Manulife Financial Corporation (MFC) Earnings Call Transcript & Summary

Good morning, all. It will be 11:00 o'clock, we're going to get this show on the road. Thank you for joining us. It's delighted to see people in person. As you know, the last 3 years, we had virtual annual meetings and as a result of the pandemic. So it was great to be able to do a hybrid version today. We have lots of people online and wonderful have people here in the room. On behalf of our Board of Directors come you to the Annual Meeting of Manulife Financial Corporation and the Manufacturers Life Insurance Company. My name is Don Lindsay, Chair of the Board. All across Manulife, we are committed to diversity, equity and inclusion and part of this commitment includes incorporating an indigenous land acknowledgment, where we recognize and acknowledge the history of the land in which we operate. It is important for us to show our respect for indigenous peoples and recognize their enduring relationship to the land. So the Board of Directors, on behalf of shareholders, policyholders and employees of Manulife acknowledge that we are on the traditional territory of many nations and that Toronto is home to many diverse first Nations, Inuit, met and indigenous peoples. We acknowledge that Toronto was covered by treaty 13 and that for thousands of years, it has been the traditional land of the Huron One dot, the Seneca and most recently, the Mississauga of the Credit River. As we gather today on these treaty lands, we have the responsibility to honor and respect the 4 directions, land, waters, plants, animals and ancestors that walked before us and all the wonderful elements of creation that exists. Today, this gathering places home to many first nations, [indiscernible] indigenous peoples from across Turtle Island. And acknowledging them reminds us of our important connection to this land where we live, learn and work. We recognize honor and respect these nations as the traditional stewards of the land and water on which Manulife's Toronto offices are now present. So with that important acknowledgment, we are pleased to be holding our annual meeting as I said in a hybrid format after 3 years of virtual meetings as a result of the COVID-19 pandemic. Your Board is proud of Manulife many achievements in 2022 as we continue to accelerate on the solid foundation that we have built for future success. And we would like to recognize Roy Gori, and his executive leadership team who, over the past several years have continued to show steadfast leadership anchored always in our values. Their commitment, their ownership and their spirit have driven resilient results despite the challenges and the impacts presented by an unpredictable macro environment, course, an unprecedented global pandemic. With their leadership and the strength of Manulife's global team, the company has delivered on key commitments made to shareholders, including progress against our strategic priorities and financial targets and our growth ambition. And these results have been delivered, thanks to the efforts of our more than 40,000 winning team members at Manulife who have owned the opportunity to meet and achieve our targets year-in and year-out. In 2022, the Board remained focused on providing oversight and guidance to the leadership team. And after nearly 2 years of virtual meetings, we've been energized by the opportunity to incorporate in-person sessions now into our meeting cadence. The opportunity to adopt a hybrid meeting schedule has enabled optimal participation from our directors and enhanced our ability to attract talented directors from around the globe. And we are proud to have continued progress towards greater diversity on your board. We increased representation of Asia domiciled directors in view of the importance of that region to our future growth ambitions. And we are also proud to have maintained our aspiration of gender parity among independent directors, with women now representing 7 of the 11 independent directors that are nominated for election at today's Annual Meeting of Shareholders. Reflecting these efforts, we were pleased to be ranked in the top 4 by the Global Mail's Report on Business Board Games. Those are rankings for board governance in Canada. On behalf of the Board and Manulife shareholders, customers and colleagues, I would like to particularly offer our sincere thanks to John Cassaday for his 30 years of service, which came to a close earlier this year. We marked many milestones during his tenure on the Board, and we are grateful for his unwavering leadership and his many contributions to the company. And we would also like to thank Joseph Caron, whose term as a Director will end at the close of this meeting for his 12 years of service and dedication and Joseph had many contributions to Manulife are greatly appreciated. Looking to the future, I appreciate the trust that you place in me, and I am humbled to serve as the Chair of your Board as we work together to achieve our bold ambition. And finally, we would also like to thank you, our fellow shareholders, for your trust, your support and your candid feedback. While the past few years have been challenging, the company's ability to deliver through such times is proved positive that we have the right strategy, the right team and the right to win. Roy Gori, our President and CEO, and I are joined on the stage today by Phil Witherington, Chief Financial Officer; and Antonella Deo, our Corporate Secretary. Now before handing over to Roy for his remarks, we'd like to review a few housekeeping items. This meeting is being broadcast in both English and French. For attendees online to switch languages, please click on your desired language from the buttons above the presentation screen. Closed captioning is also being provided in both English and French. For attendees in person, there are headsets available for those wishing to hear remarks in French. And Channel #1 is for English and Channel #2 for French. If you need assistance during the meeting, there are volunteers at the back of the room to can help you. Close capturing will also be shown on the monitors to the left and to the right of the stage in English and in French, as indicated. And if you have joined us by dialing in to one of the conference lines, you will be able to hear the meeting, but you will not be able to vote or ask questions. For shareholders, policyholders and proxy holders online -- to be able to vote or ask questions during the meeting, you had to have joined the meeting by entering your control number at the registration screen. Information on where to find your control number was provided in the meeting materials sent to shareholders and policyholders and posted on our website. [Operator Instructions] Questions during the formal business of the meeting should relate to the matter being discussed. All questions should be of interest to all shareholders and policyholders and should not be offensive or of a personal nature. Questions of a general nature will be dealt with during the Q&A session. In fairness to other shareholders and policyholders, if your question is offensive, we will not address your question. If your question relates to a personal matter, we will contact you following the meeting to follow up on your question or if you are attending the meeting in person, we will direct you to a customer service representative. And just a reminder that only shareholders policyholders and proxy holders may ask questions. We draw your attention to the caution regarding forward-looking statements in the presentation slide. Comments made during this meeting may include forward-looking statements as defined in securities legislation. Actual results may differ materially from those expressed or implied in these statements. Please also refer to the note regarding the non-GAAP measures used in today's presentations. And now Roy will provide his remarks on Manulife. Roy, over to you.

Hello, everyone. Welcome, and thank you for joining us today. Looking back on all that Manulife has accomplished, I am tremendously proud of the way our colleagues once again showed the creativity, resilience and innovative spirit. With the pandemic continuing to impact many of our markets throughout 2022, our team focused on supporting our existing customers and reaching new ones. Knowing how important our products are to ensuring their well-being and financial future. Our colleagues also adapted to new ways of working as we reopened our offices and migrated to our new working better approach. With international travel resuming, I had the privilege of visiting many of our teams for the first time since 2020. And it was wonderful to connect and reconnect in person after such a long time away. For me, it underscored the value of the time that we spend together, and I've come away from each interaction feeling optimistic and energized about our future. The end of last year marked 5 years since we embarked on a journey to transform Manulife into the most digital customer-centric global company in our industry. At that time, we set out 5 strategic priorities essential to achieving our bold ambition, accelerate growth, digital customer leadership, expense efficiency, portfolio optimization and high-performing team. Thanks to our disciplined approach, we've delivered record net income and Revinate significantly improved our Net Promoter Score built an industry-leading team and culture and ensured strong market leadership positions across attractive markets and businesses. In Asia, we're not only at scale as a top 3 pin agent insurer but we're well positioned to benefit from the significant growth opportunities in the region. In Global Wealth and Asset Management, we're a global leader in retirement, a top 10 global retail multi-manager and one of the largest natural resource asset managers for institutional investors globally. We're also a leading life insurer in Canada, and we're a global leader in behavioral insurance. We continue to believe in the growing need for health, wealth and retirement solutions, which have been amplified by the pandemic, and we're well positioned to capitalize on the global megatrends. Number one, the middle class in Asia is expected to grow 75% to 3.5 billion people by '23. Number two, the size proportion of the aging population globally is growing rapidly with 1 in 6 people expected to be over the age of 60 by 2030. And three, as the digitization continues to accelerate globally, success will be defined by those who are able to provide extraordinary experiences. I believe that we're uniquely positioned to meet these opportunities with a diversified scale business and have demonstrated that we have the right strategy to win. Now I'd like to highlight the progress that we've made against our strategy and how we're positioned for the next phase of Manulife's growth. In 2022, our diversified global WAM business recorded net inflows of $3.3 billion globally against an industry backdrop of net outflows in North America. This performance extended our remarkable track record of delivering positive net flows in 12 of the last 13 years. Our global WAM and Asia results contributed to delivering 63% of our core earnings from our highest potential businesses against the baseline of 54% in 2017. We will continue to drive this momentum through our growing agency force, successful bancassurance partnerships, transformational digital offerings and strategic expansion into high-growth markets in the Asia region. We're bringing our growth ambitions to life in the most attractive high-growth markets through partnerships like our 16-year exclusive bancassurance partnership with Vietin Bank in Vietnam, which has already shown strong momentum in its first year. We also became the first global wealth and asset manager to acquire a 100% stake in a fully operating public fund management company in Mainland China through our investment in Manulife fund management. We are laser-focused achieving our ambition of being the most digital custom-centric company in our industry, and we remain focused on providing simple, intuitive and innovative experiences across our business. Through our efforts, we've improved our NPS or Net Promoter Score from plus 1 to -- in 2017 to plus 20 in 2022. And improved our straight-through processing rate from 68% in 2018 to 83% in 2022. In 2022, we welcomed approximately 1 million new customers growing our customer base to more than 34 million around the world. And we've invested nearly $1 billion to provide new digital capabilities and experiences since 2018. We're proud of our digital behavioral insurance offering globally, and we're continuing to innovate to provide our customers with unique solutions to improve their health. In 2022, we entered into a partnership with GRA, a health care company offering access to Gallery, their leading-edge multi-cancer early detection test to a pilot group of customers through John Hancock Vitality. We are the first life insurer to make GRAIL's gallery test available, enabling eligible customers to take proactive steps to better understand and make more informed choices about their health. We continue to foster a culture of expense efficiency and prioritize our resources where they'll be most effective. From 2011 to 2016, we saw a high expense growth at a rate of about 9% per year with a stagnant expense efficiency ratio near 60%. Our focus has allowed us to contain the average annual growth rate of general expenses to less than 2% between 2017 and 2022, improving our expense efficiency ratio from 55.4% in 2017 to 50.9% in 2022. We with a commitment to achieving our target of below 50%. We're achieving this through digitization, simplifying and standardizing our processes, optimizing our structure and careful management of our expenditures embedding a culture of disciplined spending to enable growth. By the end of '22, we freed up $9 billion of capital from our legacy portfolio, having previously achieved our 2022 target to release $5 billion of capital 3 years ahead of schedule in 2019. We've also made progress towards our business mix targets for long-term care insurance and variable annuities to contribute less than 15% of core earnings by 2025. We created value for our shareholders, executing 2 reinsurance transactions of our U.S. variable annuity block in 2022, releasing $2.5 billion of capital. We also bought back 4.1% of our common shares in 2022. Portfolio optimization remains a high priority as we continue to explore opportunities to reduce risk and release capital from our legacy businesses. Now none of this would be possible without the effort and dedication of our high-performing team. I'm very pleased to note that we achieved top quartile employee engagement scores in 2020, 2021 and 2022. Since 2017, we've seen continued improvement in our engagement scores each year. And in 2022, we ranked in the top 6 percentile amongst global financial and insurance companies. We also continue to be recognized as an employer of choice, including as one of the world's best employers by Forbes for the third consecutive year. We've continued to invest in robust learning and development leadership and recognition programs, and we've enjoyed the opportunities for in-person collaboration that have emerged through our return to offices in 2022. These investments will be critical to providing us with a long-term sustainable competitive advantage. Our success over time depends on our ability to continue delivering for each of our 3 key stakeholders, our customers, team and shareholders as well as the communities that we live in and the planet that we all share. As a health and wealth company, taking the long-term view is about creating economic return while also helping to solve the world's cite and environmental challenges. Two years ago at this meeting, I was delighted to announce the first phase of our climate action plan, a set of robust and long-term commitments to reduce our environmental print, support the transition to a net 0 future, and invest in climate change mitigation and resilience. Whilst we are already net 0 in our Scope 1 and Scope 2 operational greenhouse gas emissions, we're committed to further reducing our absolute emissions by 40% by 2035 and to achieving net 0 Scope 3 finance emissions in our general account by 2050. In 2022, we shared our global impact agenda, an articulation of our long-standing commitment to empowering health and well-being, driving inclusive economic opportunities and accelerating a sustainable future. Staying true to our mission through our impact agenda is how we will create long-term value for our business, our communities and the planning. It's how we all win. In recognition of our continued and strengthening commitment to sustainable performance, we were once again named to the S&P Dow Jones Sustainability North American Index, one of only 7 insurers across North America to be included and within the top 10% of our industry peers globally. I'm tremendously proud of the progress our winning team has made. We've driven great change delivered for our customers and shareholders and strengthened a great culture in which all our colleagues can thrive. Our disciplined approach and strong execution of our strategy, have helped us remain resilient throughout the pandemic, while delivering a record net income in 2022, which is a testament to our strong focus on delivering shareholder value as a team. In closing, I'd like to first acknowledge and thank each of my Manulife colleagues around the world for their contributions to our many accomplishments. I'm honored to lead our winning team. I also have the privilege of acknowledging our former Chairman, John Cassaday, and thanking him on behalf of our team for his 30 years of service as a member of our Board of Directors, including the past bias Chairman. During this time, John has made invaluable contributions to our growth and in helping us to become a company that we are today. On a personal note, I've appreciated his support and counsel throughout my tenure. Thank you, John. With John's departure, I also have the privilege of welcoming our incoming Chair, Don Lizzy. As a long-standing member of our Board, Don has a deep knowledge of our business, and I look forward to working even more closely with him in the years ahead. I'd also like to thank you, my fellow shareholders and customers for the trust that you've extended to me and to our team. Between 2017 and 2022, we grew our common share dividend by 10% per year on average. And we've also shared that our Board approved an increase of 11% that started in March of this year. Our team is confident that our all-weather strategy, diverse business model and considerable financial strength and flexibility position us well to win and deliver in 2023 and beyond. We will continue to work diligently to execute against our strategic priorities as we build the future of insurance and asset management, always keeping our mission and our values at the heart of all that we do. As we continue to help make decisions easier and lives better, we look forward to keeping you updated on our progress. Thank you. [Presentation]

Well, thank you, Roy, for your remarks, and thank you for your leadership, and there will be a chance to ask out questions a little later in the meeting. So for now, the Annual Meeting of Shareholders of MFC and the Annual Meeting of Policyholders and the shareholder of MLI have now been called to order. Antonella Deo will act as Secretary of the meeting and Lean Thomas and Pat Lee of TSX Trust Company will act as scrutineers for both MFC and MLI. The notice of this meeting was sent to all shareholders and policyholders required to be sent such notice and the quorum requirements for the meeting have been complied with. So accordingly, this meeting is properly convened. We will now table the following items: the 2022 consolidated financial statements of MFC and of MLI as well as the reports of the auditor and the actuary on these documents. The 2022 consolidated financial statements of MFC were sent to the shareholders in accordance with the Insurance Companies Act and applicable securities legislation. And the 2022 consolidated financial statements of MLI were sent to policyholders in accordance with the Insurance Companies Act. And the information for participating policyholders of MLI, which includes summaries of the participating policyholder dividend policy and the participating account management policy. This information can be found in the 2022 report to policyholders, which was sent to all participating policyholders who requested notice of meetings. Now do we have any questions on the financial statements or the information for participating policyholders of MLI questions here in the room, please. Not seeing any, Antonella. Do we have any questions online on the financial statements or the information participation in the holders of MLI?

We have not received any questions on this matter.

Okay. Well, we will now proceed to the voting section of the meeting. And before commencing, we would like to provide instructions for how shareholders, policyholders and proxy holders may vote. To the extent you have voted in advance of the meeting and do not wish to change your vote, you don't need to do anything. As we proceed through each item of business, shareholders, policyholders and proxy holders that join the meeting online using their control number will see the resolutions to be voted on displayed on the screen as the item of business is being discussed. Shareholders and policyholders , proxy holders that join the meeting here in person will see the resolutions to be voted on displayed on the screen in the room. To vote, click on one of the voting options available online or mark your vote on the green ballot for MFC or the yellow ballot for MLI. Votes submitted online will be automatically submitted for our scrutineers to include in the vote tabulation, and votes may be changed until the voting is closed on that matter. Scrutineers will collect ballots for those who are voting in person here in the room. For online shareholders, policyholders and proxy holders, once voting for a particular matter is closed and we move on to the next item of business, the screen will change to show the next item of business, and you will no longer be able to vote on the previous matter. If you have not voted in advance of the meeting and you do not press 1 or for withhold or against or abstain when voting is open, your vote will not be recorded, and you will be regarded as having abstained from voting. We will be voting on items of business for both MFC shareholders and MLI policyholders. And if you are both an MFC shareholder and MLI policyholder or a proxy holder for both, you may vote on all matters. If you're an MFC shareholder but not an MLI policyholder or vice versa, you will see the items being voted upon for each company, but votes cast will only be counted towards the company of which you are a holder. A simple majority is required to approve matters voted on at this meeting. To facilitate the business of the meeting, Manulife employees who are MFC and MLI proxy holders will move all resolutions. Preliminary results will be announced after voting closes for all matters, and the final results will be posted on our website following the meeting. So the first item of business is the election of the directors of MFC and MLI. And you may either vote for or withhold your vote from each director nominee. So we will now vote on the election of directors of MFC. The number of directors to be elected today, as determined by the Board, is 12. If you have already voted and do not wish to change your vote, there is nothing for you to do at this time. Information on each nominee is set out in the proxy circular for this meeting. All nominated directors were elected at our 2022 meeting. Sheryl Homes, an employee and proxy holder has agreed to move this resolution.

I am pleased to nominate the 12 directors as set out in the proxy circular and as shown on the screen as directors of MFC to hold office until the close of the next Annual Meeting of Shareholders of MMC or until their successors are elected or appointed.

Thank you, Cheryl. Do we have any questions on the election of directors of MFC here in the room? Antonella, do we have any questions online on the election of directors of MSE.

There are no online questions.

Thank you. For shareholders and proxy holders online, please vote online for the election of directors of MFC. For shareholders and proxy holders in person, please mark your ballot for the election of directors of MFC. Okay. Voting is now closed for the election of the directors of MFC. We will now vote on the election of directors of MLI. The number of directors to be elected today, as determined by the Board, is 12. There will be 5 policyholder directors and 7 shareholder directors. And information regarding the nominees is set out in the report to policyholders for this meeting. The participating policyholders of MLI vote for the policyholder directors. If you have already voted and do not wish to change your vote, there is nothing for you to do at this time. Sheryl Homes, an employee and proxy holder has agreed to move this resolution.

Mr. Chair, I am pleased to nominate the 5 directors as set out in the report to policyholders and as shown on the screen as policyholder directors of MLI to hold office until the close of the next annual meeting or until their successors are elected or appointed.

Thank you, Cheryl. Do we have any questions here in the room on the election of policyholder directors of MLI. Seeing none and Tanello have we received any questions online for the election of the policy of directors of MLI.

No online questions.

Okay. Thank you. For policyholders and proxy holders online, please vote online for the election of the policyholder directors of MLI and for policyholders and proxy holders here in person, please mark your ballot for the election of the policyholder directors of MLI. I'll just give it a few seconds to allow people to complete their voting. [Voting]

Okay. Voting is now closed as it relates to the election of the policyholder directors of MLI. We will now move to the election of the shareholder directors of MLI. As the sole shareholder of MLI, MFC has elected the shareholder directors by written resolution in accordance with the Insurance Companies Act. The 7 directors shown on the screen and as set out in the report to policyholders have been elected as the shareholder directors of MLI to hold office until the close of the next annual meeting or until their successors are elected and appointed. We will now vote on the appointment of auditors for MFC and MLI. If you have already voted and do not wish to change your vote, there is nothing for you to do at this time. Devin Johnson, an employee and proxy holder has agreed to move this resolution.

Mr. Chair I move Ernst & Young LLP, Chartered Accountants, be appointed auditors for MFC and MLI until the close of the next annual meeting at a remuneration to be fixed by the directors.

Thank you, Devin. Cheryl Homes, an employee and proxy holder has agreed to second this motion.

Mr. Chair, I second the motion.

Thank you, Cheryl. Do we have any questions on the appointment of auditors for MFC and MLI here in the room? Seeing none. Antonella, have we received any questions online on the appointment of the auditors, Japan MLI.

No online questions.

Thank you. For shareholders, policyholders and proxy holders online, please vote online for the appointment of the auditors of MFC and MLI. And for shareholders, policyholders and proxy holders here in person, please mark your ballot for the appointment of the auditors of MFC and MLI. We'll give that a few seconds. [Voting]

Voting is now closed as it relates to the appointment of the auditors for MFC and MLI. We will now hold the nonbinding shareholder advisory vote on MFC's approach to executive compensation. MMC's executive compensation program is designed to contribute to our long-term sustainable growth by rewarding executives for strong performance in executing our business strategy. Your Board believes that shareholders should have an opportunity to understand how and why the Board makes its executive compensation decisions and should be able to provide input to the Board on executive compensation. We take our shareholders' feedback seriously and we will continue to do so. If you have already voted and do not wish to change your vote, there is nothing for you to do at this time. Davin Johnson, an employee and proxy holder has agreed to move this resolution.

Mr. Chair, I move that the advisory resolution to accept MFC's approach to executive compensation as set out on Page 13 of the proxy circular be approved.

Thank you, Devin, and Cheryl Homes, an employee and proxy holder agreed to second this motion.

Mr. Chair, I second the motion.

Thank you, Sheryl. Now do we have any questions on the advisory resolution on MFC's approach to executive compensation here in the room. Seeing none Antonella, have we received any questions online on the advisory resolution.

No online questions.

Thank you. For shareholders and proxy holders online, please vote online for the approval of the advisory resolution on MFC's approach to executive compensation. And for shareholders and proxy holders here in person, please mark your ballot for the approval of the advisory resolution on MFC's approach to executive compensation. We'll just give that a little bit of time for voting to be completed. [Voting]

Okay. Voting is now closed as it relates to the approval of the advisory resolution on MFC's approach to executive compensation. For shareholders, policyholders and proxy holders here in person, the scrutineers will now collect the ballots. And we'll just wait a few moments for all the ballots to be collected. Okay. Thank you. The scrutineers have prepared their preliminary report and Antonella Deo will now present the preliminary results of the votes.

On the election of directors of MFC, all director nominees received at least 95% of the votes cast in favor.

Thank you. I declare that all 12 director nominees have been elected as directors of MFC.

On the election of policyholder directors of MLI, all policyholder director nominees received at least 92% of the votes cast in favor.