with reductions in retained earnings and corresponding increases in AOCI. For financial
assets held at amortized cost and investment commitments, ECL was recognized with reductions in retained earnings.
• As at January 1, 2023, the retrospective application of IFRS 9 to the cost of hedging for currency basis spread resulted with a net $22
reclassification from cash flow hedge and foreign currency translation reserve to a new separate component of accumulated OCI, the
cost of hedging. Other IFRS 9 hedge accounting principles had $nil impact as at January 1, 2023 for these Consolidated Financial
Statements.
• The impact of changes made as at January 1, 2023 were presented under line items labeled “Opening adjustment of financial assets at
adoption of IFRS 9 / IFRS 17” in the Consolidated Statements of Changes in Equity.
The implementation of IFRS 9 has been incorporated into the Company’s Enterprise Risk Management Framework (“ERM”) and supervised
by the Executive Risk Committee (“ERC”). The integration of forward-looking information into the calculation of the ECL and the definition
and evaluation of what constitutes a significant increase in credit risk (“SICR”) of an investment are inherently subjective and involve the
use of significant judgement. Therefore, the Company has developed a front-to-back governance framework over the ECL calculation and
185
has designed controls and procedures to provide reasonable assurance that information is properly recorded. The Company has effective
credit risk management processes in place that continue to be applicable and aim to ensure that the effects of economic developments
are appropriately considered, mitigation actions are taken where required and risk appetite is reassessed and adjusted as needed.
The Company adopted IFRS 7 (as amended), which expanded qualitative and quantitative disclosures related to financial instruments on
January 1, 2023. Refer to notes 4, 5 and 9.
The following table illustrates the impact on loss allowances for invested assets on transition from the incurred loss impairment under
IAS 39 to the expected credit losses impairment allowance under IFRS 9.
Debt securities at FVOCI under IFRS 9
Private placements at FVOCI under IFRS 9
Private placements at amortized cost under IAS 39
Mortgages at FVOCI under IFRS 9
Mortgages at amortized cost under IAS 39
Other invested assets at FVOCI under IFRS 9
Financial assets at amortized cost under IFRS 9
Mortgages at amortized cost under IAS 39
Loans to Bank clients under IAS 39
Total on-balance sheet exposures
Allowance for credit losses on off-balance sheet exposures
Total
December 31, 2022
IAS 39
Impairment allowance
January 1, 2023
IFRS 9
ECL allowance
$
$
–
–
25
–
10
–
–
7
5
47
–
47
$
$
348
255
–
83
–
13
14
–
–
713
11
724
The following table shows financial liabilities under IAS 39 and the impact of classification and measurement changes on adoption of
IFRS 9.
Investment contract liabilities
Deposits from Bank clients
Derivative liabilities
Other liabilities
Long-term debt
Capital instruments
Total in-scope financial liabilities
Measurement
category
FVTPL
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
December 31, 2022
IAS 39
Total carrying value
Impact of classification and
measurement changes(1),(2)
January 1, 2023
IFRS 9
Total carrying value
$
796
2,452
22,507
14,289
17,421
6,234
6,122
$ 69,821
$
2
6,829
–
–
1,473
–
–
$ 8,304
$
798
9,281
22,507
14,289
18,894
6,234
6,122
$ 78,125
(1) Investment contract liabilities held at amortized cost of $6,829 were reclassified from insurance contract liabilities under IFRS 4.
(2) Other liabilities include amounts not in scope of IFRS 9, for example pension obligations. Other liabilities of $1,473 held at amortized cost under IFRS 9 were reclassified from
insurance contract liabilities under IFRS 4.
(III) Amendments to IAS 1 “Presentation of Financial Statements”
Amendments to IAS 1 “Presentation of Financial Statements” and IFRS Practice Statement 2 “Making Materiality Judgements” were issued
in February 2021 and are effective prospectively on or after January 1, 2023 with earlier application permitted. The amendments address
the process of selecting accounting policy disclosures, which will be based on assessments of the materiality of the accounting policies to
the entity’s financial statements. Adoption of these amendments did not have a significant impact on the Company’s Consolidated
Financial Statements.
(IV) Amendments to IAS 8 “Accounting Policies, Changes to Accounting Estimates and Errors”
Amendments to IAS 8 “Accounting Policies, Changes to Accounting Estimates and Errors” were issued in February 2021, and are effective
prospectively on or after January 1, 2023, with earlier application permitted. The amendments include new definitions of estimate and
change in accounting estimate, intended to help clarify the distinction among changes in accounting estimates, changes in accounting
policies, and corrections of errors. Adoption of these amendments did not have a significant impact on the Company’s Consolidated
Financial Statements.
(V) Amendments to IAS 12 “Income Taxes”
Amendments to IAS 12 “Income Taxes” were issued in May 2023. The amendments relate to the OECD’s International Pillar Two tax reform,
which seeks to establish a global minimum tax (“GMT”) of fifteen per cent and address inter-jurisdictional base erosion and profit shifting,
targeting larger international companies. Most jurisdictions have agreed to participate and effective dates for the GMT vary by jurisdiction
based on local legislation.
186
| 2023 Annual Report | Notes to Consolidated Financial Statements
The Amendments require that, effective for the year ended December 31, 2023, disclosure of current tax expense or recovery related to the
GMT is required along with, to the extent that the GMT legislation is enacted or substantively enacted but not yet in effect, disclosure of
known or reasonably estimable information that helps users of financial statements understand the Company’s exposure to the GMT arising
from that legislation. Certain jurisdictions in which the Company operates, including Ireland, Japan, Luxembourg, Netherlands, the United
Kingdom and Vietnam, have enacted legislation to adopt the GMT as of January 1, 2024. The assessment of the Company’s potential
exposure to the GMT is based on the most recent information available regarding the financial performance of the constituent entities in
these jurisdictions. Based on the assessment, the Company’s operations within these jurisdictions are not impacted by the GMT and
therefore no disclosure of current tax expense or recovery related to the GMT is provided.
The United States adopted a corporate alternative minimum tax (“CAMT”) of fifteen per cent, with an effective date of January 1, 2023.
CAMT is not a Qualifying Domestic Minimum Top-up Tax for the purposes of the GMT.
In response to the GMT, Bermuda enacted the Corporate Income Tax 2023 Act on December 27, 2023. The Company’s Bermuda tax-
resident subsidiaries and branches will be subject to this new tax regime effective January 1, 2025, at a rate of fifteen per cent. The
Bermuda corporate income tax is not a Qualifying Domestic Minimum Top-up Tax for the purposes of the GMT.
Countries without a qualified domestic minimum top-up tax of their own will be in scope for Canada’s global minimum tax calculations,
once enacted. The Company does not expect this will affect Manulife’s total global minimum tax exposure; however, it will dictate which
jurisdiction has the taxing right for local country income.
The Amendments introduce a temporary mandatory exception in IAS 12 from recognizing and disclosing deferred tax assets and liabilities
related to the GMT. The Company has applied the mandatory temporary exception from accounting for deferred taxes in respect of the
GMT.
Note 3 Acquisition
Manulife Fund Management Co., Ltd.
In November 2022, the Company acquired control of Manulife Fund Management Co., Ltd., formerly known as 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, and recognized $160 of tangible net
assets, $240 of intangible assets and $255 of goodwill in November 2022.
Note 4
Invested Assets and Investment Income
(a) Carrying values and fair values of invested assets
As at December 31, 2023
Cash and short-term securities(5)
Debt securities(6),(7)
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Mortgage / asset-backed securities
Public equities (FVTPL mandatory)
Mortgages
Private placements(7)
Loans to Bank clients
Real estate
Own use property(8),(9)
Investment property
Other invested assets
Alternative long-duration assets(10)
Various other(11)
Total invested assets
FVTPL(1)
1
$
FVOCI(2)
$ 13,993
Other(3)
$ 6,344
Total carrying
value
$ 20,338
Total fair
value(4)
$ 20,338
1,219
1,303
90
2,372
16
25,531
1,055
654
–
–
–
19,769
26,287
30,576
127,190
1,955
–
28,473
44,952
–
–
888
–
484
–
–
22,893
–
2,436
20,988
28,478
30,666
130,046
1,971
25,531
52,421
45,606
2,436
20,988
28,251
30,666
129,899
1,971
25,531
52,310
45,606
2,411
–
–
2,591
10,458
2,591
10,458
2,716
10,458
29,671
126
$ 62,038
360
–
$ 293,555
11,403
4,120
$ 61,617
41,434
4,246
$ 417,210
42,313
4,246
$ 417,704
1
87
As at December 31, 2022
Cash and short-term securities(5)
Debt securities(6),(7)
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Mortgage / asset-backed securities
Public equities (FVTPL mandatory)
Mortgages
Private placements(7)
Loans to Bank clients
Real estate
Own use property(8),(9)
Investment property
Other invested assets
Alternative long-duration assets(10)
Various other(11)
Total invested assets
FVTPL(1)
–
$
FVOCI(2)
$ 12,859
Other(3)
$ 6,294
Total carrying
value
$ 19,153
Total fair
value(4)
$ 19,153
987
1,378
159
2,209
22
23,519
1,138
516
–
–
–
20,279
22,446
26,314
126,371
2,266
–
28,621
41,494
–
–
–
–
912
–
499
–
–
22,006
–
2,781
2,852
11,417
21,266
24,736
26,473
129,079
2,288
23,519
51,765
42,010
2,781
21,266
24,494
26,473
128,910
2,288
23,519
51,372
42,010
2,760
2,852
11,417
3,008
11,417
26,938
130
$ 56,996
296
–
$ 280,946
11,226
4,213
$ 62,200
38,460
4,343
$ 400,142
39,225
4,343
$ 400,238
(1) FVTPL classification was elected for debt instruments backing certain insurance contract liabilities to substantially reduce any accounting mismatch arising from changes in
the fair value of these assets, or changes in the carrying value of the related insurance contract liabilities.
(2) FVOCI classification for debt instruments backing certain insurance contract liabilities inherently reduces any accounting mismatch arising from changes in the fair value of
these assets, or changes in the carrying value of the related insurance contract liabilities.
(3) Other includes mortgages and loans to Bank clients held at amortized cost, own use properties, investment properties, equity method accounted investments, and leveraged
(4)
(5)
leases. Also includes debt securities, which qualify as having SPPI, are held to collect contractual cash flows and are carried at amortized cost.
Invested assets above include debt securities, mortgages, private placements and approximately $360 (2022 – $302) of other invested assets, which primarily qualify as
SPPI. Invested assets which do not have SPPI qualifying cash flows as at December 31, 2023 include debt securities, private placements and other invested assets with fair
values of $nil, $115 and $539, respectively (2022 – $nil, $98 and $507, respectively). The change in the fair value of these invested assets for the year ended December 31,
2023 was $49 increase (2022 – $94 decrease). The methodologies used in determining fair values of invested assets are described in note 1 (c) and note 4 (g).
Includes short-term securities with maturities of less than one year at acquisition amounting to $6,162 (2022 – $4,148), cash equivalents with maturities of less than 90
days at acquisition amounting to $7,832 (2022 – $8,711) and cash of $6,344 (2022 – $6,294).
(6) Debt securities include securities which were acquired with maturities of less than one year and less than 90 days of $1,294 and $1,413, respectively (2022 – $1,787 and
$870, respectively).
(7) 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 and AUD BBSW of $167 and $16, respectively (2022 – $173 and $15, respectively), and private placements benchmarked to AUD BBSW and NZD
BKBM of $198 and $61, respectively (2022 – $199 and $43, respectively). USD LIBOR was decommissioned on June 30, 2023. Exposures indexed 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, 2023, the interest rate
benchmark reform has not resulted in significant changes in the Company’s risk management strategy.
Includes accumulated depreciation of $57 (2022 – $411).
(8)
(9) Own use property of $2,430 as at December 31, 2023 (December 31, 2022 – $2,682), are underlying items for insurance contracts with direct participating features and
are measured at fair value as if they were investment properties, as permitted by IAS 16. Own use property of $161 (December 31, 2022 – $170) is carried at cost less
accumulated depreciation and any accumulated impairment losses.
(10) ALDA include investments in private equity of $15,445, infrastructure of $14,950, timber and agriculture of $5,719, energy of $1,859 and various other ALDA of $3,461
(2022 – $14,153, $12,751, $5,979, $2,347 and $3,230, respectively).
(11) Includes $3,790 (2022 – $3,840) 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
Infrastructure
Timber and agriculture
Real estate
Other
Total
2023
2022
Carrying
value
$ 3,790
3,942
854
1,704
443
$ 10,733
% of total
Carrying
value
% of total
35
37
8
16
4
100
$ 3,840
3,298
822
1,876
487
$ 10,323
37
32
8
18
5
100
The Company’s share of profit from these investments for the year ended December 31, 2023 was $399 (2022 – $852).
188
| 2023 Annual Report | Notes to Consolidated Financial Statements
(c) Investment income
For the year ended December 31, 2023
Cash and short-term securities
Interest income
Gains (losses)(2)
Debt securities
Interest income
Gains (losses)(2)
Impairment loss, net(3)
Public equities
Dividend income
Gains (losses)(2)
Impairment loss, net(3)
Mortgages
Interest income
Gains (losses)(2)
Provision, net
Private placements
Interest income
Gains (losses)(2)
Impairment loss, net(3)
Loans to Bank clients
Interest income
Provision, net
Real estate
Rental income, net of depreciation(4)
Gains (losses)(2)
Impairment loss, net(3)
Derivatives
Interest income, net
Gains (losses)(2)
Other invested assets
Interest income
Energy, timber, agriculture and other income
Gains (losses)(2)
Impairment loss, net(3)
Total investment income (loss)
Investment income
Interest income
Dividends, rental income and other income
Impairments, provisions and recoveries, net(3)
Other
Realized and unrealized gains (losses) on assets supporting insurance and investment contract
liabilities
Debt securities
Public equities
Mortgages
Private placements
Real estate
Other invested assets
Derivatives
Total investment income (loss)
Investment expenses
Net investment income (loss)
FVTPL
FVOCI
Other(1)
Total
$
$
–
–
$
837
10
212
152
–
625
2,255
–
–
99
–
–
20
–
–
–
–
–
–
(561)
1,147
7,437
262
(4)
–
–
–
2,290
–
–
2,318
355
(72)
–
–
–
–
–
–
–
17
2,197
487
(74)
$ 6,576
23
–
–
–
$ 13,456
$
(332) $ 12,905
–
(76)
(12)
12,817
2,822
(74)
372
2,788
$
$
–
–
28
–
–
–
–
–
–
–
(150)
–
–
–
201
(3)
496
(1,286)
–
–
–
–
–
1
(1)
(714)
229
496
(154)
4
575
153
2,157
99
20
–
484
875
3,788
$ 6,576
277
–
–
355
–
7
–
639
$ 13,456
–
–
–
–
(1,289)
–
–
(1,289)
(714)
$
$
837
10
7,677
414
(4)
625
2,255
–
2,290
99
(150)
2,318
375
(72)
201
(3)
496
(1,286)
–
(561)
1,147
40
2,197
488
(75)
$ 19,318
$ 12,802
3,318
(304)
364
16,180
430
2,157
99
375
(1,289)
491
875
3,138
$ 19,318
(1,297)
$ 18,021
(1) Primarily includes investment income on loans carried at amortized cost, own use real estate properties, investment real estate properties, derivative and hedging instruments
in cash flow hedging relationships, equity method accounted investments, energy investments and leveraged leases.
(2) Includes net realized and unrealized gains (losses) for financial instruments at FVTPL, investment real estate properties, and other invested assets measured at fair value. Also
includes net realized gains (losses) for financial instruments at FVOCI and other invested assets carried at amortized cost.
(3) The Company adopted IFRS 9’s ECL impairment requirements as at January 1, 2023 without restating the comparative period. Impairments for 2023 are based on IFRS 9’s ECL
requirements and impairments for 2022 are based on IAS 39’s incurred loss impairment requirements.
(4) Rental income from investment real estate properties is net of direct operating expenses.
189
For the year ended December 31, 2022
Cash and short-term securities
FVTPL
FVOCI
Other(1)
Total
Interest income
Gains (losses)(2)
Debt securities
Interest income
Gains (losses)(2)
Impairment loss, net(3)
Public equities
Dividend income
Gains (losses)(2)
Impairment loss, net(3)
Mortgages
Interest income
Gains (losses)(2)
Provision, net
Private placements
Interest income
Gains (losses)(2)
Impairment loss, net(3)
Loans to Bank clients
Interest income
Provision, net
Real estate
Rental income, net of depreciation(4)
Gains (losses)(2)
Impairment loss, net(3)
Derivatives
Interest income, net
Gains (losses)(2)
Other invested assets
Interest income
Energy, timber, agriculture and other income
Gains (losses)(2)
Impairment loss, net(3)
Total investment income (loss)
Investment income
Interest income
Dividend, rental and other income
Impairments, provisions and recoveries, net(3)
Other
$
$
–
–
$
313
121
139
–
–
6,990
(1,050)
–
548
(3,995)
–
–
–
–
–
–
–
–
–
–
–
–
515
(10,639)
–
–
–
1,914
(52)
–
2,008
233
–
–
–
–
–
–
–
–
14
2,862
1,641
(74)
6
–
4
–
(8,989) $ 10,487
$
–
–
26
–
–
–
–
–
–
–
1
–
–
–
138
(4)
490
(591)
–
$
313
121
7,155
(1,050)
–
548
(3,995)
–
1,914
(52)
1
2,008
233
–
138
(4)
490
(591)
–
–
–
–
–
–
–
60
515
(10,639)
20
2,862
1,645
(74)
1,558
$
668
3,410
(74)
(121)
3,883
$ 11,231
–
–
(548)
10,683
$ 164
490
(3)
(13)
638
$ 12,063
3,900
(77)
(682)
15,204
$
$
Realized and unrealized gains (losses) on assets supporting insurance and investment contract
liabilities
Debt securities
Public equities
Mortgages
Private placements
Real estate
Other invested assets
Derivatives
Total investment income (loss)
Investment expenses
Net investment income (loss)
Note: For footnotes (1) to (4), refer to the “Investment income” table for the year ended December 31, 2023 above.
–
(3,825)
–
–
–
1,665
(10,712)
(12,872)
(504)
–
(52)
234
–
126
–
(196)
(8,989) $ 10,487
–
–
–
–
(578)
–
–
(578)
60
$
$
(504)
(3,825)
(52)
234
(578)
1,791
(10,712)
(13,646)
1,558
(1,221)
337
$
$
190
| 2023 Annual Report | Notes to Consolidated Financial Statements
(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
2023
2022
$
720
577
$ 1,297
$
679
542
$ 1,221
2023
2022
$ 840
(473)
$ 367
$ 825
(458)
$ 367
(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 these securitizations include interest spread between the assets and associated liabilities. 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 liabilities. For CMB
transactions, receipts of principal are deposited into a trust account for settlement of the liabilities at time of maturity. These transferred
assets and related cash flows cannot be further transferred or used for other purposes by the Company. For 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 periods of the transactions and are accumulated for settlement during accumulation periods or repaid to the investors
monthly during reduction periods, based on the terms of the notes.
Securitized assets and secured borrowing liabilities
As at December 31, 2023
Securitization program
HELOC securitization(1)
CMB securitization(3)
Total
As at December 31, 2022
Securitization program
HELOC securitization(1)
CMB securitization(3)
Total
Securitized
mortgages
$ 2,880
2,900
$ 5,780
Securitized
mortgages
$ 2,880
2,318
$ 5,198
Securitized assets
Restricted cash and
short-term securities
$ 32
–
$ 32
Securitized assets
Restricted cash and
short-term securities
$ 44
–
$ 44
Total
$ 2,912
2,900
$ 5,812
Total
$ 2,924
2,318
$ 5,242
Secured borrowing
liabilities(2)
$ 2,750
2,806
$ 5,556
Secured borrowing
liabilities(2)
$ 2,750
2,273
$ 5,023
Net
$ 162
94
$ 256
Net
$ 174
45
$ 219
(1) Manulife Bank, a subsidiary, securitizes a portion of its HELOC receivables through 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 liabilities.
(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, principal of $27 is expected to be repaid
within one year, $1,973 within 1-3 years, $750 within 3-5 years and $nil beyond 5 years, respectively (2022 – $nil, $1,209, $1,049 and $492, respectively). 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.
(3) 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, 2023, the fair value of securitized assets and associated liabilities were $5,782 and $5,456, respectively (2022 –
$5,167 and $4,865, respectively).
191
(g) Fair value measurement
The following table presents fair values and the fair value hierarchy of invested assets and segregated funds net assets measured at fair
value in the Consolidated Statements of Financial Position.
As at December 31, 2023
Cash and short-term securities
FVOCI
FVTPL
Other
Debt securities
FVOCI
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
FVTPL
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Commercial mortgage-backed securities
Other asset-backed securities
Private placements(1)
FVOCI
FVTPL
Mortgages
FVOCI
FVTPL
Public equities
FVTPL
Real estate(2)
Investment property
Own use property
Other invested assets(3)
Segregated funds net assets(4)
Total
–
–
–
–
–
10
231
–
–
21
–
–
–
–
–
–
Total fair value
Level 1
Level 2
Level 3
$
$ 13,993
1
6,343
–
–
6,343
$ 13,993
1
–
$
19,769
26,287
30,566
126,959
6
370
1,558
1,219
1,303
90
2,372
1
15
19,769
26,287
30,576
127,190
6
370
1,579
1,219
1,303
90
2,372
1
15
44,952
654
28,473
1,055
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,531
25,423
37,270
575
7,682
79
–
–
67
28,473
1,055
41
10,458
2,430
33,653
377,544
$ 755,864
–
–
68
343,061
$ 374,895
–
–
–
30,991
$ 293,412
10,458
2,430
33,585
3,492
$ 87,557
(1) Fair value of private placements is determined through an internal valuation methodology using both observable and non-market observable inputs. Non-market observable
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.
(2) For real estate properties, the significant non-market observable inputs are capitalization rates ranging from 2.72% to 10.75% during the year ended December 31, 2023
(2022 – ranging from 2.25% to 9.00%), terminal capitalization rates ranging from 3.00% to 10.00% during the year ended December 31, 2023 (2022 – ranging from 3.25%
to 9.50%) and discount rates ranging from 3.20% to 14.00% during the year ended December 31, 2023 (2022 – ranging from 3.30% to 11.00%). Holding other factors
constant, a lower capitalization or terminal capitalization rate will tend to increase the fair value of an investment property. Changes in fair value based on variations in non-
market observable inputs generally cannot be extrapolated because the relationship between the directional changes of each input is not usually linear.
(3) Other invested assets measured at fair value are held in infrastructure and timber sectors and include fund investments of $27,532 recorded at net asset value. 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 ended December 31, 2023 ranged from 7.35% to 15.60% (2022 – ranged from 7.15% to 15.60%).
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 properties 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 ended December 31, 2023 ranged
from 4.00% to 7.00% (2022 – ranged from 4.25% to 7.00%). 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.
(4) Segregated funds net assets are measured at fair value. The Company’s Level 3 segregated funds underlying assets are predominantly investment properties and timberland
properties valued as described above.
192
| 2023 Annual Report | Notes to Consolidated Financial Statements
As at December 31, 2022
Cash and short-term securities
FVOCI
Other
Debt securities
FVOCI
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
FVTPL
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Commercial mortgage-backed securities
Other asset-backed securities
Private placements(1)
FVOCI
FVTPL
Mortgages
FVOCI
FVTPL
Public equities
FVTPL
Real estate(2)
Investment property
Own use property
Other invested assets(3)
Segregated funds net assets(4)
Total
Total fair value
Level 1
Level 2
Level 3
$ 12,859
6,294
$
–
6,294
$ 12,859
–
$
20,279
22,446
26,314
126,371
7
589
1,670
987
1,378
159
2,209
6
16
41,494
516
28,621
1,138
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23,519
23,448
20,279
22,446
26,305
126,339
7
589
1,644
987
1,378
159
2,209
6
16
33,666
485
–
–
–
–
–
–
–
9
32
–
–
26
–
–
–
–
–
–
7,828
31
28,621
1,138
71
11,417
2,682
31,095
348,562
$ 710,628
–
–
26
314,436
$ 344,204
–
–
–
30,141
$ 279,515
11,417
2,682
31,069
3,985
$ 86,909
Note: For footnotes (1) to (4), refer to the “Fair value measurement” table as at December 31, 2023 above.
The following table presents fair value of invested assets not measured at fair value by the fair value hierarchy.
As at December 31, 2023
Short-term securities
Mortgages(1)
Loans to Bank clients(2)
Real estate – own use property(3)
Public bonds held at amortized cost
Other invested assets(4)
Total invested assets disclosed at fair value
As at December 31, 2022
Mortgages(1)
Loans to Bank clients(2)
Real estate – own use property(3)
Public bonds held at amortized cost
Other invested assets(4)
Total invested assets disclosed at fair value
$
Carrying value
1
22,893
2,436
161
1,372
12,027
$ 38,890
Carrying value
$ 22,006
2,781
170
1,411
11,708
$ 38,076
$
Total fair value
1 $
22,782
2,411
286
998
12,906
$ 39,384
Total fair value
$ 21,613
2,760
326
1,000
12,473
$ 38,172
–
Level 1
–
–
–
–
240
$ 240
Level 1
–
$
–
–
–
72
$ 72
$
Level 2
1 $
–
2,411
–
998
–
$ 3,410
$
Level 2
–
2,760
–
1,000
–
$ 3,760
Level 3
–
22,782
–
286
–
12,666
$ 35,734
Level 3
$ 21,613
–
326
–
12,401
$ 34,340
(1) Fair value of commercial mortgages is determined through an internal valuation methodology using both observable and non-market observable inputs. Non-market observable
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 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.
(3) Fair value of own use real estate and the fair value hierarchy are determined in accordance with the methodologies described for real estate – investment property in note 1(e).
(4) Primarily includes leveraged leases of $3,790 (2022 – $3,840), 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 energy 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.
193
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. During the year ended December 31, 2023, the Company had $nil of transfers
between Level 1 and Level 2 (2022 – $nil).
For segregated funds net assets, during the year ended December 31, 2023, the Company had $nil transfers from Level 1 to Level 2
(2022 – $nil). During the year ended December 31, 2023, the Company had $nil transfers from Level 2 to Level 1 (2022 – $nil).
Invested assets and segregated funds net assets measured at fair value using significant non-market observable 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, significant non-market observable inputs are used to determine fair value. The Company
prioritizes the use of market-based inputs over non-market observable inputs in determining Level 3 fair values. The gains and losses in the
table below include the changes in fair value due to both observable and non-market observable factors.
The following table presents the movement in invested assets, net derivatives and segregated funds net assets measured at fair value
using significant non-market observable inputs (Level 3) for the year ended December 31, 2023 and 2022.
Total
gains
(losses)
included
in net
income(1)
Total
gains
(losses)
included
in AOCI(2) Purchases
Balance,
January 1,
2023
Sales Settlements
Transfer
in(3)
Transfer
out(3),(4)
Currency
movement
Change in
unrealized
gains
(losses) on
assets still
held
Balance,
December 31,
2023
$
9 $
32
26
71
– $
–
–
– $
3
1
2 $
178
–
– $
–
–
– $
(7)
(5)
– $
25
–
– $
–
–
–
–
37
–
–
–
(67)
(1) $
10 $
–
(1)
–
231
21
41
7,828
31
(4)
44
258
–
1,942
17
(497)
–
(1,172) 2,546
34
(1)
(2,907)
(47)
(312)
1
7,682
79
–
–
–
–
–
44
28,621
1,138
11,417
2,682
31,069
82,924
(3,188)
830
65
–
37
–
(1,054)
–
(234)
423
7
(723) 1,099
–
(144)
1,984
160
416
20
4,760
9,516
–
(1,626)
(239 )
(122)
–
(522)
(3,006)
–
–
(856)
–
(39)
–
–
–
–
(1,219)
–
(3,299) 2,605
–
960
–
–
–
–
(68)
(3,089)
165
(545)
(2)
(199)
(38)
(865)
(1,962)
41
28,473
1,055
10,458
2,430
33,585
84,065
(2,166)
–
–
(1,055)
(234)
647
(598)
17
3,985
$ 83,721 $
(97)
(49)
(964) $ 1,099 $ 9,626 $ (3,472) $ (2,315) $ 2,605 $ (2,939) $ (1,970)
(466)
(15)
110
24
–
–
3,492
$ 85,391 $
32
(549)
For the year ended
December 31, 2023
Debt instruments
FVOCI
Other government & agency
Corporate
Other securitized assets
Public equities
FVTPL
Private placements
FVOCI
FVTPL
Mortgages
FVOCI
FVTPL
Investment property
Own use 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 Investment income related to 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.
(4) Private placement bonds of $1,771 with maturity dates beyond 30 years were reclassed from Level 3 to Level 2 in the current period to align with the fair value leveling
treatment of public bonds.
194
| 2023 Annual Report | Notes to Consolidated Financial Statements
For the year ended
December 31, 2022
Debt instruments
FVOCI
Other government & agency
Corporate
Other securitized assets
Public equities
FVTPL
Private placements
FVOCI
FVTPL
Mortgages
FVOCI
FVTPL
Investment property
Own use property
Other invested assets
Total invested assets
Derivatives, net
Segregated funds net assets
Total
Total gains
(losses)
included in
net
income(1)
Balance,
January 1,
2022
Total gains
(losses)
included in
AOCI(2) Purchases
Sales Settlements
Transfer
in(3)
Transfer
out(3)
Currency
movement
Balance,
December 31,
2022
Change in
unrealized
gains
(losses) on
assets still
held
$
– $
41
28
–
$
–
–
–
– $
(1)
2
(6)
–
– $
27
–
69
5,136
30
(9)
(7)
(1,453)
–
1,697
–
(84)
(89)
–
– $
–
–
– $
(1)
(4)
9 $
6
–
– $
(42)
–
–
87
–
–
2
–
5
$
9 $
32
26
71
(188) 2,876
9
(1)
(362)
–
220
–
7,828
31
–
–
–
(13)
–
(7)
(4,692)
–
–
–
5
31,798
1,203
11,443
2,661
24,884
77,224
2,101
4,281
1,248
2
325
136
1,247
(404) 3,185
(163)
(356)
143
(1)
$ 83,606 $ (3,798) $ (6,146) $ 10,821 $ (4,624) $ (1,779) $ 3,237 $ (761) $ 3,165
3,511
110
312
20
4,938
(6,139) 10,684
(109)
246
–
(757)
–
(38)
17
–
(15)
–
248
(1,519)
(2,508) 3,237
–
–
(2,411)
(22)
(237)
–
(668)
(3,511)
–
(1,113)
(76)
(117)
(443)
(120)
1,934
1,156
(5,429)
475
775
(46)
–
–
–
–
–
(7)
–
28,621
1,138
11,417
2,682
31,069
82,924
(3,188)
3,985
–
–
(445)
(120)
2,057
1,472
(3,527)
79
$ 83,721 $ (1,976)
Note: For footnotes (1) to (4), refer to the “Invested assets and segregated funds net assets measured at fair value using significant non-market observable inputs (Level 3)” table
for the year ended December 31, 2023 above.
Transfers into Level 3 primarily result from securities that were impaired during the periods 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.
(h) Remaining term to maturity
The following table presents remaining term to maturity for invested assets.
As at December 31, 2023
Cash and short-term securities
Debt securities
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Mortgage / asset-backed securities
Public equities
Mortgages
Private placements
Loans to Bank clients
Real estate
Own use property
Investment property
Other invested assets
Remaining terms to maturities(1)
Less than
1 year
1 to 3
years
3 to 5
years
5 to 10
years
Over 10
years
With no
specific
maturity
Total
$ 20,338
$
–
$
–
$
–
$
–
$
–
$ 20,338
657
297
412
8,475
106
–
3,363
1,418
39
–
–
1,435
725
1,052
15,512
153
–
12,076
3,486
23
1,580
744
1,892
18,548
279
–
10,181
4,704
1
3,656
4,504
3,864
33,361
556
–
7,690
9,137
–
13,660
22,208
23,446
54,100
877
–
9,644
26,790
–
–
–
–
50
–
25,531
9,467
71
2,373
20,988
28,478
30,666
130,046
1,971
25,531
52,421
45,606
2,436
–
–
–
–
–
–
–
–
2,591
10,458
2,591
10,458
Alternative long-duration assets
Various other(2)
Total invested assets
–
–
$ 35,105
67
–
$ 34,529
22
19
$ 37,970
82
1,528
$ 64,378
732
2,242
$ 153,699
40,531
457
$ 91,529
41,434
4,246
$ 417,210
(1) Represents contractual maturities. Actual maturities may differ due to prepayment privileges in the applicable contract.
(2) Primarily includes equity method accounted investments and leveraged leases.
195
As at December 31, 2022
Cash and short-term securities
Debt securities
Canadian government and agency
U.S. government and agency
Other government and agency
Corporate
Mortgage / asset-backed securities
Public equities
Mortgages
Private placements
Loans to Bank clients
Real estate
Own use property
Investment property
Other invested assets
Remaining terms to maturities(1)
Less than
1 year
1 to 3
years
3 to 5
years
5 to 10
years
Over 10
years
With no
specific
maturity
Total
$ 19,153
$
–
$
–
$
–
$
–
$
–
$ 19,153
738
380
457
8,599
6
–
3,288
1,485
40
–
–
1,242
775
753
14,542
89
–
7,838
2,962
18
2,536
505
1,490
16,767
265
–
10,911
4,090
5
3,811
3,560
3,801
36,778
574
–
7,906
7,958
–
12,939
19,516
19,972
52,392
1,354
–
11,629
25,440
2
–
–
–
1
–
23,519
10,193
75
2,716
21,266
24,736
26,473
129,079
2,288
23,519
51,765
42,010
2,781
–
–
–
–
–
–
–
–
2,852
11,417
2,852
11,417
Alternative long-duration assets
Various other(2)
Total invested assets
1
105
$ 34,252
46
–
$ 28,265
22
19
$ 36,610
35
509
$ 64,932
674
3,206
$ 147,124
37,682
504
$ 88,959
38,460
4,343
$ 400,142
Note: For footnotes (1) to (2), refer to the “Remaining term to maturity” table as at December 31, 2023 above.
Note 5 Derivative and Hedging Instruments
Derivatives are financial contracts, the value of which is derived from a variety of factors described in note 5 (a). 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 exposure to different types of
investments.
Swaps are 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 note 9 (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 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, foreign exchange rates, financial indices, commodity prices or indices, credit spreads, default risk (including the
counterparties to the contract), and market volatility. The significant inputs to the pricing models for most 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 exchange rates and interest rate curves. However, certain 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 non-market observable inputs
may involve significant management judgment or estimation. Even though non-market observable, 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 derivatives after considering the
effects of netting agreements and collateral arrangements.
196
| 2023 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.
2023
Fair value
Assets
Liabilities
2022
Fair value
Assets
Liabilities
Notional
amount
As at December 31,
Type of hedge
Instrument type
Qualifying hedge accounting relationships
Fair value hedges
Interest rate swaps
Cash flow hedges
Foreign currency swaps
Forward contracts
Interest rate swaps
Foreign currency swaps
Forward contracts
Equity contracts
Net investment hedges
Forward contracts
Total derivatives in qualifying hedge accounting relationships
Derivatives not designated in qualifying hedge accounting
relationships
Notional
amount
$ 184,309
9,055
23,461
8,372
1,150
–
240
654
227,241
$ 2,627
78
165
20
35
–
3
–
2,928
$ 3,044
1,518
2,672
48
181
–
–
16
7,479
$–
$
–
$
48
–
–
1,155
–
173
626
2,002
268,081
11,772
6,090
39,667
2,319
45,124
16,930
159
3,813
5
–
–
40
–
3
–
48
5,751
–
98
2,029
–
295
363
4
–
–
–
–
–
203
–
–
28
231
7,557
–
–
1,579
–
4,697
225
–
–
Interest rate swaps
Interest rate futures
Interest rate options
Foreign currency swaps
Currency rate futures
Forward contracts
Equity contracts
Credit default swaps
Equity futures
103,806
9,449
5,841
33,148
2,581
34,080
19,760
131
4,040
2,361
–
33
1,873
–
769
579
3
–
3,098
–
–
398
–
597
115
–
–
Total derivatives not designated in qualifying hedge accounting
relationships
Total derivatives
212,836
$ 440,077
5,618
$ 8,546
4,208
$ 11,687
393,955
$ 395,957
8,540
$ 8,588
14,058
$ 14,289
The total notional amount above includes $79 billion (December 31, 2022 – $211 billion) of derivative instruments which reference rates
that are impacted under the interest rate benchmark reform, with a significant majority to CDOR. USD LIBOR was decommissioned on
June 30, 2023. Exposures indexed to CDOR represent derivatives with a maturity date beyond June 28, 2024. Upon adoption of IFRS 9,
the Company designated additional existing derivatives in hedge accounting relationships. The exposure in the Company’s hedge
accounting programs is primarily to the CDOR benchmark. 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 (g)).
As at December 31, 2023
Derivative assets
Derivative liabilities
As at December 31, 2022
Derivative assets
Derivative liabilities
Remaining term to maturity
Less than
1 year
$ 1,189
1,561
1 to 3
years
$
603
1,982
$
3 to 5
years
573
717
Over 5
years
Total
$ 6,181
7,427
$ 8,546
11,687
Remaining term to maturity
Less than
1 year
$
580
2,656
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
197
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.
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)
As at December 31, 2023
Interest rate contracts
OTC swap contracts
Cleared swap contracts
Forward contracts
Futures
Options purchased
Subtotal
Foreign exchange
Swap contracts
Forward contracts
Futures
Subtotal
Credit derivatives
Equity contracts
Swap contracts
Futures
Options purchased
Subtotal
Subtotal including accrued
interest
Less accrued interest
Total
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
Subtotal
Credit derivatives
Equity contracts
Swap contracts
Futures
Options purchased
Subtotal
Subtotal including accrued
interest
Less accrued interest
Total
$ 7
–
–
–
–
7
19
–
–
19
–
–
–
2
2
28
–
$ 28
$ 4,645
4,634
17,809
9,449
795
37,332
2,110
24,204
2,581
28,895
14
1,452
4,040
14,830
20,336
$ 5,295 $
$ 20,923 $ 106,445 $ 132,013
164,474
126,758
33,991
–
9,449
–
5,841
3,684
345,768
236,887
33,082
16,182
–
1,362
71,549
11,782
–
–
11,782
117
723
–
2,995
3,835
29,461
–
–
29,461
–
–
–
–
–
43,353
24,204
2,581
70,138
131
2,175
4,040
17,825
24,171
(6,850) $ (1,555) $ 300
–
–
–
8
308
40
(2,215)
–
33
(3,697)
(180)
(2,986)
–
–
(10,016)
(2,179)
(299)
–
(2,478)
–
(78)
–
(28)
(106)
(201)
(136)
–
(337)
4
(60)
–
534
478
1,087
19
–
1,106
–
32
–
215
247
86,563
–
440,077
–
$ 86,563 $ 87,166 $ 266,348 $ 440,077
266,348
–
87,166
–
9,044
498
1,661
–
$ 8,546 $ (11,687) $ (3,141) $ 1,661
(12,600)
(913)
(3,556)
(415)
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)
$ 5,992 $
$ 8,817 $ 19,253
16,823
13,926
–
1,069
51,071
2,494
14,290
11,772
1,199
38,572
2,026
17,336
2,319
21,681
15
547
3,813
12,634
17,009
10,475
–
–
10,475
144
396
–
3,526
4,066
$ 98,380 $ 126,450
141,631
28,414
11,772
6,090
314,357
122,314
198
–
3,822
224,714
28,369
–
–
28,369
–
40,870
17,336
2,319
60,525
159
–
–
–
–
943
3,813
16,160
21,075
(8,135) $ (2,143) $ 419
–
8
–
64
491
35
(4,398)
–
98
(6,408)
(219)
(4,468)
–
–
(12,822)
(1,846)
(258)
–
(2,104)
–
(7)
–
(218)
(225)
221
(32)
–
189
4
19
–
117
140
1,166
89
–
1,255
–
24
–
232
256
$ 9
–
–
–
4
13
23
–
–
23
–
–
–
2
2
220
771
–
33
6,319
1,978
163
–
2,141
4
18
–
562
584
254
70
–
98
6,414
2,067
226
–
2,293
4
26
–
335
365
77,262
–
$ 77,262
65,612
–
253,083
–
$ 65,612 $ 253,083
395,957
–
$ 395,957
9,072
484
(15,151)
(862)
$ 8,588 $ (14,289)
(6,079)
(378)
2,002
–
$ (5,701) $ 2,002
38
–
$ 38
(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 the Office of the Superintendent of Financial Institutions (“OSFI”).
(2) Capital requirement represents the credit equivalent amount, weighted according to the creditworthiness of the counterparty, as prescribed by OSFI.
198
| 2023 Annual Report | Notes to Consolidated Financial Statements
The total notional amount of $440 billion (2022 – $396 billion) includes $82 billion (2022 – $77 billion) related to derivatives utilized in
the Company’s variable annuity guarantee dynamic hedging. Due to the Company’s variable annuity hedging practices, many trades are in
offsetting positions, resulting in materially lower net fair value exposure for the Company than what the gross notional amount would
suggest.
The following table presents the average rate of the hedging instruments in hedge relationships that do not frequently reset:
As at December 31, 2023
Hedged item
Hedging instrument
Average rate
Inflation risk
Inflation linked insurance
Remaining term to maturity
(notional amounts)
Under
1 year
1 to 5
years
Over
5 years
Fair value
Total
Positive Negative
Net
liabilities
Interest rate swaps
CPI rate: 290.13
$ 87 $ 459 $ 7,826 $ 8,372
$ 20 $
(48) $
(28)
Foreign currency swaps SGD/CAD: 0.93503
500
–
–
500
35
–
35
Foreign currency swaps CAD/USD: 0.86655
through OCI
Foreign currency swaps CAD/USD: 1.22914
Equity risk
Stock-based compensation
Total
As at December 31, 2022
Equity contracts
MFC price: $26.28
Hedged item
Hedging instrument
Average rate
–
–
–
650
650
46
–
46
–
5
(181)
(181)
–
5
11
240
$ 598 $ 734 $ 8,476 $ 9,808
229
–
3
3
$ 63 $ (229) $ (166)
–
Remaining term to maturity
(notional amounts)
Under
1 year
1 to 5
years
Over
5 years
Fair value
Total
Positive Negative
Net
Foreign currency swaps SGD/CAD: 0.93503 $
– $ 505 $
– $
505
$ 40 $
– $
40
Foreign exchange risk
Fixed rate liabilities
Foreign exchange and
interest rate risk
Floating rate foreign
currency liabilities
Debt securities at fair value
Foreign exchange risk
Fixed rate liabilities
Foreign exchange and
interest rate risk
Floating rate foreign
currency liabilities
Debt securities at fair value
Foreign currency swaps CAD/USD: 0.86655
–
–
–
650
650
48
–
48
–
5
(203)
(203)
–
5
through OCI
Foreign currency swaps CAD/USD: 1.22914
Equity risk
Stock-based compensation
Total
Equity contracts
MFC price: $25.39
164
9
9 $ 717 $
–
173
650 $ 1,376
$
Fair value and the fair value hierarchy of derivative instruments
3
3
$ 48 $ (203) $ (155)
–
As at December 31, 2023
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
$ 5,813
2,148
582
3
$ 8,546
$ 9,176
2,396
115
$ 11,687
$
$
$
$
–
–
–
–
–
–
–
–
–
$ 5,262
2,148
572
3
$ 7,985
$
$
551
–
10
–
561
$ 6,451
2,395
114
$ 8,960
$ 2,725
1
1
$ 2,727
199
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
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
$
$
153
1
5
–
159
$ 8,689
2,037
216
$ 10,942
$ 3,336
2
9
$ 3,347
Movement in net derivatives measured at fair value using significant non-market observable inputs (Level 3) is presented in note 4 (g).
(b) Hedging relationships
The Company uses derivatives for economic hedging purposes. In certain circumstances, these derivatives meet the requirements of
hedge accounting and designating them in qualifying hedge accounting relationships achieves the desired IFRS presentation. Risk
management strategies eligible for hedge accounting are designated as fair value hedges, cash flow hedges or net investment hedges.
At the inception of a hedge accounting relationship, the Company documents the relationship between hedging instrument and hedged
item, its risk management objective, and its strategy for undertaking the hedge. At hedge inception and on an ongoing basis, an
assessment is performed and documented to demonstrate that the hedging relationship qualifies or continues to qualify for hedge
accounting. In order to qualify for hedge accounting, there has to be an economic relationship between the hedging instrument and the
hedged item, an assessment that the effect of credit risk does not dominate the economic relationship, and the hedge ratio between the
hedging instrument and the hedged item will be based on the approach used by risk management, unless the hedge ratio used by risk
management results in an imbalance that would create hedge ineffectiveness that is inconsistent with the purpose of hedge accounting.
• The Company designates a specific risk component or a combination of risk components as the hedged risk, including benchmark
interest rate, foreign exchange rate, equity price and consumer price index components. All these risk components are observable in
the relevant market environment and the changes in fair value or variability in cash flows attributable to these risk components can be
reliably measured for hedged items. The hedged risk is generally the most significant risk component of the overall changes in fair value
or in cash flows. The Company acquires derivatives for economic hedging purposes with underlying characteristics that offset the
hedged risk based on the risk management strategy.
• The Company executes hedging derivatives with counterparties with high credit quality and monitors the creditworthiness of the
counterparties to ensure they are expected to meet cash flow obligations on the hedging instruments as they come due, and that the
probability of counterparty default is remote. Further, changes in the Company’s own credit risk are immaterial and have insignificant
impact to the hedging relationships.
• A hedge ratio is calculated as the ratio between the quantity of the hedged item that the Company hedges and the quantity of the
hedging instrument the Company uses to hedge that quantity of hedged item.
O
For group fair value hedges of interest rate risk of insurance liabilities and group fair value hedges of foreign exchange and interest
rate risk of foreign currency denominated debt instruments, the Company constructs the hedge relationship by comparing interest
rate sensitivities of the group of hedging derivatives and the group of hedged items in the same currency. Interest rate sensitivities
are compared by estimating the change in the present value of cash flows of hedged items and of hedging derivatives from an
instantaneous shock to interest rates, assuming no rebalancing actions are undertaken.
O
For the rest of the Company’s hedge accounting relationships, the Company generally constructs the hedge relationships by
comparing the notional amounts of the hedging derivatives with that of the hedged items.
Hedge ineffectiveness in various hedging relationships may still exist and potential sources of hedge ineffectiveness by risk category are
summarized as below:
Mismatches in some critical terms of hedging instrument and hedged item
Differences in valuation methodologies including discounting factor
Changes in timing and amount of forecasted hedged items
Differences due to the use of non-zero fair value hedging instruments
Interest
rate risk
✓
✓
✓
Foreign
currency
risk
✓
✓
✓
✓
Equity
risk
✓
Consumer
price index
risk
✓
✓
✓
Hedging relationships that frequently reset
The Company uses a portfolio of derivatives as a fair value hedge of foreign exchange rate and interest rate fluctuations of fixed rate debt
instruments denominated in non-functional currencies, as well as interest rate fluctuations of guaranteed insurance liabilities. The risk
200
| 2023 Annual Report | Notes to Consolidated Financial Statements
management objective is to hedge these foreign exchange and interest rate fluctuations with a hedge horizon of three months. At the end
of each hedge horizon, the hedging relationships mature; and new fair value hedging relationships are designated with a newly designated
pool of hedging instruments and hedged items.
Fair value hedges
The Company uses interest rate swaps to manage its exposure to changes in the fair value of fixed rate financial instruments and
guaranteed insurance liabilities 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 total investment result.
These investment gains (losses) are shown in the following table.
For the year ended
December 31, 2023
Assets
Interest rate risk
Change in value
of the hedged
item for
ineffectiveness
measurement
Change in value
of the hedging
instrument for
ineffectiveness
measurement
Ineffectiveness
recognized in
Total investment
result
Carrying
amount for
hedged
items(1)
Accumulated fair
value
adjustments on
hedged items
Accumulated fair
value adjustments
on de-designated
hedged items
Debt securities at FVOCI
$
–
$
–
$
–
$
–
$
–
$
241
Foreign currency and interest rate risk
Debt securities at FVOCI
Total assets
Liabilities
Interest rate risk
742
$ 742
(778)
$ (778)
(36)
$ (36)
9,191
$ 9,191
576
576
$
(405)
(164)
$
Insurance contract liabilities
Total liabilities
$
$
(53)
(53)
$ 185
$ 185
$ 132
$ 132
$ 29,133
$ 29,133
$ (2,658)
$ (2,658)
$ 2,642
$ 2,642
For the year ended
December 31, 2022
Assets(2)
Interest rate risk
Change in value
of the hedged
item for
ineffectiveness
measurement
Change in value
of the hedging
instrument for
ineffectiveness
measurement
Ineffectiveness
recognized in
Total investment
result
Carrying
amount for
hedged
items
Accumulated fair
value
adjustments on
hedged items
Accumulated fair
value adjustments
on de-designated
hedged items
Debt securities at FVOCI
Foreign currency and interest rate risk
Debt securities at FVOCI
Total assets
Total liabilities
$
$
$
–
7
7
–
$
–
$
–
$
–
$
(5)
$
(5)
$
–
2
2
–
$
$
31
31
–
$
$
$
7
$
–
7
–
$
265
–
265
–
$
$
(1) The carrying amounts for hedged items presented are related to hedged items in active hedging relationships as at the reporting date. Out of the $9,191 related to assets,
$9,160 relates to new hedge relationships designated under IFRS 9 and accordingly, no amounts related to these new hedge relationships are presented for the comparative
period. Further, $29,133 related to liabilities are new hedge relationships designated under IFRS 9 and accordingly, no amounts related to these new hedge relationships are
presented for the comparative period.
(2) Represents hedge relationships previously designated under IAS 39.
Cash flow hedges
The Company uses interest rate swaps to hedge the variability in cash flows from variable rate financial instruments and from 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.
201
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. The effective portion of the change in fair value of hedging instruments
associated with the Consumer Price Index (“CPI”) cash flow hedge accounting program is presented in AOCI, in the same line as the
hedged item – Insurance finance income (expenses). The accumulated other comprehensive income (loss) balances of $(149) as at
December 31, 2023 (2022 – $(85)) are all related to continuing cash flow hedges, of which $(85) (December 31, 2022 – $nil) related to
CPI cash flow hedges that were reported in AOCI – Insurance finance income (expenses). There is $nil balance in AOCI related to de
designated hedges as at December 31, 2023 and December 31, 2022, respectively.
For the year ended
December 31, 2023
Interest rate risk
Treasury locks
Foreign exchange risk
Foreign currency swaps
Interest and foreign exchange
risk
Foreign currency swaps
Equity price risk
Equity contracts
CPI risk
Interest rate swaps(1)
Total
For the year ended
December 31, 2022
Foreign exchange risk
Foreign currency swaps
Interest and foreign exchange
risk
Foreign currency swaps
Equity price risk
Equity contracts
Total
Hedged items in qualifying
cash flow hedging
relationships
Change in fair
value of hedged
items for
ineffectiveness
measurement
v
Change in fair
alue of hedging
instruments for
ineffectiveness
measurement
Gains (losses)
deferred in
AOCI on
derivatives
Gains (losses)
reclassified from
AOCI into Total
investment result
Ineffectiveness
recognized in
Total investment
result
Forecasted liability issuance
$
( 1)
$
1
$
1
$ –
$ –
Fixed rate liabilities
10
(10)
(10)
(8)
Floating rate liabilities
Stock-based compensation
(23)
(40)
23
40
23
40
Inflation linked insurance liabilities
4
(50)
$
(4)
$ 50
(4)
$ 50
16
3
81
$ 92
–
–
–
–
$ –
Hedged items in qualifying
cash flow hedging
relationships
Fixed rate assets
Fixed rate liabilities
Change in fair
value of hedged
items for
ineffectiveness
measurement
Change in fair
value of hedging
instruments for
ineffectiveness
measurement
Gains (losses)
deferred in
AOCI on
derivatives
Gains (losses)
reclassified from
AOCI into Total
investment result
Ineffectiveness
recognized in
Total investment
result
$
1
(34)
$
(1)
34
$
(1)
34
$ (1)
35
(49)
6
$ (9)
$ –
–
–
–
$ –
Floating rate liabilities
(175)
175
175
Stock-based compensation
(2)
$ (210)
2
$ 210
2
$ 210
(1) Gains (losses) deferred in AOCI on derivatives are presented in AOCI under Insurance finance income (expenses).
The Company anticipates that net losses of approximately $17 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 13 years with exception to CPI hedge relationships where the maximum
time frame for which variable cash flows are hedged is 29 years.
The table below details the balances in the Company’s cash flow hedge reserve.
As at December 31,
Balances in the cash flow hedge reserve for continuing hedges
Balances remaining in the cash flow hedge reserve on de-designated hedges
Total
2023
2022
$ (149) $ (107)
–
$ (149) $ (107)
–
202
| 2023 Annual Report | Notes to Consolidated Financial Statements
Hedges of net investments in foreign operations
The Company uses non-functional currency denominated long-term debt (refer to note 10) and forward currency contracts to mitigate the
foreign exchange translation risk of 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, 2023
Non-functional currency denominated debt
Forward currency contracts
Total
For the year ended December 31, 2022
Non-functional currency denominated debt
Forward currency contracts
Total
Change in fair value
of hedged items for
ineffectiveness
measurement
$ (195)
(1)
$ (196)
Change in fair value
of hedged items for
ineffectiveness
measurement
Change in fair
value of hedging
instruments for
ineffectiveness
measurement
$ 195
1
$ 196
Change in fair
value of hedging
instruments for
ineffectiveness
measurement
Gains (losses)
reclassified from
AOCI into Total
investment
result
Ineffectiveness
recognized in
Total investment
result
$ –
–
$ –
$ –
–
$ –
Gains (losses)
deferred in AOCI
$ 195
1
$ 196
Gains (losses)
reclassified from
AOCI into Total
investment
result
Ineffectiveness
recognized in
Total investment
result
Gains (losses)
deferred in AOCI
$ 458
(14)
$ 444
$ (458)
14
$ (444)
$ (458)
14
$ (444)
$ –
–
$ –
$ –
–
$ –
The table below details the balances in the Company’s net investment hedge reserve.
As at December 31,
Balances in the foreign currency translation reserve for continuing hedges
Balances remaining in the net investment hedge reserve on de-designated hedges
Total
Reconciliation of accumulated other comprehensive income (loss) related to cash flow hedges
2023
2022
$ 59
$ (137)
–
$ 59 $ (137)
–
For the year ended December 31, 2023
Interest rate risk
Interest rate and foreign exchange
risk
Foreign exchange translation risk
CPI risk
Equity price risk
Total
For the year ended December 31, 2022
Interest rate risk
Interest rate and foreign exchange
risk
Foreign exchange translation risk
CPI risk
Equity price risk
Total
Accumulated other
comprehensive
income (loss),
beginning of the year
Hedging gains
(losses)
recognized in
AOCI during the
year
Reclassification
from AOCI to
income
Accumulated
other
comprehensive
income (loss), end
of the year
Reclassification
adjustment related
to de-designated
hedges as hedged
item affects
income
Reclassification
adjustment related
to items for which
the hedged future
cash flows are no
longer expected to
occur
$
–
$
1
$
–
$
1
$ –
$ –
(114)
5
–
2
$ (107)
23
(10)
(4)
40
$ 50
16
(8)
81
3
$ 92
(107)
3
(85)
39
$ (149)
–
–
–
–
$ –
–
–
–
–
$ –
Accumulated other
comprehensive
income (loss),
beginning of the year
Hedging gains
(losses)
recognized in
AOCI during the
year
Reclassification
from AOCI to
income
Accumulated
other
comprehensive
income (loss), end
of the year
Reclassification
adjustment related
to de-designated
hedges as hedged
item affects
income
Reclassification
adjustment related
to items for which
the hedged future
cash flows are no
longer expected to
occur
$
–
$
–
$
–
$
–
(313)
3
–
6
$ (304)
175
33
–
2
$ 210
(49)
34
–
6
$ (9)
(89)
2
–
2
$ (85)
$ –
–
–
–
–
$ –
$ –
–
–
–
–
$ –
203
Reconciliation of accumulated other comprehensive income (loss) related to net investment hedges
For the year ended December 31, 2023
Accumulated other
comprehensive
income (loss),
beginning of the year
Hedging gains
(losses)
recognized in
AOCI during the
year
Reclassification
from AOCI to
income
Accumulated
other
comprehensive
income (loss), end
of the year
Reclassification
adjustment
related to de
designated
hedges as
hedged item
affects income
Reclassification
adjustment
related to items
for which the
hedged future
cash flows are no
longer expected
to occur
Foreign exchange translation risk
$ (137)
$ 196
$ –
$
59
$ –
$ –
Accumulated other
comprehensive
income (loss),
beginning of the year
Hedging gains
(losses)
recognized in
AOCI during the
year
Reclassification
from AOCI to
income
Accumulated
other
comprehensive
income (loss), end
of the year
Reclassification
adjustment
related to de
designated
hedges as
hedged item
affects income
Reclassification
adjustment
related to items
for which the
hedged future
cash flows are no
longer expected
to occur
$ 307
$ (444)
$ –
$ (137)
$ –
$ –
For the year ended December 31, 2022
Foreign exchange translation risk
Cost of hedging
The Company has elected to apply IFRS 9’s cost of hedging guidance retrospectively for certain hedging relationships existing on January 1,
2023. The excluded components from hedging relationships related to forward elements and foreign currency basis spreads are presented
in AOCI as cost of hedging. The following table provides details of the movement in the cost of hedging by hedged risk category.
Foreign exchange risk
Balance, beginning of year
Changes in fair value
Amount reclassified to profit or loss
Balance, end of year
Foreign exchange and interest rate risk
Balance, beginning of year
Changes in fair value
Amount reclassified to profit or loss
Balance, end of year
For the year ended
December 31, 2023
$ (3)
5
2
–
$
$ 25
(8)
(1)
$ 18
(c) Derivatives not designated in qualifying hedge accounting relationships
The Company uses derivatives to economically hedge various financial risks, however, not all derivatives qualify for hedge accounting and
in some cases, the Company has not elected to apply hedge accounting. As noted above, upon adoption of IFRS 9, the Company has
prospectively designated additional existing derivatives in hedge accounting relationships. Below are the investment income impacts of
derivatives not designated in qualifying hedge accounting relationships.
Investment income (loss) 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
Total
2023
2022
$
667
57
(13)
(4)
(22)
612
(449)
325
$ 1,173
$
(3,428)
(431)
(258)
1,171
(103)
(7,561)
794
(818)
$ (10,634)
(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.
Claims recovered under reinsurance ceded contracts offset claims expenses and claims paid on the reinsurance assumed. As at
204
| 2023 Annual Report | Notes to Consolidated Financial Statements
December 31, 2023, reinsurance ceded guaranteed minimum income benefits had a fair value of $402 (2022 – $535) and reinsurance
assumed guaranteed minimum income benefits had a fair value of $46 (2022 – $58).
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 and
investment contract. As at December 31, 2023, these embedded derivative liabilities had a fair value of $487 (2022 – $395).
Other insurance contract features which are classified as embedded derivatives but are 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.
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.
For the year ended December 31, 2023
Goodwill
Indefinite life intangible assets
Brand
Fund management contracts and other(1)
Finite life intangible assets(2)
Distribution networks
Customer relationships
Software
Other
Total intangible assets
Total goodwill and intangible assets
For the year ended December 31, 2022
Goodwill
Indefinite life intangible assets
Brand
Fund management contracts and other(1)
Finite life intangible assets(2)
Distribution networks
Customer relationships
Software
Other
Total intangible assets
Total goodwill and intangible assets
Balance,
January 1,
2023
$ 6,014
813
1,048
1,861
881
643
1,068
52
2,644
4,505
$ 10,519
Balance,
January 1,
2022
$ 5,651
761
788
1,549
888
687
1,091
49
2,715
4,264
$ 9,915
Net additions/
(disposals)
–
$
Amortization
expense
$ n/a
Effect of changes
in foreign
exchange rates
(95)
$
Balance,
December 31,
2023
$ 5,919
–
–
–
31
(4)
274
11
312
312
$ 312
n/a
n/a
n/a
(53)
(53)
(217)
(5)
(328)
(328)
$ (328)
(22)
(14)
(36)
(25)
(4)
(23)
(10)
(62)
(98)
$ (193)
791
1,034
1,825
834
582
1,102
48
2,566
4,391
$ 10,310
Net additions/
(disposals)(3),(4)
$ 255
Amortization
expense
$ n/a
Effect of changes
in foreign
exchange rates
$ 108
Balance,
December 31,
2022
$ 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
(1) Fund management contracts are mostly allocated to Canada WAM and U.S. WAM CGUs with carrying values of $273 (2022 – $273) and $386 (2022 – $397), respectively.
(2) Gross carrying amount of finite life intangible assets was $2,955 for software, $1,511 for distribution networks, $1,136 for customer relationships and $138 for other (2022 –
$2,736, $1,517, $1,146 and $136), respectively.
(3) In November 2022, the Company acquired control of Manulife Fund Management Co., Ltd., formerly known as 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 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, included in Other, of $255, $185, $52 and $3 were recognized.
(4) 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.
(b) Goodwill impairment testing
The Company completed its annual goodwill impairment testing in the fourth quarter of 2023 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 2023 (2022 – $nil).
205
The following tables present the carrying value of goodwill by CGU or group of CGUs.
For the year ended December 31, 2023
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
For the year ended 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
Balance,
January 1,
2023
$
162
360
1,960
360
450
1,436
1,286
$ 6,014
Balance,
January 1,
2022
$
152
386
1,955
336
183
1,436
1,203
$ 5,651
Net additions/
(disposals)
$
$
–
–
–
–
–
–
–
–
Net additions/
(disposals)
$
–
–
–
–
255
–
–
$ 255
Effect of
changes
in foreign
exchange
rates
$
$
(3)
(32)
(2)
(10)
(12)
–
(36)
(95)
Effect of
changes
in foreign
exchange
rates
$ 10
(26)
5
24
12
–
83
$ 108
Balance,
December 31,
2023
$
159
328
1,958
350
438
1,436
1,250
$ 5,919
Balance,
December 31,
2022
$
162
360
1,960
360
450
1,436
1,286
$ 6,014
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 ranged from 5.1 to 12.7 (2022 – 4.4 to 11.6). These FVLCS valuations are categorized as Level 3
of the fair value hierarchy (2022 – 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 an insurance 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 13.0 per cent (2022 – zero per cent to nine per cent).
Interest rate assumptions are based on prevailing market rates at the valuation date.
Tax rates applied to the projections include the impact of internal reinsurance treaties and were 28.0 per cent, 27.8 per cent and 21.0 per
cent for the Japan, Canada and U.S. jurisdictions, respectively (2022 – 28.0 per cent, 27.5 per cent and 21.0 per cent, 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 effective tax rates could differ from those assumed.
206
| 2023 Annual Report | Notes to Consolidated Financial Statements
Discount rates assumed in determining the value-in-use for applicable CGUs or group of CGUs ranged from 10.0 per cent to 13.0 per cent
on an after-tax basis or 12.5 per cent to 16.3 per cent on a pre-tax basis (2022 – 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).
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 and Reinsurance Contract Assets and Liabilities
(a) Composition
Portfolio of insurance contracts that are assets and those that are liabilities, and portfolios of reinsurance contracts that are assets and
those that are liabilities, are presented separately in the Consolidated Statements of Financial Position. The components of net insurance
and reinsurance contract liabilities are shown below. The composition of insurance contract assets and liabilities, and reinsurance
contract held assets and liabilities by the reporting segment is as follows.
Insurance contract asset and liabilities
2023
2022
Insurance
contract
assets
Insurance
contract
liabilities
$ (108) $ 131,729
80,169
157,699
(33)
–
(4)
(145)
(781)
368,816
Insurance
contract
liabilities for
account of
segregated
fund holders
$ 22,696
36,085
55,362
–
114,143
Net
insurance
contract
liabilities
$ 154,317
116,221
213,061
(785)
482,814
Insurance
contract
assets
Insurance
contract
liabilities
$ (527) $ 121,105
74,876
159,501
163
355,645
(81)
(56)
–
(664)
Insurance
contract
liabilities for
account of
segregated
fund holders
$ 21,005
35,695
53,516
–
110,216
Net
insurance
contract
liabilities
$ 141,583
110,490
212,961
163
465,197
–
(820)
$ (145) $ 367,996
–
$ 114,143
(820)
$ 481,994
(9)
(796)
$ (673) $ 354,849
–
$ 110,216
(805)
$ 464,392
As at December 31,
Asia
Canada
U.S.
Corporate and Other
Insurance contract balances
Assets for insurance acquisition
cash flows
Total
Reinsurance contract held asset and liabilities
2023
2022
As at December 31,
Asia
Canada
U.S.
Corporate and Other
Total
Assets
$ 3,540
1,922
37,437
(248)
$ 42,651
Liabilities
Net
reinsurance
contract
held assets
Assets
$ (1,909) $ 1,631 $ 3,306
1,756
40,384
425
$ (2,831) $ 39,820 $ 45,871
1,009
37,423
(243)
(913)
(14)
5
Liabilities
Net
reinsurance
contract
held assets
$ (1,462) $ 1,844
845
40,366
425
$ (2,391) $ 43,480
(911)
(18)
–
As at December 31,
Net insurance contract held liabilities
Net reinsurance contract held assets
Net insurance and reinsurance contract held liabilities
2023
$ 481,994
(39,820)
$ 442,174
2022
$ 464,392
(43,480)
$ 420,912
(b) Movements in carrying amounts of insurance and reinsurance contracts
The following tables present the movement in the net carrying amounts of insurance contracts issued and reinsurance contracts held
during the year for the Company and for each reporting segment. The changes include amounts that are recognized in income and OCI,
and movements due to cash flows.
There are two types of tables presented:
• Tables which analyze movements in the net assets or liabilities for remaining coverage and for incurred claims separately and
reconcile them to the relevant Consolidated Statements of Income and Consolidated Statements of Comprehensive Income line
items.
• Tables which analyze movements of contracts by measurement components including estimates of the present value of future cash
flows, risk adjustment and CSM for portfolios.
207
(I) Total
Insurance contracts – Analysis by remaining coverage and incurred claims
The following tables present the movement in the net assets or liabilities for insurance contracts issued, showing the amounts for
remaining coverage and the amounts for incurred claims for the years ended December 31, 2023 and December 31, 2022.
Liabilities for remaining
coverage
Liabilities for incurred claims
Excluding loss
component
Loss
component
Products not
under PAA
PAA Estimates
of PV of future
cash flows
PAA Risk
adjustment for
non-financial risk
Assets for
insurance
acquisition
cash flows
Total
$
(659) $
– $
7 $
336,981
1,328
5,857
(12)
10,877
110,216
446,538
–
1,328
–
5,864
–
10,865
$
– $
602
–
602
(9) $
(673)
(796) 354,849
–
110,216
(805) 464,392
(13,165)
(1,497)
(2,162)
(853)
(6,295)
(23,972)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(320)
13,446
6,136
254
–
–
1,654
–
1,654
(19,080)
(41,398)
24,268
(9,657)
(26,787)
48,381
–
(6,920)
41,461
(152)
–
90
–
–
–
(230)
–
(230)
32
(38)
(236)
–
–
–
–
–
–
3,927
464,987
(201)
351,045
–
1,092
–
1,092
–
(31)
–
–
(1,605)
–
–
(242)
–
–
13,415
17,148
30,563
15
(71)
30,507
–
4,531
1,932
6,463
848
(12)
7,299
–
–
(30,706)
–
(30,706)
(7,719)
–
(7,719)
–
–
–
5,665
56
5,609
–
–
–
10,445
–
10,445
–
12
–
12
11
–
23
–
–
–
–
–
–
–
625
–
625
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
7
–
–
–
–
(13,165)
(1,497)
(2,162)
(853)
(6,295)
(23,972)
19,516
90
(1,878)
1,654
–
19,382
–
(4,590)
25,174
(9,771)
10,813
48,381
(38,425)
(6,920)
3,036
152
(174)
–
(174)
–
3,927
(820) 481,994
(145)
(820) 367,996
–
Opening insurance contract assets
Opening insurance contract liabilities
Opening insurance contract liabilities for account of
segregated fund holders
Net opening balance, January 1, 2023
Insurance revenue
Expected incurred claims and other insurance service
result
Change in risk adjustment for non-financial risk
expired
CSM recognized for services provided
Recovery of insurance acquisition cash flows
Contracts under PAA
Insurance service expense
Incurred claims and other insurance service expenses
Losses and reversal of losses on onerous contracts
(future service)
Changes to liabilities for incurred claims (past service)
Amortization of insurance acquisition cash flows
Net impairment of assets for insurance acquisition
cash flows
Investment components and premium refunds
Insurance service result
Insurance finance (income) expenses
Effects of movements in foreign exchange rates
Total changes in income and OCI
Cash flows
Premiums and premium tax received
Claims and other insurance service expenses paid,
including investment components
Insurance acquisition cash flows
Total cash flows
Allocation from assets for insurance acquisition cash
flows to groups of insurance contracts
Acquisition cash flows incurred in the year
Movements related to insurance contract liabilities for
account of segregated fund holders
Net closing balance
Closing insurance contract assets
Closing insurance contract liabilities
Closing insurance contract liabilities for account of
segregated fund holders
Net closing balance, December 31, 2023
114,143
–
$ 464,987 $ 1,092
–
–
$ 5,665 $ 10,445
Insurance finance (income) expenses (“IFIE”)
Insurance finance (income) expenses, per disclosure above
Reclassification of derivative OCI to IFIE – cash flow hedges
Reclassification of derivative (income) loss changes to IFIE – fair value hedge
Insurance finance (income) expenses, per disclosure in note 7 (f)
208
| 2023 Annual Report | Notes to Consolidated Financial Statements
–
114,143
$ 625 $ (820) $ 481,994
–
$ 25,174
3
(185)
$ 24,992
Insurance contracts – Analysis by remaining coverage and incurred claims (continued)
Liabilities for remaining
coverage
Liabilities for incurred claims
Excluding loss
component
Loss
component
Products not
under PAA
PAA Estimates
of PV of future
cash flows
PAA Risk
adjustment for
non-financial risk
Assets for
insurance
acquisition
cash flows
Total
Opening insurance contract assets
Opening insurance contract liabilities
Opening insurance contract liabilities for account of
segregated fund holders
Net opening balance, January 1, 2022
Insurance revenue
Expected incurred claims and other insurance service
result
Change in risk adjustment for non-financial risk
expired
CSM recognized for service provided
Recovery of insurance acquisition cash flows
Contracts under PAA
Insurance service expense
Incurred claims and other insurance service expenses
Losses and reversal of losses on onerous contracts
(future service)
Changes to liabilities for incurred claims (past service)
Amortization of insurance acquisition cash flows
Net impairment of assets for insurance acquisition
cash flows
Investment components and premium refunds
Insurance service result
Insurance finance (income) expenses
Effects of movements in foreign exchange rates
Total changes in income and OCI
Cash flows
Premiums and premium tax received
Claims and other insurance service expenses paid,
including investment components
Insurance acquisition cash flows
Total cash flows
Allocation from assets for insurance acquisition cash
flows to groups of insurance contracts
Acquisition cash flows incurred in the year
Movements related to insurance contract liabilities for
account of segregated fund holders
Net closing balance
Closing insurance contract assets
Closing insurance contract liabilities
Closing insurance contract liabilities for account of
segregated fund holders
Net closing balance, December 31, 2022
– $ (217) $
(972)
(528) 405,621
$
(842) $
– $
60 $
388,585
303
4,342
27
12,230
$
130,836
518,579
–
303
–
4,402
–
12,257
(13,019)
(1,665)
(2,298)
(534)
(5,602)
(23,118)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
689
–
689
–
–
–
–
–
–
–
233
12,775
5,982
266
–
–
1,285
–
1,285
(18,222)
(40,055)
(68,366)
15,886
(92,535)
47,526
–
(6,266)
41,260
(146)
–
742
–
–
–
975
–
975
9
41
1,025
–
(41)
–
–
12,734
16,514
29,248
753
136
30,137
–
(1,554)
–
–
4,428
1,708
6,136
(1,229)
12
4,919
–
–
–
–
–
–
–
–
(28,675)
–
(28,675)
(6,311)
–
(6,311)
–
–
–
5,864
7
5,857
–
–
–
10,865
(12)
10,877
(20,620)
446,538
(659)
336,981
–
1,328
–
1,328
–
(353)
–
–
(87)
–
(87)
–
–
(87)
–
–
–
–
–
–
–
602
–
602
–
(745)
130,836
535,485
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(14)
(14)
–
–
–
–
(13,019)
(1,665)
(2,298)
(534)
(5,602)
(23,118)
19,256
742
(1,948)
1,285
–
19,335
–
(3,783)
(68,833)
16,061
(56,555)
47,526
(34,986)
(6,266)
6,274
146
(192)
–
(192)
(20,620)
464,392
–
(805)
(9)
(673)
(796) 354,849
110,216
–
$ 446,538 $ 1,328 $ 5,864 $ 10,865
–
–
–
110,216
$ 602 $ (805) $ 464,392
–
Insurance finance (income) expenses
Insurance finance (income) expenses, per disclosure above
Reclassification of derivative OCI to IFIE – cash flow hedges
Reclassification of derivative (income) loss changes to IFIE – fair value hedge
Insurance finance (income) expenses, per disclosure in note 7 (f)
$
$
(68,833)
–
–
(68,833)
209
Insurance contracts – Analysis by measurement components
The following tables present the movement in the net assets or liabilities for insurance contracts issued, showing estimates of the present
value of future cash flows, risk adjustment and CSM for the years ended December 31, 2023 and December 31, 2022.
CSM
Estimates of
PV of future
cash flows
Risk
adjustment for
non-financial risk
Fair value
Other
Assets for
insurance
acquisition
cash flows
Total
$
512 $
100 $
557 $
– $
(658)
25,750
605
–
26,867
–
(1,620)
–
(1,620)
1,180
(3,859)
12
(2,667)
(4)
(4)
(4,291)
1,646
(779)
(3,424)
–
–
–
21
17,105
–
–
17,205
(1,812)
–
–
(1,812)
–
2,214
–
2,214
–
–
402
244
(438)
208
–
2,087
–
–
2,644
(350)
–
–
(350)
2,368
60
–
2,428
–
–
2,078
76
(107)
2,047
–
–
–
–
–
–
–
–
23,464
141
22,697
626
–
17,413
32
17,381
–
–
4,691
99
4,592
–
(56)
(749)
–
(805)
–
–
–
–
–
–
342,853
11,981
110,216
464,392
(2,162)
(1,620)
152
(3,630)
253
–
–
–
–
–
–
–
–
–
–
5
(8)
(12)
–
(820)
–
(59)
(761)
(162)
91
(32)
(32)
(3,571)
24,306
(9,729)
11,006
2,081
–
(8)
596
3,927
481,994
(144)
355,418
12,577
–
114,143
$ 23,464 $ 17,413 $ 4,691 $ (820) $ 481,994
–
–
–
$ 24,306
3
(120)
868
–
(65)
$ 24,992
Opening GMM and VFA insurance contract assets
Opening GMM and VFA insurance contract liabilities
Opening PAA insurance contract net liabilities
Opening insurance contract liabilities for account of segregated fund holders
Net opening balance, January 1, 2023
CSM recognized for services provided
Change in risk adjustment for non-financial risk for risk expired
Experience adjustments
Changes that relate to current services
Contracts initially recognized during the year
Changes in estimates that adjust the CSM
Changes in estimates that relate to losses and reversal of losses on
$
(1,827)
297,967
12,125
110,216
418,481
–
–
152
152
(3,295)
1,585
onerous contracts
Changes that relate to future services
Adjustments to liabilities for incurred claims
Changes that relate to past services
Insurance service result
Insurance finance (income) expenses
Effects of movements in foreign exchange rates
Total changes in income and OCI
Total cash flows
Allocation from assets for insurance acquisition cash flows to groups of
insurance contracts
Acquisition cash flows incurred in the year
Change in PAA balance
Movements related to insurance contract liabilities for account of
segregated fund holders
Net closing balance
Closing GMM and VFA insurance contract assets
Closing GMM and VFA insurance contract liabilities
Closing PAA insurance contract net liabilities
Closing insurance contract liabilities for account of segregated fund
insurance holders
Net closing balance, December 31, 2023
(174)
(1,884)
(28)
(28)
(1,760)
22,340
(8,405)
12,175
2,081
(5)
–
587
3,927
437,246
(416)
310,807
12,712
114,143
$ 437,246
Insurance finance (income) expenses
Insurance finance (income) expenses, per disclosure above
Reclassification of derivative OCI to IFIE – cash flow hedges
Reclassification of derivative (income) loss changes to IFIE – fair value hedge
PAA items:
PAA IFIE per disclosure
PAA Reclassification of derivative OCI to IFIE – cash flow hedges
PAA Reclassification of derivative (income) loss changes to IFIE – fair value hedge
Insurance finance (income) expenses, per disclosure in note 7 (f)
210
| 2023 Annual Report | Notes to Consolidated Financial Statements
Insurance contracts – Analysis by measurement components (continued)
Opening GMM and VFA insurance contract assets
Opening GMM and VFA insurance contract liabilities
Opening PAA insurance contract net liabilities
Opening insurance contract liabilities for account of
segregated fund holders
Net opening balance, January 1, 2022
CSM recognized for services provided
Change in risk adjustment for non-financial risk for risk
expired
Experience adjustments
Changes that relate to current services
Contracts initially recognized during the year
Changes in estimates that adjust the CSM
Changes in estimates that relate to losses and reversal of
losses on onerous contracts
Changes that relate to future services
Adjustments to liabilities for incurred claims
Changes that relate to past services
Insurance service result
Insurance finance (income) expenses
Effects of movements in foreign exchange rates
Total changes in income and OCI
Total cash flows
Allocation from assets for insurance acquisition cash flows to
groups of insurance contracts
Acquisition cash flows incurred in the year
Change in PAA balance
Movements related to insurance contract liabilities for
account of segregated fund holders
Net closing balance
Closing GMM and VFA insurance contract assets
Closing GMM and VFA insurance contract liabilities
Closing PAA insurance contract net liabilities
Closing insurance contract liabilities for account of
segregated fund insurance holders
Net closing balance, December 31, 2022
CSM
Estimates of
PV of future
cash flows
Risk
adjustment for
non-financial risk
$
(1,955)
341,125
12,919
$
365
30,780
694
$
Fair value
179
19,842
–
$
Other
453
992
–
130,836
482,925
–
–
6
6
(2,880)
3,377
229
726
(33)
(33)
699
(62,812)
13,898
(48,215)
5,190
(5)
–
(794)
(20,620)
418,481
(1,827)
297,967
12,125
–
31,839
–
–
20,021
(2,064)
(1,582)
–
(1,582)
1,396
(994)
(2)
400
(7)
(7)
(1,189)
(5,105)
1,411
(4,883)
–
–
–
(89)
–
26,867
512
25,750
605
–
–
(2,064)
35
(1,737)
–
(1,702)
–
–
(3,766)
311
639
(2,816)
–
–
–
–
–
17,205
100
17,105
–
–
1,445
(234)
–
–
(234)
1,963
(646)
–
1,317
–
–
1,083
31
85
1,199
–
–
–
–
–
2,644
557
2,087
–
Assets for
insurance
acquisition
cash flows
Total
$
–
(54)
(691)
$
(958)
392,685
12,922
–
(745)
–
130,836
535,485
(2,298)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
(7)
(58)
–
(805)
–
(56)
(749)
(1,582)
6
(3,874)
514
–
227
741
(40)
(40)
(3,173)
(67,575)
16,033
(54,715)
5,190
–
(7)
(941)
(20,620)
464,392
(658)
342,853
11,981
110,216
$ 418,481
–
$ 26,867
–
$ 17,205
–
$ 2,644
–
110,216
$ (805) $ 464,392
Insurance finance (income) expenses
Insurance finance (income) expenses, per disclosure above
Reclassification of derivative OCI to IFIE – cash flow hedges
Reclassification of derivative (income) loss changes to IFIE – fair value hedge
PAA items:
PAA IFIE per disclosure
PAA Reclassification of derivative OCI to IFIE – cash flow hedges
PAA Reclassification of derivative (income) loss changes to IFIE – fair value hedge
Insurance finance (income) expenses, per disclosure in note 7 (f)
$
(67,575)
–
–
(1,258)
–
–
(68,833)
$
211
Reinsurance contracts held – Analysis by remaining coverage and incurred claims
The following tables present the movement in the net assets or liabilities for reinsurance contracts held, showing assets for remaining
coverage and amounts recoverable on incurred claims arising from business ceded to reinsurers for the years ended December 31, 2023
and December 31, 2022.
Assets (liabilities) for
remaining coverage
Excluding loss
recovery
component
Loss
recovery
component
$
37,853
(2,196)
35,657
$ 209
4
213
Assets (liabilities) for incurred claims
Products not
under PAA
$ 7,521
(137)
7,384
PAA Estimates of
PV of future
cash flows
PAA Risk
adjustment for
non-financial risk
Total
$ 280
(62)
218
$ 8
–
8
$ 45,871
(2,391)
43,480
(6,430)
–
–
–
–
(45)
5,228
–
–
(6,430)
(1,519)
(7,949)
719
(14)
(924)
–
(8,168)
4,956
–
4,956
32,445
35,079
(2,634)
32,445
77
–
32
–
32
8
–
(5)
–
35
–
5
5,233
1,519
6,752
(97)
–
(169)
–
6,486
–
–
–
248
246
2
$ 248
–
(6,971)
(6,971)
6,899
7,035
(136)
$ 6,899
568
–
(24)
544
–
544
9
–
–
–
553
–
(559)
(559)
212
275
(63)
$ 212
–
–
–
8
8
–
8
–
–
–
–
8
(6,430)
5,751
77
(11)
(613)
–
(613)
639
(14)
(1,098)
–
(1,086)
–
–
–
16
16
–
$ 16
4,956
(7,530)
(2,574)
39,820
42,651
(2,831)
$ 39,820
Opening reinsurance contract held assets
Opening reinsurance contract held liabilities
Net opening balance, January 1, 2023
Changes in income and OCI
Allocation of reinsurance premium paid
Amounts recoverable from reinsurers
Recoveries of incurred claims and other
insurance service expenses
Recoveries and reversals of recoveries of
losses on onerous underlying contracts
Adjustments to assets for incurred claims
Insurance service result
Investment components and premium refunds
Net expenses from reinsurance contracts
Net finance (income) expenses from reinsurance
contracts
Effect of changes in non-performance risk of
reinsurers
Effects of movements in foreign exchange rates
Contracts measured under PAA
Total changes in income and OCI
Cash flows
Premiums paid
Amounts received
Total cash flows
Net closing balance
Closing reinsurance contract held assets
Closing reinsurance contract held liabilities
Net closing balance, December 31, 2023
$
212
| 2023 Annual Report | Notes to Consolidated Financial Statements
Reinsurance contracts held – Analysis by remaining coverage and incurred claims (continued)
Opening reinsurance contract held assets
Opening reinsurance contract held liabilities
Net opening balance, January 1, 2022
Changes in income and OCI
Allocation of reinsurance premium paid
Amounts recoverable from reinsurers
Recoveries of incurred claims and other insurance
service expenses
Recoveries and reversals of recoveries of losses on
onerous underlying contracts
Adjustments to assets for incurred claims
Insurance service result
Investment components and premium refunds
Net expenses from reinsurance contracts
Net finance (income) expenses from reinsurance contracts
Effect of changes in non-performance risk of reinsurers
Effects of movements in foreign exchange rates
Contracts measured under PAA
Total changes in income and OCI
Cash flows
Premiums paid
Amounts received
Total cash flows
Net closing balance
Closing reinsurance contract held assets
Closing reinsurance contract held liabilities
Net closing balance, December 31, 2022
$
Assets (liabilities) for
remaining coverage
Excluding loss
recovery
component
Loss
recovery
component
$
45,699
(2,030)
43,669
$ 79
19
98
Assets (liabilities) for incurred claims
Products not
under PAA
$ 6,740
(27)
6,713
PAA Estimates of
PV of future
cash flows
PAA Risk
adjustment for
non-financial risk
$ 303
(41)
262
$ 8
–
8
Total
$52,829
(2,079)
50,750
(6,024)
–
–
–
–
(6,024)
–
(30)
4,925
–
–
(6,024)
(1,341)
(7,365)
(9,586)
97
2,683
–
(14,171)
6,159
–
6,159
35,657
37,853
(2,196)
35,657
132
–
102
–
102
5
–
8
–
115
–
–
–
213
209
4
$213
–
3
4,928
1,341
6,269
446
–
455
–
7,170
–
(6,499)
(6,499)
7,384
7,521
(137)
$ 7,384
417
–
(33)
384
–
384
(14)
–
–
–
370
–
(414)
(414)
218
280
(62)
$ 218
(4)
5,308
–
(9)
(13)
–
(13)
13
–
–
–
–
132
(39)
(623)
–
(623)
(9,136)
97
3,146
–
(6,516)
–
–
–
8
8
–
$ 8
6,159
(6,913)
(754)
43,480
45,871
(2,391)
$43,480
213
Reinsurance contracts held – Analysis by measurement components
The following tables present the movement in the net assets or liabilities for reinsurance contracts held, showing estimates of the present
value of future cash flows, risk adjustment and CSM for the years ended December 31, 2023 and December 31, 2022.
Opening reinsurance contract held assets
Opening reinsurance contract held liabilities
Opening PAA reinsurance contract net assets
Net opening balance, January 1, 2023
CSM recognized for services received
Change in risk adjustment for non-financial risk for risk expired
Experience adjustments
Changes that relate to current services
Contracts initially recognized during the year
Changes in recoveries of losses on onerous underlying contracts that adjust
the CSM
Changes in estimates that adjust the CSM
Changes in estimates that relate to losses and reversal of losses on onerous
contracts
Changes that relate to future services
Adjustments to liabilities for incurred claims
Changes that relate to past services
Insurance service result
Insurance finance (income) expenses from reinsurance contracts
Effects of changes in non-performance risk of reinsurers
Effects of movements in foreign exchange rates
Total changes in income and OCI
Total cash flows
Change in PAA balance
Net closing balance
Closing reinsurance contract held assets
Closing reinsurance contract held liabilities
Closing PAA reinsurance contract net assets
Net closing balance, December 31, 2023
Estimates of
PV of future
cash flows
Risk adjustment
for non-financial
risk
Fair value
Other
Total
CSM
$ 39,656
(3,919)
240
35,977
–
–
(19)
(19)
(64)
–
1,433
43
1,412
5
5
1,398
173
(14)
(916)
641
(2,606)
(1)
34,011
38,156
(4,384)
239
$ 34,011
$ 4,049
1,574
8
5,631
–
(478)
–
$ 1,774
(39)
–
1,735
(217)
–
–
(478)
399
–
(821)
(20)
(442)
–
–
(920)
447
–
(160)
(633)
–
8
5,006
3,685
1,305
16
$ 5,006
(217)
–
(36)
(821)
–
(857)
–
–
(1,074)
41
–
(21)
(1,054)
–
–
681
565
116
–
681
$
$ 99
38
–
137
53
–
–
53
(263)
17
209
–
(37)
–
–
16
(31)
–
–
(15)
–
–
122
(51)
173
–
$ 122
$ 45,578
(2,346)
248
43,480
(164)
(478)
(19)
(661)
72
(19)
–
23
76
5
5
(580)
630
(14)
(1,097)
(1,061)
(2,606)
7
39,820
42,355
(2,790)
255
$ 39,820
214
| 2023 Annual Report | Notes to Consolidated Financial Statements
Reinsurance contracts held – Analysis by measurement components (continued)
Opening reinsurance contract held assets
Opening reinsurance contract held liabilities
Opening PAA reinsurance contract net assets
Net opening balance, January 1, 2022
CSM recognized for services received
Change in risk adjustment for non-financial risk for risk expired
Experience adjustments
Changes that relate to current services
Contracts initially recognized during the year
Changes in recoveries of losses on onerous underlying contracts that adjust
the CSM
Changes in estimates that adjust the CSM
Changes in estimates that relate to losses and reversal of losses on onerous
contracts
Changes that relate to future services
Adjustments to liabilities for incurred claims
Changes that relate to past services
Insurance service result
Insurance finance (income) expenses from reinsurance contracts
Effects of changes in non-performance risk of reinsurers
Effects of movements in foreign exchange rates
Total changes in income and OCI
Total cash flows
Change in PAA balance
Net closing balance
Closing reinsurance contract held assets
Closing reinsurance contract held liabilities
Closing PAA reinsurance contract net assets
Net closing balance, December 31, 2022
CSM
Estimates of
PV of future
cash flows
Risk adjustment
for non-financial
risk
Fair value
Other
Total
$ 46,025
(5,138)
281
41,168
–
–
9
9
(1,276)
$ 4,977
1,719
8
6,704
–
(424)
–
(424)
717
$ 2,012
1,262
–
3,274
(231)
–
–
(231)
(7)
$ (501) $ 52,513
(2,052)
289
50,750
(305)
(424)
9
(720)
151
105
–
(396)
(74)
–
–
(74)
717
–
1,337
–
173
(15)
(1,440)
(50)
(70)
(65)
–
106
167
3
3
179
(7,463)
97
2,787
(4,400)
(750)
(41)
35,977
39,656
(3,919)
240
$ 35,977
(60)
830
–
–
406
(1,715)
–
236
(1,073)
–
–
5,631
4,049
1,574
8
$ 5,631
–
(1,462)
–
–
(1,693)
56
–
98
(1,539)
–
–
1,735
1,774
(39)
–
$ 1,735
–
597
–
–
523
(14)
–
24
533
–
–
137
99
38
–
$ 137
46
132
3
3
(585)
(9,136)
97
3,145
(6,479)
(750)
(41)
43,480
45,578
(2,346)
248
$ 43,480
215
(II) Segment
Carrying balance by measurement components
The following tables present the carrying balances of net assets or liabilities for insurance contracts issued and reinsurance contracts held
by measurement components, by reporting segment for the years ended December 31, 2023 and December 31, 2022.
Insurance contracts issued
As at December 31, 2023
Asia
Canada
U.S.
Corporate and Other
As at December 31, 2022
Asia
Canada
U.S.
Corporate and Other
Excluding contracts applying the PAA
Contracts applying the PAA
CSM
Estimates of
PV of future
cash flows
$ 132,135
96,455
196,921
(977)
$ 424,534
Risk
adjustment for
non-financial
risk
Estimates of
PV of future
cash flows
Risk
adjustment for
non-financial risk
$
6,764
3,649
12,438
(13)
$ 22,838
$
1,242
11,153
–
317
$ 12,712
$
5
621
–
–
$ 626
Fair value
Other
$ 10,431
3,851
3,243
(112)
$ 17,413
$ 3,740
492
459
–
$ 4,691
Excluding contracts applying the PAA
Contracts applying the PAA
CSM
Estimates of
PV of future
cash flows
$ 120,180
91,599
194,766
(189)
$ 406,356
Risk
adjustment for
non-financial
risk
Estimates of
PV of future
cash flows
Risk
adjustment for
on-financial risk
n
$ 10,017
3,764
12,494
(13)
26,262
$
$
1,136
10,532
–
457
$ 12,125
$
2
603
–
–
$ 605
Fair value
Other
$
8,067
3,811
5,419
(92)
$ 17,205
$ 2,181
181
282
–
$ 2,644
Assets for
insurance
acquisition
cash flows
Total insurance
contract
liabilities
(assets)
$
$
(271) $ 154,046
115,672
(549)
213,061
–
(785)
–
(820) $ 481,994
Assets for
insurance
acquisition
cash flows
Total insurance
contract
liabilities
(assets)
$
$
(283) $ 141,300
109,968
(522)
212,961
–
163
–
464,392
(805) $
Reinsurance contracts held
As at December 31, 2023
Asia
Canada
U.S.
Corporate and Other
As at December 31, 2022
Asia
Canada
U.S.
Corporate and Other
Excluding contracts applying the PAA
Contracts applying the PAA
CSM
Estimates of
PV of future
cash flows
Risk
adjustment for
non-financial risk
Estimates of
PV of future
cash flows
Risk
adjustment for
non-financial risk
$
(351)
(1,238)
35,461
(100)
$ 33,772
$ 1,326
1,674
1,997
(7)
$ 4,990
$
(37)
275
–
1
$ 239
$
–
16
–
–
$ 16
Fair value
Other
$
$
623
338
(143)
(137)
681
$
70
(56)
108
–
$ 122
Excluding contracts applying the PAA
Contracts applying the PAA
CSM
Estimates of
PV of future
cash flows
Risk
adjustment for
non-financial risk
Estimates of
PV of future
cash flows
Risk
adjustment for
non-financial risk
$
(147)
(1,427)
36,735
576
$ 35,737
$ 1,895
1,672
2,065
(9)
5,623
$
$
(39)
277
–
2
$ 240
$
$
–
8
–
–
8
Fair value
Other
$
203
374
1,302
(144)
$ 1,735
$
(68)
(59)
264
–
$ 137
Total reinsurance
contract
liabilities
(assets)
$
1,631
1,009
37,423
(243)
$ 39,820
Total reinsurance
contract
liabilities
(assets)
$
1,844
845
40,366
425
$ 43,480
216
| 2023 Annual Report | Notes to Consolidated Financial Statements
(c) Insurance revenue by transition method
The following table provides information as a supplement to the insurance revenue disclosures in note 7 (b).
For the year ended December 31, 2023
Contracts under the fair value method
Contracts under the full retrospective method
Other contracts
Total
For the year ended December 31, 2022
Contracts under the fair value method
Contracts under the full retrospective method
Other contracts
Total
Asia
Canada
U.S.
Other
Total
$ 2,499
531
2,026
$ 5,056
$ 3,288
48
5,283
$ 8,619
$ 10,123
152
(81)
$ 10,194
$
(18) $ 15,892
731
7,349
$ 23,972
–
121
$ 103
Asia
Canada
U.S.
Other
Total
$ 2,656
666
1,412
$ 4,734
$ 3,370
122
4,625
$ 8,117
$ 9,901
76
268
$ 10,245
$
(96) $ 15,831
864
6,423
$ 23,118
–
118
$ 22
(d) Effect of new business recognized in the year
The following tables present components of new business for insurance contracts issued for the years presented.
As at December 31, 2023
Non-Onerous
Onerous
Non-Onerous Onerous
Non-Onerous
Onerous
Non-Onerous
Onerous
Asia
Canada
U.S.
Total
New business insurance contracts
Estimates of present value of cash outflows
Insurance acquisition cash flows
Claims and other insurance service
expenses payable
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
Contractual service margin
Amount included in insurance contract
$ 16,209 $ 2,399
322
3,011
$ 3,478 $ 271
68
608
$ 2,524 $ 1,126
233
676
$ 22,211 $ 3,796
623
4,295
13,198
(18,765)
679
1,877
2,077
(2,330)
89
–
2,870
(3,823)
115
230
203
(286)
41
–
1,848
(2,953)
168
261
893
(1,145)
88
–
17,916
(25,541)
962
2,368
3,173
(3,761)
218
–
liabilities for the year
$
– $
158
$
– $
26
$
– $
69
$
– $
253
As at December 31, 2022
Non-Onerous
Onerous
Non-Onerous Onerous
Non-Onerous
Onerous
Non-Onerous
Onerous
Asia
Canada
U.S.
Total
New business insurance contracts
Estimates of present value of cash outflows
Insurance acquisition cash flows
Claims and other insurance service
expenses payable
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
Contractual service margin
Amount included in insurance contract
$
8,470 $ 3,953
2,244
499
$ 3,604 $ 390
119
600
$ 1,845 $ 1,237
228
568
$ 13,919 $ 5,580
846
3,412
6,226
(10,759)
704
1,585
3,454
(3,772)
153
–
3,004
(3,901)
107
190
271
(431)
92
–
1,277
(2,289)
221
223
1,009
(1,227)
119
–
10,507
(16,949)
1,032
1,998
4,734
(5,430)
364
–
liabilities for the year
$
– $
334
$
– $
51
$
– $
129
$
– $
514
The following tables present components of new business for reinsurance contracts held portfolios for the years presented.
As at December 31, 2023
New business reinsurance contracts
Estimates of present value of cash outflows
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
Contractual service margin
Amount included in reinsurance assets for the year
As at December 31, 2022
New business reinsurance contracts
Estimates of present value of cash outflows
Estimates of present value of cash inflows
Risk adjustment for non-financial risk
Contractual service margin
Amount included in reinsurance assets for the year
$
$
$
$
Asia
Canada
U.S.
Total
(916) $
815
170
(57)
12
$
(331) $
319
76
(51)
13
$
(750) $
799
153
(155)
47
$
(1,997)
1,933
399
(263)
72
Asia
Canada
U.S.
Total
(519) $
453
125
(22)
37
$
(291) $ (7,084) $
261
77
(15)
32
5,904
515
747
82
$
$
(7,894)
6,618
717
710
151
217
(e) Expected recognition of contractual service margin
The following tables present expectations for the timing of recognition of CSM in income in future years.
As at December 31, 2023
Canada
Insurance contracts issued
Reinsurance contracts held
U.S.
Insurance contracts issued
Reinsurance contracts held
Asia
Insurance contracts issued
Reinsurance contracts held
Corporate
Insurance contracts issued
Reinsurance contracts held
Total
As at December 31, 2022
Canada
Insurance contracts issued
Reinsurance contracts held
U.S.
Insurance contracts issued
Reinsurance contracts held
Asia
Insurance contracts issued
Reinsurance contracts held
Corporate
Insurance contracts issued
Reinsurance contracts held
Total
Less than
1 year
1 to 5
years
5 to 10
years
10 to 20
years
More than 20
years
Total
$
379
(36)
343
388
(50)
338
1,273
(44)
1,229
$ 1,213
(83)
1,130
1,235
(139)
1,096
4,066
(202)
3,864
$ 1,016
(52)
964
$ 1,084
(46)
1,038
$
968
(35)
933
3,320
(173)
3,147
823
90
913
3,308
(105)
3,203
651
(65)
586
288
169
457
$
4,343
(282)
4,061
3,702
35
3,737
2,204
(169)
2,035
14,171
(693)
13,478
(8)
10
2
$ 1,912
(28)
51
23
$ 6,113
(28)
53
25
$ 5,069
(34)
19
(15)
$ 5,139
(14)
4
(10)
$ 3,068
(112)
137
25
$ 21,301
Less than
1 year
1 to 5
years
5 to 10
years
10 to 20
years
More than 20
years
$
333
(36)
297
$ 1,088
(100)
988
$
936
(69)
867
$ 1,015
(62)
953
$
541
(189)
352
922
(17)
905
1,770
(586)
1,184
2,933
(79)
2,854
1,468
(433)
1,035
2,442
(55)
2,387
1,375
(296)
1,079
2,435
5
2,440
$
620
(48)
572
547
(62)
485
1,516
11
1,527
Total
3,992
(315)
3,677
5,701
(1,566)
4,135
10,248
(135)
10,113
(8)
12
4
$ 1,558
(27)
40
13
$ 5,039
(23)
35
12
$ 4,301
(24)
38
14
$ 4,486
(10)
19
9
$ 2,593
(92)
144
52
$ 17,977
218
| 2023 Annual Report | Notes to Consolidated Financial Statements
(f) Investment income and insurance finance income and expenses
For the year ended December 31, 2023
Investment return
Investment related income
Net gains (losses) on financial assets at FVTPL
Unrealized gains (losses) on FVOCI assets
Impairment loss on financial assets
Investment expenses
Interest on required surplus
Total investment return
Portion recognized in income (expenses)
Portion recognized in OCI
Insurance finance income (expenses) from insurance contracts issued and effect of movement in
exchange rates
Interest accreted to insurance contracts using locked-in rate
Due to changes in interest rates and other financial assumptions
Changes in fair value of underlying items of direct participation contracts
Effects of risk mitigation option
Net foreign exchange income (expenses)
Hedge accounting offset from insurance contracts issued
Reclassification of derivative OCI to IFIE – cash flow hedges
Reclassification of derivative income (loss) changes to IFIE – fair value hedge
Other
Total insurance finance income (expenses) from insurance contracts issued
Effect of movements in foreign exchange rates
Total insurance finance income (expenses) from insurance contracts issued and effect of
movement in foreign exchange rates
Portion recognized in income (expenses), including effects of exchange rates
Portion recognized in OCI, including effects of exchange rates
Reinsurance finance income (expenses) from reinsurance contracts held and effect of movement
in foreign exchange rates
Interest accreted to insurance contracts using locked-in rate
Due to changes in interest rates and other financial assumptions
Changes in risk of non-performance of reinsurer
Other
Total reinsurance finance income (expenses) from reinsurance contracts held
Effect of movements in foreign exchange rates
Total reinsurance finance income (expenses) from reinsurance contracts held and effect of
movement in foreign exchange rates
Portion recognized in income (expenses), including effects of foreign exchange rates
Portion recognized in OCI, including effects of exchange rates
Decrease (increase) in investment contract liabilities
Total net investment income (loss), insurance finance income (expenses) and reinsurance finance
income (expenses)
Amounts recognized in income (expenses)
Amounts recognized in OCI
(1) Non-insurance includes consolidations and eliminations of transactions between operating segments.
Insurance
contracts
$ 13,036
2,176
11,212
(247)
(540)
521
26,158
15,830
10,328
Non-insurance(1)
Total
$ 3,079
506
1,018
(57)
(757)
(521)
3,268
2,191
1,077
$ 16,115
2,682
12,230
(304)
(1,297)
–
29,426
18,021
11,405
(8,214)
(11,008)
(7,384)
1,267
(80)
(41)
(3)
185
237
(25,041)
(952)
(25,993)
(13,930)
(12,063)
241
598
(15)
(159)
665
(120)
545
(719)
1,264
(17)
693
1,164
(471)
28
21
–
–
–
–
–
–
–
49
–
49
36
13
(12)
(28)
–
–
(40)
–
(40)
(15)
(25)
(418)
2,859
1,794
1,065
(8,186)
(10,987)
(7,384)
1,267
(80)
(41)
(3)
185
237
(24,992)
(952)
(25,944)
(13,894)
(12,050)
229
570
(15)
(159)
625
(120)
505
(734)
1,239
(435)
3,552
2,958
594
219
For the year ended December 31, 2022
Investment return
Investment related income
Net gains (losses) on financial assets at FVTPL
Unrealized gains (losses) on FVOCI assets
Impairment loss on financial assets
Investment expenses
Interest on required surplus
Total investment return
Portion recognized in income (expenses)
Portion recognized in OCI
Insurance finance income (expenses) from insurance contracts issued and effect of movement in
exchange rates
Interest accreted to insurance contracts using locked-in rate
Due to changes in interest rates and other financial assumptions
Changes in fair value of underlying items of direct participation contracts
Effects of risk mitigation option
Net foreign exchange income (expenses)
Hedge accounting offset from insurance contracts issued
Reclassification of derivative OCI to IFIE – cash flow hedges
Reclassification of derivative income (loss) changes to IFIE – fair value hedge
Other
Total insurance finance income (expenses) from insurance contracts issued
Effect of movements in foreign exchange rates
Total insurance finance income (expenses) from insurance contracts issued and effect of movement
in foreign exchange rates
Portion recognized in income (expenses), including effects of exchange rates
Portion recognized in OCI, including effects of exchange rates
Reinsurance finance income (expenses) from reinsurance contracts held and effect of movement in
foreign exchange rates
Interest accreted to insurance contracts using locked-in rate
Due to changes in interest rates and other financial assumptions
Changes in risk of non-performance of reinsurer
Other
Total reinsurance finance income (expenses) from reinsurance contracts held
Effect of movements in foreign exchange rates
Total reinsurance finance income (expenses) from reinsurance contracts held and effect of movement
in foreign exchange rates
Portion recognized in income (expenses), including effects of foreign exchange rates
Portion recognized in OCI, including effects of exchange rates
Decrease (increase) in investment contract liabilities
Total net investment income (loss), insurance finance income (expenses) and reinsurance finance
income (expenses)
Amounts recognized in income (expenses)
Amounts recognized in OCI
(1) Non-insurance includes consolidations and eliminations of transactions between operating segments.
Insurance
contracts
$ 13,991
(14,017)
(46,900)
(59)
(464)
515
(46,934)
358
(47,292)
(6,448)
63,174
9,417
2,827
(95)
–
–
–
218
69,093
(1,665)
67,428
(6,582)
74,010
832
(10,218)
96
191
(9,099)
(16)
(9,115)
322
(9,437)
(56)
11,323
(5,958)
17,281
Non-insurance(1)
Total
$ 1,973
(246)
(8,428)
(18)
(757)
(515)
(7,991)
(21)
(7,970)
$ 15,964
(14,263)
(55,328)
(77)
(1,221)
–
(54,925)
337
(55,262)
14
(272)
–
–
–
–
–
–
(2)
(260)
(9)
(269)
(34)
(235)
(6,434)
62,902
9,417
2,827
(95)
–
–
–
216
68,833
(1,674)
67,159
(6,616)
73,775
(8)
67
–
–
59
–
824
(10,151)
96
191
(9,040)
(16)
59
(13)
72
(343)
(8,544)
(411)
(8,133)
(9,056)
309
(9,365)
(399)
2,779
(6,369)
9,148
220
| 2023 Annual Report | Notes to Consolidated Financial Statements
The following tables present Investment income and insurance finance income and expenses recognized in income or expenses or other
comprehensive income, by reporting segments for the years ended December 31, 2023 and December 31, 2022.
For the year ended December 31, 2023
Total investment return
Portion recognized in income (expenses)
Portion recognized in OCI
Total insurance finance income (expenses) from
insurance contracts issued and effect of movement in
foreign exchange rates
Portion recognized in income (expenses), including effects of
exchange rates
Portion recognized in OCI, including effects of exchange rates
Total reinsurance finance income (expenses) from
reinsurance contracts held and effect of movement in
foreign exchange rates
Portion recognized in income (expenses), including effects of
foreign exchange rates
Portion recognized in OCI, including effects of exchange rates
Insurance and reinsurance contracts
Asia
Canada
U.S.
Corporate
Non-insurance(1)
Total
$
$
7,095
4,675
11,770
3,514
2,454
5,968
$
5,193
3,197
8,390
$
28
2
30
$ 2,191
1,077
3,268
$ 18,021
11,405
29,426
(6,436)
(4,601)
(11,037)
(3,315)
(2,394)
(5,709)
(4,868)
(5,068)
(9,936)
689
–
689
36
13
49
(13,894)
(12,050)
(25,944)
(105)
117
12
57
33
90
11
1,114
1,125
(682)
–
(682)
(15)
(25)
(40)
(734)
1,239
505
(1) Non-insurance includes consolidations and eliminations of transactions between operating segments.
For the year ended December 31, 2022
Total investment return
Portion recognized in income (expenses)
Portion recognized in OCI
Total insurance finance income (expenses) from
insurance contracts issued and effect of movement in
foreign exchange rates
Portion recognized in income (expenses), including effects of
exchange rates
Portion recognized in OCI, including effects of exchange rates
Total reinsurance finance income (expenses) from
reinsurance contracts held and effect of movement in
foreign exchange rates
Portion recognized in income (expenses), including effects of
foreign exchange rates
Portion recognized in OCI, including effects of exchange rates
Insurance and reinsurance contracts
Asia
Canada
U.S.
Corporate
Non-insurance(1)
Total
$
1,422
(14,200)
(12,778)
$
(1,967) $
(11,332)
(13,299)
$
894
(21,741)
(20,847)
9
(19)
(10)
$
(21) $
337
(7,970)
(7,991)
(55,262)
(54,925)
(1,654)
14,532
12,878
(219)
14,731
14,512
(4,867)
44,748
39,881
158
(1)
157
(34)
(235)
(269)
(6,616)
73,775
67,159
(63)
(126)
(189)
(102)
(150)
(252)
641
(9,161)
(8,520)
(154)
-
(154)
(13)
72
59
309
(9,365)
(9,056)
(1) Non-insurance includes consolidations and eliminations of transactions between operating segments.
(g) Significant judgements and estimates
(I) Fulfilment cash flows
Fulfilment cash flows have three major components:
•
Estimate of future cash flows
• An adjustment to reflect the time value of money and the financial risk related to future cash flows if not included in the estimate of
future cash flows
• A risk adjustment for non-financial risk
The determination of insurance fulfilment cash flows involves the use of estimates and assumptions. A comprehensive review of valuation
assumptions and methods is performed annually. The review reduces the Company’s exposure to uncertainty by ensuring assumptions for
liability risks remain appropriate. This is accomplished by monitoring experience and updating assumptions which represent a best estimate of
expected future experience, and margins 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 the changes in economic environment are likely to
result in future changes to the actuarial assumptions, which could materially impact the insurance contract liabilities.
221
Method used to measure insurance & reinsurance contract fulfilment cash flows
The Company primarily uses deterministic projections using best estimate assumptions to determine the present value of future cash
flows. For product features such as universal life minimum crediting rates guarantees, participating life zero dividend floor implicit
guarantees and variable annuities guarantees, the Company developed a stochastic approach to capture the asymmetry of the risk.
Determination of assumptions used
For the deterministic projections, assumptions are made with respect to mortality, morbidity, 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 factors and assumption methodology
Risk management
Mortality
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.
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 2023 experience was favourable (2022 – unfavourable)
when compared to the Company’s assumptions.
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. Morbidity is also monitored monthly and
the overall 2023 experience was favourable (2022 – favourable)
when compared to the Company’s assumptions.
Policy
termination
and premium
persistency
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.
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, 2023 policyholder termination and premium
persistency experience was unfavourable (2022 – unfavourable)
when compared to the Company’s assumptions used in the
computation of actuarial liabilities.
Directly
attributable
expenses
Directly attributable operating expense assumptions reflect the
projected costs of maintaining and servicing in-force policies,
including associated directly attributable overhead expenses.
The directly attributable 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.
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 2023 were unfavourable (2022 –
unfavourable) when compared to the Company’s assumptions
used in the computation of actuarial liabilities.
Directly attributable acquisitions expenses are derived from
internal cost studies.
Tax
Taxes reflect assumptions for future premium taxes and other
non-income related taxes.
The Company prices its products to cover the expected cost of
taxes.
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.
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.
Policyholder
dividends,
experience
rating refunds,
and other
adjustable
policy
elements
The Company reviews actuarial methods and assumptions on an annual basis. If changes are made to non-economic assumptions, the
impact based on locked-in economic assumptions would adjust the contractual service margin for general model and VFA contracts if
there is any remaining contractual service margin for the group of policies where the change was made. This amount would then be
recognized in income over the period of service provided. Changes could also impact net income and other comprehensive income to the
extent that the contractual service margin has been depleted, or discount rates are different than the locked-in rates used to quantify
changes to the contractual service margin.
222
| 2023 Annual Report | Notes to Consolidated Financial Statements
(II) Determination of discretionary changes
The terms of some contracts measured under the GMM give the Company discretion over the cash flows to be paid to the policyholders,
either in timing or amount. Changes in discretionary cash flows are regarded as relating to future service and accordingly adjust the CSM.
The Company determines how to identify a change in discretionary cash flows by specifying the basis on which it expects to determine its
commitment under the contract; for example, based on a fixed interest rate, or on returns that vary based on specified asset returns. This
determination is specified at the inception of the contract.
(III) Discount rates
Insurance contract cash flows for non-participating business are discounted using risk-free yield curves adjusted by an illiquidity premium
to reflect the liquidity characteristics of the liabilities. Cash flows that vary based on returns of underlying items are adjusted to reflect
their variability under these adjusted yield curves. Each yield curve is interpolated between the spot rate at the last observable market data
point and an ultimate spot rate which reflects the long-term real interest rate plus inflation expectations.
For participating business, insurance contract cash flows that vary based on the return of underlying items are discounted at rates
reflecting that variability.
For insurance contracts with cash flows that vary with the return of underlying items and where the present value is measured by
stochastic modelling, cash flows are both projected and discounted at scenario specific rates, calibrated on average to be the risk-free
yield curves adjusted for liquidity.
The spot rates used for discounting liability cash flows are presented in the following table and include illiquidity premiums determined
with reference to net asset spreads indicative of the liquidity characteristics of the liabilities by geography.
Canada
U.S.
Japan
Hong Kong
Canada
U.S.
Japan
Hong Kong
December 31, 2023
Currency
CAD
USD
JPY
HKD
Liquidity category
Illiquid
More liquid
Illiquid
More liquid
Mixed
Illiquid
Observable
years
30
30
30
30
30
15
Ultimate
year
70
70
70
70
70
55
1 year
5.17%
5.14%
5.38%
5.32%
0.53%
4.20%
5 years
4.33%
4.22%
4.54%
4.57%
0.77%
4.01%
10 years
4.92%
4.69%
5.37%
5.25%
1.08%
4.98%
20 years
4.86%
4.72%
5.65%
5.56%
1.75%
4.61%
30 years
4.80%
4.69%
5.27%
5.18%
2.24%
4.19%
Ultimate
4.40%
4.40%
5.00%
4.88%
1.60%
3.80%
December 31, 2022
Currency
CAD
USD
JPY
HKD
Liquidity category
Illiquid
More liquid
Illiquid
More liquid
Mixed
Illiquid
Observable
years
30
30
30
30
30
15
Ultimate
year
70
70
70
70
70
55
1 year
5.29%
5.21%
5.28%
5.23%
0.72%
4.69%
5 years
4.81%
4.63%
4.87%
4.88%
0.98%
4.95%
10 years
5.35%
4.97%
5.74%
5.61%
0.91%
5.60%
20 years
5.35%
5.02%
5.86%
5.76%
1.70%
4.99%
30 years
5.03%
4.91%
5.34%
5.23%
2.22%
4.36%
Ultimate
4.40%
4.40%
5.00%
4.88%
1.60%
3.80%
Amounts presented in income for policies where changes in assumptions that relate to financial risk do not have a substantial impact on
amounts paid to policyholders reflect discount rates locked in beginning with the adoption of IFRS 17 or locked in at issue for later
insurance contracts. These policies include term insurance, guaranteed whole life insurance, and health products including critical illness
and long-term care. For policies where changes in assumptions to financial risk have a substantial impact on amounts paid to
policyholders, discount rates are updated as future cash flows change due to changes in financial risk, so that the amount presented in
income from future changes in financial variables is $nil. These policies include adjustable universal life contracts. Impacts from
differences between current period rates and discount rates used to determine income are presented in other comprehensive income.
(IV) Risk adjustment and confidence level used to determine risk adjustment
Risk adjustment for non-financial risk represents the compensation the Company requires for bearing the uncertainty about the amount
and timing of the cash flows that arises from non-financial risk as the Company fulfils insurance contracts. The risk adjustment process
considers insurance, lapse and expense risks, includes both favourable and unfavourable outcomes, and reflects diversification benefits
from the insurance contracts issued.
The Company estimates the risk adjustment using a margin approach. This approach applies a margin for adverse deviation, typically in
terms of a percentage of best estimate assumptions, where future cash flows are uncertain. The resulting cash flows are discounted at
rates consistent with the best estimate cash flows to arrive at the total risk adjustment. The ranges for these margins are set by the
Company and reviewed periodically.
The risk adjustment for non-financial risk for insurance contracts correspond to a 90 – 95% confidence level for all segments.
223
(V) Investment component, Investment-return service and Investment-related service
The Company identifies the investment component, investment-return service (contract without direct participation features) and
investment-related service (contract with direct participation features) of a contract as part of the product governance process.
Investment components are amounts that are to be paid to the policyholder under all circumstances. Investment components are excluded
from insurance revenue and insurance service expenses.
Investment-return services and investment-related services are investment services rendered as part of an insurance contract and are part
of the insurance contract services provided to the policyholder.
(VI) Relative weighting of the benefit provided by insurance coverage, investment-return service and investment-related service
The contractual service margin is released into income, when insurance contract services are provided, by using coverage units. Coverage
units represent the quantity of service (insurance coverage, investment-return and investment-related services) provided and are determined
by considering the benefit provided under the contract and its expected coverage duration. When the relative size of the investment-related
service coverage or the investment-return service coverage unit is disproportionate compared to the insurance service coverage unit, or vice-
versa, the Company must determine a relative weighting of the services to reflect the delivery of each of those services. The Company
identifies the coverage units as part of the product governance process and did not identify contracts where such weighting was required.
(h) Composition of underlying items
The following table sets out the composition and fair value of the underlying items supporting the Company’s liabilities for direct
participation contracts as at the dates presented.
As at December 31,
Underlying assets
Debt securities
Public equities
Mortgages
Private placements
Real estate
Other
Total
2023
Variable
annuity
$
–
–
–
–
–
68,749
$ 68,749
Participating
$ 44,682
14,442
4,449
6,720
3,907
27,017
$ 101,217
Unit linked
Participating
$
–
–
–
–
–
15,539
$ 15,539
$ 39,894
12,119
3,813
5,666
3,190
26,009
$ 90,691
2022
Variable
annuity
$
–
–
–
–
–
69,033
$ 69,033
Unit linked
$
–
–
–
–
–
13,476
$ 13,476
(i) Asset for insurance acquisition cash flow
The following table presents the expected future derecognition of asset for insurance acquisition cash flow as at the dates presented.
As at December 31,
Asia
Canada
Total
2023
2022
Less than
1 year
$
59
72
$ 131
1-5 years
$ 150
205
$ 355
More than
5 years
$
62
272
$ 334
Total
$ 271
549
$ 820
Less than
1 year
$ 58
73
$ 131
1-5 years
$ 150
200
$ 350
More than
5 years
$ 75
249
$ 324
Total
$ 283
522
$ 805
(j) Insurance and reinsurance contracts contractual obligations – maturity analysis and amounts payable on demand
The table below represents the maturities of the insurance contract and reinsurance contract held liabilities as at the dates presented.
As at December 31, 2023
Payments due by period
Insurance contract liabilities(1)
Reinsurance contract held liabilities(1)
As at December 31, 2022
Payments due by period
Less than
1 year
$ 3,400
332
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
Over 5
years
Total
$ 5,546
460
$ 6,766
492
$ 8,849
592
$ 11,320
475
$1,074,764
6,097
$ 1,110,645
8,448
Less than
1 year
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
Over 5
years
Total
Insurance contract liabilities(1)
Reinsurance contract held liabilities(1)
$ 3,091
235
$ 4,976
237
$ 7,224
250
$ 9,212
243
$ 11,223
337
$ 996,460
5,320
$ 1,032,186
6,622
(1) 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 and exclude amounts from insurance contract liabilities for account of segregated fund holders. These estimated cash flows are based on the best estimate
assumptions used in the determination of insurance contract liabilities. These amounts are undiscounted. Reinsurance contract held liabilities cash flows include estimates
related to the timing and payment of future reinsurance premiums offset by recoveries on in-force 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.
224
| 2023 Annual Report | Notes to Consolidated Financial Statements
The amounts from insurance contract liabilities that are payable on demand are set out below as at the dates presented.
As at December 31,
Asia
Canada
U.S.
Total
2023
2022
Amounts payable
on demand
$ 100,060
28,264
44,360
$ 172,684
Carrying amount
$ 129,117
56,887
63,092
$ 249,096
Amounts payable
on demand
$ 95,777
25,745
45,394
$ 166,916
Carrying amount
$ 117,737
52,300
63,374
$ 233,411
The amounts payable on demand represent the policyholders’ cash and/or account values less applicable surrender fees as at the time of
the reporting date. Segregated fund insurance liabilities for account of segregated fund holders are excluded from the amounts payable on
demand and the carrying amount.
(k) Actuarial methods and assumptions
The Company performs a comprehensive review of actuarial methods and assumptions annually. The review is designed to reduce the
Company’s exposure to uncertainty by ensuring assumptions for liability risks remain appropriate. This is accomplished by monitoring
experience and updating assumptions that represent a best estimate of expected future experience, and margins that are appropriate for
the risks assumed. While the assumptions selected represent the Company’s 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 insurance contract liabilities. The changes implemented from the review are generally implemented in
the third quarter of each year, though updates may be made outside the third quarter in certain circumstances.
2023 Review of Actuarial Methods and Assumptions
On a full year basis, the 2023 review of actuarial methods and assumptions resulted in a decrease in pre-tax fulfilment cash flows of
$3,197. These changes resulted in an increase in pre-tax net income attributed to shareholders of $171 ($105 post-tax), an increase in pre
tax net income attributed to participating policyholders of $173 ($165 post-tax), an increase in CSM of $2,754, and an increase in pre-tax
other comprehensive income of $99 ($73 post-tax).
In the third quarter of 2023, the completion of the 2023 annual review of actuarial methods and assumptions resulted in a decrease in
pre-tax fulfilment cash flows of $347. These changes resulted in an increase in pre-tax net income attributed to shareholders of $27 (a
decrease of $14 post-tax), an increase in pre-tax net income attributed to participating policyholders of $58 ($74 post-tax), an increase in
CSM of $116, and an increase in pre-tax other comprehensive income of $146 ($110 post-tax).
In the fourth quarter of 2023, the Company also updated the actuarial methods and assumptions which decreased the overall level of the
risk adjustment for non-financial risk. This change moves the risk adjustment to approximately the middle of the Company’s existing
90 – 95% confidence level range. The risk adjustment would have exceeded the 95% confidence level in the fourth quarter without making
the change. This change led to a decrease in pre-tax fulfilment cash flows of $2,850, an increase in pre-tax net income attributed to
shareholders of $144 ($119 post-tax), an increase in pre-tax net income attributed to participating policyholders of $115 ($91 post-tax), an
increase in CSM of $2,638, and a decrease in pre-tax other comprehensive income of $47 ($37 post-tax).
Since the beginning of 2020, some lines of business have seen impacts to mortality and policyholder behaviour driven by the COVID-19
pandemic. Given the long-term nature of the Company’s assumptions, the Company’s 2023 experience studies have excluded experience
that was materially impacted by COVID-19 as this is not seen to be indicative of the levels of actual future claims or lapses.
Impact of changes in actuarial methods and assumptions on pre-tax fulfilment cash flows(1)
Canada variable annuity product review
Mortality and morbidity updates
Lapse and policyholder behaviour updates
Methodology and other updates
Impact of changes in actuarial methods and assumptions, pre-tax
For the three and
nine months ended
September 30, 2023
For the three
months ended
December 31, 2023
For the year ended
December 31, 2023
$
$
(133) $
265
98
(577)
(347) $
$
–
–
–
(2,850)
(2,850) $
(133)
265
98
(3,427)
(3,197)
(1) Excludes the portion related to non-controlling interests of $103 for the three and nine months ended September 30, 2023, and $97 for the three months ended December 31,
2023, respectively.
225
Impact of changes in actuarial methods and assumptions on pre-tax net income attributed to shareholders, pre-tax net income
attributed to participating policyholders, OCI and CSM(1)
Portion recognized in net income (loss) attributed to:
Participating policyholders
Shareholders and other equity holders
Portion recognized in OCI attributed to:
Participating policyholders
Shareholders and other equity holders
Portion recognized in CSM
Impact of changes in actuarial methods and assumptions, pre-tax
For the three and
nine months ended
September 30, 2023
For the three
months ended
December 31, 2023
For the year ended
December 31, 2023
$
$
58
27
85
–
146
146
116
347
$
$
$
115
144
259
(21)
(26)
(47)
2,638
2,850
$
173
171
344
(21)
120
99
2,754
3,197
(1) Excludes the portion related to non-controlling interests, of which $72 is related to CSM for the three and nine months
ended September 30, 2023, and $87 is related to CSM
for the three months ended December 31, 2023.
Canada variable annuity product review
The review of the Company’s variable annuity products in Canada resulted in a decrease in pre-tax fulfilment cash flows of $133.
The decrease was driven by a reduction in investment management fees, partially offset by updates to product assumptions, including
surrenders, incidence and utilization, to reflect emerging experience.
Mortality and morbidity updates
Mortality and morbidity updates resulted in an increase in pre-tax fulfilment cash flows of $265.
The increase was driven by a strengthening of incidence rates for certain products in Vietnam to align with emerging experience and
updates to mortality assumptions in the Company’s U.S. life insurance business to reflect industry trends, as well as emerging experience.
This was partially offset by updates to morbidity assumptions for certain products in Japan to reflect actual experience.
Lapse and policyholder behaviour updates
Updates to lapses and policyholder behaviour assumptions resulted in an increase in pre-tax fulfilment cash flows of $98.
The increase was primarily driven by a detailed review of lapse assumptions for the Company’s universal life level cost of insurance
products in Canada, which resulted in a reduction to the lapse rates to align with emerging trends.
Methodology and other updates
Methodology and other updates resulted in a decrease in pre-tax fulfilment cash flows of $3,427.
In the third quarter of 2023, methodology and other updates resulted in a decrease in pre-tax fulfilment cash flows of $577. The decrease
was driven by the impact of cost-of-guarantees for participating policyholders across all segments from annual updates related to
parameters, dividend recalibration, and market movements during the year, as well as modelling refinements for certain products in Asia.
This was partially offset by a modelling methodology update to project future premiums on the Company’s U.S. life insurance business.
In the fourth quarter of 2023, methodology and other updates resulted in a decrease in pre-tax fulfilment cash flows of $2,850. The decrease
was driven by a decrease in the overall level of the risk adjustment for non-financial risk. This change moves the risk adjustment to approximately
the middle of the Company’s existing 90 – 95% confidence level range.
Impact of changes in actuarial methods and assumptions on pre-tax fulfilment cash flows, net income attributed to shareholders,
CSM and OCI by segment
For the three and nine months ended September 30, 2023
The impact of changes in actuarial methods and assumptions in Canada resulted in a decrease in pre-tax fulfilment cash flows of $159. The
decrease was driven by updates to the Company’s variable annuity product assumptions, as well as by updates to its valuation models for
participating products, driven by the annual dividend recalibration, partially offset by a reduction in lapse rates on the Company’s universal
life level cost of insurance products to reflect emerging trends. These changes resulted in an increase in pre-tax net income attributed to
shareholders of $52 ($37 post-tax), an increase in CSM of $142, and an increase in pre-tax other comprehensive income of $2 ($1 post-tax).
The impact of changes in actuarial methods and assumptions in the U.S. resulted in an increase in pre-tax fulfilment cash flows of $270. The
increase was related to the Company’s life insurance business and primarily driven by a modelling methodology update to project future
premiums, as well as updates to mortality assumptions. These changes resulted in an increase in pre-tax net income attributed to shareholders
of $134 ($106 post-tax), a decrease in CSM of $600, and an increase in pre-tax other comprehensive income of $196 ($155 post-tax).
226
| 2023 Annual Report | Notes to Consolidated Financial Statements
The impact of changes in actuarial methods and assumptions in Asia resulted in a decrease in pre-tax fulfilment cash flows of $457. The
decrease largely relates to participating products, primarily driven by model refinements, dividend recalibration updates, as well as annual
updates to reflect market movements during the year. This, and the updates to morbidity assumptions on certain products in Japan, were
partially offset by updates to incidence rates on certain products in Vietnam. These changes resulted in a decrease in pre-tax net income
attributed to shareholders of $159 ($157 post-tax), an increase in CSM of $574, and a decrease in pre-tax other comprehensive income of
$53 ($47 post-tax).
The impact of changes in actuarial methods and assumptions in Corporate and Other (which includes the Company’s Reinsurance
businesses) resulted in a decrease in pre-tax fulfilment cash flows of $1. These changes resulted in no impacts to pre-tax net income
attributable to shareholders or CSM, and an increase in pre-tax other comprehensive income of $1 ($1 post-tax).
For the three months ended December 31, 2023
The reduction in the risk adjustment level resulted in the following impacts by segment:
The impact of changes in actuarial methods and assumptions in Canada resulted in a decrease in pre-tax fulfilment cash flows of $246.
These changes resulted in an increase in pre-tax net income attributed to shareholders of $4 ($3 post-tax), an increase in pre-tax net
income attributed to policyholder of $40 ($29 post-tax), an increase in CSM of $213, and a decrease in pre-tax other comprehensive
income of $11 ($8 post-tax).
The impact of changes in actuarial methods and assumptions in the U.S. resulted in a decrease in pre-tax fulfilment cash flows of $91.
These changes resulted in an increase in pre-tax net income attributed to shareholders of $33 ($26 post-tax), an increase in CSM of $78,
and a decrease in pre-tax other comprehensive income of $20 ($15 post-tax).
The impact of changes in actuarial methods and assumptions in Asia resulted in a decrease in pre-tax fulfilment cash flows of $2,513.
These changes resulted in an increase in pre-tax net income attributed to shareholders of $107 ($90 post-tax), an increase in pre-tax net
income attributed to policyholders of $75 ($62 post-tax), an increase in CSM of $2,348, and a decrease in pre-tax other comprehensive
income of $17 ($14 post-tax).
2022 Review of Actuarial Methods and Assumptions
The completion of the 2022 annual review of actuarial methods and assumptions resulted in an increase in pre-tax fulfilment cash flows of
$192. These changes resulted in an increase in pre-tax net income attributed to shareholders of $23 ($26 post-tax), a decrease in pre-tax
net income attributed to participating policyholders of $26 ($18 post-tax), a decrease in CSM of $279, and an increase in pre-tax other
comprehensive income of $90 ($73 post-tax).
Since the beginning of 2020, some lines of business have seen impacts to mortality and policyholder behaviour driven by the COVID-19
pandemic. Given the long-term nature of the Company’s assumptions, the Company’s 2022 experience studies have excluded experience
that was materially impacted by COVID-19 as this is not seen to be indicative of the levels of actual future claims or lapses.
Impact of changes in actuarial methods and assumptions on pre-tax fulfilment cash flows(1)
For the year ended December 31, 2022
Long-term care triennial review
Mortality and morbidity updates
Lapse and policyholder behaviour updates
Methodology and other updates
Impact of changes in actuarial methods and assumptions, pre-tax
(1) Excludes the portion related to non-controlling interests of $8.
Total
$ 118
83
234
(243)
$ 192
Impact of changes in actuarial methods and assumptions on pre-tax net income attributed to shareholders, pre-tax net income
attributed to participating policyholders, OCI and CSM(1)
For the year ended December 31, 2022
Portion recognized in net income (loss) attributed to:
Participating policyholders
Shareholders and other equity holders
Portion recognized in OCI attributed to:
Participating policyholders
Shareholders and other equity holders
Portion recognized in CSM
Impact of changes in actuarial methods and assumptions, pre-tax
(1) Excludes the portion related to non-controlling interests, of which $nil is related to CSM.
Total
$
(26)
23
(3)
–
90
90
(279)
$ (192)
227
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 was an increase in pre-tax fulfilment cash flows of $118.
The experience study showed that claim costs established in the Company’s last triennial review remain appropriate in aggregate for the
Company’s older blocks of business1
supported by robust claims data on this mature block. Pre-tax fulfilment cash flows were increased
for claim costs on the Company’s 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 2022. The Company also reviewed and updated incidence and claim termination assumptions which, on a net basis,
provided a partial offset to the increase in pre-tax fulfilment cash flows 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 pre-tax fulfilment
cash flows.
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 had 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 pre-tax
fulfilment cash flows at that time and demonstrates the Company’s continued strong track record of securing premium rate increases4. In
2022, the review of future premium increases assumed in fulfilment cash flows resulted in a net $2.5 billion (US$1.9 billion) decrease in
pre-tax fulfilment cash flows. 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.
Mortality and morbidity updates
Mortality and morbidity updates resulted in an increase in pre-tax fulfilment cash flows of $83, driven by updates to morbidity assumptions
in Vietnam to align with experience, partially offset by a detailed review of the mortality assumptions for the Company’s Canada insurance
business.
Lapse and policyholder behaviour updates
Updates to lapses and policyholder behaviour assumptions resulted in an increase in pre-tax fulfilment cash flows of $234.
The Company completed a detailed review of lapse assumptions for Singapore, and increased lapse rates to align with experience on the
Company’s 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.
Methodology and other updates
Other updates resulted in a decrease in pre-tax fulfilment cash flows of $243, which included updates to discount rates and policyholder
dividends on participating products, as well as various other modelling and projection updates.
Impact of changes in actuarial methods and assumptions on pre-tax fulfilment cash flows, net income attributed to shareholders,
CSM and OCI by segment
The impact of changes in actuarial methods and assumptions in Canada resulted in an increase in pre-tax fulfilment cash flows of $22. The
increase was driven by updates to the lapse assumptions for certain term insurance products, largely offset by updates to discount rates
and policyholder dividends on participating products, as well as updates to mortality assumptions for the Company’s insurance business.
These changes resulted in an increase in pre-tax net income attributed to shareholders of $64 ($47 post-tax), an increase in CSM of $43,
and a decrease in pre-tax other comprehensive income of $96 ($71 post-tax).
The impact of changes in actuarial methods and assumptions in the U.S. resulted in an increase in pre-tax fulfilment cash flows of $108,
driven by the triennial review of long-term care. These changes resulted in a decrease in pre-tax net income attributed to shareholders of
$16 ($12 post-tax), a decrease in CSM of $202, and an increase in pre-tax other comprehensive income of $110 ($86 post-tax).
The impact of changes in actuarial methods and assumptions in Asia resulted in an increase in pre-tax fulfilment cash flows of $62. The
increase was driven by updates to lapse assumptions in Singapore and morbidity updates in Vietnam, partially offset by various other
modelling and projection updates. These changes resulted in a decrease in pre-tax net income attributed to shareholders of $25 ($9 post-
tax), a decrease in CSM of $120, and an increase in pre-tax other comprehensive income of $76 ($58 post-tax).
Second generation policies with an average issue date of 2007 and Group policies with an average issue date of 2003.
1 First generation policies issued prior to 2002.
2
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. See “Caution regarding forward-looking statements” above.
228
| 2023 Annual Report | Notes to Consolidated Financial Statements
(l) Reinsurance transactions
Agreement with Global Atlantic Financial Group
On December 11, 2023, the Company announced it entered into an agreement with Global Atlantic Financial Group to reinsure policies
from the U.S. LTC, U.S. structured settlements, and Japan whole life legacy blocks. Under the terms of the transaction, the Company will
retain responsibility for the administration of the policies with no intended impact to policyholders. The transaction will be structured as
coinsurance of an 80% quota share for the LTC block and 100% quota shares for the other blocks.
The transaction represents a combined $13 billion of insurance and investment contract net liabilities as at September 30, 2023 and is
expected to close by the end of February 2024.
Agreements with Venerable Holdings, Inc.
On November 15, 2021 and October 3, 2022, the Company, through its subsidiary John Hancock Life Insurance Company (U.S.A)
(“JHUSA”), entered into reinsurance agreements with Venerable Holdings, Inc. to reinsure a block of legacy U.S. variable annuity (“VA”)
policies. Under the terms of the transaction, the Company will retain responsibility for the maintenance of the policies with no intended
impact to VA policyholders. The transaction was structured as coinsurance for the general fund liabilities and modified coinsurance for the
segregated fund liabilities.
The transaction closed on February 1, 2022 and October 3, 2022, respectively, resulting in a cumulative pre-tax decrease to the
contractual service margin of $905, recognized in 2022.
Note 8
Investment Contract Liabilities
Investment contract liabilities are contractual financial obligations of the Company that do not contain significant insurance risk. Those
contracts are subsequently measured either at FVTPL or at amortized cost.
(a) Investment contract liabilities designated as FVTPL
Investment contract liabilities measured at fair value are designated as FVTPL on initial recognition and include certain investment savings
and pension products. The Company does not have any investment contract liabilities that are mandatorily measured at FVTPL.
The following table presents the movement in investment contract liabilities measured at fair value.
For the years ended December 31,
Balance, excluding those for account of segregated fund holders, January 1
New contracts
Changes in market conditions
Redemptions, surrenders and maturities
Impact of changes in foreign exchange rates
Balance, excluding those for account of segregated fund holders, December 31
Investment contract liabilities for account of segregated fund holders
Balance, December 31
$
2023
798
48
47
(122)
(22)
749
263,401
$ 264,150
$
2022
825
79
(56)
(99)
49
798
238,346
$ 239,144
The amount due to contract holders is contractually determined based on specified assets and therefore, the fair value of the liabilities are
subject to asset specific performance risk but not the Company’s own credit risk, being fully collateralized. The Company has determined
that any residual credit risk is insignificant and has not had any significant impact on the fair value of the liabilities.
(b) Investment contract liabilities measured at amortized cost
Investment contract liabilities measured at amortized cost primarily include fixed annuity products 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, by reporting segment.
As at December 31,
Asia
Canada
U.S.
GWAM
Investment contract liabilities
2023
2022
$
Amortized
cost, gross of
reinsurance
ceded(1)
451
7,642
1,381
1,593
$ 11,067
$
Fair value
438
7,534
1,440
1,582
$ 10,994
Amortized
cost, gross of
reinsurance
ceded(1)
$ 636
6,699
1,535
411
$ 9,281
Fair value
$ 607
6,474
1,571
382
$ 9,034
(1) As at December 31, 2023, investment contract liabilities with carrying value and fair value of $27 and $27, respectively (2022 – $38 and $38, respectively), were reinsured by
the Company. The net carrying value and fair value of investment contract liabilities were $11,040 and $10,967 (2022 – $9,243 and $8,996, respectively).
229
The changes in investment contract liabilities measured at amortized cost resulted from the following business activities.
For the years ended December 31,
Balance, January 1
Policy deposits
Interest
Withdrawals
Fees
Impact of changes in foreign exchange rates
Other
Balance, December 31
2023
$ 9,281
3,365
218
(1,629)
1
(108)
(61)
$ 11,067
2022
$ 9,239
1,634
150
(1,882)
–
81
59
$ 9,281
Carrying value reflects amortization at rates that exactly discount the projected cash flows to the net carrying amount of the liabilities at
the dates of issue.
Fair value 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, 2023 and 2022, fair value of all investment contract liabilities was
determined using Level 2 valuation techniques.
(c) Investment contracts contractual obligations
As at December 31, 2023 and 2022, the Company’s contractual obligations and commitments relating to these investment contracts are
as follows.
Investment contract liabilities(1)
As at December 31,
Payments due by period
2023
2022
Less than 1
year
1 to 3
years
3 to 5
years
Over
5 years
Total
$ 268,537
241,301
$ 2,978
2,749
$ 1,408
1,789
$ 3,488
3,932
$ 276,411
249,771
(1) Due to the nature of the products, the timing of net cash flows may be before contract maturity. Cash flows are undiscounted.
Note 9 Risk Management
Manulife offers insurance, wealth and asset management products and other financial services, which subjects the Company to a broad
range of risks. Manulife manages these risks within an enterprise-wide risk management framework. Manulife’s goal in managing risk is to
strategically optimize risk taking and risk management to support long-term revenue, earnings and capital growth. Manulife seeks to
achieve this by capitalizing on business opportunities and strategies with appropriate risk/return profiles; ensuring sufficient management
expertise is in place to effectively execute strategies, and to identify, understand and manage underlying inherent risks; ensuring
strategies and activities align with its corporate and ethical standards and operational capabilities; pursuing opportunities and risks that
enhance diversification; and in making all risk taking decisions with analyses of inherent risks, risk controls and mitigations, and risk/
return trade-off.
(a) 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 currency exchange rate movements. Market price volatility primarily relates to changes in prices of publicly traded equities and
alternative long-duration assets. The profitability of the Company’s insurance and annuity products, as well as the fees the Company earns
in its investment management business, are subject to market risk.
Please read below for details on factors that could impact the level of market risk and the strategies used to manage this risk:
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. The Company’s overall strategy to manage its market risks incorporates several component strategies, each targeted to
manage one or more of the market risks arising from the Company’s businesses. At an enterprise level, these strategies are designed to
manage the Company’s aggregate exposures to market risks against limits associated with earnings and capital volatility.
230
| 2023 Annual Report | Notes to Consolidated Financial Statements
The following table outlines the Company’s 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 currency exchange management
Liquidity risk management
Public
Equity Risk
✓
✓
✓
✓
Interest Rate
and Spread Risk
✓
✓
✓
ALDA
Risk
✓
✓
Foreign
Currency
Exchange Risk
✓
✓
✓
✓
✓
Liquidity Risk
✓
✓
✓
✓
✓
✓
Product design and pricing strategy
The Company’s policies, standards, and guidelines with respect to product design and pricing are designed with the objective of aligning
its product offerings with its risk taking philosophy and risk appetite, and in particular, ensuring that incremental risk generated from new
sales aligns with its strategic risk objectives and risk limits. The specific design features of Manulife’s product offerings, including level of
benefit guarantees, policyholder options, fund offerings and availability restrictions as well as its associated investment strategies, help to
mitigate the level of underlying risk. Manulife regularly reviews and modifies key features within its product offerings, including premiums
and fee charges with a goal of meeting profit targets and staying within risk limits. Certain of the Company’s 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. All material new product, reinsurance and underwriting initiatives must be reviewed and approved by the Chief Risk Officer
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 contract 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.
Manulife seeks to manage public equity risk arising from unhedged exposures in its insurance contract liabilities through the macro equity
risk hedging strategy. The Company seeks to manage interest rate risk arising from variable annuity business not dynamically hedged
through its asset liability management strategy.
Variable annuity dynamic hedging strategy
The variable annuity dynamic hedging strategy is designed to hedge the sensitivity of variable annuity guarantee insurance contract 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 the hedge asset portfolio.
The Company’s 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 insurance contract 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. The Company may also utilize other derivatives with the
objective to improve hedge effectiveness opportunistically.
The Company’s variable annuity guarantee dynamic hedging strategy is not designed to completely offset the sensitivity of insurance
contract 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;
•
• Risk adjustment related to cost of guarantees in the insurance contract liabilities is largely 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.
231
Macro equity risk hedging strategy
The objective of the macro equity risk hedging program is to maintain the Company’s overall earnings sensitivity to public equity market
movements within the 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
• Host contract fees related to variable annuity guarantees are not dynamically hedged.
Asset liability management strategy
Manulife’s asset liability management strategy is designed to help ensure that the market risks embedded in its 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 currency exchange rate movements.
General fund product liabilities are categorized into groups with similar characteristics in order to support them with a specific asset
strategy. The Company seeks 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.
Foreign exchange risk management strategy
Manulife’s policy is to generally match the currency of its assets with the currency of the liabilities they support. Where assets and
liabilities are not currency matched, the Company seeks to hedge this exposure where appropriate to stabilize its earnings and capital
positions and remain within its enterprise foreign exchange risk limits.
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 consider legal, regulatory, tax, operational
or economic impediments to inter-entity funding. The asset mix of the Company’s 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 Manulife’s
liquidity ratios to remain strong. Manulife manages liquidity centrally and closely monitors the liquidity positions of its principal subsidiaries.
Manulife seeks to mitigate liquidity risk by diversifying its business across different products, markets, geographical regions and policyholders.
The Company designs insurance products to encourage policyholders to maintain their policies in-force, to help generate a diversified and stable
flow of recurring premiums. The Company designs the policyholder termination features with the goal of mitigating the financial exposure and
liquidity risk related to unexpected policyholder terminations. The Company establishes and implements 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 the Company’s total assets. Manulife aims to reduce liquidity risk in the
Company’s businesses by diversifying its funding sources and appropriately managing the term structure of its funding. The Company forecasts
and monitors 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.
The Company also maintains centralized cash pools and access to other sources of liquidity and contingent liquidity such as repurchase
funding agreements. Manulife’s centralized cash pools consist of cash or near-cash, high quality short-term investments that are
continually monitored for their credit quality and market liquidity.
Manulife has established a variety of contingent liquidity sources. These include, among others, a $500 committed unsecured revolving
credit facility with certain Canadian chartered banks available for the Company, and a US$500 committed unsecured revolving credit
facility with certain U.S. banks available to the Company and certain of its U.S. subsidiaries. There were no outstanding borrowings under
these facilities as of December 31, 2023 (2022 – $nil). In addition, 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, 2023, JHUSA had an estimated
maximum borrowing capacity of US$4.3 billion (2022 – US$3.8 billion) based on regulatory limitations with an outstanding balance of
US$500 (2022 – US$500), under the FHLBI facility.
232
| 2023 Annual Report | Notes to Consolidated Financial Statements
The following table outlines the maturity of the Company’s significant financial liabilities.
Maturity of financial liabilities(1)
As at December 31, 2023
Long-term debt
Capital instruments
Derivatives
Deposits from Bank clients(2)
Lease liabilities
(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, 2023 was $21,616 and $21,518, respectively (2022 – $22,507 and $22,271 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 (2022 – Level 2).
Total
$ 6,071
6,667
11,687
21,616
350
$
$
3 to 5
years
920
–
717
1,839
68
Over 5
years
$ 3,479
6,073
7,427
–
49
1 to 3
years
$ 1,672
–
1,982
2,963
133
Less than
1 year
–
594
1,561
16,814
100
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 $470.2 billion as at December 31, 2023
(2022 – $477.7 billion).
(b) Market risk sensitivities and market risk exposure measures
Variable annuity and segregated fund guarantees
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.
Manulife seeks to mitigate a portion of the risks embedded in its retained (i.e., net of reinsurance) variable annuity and segregated fund
guarantee business through the combination of dynamic and macro hedging strategies (see “Publicly traded equity performance risk
sensitivities and exposure measures” below).
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,
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
2023
2022
Guarantee
value(1)
$ 3,864
34,833
18,996
57,693
9,133
66,826
24,208
3,400
27,608
$ 39,218
Fund value
$ 2,735
33,198
19,025
54,958
17,279
72,237
23,146
2,576
25,722
$ 46,515
Net
amount at
risk(1),(2),(3)
$ 1,156
4,093
116
5,365
975
6,340
3,395
482
3,877
$ 2,463
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
(1) Guarantee Value and Net Amount at Risk in respect of guaranteed minimum withdrawal business in Canada and the U.S. 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, 2023 was $2,463 (2022 – $3,829) of which: US$391 (2022 – US$737) was on the Company’s U.S. business, $1,559
(2022 – $2,154) was on the Company’s Canadian business, US$140 (2022 – US$275) was on the Company’s Japan business and US$155 (2022 – US$224) was related to
Asia (other than Japan) and the Company’s 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.
233
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,
Investment category
Equity funds
Balanced funds
Bond funds
Money market funds
Other fixed interest rate investments
Total
2023
2022
$ 45,593
35,801
8,906
1,559
1,907
$ 93,766
$ 42,506
36,290
9,336
1,924
2,029
$ 92,085
Caution related to sensitivities
In the sections that follow, the Company provides 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. 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 liabilities from updates to
non-economic assumptions, changes in business mix, effective tax rates and other market factors; and the general limitations of the
Company’s 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, the Company
cannot provide assurance that the actual impact on CSM, net income attributed to shareholders, other comprehensive income attributed
to shareholders, and total comprehensive income attributed to shareholders will be as indicated.
Publicly traded equity performance risk sensitivities and exposure measures
The tables below include the potential impacts from an immediate 10%, 20% and 30% change in market values of publicly traded equities
on CSM, net income attributed to shareholders, other comprehensive income attributed to shareholders, and total comprehensive income
attributed to shareholders. The potential impact is shown after taking into account the impact of the change in markets on the hedge
assets. While the Company cannot reliably estimate the amount of the change in dynamically hedged variable annuity guarantee liabilities
that will not be offset by the change in the dynamic hedge assets, the Company makes 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 offset 95% of the hedged variable annuity liability movement that occurs as a result of
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 adoption of IFRS 17 did not change the method or assumptions used for deriving sensitivity information.
234
| 2023 Annual Report | Notes to Consolidated Financial Statements
Potential immediate impact on net income attributed to shareholders arising from changes to public equity returns(1)
As at December 31, 2023
Underlying sensitivity
Variable annuity guarantees(2)
General fund equity investments(3)
Total underlying sensitivity before hedging
Impact of macro and dynamic hedge assets(4)
Net potential impact on net income attributed to shareholders after impact of
hedging and before impact of reinsurance
Impact of reinsurance
Net potential impact on net income attributed to shareholders after impact of
Net income attributed to shareholders
-30%
-20%
-10%
+10%
+20%
+30%
$(2,370) $(1,460) $
(1,170)
(3,540)
880
(770)
(2,230)
530
(670) $ 550
380
(390)
930
(1,060)
(190)
240
$1,010
760
1,770
(340)
$1,390
1,140
2,530
(460)
(2,660)
1,470
(1,700)
900
(820)
420
740
(350)
1,430
(650)
2,070
(910)
hedging and reinsurance
$(1,190) $
(800) $
(400) $ 390
$ 780
$1,160
As at December 31, 2022
Underlying sensitivity
Variable annuity guarantees(2)
General fund equity investments(3)
Total underlying sensitivity before hedging
Impact of macro and dynamic hedge assets(4)
Net potential impact on net income attributed to shareholders after impact of
hedging and before impact of reinsurance
Impact of reinsurance
Net potential impact on net income attributed to shareholders after impact of
Net income attributed to shareholders
-30%
-20%
-10%
+10%
+20%
+30%
$(2,110)
(1,450)
(3,560)
930
$(1,310)
(920)
(2,230)
570
$
(610)
(420)
(1,030)
260
$ 530
400
930
(220)
$ 980
780
1,760
(400)
$1,360
1,170
2,530
(540)
(2,630)
1,170
(1,660)
740
(770)
350
710
(310)
1,360
(580)
1,990
(810)
hedging and reinsurance
$(1,460) $
(920) $
(420) $ 400
$ 780
$1,180
(1) See “Caution related to sensitivities” above.
(2) For variable annuity contracts measured under VFA the impact of financial risk and changes in interest rates adjusts CSM, unless the risk mitigation option applies. The
Company has elected to apply risk mitigation and therefore a portion of the impact is reported in net income attributed to shareholders instead of adjusting the CSM. If the CSM
for a group of variable annuity contracts is exhausted the full impact is reported in net income attributed to shareholders.
(3) This impact for general fund equity investments includes general fund investments supporting the Company’s insurance contract liabilities, investment in seed money
investments (in segregated and mutual funds made by Global WAM segment) and the impact on insurance contract liabilities related to the projected future fee income on
variable universal life and other unit linked products. The impact does not include any potential impact on public equity weightings. 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.
(4) Includes the impact of assumed rebalancing of equity hedges in the macro and dynamic hedging program. The impact of dynamic hedge represents the impact of equity hedges
offsetting 95% of the dynamically hedged variable annuity liability movement that occurs as a result of market changes, but does not include any impact in respect of other
sources of hedge accounting ineffectiveness (e.g., fund tracking, realized volatility and equity, interest rate correlations different from expected among other factors).
Potential immediate impact on contractual service margin, other comprehensive income to shareholders and total comprehensive
income to shareholders(1),(2),(3)
As at December 31, 2023
Variable annuity guarantees reported in CSM
Impact of risk mitigation—hedging(4)
Impact of risk mitigation—reinsurance(4)
VA net of risk mitigation
General fund equity
Contractual service margin (pre-tax)
Other comprehensive income attributed to shareholders (post-tax)(5)
Total comprehensive income attributed to shareholders (post-tax)
As at December 31, 2022
Variable annuity guarantees reported in CSM
Impact of risk mitigation—hedging(4)
Impact of risk mitigation—reinsurance(4)
VA net of risk mitigation
General fund equity
Contractual service margin (pre-tax)
Other comprehensive income attributed to shareholders (post-tax)(5)
Total comprehensive income attributed to shareholders (post-tax)
-30%
$(3,810)
1,150
1,850
(810)
(940)
-20%
$(2,370)
700
1,140
(530)
(610)
$(1,750) $(1,140) $
(490) $
$
$(1,920) $(1,290) $
(730) $
+10%
-10%
$ 940
$(1,100)
(250)
310
(450)
530
240
(260)
(300)
290
(560) $ 530
(240) $ 230
(640) $ 620
-10%
-30%
-20%
+10%
$(3,410) $(2,140) $(1,010) $ 890
(280)
340
(390)
440
220
(230)
(210)
240
(440) $ 460
(210) $ 210
(630) $ 610
740
1,200
930
1,480
(470)
(730)
(370)
(520)
(840) $
$(1,250) $
(410) $
(620) $
$
$(2,080) $(1,330) $
+20%
$1,760
(450)
(830)
480
590
$1,070
$ 460
$1,240
+20%
$1,670
(510)
(730)
430
490
$ 920
$ 400
$1,180
+30%
$2,470
(600)
(1,150)
720
870
$1,590
$ 680
$1,840
+30%
$2,360
(690)
(1,030)
640
730
$1,370
$ 600
$1,780
(1) See “Caution related to sensitivities” above.
(2) 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 offset 95% of the hedged variable
annuity liability movement that occur as a result of market changes.
(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.
(4) For variable annuity contracts measured under VFA the impact of financial risk and changes in interest rates adjusts CSM, unless the risk mitigation option applies. The
Company has elected to apply risk mitigation and therefore a portion of the impact is reported in net income attributed to shareholders instead of adjusting the CSM. If the CSM
for a group of variable annuity contracts is exhausted the full impact is reported in net income attributed to shareholders.
(5) The impact of financial risk and changes to interest rates for variable annuity contracts is not expected to generate sensitivity in Other Comprehensive Income.
235
Interest rate and spread risk sensitivities and exposure measures
As at December 31, 2023, the Company estimated the sensitivity of net income attributed to shareholders to a 50 basis point parallel
decline in interest rates to be a benefit of $100, and to a 50 basis point parallel increase in interest rates to be a charge of $100.
The table below shows the potential impacts from a 50 basis point parallel move in interest rates on CSM, net income attributed to
shareholders, other comprehensive income attributed to shareholders, and total comprehensive income attributed to shareholders. This
includes a change 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. Also shown separately are the potential impacts from a 50 basis point parallel move in
corporate spreads and a 20 basis point parallel move in swap spreads. The impacts reflect the net impact of movements in asset values in
liability and surplus segments and movements in the present value of cash flows for insurance contracts including those with cash flows
that vary with the returns of underlying items where the present value is measured by stochastic modelling. The method used for deriving
sensitivity information and significant assumptions made did not change from the previous period.
The disclosed interest rate sensitivities reflect the accounting designations of the Company’s financial assets and corresponding insurance
contract liabilities. In most cases these assets and liabilities are designated as FVOCI and as a result, impacts from changes to interest
rates are largely in other comprehensive income. There are also changes in interest rates that impact the CSM for VFA contracts that relate
to amounts that are not passed through to policyholders. In addition, changes in interest rates impact net income as it relates to
derivatives not in hedge accounting relationships and on VFA contracts where the CSM has been exhausted.
The disclosed interest rate sensitivities assume no hedge accounting ineffectiveness, as the Company’s hedge accounting programs are
optimized for parallel movements in interest rates, leading to immaterial net income impacts under these shocks. However, the actual
hedge accounting ineffectiveness is sensitive to non-parallel interest rate movements and will depend on the shape and magnitude of the
interest rate movements which could lead to variations in the impact to net income attributed to shareholders.
The Company’s sensitivities vary across all regions in which it operates, and the impacts of yield curve changes will vary depending upon
the geography where the change occurs. Furthermore, the impacts from non-parallel movements may be materially different from the
estimated impacts of parallel movements.
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 impacts also do not take into account other potential effects of changes in interest rate levels, for example, CSM at
recognition on the sale of new business or lower interest earned on future fixed income asset purchases.
The impacts do not reflect any potential effect of changing interest rates on the value of the Company’s ALDA. Rising interest rates could
negatively impact the value of the Company’s ALDA. More information on ALDA can be found below under “Alternative long-duration asset
performance risk sensitivities and exposure measures”.
Potential impacts on contractual service margin, net income attributed to shareholders, other comprehensive income attributed to
shareholders, and total comprehensive income attributed to shareholders of an immediate parallel change in interest rates,
corporate spreads or swap spreads relative to current rates(1),(2),(3),(4)
As at December 31, 2023
(post-tax except CSM)
CSM
Net income attributed to shareholders
Other comprehensive income attributed to shareholders
Total comprehensive income attributed to shareholders
As at December 31, 2022
(post-tax except CSM)
CSM
Net income attributed to shareholders
Other comprehensive income attributed to shareholders
Total comprehensive income attributed to shareholders
Interest rates
Corporate spreads
Swap spreads
-50bp
+50bp
-50bp
+50bp
-20bp
+20bp
$
–
100
(300)
(200)
$ (100)
(100)
300
200
$
–
–
(200)
(200)
$(100)
–
300
300
$
–
100
(100)
–
$
–
(100)
100
–
Interest rates
Corporate spreads
Swap spreads
-50bp
+50bp
-50bp
+50bp
-20bp
+20bp
$ (100)
1,700
(1,900)
(200)
$
–
(1,500)
1,600
100
$(100) $
–
–
–
–
–
–
–
$
$
–
–
–
–
–
–
–
–
(1) See “Caution related to sensitivities” above.
(2) Estimates include changes to the net actuarial gains/losses with respect to the Company’s pension obligations as a result of changes in interest rates.
(3) 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.
(4) The Company adopted IFRS 9 hedge accounting prospectively from January 1, 2023, as such the sensitivity results for 2023 and 2022 are based on different accounting basis
in which 2023 includes the impacts of hedge accounting and 2022 does not.
Alternative long-duration asset performance risk sensitivities and exposure measures
The following table shows the potential impact on CSM, net income attributed to shareholders, other comprehensive income attributed to
shareholders, and total comprehensive income attributed to shareholders resulting from an immediate 10% change in market values of
ALDA. The method used for deriving sensitivity information and significant assumptions made did not change from the previous period.
236
| 2023 Annual Report | Notes to Consolidated Financial Statements
ALDA includes commercial real estate, timber and farmland real estate, infrastructure, and private equities, some of which relate to energy.1
The impacts do not reflect any future potential changes to non-fixed income return volatility. Refer to “Publicly traded equity performance
risk sensitivities and exposure measures” above for more details.
Potential immediate impacts on contractual service margin, net income attributed to shareholders, other comprehensive income
attributed to shareholders, and total comprehensive income attributed to shareholders from changes in ALDA market values(1)
As at
(post-tax except CSM)
CSM excluding NCI
Net income attributed to shareholders
Other comprehensive income attributed to shareholders
Total comprehensive income attributed to shareholders
(1) See “Caution related to sensitivities” above.
December 31, 2023
December 31, 2022
-10%
+10%
-10%
+10%
$
(100) $ 100
2,400
200
2,600
(2,400)
(200)
(2,600)
$
(100)
(2,500)
(100)
(2,600)
$ 100
2,500
100
2,600
Foreign exchange risk sensitivities and exposure measures
The Company generally matches the currency of its assets with the currency of the insurance and investment contract liabilities they
support, with the objective of mitigating risk of loss arising from foreign currency exchange rate changes. As at December 31, 2023, the
Company did not have a material unmatched currency exposure.
Liquidity risk exposure strategy
Manulife manages liquidity levels of the consolidated group and key subsidiaries against established thresholds. These thresholds are
based on liquidity stress scenarios over varying 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 the Company’s
derivative portfolio is therefore regularly stress tested to assess the potential collateral and cash settlement requirements under various
market conditions.
(c) 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.
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 fair 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.
Credit risk associated with derivative counterparties is discussed in note 9 (f) and credit risk associated with reinsurance counterparties is
discussed in note 9 (k).
1 Energy includes legacy oil and gas equity interests related to upstream and midstream assets that are in runoff, and Energy Transition private equity interests in areas
supportive of the transition to lower carbon forms of energy, such as wind, solar, batteries and magnets.
237
(I) Credit quality
The following table presents financial instruments subject to credit exposure, without considering any collateral held or other credit
enhancements, and other significant credit risk exposures from loan commitments, with allowances, presenting separately Stage 1, Stage
2, and Stage 3 credit risk profiles. For each asset type presented in the table, amortized cost and FVOCI financial instruments are
presented together. Amortized cost financial instruments are shown gross of the allowance for credit losses, which is shown separately.
FVOCI financial instruments are shown at fair value with the allowance for credit losses shown separately.
As at December 31, 2023
Debt securities
Investment grade
Non-investment grade
Default
Total
Allowance for credit losses on assets measured at amortized cost
Net of allowance
Allowance for credit losses on assets measured at FVOCI
Private placements
Investment grade
Non-investment grade
Total
Allowance for credit losses on assets measured at amortized cost
Net of allowance
Allowance for credit losses on assets measured at FVOCI
Commercial mortgages
AAA
AA
A
BBB
BB
B and lower
Total
Allowance for credit losses on assets measured at amortized cost
Net of allowance
Allowance for credit losses on assets measured at FVOCI
Residential mortgages
Performing
Non-performing
Total
Allowance for credit losses on assets measured at amortized cost
Net of allowance
Allowance for credit losses on assets measured at FVOCI
Loans to Bank clients
Performing
Non-performing
Total
Allowance for credit losses on assets measured at amortized cost
Net of allowance
Allowance for credit losses on assets measured at FVOCI
Other invested assets
Investment grade
Below investment grade
Default
Total
Allowance for credit losses on assets measured at amortized cost
Net of allowance
Allowance for credit losses on assets measured at FVOCI
Loan commitments
Allowance for credit losses
Net of allowance, total
238
| 2023 Annual Report | Notes to Consolidated Financial Statements
Stage 1
Stage 2
Stage 3
Total
$
$ 198,935
5,367
–
204,302
–
204,302
283
$ 2,252
596
–
2,848
1
2,847
54
37,722
5,210
42,932
–
42,932
126
279
6,815
14,259
5,513
10
145
27,021
1
27,020
40
20,898
–
20,898
4
20,894
–
2,387
–
2,387
2
2,385
–
3,791
360
–
4,151
1
4,150
16
1,644
295
1,939
–
1,939
108
–
–
134
984
532
71
1,721
2
1,719
42
1,570
–
1,570
2
1,568
–
44
–
44
–
44
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6
–
81
81
–
81
83
–
–
–
–
–
107
107
–
107
143
–
60
60
2
58
–
–
8
8
1
7
–
–
–
–
–
–
–
–
$ 201,187
5,963
–
207,150
1
207,149
343
39,366
5,586
44,952
–
44,952
317
279
6,815
14,393
6,497
542
323
28,849
3
28,846
225
22,468
60
22,528
8
22,520
–
2,431
8
2,439
3
2,436
–
3,791
360
–
4,151
1
4,150
16
9
$ 301,683
1
$ 8,117
2
$ 253
12
$ 310,053
(II) Allowance for credit losses
The following table provides details on the allowance for credit losses by stage as at and for the year ended December 31, 2023 under
IFRS 9.
As at December 31, 2023
Balance, beginning of year
Net re-measurement due to transfers
Transfer to stage 1
Transfer to stage 2
Transfer to stage 3
Net originations, purchases and disposals
Repayments
Changes to risk, parameters, and models
Foreign exchange and other adjustments
Balance, end of year
Stage 1
Stage 2
Stage 3
Total
$ 511
4
12
(6)
(2)
45
–
(71)
(7)
$ 482
$ 141
6
(11)
28
(11)
8
–
48
7
$ 210
$ 72
(10)
(1)
(22)
13
(23)
–
233
(35)
$ 724
–
–
–
–
30
–
210
(35)
$ 237
$ 929
The following table presents past due but not impaired and impaired financial assets as at December 31, 2022 under IAS 39.
As at December 31, 2022
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
(1) Payments of $12 on $3,297 of financial assets past due less than 90 days were delayed.
(2) Payments of $4 on $224 of financial assets past due greater than 90 days were delayed.
(III) Significant judgements and estimates
The following table shows certain key macroeconomic variables used to estimate the ECL allowances by market. For the base case, upside
and downside scenarios, the projections are provided for the next 12 months and then for the remaining forecast period, which represents
a medium-term view.
As at December 31, 2023
Canada
Gross Domestic Product (GDP), in
U.S. $ billions
Unemployment rate
NYMEX Light Sweet Crude Oil
(in U.S. dollars, per barrel)
U.S.
Gross Domestic Product (GDP), in
U.S. $ billions
Unemployment rate
7-10 Year BBB U.S. Corporate
Index
Japan
Gross Domestic Product (GDP),
in JPY billions
Unemployment rate
Hong Kong
Unemployment rate
Hang Seng Index
China
Gross Domestic Product (GDP),
in CNY billions
FTSE Xinhua A200 Index
Base case scenario
Upside scenario
Downside scenario 1
Downside scenario 2
Current
quarter
Next 12
months
Ensuing 4
years
Next 12
months
Ensuing 4
years
Next 12
months
Ensuing 4
years
Next 12
months
Ensuing 4
years
$ 1,448
5.8%
1.6%
6.0%
2.0%
5.8%
3.6%
5.3%
2.3%
4.9%
(2.1%)
7.9%
2.2%
7.7%
(4.1%)
9.2%
2.1%
9.3%
$
85.7
82.8
71.4
85.3
71.7
68.0
64.8
58.9
58.6
$ 22,531
3.9%
1.3%
3.9%
2.3%
4.0%
3.6%
3.2%
2.4%
3.3%
(2.5%)
6.5%
2.6%
5.8%
(4.2%)
6.9%
2.5%
7.6%
6.6%
6.5%
6.0%
6.2%
6.1%
6.0%
5.4%
6.6%
5.3%
¥559,492
2.7%
0.4%
2.7%
2.8%
19,316
2.9%
20.9%
0.8%
2.4%
3.2%
5.1%
2.5%
2.6%
2.6%
35.4%
1.0%
2.2%
2.8%
4.7%
(4.6%)
3.2%
1.1%
3.1%
(8.3%)
3.3%
1.7%
3.7%
4.0%
(13.6%)
4.0%
11.3%
4.4%
(34.1%)
4.8%
14.8%
$108,251
9,852
6.0%
7.3%
4.3%
5.0%
9.5%
26.6%
4.4%
3.0%
(1.2%)
(31.4%)
4.6%
11.9%
(4.7%)
(42.0%)
3.9%
13.4%
239
(IV) Sensitivity to changes in economic assumptions
The following table shows the ECL allowance resulting from all four macroeconomic scenarios (including the more heavily weighted best
estimate baseline scenario, one upside and two downside scenarios) weighted by probability of occurrence and shows the ECL allowance
resulting from only the baseline scenario.
As at
Probability-weighted ECLs
Base ECLs
Difference – in amount
Difference – in percentage
December 31, 2023
$ 929
$ 659
$ 270
29.08%
(d) 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, 2023, the Company had loaned securities (which are included in invested assets) with a market value of $626 (2022 –
$723). The Company holds collateral with a current market value that exceeds the value of securities lent in all cases.
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, 2023 the Company had engaged in reverse
repurchase transactions of $466 (2022 – $895) which are recorded as short-term receivables. In addition, the Company had engaged in
repurchase transactions of $202 as at December 31, 2023 (2022 – $895) which are recorded as payables.
(e) 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, 2023
Single name CDS(3),(4) – Corporate debt
AA
A
BBB
Total single name CDS
Total CDS protection sold
As at December 31, 2022
Single name CDS(3),(4) – Corporate debt
AA
A
BBB
Total single name CDS
Total CDS protection sold
Notional
amount(1)
Fair value
Weighted
average maturity
(in years)(2)
$ 23
94
14
$ 131
$ 131
$ 1
2
–
$ 3
$ 3
4
3
1
3
3
Notional
amount(1)
Fair value
Weighted
average maturity
(in years)(2)
$
–
133
26
$ 159
$ 159
$ –
4
–
$ 4
$ 4
–
4
1
4
4
(1) Notional amounts represent the maximum future payments the Company would have to pay its 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.
(4) The Company held no purchased credit protection as at December 31, 2023 and December 31, 2022.
(f) 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,
240
| 2023 Annual Report | Notes to Consolidated Financial Statements
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, 2023, the percentage of the Company’s derivative exposure with counterparties rated AA- or higher was 33 per cent (2022
– 36 per cent). As at December 31, 2023, the largest single counterparty exposure, without taking into consideration the impact of master
netting agreements or the benefit of collateral held, was $1,357 (2022 – $1,582). The net exposure to this counterparty, after taking into
consideration master netting agreements and the fair value of collateral held, was $nil (2022 – $nil).
(g) 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.
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, 2023
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, 2022
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
amounts
including
financing
entity(3)
Net
amounts
excluding
financing
entity
Gross amounts of
financial instruments(1)
$
9,044
626
466
$ 10,136
$ (12,600)
(202)
$ (12,802)
$ (6,516)
–
(202)
$ (6,718)
$ (2,374) $ 154
–
–
$ 154
(626)
(264)
$ (3,264)
$ 154
–
–
$ 154
$ 6,516
202
$ 6,718
$ 5,958
–
$ 5,958
$ (126)
–
$ (126)
$
$
(57)
–
(57)
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
amounts
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) $ (1,687) $ 215
–
–
$ 215
(723)
(116)
$ (2,526)
–
(779)
$ (7,949)
$ 215
–
–
$ 215
$ 7,170
779
$ 7,949
$ 7,834
116
$ 7,950
$ (147)
–
$ (147)
$ (103)
–
$ (103)
(1) Financial assets and liabilities include accrued interest of $502 and $913 respectively (2022 – $488 and $862 respectively).
(2) Financial and cash collateral exclude over-collateralization. As at December 31, 2023, 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 $424, $1,420, $20 and $nil respectively (2022 – $507, $1,528, $63
and $nil respectively). As at December 31, 2023, 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 unconsolidated financing entity. The Company does not exchange collateral on derivative contracts entered
with this entity. Refer to note 18.
241
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.
A credit linked note is a debt 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, 2023
Credit linked note(1)
Variable surplus note
As at December 31, 2022
Credit linked note(1)
Variable surplus note
Gross amounts of
financial instruments
$ 1,276
(1,276)
Gross amounts of
financial instruments
$ 1,242
(1,242)
Amounts subject to
an enforceable
netting arrangement
(1,276)
1,276
$
Amounts subject to
an enforceable
netting arrangement
$ (1,242)
1,242
Net amounts of
financial instruments
$ –
–
Net amounts of
financial instruments
$ –
–
(1) As at December 31, 2023 and 2022, the Company had no fixed surplus notes outstanding. Refer to note 19 (g).
(h) 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 (2023 – 37% of real estate, 2022 – 41%)
Largest concentration of mortgages and real estate(2) – Ontario Canada (2023 – 29%, 2022 – 27%)
2023
95%
38%
10%
$ 1,131
2%
$ 4,829
$ 19,003
2022
96%
36%
10%
$ 1,006
2%
$ 5,486
$ 18,343
(1) Investment grade debt securities and private placements include 38% rated A, 17% rated AA and 15% rated AAA (2022 – 39%, 17% and 14%) 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
2023
2022
Carrying value
$ 84,739
45,952
39,069
31,181
15,782
24,209
16,823
$ 257,755
% of total
33
18
15
12
6
9
7
100
Carrying value
$ 77,236
46,315
38,808
31,556
16,314
23,823
16,909
$ 250,961
% of total
31
18
15
13
7
9
7
100
(i) 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.
242
| 2023 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.
(j) 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, 2023
U.S. and Canada
Asia and Other
Total
As at December 31, 2022
U.S. and Canada
Asia and Other
Total
Insurance
contract liabilities
Investment
contract liabilities
Reinsurance
assets
$ 327,458
154,536
$ 481,994
$ 260,046
15,171
$ 275,217
$ (39,080)
(1,169)
$ (40,249)
Net liabilities
$ 548,424
168,538
$ 716,962
Insurance
contract liabilities
Investment
contract liabilities
Reinsurance
assets
Net liabilities
$ 322,265
142,127
$ 464,392
$ 233,460
14,965
$ 248,425
$ (42,573) $ 513,152
155,612
$ (44,053) $ 668,764
(1,480)
(k) 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, 2023, the Company had $40,249 (2022 – $44,053) of reinsurance assets. Of this, 91 per cent (2022 – 91 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 $22,264
fair value of collateral held as security as at December 31, 2023 (2022 – $25,247). Net exposure after considering offsetting agreements
and the benefit of the fair value of collateral held was $17,984 as at December 31, 2023 (2022 – $22,465).
Note 10 Long-Term Debt
(a) Carrying value of long-term debt instruments
As at December 31,
3.050% Senior notes(1),(2)
5.375% Senior notes(1),(3)
3.703% Senior notes(1),(4)
2.396% Senior notes(1),(5)
2.484% Senior notes(1),(5)
3.527% Senior notes(1),(3)
4.150% Senior notes(1),(3)
Total
Issue date
August 27, 2020
March 4, 2016
March 16, 2022
June 1, 2020
May 19, 2020
December 2, 2016
March 4, 2016
Maturity date
August 27, 2060
March 4, 2046
March 16, 2032
June 1, 2027
May 19, 2027
December 2, 2026
March 4, 2026
Par value
US$ 1,155
US$ 750
US$ 750
US$ 200
US$ 500
US$ 270
US$ 1,000
2023
$ 1,519
977
983
263
657
356
1,316
$ 6,071
2022
$ 1,559
1,004
1,011
270
674
365
1,351
$ 6,234
(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. Issuance 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 comparable U.S. Treasury bond
with a tenor approximately equal to the period, from the redemption date to the respective maturity date, plus a specified number of basis points, together with accrued and unpaid
interest. The specified number of basis points is as follows: 5.375% - 40 bps, 3.527% - 20 bps, and 4.150% - 35 bps. Issuance costs are amortized over the term of the debt.
(4) 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 comparable U.S. Treasury
bond with a tenor approximately equal to the period, from the redemption date to December 16, 2031, plus 25 bps, together with accrued and unpaid interest. Issuance 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 comparable U.S. Treasury
bond with a tenor approximately equal to the period, from the redemption date to two months before the respective maturity date, plus a specified number of basis points,
together with accrued and unpaid interest. The specified number of basis points is as follows: 2.396% - 30 bps, and 2.484% - 30 bps. For the period from two months before
the respective maturity date, MFC may redeem the senior notes, in whole or in part, at a redemption price equal to par, together with accrued and unpaid interest. Issuance
costs are amortized over the term of the debt.
243
The cash amount of interest paid on long-term debt during the year ended December 31, 2023 was $231 (2022 – $204).
(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, 2023,
the fair value of long-term debt was $5,525 (2022 – $5,587). Fair value of long-term debt was determined using Level 2 valuation
techniques (2022 – Level 2).
(c) Aggregate maturities of long-term debt
As at December 31,
2023
2022
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
$
$
–
–
1,672
–
$
920
2,661
$
3,479
3,573
$
Total
6,071
6,234
As at December 31,
JHFC Subordinated notes(1),(2)
2.818% MFC Subordinated debentures(1),(3)
5.409% MFC Subordinated debentures(1),(4)
4.061% MFC Subordinated notes(1),(5),(6)
2.237% MFC Subordinated debentures(1),(7)
3.00% MFC Subordinated notes(1),(8)
3.049% MFC Subordinated debentures(1),(9)
7.375% JHUSA Surplus notes(10)
3.317% MFC Subordinated debentures(1),(11)
Total
Earliest par
redemption date
Par value
Issuance date
December 14, 2006 n/a
May 12, 2020
March 10, 2023
February 24, 2017
May 12, 2020
November 21, 2017 November 21, 2024 November 21, 2029 S$
August 18, 2017
February 25, 1994
May 9, 2018
Maturity date
December 15, 2036 $
$
May 13, 2035
$
March 10, 2033
US$
February 24, 2032
$
May 12, 2030
May 13, 2030
March 10, 2028
February 24, 2027
May 12, 2025
August 20, 2029
February 15, 2024
May 9, 2028
August 20, 2024
n/a
May 9, 2023
$
US$
$
650 $
2023
2022
647 $
647
996
996
1,195
–
987
1,013
999
998
499
504
750
749
594
615
–
600
$ 6,667 $ 6,122
1,000
1,200
750
1,000
500
750
450
600
(1) The Company is monitoring regulatory and market developments globally with respect to the interest rate benchmark reform. The Company will take appropriate actions in due
course to accomplish any necessary transitions or replacements. As at December 31, 2023, capital instruments of $647 (2022 – $647) have an interest rate referencing
CDOR. In addition, capital instruments of $2,745, $987, and $499 (2022 – $3,343, $1,013, and $504, respectively) have interest rate resets in the future referencing
CDOR, the US Dollar Mid-Swap rate (based on LIBOR), and the Singapore Dollar Swap Offer rate, respectively. Future rate resets for these capital instruments may rely on
alternative reference rates such as the Canadian Overnight Repo Rate Average (CORRA), the alternative rate for CDOR, 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).
(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) 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.
Issued by MFC during the first quarter of 2023, interest is payable semi-annually. After March 10, 2028, the interest rate will reset to equal the Daily Compounded CORRA plus
1.85%. With regulatory approval, MFC may redeem the debentures, in whole, or in part, on or after March 10, 2028, at a redemption price equal to par, together with accrued
and unpaid interest.
(4)
(5) 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.
(6) 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
(7)
subordinated notes into Canadian dollars.
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.
(8) 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.
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 3-month CDOR plus 1.05%. 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)
(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$1 (2022 – US$5), 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.
(11) MFC redeemed in full the 3.317% MFC Subordinated debentures at par on May 9, 2023, the earliest par redemption date.
244
| 2023 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,
2023, the fair value of capital instruments was $6,483 (2022 – $5,737). Fair value of capital instruments was determined using Level 2
valuation techniques (2022 – Level 2).
245
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, 2023
and December 31, 2022.
Issue date
Annual dividend /
distribution rate(1)
Earliest redemption
date(2),(3)
Number of
shares
(in millions)
Face
amount
Net amount(4)
2023
2022
As at December 31, 2023
Preferred shares
Class A preferred shares
Series 2
Series 3
Class 1 preferred shares
February 18, 2005
January 3, 2006
(5),(6),(8)
Series 3(5),(6)
Series 4(7)
Series 9(5),(6)
Series 11
Series 13(5),(6),(9)
Series 15(5),(6)
Series 17(5),(6)
Series 19(5),(6)
Series 25(5),(6),(10)
Other equity instruments
Limited recourse capital notes (LRCN)(11)
March 11, 2011
June 20, 2016
May 24, 2012
December 4, 2012
June 21, 2013
February 25, 2014
August 15, 2014
December 3, 2014
February 20, 2018
Series 1(12)
Series 2(12)
Series 3(12)
Total
February 19, 2021
November 12, 2021
June 16, 2022
4.65%
4.50%
2.348%
floating
5.978%
6.159%
6.350%
3.786%
3.800%
3.675%
5.942%
3.375%
4.100%
7.117%
n/a
n/a
June 19, 2026
June 19, 2026
September 19, 2027
March 19, 2028
September 19, 2028
June 19, 2024
December 19, 2024
March 19, 2025
June 19, 2028
14
12
7
1
10
8
8
8
14
10
10
$
350
300
163
37
250
200
200
200
350
250
250
$
344
294
160
36
244
196
196
195
343
246
245
$
344
294
160
36
244
196
196
195
343
246
245
May 19, 2026
February 19, 2027
June 19, 2027
n/a
n/a
n/a
102
2,000
1,200
1,000
$ 6,750
1,982
1,189
990
$ 6,660
1,982
1,189
990
$ 6,660
(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 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 and including June 19, commencing in 2026. The
redemption period for Series 2 is every five years during the period from February 19 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.
(7) The floating dividend rate for the Class 1 Series 4 shares equals the three-month Government of Canada Treasury bill yield plus 1.41%.
(8) MFC did not exercise its right to redeem the outstanding Class 1 Shares Series 11 on March 19, 2023, which was the earliest redemption date. The dividend rate was reset as
specified in footnote 5 above to an annual fixed rate of 6.159%, for a five-year period commencing on March 20, 2023.
(9) MFC did not exercise its right to redeem the outstanding Class 1 Shares Series 13 on September 19, 2023, which was the earliest redemption date. The dividend rate was
reset as specified in footnote 5 above to an annual fixed rate of 6.350%, for a five-year period commencing on September 20, 2023.
(10) MFC did not exercise its right to redeem the outstanding Class 1 Shares Series 25 on June 19, 2023, which was the earliest redemption date. The dividend rate was reset as
specified in footnote 5 above to an annual fixed rate of 5.942%, for a five-year period commencing on June 20, 2023.
(11) Non-payment of distributions or principal on any LRCN series when due will result in a recourse event. The recourse of each noteholder will be limited to their proportionate
amount of the Limited Recourse Trust’s assets which comprise of Class 1 Series 27 preferred shares for LRCN Series 1, Class 1 Series 28 preferred shares for LRCN Series 2,
and Class 1 Series 29 preferred shares for LRCN Series 3. All claims of the holders of LRCN series 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.
(12) 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%.
246
| 2023 Annual Report | Notes to Consolidated Financial Statements
(b) Common shares
As at December 31, 2023, there were 17 million outstanding stock options and deferred share units that entitle the holders to receive
common shares or payment in cash or common shares, at the option of the holders (2022 – 21 million).
The following table presents changes in common shares issued and outstanding.
For the years ended December 31,
Balance, beginning of year
Repurchased for cancellation
Issued on exercise of stock options and deferred share units
Balance, end of year
Normal Course Issuer Bid
2023
2022
Number of
shares
(in millions)
1,865
(63)
4
1,806
Amount
$ 22,178
(745)
94
$ 21,527
Number of
shares
(in millions)
1,943
(79)
1
1,865
Amount
$ 23,093
(938)
23
$ 22,178
On February 21, 2023, the Company announced that the Toronto Stock Exchange (“TSX”) approved a normal course issuer bid (the “2023
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 2023 NCIB commenced on February 23, 2023 and were completed in December
2023. As of December 31, 2023, MFC purchased for cancellation under the 2023 NCIB 55.7 million of its common shares at an average
price of $25.48 per common share for a total cost of $1.4 billion.
The Company’s previous NCIB (the “2022 NCIB”) that was announced on February 1, 2022, expired on February 2, 2023. Under the 2022
NCIB, the Company 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 represented approximately 4.4% of its issued and outstanding common shares.
During the year ended December 31, 2023, the Company purchased for cancellation 62.6 million common shares at an average price of
$25.47 per common share for a total cost of $1.6 billion, including 6.9 million shares for a total cost of $0.2 billion that were purchased
under the 2022 NCIB. Of this, $745 was recorded in common shares and $850 was recorded in retained earnings in the Consolidated
Statements of Changes in Equity.
The Company has received approval from the OSFI to launch a NCIB (the “2024 NCIB”) that permits the purchase for cancellation of up to
50 million common shares, representing approximately 2.8% of its issued and outstanding common shares, commencing in February
2024. The 2024 NCIB remains subject to the approval of the TSX.
(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
2023
2022
$ 2.62
2.61
$ (1.15)
(1.15)
The following is a reconciliation of the denominator (number of shares) in the calculation of basic and diluted earnings per common 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)
2023
2022
1,834
4
1,838
1,910
3
1,913
(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 nil million (2022 – nil million) anti-dilutive stock-based awards.
(d) Quarterly dividend declaration subsequent to year end
On February 14, 2024, the Company’s Board of Directors approved a quarterly dividend of $0.40 per share on the common shares of MFC,
payable on or after March 19, 2024 to shareholders of record at the close of business on February 28, 2024.
247
The Board also declared dividends on the following non-cumulative preferred shares, payable on or after March 19, 2024 to
of record at the close of business on February 28, 2024.
shareholders
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 – $0.402395 per share
Class 1 Shares Series 9 – $0.373625 per share
Class 1 Shares Series 11 – $0.384938 per share
Note 13 Capital Management
Class 1 Shares Series 13 – $0.396875 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 – $0.371375 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 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, whose components are 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
Post-tax CSM
Qualifying capital instruments
Consolidated capital
2023
2022
$ 48,727
26
48,701
18,503
6,667
$ 73,871
$ 48,226
8
48,218
15,251
6,122
$ 69,591
(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
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
248
| 2023 Annual Report | Notes to Consolidated Financial Statements
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 table presents revenue from service contracts by service lines and reporting segments as disclosed in note 20. Asia, Canada,
and U.S. reporting segments are combined with Corporate and Other as a result of the implementation of IFRS 17.
For the year ended December 31, 2023
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
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,
U.S., and
Corporate
and Other
Total
$ (412) $ 2,886
2,835
896
6,617
129
$ 6,746
303
$
269
54
(89)
126
$
37
$ 303
Asia, Canada,
U.S., and
Corporate
and Other
Total
$ (315) $ 2,764
2,684
999
6,447
(261)
$ 6,186
305
$
268
89
42
(247)
$ (205)
$ 305
Global
WAM
$ 3,298
2,566
842
6,706
3
$ 6,709
–
$
Global
WAM
$ 3,079
2,416
910
6,405
(14)
$ 6,391
–
$
249
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
Exercised
Expired
Forfeited
Outstanding, December 31
Exercisable, December 31
2023
2022
Number of
options
(in millions)
Weighted
average
exercise price
Number of
options
(in millions)
Weighted
average
exercise price
20
(4)
–
–
16
9
$ 22.42
21.02
22.60
24.27
$ 22.73
$ 21.99
21
(1)
–
–
20
10
$ 22.09
16.15
24.63
23.96
$ 22.42
$ 20.91
For the year ended December 31, 2023
$17.59 - $20.99
$21.00 - $24.73
Total
No stock options were granted in 2023 or 2022.
Options outstanding
Options exercisable
Number of
options
(in millions)
Weighted
average
exercise price
3
13
16
$ 17.59
$ 23.79
$ 22.73
Weighted average
remaining
contractual life
(in years)
Number of
options
(in millions)
Weighted
average
exercise price
Weighted average
remaining
contractual life
(in years)
2.14
4.49
4.09
3
6
9
$ 17.59
$ 23.92
$ 21.99
2.14
3.09
2.80
Compensation expense related to stock options was $2 for the year ended December 31, 2023 (2022 – $5).
(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 143,000 as at December 31, 2023 (2022 – 166,000).
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 2023, the Company granted 38,000 DSUs (2022 –
30,000) to certain employees which vest after 36 months. In 2023, 33,000 DSUs (2022 – 106,000) were granted to certain employees
who elected to defer receipt of all or part of their annual bonus, these DSUs vested immediately. In 2023, 18,000 DSUs (2022 – nil) were
granted to certain employees who elected to defer payment of all or part of their RSUs, these DSUs also 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 2023, 117,000 DSUs (2022 – 116,000) 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.
The fair value of 206,000 DSUs issued during the year was $29.28 per unit as at December 31, 2023 (2022 – 252,000 at $24.15 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
250
| 2023 Annual Report | Notes to Consolidated Financial Statements
2023
2022
2,373
206
131
(744)
(3)
1,963
2,079
252
126
(75)
(9)
2,373
Of the DSUs outstanding as at December 31, 2023, 143,000 (2022 – 166,000) entitle the holder to receive common shares, 913,000
(2022 – 977,000) entitle the holder to receive payment in cash and 907,000 (2022 – 1,230,000) entitle the holder to receive payment in
cash or common shares, at the option of the holder.
Compensation expense related to DSUs was $9 for the year ended December 31, 2023 (2022 – $7).
The carrying and fair value of the DSUs liability as at December 31, 2023 was $62 (2022 – $53) and was included in other liabilities.
(c) Restricted share units and performance share units
For the year ended December 31, 2023, 8.5 million RSUs (2022 – 8.6 million) and 1.6 million PSUs (2022 – 1.7 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
$29.28 per unit as at December 31, 2023 (2022 – $24.15 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 2023 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 $207 and $45, respectively, for the year
ended December 31, 2023 (2022 – $158 and $23, respectively).
The carrying and fair value of the RSUs and PSUs liability as at December 31, 2023 was $514 (2022 – $388) 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.
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 2024. No assets are held in 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.
251
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 2024, the
required funding for these plans is expected to be $2. No assets are held in the non-registered supplemental pension plan.
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. No assets are held in 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, 2023, the target asset allocation for the plan was 30% return-seeking assets and 70% liability-hedging assets (2022 – 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, 2023, the target asset allocation for the plans was 17% return-seeking assets and 83% liability-
hedging assets (2022 – 20% and 80%).
There remains significant uncertainty related to the potential long-term impacts of the COVID-19 pandemic (on future mortality, etc.). The
Company considers recent experience when setting the 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, inflation and other assumptions.
252
| 2023 Annual Report | Notes to Consolidated Financial Statements
(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
2023
2022
2023
2022
$ 3,794
41
–
184
–
11
14
119
(308)
(66)
$ 3,789
$ 4,560
43
(6)
127
–
5
–
(835)
(299)
199
$ 3,794
$ 466
–
–
22
3
$ 584
–
–
16
3
(10)
1
16
(38)
(10)
$ 450
(13)
–
(112)
(40)
28
$ 466
Pension plans
Retiree welfare plans
2023
2022
2023
2022
$ 3,722
181
129
59
–
(308)
(10)
(67)
$ 3,706
$ 4,510
127
(869)
59
–
(299)
(11)
205
$ 3,722
$ 523
25
17
12
3
(38)
(1)
(15)
$ 526
$ 587
16
(91)
11
3
(40)
(2)
39
$ 523
(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
2023
2022
2023
2022
$ 3,789
3,706
83
41
124
$ 3,794
3,722
72
48
120
$ 450
526
(76)
–
(76)
$ 466
523
(57)
–
(57)
(422)
546
124
$
(441)
561
120
$
(190)
114
$ (76) $
(168)
111
(57)
(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 other funded pension plans in surplus position, 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
2023
2022
2023
2022
2023
2022
2023
2022
$
526
1,907
$ 2,433
$
509
2,006
$ 2,515
$
9
327
$ 336
$ 11
344
$ 355
$
116
1,240
$ 1,356
$
125
1,154
$ 1,279
$
–
114
$ 114
$
–
111
$ 111
253
(f) Fair value measurements
The following tables present major categories of plan assets and the allocation to each category.
As at December 31, 2023
Cash and cash equivalents
Public equity securities(3)
Public debt securities
Other investments(4)
Total
As at December 31, 2022
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
% of total
Fair value
% of total
Fair value
% of total
Fair value
% of total
$
28
315
1,437
741
$ 2,521
1%
13%
57%
29%
100%
$ 25
39
448
14
$ 526
5%
7%
85%
3%
100%
$
15
195
974
1
$ 1,185
1%
17%
82%
0%
100%
$ –
–
–
–
$ –
–
–
–
–
–
U.S. plans(1)
Canadian plans(2)
Pension plans
Retiree welfare plans
Pension plans
Retiree welfare plans
Fair value
% of total
Fair value
% of total
Fair value
% of total
Fair value
% of total
$
35
377
1,509
660
$ 2,581
1%
15%
58%
26%
100%
$ 22
41
445
15
$ 523
4%
8%
85%
3%
100%
$
9
233
898
1
$ 1,141
1%
20%
79%
0%
100%
$ –
–
–
–
$ –
–
–
–
–
–
(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 16% of all U.S. pension and retiree welfare plan assets as at December 31, 2023 (2022 – 15%).
(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, 2023 (2022 – 0.1%).
(3) Equity securities include direct investments in MFC common shares of $1.4 (2022 – $1.2) in the U.S. retiree welfare plan.
(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
2023
2022
$ 41 $ 43
10
–
51
5
56
93
$ 149
11
(6)
48
2
50
85
$ 135
2023
$ –
1
–
1
(3)
(2)
–
$ (2)
2022
$ –
2
–
2
–
2
–
$ 2
(1) There are no significant current service costs for the retiree welfare plans as they are closed and mostly frozen. The re-measurement 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
254
| 2023 Annual Report | Notes to Consolidated Financial Statements
Pension plans
Retiree welfare plans
2023
2022
2023
2022
$ (11) $
(14)
(119)
129
10
$ (5)
$
(5)
–
835
(869)
(10)
(49)
$ 10 $ 13
(1)
(16)
17
–
–
112
(91)
–
$ 10 $ 34
(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.
For the years ended December 31,
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)
U.S. Plans
Canadian Plans
Pension plans
Retiree welfare plans
Pension plans
Retiree welfare plans
2023
2022
2023
2022
2023
2022
2023
2022
4.8%
n/a
5.0%
n/a
5.0%
n/a
2.7%
n/a
4.8%
9.0%
5.0%
7.8%
5.0%
7.8%
2.7%
7.0%
4.6%
n/a
5.3%
n/a
5.3%
n/a
3.1%
n/a
4.7%
3.9%
5.3%
5.3%
5.3%
5.3%
3.2%
5.4%
Inflation and salary increase assumptions are not shown as they do not materially affect obligations and cost.
(1)
(2) The health care cost trend rate used to measure the U.S. based retiree welfare obligation was 9.0% grading to 4.8% for 2041 and years thereafter (2022 – 7.8% grading to
4.8% for 2035 and years thereafter) and to measure the net benefit cost was 7.8% grading to 4.8% for 2035 and years thereafter (2022 – 7.0% grading to 4.5% for 2032 and
years thereafter). In Canada, the rate used to measure the retiree welfare obligation was 5.1% in 2023 and 3.9% in 2024, grading to 4.0% for 2029 and years thereafter
(2022 – 5.3% grading to 4.8% for 2026 and years thereafter) and to measure the net benefit cost was 5.3% grading to 4.8% for 2026 and years thereafter (2022 – 5.4%
grading to 4.8% for 2026 and years thereafter).
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, 2023
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
22.2
23.7
23.6
25.0
24.3
26.2
25.3
27.1
(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. Each sensitivity assumes that
all other assumptions are held constant. In actuality, inter-relationships among assumptions may exist.
As at December 31, 2023
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
$ (274)
316
n/a
n/a
89
$ (38)
44
11
(10)
6
(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. and Canadian males and females.
(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
2023
2022
8.4
9.9
8.2
10.6
2023
8.2
11.1
2022
8.2
11.1
255
(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
2023
2022
2023
2022
$ 59
93
$ 152
$ 59
85
$ 144
$ 12
$ 11
–
$ 12 $ 11
–
The Company’s best estimate of expected cash payments for employee future benefits for the year ending December 31, 2024 is $61 for
defined benefit pension plans, $96 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 expenses (recoveries) 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 expenses (recoveries)
The following table discloses income tax expenses (recoveries) recognized directly in equity.
For the years ended December 31,
Recognized in other comprehensive income
Current income tax expenses (recoveries)
Deferred income tax expenses (recoveries)
Total recognized in other comprehensive income
Recognized in equity, other than other comprehensive income
Current income tax expenses (recoveries)
Deferred income tax expenses (recoveries)
Total income tax recognized directly in equity
2023
2022
$ 568
(193)
375
$ 1,098
(263)
835
489
(19)
–
470
$ 845
(1,975)
226
(245)
(1,994)
$ (1,159)
2023
2022
$ 320
(326)
(6)
$
$
(323)
3,034
$ 2,711
$
$
5
(4)
1
$
$
5
(8)
( 3)
(b) Current tax receivable and payable
As at December 31, 2023, the Company had approximately $1,056 of current tax recoverable included in other assets (2022 – $1,135)
and a current tax payable of $147 included in other liabilities (2022 – $195).
(c) Tax reconciliation
The effective income tax rate reflected in the Consolidated Statements of Income varies from the Canadian tax rate of 27.80 percent for
the year ended December 31, 2023 (2022 – 27.50 percent) 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,
Net income (loss) before income taxes
Income tax expenses (recoveries) 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 expenses (recoveries)
256
| 2023 Annual Report | Notes to Consolidated Financial Statements
2023
2022
$ 6,452
$ 1,794
$ (3,138)
(863)
$
(199)
(770)
(212)
(38)
–
270
845
(206)
118
(37)
78
(245)
(4)
$ (1,159)
$
(d) Deferred tax assets and liabilities
The following table presents the Company’s deferred tax assets and liabilities reflected on the Consolidated Statements 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.
2023
2022
$ 6,739
(1,697)
$ 5,042
$ 6,708
(1,536)
$ 5,172
For the year ended December 31,
Loss carryforwards
Actuarial liabilities
Pensions and post-employment benefits
Tax credits
Accrued interest
Real estate
Lease liability
Right of use asset and sublease receivable
Securities and other investments
Sale of investments
Goodwill and intangible assets
Other
Total
For the year ended December 31,
Loss carryforwards
Actuarial liabilities
Pensions and post-employment benefits
Tax credits
Accrued interest
Real estate
Lease liability
Right of use asset and sublease receivable
Securities and other investments
Sale of investments
Goodwill and intangible assets
Other
Total
Balance,
January 1, 2023
Disposals
Recognized in
income
Recognized in other
comprehensive
income
Recognized
in equity
Translation
and other
Balance,
December 31,
2023
$
701 $
4,507
142
109
1
(1,317)
47
(41)
1,560
(30)
(828)
321
$ 5,172 $
–
–
–
–
–
–
–
–
–
–
–
–
–
$
$
(18)
188
4
15
–
168
(7)
7
(293)
12
(12)
(534)
(470)
$
– $
1,198
26
–
–
–
–
–
(1,245)
–
–
347
326 $
$
(8) $
–
–
–
–
–
–
–
2
–
–
10
4 $
(5)
(80)
(1)
(2)
–
14
(2)
–
62
–
18
6
10
$
670
5,813
171
122
1
(1,135)
38
(34)
86
(18)
(822)
150
$ 5,042
Balance,
January 1, 2022
Disposals
Recognized in
income
Recognized in other
comprehensive
income
Recognized
in equity
Translation
and other
Balance,
December 31,
2022
$
517 $
13,731
161
46
1
(1,287)
26
(22)
(6,484)
(40)
(804)
209
$ 6,054 $
–
–
–
–
–
–
–
–
–
–
–
–
–
$
184
2,334
(2)
63
–
10
17
(18)
(702)
10
(6)
104
$ 1,994
$
– $
(12,005)
(17)
–
–
(1)
–
–
8,984
–
–
5
(3,034) $
$
– $
11
–
–
–
–
3
(2)
(10)
–
–
6
8 $
–
436
–
–
–
(39)
1
1
(228)
–
(18)
(3)
150
$
701
4,507
142
109
1
(1,317)
47
(41)
1,560
(30)
(828)
321
$ 5,172
The total deferred tax assets as at December 31, 2023 of $6,739 (2022 – $6,708) includes $6,136 relating to 2023 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, 2023, tax loss carryforwards available were approximately $3,549 (2022 – $3,902), of which $3,300 expire between
the years 2025 and 2043 while $249 have no expiry date, and capital loss carryforwards available were approximately $5 (2022 – $1)
and have no expiry date. A $670 (2022 – $701) tax benefit related to these tax loss carryforwards has been recognized as a deferred tax
asset as at December 31, 2023, and a benefit of $222 (2022 – $211) has not been recognized. The Company has approximately $282
(2022 – $273) of tax credit carryforwards which will expire between the years 2026 and 2043 of which a benefit of $160 (2022 – $164)
has not been recognized. In addition, the Company has not recognized a deferred tax asset of $1,171 (2022 – $663) on other temporary
differences of $5,333 (2022 – $2,523).
The total deferred tax liability as at December 31, 2023 was $1,697 (2022 – $1,536). 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 $10,908 (2022 – $11,439).
257
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.
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
(I) 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, 2023, the Company’s consolidated timber assets relating to HVPH were $1,236 (2022 –
$1,264). The Company does not provide guarantees to other parties against the risk of loss from HVPH.
(II) 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)
Infrastructure companies(4)
Timberland companies(5)
Real estate companies(6)
Total
Company’s investment(1)
Company’s maximum
exposure to loss(2)
2023
2022
2023
2022
$ 3,790
2,468
811
676
$ 7,745
$ 3,840
2,156
816
465
$ 7,277
$ 3,790
3,035
811
676
$ 8,312
$ 3,840
2,704
816
465
$ 7,825
(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 OCI.
(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.
(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 invest in infrastructure assets. The Company invests in their equity. The Company’s returns include investment income, investment management fees, and
performance 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 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.
(6) 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.
258
| 2023 Annual Report | Notes to Consolidated Financial Statements
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)
2023
2022
$ 709
$ 709
$ 691
$ 691
(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
infrastructure, energy, 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 exposure
CMBS
$ 425
–
–
–
–
$ 425
RMBS
$ 4
–
3
–
–
$ 7
2023
$
ABS
946
227
435
107
7
$ 1,722
Total
$ 1,375
227
438
107
7
$ 2,154
2022
Total
$ 1,770
9
574
219
3
$ 2,575
(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, 2023 was $1,319 (2022 – $1,296).
The Company’s retail mutual fund assets under management as at December 31, 2023 were $277,365 (2022 – $258,273).
259
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 the Company in the U.S. District Court for the Southern District of New York on behalf of
owners of Performance Universal Life (“Perf UL”) policies issued between 2003 and 2010 whose policies were subject to a Cost of Insurance
(“COI”) increase announced in 2018.
In addition to the class action, twelve individual lawsuits opposing the Perf UL COI increases were filed; nine in federal court and three in
state court. The Company has now resolved litigation with respect to 100% of the filed lawsuits, which represents 84% of the total face
amount of policies in the COI-increase block. Litigation remains possible with the final approximately 16% of the total face amount of the
COI-increase block.
Subsequent to the resolution of the Perf UL COI-increase lawsuits, in September 2023 an unrelated lawsuit was initiated against the
Company in the U.S. District Court of the Southern District of New York as a putative class action on behalf of all current and former
owners of universal life insurance policies issued by the Company “that state that cost of insurance rates will be based on future
expectations that include taxes.” The Plaintiff’s theory is that the Company impermissibly failed to decrease the COI rates charged to these
policy owners after the implementation of the Tax Cuts and Jobs Act of 2018. It is too early in the litigation to offer any reliable opinion
about the scope of the class policies that may be at issue or the likely outcome.
(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 $15,117 (2022 – $14,193) of outstanding investment commitments as at December 31, 2023, of which $781 (2022
– $1,095) mature in 30 days, $4,627 (2022 – $3,359) mature in 31 to 365 days and $9,709 (2022 – $9,739) 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, 2023, letters of credit for which third parties are beneficiaries, in the amount of $466 (2022 – $215), 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 tables present certain condensed consolidated financial information for MFC and MFLP.
Condensed Consolidated Statements of Income Information
For the year ended December 31, 2023
Insurance service result
Investment result
Other revenue
Net income (loss) attributed to shareholders and other equity holders
For the year ended December 31, 2022
Insurance service result
Investment result
Other revenue
Net income (loss) attributed to shareholders and other equity holders
260
| 2023 Annual Report | Notes to Consolidated Financial Statements
MFC
(Guarantor)
$
–
638
14
5,103
MFC
(Guarantor)
$
–
554
(36)
(1,933)
Other
subsidiaries
on a
combined basis
$
3,977
3,646
6,736
4,785
Other
subsidiaries
on a
combined basis
Consolidation
adjustments
$
–
(1,326)
(4)
(4,785)
Total
consolidated
amounts
$
3,977
2,958
6,746
5,103
$
MFLP
–
51
(7)
1
Consolidation
adjustments
Total
consolidated
amounts
$
$
3,160
(5,823)
6,225
(2,156)
$
–
(1,100)
(3)
2,156
3,160
(6,369)
6,186
(1,933)
$
MFLP
–
49
15
21
Condensed Consolidated Statements of Financial Position
As at December 31, 2023
Invested assets
Insurance contract assets
Reinsurance contract held assets
Total other assets
Segregated funds net assets
Insurance contract liabilities, excluding those for account of segregated fund holders
Reinsurance contract held liabilities
Investment contract liabilities
Total other liabilities
Insurance contract liabilities for account of segregated fund holders
Investment contract liabilities for account of segregated fund holders
As at December 31, 2022
Invested assets
Insurance contract assets
Reinsurance contract held assets
Total other assets
Segregated funds net assets
Insurance contract liabilities, excluding those for account of segregated fund holders
Reinsurance contract held liabilities
Investment contract liabilities
Total other liabilities
Insurance contract liabilities for account of segregated fund holders
Investment contract liabilities for account of segregated fund holders
MFC
(Guarantor)
86
$
–
–
59,023
–
–
–
–
12,070
–
–
MFC
(Guarantor)
63
$
–
–
58,357
–
–
–
–
11,544
–
–
Consolidation
adjustments
Total
consolidated
amounts
– $ 417,210
145
–
42,651
–
38,024
(63,410)
377,544
–
367,996
–
2,831
–
11,816
–
66,660
(539)
114,143
–
263,401
–
$ 417,124 $
Other
subsidiaries
on a
combined basis
145
42,651
42,411
377,544
367,996
2,831
11,816
55,129
114,143
263,401
Other
subsidiaries
on a
combined basis
Consolidation
adjustments
Total
consolidated
amounts
– $ 400,142
673
–
45,871
–
38,441
(62,667)
348,562
–
354,849
–
2,391
–
10,079
–
69,582
(444)
110,216
–
238,346
–
$ 400,079 $
673
45,871
42,751
348,562
354,849
2,391
10,079
58,482
110,216
238,346
$
MFLP
9
–
–
969
–
–
–
–
718
–
–
MFLP
$ 21
–
–
950
–
–
–
–
712
–
–
(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
2023
2022
Debt securities
Other
Debt securities
Other
$ 10,431
–
307
201
–
–
$ 10,939
$
26
2,220
74
–
298
283
$ 2,901
$ 11,944
–
320
886
–
–
$ 13,150
$
23
2,241
77
–
326
404
$ 3,071
(f) Participating business
In some markets 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, 2023 and 2022, the
Company had no fixed surplus notes outstanding.
261
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. In addition, consolidations and eliminations of transactions between operating segments are also included.
Effective January 1, 2023, the Company has made a number of changes to the composition of reporting segments to better align its
financial reporting with its business strategy and operations. The Company’s International High Net Worth business was reclassified from
the U.S. segment to the Asia segment to reflect the contributions of the Company’s Bermuda operations alongside the high net worth
business that is reported in the Company’s Singapore and Hong Kong operations. The Company’s investment in the startup capital of
segregated and mutual funds and investment-related revenue and expense were reclassified from the Corporate and Other segment to the
Global WAM segment to more closely align with Global WAM’s management practices. Refinements were made to the allocations of
corporate overhead and interest on surplus among segments. Prior period comparative information has been restated to reflect the
changes in segment reporting.
(a) Reporting segments
The following tables present results by reporting segments.
For the year ended December 31, 2023
Insurance service result
Life, health and property and casualty insurance
Annuities and pensions
Total insurance service result
Net investment income (loss)
Insurance finance income (expenses)
Life, health and property and casualty insurance
Annuities and pensions
Total insurance finance income (expenses)
Reinsurance finance income (expenses)
Life, health and property and casualty insurance
Annuities and pensions
Total reinsurance finance income (expenses)
Decrease (increase) in investment contract liabilities
Net segregated fund investment result
Total investment result
Other revenue
Other expenses
Interest expenses
Net income (loss) before income taxes
Income tax recoveries (expenses)
Net income (loss)
Less net income (loss) attributed to:
Non-controlling interests
Participating policyholders
Asia
Canada
U.S.
Global WAM
Corporate
and Other
$
$
$
2,070
(129)
1,941
7,057
995
198
1,193
5,048
(4,970)
(1,466)
(6,436)
(106)
1
(105)
(38)
–
478
67
(231)
(11)
2,244
(440)
1,804
141
315
(3,288)
(27)
(3,315)
58
(1)
57
(73)
–
1,717
272
(569)
(1,004)
1,609
(373)
1,236
–
45
526
81
607
5,236
(4,815)
(51)
(4,866)
385
(374)
11
(148)
–
233
79
(153)
(15)
751
(112)
639
–
–
$
$
–
–
–
(771)
$
236
–
236
1,451
–
–
–
–
–
–
(175)
–
(946)
6,709
(4,252)
(14)
1,497
(198)
1,299
2
–
723
–
723
(697)
–
(697)
(1)
–
1,476
(381)
(470)
(510)
351
278
629
1
–
Total
3,827
150
3,977
18,021
(12,350)
(1,544)
(13,894)
(360)
(374)
(734)
(435)
–
2,958
6,746
(5,675)
(1,554)
6,452
(845)
5,607
144
360
Net income (loss) attributed to shareholders and other
equity holders
Total assets
$
1,348
$ 177,623
$
1,191
$ 157,111
$
639
$ 244,659
$
1,297
$ 257,764
$
628
$ 38,417
$
5,103
$ 875,574
262
| 2023 Annual Report | Notes to Consolidated Financial Statements
For the year ended December 31, 2022
Insurance service result
Life, health and property and casualty insurance
Annuities and pensions
Total insurance service result
Net investment income (loss)
Insurance finance income (expenses)
Life, health and property and casualty insurance
Annuities and pensions
Total insurance finance income (expenses)
Reinsurance finance income (expenses)
Life, health and property and casualty insurance
Annuities and pensions
Total reinsurance finance income (expenses)
Decrease (increase) in investment contract liabilities
Net segregated fund investment result
Total investment result
Other revenue
Other expenses
Interest expenses
Net income (loss) before income taxes
Income tax recoveries (expenses)
Net income (loss)
Less net income (loss) attributed to:
Non-controlling interests
Participating policyholders
Asia
Canada
U.S.
Global WAM
Corporate
and Other
$
$
928
262
1,190
(930)
361
172
533
911
$
$
–
–
–
(1,082)
$
(117)
–
(117)
21
122
–
122
(167)
–
(167)
18
–
(6)
(624)
(144)
(468)
(1,359)
442
(917)
Total
2,890
270
3,160
337
(5,051)
(1,565)
(6,616)
666
(357)
309
(399)
–
(6,369)
6,186
(5,064)
(1,051)
(3,138)
1,159
(1,979)
121
(167)
–
–
1
–
(723)
504
(219)
(100)
(2)
(102)
(49)
–
(1,300)
262
(573)
(548)
(969)
510
(459)
–
44
(5,058)
191
(4,867)
994
(352)
642
(179)
–
(3,493)
101
(136)
(16)
(3,011)
695
(2,316)
–
–
–
1
1
–
–
–
(119)
–
(1,200)
6,391
(3,893)
(7)
1,291
(170)
1,121
$
1,718
(164)
1,554
1,417
608
(2,261)
(1,653)
(61)
(3)
(64)
(70)
–
(370)
56
(318)
(12)
910
(318)
592
120
(211)
Net income (loss) attributed to shareholders and other
equity holders
Total assets
$
683
$ 164,605
$
(503)
$ 151,761
$
(2,316)
$ 244,904
$
1,121
$ 231,433
$
(918)
$ 40,986
(1,933)
$
$ 833,689
(b) Geographical location
The results of the Company’s reporting segments differ from its results by 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 tables present results by geographical location.
For the year ended December 31, 2023
Insurance service result
Life, health and property and casualty insurance
Annuities and pensions
Total insurance service result
Net investment income (loss)
Insurance finance income (expenses)
Life, health and property and casualty insurance
Annuities and pensions
Total insurance finance income (expenses)
Reinsurance finance income (expenses)
Life, health and property and casualty insurance
Annuities and pensions
Total reinsurance finance income (expenses)
Decrease (increase) in investment contract liabilities
Net segregated fund investment result
Total investment result
Other revenue
Asia
Canada
U.S.
Other
Total
$ 2,087
$
(128)
1,959
7,259
(4,971)
(1,466)
(6,437)
981
198
1,179
5,724
$
511
80
591
4,975
$ 248
–
248
63
$ 3,827
150
3,977
18,021
(2,606)
(27)
(2,633)
(4,793)
(51)
(4,844)
20
–
20
(12,350)
(1,544)
(13,894)
(121)
1
(120)
(220)
–
$
482
$ 1,332
(623)
(1)
(624)
(130)
–
$ 2,337
$ 2,147
384
(374)
10
(79)
–
$
62
$ 3,239
–
–
–
(6)
–
$ 77
$ 28
(360)
(374)
(734)
(435)
–
$ 2,958
$ 6,746
263
For the year ended December 31, 2022
Insurance service result
Life, health and property and casualty insurance
Annuities and pensions
Total insurance service result
Net investment income (loss)
Insurance finance income (expenses)
Life, health and property and casualty insurance
Annuities and pensions
Total insurance finance income (expenses)
Reinsurance finance income (expenses)
Life, health and property and casualty insurance
Annuities and pensions
Total reinsurance finance income (expenses)
Decrease (increase) in investment contract liabilities
Net segregated fund investment result
Total investment result
Other revenue
Note 21 Related Parties
Asia
Canada
U.S.
Other
Total
$
$ 1,873
(164)
1,709
1,264
$
909
262
1,171
(1,061)
208
172
380
(189)
$ (100) $ 2,890
270
3,160
337
–
(100)
323
607
(2,261)
(1,654)
(74)
(3)
(77)
(126)
–
(593)
$
$ 1,294
(578)
504
(74)
(5,088)
192
(4,896)
8
–
8
(5,051)
(1,565)
(6,616)
(254)
(2)
(256)
(79)
–
$ (1,470)
$ 2,044
994
(352)
642
(194)
–
$ (4,637)
$ 2,907
–
–
–
–
–
$ 331
(59)
$
666
(357)
309
(399)
–
$ (6,369)
$ 6,186
The Company enters into transactions with related parties in the normal course of business and at 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.
(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
2023
2022
$ 83 $ 73
6
73
3
3
$ 168
6
73
–
3
$ 155
264
| 2023 Annual Report | Consolidated Financial Statements
Note 22 Subsidiaries
The following is a list of Manulife’s directly and indirectly held major operating subsidiaries.
As at December 31, 2023
(100% owned unless otherwise noted in brackets beside company name)
The Manufacturers Life Insurance Company
Equity
interest
$ 58,655
Address
Toronto, Canada
Manulife Holdings (Alberta) Limited
John Hancock Financial Corporation
The Manufacturers Investment Corporation
John Hancock Reassurance Company Ltd.
$ 18,489
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.
Description
A leading financial services group with principal
operations in Asia, Canada and the United
States 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
Hamilton, Bermuda
Manulife Bank of Canada
$ 1,793
Waterloo, Canada
Manulife Investment Management Holdings (Canada) Inc.
$ 1,318
Manulife Investment Management Limited
Toronto, Canada
Toronto, Canada
Provides life and financial 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.
Manulife Holdings (Bermuda) Limited
Manufacturers P&C Limited
Manulife Financial Asia Limited
Manulife (Cambodia) PLC
Manulife Myanmar Life Insurance Company Limited
Manufacturers Life Reinsurance Limited
Manulife (Vietnam) Limited
$
$
7
84
$ 20,695
Toronto, Canada
Property and casualty insurance company
Oakville, Canada
Mutual fund dealer for Canadian operations
Hamilton, Bermuda
St. Michael, Barbados
Hong Kong, China
Phnom Penh, Cambodia
Yangon, Myanmar
St. Michael, Barbados
Ho Chi Minh City, Vietnam
Holding company
Provides property and casualty reinsurance
Holding company
Life insurance company
Life insurance company
Provides life and annuity reinsurance to affiliates
Life insurance company
Manulife Investment Fund Management (Vietnam)
Ho Chi Minh City, Vietnam Fund management company
Company Limited
Manulife International Holdings Limited
Manulife (International) Limited
Hong Kong, China
Hong Kong, China
Holding company
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
265
As at December 31, 2023
(100% owned unless otherwise noted in brackets beside company name)
Equity
interest
Address
Description
Manulife Investment Management (Taiwan) Co., Ltd.
Manulife Life Insurance Company (Japan)
Taipei, Taiwan (China)
Tokyo, Japan
Investment management company
Life insurance company
Manulife Investment Management (Japan) Limited
Tokyo, Japan
Investment management and advisory company
and mutual fund business
Manulife Holdings Berhad (62.0%)
Manulife Insurance Berhad (62.0%)
Kuala Lumpur, Malaysia Holding company
Kuala Lumpur, Malaysia
Life insurance company
Manulife Investment Management (Malaysia) Berhad
Kuala Lumpur, Malaysia
Asset management company
(62.0%)
Manulife (Singapore) Pte. Ltd.
Manulife Investment Management (Singapore) Pte. Ltd.
Manulife Fund Management Co., Ltd.
The Manufacturers Life Insurance Co. (Phils.), Inc.
Manulife Chinabank Life Assurance Corporation (60%)
PT Asuransi Jiwa Manulife Indonesia
PT Manulife Aset Manajemen Indonesia
Manulife Investment Management (Europe) Limited
Manulife Assurance Company of Canada
EIS Services (Bermuda) Limited
Berkshire Insurance Services Inc.
JH Investments (Delaware) LLC
Manulife Securities Incorporated
Manulife Investment Management (North America) Limited
Singapore
Singapore
Life insurance company
Asset management company
Beijing, China
Makati City, Philippines
Makati City, Philippines
Jakarta, Indonesia
Jakarta, Indonesia
London, England
Toronto, Canada
Hamilton, Bermuda
Toronto, Canada
Boston, U.S.A.
Oakville, Canada
Toronto, Canada
Mutual fund company in China
Life insurance company
Life insurance company
Life insurance company
Investment management and investment advisor
Investment management company providing
advisory services for Manulife Investment
Management’s funds, internationally
Life insurance company
Investment holding company
Investment holding company
Investment holding company
Investment dealer
Investment advisor
$
42
66
$
$ 1,028
$ 1,968
$
$
213
4
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 hold a range of underlying investments. The underlying investments consist of both
individual securities and mutual funds.
Segregated funds underlying investments 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 and amount to $2,675 (2022 – $3,496), of which
$980 are reinsured (2022 – $1,249). Assets supporting these guarantees, net of reinsurance, are recognized in invested assets according
to their investment type. Insurance contract liabilities for account of segregated fund holders on the Consolidated Statements of Financial
Position exclude these guarantees and are considered to be a non-distinct investment component of insurance contract liabilities. Note 9
provides information regarding market risk sensitivities associated with variable annuity and segregated fund guarantees.
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.
266
| 2023 Annual Report | Notes to Consolidated Financial Statements
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 is 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.
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.
267
T
he 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, 2023
Assets
Invested assets
Investments in unconsolidated subsidiaries
Insurance contract assets
Reinsurance contract held assets
Other assets
Segregated funds net assets
Total assets
Liabilities and equity
Insurance contract liabilities, excluding those for account of segregated
fund holders
Reinsurance contract held liabilities
Investment contract liabilities
Other liabilities
Long-term debt
Capital instruments
Insurance contract liabilities for account of segregated fund holders
Investment contract liabilities for account of segregated fund holders
Shareholders’ and other equity
Participating policyholders’ equity
Non-controlling interests
Total liabilities and equity
Condensed Consolidated Statement of Financial Position
As at December 31, 2022
Assets
Invested assets
Investments in unconsolidated subsidiaries
Insurance contract assets
Reinsurance contract held assets
Other assets
Segregated funds net assets
Total assets
Liabilities and equity
Insurance contract liabilities, excluding those for account of segregated
fund holders
Reinsurance contract held liabilities
Investment contract liabilities
Other liabilities
Long-term debt
Capital instruments
Insurance contract liabilities for account of segregated fund holders
Investment contract liabilities for account of segregated fund holders
Shareholders’ and other equity
Participating policyholders’ equity
Non-controlling interests
Total liabilities and equity
268
| 2023 Annual Report | Notes to Consolidated Financial Statements
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$
86
58,694
–
–
329
–
$ 59,109
$
–
–
–
573
6,071
5,426
–
–
47,039
–
–
$ 59,109
$ 109,433
8,674
–
42,418
8,731
188,067
$ 357,323
$ 307,930
17,916
217
10,380
32,700
191,241
$ 560,384
$ 145,589
–
3,487
5,869
–
594
51,719
136,348
13,773
(56)
–
$ 357,323
$ 232,972
2,831
8,928
51,266
–
647
62,424
128,817
70,755
313
1,431
$ 560,384
$
(239) $ 417,210
–
145
42,651
38,024
377,544
$ (101,242) $ 875,574
(85,284)
(72)
(10,147)
(3,736)
(1,764)
$
(10,565) $ 367,996
2,831
11,816
53,922
6,071
6,667
114,143
263,401
47,039
257
1,431
$ (101,242) $ 875,574
–
(599)
(3,786)
–
–
–
(1,764)
(84,528)
–
–
Restated (note 2)
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$
63
58,024
–
–
333
–
$ 58,420
$ 109,332
8,584
–
44,849
8,899
173,417
$ 345,081
$ 291,266
18,018
739
11,215
33,082
177,361
$ 531,681
$
(519) $ 400,142
–
673
45,871
38,441
348,562
$ 833,689
(84,626)
(66)
(10,193)
(3,873)
(2,216)
$ (101,493)
$
–
–
–
450
6,234
4,860
–
–
46,876
–
–
$ 58,420
$ 147,440
–
2,585
7,206
–
614
49,947
123,470
13,865
(46)
–
$ 345,081
$ 217,942
2,391
8,207
53,186
–
648
60,269
117,092
70,550
(31)
1,427
$ 531,681
$
(10,533)
–
(713)
(3,616)
–
–
–
(2,216)
(84,415)
–
–
$ (101,493)
$ 354,849
2,391
10,079
57,226
6,234
6,122
110,216
238,346
46,876
(77)
1,427
$ 833,689
Condensed Consolidated Statement of Income
For the year ended December 31, 2023
Insurance service result
Insurance revenue
Insurance service expenses
Net expenses from reinsurance contracts held
Total insurance service result
Investment result
Net investment income (loss)
Insurance / reinsurance finance income (expenses)
Other investment result
Total investment result
Other revenue
Other expenses
Interest expenses
Net income (loss) before income taxes
Income tax (expenses) recoveries
Net 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, 2022
Insurance service result
Insurance revenue
Insurance service expenses
Net expenses from reinsurance contracts held
Total insurance service result
Investment result
Net investment income (loss)
Insurance / reinsurance finance income (expenses)
Other investment result
Total investment result
Other revenue
Other expenses
Interest expenses
Net income (loss) before income taxes
Income tax (expenses) recoveries
Net 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
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$
–
–
–
–
$ 9,858
(8,928)
(315)
615
$ 15,754
(12,195)
(175)
3,384
$
638
–
–
638
14
(55)
(433)
164
7
171
4,932
$ 5,103
$
–
–
5,103
$ 5,103
4,232
(4,723)
100
(391)
790
(1,112)
(79)
(177)
175
(2)
811
809
–
(74)
883
809
$
$
$
$
$
$
14,179
(9,993)
(432)
3,754
6,384
(4,776)
(2,281)
6,465
(1,027)
5,438
809
6,247
144
360
5,743
6,247
$
$
$
(1,640)
1,741
(123)
(22)
(1,028)
88
(103)
(1,043)
(442)
268
1,239
–
–
–
(6,552)
(6,552)
–
74
(6,626)
(6,552)
$ 23,972
(19,382)
(613)
3,977
18,021
(14,628)
(435)
2,958
6,746
(5,675)
(1,554)
6,452
(845)
5,607
–
$ 5,607
$
144
360
5,103
$ 5,607
Restated (note 2)
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$
–
–
–
–
$
9,946
(10,652)
(570)
(1,276)
$ 14,760
(12,417)
281
2,624
$ (1,588) $ 23,118
(19,335)
(623)
3,160
3,734
(334)
1,812
554
–
–
554
(36)
(42)
(439)
37
32
69
(2,002)
$ (1,933)
$
–
–
(1,933)
$ (1,933)
$
$
$
(53)
(325)
36
(342)
505
(841)
(54)
(2,008)
624
(1,384)
638
(746) $
781
(4,376)
(426)
(4,021)
6,181
(4,455)
(1,496)
(1,167)
503
(664)
(746)
(1,410)
(945)
(1,606)
(9)
(2,560)
(464)
274
938
–
–
–
2,110
$ 2,110
–
(530)
(216)
(746)
$
$
121
288
(1,819)
(1,410)
$
–
75
2,035
$ 2,110
337
(6,307)
(399)
(6,369)
6,186
(5,064)
(1,051)
(3,138)
1,159
(1,979)
–
(1,979)
121
(167)
(1,933)
(1,979)
$
$
$
269
Consolidated Statement of Cash Flows
For the year ended December 31, 2023
Operating activities
Net income (loss)
Adjustments:
Equity in net income of unconsolidated subsidiaries
Increase (decrease) in net insurance contract liabilities
Increase (decrease) in investment contract liabilities
(Increase) decrease in reinsurance contract assets, excluding reinsurance
transactions
Amortization of (premium) discount on invested assets
Contractual service margin (“CSM”) amortization
Other amortization
Net realized and unrealized (gains) losses and impairment on assets
Deferred income tax expenses (recoveries)
Stock option expense
Cash provided by (used in) operating activities before undernoted items
Dividends from unconsolidated subsidiaries
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 subsidiaries
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
Change in repurchase agreements and securities sold but not yet purchased
Issue of capital instruments, net
Redemption of capital instruments
Secured borrowing from securitization transactions
Changes in deposits from Bank clients, net
Lease payments
Shareholders’ dividends and other equity distributions
Common shares repurchased
Common shares issued, 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 (refund)
270
| 2023 Annual Report | Notes to Consolidated Financial Statements
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
$ 5,103
$
809
$ 6,247
$ (6,552)
$ 5,607
(4,932)
–
–
–
–
–
10
3
(11)
–
173
5,600
(4)
5,769
–
–
–
–
(1,843)
–
–
–
(25)
(1,868)
–
1,194
(600)
–
–
–
(2,972)
(1,595)
94
–
–
–
–
–
4
(3,875)
26
(3)
63
86
63
–
63
86
–
86
$
(811)
455
(112)
28
30
(455)
147
471
(141)
(3)
418
386
(649)
155
(15,165)
16,159
12
–
–
(1)
5
–
–
1,010
–
–
–
–
–
(3)
–
–
–
–
679
–
–
–
–
676
(809)
10,242
547
946
(171)
(1,543)
424
(3,319)
622
5
13,191
(679)
7,294
19,806
(68,856)
54,122
9
(1)
–
–
–
(4)
–
(14,730)
(693)
–
–
537
(895)
(95)
–
–
1,843
(14)
(5,986)
1
(5)
25
–
(5,282)
1,841
(52)
2,215
4,004
(206)
(357)
16,357
15,794
2,614
(399)
2,215
16,476
(119)
16,357
4,329
(325)
$ 4,004
15,923
(129)
$ 15,794
$
6,552
–
–
–
–
–
–
–
–
–
–
(5,307)
–
(5,307)
–
–
–
–
1,843
1
(5)
4
25
1,868
–
–
–
–
–
–
–
–
(1,843)
–
5,307
(1)
5
(25)
(4)
3,439
–
–
–
–
–
–
–
–
–
–
–
10,697
435
974
(141)
(1,998)
581
(2,845)
470
2
13,782
–
6,641
20,423
(84,021)
70,281
21
(1)
–
–
–
–
–
(13,720)
(693)
1,194
(600)
537
(895)
(98)
(2,972)
(1,595)
94
(14)
–
–
–
–
–
(5,042)
1,661
(412)
18,635
19,884
19,153
(518)
18,635
20,338
(454)
$ 19,884
$ 650
418
2
$ 3,369
115
(1)
$ 10,166
2,432
435
$ (1,417)
(1,417)
–
$ 12,768
1,548
436
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 net insurance contract liabilities
Increase (decrease) in investment contract liabilities
(Increase) decrease in reinsurance contract assets, excluding reinsurance
transactions
Amortization of (premium) discount on invested assets
Contractual service margin (“CSM”) amortization
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 expenses (recoveries)
Stock option expense
Cash provided by (used in) operating activities before undernoted items
Dividends from unconsolidated subsidiaries
Changes in policy related and operating receivables and payables
Cash decrease due to U.S. variable annuity reinsurance transaction
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 subsidiaries
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
Change in repurchase agreements and securities sold but not yet purchased
Issue of long-term debt, net
Redemption of capital instruments
Secured borrowing from securitization transactions
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 (refund)
MFC
(Guarantor)
JHUSA
(Issuer)
Other
subsidiaries
Consolidation
adjustments
Consolidated
MFC
Restated (note 2)
$ (1,933) $
(746)
$ (1,410)
$ 2,110
$ (1,979)
2,002
–
–
–
–
–
9
(36)
–
–
(33)
–
9
6,200
44
–
6,253
–
1
–
–
(2,479)
–
–
–
46
(2,432)
–
946
–
–
–
–
(2,787)
(1,884)
23
990
(711)
–
–
–
–
–
(415)
(3,838)
(638)
2,051
(111)
2
33
(578)
156
4,854
(1,026)
–
(354)
(3)
3,640
399
1,644
(1,263)
4,420
(28,685)
23,429
(11)
–
–
(1)
19
–
(7)
(5,256)
–
–
–
–
–
(5)
–
–
–
–
–
–
(734)
–
–
–
–
(739)
746
2,965
510
708
(164)
(1,415)
354
8,842
(44)
(95)
(1,607)
8
9,398
734
3,270
(114)
13,288
(82,873)
69,977
(56)
(182)
–
–
–
415
–
(12,719)
346
–
(1,000)
437
1,703
(115)
–
–
2,479
–
–
(51)
(6,599)
1
(19)
(39)
–
(2,857)
(17)
2
78
63
(1,575)
225
3,565
2,215
(2,288)
358
18,287
16,357
78
–
78
63
–
63
4,087
(522)
3,565
18,429
(142)
18,287
2,614
(399)
$ 2,215
16,476
(119)
$ 16,357
$
(2,110)
–
–
–
–
–
–
–
–
–
–
–
–
(7,333)
–
–
(7,333)
–
–
–
–
2,479
1
(19)
(415)
(39)
2,007
–
–
–
–
–
–
–
–
(2,479)
–
–
–
7,333
(1)
19
39
415
5,326
–
–
–
–
–
–
–
–
–
–
–
5,016
399
710
(131)
(1,993)
519
13,660
(1,070)
(95)
(1,994)
5
13,047
–
4,958
(1,377)
16,628
(111,558)
93,407
(67)
(182)
–
–
–
–
–
(18,400)
346
946
(1,000)
437
1,703
(120)
(2,787)
(1,884)
23
990
(711)
(51)
–
–
–
–
–
(2,108)
(3,880)
585
21,930
18,635
22,594
(664)
21,930
19,153
(518)
$ 18,635
512
424
–
$ 3,850
84
124
$ 8,672
1,608
1,114
$ (1,161)
(1,161)
–
$ 11,873
955
1,238
271
$
$
Note 25 Adoption of IFRS 17
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, were 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.
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).
272
| 2023 Annual Report | Notes to Consolidated Financial Statements
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.
273
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
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
Policy loans
Amortized cost
Loans to Bank clients
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
Other invested assets
Total in-scope invested assets
Out-of-scope invested assets(5)
Total Invested Assets
AFS
FVTPL
Amortized cost
Other
89
21,157
855
22,101
400,660
26,438
$ 427,098
Impact of IFRS 17
amendments
January 1, 2022
Measurement
differences
Presentation
differences
$
–
–
–
–
–
–
–
–
–
–
–
1,897
37
–
1,934
4,407
40
–
4,447
–
–
(4)
(10)
–
(14)
$
2,214
(2,214)
–
–
184,365
(184,365)
–
–
(2,351)
2,351
–
29,901
1,166
(31,067)
–
42,175
667
(42,842)
–
(6,397)
–
238
617
(855)
–
(6,397)
–
(6,397)
6,367
1,035
$ 7,402
$
Total carrying
value
$ 16,553
–
6,041
22,594
217,462
5,357
1,320
224,139
–
28,067
28,067
31,798
1,203
20,947
53,948
46,582
707
–
47,289
Measurement
category
FVOCI(1)
FVTPL(2)
Amortized cost(3)
FVOCI(1)
FVTPL(2)
Amortized cost(3)
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
400,630
27,473
$ 428,103
FVOCI(1)
FVTPL(2)
Amortized cost(3)
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 re-measurement 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 re-measurement 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 re-measurement 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.
274
| 2023 Annual Report | Notes to Consolidated Financial Statements
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, excluding those for account of segregated
fund holders
Investment contract liabilities
Other liabilities
Insurance contract liabilities for account of segregated fund holders
Investment contract liabilities for account of segregated fund holders
Segregated funds net liabilities
Total liabilities
Equity
Shareholders and other equity holders’ retained earnings
Shareholders’ accumulated other comprehensive income (loss)
Insurance finance income (expenses)
Reinsurance finance income (expenses)
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
$ 21,466(1) $ 10,014
–
$ 392,275
3,116
63,595
–
–
399,788
858,774
–
(2,823)
–
–
–
18,643
$ (18,134)
6,948
5,867
130,836
268,952
(399,788)
(5,319)
$ 405,621
10,064
65,855
130,836
268,952
–
881,328
(784)
–
–
–
9,230
23,492
(13,607)
(229)
–
9,656
–
–
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)
(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.
275
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 Equity
(1) Excluding impacts on variable annuity guarantee contracts.
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.
• Insurance and investment contract liabilities for account of segregated fund holders – Segregated fund net liabilities were
previously reported together, and have been separated into insurance contract liabilities for account of segregated fund holders (those
associated with insurance contracts) and investment contract liabilities for account of segregated fund holders (those associated with
investment contracts).
Note 26 Comparatives
Certain comparative amounts have been reclassified to conform to the current year’s presentation.
As disclosed in note 2 Accounting and Reporting Changes and note 25 Adoption of IFRS 17, comparative amounts have been prepared and
presented in accordance with IFRS 9 and IFRS 17. Refer to notes 2 and 25 for adoption impacts of IFRS 9 and IFRS 17.
276
| 2023 Annual Report | Notes to Consolidated Financial Statements
Manulife Financial
Corporation’s Modern
Slavery Act Statement
2023
Manulife is firmly committed to respecting human rights and
standing against all forms of slavery in our business and
throughout our supply chain. Respect for human rights is
embedded in our values, our decision-making, and our
expectations of ourselves and our partners.
In our operations and across our businesses, Manulife is
committed to doing our part to contribute to global goals that
seek to eliminate modern slavery, child labour, and forced labour.
As a participant of the United Nations Global Compact1, we are
committed to aligning our operations and strategies with the
Compact’s Ten Principles, which include support and respect for
the protection of internationally proclaimed human rights.
About this Statement
This document constitutes Manulife’s Modern Slavery Act
Statement on behalf of the Manulife entities noted below.
All data, statements and claims set out below refer to policies,
processes and procedures that were in place during the financial
year ending December 31, 2023, in accordance with Section 11 of
the Fighting Against Forced Labour and Child Labour in Supply
Chains Act (Canada).
Overview of our Business
Manulife is a leading international financial services provider,
helping people make their decisions easier and lives better. With
our global headquarters in Toronto, Canada, we provide financial
advice and insurance, operating as Manulife across Canada, Asia,
and Europe, and primarily as John Hancock in the United States.
Through Manulife Investment Management, the global brand for
our Global Wealth and Asset Management segment, we serve
individuals, institutions, and retirement plan members worldwide.
At the end of 2023, Manulife had more than 38,000 employees,
over 98,000 agents, and thousands of distribution partners,
serving over 35 million customers.
Governance
(CGNC). The CGNC’s oversight of our ESG framework
complements the work of the Executive Sustainability Council
(ESC). The ESC consists of our Global Chief Sustainability Officer
along with nine members of our Executive Leadership Team,
including our Chief Executive Officer.
Risks in our Operations and
Supply Chain
The risks of modern slavery are more prevalent in certain
industries and sectors, including markets where Manulife could
have direct or indirect linkages as a result of operations, for
instance, in forestry and agriculture, or through investments in
high-risk sectors which may include natural resource extraction,
infrastructure, apparel, consumer staples, consumer
discretionary, telecommunications and the manufacturing of
electronics.
Our supply chain is comprised of the procurement of a range of
products and services from a diverse set of suppliers globally. We
follow a fair sourcing process to manage our supply chain. Our
primary supply chain includes suppliers of software, technology,
office equipment, management services, facilities and operations
management services, business travel, and recruitment agencies,
among others.
Policies and Frameworks
Across Manulife’s global business, we have policies and
frameworks in place to manage human rights risks, including
modern slavery risks. We believe ethical business practices and
good governance are integral to how we conduct our business and
to our long-term success. Achieving our objectives requires a
commitment to integrity and consistent high standards from all
our partners, including our employees and vendors, through
compliance with a framework of policies that help us manage our
business.
Our policies and standards are guided by international principles,
as well as the letter and spirit of all applicable laws and
regulations. We take steps to ensure our partners are aware of
their obligations, and institute appropriate due diligence and
monitoring to detect human rights violations in our supply chain.
To ensure our key controls are effectively designed and executed,
Manulife subjects our controls to ongoing quality assurance
testing coupled with independent monitoring and testing from our
Second and Third Lines of defense, for example, by Enterprise
Risk Management and internal or external Audit.
Code of Business Conduct and Ethics
Oversight of our ESG framework, which includes our approach to
human rights matters, is part of the mandate of our Board of
Directors’ Corporate Governance and Nominating Committee
Manulife’s Code of Business Conduct and Ethics (“Code”) affirms
our commitment to ethical conduct and our practice of complying
with all applicable laws. The Code applies to directors, officers,
1 Please refer to the 2022 Manulife ESG Report for additional details.
277
and employees of Manulife and our subsidiaries. Sales
representatives, third party business associates, contractors,
agents and all individuals with certain duties and obligations to
the Company are also expected to abide by all applicable
provisions of the Code and adhere to the principles and values set
out in the Code when representing Manulife to the public or
performing services for, or on behalf of, Manulife.
At the start of their employment, and every year thereafter, all
Manulife employees are required to attest to and practice ongoing
compliance with the Code, which sets out obligations such as:
•
Employees must know and adhere to all applicable laws, rules,
and regulations.
• Engaging in any human trafficking-related activities is strictly
prohibited. Prohibited activities include, among others, using
force, fraud, or coercion to subject a person to involuntary
servitude, and obtaining labour from a person by threats of
serious harm to that person or another person.
Human Rights Statement
Our Global Human Rights Statement outlines Manulife’s
commitment to respecting and promoting internationally
proclaimed human rights. We work to respect and promote
human rights in our business decisions, our operations, and our
relationships with our customers, employees, shareholders, and
others. Manulife does not utilize child labour or any form of forced
or compulsory labour, and we comply with local age of
employment laws. We are committed to upholding the principles
and values set out by the International Bill of Human Rights, the
United Nations Guiding Principles on Business and Human Rights,
and the International Labour Organization’s core conventions.
Vendor Code of Conduct
Manulife’s vendors are required to adhere to the Vendor Code of
Conduct, which requires vendors to:
•
Ensure that the products and services they provide are in full
compliance with all applicable laws and regulations at all
times.
• Respect the dignity and human rights of all workers, be
committed to fair employment and labour practices, and not
use any forced or child labour.
• Comply with all applicable anti-slavery and human trafficking
laws, statutes, regulations, and codes.
• Implement due diligence procedures for their sub-contractors,
suppliers and other participants in their supply chains to
ensure that there is no slavery or human trafficking.
Global Health and Safety Policy
Manulife’s Global Health and Safety Policy outlines the Company’s
commitment to health and safety in the workplace. Manulife is
committed to providing a safe and healthy workplace. Health and
safety standards and procedures are compliant with local
standards for responding to hazards, injuries, or illnesses in the
workplace, conducting workplace inspections, collaborating with
key stakeholders, and providing training as required.
278
| 2023 Annual Report | Modern Slavery Act Statement
Consultations with manager and worker representatives take
place on a regular basis as directed by local requirements.
Global Discrimination, Harassment and
Workplace Violence Policy
As outlined in the Global Discrimination, Harassment and
Workplace Violence Policy, the Company strictly prohibits
discrimination, harassment and violence in the workplace. This
policy is intended to address discrimination, harassment, and
violence from all individuals with whom we come into contact in
the workplace, including employees, contingent workers,
contractors, customers, clients, and third parties. Manulife
employees undergo regular training on discrimination,
harassment and workplace violence.
Due Diligence Processes and
Assessing Effectiveness
Suppliers
Manulife’s Global Procurement Policy and Procedures outlines the
standards for employees that are engaged with third-party
providers and mandates the engagement of the Procurement
team for all third-party sourcing. Sourcing is conducted in a
manner that optimizes value and minimizes risk while upholding
Manulife’s high ethical standards in working with vendors. Our
Vendor Code of Conduct sets expectations for our thousands of
suppliers and requires all vendors to respect the dignity and
human rights of all workers and be committed to fair employment
and labour practices. Per the Vendor Code of Conduct, vendors
must adhere to its requirements, monitor compliance, and
promptly report any violations to Manulife. Manulife reserves the
right to monitor, assess, and audit all vendors according to the
Vendor Code of Conduct. Manulife may discontinue business with
any vendor or representative that does not adhere to the practices
outlined.
Financial Crimes
Manulife adheres to all applicable anti-money laundering and
terrorist financing laws and regulatory requirements in the
jurisdictions in which we operate, including guidance on money
laundering risk related to modern slavery and human trafficking.
Manulife’s Compliance, Global Investigative & Forensic Services,
and Corporate Security functions work with internal and external,
public, and private partners to address matters of modern slavery
to both proactively assess effectiveness and to respond to any
complaints. The risks these programs monitor for include but are
not limited to human trafficking, forced labour and debt bondage.
The programs in place are designed to educate relevant
employees and develop resources for customers to seek
assistance. Together, Manulife’s internal teams will work with
community resource groups, and law enforcement to raise
awareness and provide education to combat modern slavery.
In addition, employees, suppliers, and external parties can report
any suspected policy or human rights violations via Manulife’s
Ethics Hotline, which allows for anonymous reporting and
includes a specific reporting category for suspected human rights
violations. The Ethics Hotline is managed by Manulife’s
Compliance team.
Manulife’s General Account
As asset owners, Manulife works to respect and promote human
rights in our investment decisions and stewardship activities. Our
General Account investment teams are guided by Manulife General
Account’s internal Environmental, Social and Governance (ESG)
Guidelines on the integration of ESG considerations, which include
human rights, and support the responsible asset ownership
practices of our wholly owned life insurance companies.
Human rights considerations are incorporated into typical
investment due diligence and risk assessment processes which
follow a principles-based approach that is guided by the potential
materiality of ESG topics on investment outcomes. The following
activities are currently supportive of human rights due diligence,
which we employ in appropriate circumstances: filtering
investments for geographies and parties sanctioned by domestic
or international laws, as well as companies directly and primarily
operating in certain sectors; and considering applicable sector
guidelines and disclosures to address particularly sensitive ESG
issues and/or sectors, incorporating modern slavery and/or
human rights.
Manulife Investment Management
Manulife Investment Management believes sustainable investing
helps build portfolio resilience to systemic risks and enhances
long-term value creation potential.
Within Manulife Investment Management’s public markets
business, the sustainable investing frameworks employed within
our equity and fixed income portfolios are integrated into our
fundamental, bottom-up research process. Where material to the
issuer or security, human rights are considered in our investment
decisions and engagement activities with issuers to drive better
human rights-related outcomes and reduce risks.
Manulife Investment Management follows Manulife’s efforts and
principles regarding human rights, ethical business practices, fair
employment labour practices, and health and safety. Our overall
approach to human rights is reflected in several of our policies:
•
Manulife Investment Management Sustainable Investing and
Sustainable Risk Statement
• Manulife Investment Management Responsible Contracting
Statement
• Global Cluster Munitions Policy (applicable to Manulife and
Manulife Investment Management)
• Manulife Investment Management ESG Engagement Policy
investment processes to avoid adverse impacts. In the investment
life cycle, we assess for human rights-related risks and issues
within our due diligence process as part our regular ESG
integration programs. We incorporate human rights-related
considerations in our sustainable investment toolkits which our
investment teams use in pre-investment stage. When material to
the underlying investment, we continue monitoring these risks
throughout investment holding periods.
Specific to the Manulife Investment Management Timberland and
Agriculture businesses, 100% of our timberland portfolio is
certified as being sustainably managed under the Sustainable
Forestry Initiative© (SFI©) or Forest Stewardship Council© (FSC©),
and 100% of our U.S. farmland portfolio is certified as being
sustainably managed under the Leading Harvest Farmland
Management Standard1. As part of those certifications, and in an
effort to assess effectiveness, an independent third-party auditor
visits properties we manage and confirms that they are being
managed in alignment with the principles established by the
certification programs, which include protection and promotion of
human rights.
In our Manulife Investment Management real estate business, we
do not directly operate properties. To promote sustainable
building practices, we developed and implemented proprietary
Sustainable Building Standards for all property managers, which
incorporates initiatives focused on diversity, equity, and inclusion,
sustainable procurement, economic development, health and
wellness, and community engagement.
Employees
At Manulife, we’re fostering a working environment where all our
employees feel accepted, valued, and included. Manulife is an
equal opportunity employer. We are committed to fair and
unbiased recruitment, retention, and advancement practices, and
we administer all programs based on qualification and
performance and without discrimination on any protected ground.
Manulife has established a robust system of internal controls
globally. With respect to modern slavery and human rights more
broadly, the actions of Manulife’s employees are governed by
several policies and guidelines, including:
Code of Business Conduct and Ethics
•
• Global Discrimination, Harassment and Workplace Violence
Policy
• Global Health and Safety Policy
• Global Hiring Policy
• Global Background Check Policy
• Global Working Time Policy
Training
Within Manulife Investment Management’s private markets
business, our approach relies on identifying salient human rights
risks and developing mitigation measures in our operations and
All Manulife employees are required to complete annual training
related to Manulife’s Code of Business Conduct and Ethics and we
report on the completion rate in our annual ESG Reporting. As of
1 Please refer to the 2022 Manulife Investment Management Timberland Sustainable Investing Report and Agriculture Sustainable Investing Report respectively for additional
details.
279
This statement was approved by the Board of Directors on
February 14, 2024 on behalf of the following entities: Manulife
Financial Corporation (MFC), The Manufacturers Life Insurance
Company; Manulife Bank of Canada; Manulife Holdings (Alberta)
Limited; First Manulife Investment Corporation; Berkshire
Insurance Services Inc.; Manulife Securities Investment Services
Inc.1; Manulife Securities Incorporated; Manulife Investment
Management Holdings (Canada) Inc.; and Manulife Investment
Management Limited.
In accordance with the requirements of the Act, and in particular
section 11 thereof, I attest that I have reviewed the information
contained in the report for the entities listed above. Based on my
knowledge, and having exercised reasonable diligence, I attest
that the information in the report is true, accurate and complete
in all material respects for the purposes of the Act, for the
reporting year ended December 31, 2023.
I have the authority to bind MFC.
Roy Gori
President and CEO
February 14, 2024
December 31, 2022, 100% of eligible employees completed Code
of Conduct and Business Ethics training. Employees also receive
regular mandatory Discrimination, Harassment and Workplace
Violence training. Relevant Procurement professionals also
receive optional training on supplier diversity.
As part of the Company’s UN Global Compact membership, all
Manulife employees have access to the UN Global Compact
Academy which includes several modules on human rights. Select
employees have undergone the UN Global Compact’s Business
and Human Rights accelerator program.
Reporting and Remediation
Per Manulife Code of Business Conduct and Ethics, anyone who
believes there has been a suspected violation of our policies to
respect human rights can report it immediately to their leader,
Human Resources, Company legal counsel and/or the
confidential Manulife Ethics hotline at www.manulifeethics.com.
This allows for anonymous reporting and includes a specific
reporting category for suspected human rights violations.
Employees are encouraged to share any concerns with their
leaders, and they also have the option of posing questions to
Manulife’s Global Compliance Office. While the Ethics Hotline is
intended primarily for the use of employees, third parties (e.g.,
shareholders, vendors, suppliers, sub-advisers) may also report
suspected unethical, unprofessional, illegal, or fraudulent activity.
During Manulife’s 2023 financial year, no instances of harm
related to child labour or forced labour were identified. Therefore,
no measures have been taken to remediate forced labour or child
labour in our activities and supply chains, including remediating
the loss of income to the most vulnerable families.
Conclusion and Approval
In 2023, we continued to assess and strengthen the due diligence
in place to manage the risk of modern slavery, including child
labour and forced labour, as well as apply relevant policies and
associated training as set out in this statement.
1 As of January 2, 2024, Manulife Securities Investment Services Inc. and Manulife Securities Incorporated have amalgamated and the amalgamated entity is known as Manulife
Wealth Inc.
280
| 2023 Annual Report | Modern Slavery Act Statement
Board of Directors
Current as of March 6, 2024
Donald R. Lindsay
Chair of the Board
Manulife
Vancouver, BC, Canada
Director Since: 2010
Julie E. Dickson
Corporate Director
Ottawa, ON, Canada
Director Since: 2019
Donald P. Kanak
Corporate Director
Bellevue, WA, U.S.A
Director Since: 2024
May Tan
Corporate Director
Hong Kong
Director Since: 2021
Nicole S. Arnaboldi
Corporate Director
Greenwich, CT, U.S.A.
Director Since: 2020
J. Michael Durland
Corporate Director
Toronto, ON, Canada
Director Since: 2024
Vanessa Kanu
Corporate Director
Ottawa, ON, Canada
Director since: 2022
Leagh E. Turner
Chief Executive Officer
Coupa Software Inc.
Toronto, ON, Canada
Director Since: 2020
Executive Leadership Team
Current as of March 6, 2024
Roy Gori
President and Chief
Executive Officer
Scott S. Hartz
Chief Investment Officer
Marc Costantini
Global Head of Inforce
Management
Rahim B. Hirji
Global Head of Audit and
Advisory Services
Pamela O. Kimmet
Chief Human Resources
Officer
Karen A. Leggett
Global Chief Marketing
Officer
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
C. James Prieur
Corporate Director
Chicago, IL, U.S.A.
Director Since: 2013
Susan F. Dabarno
Corporate Director
Bracebridge, ON, Canada
Director Since: 2013
Tsun-yan Hsieh1
Chairman
LinHart Group PTE Ltd.
Singapore, Singapore
Director Since: 2011
Andrea S. Rosen1
Corporate Director
Toronto, ON, Canada
Director Since: 2011
Steven A. Finch
Chief Actuary
James D. Gallagher
General Counsel
Naveed Irshad
President and Chief
Executive Officer,
Manulife Canada
Paul R. Lorentz
President and Chief
Executive Officer,
Global Wealth and Asset
Management
Rahul M. Joshi
Chief Operations Officer
Colin L. Simpson
Chief Financial Officer
Philip J. Witherington
President & Chief
Executive Officer,
Manulife Asia
Brooks E. Tingle
President and Chief
Executive Officer,
John Hancock
Halina von dem Hagen
Chief Risk Officer
Shamus E. Weiland
Chief Information Officer
1 Effective May 9, 2024 Tsun-yan Hsieh and Andrea Rosen have served their full terms and are not standing for re-election.
281
Office Listing
Corporate Headquarters
Manulife Financial Corporation
200 Bloor Street East
Toronto, ON M4W 1E5
Canada
Tel: +1 416-926-3000
Belgium
International Group Program –
Europe
John Hancock International
Services S.A.
Avenue de Tervueren 270
1150 Woluwe-Saint-Pierre
B-1150 Brussels
Belgium
Tel: +32 02 775 2940
Bermuda
International Life – US Segment
3/F, O’Hara House
3 Bermudiana Road
Tower 2 (North Tower)
Hamilton, Bermuda
HM 08
Tel: +441 296-8710
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
500 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 519-747-7000
Affinity Markets
7/F
250 Bloor Street East
Toronto, ON M4W 1E5
Canada
Tel: +1 800-668-0195
Group Benefits
500 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 519-747-7000
Individual Insurance
500 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 519-747-7000
282
| 2023 Annual Report | Office Listing
Manulife Bank of Canada
500 King Street North
Waterloo, ON N2J 4C6
Canada
Tel: +1 519-747-7000
Manulife Investment
Management
5th & 6th FL
200 Bloor Street East
Toronto, ON M4W 1E5
Canada
Public Markets Tel: +1 416-852-2204
15th Floor
250 Bloor Street East
Toronto, ON M4W 1E5
Canada
Real Estate Tel: +1 416-926-5500
Manulife Quebec
Maison Manuvie
900 de Maisonneuve Ouest
Montréal, QC H3A 0A8
Canada
Tel: +1 514-499-7999
Manulife Wealth Inc. (formerly
Manulife Securities)
1235 North Service Road West
Oakville, ON L6M 2W2
Canada
Tel: +1 905-469-2100
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 6657-7777
Germany
Manulife Investment
Management (Ireland) Ltd.
23/F, Messeturm
Friedrich-Ebert-Anlage 49
D-60308 Frankfurt am Main
Germany
Tel: +49 69 5095-5676
Hong Kong
Asia Head Office
Manulife Tower
One Bay East,
83 Hoi Bun Road
Ngau Tau Kok, Kwun Tong, Hong Kong
Tel: +852-2956 5320
Manulife Investment
Management (Asia), a division of
Manulife Investment
Management (Hong Kong) Ltd.
23/F, Manulife Tower
One Bay East,
83 Hoi Bun Road
Ngau Tau Kok, Kwun Tong, Hong Kong
Tel: +852-2956 5320
Manulife (International) Ltd.
Manulife Tower
One Bay East,
83 Hoi Bun Road
Ngau Tau Kok, Kwun Tong, Hong Kong
Tel: +852-2956 5320
Manulife Provident Funds
Trust Co., Ltd.
22/F, Tower A
Manulife Financial Centre
223-231 Wai Yip Street
Kwun Tong, Kowloon
Hong Kong
Tel: +852 2310-5600
Indonesia
PT Asuransi Jiwa Manulife
Indonesia
Sampoerna Strategic Square
Jl. Jend. Sudirman Kav 45-46
South Tower
Jakarta 12930
Indonesia
Tel: +62 21 2555-7788
PT Manulife Aset Manajemen
Indonesia
Sampoerna Strategic Square
Jl. Jend, Sudirman Kav 45-46
31/F, South Tower
Jakarta 12930
Indonesia
Tel: +62 21 2555-7788
Ireland
Manulife Investment Management
(Ireland) Ltd.
The Exchange
George’s Dock, IFSC, Dublin 1
D01 P2V6
Ireland
Tel: +353 1 584-1503
Italy
Manulife Investment Management
(Ireland) Ltd.
Corso Italia n.3
Milan, 20123
Tel: +44 7760 141413
Japan
Manulife Investment Management
(Japan) Ltd.
15/F Marunouchi Trust Tower
North Building
1-6-1 Marunouchi, Chiyoda-ku
Tokyo, Japan 100-0005
Tel: +81 3 6267-1955
Manulife Life Insurance Co.
30/F, 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: +853 8398-0388
Malaysia
Manulife Investment
Management (M) Berhad
16th Floor, Menara Manulife
No. 6 Jalan Gelenggang
Damansara Heights
50490 Kuala Lumpur, Malaysia
Tel: +60 3 2719-9228
Manulife Holdings Berhad
Menara Manulife
No. 6 Jalan Gelenggang
Damansara Heights
50490 Kuala Lumpur, Malaysia
Tel: +60 3 2719-9228
Myanmar
Manulife Myanmar Life
Insurance Company Limited
16/F Kantharyar Office Tower
No.11, Cor. Kan Yeik Thar Road & U Aung
Myat Road
Mingalar Taung Nyunt Township
Yangon
Myanmar
Tel: +09 765 467 110
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
#15-01 Manulife Tower
Singapore 048424
Tel: +65 6501-5411
Manulife (Singapore) Pte Ltd.
8 Cross Street
#15-01 Manulife Tower
Singapore 048424
Tel: +65 6501-5411
Switzerland
Manulife IM (Switzerland) LLC
Europaallee 41
CH-8004 Zurich
Switzerland
Tel: +41 44 214 69 30
Taiwan
Manulife Investment
Management (Taiwan) Co., Ltd.
6/F, Exchange Square 2,
97 Songren Road,
Xinyi District
Taipei 11073,
Northern Taiwan, R.O.C.
Tel: +886 2 2757-5969
United Kingdom
Manulife Investment
Management (Europe) Ltd.
3rd Floor
One London Wall
London EC2Y 5EA
United Kingdom
Tel: +44 20 7256 3500
United States
John Hancock Head Office and
John Hancock Investment
Management
197 Clarendon Street
Boston, MA 02116-5010
U.S.A.
Tel: +1 617-663-3000
Tel: +1 617-572-6000
Hancock Natural Resource
Group
197 Clarendon Street,
8th Floor
Boston, MA 02116-5010
U.S.A.
Tel: +1 617-747-1600
International Group Program
200 Berkeley Street
Boston, MA 02116-5023
U.S.A.
Tel: +1 617-572-6000
John Hancock Insurance
200 Berkeley Street
Boston, MA 02116-5023
U.S.A.
Tel: +1 617-572-6000
Manulife Investment
Management (US) LLC
197 Clarendon Street
Boston, MA 02116-5010
U.S.A.
Tel: +1 617-375-1500
Vietnam
Manulife Investment Fund
Management (Vietnam) Co., Ltd.
4/F, Manulife Plaza
75 Hoang Van Thai Street
Tan Phu Ward, District 7
Ho Chi Minh City
Vietnam
Tel: +84 8 5416-6777
Manulife (Vietnam) Ltd.
Manulife Plaza
75 Hoang Van Thai Street
Tan Phu Ward, District 7
Ho Chi Minh City
Vietnam
Tel: +84 8 5416-6888
West Indies
Manulife Re Manulife P&C
Limited
The Goddard Building
Haggatt Hall
St. Michael, BB-11059
Barbados, West Indies
Tel: +246 228-4910
283
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 or losses on financial instruments classified as fair value
through other comprehensive income (“FVOCI”), net unrealized
gains or losses on derivative instruments designated within an
effective cash flow hedge, net unrealized gains or losses from the
cost of hedging, unrealized foreign currency translation gains or
losses, and insurance and reinsurance finance income or
expenses reflected in other comprehensive income. 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.
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.
Expected Credit Loss (ECL) allowance: The determination of
impairment losses on invested assets that are debt financial
instruments measured at FVOCI or amortized cost.
Fair Value: Amount of consideration that would be agreed upon in
an arm’s length transaction between knowledgeable, willing
parties who are under no compulsion to act.
Fair Value through Profit or Loss (FVTPL), Fair Value through
Other Comprehensive Income (FVOCI) or Amortized Cost:
Under IFRS 9, financial assets should be classified and measured
at fair value, with changes in fair value recognized in profit and
loss as they arise (FVTPL), unless criteria are met for classifying
and measuring the asset at either amortized cost or fair value
through other comprehensive income (FVOCI).
Fulfilment cash flows: An explicit, probability-weighted estimate
(i.e., expected value) of the present value of the future cash
outflows less the present value of the future cash inflows that will
arise as insurance contracts are being fulfilled, including a risk
adjustment for non-financial risk.
Guarantee Value: Typically within variable annuity and
segregated fund 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.
284
| 2023 Annual Report | Glossary of Terms
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.
In-Force: Refers to the policies that are currently active.
Insurance and Investment Contract Liabilities: An amount
which represents the Company’s obligation to pay future expected
policyholder benefits and expenses net of policyholder premiums
while also providing some conservatism in our assumptions, and
for insurance contracts specifically, an amount for unearned
future profits called the contractual service margin. 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.
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.
Risk Adjustment for non-financial risk: The compensation
required for bearing the uncertainty about the amount and timing
of the cash flows arising from non-financial risk in insurance
contracts.
Onerous contracts: An insurance contract is onerous at the date
of initial recognition if the fulfilment cash flows allocated to the
contract and premiums, acquisition expenses and commissions
arising from the contract at the date of initial recognition, in total
are a net outflow (a loss at initial recognition).
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).
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 Canadian or US Transfer Agents.
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
301 – 100 Adelaide St. West
Toronto, ON M5H 4H1
Canada
Toll Free: 1 800 783-9495
Collect: 416 682-3864
E-mail: manulifeinquiries@tmx.com
Website: www.tsxtrust.com/manulife
TSX Trust Company offices are also located in
Toronto, Vancouver and Calgary.
United States
Equiniti Trust Company, LLC
P.O. Box 27756
Newark, NJ 07101
United States
Toll Free: 1 800 249-7702
Collect: 416 682-3864
E-mail: manulifeinquiries@tmx.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
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
AUDITORS
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
Shareholder Information
MANULIFE FINANCIAL CORPORATION
HEAD OFFICE
200 Bloor Street East
Toronto, ON M4W 1E5
Canada
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 9, 2024 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.
E-mail: 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.
MFC DIVIDENDS
Common Share Dividends Paid for 2023 and 2022
Common and Preferred Share Dividend Dates in 2024*
Year 2023
Record Date
Payment Date
Fourth Quarter
Third Quarter
Second Quarter August 23, 2023
First Quarter
February 28, 2024 March 19, 2024
November 22, 2023 December 19, 2023
September 19, 2023
June 19, 2023
May 24, 2023
Year 2022
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
* 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, 2024
May 22, 2024
August 21, 2024
November 20, 2024
March 19, 2024
June 19, 2024
September 19, 2024
December 19, 2024
March 19, 2024
June 19, 2024
September 19, 2024
December 19, 2024
Per Share
Amount
Canadian ($)
0.400
0.365
0.365
0.365
0.365
0.330
0.330
0.330
285
Decisions made easier.
Lives made better.
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
6
3
9
3
R
I