Manulife Financial Corp (MFC) 2004 Q1 法說會逐字稿

Welcome to the Manulife Financial Corporation 1st quarter 2004 earnings conference call. At this time, all participants are in a listen only mode. We will conduct a question and answer session following the presentation. At that time if you have a question, please press star one on your touch tone phone. As a reminder, this conference call is being recorded, today, April 26th, 2004. If you disagree with recording, please disconnect at this time. I would now like to turn the conference over to Edwina Stoate, Vice President, Investor Relations. Please go ahead Edwina.

Thank you and good morning. I would like to welcome all our participants to Manulife Financial’s earnings conference call to discuss our first quarter, 2004 financial and operating results. If any one has not yet received our earnings announcement, statistical package and the slides for this conference call and webcast, these are available in the investor relations section of our website at manulife.com. As in prior quarters, our executives will be making some introductory comments and we will then follow with a question and answer session.

Before we begin, I would like to remind everyone that during the course of this conference call, we may discuss forward-looking information as defined in the US private securities litigation reform act of 1995. Investors are cautioned that all forward-looking statements involve risk and uncertainties and actual results may differ materially from those implied by such statements. Investors are directed to consider the risks and uncertainties in our business that may affect future performance and that are discussed in our most recent annual report filed with the US Securities and Exchange Commission on form 40F. Investors are cautioned not to place undue reliance on the company’s forward-looking statements. Further, the company does not undertake to update any forward-looking statements. Now I’d like to turn the call over to Dominic D’Alessandro, our President and Chief Executive Officer.

Thank you Edwina. Good morning ladies and gentlemen. Thank you for joining us on this conference call about our first quarter 2004 results. As you will have seen earlier this morning, Manulife reported earnings of four hundred and twenty-eight million dollars for the first quarter, a twenty-eight percent increase from the prior year. On a per share basis, earnings were up twenty-six percent to ninety-two cents per share and our return on shareholders equity was a very strong nineteen percent. Solid revenue growth across the company significantly improved equity markets, favourable credit experience and lower unit expenses were all key drivers of our very strong results. Total premiums and deposits for the quarter were nine point one billion, an increase of sixteen percent.

On a constant currency basis, revenues increased by twenty-seven percent. Sales growth was particularly strong in our wealth management operations reflecting an attractive suite of products an expanded distribution capability, and an expansion of the distribution capability. The growth also reflects an improved level of investor confidence generally. Funds under management have grown now to a hundred and sixty-five point one billion at the end of the quarter, up seventeen percent from the prior year.

Looking very briefly at our results by division, our Canadian operations continue to deliver solid results with earnings for the quarter of a hundred and thirty million dollars, thirty-eight percent higher than 2003. The improved equity markets had a favourable impact on segregated fund guarantees, fee income and investment income. Earnings in our United States operations grew twenty-five percent to a hundred and thirty-three million dollars with all three businesses reporting significant increases.

Strong sales momentum supported in part by the improved equity markets was recorded in each of our business lines. As a result, we believe Manulife continued to gain market share in the United States. Earnings in Asia of seventy-four million dollars exceeded the prior year by twenty-seven percent reflecting continued business growth, particularly in Hong Kong and Indonesia and strong equity markets. All territories contributed positively to earnings again this quarter. Next month, Manulife will commence operations in Beijing, our third city in China.

In Japan, first quarter net income was forty-two million dollars, a sixty-eight percent increase from a year ago. We are pleased to have reached a new level in earnings, building on the growth in recent quarters and sales, agent count and productivity. We’re optimistic about our prospects in Japan. Earnings of thirty-seven million dollars in our reinsurance operations were twenty-one million dollars lower than the same quarter of 2003, reflecting the strain of higher levels of new business and weak claims experience. We recently made the decision to exit the accident reinsurance business, as conditions in this market were unattractive.

Just a few words on the merger update, as you know, this Wednesday we expect to close our merger with John Hancock and of course, this is a historic transaction for both organizations. The new senior management team for the combined company has been announced and I believe we have an excellent team to lead us going forward, and of course, we’ve done a lot of work over the past seven months to detail our integration, so as to hit the ground running on Wednesday. So with those general comments now, I’d like to ask Peter to take you through some of the details of our quarter results. Peter.

Thank you Dominic. As Dominic already indicated, Manulife started 2004 with another strong quarter. Earnings of four hundred and twenty-eight million dollars were just above record fourth quarter 2003 results. As the fourth quarter is typically our strongest of the year, this level of earnings in the first quarter is a real accomplishment, particularly given the negative impact of the strengthened Canadian dollar, which reduced our year over year Q1 results by about thirty-one million dollars.

In the first quarter, return on shareholders equity was nineteen percent up from fifteen point eight percent a year ago and EPS was ninety-two cents up from seventy-three cents a year ago. These two were excellent results. Continued strong business growth, tight expense management, excellent credit experience and rebounding equity markets all contributed to the good earnings this quarter.

I will start this summary report by taking you through our divisional operating results and then I‘ll be discussing some of the disclosures you can expect to see from us post merger and finally I’ll conclude my remarks with a brief update on the progress we’re making on the John Hancock merger. Overall, business growth was strong in the quarter with excellent sales in our US insurance and Canadian group benefits businesses as well as in the US annuity and pension businesses that are two of our lines most directly impacted by improving equity markets.

Premiums and deposits were up thirteen percent over the fourth quarter of ‘03 and up a very strong twenty-seven percent over the first quarter on a constant currency basis, reflecting excellent sales growth and individual wealth management operations across the company. As you can see from slide number ten, we continue to have a strong run with respect to credit in the first quarter. We are enjoying an improved credit climate that has resulted in the reversal of some of our previously established accounting credit provisions, primarily as a result of gains on the disposition of previously provisioned exposures. As well, we have not had any changes to the actual reserves for future credit losses, some of which will be reflected as earnings in future periods, should the credit environment continue to improve on it’s currently relatively benign past.

Turning to our operating divisions, performance was strong with excellent year over year growth in all divisions, other than reinsurance where our focus is on selective growth while maintaining ROE levels. In the Canadian divisions, individual insurance earnings of forty million were up slightly compared to a yer ago. As you can see on slide twelve, sales by distribution channel continue to be well diversified and showed good growth in the MGA or managing general agency distribution channel, which has been a key area of focus.

Earnings in our Canadian Group Business were forty-four million in Q1, up twenty-one percent from a year ago, due to increased margins in volumes as well as good claims experienced. Record group benefit sales in the quarter of one hundred and eighty million were more than double prior year levels and up sixty-seven percent from the fourth quarter. We continue to outperform the market in all segments with strong sales across all product lines maintaining our number one market share ranking and new sales as of year end ‘03, the most recent date for which comparative data is available. As well, our overall retention rate was very strong in our group business in the first quarter.

Q1 earnings in Canadian individual wealth management of forty-six million were more than twice the earnings of the same quarter a year ago due to the impact of stronger equity market. The quarter saw an earnings improvement due to reduced contingent guarantee risk compared to an earnings charge in the first quarter of 2003 when poor equity markets increased these exposures. As well, on slide number fourteen, you can see the fee income has increased by thirty-three percent due to a growing asset base. Sales in the quarter were just under a billion dollars, up forty percent over Q1 of a year ago, the best peak season sales results since 2001.

Momentum continued in the Canadian retail bank with Q1 lending volumes at their highest level in the history of the bank and Manulife one sales at a hundred and ninety million dollars up seventy percent from a year ago. Deposit growth has also kept pace. Moving to the US operations, insurance earnings of fifty-three million dollars increased by twelve percent over Q1 ‘03 reflecting business growth and the favourable impact of higher sales on unit expenses.

On slide sixteen you can see that first quarter sales were outstanding, up thirty-six percent over a year ago on a constant currency basis, making this the best first quarter sales result ever with record sales each month of the quarter. New business margins were strong in the quarter, although somewhat reduced later in the period due to increasing reinsurance costs.

Pension earnings in the US were up thirty-nine percent over the first quarter of ‘03 on a US dollar basis. Higher sales in the quarter resulted in increased fee income that was only somewhat offset by higher variable costs. Fixed costs were well controlled. New deposits, a key sales measure of one point four billion, an increase of twenty-eight percent over the first quarter of 2003 as transfer deposits were fuelled by sustained improvement in the US economy, generally driving up planned turnover volumes across the 401K pension.

As you can see on slide number seventeen pension assets grew by fifty percent versus a year ago, a reflection of strong deposit growth, favourable withdrawal experience and rising asset values. First quarter US individual wealth management earnings of twenty-six million were more than three times those of the same quarter last year. First quarter earnings are the highest since 2000 as improved equity markets and strong business growth increased asset levels and correspondingly fee income. Record variable annuity sales of one point three billion dollars US were up thirty-six percent from a year ago. The sales growth reflects favourable market conditions in improved competitive position and good continued sales momentum.

Our principal plus guaranteed minimum withdrawal benefit rider was introduced later in the first quarter and has been very well received in the market and contributed to the strong sales results. As previously discussed, this rider has been prudently designed from a financial risk profile perspective. Our college savings offering also had a good sales result recording their second highest sales quarter since the product was first introduced in 2001. Total college savings plan assets now exceed US eight hundred million dollars, almost twice the level of a year ago.

Turning overseas, all territories continued to have positive earnings this quarter. As is shown on slide number nineteen, Asia’s earnings in the first quarter were up twenty-seven percent from a year ago. On a US dollar basis, profits increased by forty-five percent, versus a year ago. Strong earnings year over year are as a result of continued business growth, particularly in Hong Kong and in the Indonesian operations.

On slide number twenty, you can see that Asia’s individual insurance sales were strong with double digit sales growth across the region other than in Vietnam, versus a year ago. Sales were enhanced by the addition of ING and Zurich agents in Indonesia as a result of late ‘03 acquisitions. Sales growth was particularly strong in Taiwan in advance of scheduled government mandated premium increases. Vietnam sales on the other hand were down as a result of increasing competition from banks and mutual fund companies.

Wealth management sales were particularly strong in the quarter as Hong Kong mutual fund sales increased by almost two hundred million from a year ago due particularly to growth in the China Value and Emerging East European funds. Indonesian mutual fund sales increased by fifteen percent year over year on a constant currency basis. On slide number twenty-one you can see that Japan reported excellent earnings this quarter at forty-two million dollars compared to twenty-eight million in the fourth quarter and twenty-five million a year ago. These strong earnings reflect improved circumstances overall in Japan but are likely above currently sustainable earnings levels as improved investment returns, favourable claims and lapse experience all came together this quarter.

As well, profitability margins were improved by the withdrawal of older, poor margin traditional products. Finally, the impact of the many successful expense initiatives in ‘03 are now starting to be reflected in Japan’s earnings. Japan’s agent recruitment continued satisfactorily in the first quarter with the net addition of thirty-five agents in the quarter as good recruitment was somewhat offset by a reduction in agent count due to termination of underperforming plan advisors. Continuing growth in agency headcount is a key objective and strong efforts to increase both the number and quality of the Japan sales force will continue over the remainder of the year.

Earnings in our reinsurance division of US twenty-eight million were down ten million versus Q1 of ‘03. The decrease in earnings is caused by an increase in strain as a result of a large in force transaction written in the quarter. As well, investment related experience was strong but was offset by weak claims experience. A review of the accident reinsurance line indicated that it lacked scale and had relatively unattractive risk return attributes. As a result, as Dominic mentioned, the line was closed to new business in the first quarter.

Turning now to expenses. As shown on slide number twenty-four, total general expenses of six hundred and fifty-seven million in the first quarter were up twenty-four million dollars or four percent from a year ago and up eleven percent on a constant currency basis. Approximately half of the increase is attributable to the accounting impact of expensing stock related compensation and restructuring other integration costs related to the merger with John Hancock. The relating balance represents a modest rise in costs as compared to the twenty-seven percent currency adjusted growth in premiums and deposits. I remain happy with our expense management results.

The MCCSR ratio or risk base capital ratio for MLI, the operating company ended the quarter at two hundred and twenty-six percent, up from two hundred and eleven percent at the end of year 2003. The increase in this ratio was primarily attributable to this quarter’s earnings result. On slide number twenty-six, we show this quarter’s source of earnings disclosure. We have modified our SOE presentation by introducing a new line, other in the source of earnings. The other category or line is intended to separately disclose items that are outside the normal course of business operations.

In this quarter’s SOE two items that were charged to earnings are reflected in this line, twenty-two million related to refinements in the reserve calculations for segregated fund guarantee reserves and seven million related to refinements for variable annuity, guarantees in the US. For ‘03 we have adjusted the source of earnings presentation for only the most material item, the forty-five million of segregated fund guarantee reserves that were discussed when we presented our Q2 results last year. This item has now been moved from experienced gains to the other line in our new SOE presentation.

With the impending merger, we have reviewed and revised our planned future, supplementary information package disclosure. On slide number twenty-seven is a chart showing our current plans for disclosure of segments and business units post merger. Our goal for the second quarter is to include the new business unit’s income statements as part of our new disclosure package so that you’ll be able to better understand the contribution of the business units to their respective segments.

Finally we are planning to include US GAAP information in our quarterly financial disclosures on a basis that is similar to the US GAAP information that we now provide annually in our annual report. In future quarters we’ll be expanding our US GAAP disclosures in the package. As a result of our merger with John Hancock we feel it is important to show our quarterly results on both a CGAAP and a US GAAP basis although we will continue to manage our business on a CGAAP basis. Over time we’ll work to continue to update and expand our disclosures on growth presentation styles.

With respect to our merger with John Hancock, all regulatory approvals were received last week and the merger is on track to close on Wednesday, April 28th. Our detailed integration plans are moving along well. By business line, we have identified the synergies we expect to achieve in our amalgamated operation, as well as the expected costs to integrate our execution strategies. Overall, these are consistent with previously indicated targets. The senior management team has been formulated and announced internally and everyone is eager to begin shaping the new organization. As well, John Hancock has just announced their first quarter results, which were consistent with our expectations. In conclusion, we had a very strong quarter and as we turn our efforts to our integration with John Hancock, we are confident that we are well positioned for a successful 2004. Thank you and I’ll turn the call back over.

Thank you, Peter. Operator, we’re ready now to begin the Q&A session.

Great, thank you. We will now begin the question and answer session. To place yourself into the question queue, please press star one on your touch tone phone. If you’re using a speakerphone, please pick up your handset and then press star one. If your question has been answered and you would like to withdraw your request, you may do so by pressing star two. Please go ahead if you have any questions. Thank you. Your first question comes in from Steve Cawley with TD Newcrest. Please go ahead.

Good morning. I’ll limit myself to a couple of questions. The first is on the reserve release Peter. In the Canadian side of things, you made note that there was a segregated fund reserve release. Can you quantify that?

Well the segregated funds, there was actually a release that went through in the segregated funds that would have gone through the experience gain loss due to the normal market movement and that was offset by this other item where we actually put a bit of strengthening in for some of the way we map some of the funds to specific indices. So the, I don’t have the split of the release by division right in front of me but basically we released through the experience gains, about forty to forty-five million of the reserve for the seg fund guarantees and then you would see through the other line, that twenty-nine million is, twenty-two million of that was in Canada and the other seven million was in the US.

Could you give me a better definition of reserve refinements? That twenty-nine million, can you tell me what that related to?

I’ll just speak to the Canadian number, the twenty-two million. That’s the biggest piece of it. Basically when you do a segregated fund guarantee reserve, in your modeling you have all these individual funds that policy holders are holding you, to determine the volatility and fund returns, you generally map them to an index that most logically represents them. And it was just a bit of, looking at how we map those funds to the different indices and refining that, working with our risk management area.

Does that seem like a big number though? Like to me twenty-two million seems like a big number for a refinement such as that.

Well the reserve is two hundred million, you know, two hundred million dollar range in Canada alone. So from that point of view it’s not, I would not call it unusually large. These are quite sensitive reserves to the assumptions from that, you know, I would call it a normal change.

It’s Peter Rubenovitch. We’ve talked in the past about not only the volatility that this reserve has to movements in markets but to your assumptions. And so we have strengthened our assumptions. They’re more conservative, we’ve taken a charge for this change in methodology and we’ve profiled it so that it’s separate from other items. But I don’t think it’s extraordinary I guess is how I’d characterize it. And again, overall we think the reserve is on the very conservative end, not only because it’s up at the top end where permitted but because markets continue to be quite good.

Maybe one other question, is Vic on the call?

No he’s not Steve.

Maybe then, could you maybe help me Dominic, on Hong Kong, the individual insurance sales seem to be slowing a bit and I think this quarter here. It’s been about four quarter’s where we’ve had the same earnings. Can you maybe discuss the competitive environment in Hong Kong and your potential for continuing to grow that business?

Well that’s a good question. It’s too bad Vic isn’t here but my understanding is that generally speaking, you know, Hong Kong hasn’t fully recovered. Economic activity levels haven’t fully recovered from you know, just the general slow down and the SARS thing. And so that the industry in terms of sales isn’t growing at the same pace that it was. Now in that context, I think we’re more than holding our own. We’re very comfortable that our market shares are holding up. We just recently welcomed our one-millionth customer in the Hong Kong territory across all of our different businesses there and so we remain very optimistic about the prospects for future earnings from the Hong Kong territory.

Thanks.

Thank you. Your next question comes in from Eric Berg with Lehman Brothers. Please go ahead.

Yes thank you, and good morning.

Good morning Eric.

Yes, good morning to everyone. First of all on these credit provisions, slide ten, is the significance of the thirty-nine million that that was essentially a, not a reserve release from the actual liabilities. Peter, could you go over that and then I have just a couple of quick follow-ups.

Slide ten, yeah, what’s really happened there is we haven’t had to take the normal level of credit provisions recently because the markets have been so good on the in force block and this quarter we had some very substantial recoveries because we had previously provisioned some recoveries that were sold, either they matured or they were sold at a gain and that’s what caused the phenomena. I’m tired of saying it but I’ll say it anyways, these are unsustainable levels of credit provisions for a book of this size. So we’ve had a really, really good run and this quarter was exceptionally strong.

My next question relates to the expenses, slide twenty-four, I just want to understand what you’re showing here. You went through the material, as you needed to do so, quickly. It is currency adjusted; it is net of variable costs. Can you explain these caveats in a little bit more detail than you providing here?

Yeah, the slide you’re looking at is as recorded. My comments related to how we try and manage it, which is primarily on a local basis and separating out fixed and variable. And the comment I was making is that on a currency adjusted basis, the costs had risen. Most of that was due to either variable costs because we had a bigger volume of business or the expensing of stock related compensation, we’re phasing that in and so that’s a change from previously, and integration costs, there were some amounts in respect of the John Hancock transaction. So after you take all of that out, we were looking at about a six or seven percent currency adjusted increase in fixed expenses that I looked against the twenty-seven percent currency adjusted growth in premiums and deposits and felt that that was a good result.

Finally, with respect to the Japan operation, how should we think about the sort of level of earnings prospectively? I’m thinking specifically that the assets under management are essentially unchanged from where they were a year ago, and while I certainly understand that you have multiple sources of profit, not just interest margin but morbidity, mortality expense and so forth, you did indicate that the level of earnings is probably not what we should, I mean (inaudible).

Well Eric, we’re just cautioning that the growth is so, and you know, everything came together very, very nicely for us in the first quarter in Japan; the stock market is way up, interest rates did move up somewhat, our expense initiatives that were put in place last year are starting to bear fruit and we’re starting to sell through new distribution channels. So everything sort of came together and we’re sort of saying, well wait a minute now, we would like to just caution everybody not to annualize the, because, you know, there’s still some volatility in that marketplace. We think over time of course, that the earnings levels in Japan will be higher than those we’re showing now, we’re just, you know, adding a little caution for this coming year.

Thank you.

Thank you. Your next question comes in from Timothy Lazaris with GMP Securities. Please go ahead.

Thank you, congratulations. Two questions.

Thank you, Tim.

You’re welcome. First of all on the cost reduction target, I guess it’s been a while since we, at least myself, recall that number. Could you refresh our memory in terms of what that cost reduction target is that you refer to on Hancock?

Yeah, it’s two hundred and fifty-five, at the time we said it, it was two hundred and fifty-five million US dollars, which at the exchange rate prevailing when we made the announcement, was about three hundred and fifty million Canadian dollars and we remain committed to that number.

Okay, thank you for that. And then secondly a more broad question Dominic. In terms of the rising interest rate environment or potential rising interest rate environment in Canada and the United States, more specifically in the US could you comment other than the obvious, that bond prices drop in that situation, what the impact will be on Manulife’s earnings?

I think that, you know, depending at the speed of which rates rise, because they will rise, we believe that that will be generally positive for, you know, our business overall. Now that maybe is counter intuitive but the reason it would be positive is that we would be earning more on the assets overall as we get cash in and we’d be moving away from the risk of actually piercing through the floors in the minimum guarantees that exist in some of our life products. As you know, we have minimum guarantees on some of our life products at three and four percent which we’re comfortably in excess of now but if interest rates stayed at these very low levels for years, it would eventually put pressure on our ability to earn and sustain, you know, that entitlement that policy holders have. So interest rates moving back up is not necessarily a bad thing. In fact, we think it’s a good thing.

Is there an optimal level, Dominic, that you might comment on?

Well you know, it’s hard, once, I mean I guess optimal level would be like the Bank of Canada says, you know, a level that has, stimulates economic activity and doesn’t lead to inflation and overheating of your economy. You know, there’s big books written about that Tim. I’m not an economist.

But what you’re saying is a spike in rates would not, I mean that that would be negative.

Well you know, as I said, if it went up, you know, tripling in rates, it’s like anything else in life, if you have time to adjust the things, people generally do. So if you have, you know, a nice smooth ratcheting up of rates in relation to reflection of economic activity in the economy, that would be a good thing. Now you know, if you had a spike in rates where they jumped up a few hundred basis points over night, that might be more disruptive.

Okay, thanks for those responses.

Thank you. Your next question comes in from John Reucassel with BMO Nesbitt Burns. Please go ahead.

Thank you. Just a couple of questions. Peter, you talked about the disclosure going forward so thank you for that, but one of the ways it’d be nice to track the integration is to get a sense of sales through the M Group and Signatore. Will you be disclosing those sales as well?

I think we’ll try and provide that kind of information. You have to realize, our biggest challenge right now is mapping all the units together and getting it all to roll up and getting a core-reporting package. That’s what I was speaking to. But certainly anything that’s interesting or topical, and I hear your interest; we’ll try and address that.

Okay, thank you. And just on the buyback, I guess the question is, you know, Dominic, are you committed to doing all three billion dollars?

That took a long time.

And I guess just on top of that, obviously if you are or you’re not, you did mention and when you announced the deal with Hancock, in your release there you’re looking at an ROE of twelve point seven percent and where might that go if you don’t do the buyback?

Well I think the, you know, we feel very comfortable that the twelve point seven percent is sort of a floor. There’s a host of reasons for that. We just have a lot of confidence in our ability to manage combined company. I think we’ve got a great team of people that have been assembled to take the company forward and you know; the momentum is very, very good. It’s good for both companies actually. So we’re hopeful that you know, we’ll surprise pleasantly with respect to the twelve point seven percent ROE. About the three billion dollars, I think it would be awkward for me to state categorically what we are or not going to do in a couple of day’s time. I think the, the extent to which we do thing will be a function of what’s happening in the marketplace on that day and I just today, couldn’t tell you what that level of activity is going to be.

Okay, well I had to ask so thank you. But one last question, the, in your press release in early April talking about the relief you got from the TSX on the two percent rule, you did mention that you might participate in some derivative based repurchased programs. Have you actually participated in any of those and if so, how much, what is the equivalent number of shares?

No, we, we haven’t.

We haven’t done anything of that nature at this point in time. That language was to preserve any of the entitlements and flexibility that we theoretically had before the announcement just to clarify but we’ve not done or announced any of those types of programs at this point in time.

I mean the reality is that with the accommodation we got from the TSE, we can go into the markets directly and our need to do so indirectly through derivatives, etc., it diminished somewhat.

Okay, but you still will be press releasing any purchases or is that passed now Peter?

There’s some disclosure requirements and we will be making some disclosures but it’s not the same regime as it was previously.

Okay, thank you.

Thank you. Your next question comes in from Tom MacKinnon with Scotia Capital Markets. Please go ahead.

Yeah, thanks very much. My question has to do with Simon’s comment about forty to forty-five million in experienced gains in the quarter due to seg funds reserve release. Now assuming that the assignments are effectively one time items as they would, that’s the case given that they’re put in the other category, is the development of the seg fund reserve, forty or forty-five that Simon was talking about, is that based on a quarter end calculation or is that sort of based on some sort of average increase in the indices over the two quarters?

I’ll ask Simon to answer that. These things are never as easy as they should be. They’re never as simple rather as they should be. So Simon, do you want to explain.

The reason (inaudible) to get more is just because, is it entirely due to Canada, first of all?

No it’s, as I understood it’s both Canada and reinsurance, which is (inaudible). And I don’t know, was there anything in the US? Most of that risk was reinsured so there wouldn’t have been much there.

Yeah, so Tom, our release was actually about forty-five million and of that, just under thirty million was in Canada and the other fifteen million was primarily in our reinsurance division which is US business. You know, our overall CTE level remains close to CTE 80 but we do follow a mechanism where we sort of look at market movement over the preceding four quarters in releasing that reserve.

I mean we only had the markets up, you know, four or five percent just, quarter end to quarter end. I’m just trying to figure out how much we’re going to get, sort of continue even at half that rate going forward? Do we look for, you know, half of this number that we got in this quarter to continue if the market (inaudible)?

I think Tom, there’s two influences and again, this is not intuitive. But one is the actual increase in the indices themselves but the exchange rate also has an impact on these seg fund guarantees. And I think that the exchange rate moved in our favour as well during the quarter, which might be a little additive to the four percent that you talked about.

I think the other thing is because the reserve buckets are essentially full, you know, we’re having, as the markets improve, we’re having the risk go down and we’re having, you know, significant improvement and the CTE levels can’t be added to once you’re near the top of your range.

We would have had a problem if we didn’t do a draw down of some kind on the reserve it would have been in excess of the eighty percent and the eighty percent CTE level rather and that would have created it’s own problems.

Would you categorize the quarter as, outside of the experienced gains to do the seg fund releases and the credit improvement as being an average (inaudible)?

No, we would categorize the quarter as being very, very strong. I think that . . .

Even outside of the seg fund.

Well okay, if you leave those things aside, I mean the level of earnings growth, level of revenue growth frankly is quite outstanding. I mean on a constant currency basis, how much is the revenue up? Like twenty-five, more than twenty-five percent. I mean that’s, we’re getting a pretty noticeable base of revenue, so when you can grow it quickly, I mean that’s very encouraging. I mean all of our businesses in the United States I think hit record levels or close to it of revenues, as they did in Canada on the group side. You know, wealth managements businesses in Canada did extraordinarily well. And in Asia, you know, it’s a snowball there. All those countries as we said that we’ve been investing in for many years have turned the corner. So you’ve got a lot of good things that are underlying the results. We feel very good about the results.

No, my question, I agree. My question was more along the lines of the experienced gains in the quarter.

Well the experience gains, Simon, I mean you know, my sense is as we’ve said often, we expect experience gains because, you know, our expectants are set at levels that you know, are robust and we’ve had, I don’t think we’ve ever had an experience loss in the ten years I’ve been here.

I would agree. I mean we had a generally good quarter. You know, we had very good credit experience, our claims overall were a positive. We had a number of positive variances; it wasn’t just due to the segregated fund guarantees by any stretch of the imagination.

Okay, and one quick follow up, Bruce, great year in terms of group sales in Canada. Was it a big case or what was it, what was contributing to the big jump in sales?

Tom, it was a number of big cases that we sold last year and they took effect on January 1st of this year. It wasn’t one, it was five or six. And I think the value proposition, the service proposition is really grabbing in the market.

Okay, thank you very much.

Thank you. Your next question comes in from Saul Martinez with Bear Stearns. Please go ahead.

Good morning gentlemen. Just a broad question: Hello, sorry about that. Good morning gentlemen. I’m having problems here with the phone. Just a broad based question on your Asian business. Earnings were obviously down in the quarter, strong year over year but they were down relative to the previous quarters. Can you just provide us with a little bit more colour on what went on there. Obviously there’s an exchange rate impact and you had mentioned a slowing down of the economy in Hong Kong but even if I look at the other Asia businesses, it looks like they were low relative to what we’ve seen in previous quarters. So if you can just give us a little bit more colour on there.

I don’t think that’s correct Saul. I think you must be misreading something.

Yeah, I think Saul, it’s entirely reporting US dollar link type sales in C Dollars. If you add about twelve percent to the numbers, roughly, you get a same currency equivalent. It’s a little different currency by currency but on a local basis, the sales were generally quite good with (inaudible).

I’m sorry, I was looking at earnings, not sales. If I look at your Hong Kong earnings in Canadian dollars, and in US dollars for that matter, you know, they were, they’ve been, they were down versus the fourth and versus the third quarter of last year. Obviously they were up year over year but they’ve been relatively stagnant the last few quarters. Can you just give us a little bit more colour in terms of what’s driving that?

Well I think Dominic already spoke to, they had a bit of a tough year because the economy was weak and they started off the year with SARS and I think that’s, you’ve seen it mostly in the Hong Kong earnings. Those are quite good earnings. You know, those are high rates of return but they’re not the normal growth rates we’ve had historically. So we’re not unhappy with them but we have quarter to quarters spoken to the fact that it was a little tougher market there than they were initially anticipating.

One item in the other Asian territory is in the fourth quarter we had that unusual eleven million dollar gain in Singapore, which caused a spike in those other Asian earnings.

Okay, great. And just a follow up. You may have spoken this, I must have missed it but in terms of US GAAP numbers on a quarterly basis, when could we expect that?

We haven’t specifically put the pin in but my moral promise is starting in Q2. The only caveat of course is all the plumbing has to work, but we’ll do it as quickly as we can. I suspect it might be Q3 releasing Q2 and Q3 together but as soon as we can get them out, we’ll be doing that. So it’s an infrastructure thing. We’ve made the commitment and we’ll certainly honour it.

Terrific, thank you.

Thank you. Your next question comes in from Brad Smith with Merrill Lynch Canada. Please go ahead.

Thanks very much. I suspect this is a question for Simon Curtis. Simon, just looking at your sources of earnings in the quarter, the new business strain at forty-six, I was just curious, given the strength in the premium and deposit or top line revenues, is there something about the product that’s being sold in the US and in Japan particularly that would account for the strain actually dropping despite the stronger sales. I’ve seen in Japan, it looks like there’s been a small front ending here compared with the prior year, it’s pretty significant.

Yeah well certainly, in Japan our product mix has changed quite a lot. We’ve gone away from the tradition products to now a portfolio more based on universal life and more modern health products. And that’s really driven down the strain on the business. We still, you know, we don’t actually have an upfront earnings in Japan but the strain has definitely come down because of that.

Is that a YRT product that you’re focused on over there?

It’s a universal life product basically where you have; you can add mortality components and health components. So it’s almost like a universal life side fund with riders that you add to the product for your various coverages.

I’m sorry, what I meant was, is it yearly renewable?

I don’t know. I think there might be yearly renewable options but most of it is being sold as longer-term coverages.

And its less strain.

Yeah.

And what about in the US? The same question.

I think in the US, some of the products have been redesigned to reduce the strain levels in our variable annuity products.

Yeah, we have the riders. The mix of business has changed quite a lot in the US. Much stronger annuity sales this year than last year, which has impacted things a bit. But I don’t have any single one reason in the US that I would want to point out is driving that result.

Just in a generic sense Simon, as the guarantee amount increases, how does that influence the strain on a product? Does it increase the strain?

When you say the guarantee amount, on which product are you thinking?

I’m just thinking the guarantees on your withdrawal product that I believe are now at a hundred and twenty-five percent. When you move, you know, from a hundred to a hundred and twenty-five does that increase the strain on a product?

In that case no, it won’t increase the strain because the risk charge we set for the product is appropriate for the guarantee so you’re not going to see an upfront earnings loss that that grows because of that feature. In fact we think the new guarantee feature overall has quite a good risk profile.

Thank you so much.

Thank you. Your next question comes in from Mario Mendonca with CIBC World Markets.

Good morning Mario.

Good morning everyone. Great quarter. It looked pretty impressive. I’d like to look out a little bit and think about some of the things that could be more troublesome. Peter you reflected on a few occasions that the credit environment has been really good here for a while for Manulife, particularly this quarter and given that Manulife is acquiring or their merging and Hancock hasn’t had the easiest situation from a credit perspective, I want to focus on that for a moment. In your presentation, when you talked about the acquisition, you talked about investment gains and losses of about a hundred and thirty-eight million in 2005. Am I correct in saying, that probably didn’t include anything to do with credit losses, is that a fair statement.

Yeah, I think that is. I’m not sure what the hundred and thirty-eight refers to Mario.

It’s just that as I, when I looked at that presentation originally on it, the page twenty-one of that presentation that you did back in September, I thought that might have included something for credit losses but now that I read the proxy circular I see that what you’re really talking about there is just, you know, making sure that you account for the differences between Canadian GAAP and US GAAP in terms of amortization of gains and losses.

So it’s not really credit related. So I guess what I’m trying to think of is going forward, I mean Hancock reported about eighty-one million in credit losses or impairment charges this quarter. How can we think about credit losses going forward for Hancock and recognizing of course that you’ll obviously fair value the balance sheet so you’ll take care of some of that. But you know, Manulife historically hasn’t reported much in terms of credit losses and I’m not only talking about now, I’m talking about throughout your history as a public company.

Yeah, clearly we’ve had very satisfactory credit experience. Hancock’s had more volatility. What we’ll try and do is update you on the impact of fair value and the prospects of credit going forward. John Hancock does that right now. They provide a lot of detail on their credit experience and they’re expectations and so we’ll try and give you some information on that and I think that’s a very important attribute. As it relates to the general market climate, the climate is very good right now, better than when we first announced the transaction but in the long term that may change and of course, you know, we would communicate to you the implications and it’ll matter more to Manulife post merger than it matters today which I guess is fairly obvious.

Yeah, and maybe if I could just sort of follow up a little bit, so you know, US life insurance companies record their available for sale securities at market value anyway, we know that. They, when Manulife consolidates Hancock, you’ll make the appropriate adjustments. But take for example today with Hancock reporting an eighty-one million dollar credit charge and let’s be clear, that’s way better than last year when it was two hundred and fifty million, but how might we think of that for Manulife?

Can we sort of assume that Manulife would have the same sort of flexibility in terms of allowances for credit losses that you have now or uses of the C1 risk reserves or should we start to factor in credit losses on it for the combined company. That’d be a little bit more like what Hancock’s experienced or maybe a little bit more like what Hancock’s experienced.

Yeah, I think you’re absolutely right. There’s no question that the credit losses or you know, the credit charges will go up but they’re being paid for. If they have a substantial portfolio that has more of a credit element than Manulife historically had and so the two together will be a blend. We come with a very high-grade portfolio and a history of fairly modest credit events and theirs has gotten bigger spreads but more credit element and that’ll be included in the combined company going forward. I’m not sure that’s a bad thing. Generally speaking in this kind of market, you’re getting fairly good compensation for taking some credit risk if there aren’t a lot of credit losses. The question long term is you know, what kind of portfolio mix are we going to want to have and that’ll be developed and explained to you over time.

I think in fairness as well to, you know, the numbers, if you go back to a reasonable period of time, I mean we were, you know, in some respects, Hancock became a public company at a very difficult time cause the credit markets turned almost, you know, at the same time they became public. But if you go back long enough as we have done and you know, there’s quite a lot of evidence to suggest that you know, their credit losses averaged out over a regular cycle are no larger than anybody else’s. I know that’s hard to appreciate but that’s the reality if you look at the numbers.

Yeah, I was familiar with that too sort of having also looked at the company going back and I know that the credit losses weren’t that severe. But that’s great, that’s fine until they’re not that great and then it becomes really painful.

No I know and I think most, you know, I think David would tell you the same thing, that you know, it’s very interesting but it’s the here and now that people pay attention to.

And if I could just follow up with one other sort of related question and Peter, I know this is something you probably have to think about an awful lot. There are situations under Canadian GAAP where it’s appropriate and you often have to adjust your Canadian GAAP reserves to your best estimate. And that may not be entirely possible under US GAAP. In situations where that arises where there could be a healthy divergence between the treatment of Canadian and US GAAP, actually , probably the best question to ask is do you envision situations like that where you know, maybe one quarter there could be a big disparity and then a couple of quarters later another disparity but going in another direction and maybe not get too fussed about quarter over quarter disparities but maybe look at things from a year and two year perspective. How might it be best for us to think about that?

That’s exactly right. It’s certain, it’s not probable, it’s certain that there be material differences between CGAAP and US GAAP and they might be bumpy and there are some systemic differences which we’re going to try and communicate through a break we’re preparing on the differences in CGAAP and US GAAP and as it relates to us. I think the key is to have people understand what’s happened and how it reflected in each of the set of accounts and then an understanding of economically what’s going on. And I think if we can do that, there’ll be some tolerance for the fact that the two metrics will produce different results in the same period. And I’m sure that’s going to happen, it’s a problem. And I have to tell you, I personally am looking for convergence of international, US and Canadian accounting standards for insurance companies to provide me with some relief from this (inaudible) assignment.

Yeah, when you’re ninety years old sitting in Florida some place.

I’m still going to be waiting, I hope not.

Oh I hope it was only about a year and a half from now folks.

Well I hope it happens, it would be nice.

I hope it happens, it would be nice for us if it did, if we got some harmonization of accounting standards.

Well thank you very much. I appreciate your help.

Thank you. Your next question comes in from Jim Bantis with Credit Suisse First Boston. Please go ahead.

Hi, good morning. I’m just looking at your impressive top line growth in the quarter and a couple of product areas. One of the reinsurance, you highlighted slide twenty-three, you know, very exceptional new business volumes which have created some earnings. Could you talk about the products in particular and what is the change in that environment that you’re talking advantage of? And then secondly perhaps in terms of the individual business in Canada, the UL product in particular in terms of the growth that you’re having, particularly with the broker channel, not surprisingly a lot of your competitors were highlighting that Manulife has been pretty aggressive on the UL pricing and you know, perhaps it’s been undercutting it’s target ROE on the product as well.

I know, we keep hearing that and all I would refer you to is our record of ever declining ROE’s because we underprice our product. I’ll ask, I’ve got Steve Mannik here and he’s ready to answer the question on reinsurance and Bruce will handle the question on the Canadian side.

Hey Jim, with respect to the strain on the reinsurance line, it’s not really due to any introductions of new products or the like. We continue to offer the same product line. It’s, really there’s some turmoil in the reinsurance marketplace and rates are going up, some companies are pulling out, some other companies have had some capital issues and the higher strain both in Q4 and Q1 are the result of some large in force deals that we’re able to write in that marketplace.

And is that marketplace life retro session?

No, I’m talking about the life reinsurance market so that would be the market of our (inaudible).

But the business, the strain refers to is the life retro session.

Yes sorry, that strain is the life retro session.

Got it, thank you.

And then on the Canadian part, the individual insurance sales in the first quarter of 2004 are better than last year but they have slowed down a bit. It is not all universal life. It’s over a range of products and a lot of the growth has come from penetration of further distribution, not by doing things with the product. The products are meeting the company hurtle rates.

Okay, thanks very much. That’s helpful.

Thank you. Your next question comes in from Michael Goldberg with Desjardins Securities. Please go ahead.

Thanks very much. I had a few questions. I want to start again with credit. You didn’t release any actuarial credit reserves this quarter. Why not? And what are the key parameters that would determine your actuarial credit release at some point in the future and if conditions stay as they are now, can you even give us some kind of ballpark range of what the potential release could be?

Well on that question I’ll ask my colleagues here to supplement but before they establish a policy, maybe I should say a few words. You know, in terms of drawing down on that reserve, the one time we thought we might use it which was when we had our WorldCom losses, you know, all hell broke loose, there’s generally not a huge appetite to see that reserve touched by, you know, our shareholders. And so what we have been doing is holding that reserve more or less constant and letting it grow and rather letting it diminish as a percentage of our exposures as our exposures themselves have grown. In other words, we recognize that it’s superfluous to any reasonable amounts that we would need but we would not continue to exaggerate the excess by continuing to add to it in an aggressive fashion. I think that when we merged the two companies, you know, we will have a level of credit reserves that is still very, very robust but maybe not quite as excessive as what we have now.

Okay. I had another question. Could you just refresh my memory, how much the restructuring charge will be in connection with the merger and will it be a Q2 event?

Yeah, I don’t remember exactly, maybe some of my colleagues do and remembering that the restructuring charge as I understand it is the charges, aren’t they just the cost that go through Manulife’s books as opposed to . . .

Yeah, there’s a couple of pieces. There’s the piece that we would charge the income statement is predominantly charges incurred by Manulife in respect to the Manulife book. There’s also transaction costs and then there’s the other costs, which are capitalized. I don’t have the numbers in front of me and I don’t want to risk quoting them in the wrong exchange rate. They’re disclosed in our F4 filing and if you’d like Michael, I can go through them again with you offline.

Okay, one other one, how long do you figure it’s going to take to restructure Hancock’s asset mix so that it’s more consistent with CGAAP?

We’ve got Don Guloien here so Don, do you want to take a stab?

Well yeah, Michael there’s two differences between our asset mix and theirs. One is the different GAAP methodologies. The other is the different types of businesses they have. They run a spread book, we’re much more focused on the life insurance elements. But suffice to say that we have projects underway right now between the two companies looking at how to optimize the return on the asset mix across a range of product lines. We expect to be making very gradual changes to that asset mix. Of course by virtue of the merger, both companies become more diversified in the pool of assets they have. I think people used to characterize us as heavily exposed to the equity market and the Hancock, heavily exposed to the credit market. The nice thing is by virtue of the simple combination before we do any (inaudible), the combination leads to much more diversified mix.

Okay, and my last question, you probably knew I was going to get to it.

I had it down as your first question.

Could you characterize the latest quarter in terms of value of new business, year over year, quarter over quarter, wealth and insurance and has there been any pick up actually in VNB related to equity related product?

I’ll ask Simon to answer that question on embedded value and what the experience has been this quarter.

Yeah, certainly year over year it’s up quite a lot. If you look at a constant currency discount rate basis, it’s actually up about forty percent year over year and that’s a function of the very strong growth in new business we’ve had over the year. The growth has been stronger on the annuity side because you know, that’s where we’ve seen a lot of the business rebounding as the equity markets have come back.

As you know Michael, we don’t give a detailed quarterly embedded value disclosure but I think the tone is quite positive.

Okay, and you know, the real question that I was getting at was has there been you know, any evidence of a pick up on the equity related side of products?

Well for sure, if you look at where our growth has been, as I was saying, our wealth management growth has been particularly strong and you’re seeing it in all of our core, sort of wealth management businesses, in Canada, the US annuities and pension business all of which have very strong segregated fund product offerings and we’re seeing strong growth in all of t hose as well as in our variable life in the US.

All right. And maybe just a suggestion: I noticed that you’ve got a continuity of DAC in the supplementary. Maybe one was of bridging the source of earnings and this question would be to include a continuity of (inaudible) also.

Okay, we’ll take that under advisement Michael.

Thanks a lot.

Okay, thanks a lot. Operator, we have time for a few more questions.

Thank you sir. Your next question comes in from Tom MacKinnon with Scotia Capital Markets. Please go ahead.

Yeah, it’s more or less just a comment rather than a question cause I sense some confusion as to what an earlier question with a hundred and thirty-eight million investment gain losses shown, adjustment. And in fact at September 29th when you did you projected earnings accretion on the Hancock deal and it is in fact, when questioned it would be all credit losses that would be recognized under Canadian accounting. So I don’t know if there was confusion as to whether it was just other CGAAP adjustments but was entirely credit loss adjustments. So I assume under a more favourable investment or more favourable credit environment (inaudible) projecting those figures on September the 29th that, if anything that number could improve upon.

We’ll provide, when we do our second quarter reporting, we’ll provide reconciliation of all of the different, you know, assumptions and the acquisition equations that are actually used compared to those that we presented to you in September when we announced the transaction. I just don’t have the numbers; none of us do in our heads Tom.

Okay, well, I sensed some confusion. Just wanted to make sure we were (inaudible).

Yeah, I understand now what you’re saying; this is to conform the two accounting methodologies.

Yeah, an operating number on the Hancock (inaudible) add the gains back or credit losses back.

Yeah, understand what it is now. But we’ll come back to you with that so that all your questions, you know, we’re interested of course as well as to how our original assumptions stack up with what’s actually happened.

Great, thanks.

Thank you. Your next question comes from Dan Johnston with Citadel. Please go ahead.

Hello?

Yes, sorry about that. Thank you very much. Just two quick follow-ups. One, what’s the appropriate tax rate to use for the credit provisions?

It depends on the jurisdiction at which they relate. So it’s something that might move around from quarter to quarter.

Do you have a sense for this quarter?

No, not off hand. You’re asking what the credit provisions . .

Yeah, I’m just trying to figure out, what’s the right tax rate to use against the thirty-nine million.

Of recoveries.

Yes.

(Inaudible). My guess is maybe sixty-forty US Canada. There’s a whole bunch of little things.

Okay, sixty-forty, US Canada.

That’s a very approximate number.

No, that’s okay. Just ballpark is all I was looking for. An then could you talk a little bit more about your thoughts about departing from the accident?

Well sure, we’ve been de-emphasizing that line of business for a few years actually, maybe three and it was, you know, we stayed in it for a little longer because the rates hardened quite a bit after the fiasco that most of the industry enjoyed with all of the problems. But I guess our conclusion was is there wasn’t enough high quality business there to warrant us staying. We weren’t, in our opinion, we’re not getting paid for the risks that companies are being asked to shoulder and so we just decided to pull the plug on seeking new business. We of course still have ongoing management of our in force block of business but we’re not accepting any new credits, new exposures.

Great, that’s where I was going to go. Just, can you help us get a sense of the size of the remaining business that’s on the book for run off and just to help kind of scope out the risk of adverse development?

Well, we think you know, I have a good authority from Steve who’s the general manager that we’re, very well reserved there so I would be very surprised if during the run off period we had negative developments that would require us to dip into our earnings. But Steve, why don’t you confirm that.

Yes, I can confirm that. We, one of the big run offs that we had, you’ll remember the disclosure that we gave around World Trade Center and 9/11 and that continues to develop according to the original projections we gave to you and there’s some significant margins still in that we believe. And the rest of our book is also well reserved we believe.

Is the general issue with that business that too much capital has come in?

The market, we had to shrink down our writing so that we were comfortable with the business we wrote and one the criteria we put on it was that we would not accept terrorism risk in any form. And that seemed to be acceptable to the marketplace in 2002 and the market’s starting to soften now on terms and some terrorism risk is being written by other writers and for us, that’s just not something we’re willing to take.

Great, and then the last question on all this is the, there’s a mention about reinsurance costs in the US marketplace picking up a bit. Would you might just touching on a bit more colour and thank you very much.

Yeah, that was, we have some reinsurance outbound which had some rising costs towards the end of the quarter and so that cut it’s margins a bit and we’ve repriced some of our products to reflect that. So it’s noteworthy but it’s not that big a deal. I think it’s something that’s generally happening as reinsurance rates are hardening in the marketplace when there’s contracts that are repriceable, up for renewal, some of them are a little more dear.

Are these variable annuity related products?

No, on the life side.

Just pure mortality. We reinsure out above certain limits on the individual contracts and the cost of that reinsurance to us is higher than it used to be. And it’s through the whole market actually, the market has hardened.

Many thanks.

Okay, so we have time for one more question possibly.

Thank you. Your next question comes in from Steve Cawley with TD Newcrest. Please go ahead.

Hey Dominic, maybe given, with all the events that are happening this week it was a little bit, I was hoping for a dividend increase Dominic.

Well I mean the reality is that it would be very awkward. We’re in the process of issuing three hundred and sixty million shares. You know, you know all of the questions that are out there about who’s going to hold those shares and are they going to be a flip back and flow back and you know, so we thought that rather than confuse the issues by introducing a dividend increase, you know, we’re committed to increasing and paying competitive dividends and you know, we analyze this thing on an ongoing basis. We just raised the dividend, what is it now, three quarters ago and it just seemed that given everything else that was going on, that it’s a question we could best address later on this year.

Can you give us a payout ratio range that you’d like to see the new company (inaudible).

Yeah, you know, we initially enunciated a rate, a payout ratio of twenty to thirty percent and I guess we’re getting clear indications from our investors that they’d like us at, you know, up toward the upper end of that band as opposed to the lower end and you know, that’s what we’ll be, we’re very responsive to our shareholders Steve.

Thank you Dominic.

Thank you. So that completes, ladies and gentlemen, thank you very much for joining us today and you know, as I said, I want to emphasize again, we’re very pleased with the momentum that our company has with the momentum that’s in place at John Hancock. We’re all enthusiastic about putting our two companies together in a couple of days and getting on with it and we look forward to reporting to you on our progress in future conference calls. Thank you once again for joining us.

Ladies and gentlemen this concludes the Manulife Financial (1st) Quarter 2004 results conference call. The recording of this conference call will be available after 6:00 PM today by calling 416-695-6061. It will be available until the close of business on April 30th, 2004.

An archive of the webcast will be available on www.manulife.com beginning after 6:00 PM EDT today. You may now disconnect and thank you for participating.

The statements, analyses, and other information contained herein relating to the proposed merger and anticipated synergies, savings and financial and operating performance, including estimates for growth, trends in each of Manulife Financial Corporation’s and John Hancock Financial Services, Inc.’s operations and financial results, the markets for Manulife’s and John Hancock’s products, the future development of Manulife’s and John Hancock’s business, and the contingencies and uncertainties to which Manulife and John Hancock may be subject, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “will,” “should,” “may,” and other similar expressions, are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Such statements are made based upon management’s current expectations and beliefs concerning future events and their potential effects on the company.

Future events and their effects on Manulife and John Hancock may not be those anticipated by management. Actual results may differ materially from the results anticipated in these forward-looking statements. For a discussion of factors that could cause or contribute to such material differences, investors are directed to the risks and uncertainties discussed in Manulife’s most recent Annual Report on Form 40-F for the year ended December 31, 2003, John Hancock’s most recent Annual Report on Form 10-K for the year ended December 31, 2003 and John Hancock’s quarterly reports on Form 10-Q and other documents filed by Manulife and John Hancock with the Securities and Exchange Commission (“SEC”). These risks and uncertainties include, without limitation, the following: changes in general economic conditions; the performance of financial markets and interest rates; customer responsiveness to existing and new products and distribution channels; competitive and business factors; new tax or other government regulation; losses relating to our investment portfolio; volatility in net income due to regulatory changes in accounting rules, including changes to United States generally accepted accounting principles, Canadian generally accepted accounting principles and statutory accounting; the ability to achieve the cost savings and synergies contemplated by the proposed merger; the effect of regulatory conditions, if any, imposed by regulatory agencies; the reaction of John Hancock’s and Manulife’s customers and policyholders to the transaction; the ability to promptly and effectively integrate the businesses of John Hancock and Manulife; diversion of management time on merger-related issues; and increased exposure to exchange rate fluctuations. Neither Manulife nor John Hancock undertakes and each specifically disclaims, any obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

Important Legal Information

This communication is being made in respect of the proposed merger involving John Hancock and Manulife. In connection with the proposed merger, Manulife filed a registration statement on Form F-4 on November 6, 2003, which was subsequently amended on December 23, 2003 and January 5, 2004, containing the definitive proxy statement/prospectus for the stockholders of John Hancock, and Manulife and John Hancock will each be filing other documents regarding the proposed transaction, with the SEC. Before making any voting or investment decision, John Hancock’s stockholders and investors are urged to read the definitive proxy statement/prospectus on file with the SEC as well as any other relevant documents carefully in their entirety because they will contain important information about the proposed transaction. The definitive proxy statement/prospectus on file with the SEC, as well as other relevant material (when they become available) and any other documents filed by Manulife or John Hancock with the SEC, will be available free of charge at the SEC’s Web site, www.sec.gov. Stockholders and investors in John Hancock or Manulife will also be able to obtain the definitive proxy statement/prospectus and other documents free of charge by directing their requests to John Hancock Shareholder Services, c/o EquiServe, L.P., P.O. Box 43015, Providence, RI 02940-3015, (800-333-9231) or to Manulife Investor Relations, 200 Bloor Street East, NT-7, Toronto, Ontario, M4W 1E5, Canada, (800-795-9767).

Manulife, John Hancock and their respective directors and executive officers and other members of management and employees may be deemed to participate in the solicitation of proxies in respect of the proposed transactions. Information regarding John Hancock’s directors and executive officers is available in John Hancock’s proxy statement for its 2003 annual meeting of stockholders, which was filed with the SEC on March 20, 2003, and information regarding Manulife’s directors and executive officers is available in Manulife’s annual report on Form 40-F for the year ended December 31, 2003, its notice of annual meeting and proxy circular for its 2004 annual meeting notice which was filed with the SEC on April 1, 2004, and the definitive proxy statement/prospectus included in the registration statement on Form F-4, as amended, which was filed with the SEC on January 5, 2004. Additional information regarding the interests of potential participants is included in the definitive proxy statement/prospectus on file with the SEC and will be included in other relevant documents filed with the SEC when they become available.