Manulife Financial Corporation (MFC) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for joining us in the room and on the line today. We've got in-person, Roy Gori. Our concept behind this discussion really is Roy's retirement. So I'm going to focus some of my questions or many of my questions on that decision, the decision to retire. But I would encourage those in the room, and I'll check my e-mail once in a while, someone wants to e-mail me a question, I think you know what my e-mail address is. I'll go into other topics as well.

Roy, the first thing I want to get into is we really do have to acknowledge the round trip the stock has had in the last 17 years. I brought it up on one of the conference calls. Not everybody will remember this. And maybe this is just a sign of how long I've been around the stock. But in 2007, late in the year, or the financial crisis, Manulife had did something like 44-ish $45, and it took 17 years, 7.5 of which under your watch, to get back to that $45. So I mean you can look at that in 2 ways. You can say it's kind of a -- that was a long time or congratulations you're there. No sooner I'll take the second. No sooner did you get there that you announced your retirement. And so I think one of the bigger questions on the Street is, why now? Yes, a little early, it seems.

Yes. Well, good afternoon, everyone. It's great to see you all here in person. And howdy folks on online as well. I think that's clearly the obvious question that is on most people's minds, why decide to retire now. And the honest truth is, firstly, I've been working for 40 years. I've worked for 2 companies, I worked for Citibank and for Manulife. And Manulife stent was 10 years, 2.5 years in the Asia CEO role and then more recently, about 7, 7.5 years, it will be 8 years by the time we actually retire from the position as CEO. And when I came into the role as the CEO, my mandate was very clear and that was to drive the transformation of the company. And Mario, you and I spoke about that very early in my tenure. And that transformation was about really taking the company, which was a very risky business that had low returns and was very sensitive to market movements to being a company that had more sustainable quality results that could be delivered consistently quarter in, quarter out without huge volatility and a huge variance between core and reported. At the same time, we needed to digitize our business. We needed to get rid of legacy businesses, we need to shore up capital and so on. So the very first thing I did with my leadership team was to establish what our journey of transformation was going to look like and established targets for that transformation journey. And we set the 5 priorities and targets for each of those priority areas. So what I knew back then was that the 3 ingredients that I wanted to retire -- the 3 conditions that I wanted to be present when I retired was, a, having completed the transformation that I set out to achieve. That was certainly one. B, having strong momentum behind our performance so that we can continue to deliver good performance and deliver that in a sustainable way. And the third one was having a great leadership team in place that could, again, continue to deliver great results and take our business to a new level. I personally think that a lot of CEOs don't know when the right time is to retire. I think they stay on for the wrong reason. Sometimes that's power, sometimes that's money. I'm not wired that way. And I felt that the conditions that I really wanted to be in place were achieved. Quite frankly, the last real key piece in the puzzle for me was completing that LTC transaction in December of 2023. And with that done, I felt that we'd really largely achieve the transformation. There are always going to be pieces that are going to be outstanding and that you'd still want to do. But we'd achieved largely what we set out to achieve. So that's when I really had the conversation with the Board. they spent a couple of months trying to convince me to change my mind. And then the next I ask when the Board was, can you give us some time. And I said, absolutely, I want this to happen in a way that's actually great for the company. So the short answer is that I felt really that we had achieved what we set out to achieve, and the company was in good shape to continue that success momentum and for that to be sustainable. And that was the real trigger point for me to decide to hand the reins.

I'm going to keep this sort of along the lines of an exit interview for a bit longer and then we'll get into the other things. One of the typical things that you asked when someone is leaving is were there -- it's a 2-part question, were there any big regrets, things that you could have done that didn't happen? And maybe perhaps what you're most proud of? What was the most -- the biggest accomplishment?

Yes. Not a lot of regrets. Again, I feel really proud of what the team has achieved over the last 7.5, 8 years. And we've really put a lot of hard work into tackling some of the big issues. We freed up $12 billion worth of capital. That $12 billion worth of capital was generating a return of approximately 5%. Our ROE went from 11% to 16-plus percent. Our high-performing businesses now represent 70% of our earnings, Asia 44%. Our NPS score was plus 1, now plus 25. So I feel really good about the agenda. If there's -- I sort of -- I was asked the question at our global leadership team meeting recently. Was there anything that I would have done differently? Not a lot, but I'd love for us to being further along the digital journey. I really think that the digital aspect of our business is going to be the key to success. And I feel good about the progress that we've made. But we still have more work to do, and that's an area that I know the team is going to be focused on in terms of really driving further improvement and a lot more effort.

But in terms of being the things -- I mean there's plenty to be proud of. Would the reinsurance transactions be part of that story?

There's a lot of key highlights to point to that sort of make me very proud. Actually, the one thing that I would say makes me most proud is the culture. I think that there are a lot of aspects of what any company does that can actually be copied by the competitors. We can launch new products, we can develop new technology platforms. And it's important to be 3 steps ahead of the competition. Hopefully, 1.5 years, 2 years ahead of the competition in relation to those aspects. But I think it's really difficult to change or to copy the culture of an organization. And the culture is what drives sustainable success. And I feel proud of the culture we've created. And the culture -- the word culture is a big word and it sort of feels a little bit warm and fuzzy. But what I really mean by culture is, a, having awesome people, really top quality people, the best people in the industry. And I think as an executive leadership team, and as a global leadership team and even more broadly, when I think about the leaders that are really running our company, I would stack up our team against the best. And I would say I think we've got really top quality folks that not only are very capable, but that know how to work together really well. But then it's also having the infrastructure in place, the cultural infrastructure to drive accountability to review performance to assess the competitors and understand where they've done very well and to want to learn from them. So I think those processes that help ensure that we deliver quality results on a quarterly basis, are also embedded in our culture and the way we think there's no arrogance that we think we know all the answers to all the questions. If we see that our competitors have done something really well, we're going to say, damn, that was good. How do we copy that as quickly as we can. And if we've done things that are better than them, how do we drive that even further and faster. So there's, I think, a sense of humility and a desire to improve that underpins, I think, some of the performance that we've driven. And I think that will continue to drive sustainable quality results.

I'm going to digress for just a moment before I go to questions. One, over the years, many years, in fact, watching CEOs, both banks, insurers, P&C companies. One of the things that I thought that I've observed is critical to the success of the company is if everybody on that senior executive team and below totally buys into the CEO strategy and really put their shoulder behind whatever goal that CEO has. And there's no backbiting and everybody is sort of pushing in the same direction. It was my observation because I know a lot of people have Manulife beyond the senior executive team, but that's what Manulife built. Everybody was pushing for the same thing. And I think that's a big reason why it all worked out. But often, that happens because of the personality of the CEO. The CEOs has the right personality that everybody wants them to succeed. Help me understand like how does Phil's personality. Will Phil exhibit -- drive that same sort of devotion from the senior team?

Yes. Well, firstly, your comment is very generous and its kind. I appreciate that, Mario. And I think we do have a culture where our executive leadership team is all in. And we debate things vigorously. So no one is prevented from sharing a perspective that's contrary to anyone else's perspective. And you did -- I'll correct one thing that you said. You said that the team rallies behind the strategy that the leader sets. I would maybe disagree a little bit with that. And I would say that the team rallies around the strategy that we collectively set. So I don't think that I own the strategy, and I'm all [ omnipotent ] in terms of thinking about all of the things that we need to do. I think the first ingredient in trying to drive that alignment is actually making sure that you're not the person saying, this is what we're doing. Everyone's salute the flag. It's about saying hey, we've got to be bold, what does bold look like and getting everyone to sort of stack hands and actually decide that. It's a lot easier for folks to rally to something that they've actually crafted and created than someone else actually crafting that for them. And I think that's what we've actually created as a leadership team. That requires awesome people, goes back to my earlier comment. If you've got a bunch of luckies that aren't very capable, you'll get a lot of yes people, but you've got to hire the best. And again, I would say that we've got an awesome group of people that have got a lot of capability and are willing to disagree. But then at the end of the day, when we have to make a decision to move on, everyone's going to stack hands and put everything against actually delivering against that goal. To your question about Phil. I've worked for Phil for the 10 years that I've been with Manulife. First when I was in Asia as the CEO of our business there. He was my CFO. And when I came to Canada, he became the CFO of the franchise globally. So he's been lockstep with me in terms of the entire journey, and 's been a key partner with the transformation that we've driven. So I expect that he will be very similarly focused on driving that kind of team spirit because he's been a big part of that outcome and he's style is very much in sync with that. So I have every confidence. And the teams rallied already when the announcement was made, everyone said that was the obvious choice. So no one was surprised that it was Phil and everyone's rallied behind him and will rally behind his leadership.

One of the most typical things that happens at our Canadian banks when a CEO and new CEOs is announced, you get 3 or 4 departures. So I'm waiting, but so far, we haven't seen any departures. But it's very common among our banks. You'll see people bail at the moment. There's announcement. Let's drive into one other thing. One of the first conversations I had after your announcement, that you were retiring, was they just had this Investor Day in Hong Kong. 18%-plus target ROE, big lofty targets, not just the ROE target, but everything else, return on capital and Roy is not going to be there to declare mission accomplished. How do we get comfortable that everybody -- that's everybody's target at Manulife, not Roy's?

Yes. It goes back to what I said earlier, and that is that when we set strategy as a company, it's not Roy strategy or Roy's targets, when we do set goals and targets and ambition as we did in 2017 when we charted the course to '25, we've done that as an executive leadership team, and we've rallied together. And actually, that includes getting the broader global ease team involved, and ultimately, that involves getting the board to sign up to them. So -- and more purposefully because I knew that this was going to be coming. I'd put even more effort to ensure that the team felt really strong ownership. And at the Investor Day, you were there and you saw that we had our leaders get up and present the targets for each of their segments and how they were going to go from where we are in 2023, '24 to '27 and we got to a level of granularity with the targets that gave -- I hope, everyone, confidence that this isn't just the top of house kind of target. This is a target that we've actually cascaded and have been very granular against. So actually, I feel very good about the targets that we've collectively said. I think putting them on the table was also really very important because it now clearly articulates exactly what we're going to be doing between now and 2027, and it's also, to the point that I was making earlier, a very clear and easy way to stakeholders, be it shareholders, analysts to actually hold us accountable. And we've always welcomed that. We've always said, hold us accountable to the targets that we set. And if you think that they're very ambitious, as quite frankly, many said our 2017 targets that we established were hold us accountable. And when we don't get there, then you should take us to account for that. But we've got a lot of conviction that we can achieve the targets that we established at our Investor Day. We believe that we will get to an ROE of 18% plus. We've got $22 billion worth of cash remittances that we actually believe we can actually bring to the top of the house. And we reaffirmed our core earnings per share target of 10% to 12% as well as a new efficiency target. So we feel really very good about those targets. And that, for me, actually makes this next chapter a little bit easier because -- that's what we've established as what the goals will be for the company. Now will there be some strategic pivots and changes? There should be. What I try to do every year is to reassess together with the leadership team where we need to pivot our strategy. I'm not expecting wholesale changes, but I believe that Phil will, with the leadership team, look at quite rightly, whether there needs to be any pivots if it might be accelerating certain aspects of our strategy or maybe slowing certain other aspects, but it's not going to be a massive change from what we've already articulated, and the team is very committed to the targets that we set out at Investor Day.

I've had the good fortune of meeting with you and Phil plenty of times over the last many years. And so I got to know Phil, and I have my own views on how Phil is going to be different from you, but can you share how is Phil different from Roy, outwardly?

Yes. Look, I think every one of us is different in terms of our style and our approach. I think in terms of where we're similar feel is as brutally focused on execution and accountability as I am. So that's one thing that we absolutely share a common passion for. We collectively have run business reviews with our segments. Very diligently over the last 8 years, and he certainly believes and buys that, that accountability and the process around that is important. And you also is a big believer in being bold and setting bold targets and making sure that we set standards for our company and for our people that are really very ambitious. Phil's communication style is different to mine. And I think that actually endears him to people in different ways. So I think there's nuances and none of that necessarily means better or worse. It's -- each of us are different. And I think that's actually a good thing.

Okay. I'm going to go to the -- either 2 -- I'll check my email once in a while, but also to anybody in the audience in a moment. But before we do, just -- I'm going to finish up my exit interview questions. The last 1 of the exit question is the advice you would offer to Phil going forward.

So the advice that -- firstly, I don't think Phil needs a lot of advice. So I think he's a very strong executive. And again, I've got every confidence. And again, one of the reasons why I chose to retire when I did was that I was very confident that we had a leader that could lead the company, and we wouldn't skip a beat. And to be perfectly frank, I think he's not going to just continue momentum. I think he's going to take the business to a new level of performance, quite frankly, that we haven't seen, and that's why we're very optimistic. In terms of advice, I think one of the things that I've said to Phil is that organizations that have been successful, and this is true for Manulife, we've had a great run. I think we've delivered really good performance. Our operating results are good, and our share price has reflected that, that makes you feel good. And I think when large organizations actually achieve success, there can be a tendency for the organization to become complacent. And to say, well, what we're doing is working, let's just keep doing what we're currently doing. And my advice to him is to not let that complacency set in to constantly agitate for we've got bigger mountains to climb. And I think that's -- it's something that I've observed that many organizations suffer from when they are successful, they can get complacent, and they can keep doing the things that they've always done. And don't get me wrong, I'm proud of what we've done. But what we've done in the last 10 years has got us here. It's not going to get us to where we need to get in the next 10 years. and that's going to require, again, that reimagining of our business. As an example, GenAI. GenAI is going to change completely the way we do business. GenAI is not just how do you get 5% efficiency out of your workforce. It's an opportunity to reimagine every aspect of what we do and how we do it. And the inertia in organizations will be, oh, it's a nice funky tool, how do we try to drive a 5% expense save. So the challenge for Phil given that we've been successful is how to really agitate for that. One of the opportunities that I had when I came in was that I could create a burning platform. We had a lot of broken things. So I could easily create a burning platform for our transformation agenda to tell people that we've got to do things radically differently and it was pretty compelling to that argument. Successful organizations struggle with change. And I think that's something that Phil will have to embark on. I've got every confidence that he's going to be really good at doing that. And I think the company, back to the culture point, is really ready to embrace that. But that's going to be one of the challenges that I think he'll have to tackle head on.

Is there around the audience -- sorry, [ Vanessa ], please. We'll go to [ Vanessa ] from RBC.

Just going back to one of the things you mentioned, just the 3 conditions you had to retire, I think, the big one being just the completion of the transformation. And this might be a question for Phil down the road, and he was very much a part of that transformation. But as you and the Board, we're looking at succession planning and Phil was selected. How do you kind of envision maybe like Phil's year end, like what would be kind of like the successful kind of conditions that you would look for under his leadership?

Yes. It's a great question. And that is, to be fair, a question better asked of him. But I would say that the first measure of success is our Investor Day targets. That's the very clear game plan for us that we articulated this year, we all stacked hands on was what we believe success needed to look like by 2027. So the very tangible targets that we established at our Investor Day. So are the first set of targets that fill needs to ensure that we as an organization deliver. I've taken very seriously that when we make a commitment that we deliver against it and feels wired exactly the same way. And those targets are clearly front and center. We need to deliver that, and we need to do that in a consistent way quarter in, quarter out. So that's the first part of the agenda. I think the other part of the agenda beyond the financial results and the targets that we sort of articulated at Investor Day, is going back to the point that I made earlier. I think we're where we have this opportunity with technology and in particular, GenAI, to really reimagine our business. And I would say that if you're imagining things from a longer than 3-year horizon, i.e., 5 to 7 years, I think there's a tremendous opportunity to really reimagine our business and the way we operate. And that will come with opportunities from a P&L perspective, cost and revenues, and we're doing a lot of great use cases as it relates to GenAI, which are delivering some promising results. actually, 1 of the consulting firms came out and ranked us #1 in the insurance sector in terms of how advanced we are with GenAI. But I think we really have to nail that. If 3 years from now, we could have established ourselves as the leader and as a result, transformed our business, I think that's going to be a key measure of success for us.

I'm going to get into a question first, and I'll go back to the on in a moment. Again, having watched Manulife's evolve over the years. There was a period there when the company was acquisitive. There was the deals in Asia. What was that? Distribution, DBS. You should remember that DBS -- that was a few years back, DBS. There was of course, Hancock, which was not as good as DBS -- and then you've gone through this incredible shrinking period which is probably the right thing to do. Is Manulife -- does Manulife still have the sort of institutional memory in the muscle to do a deal? Or have you lost that because you haven't done it so long?

Yes. I think we do. I think what we've built is an appreciation for the fact that it's easy to transact. It's harder to deliver on the benefits that a transaction is promising. And to be frank, a lot of the 7-year tenure has actually been cleaning up some bad acquisitions and some bad deals. So we have that really well ingrained in our brain, and that is that we have to be very robust and diligent when it comes to M&A. Now the good news is this we have freed up a lot of capital, and we're in a very strong capital position. We have $10 billion in excess of our upper operating range, $22 billion in excess of the supervisory minimum. That puts us in a great position. By the way, part of that is diluting our ROE. But we have been very thoughtful around how to use our excess capital. We've been very thoughtful around buying back shares. We think that that's been a way to create value for our shareholders. Obviously, dividends are going to be a key way through which we're going to allocate our capital. And now that we're in a strong capital position that we've got our operating machine running really well I think we've got much more appetite to consider M&A, but it's consider M&A through a very judicious light. And that is where we have confidence that we can actually deliver really good returns and not have it actually dilute returns in the long run. So yes, I think we've got strong corporate muscle around executing M&A. Our preference is the bolt-on type of M&A, which are smaller chunks where we have got a greater degree of confidence and probability. Would we rule out transformative M&A that is much bigger? We wouldn't rule it out, but I would say the bar is so much higher in terms of what we would look to deliver out of that transformative M&A to actually deliver. The other thing that I think is going in our favor, which is maybe a little bit different from many of our competitors is that we don't need M&A to deliver against the targets that we've established at our Investor Day. Delivering 10% to 12% earnings per share, delivering the cash that we've articulated the efficiency doesn't require M&A. That is a really healthy and luxurious position to actually be in to not have to do M&A to deliver targets that we think are actually not only very good, but actually would impress the market and create more upside in our share price. So the luxury is that if we actually have opportunities to do M&A that are going to be accretive, then we will do them, but we'll do it when we've got a high degree of confidence. And we are continuously buying back shares as we have, which is again another way to create a lot of value.

Yes. Does it feel different buying back at 1.9x book versus buying about 1.3x? Like when you run the numbers, does that feel good?

It feels good because when I do my sums, and maybe I can ask you the question, when I look at our ROE target of 18%, I think we've got a lot of upside in our share price. So I think -- I was asked that question actually 2 years ago, geez, we've seen an appreciation in your stock price, is it still good value? And the answer at the time was, yes, we think so. We've created a lot of value for shareholders through the share buybacks that we've done over the last 7 years. I think that dial forward 3 years from now, and I would imagine that our share price will be significantly higher than it is today, when we deliver against the 18% target then I think we'll look back at the shares that we're buying back as again very accretive to value.

Anything from the audience before I move on to something else? Yes, please.

So Phil is going to be vacating a pretty important role in Asia coming over here. How much input do you have in the new person there? And do you envision it being somewhat internal, external. Maybe if you can talk about the discussions there, including time line and when that role will be filled.

Yes, that's a great question. And Phil's #1 priority is to find these replacement in Asia. And we've been very clear, unlike many other CEO transitions where the CEO-elect will come in as a deputy for a period of time. We've not done that. And that's been very purposeful for us. And I've told my executive leadership team and the GLT, our global leadership team, that up until May 9, I'm the CEO, and again; don't expect to run any slower than we've run. We're going to be as focused on delivery and execution as we've always been, and that's on me. Obviously, I'm going to be transitioning with Phil and he's going to be a big part of the conversation that I'm having. But one of the most important priorities that we have between now and then is to fill that role because it's an incredibly important part of our business and our future success. So it is a great job, in my opinion. I've done that job. I think it's one of the best jobs that there is going. We've got an incredible platform there. So being very thoughtful around selecting that person will be front and center. The number -- the second priority that Phil has is to continue the momentum that we've got in Asia. We've had a great run. Our business is really humming. We're driving great progress in terms of our sales metrics and our earnings metrics. And we can't miss a beat. We can't stop that momentum, and that's again going to be a key priority for him. I can't probably tell you more about what the candidates look like, but I can tell you that that's a really important decision. And of course, I'll be providing some thought some of my thoughts to Phil to consider in relation to the candidates that he's assessing is going to have to be his decision, of course, and I'll obviously offer my thoughts and advice.

Is that candidate likely to be internal?

I couldn't say. I really can't say. I'd say that we have the luxury of having folks internally that could do the job. But this is a really important role. I think it would be unwise for us to just limit the search to just internal candidates. I think we should make this as robust as we can to ensure that we've got the best possible person. But we're in the luxurious position of having internal candidates that can do the job. That's our goal. That's our goal. But again, if it was a month later to get the right person, that would be a better outcome than rushing it to meet a deadline. So the most important priority in terms of filling that role is getting the best person for that position, which is, again, as you highlight, very critical to our future success.

And what that -- what is that person's real skill set? What are you really looking for there?

It's someone that understands Asia. And again, I think those of you who understand Asia very well know that it's not 1 homogeneous group. It's a very different collection of markets and countries that operate very differently. So having a very deep understanding of the markets, Asia, our business and the industry will be front and center. And also someone that can appreciate where the industry is going. As I said earlier, traditionally, the industry has been very agency led. We've seen an evolution towards bancassurance towards brokers and digital, we've been 1 of the leaders there. A lot of our peers are still very much an agency-led model. We're much diversified in terms of our channels. And we're a more diversified business from the countries that we actually operate in. But I think we also have to keep imagining what the future of our industry looks like. That's true globally, but it's certainly true in Asia. And I think the willingness of the Asian consumer to embrace digital has been phenomenal. And I think that's a tremendous opportunity for us that we're actually quite excited about when we think about the Asia opportunity. Obviously, couple that with the growth of the middle class in Asia, coupled with the low penetrations in the markets that we operate in. We're continuing to see that as an exciting business for growth, but also for how we can differentiate ourselves versus our peers. -- who perhaps don't have the strong presence in Asia that we have.

For as long as I can remember, Manulife has talked not just Manulife, but insurance companies generally have talked about this enormous opportunity and promise of Asia. And I feel like -- it's true. We now see it. We're seeing it firsthand. Talk about the runway, like how much longer does this sort of super growth run in Asia?

I don't think it's going to run out at all. Again, if you look at the Asia demographics, you've got 2 billion people that are in the middle class, that's growing to 3 billion in the next decade. Penetration rates are literally a fraction of developed markets. And you're seeing that governments are realizing that the sector has a much more important role to play in terms of actually protecting them so that they don't have to support their population with social programs. So we actually have seen that evolution and the growth opportunity only accelerate. And I think that's an exciting opportunity. So I think Asia is going to continue to grow it, probably triple the pace of the rest of the world from a growth and from a penetration perspective. And again, being a top 3 leader pan Asian player, puts us in a very unique position and a player that's at scale. You can't operate in Asia without scale, but also if you're not a top 3 player, then you're really not that significant. Having -- again, that was one of the big surprises for me when I joined Manulife. Just to see how strong our brand was in Asia was really a pleasant surprise. We had this incredible brand that was so well received by customers, by regulators, by stakeholders, partners, and that was a phenomenal platform for us to really embark on the journey of transformation that we achieved in Asia, which took us from #6 to #3 in the period of 3, 4 years.

And can you talk about China and specifically, I understand how the model works. You expanded to different cities, different regions, you try to make those profitable. where does China stand right now in terms of profitability? And what's the outlook there?

Yes. So China is, again, a very attractive and important market for us. Penetration rates in general are very low. And again, you see the growth of the middle class in China that is very tremendous. If you actually take a step back, China represents actually a very small share of our total earnings and our total sales. But it's a growing share. And it's, again, an important part of our total makeup for Asia. You can't win in Asia without having a presence in China. And we have a strong presence, and we've operated there for a long period of time. So we feel really good about the China growth opportunity. It's a market that, again, we know very well. We've got a great partner, JV partner that we operate with. And we're quite optimistic about how that market will continue to evolve. But again, one thing that we're very focused on is not growing necessarily in 1 market only. Having a business that's actually diverse and has multiple legs to the store, so to speak, is an important part of how we view success. It's not just about growth for growth's sake. It's about having a diversified business. Now there are plenty of other countries in Asia that Manulife is not in. And every once in a while, we hear some speculation that Manulife would look beyond where you're currently at.

Does that seem plausible over the next 5 years or so that Manulife could go to other countries in Asia?

We're really pleased with the footprint that we have. So the presence that we have in the markets that we have actually is where we see the most excitement from the perspective of growth and opportunity. And -- and there's more than enough growth opportunity within the markets that we operate in to fulfill all of our ambition. The 1 market that I think we've maybe considered a little bit more recently is India. That's a marketplace that we've perhaps gone back and forth a little bit more about 10 years ago, we didn't think it was an attractive marketplace -- 5 years ago, we didn't think it was an attractive marketplace. And the reasons for that were the ownership rules were very limiting and very restrictive and that has changed. So that's a positive. The profitability of the marketplace was not very attractive, and that seems to be improving. It's not fantastic, but it's improving. So we are -- we would assess India, and that would be a market that we would be open-minded to. But to be perfectly frank, we don't believe that we need to expand to any other markets that we currently have to achieve the ambition that we have for Asia.

In India would have to be a JV.

It would have to be a JV. And we currently have a JV on the wealth and asset management side. We have a partnership with Mahindra. which is a great partnership. And actually, it's a great business for us.

You need a different partner if you want to expand into insurance and other products?

We would need to have a JV partner.

Right. Okay. Want to switch over to Japan. I remember well when Manulife made that was [indiscernible] Dai-ichi that was a big deal. And then I haven't heard much of it. I thought that was going to be the beginning of something special. Just speak to Japan. Is that still a priority for Manulife?

It is. And the question that I used to get about 4, 5 years ago was why are you in Japan.

And I still hear that.

Yes. And what we said then was that we love the Japan market. We're not trying to be all things to everyone. We play in a very specific niche in Japan. It's a very profitable niche. It's where we see the more affluent customers and where they typically would want products that are foreign currency denominated. We still play in the local currency, but we're not trying to provide all products. And that allows us to actually deliver really good value for our shareholders, but also actually create value for our customers as well. And the beauty of having a business in Japan is that allows us to have scale across Asia Pacific. Japan will share costs of our regional office. And when we launch new technology platforms, we're able to spread that cost and benefit from the scale. So that means that we can compete more aggressively in the Vietnams and the Indonesias of the world. So it plays a really important role just from a capability and from a scale perspective. But the business has also been performing really well on a stand-alone basis. This year has been a great year for us in terms of the Japan results. We're really pleased with that momentum and the progress. More recently, we've seen a lot of new interest in Japan. So there's -- and again, I think that may be a function of, I guess, the sophistication of the market, but also the yield curve looking a little bit more positive and optimistic. So there's a lot more interest in Japan than there ever has been, but we actually -- we like the business quite a lot and actually helps us with our total portfolio dynamics and also from a scale perspective.

Can you give us any update on what's going on with Hong Kong in the regulatory framework. There was a distribution issue there. Maybe just remind us of what the issues are and has it been resolved?

Yes. So Japan is a very so-- sorry, Hong Kong is a very sophisticated market. And again, we're a strong player there. We're a leader. And what we've seen in Hong Kong, as is the case in most other markets, not just in Asia, quite frankly, even here, we've seen regulatory changes and tweaks from time to time. But there was some interest in how certain products were being sold. And in particular, you've got the Mainland Chinese visitor that is an important sector and segment of the Hong Kong market. Now for us, it's never been the majority of our market. We've always felt that focusing on the domestic Hong Kong consumer is the most important priority for us. But this is still an important sector, and we believe that we can actually play in that space, and we have played in that space. And without getting into too much detail, there have been some players that have maybe flirted with some of the rules in terms of the way products were sold. We've held a very high bar in terms of the standards that we hold for ourselves. And for us, MCV business represents a much smaller share of our total sales. So again, there's been a little bit more scrutiny around some of the broker sales and in particular, the MCV broker sales. And again, in most cases, we look at that and say that's actually a good thing because we think the standards need to be high so that we see quality sales. And so far, from the 2 big players in Canada, Manulife and Sun Life, I just don't see the 2 view being implicated in any way. Like does that sound reasonable?

Correct. So far, so good. Okay. So let's move on to -- I'm going to finish up with Asia real quick unless someone wants to jump in. What I wanted to get into just to clean up what the Asia is the place is growing, but it's also changing. And I try sometimes to think through what will a successful insurance company or company look like in Asia over the next 5 years? How do you have to change to adapt to changes in Asia?

Yes. And the short answer is digital. That's the short answer. I mean, again, the agency of 15 years ago -- sorry, the Asia of 15 years ago for our industry was just an agency-led business, where the insurer who had the most agents basically want. And we've evolved from that to one where now we've got multiple distribution channels. We've got, as I said earlier, bancassurance, we've got brokers now. We've got financial advisers, and we've got direct digital plays. So a much more diversified Asia exists today, and you can't win in Asia just by winning an agency. It's an important channel. It's the largest channel, and you have to be good at it. You can't not do well in agency, but it's not sufficient to just win in agency. So part a of what the successful business in Asia looks like is that it's a much more diversified business and that you can actually engage with customers in the way that they want to engage with you, not just a -- this is the way we operate and you'll have to come to us through this method. But the second big aspect is that the Asian consumer, as I said earlier, is very keen to interact more digitally. And that's true not just for the non-agent channels, but it's actually absolutely true for the agent channels. So no longer do you have a business where the agent would sit down with a customer, fill out a 38-page application form and then send it into head office, realize that 1 field was missing, and that goes back to the customer and so on and so forth. So the engagement model now is much, much more digital, but there's still a lot of opportunity to further digitize our businesses. We've done a lot to remove cash from the way we operate. In the past 10 years, that a lot of payments were through cash in branches. And we've digitized a lot of that. We hardly take any cash at all. In fact, we may not take any at this point in time. I haven't checked it recently, but it's negligible. But consumers are really willing to embrace digital, and that's a tremendous opportunity for us to create a better experience for them, but also to take out a lot of friction and cost. So I think the opportunity is to really take that to another level. And I do think that GenAI is tremendous. Just to give you 1 example. We've got a pilot going in Singapore at the moment, which is where we're using GenAI to support our agents. And the typical agent will have a customer base of, say, 200, 300 people, but they would typically talk to 10% or 20% of those customers and they won't talk to the others. And they're very thoughtful around who to talk to or who to select. They know who are the most likely to provide a second sale or provide a referral. Now with GenAI, we've been able to actually enable the agent to actually communicate with the other 180 customers that they have in their portfolio and to look at what the customer is actually doing on social media, look at their interaction that they've had with us, understand their current financial needs analysis and then recommend a product or an engagement opportunity. So digitizing that and putting that on the pallet for the agent to basically check and then send it out to that 180 population of customers has been a phenomenal uplift for us. We've seen an increase in the productivity and the sale of our agents just through using these tools. And we've only rolled that out in Singapore. We're now rolling that out across Asia. So I really think that the operating model of the future is one that's going to be significantly more digital than it is today.

When I think of a company that's growing this quickly in any region, Asia, I often think are the systems, the controls, the regulatory, like the people, do you have the people to control this kind of growth? Because companies, banks, insurers get it in trouble when they grow too quickly when they don't have the infrastructure to support it. How do you really get confident you've got the people?

Mario, that's a great question. And I think that's one of the biggest risks that exists when you look to a business that's growing actually very rapidly. And one of the things that I think we've done really very well is we've created a global operating model. So we have global functions, be it actuarial under Steve Finch, be it compliance under [ Soren Science ], CFO, et cetera, risk management. So we have global functions that, a, will ensure that they are looking at the control compliance, risk governance processes that are in place in each of our markets and that we have that external perspective in, but also allows us to leverage the best practices that we see across each of the different markets and ensure that they apply in the markets that we operate in. Now is that a guarantee that we'll never have a hiccup and a problem? No. But I think our global expertise in our global operating model actually puts us in a strong position to ensure that we've got a really strong and robust focus around risk controls compliance. And I would say it goes back to the point earlier around the culture of the company. What's really critical is that you're not just growing for the growth's sake, that you're viewing sustainable growth as a key way that you're going to operate and a key way that you're going to measure your leaders. If you're going to reward your leaders just for growth and not take into consideration the sustainability of that growth and the quality of that growth, I think you can get yourself in all sorts of trouble.

So what could go wrong in Asia though, it can't be all roses. What's the risk there? Is it macro related?

Yes. Look, I think the big challenge at the moment is there's uncertainty from a geopolitical perspective. I think the real big unknown now is how does the global geopolitical environment play out. I think that as big a risk, quite honestly, for Asia as it is for Canada and other markets, as we've seen recently. So there's this period of uncertainty right now, and this is not necessarily just affecting the life insurance sector. I think it's affecting all sectors. And that is how does the world normalize in terms of how it will operate and how countries will engage with each other. I think there's a lot of fear and uncertainty there. I'm actually quite optimistic that we're going to be able to navigate that environment reasonably well. But that's an unknown. I think the other big unknown that exists at the moment is that we have central banks still trying to normalize monetary policy and to tackle inflation. We haven't seen that story completely come to fruition. Central banks are still trying to navigate, managing inflation, unemployment, growth whilst using rates to keep that in check. I don't think we know where that story lands, but we're getting more clarity on that. And I think that's going to be still an unknown, and we're going to see some movements in rates, equity markets and even currency until we see a little bit more clarity in terms of how that's going to play out.

Let's flip over to Wealth Management now, another big, big part of the business that's -- it's part of Manulife's promise for the future. What's interesting about Manulife's Wealth Management business that makes it quite different from others is you're generating solid positive net flows, but the margins aren't quite there yet. And there are others with very strong mature margins, but can't seem to bring $1 in. How does Manulife sort of thread that needle and do both?

Yes. So I'd much rather my deck of cards than the other because I think we have a path to seeing the margin improve. And the path for us is through scale. What makes us unique is that we have a business that has 3 business lines. We have an institutional business, a retail business and a retirement business. And the retirement business, you can think of it actually in a very similar way to the way that you think about a life insurance business. It's an annuity business that continues to generate returns over a long period of time. And the other beauty with our business is that we don't just have those 3 business lines. We have those 3 business lines across 3 broad geographies you can count Europe as a fourth, but the U.S., Canada and Asia. And we're, therefore, not just a single trick pony where you're just relying on U.S. equities to drive success. And therefore, if markets do well, you're going to get more fees. And if markets don't, you're not. The other headwind of the U.S. equity business is that you're constantly seeing fee compression as folks move away from active into passive. And that's still true for us. But it's one slither of our business. It's the retail U.S. business, and that's not the full story for us. We've got a phenomenal retail business here in Canada. We've got a great business in Asia. And we're not seeing compression in spreads in Canada and in Asia. In fact, we're offsetting any compression in spreads through growth in those other markets where the margins are actually quite attractive. And again, back to the story earlier, in Asia, in particular, there's a lot of runway for growth and for opportunity in terms of growing our retail business. And we, again, have a very unique opportunity in Asia that many of the asset managers that we compete with would kill for. And that is, a, we've got a great brand. We've got great bancassurance partners that are selling our life insurance products that, therefore, gives us the opportunity to actually put our wealth products on their platform, a lot of sales that are done in Asia are actually through the bank's platforms. So we've got great partnerships. DBS is an example, Standard Chartered, where we can actually get our product on that platform. That's certainly a plus. But the other big plus is we've got 100,000 agents that are selling, in many cases, index-linked products, which rely on those mutual fund kind of wrappers, which again, we can use our products to feed into that opportunity and that growth. So actually, we feel quite good about the opportunity. To your point, our margins are still lower. But we're seeing that constantly improve, and it's coming from the scale that we're actually getting and the growth opportunity that we have across our footprint is actually very attractive.

So the wealth business doesn't need a deal to get to that? You see the runway there?

We see a lot of organic runway, but when I think about deploying capital, I would definitely think that our Wealth and Asset Management business. If we could do those bolt-ons that I talked about earlier, that would be the space that we would focus on together with probably some of the Asia opportunities that we mentioned earlier. We did the deal with the CQS recently. That was a great example of a very reasonably priced bolt-on, where we can take the capabilities that they had and then bring to the party all about distribution and our brand, which they, quite frankly, didn't have. So it's a perfect example of 1 plus 1 equals 3.

Remind us what the skill set is.

So it's more of a private fixed income kind of play.

Let's think about how big wealth and Asia combined will be to this company in the next 5 years. When do we call Manulife and Asian and wealth management company?

Asia today, and when I say Asia, that's Asia insurance and wealth management currently represents 44% of our business. We put the big goal out there that we get to 50%. We're not a mile away. When I took on the job, it would have been in the low 30s. So we're already up to 44%.

That's Asia, including the wealth segment.

Yes. The Asian well. The Asian wealth segment, so Asia at 44% today we see the path to getting to 50% as imminent. And then when you take our Wealth Management business total, it represents about 20%. That should be a much higher share of our business. Now a piece of that is Asia. So I don't want to double count that. But Asia and wealth is already a very significant share of out. Much, much numbers much, much higher than 50%. And it will continue to grow and be a bigger share of our total franchise. So I think that certainly is the glide path.

Investors -- maybe I'm partly to blame for this. We're not comfortable -- I know I'm not comfortable doing this sum of the parts thing, I never like doing that. Is that something you talk about internally that you want to discuss Manulife in that context? This is an Asian company, it's a wealth management company. Sun tries that a fair bit. We've resisted so far. What's your thinking number?

We've resisted too. We -- actually, we try not to spend a lot of time talking about TSR or the share price. So I think if you get the fundamentals right and if you execute well, then that is an outcome that will actually come. But we do think that not all dollars are equal. So if you deploy $1 of capital, the return that you get is if you get a $2 return on $1 of capital, it's not the same if you get it from Asia or wealth and asset management in Canada or the U.S. So that is just an honest reality. And therefore, when we think about capital and expenses being a rare resource. We think about that, and we're very thoughtful around how we actually deploy that. Having said that, we've made it much more compelling to invest in Canada and in the U.S. We've improved the returns significantly. And again, we showed at Investor Day is what the lifetime return on capital is for a dollar that we invest in our U.S. business and our Canadian business, and it's very attractive. And it's a return on equity of north of 20%. So it's not as though investing in those businesses don't make sense, they make a lot of sense. And the good news is we're not constrained in terms of deploying capital or our expenses. And having a diversified business, we think, is a source of strength. So what that's really done for us is actually force us to drive greater profitability and returns out of our other segments. And in the Canada business, we're really very proud of the business that we have here. We're a leader in this marketplace. We're at scale. -- and there's still a lot of opportunity, and it's a very profitable marketplace. And in the U.S., we're not trying to be all things to everyone. We play in a very niche space. We've got a competitive and differentiated offering through Vitality that really there is no competitor for. So that's, again, another great way that we can deploy capital.

And for a while there, there were folks talking about Manulife divesting of the U.S. business, divesting of Hancock. Reflecting back on that now, how do you feel the U.S. is positioned for the future?

We feel great about the U.S. Again, if we had divested Hancock, we would have done it where the multiple on our long-term care business would have been a fraction of what we were actually recently traded at. So we would have destroyed a lot of value if we'd executed against that strategy that many actually call for. And for us, it was never a question of should we divest our business it was how do we make investing in the U.S., a really compelling argument. And to the credit of Brooks and Brooks' predecessor, we've really done a lot of hard work. We've driven great efficiencies, one of our most efficient businesses. great efficiency, great return on the capital that we deploy there and a great differentiation strategy versus the competition through what we do with Vitality. So it's a great business for us. We feel really good about it. But -- are we going to compete in all product categories in the U.S.? We're not. We're going to be very thoughtful around that and rightfully so.

Yes. The market got really excited about the reinsurance deals. I remember distinctly the variable annuity deal that generated $1 billion of capital. But yes, the market didn't care about that for some reason, that one didn't capture everybody's attention. But the December '23 reinsurance deal did and then this other one sort of reaffirms that. Do you think you've now demonstrated to the Street that there's value in these blocks of business and you don't need to do another reinsurance deal to prove that? Or are you still at it?

I think your observation is spot on, Mario. And I think there was a tipping point for us. And I think the tipping point finally was that LTC transaction in December 2023. And I think the VA transaction, we transacted at a very attractive multiple. It was a great release of capital -- great gain. And I think it was another proof point that our reserves are strong and solid and credible. But there's still -- the outstanding question that I had, people would say to me at the time we did the VA transaction. It's a great transaction. But I just can't come to the Manulife party because I'm just nervous about this LTC being. And in many cases, they'd honestly say to me, I just don't get it. And I'm worried that I have to invest too much time to try to get it to actually be comfortable with investing. And I think we eliminated that issue with the transaction that we executed in December. And I think we hopefully put it really to bed with this follow-up transaction that we did on a younger block that had different risk profile. And I think through all of that divestiture, I think we've been able to demonstrate a lot of credibility with our reserving. And that's where there was some uncertainty and some fear as to whether there was something that could go bump in the night. What would happen with Manulife. And I think we've been able to prove that. So yes, going forward, is the argument for further transactions as compelling as it was, not really. But if there are ways that we can create value through any further divestitures, we definitely look at them. But I don't see the burning platform that we have had, certainly for the last 7 years. and that we, I think, finally, we're able to execute. But I still feel that even completing that second transaction, all we've done is basically deal with some of that legacy historical issue. When I think about what we articulated at Investor Day, I think the upside from this point is still very, very significant.

So there's only a couple of minutes left. So I want to finish with something a little different. In this time period that I've had covering Manulife, I have I call it infiltrated Manulife. That's what I call. So I know people all through Manulife having dinner with the guy who's in your strategy department, I'm not going to name these people. guy who I golf with, who's in your wealth business. And these are -- they're not -- they're never going to be in your GL, your global leadership team meetings, but these are important people at Manulife. I mean they're part of what makes Manulife work. Like what's the big message to those folks? The folks that -- below the senior executive team, all the guys I know and the guys I hang out with, what's your message to them on your way out?

Well, my message -- the first message to them is a thank you. We wouldn't have achieved any of what we've achieved over the last 8 years, if it wasn't for all of those people that have executed phenomenally against the agenda that we articulated. Yes, we set the direction and the strategy and prioritize how we're going to focus. But we've got 40,000 people that have worked there tails off for the last 7, 8 years transforming our company, and we would never be in a position that we are today if it wasn't for those folks. So the first message is to thank them. The second message to them is the best is still ahead of us. I feel very optimistic about where this company is going. And we are so perfectly positioned to capitalize on this incredible foundation that we've got and the great results that we've achieved to take the business to a completely new level. And we're going to need people like that to really help us execute against that agenda and to have the same level of passion and intensity that they've demonstrated to the next chapter, which I think is very exciting.

Folks are proud. They're proud to work at Manulife now.

You're going to give me some names.

No, I don't think I will. But yes, [indiscernible]. Thanks for doing us.

Thank you.

Thank you. It was a pleasure you joined us. Thanks very much.

Thank you, folks.