Manulife Financial Corp (MFC) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Manulife Financial Corporation second-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. (OPERATOR INSTRUCTIONS). As a reminder, this conference call is being recorded today, August 6, 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 everyone -- in particular, those who are joining us for the first time as new shareholders, following the closing of our merger with John Hancock -- to Manulife Financial's earnings conference call to discuss our second-quarter 2004 financial and operating results. If anyone has not yet received our earnings announcement, statistical package and the slide 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 risks 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 Manulife's most recent annual report on Form 40-F, John Hancock's most recent annual report on Form 10-K and John Hancock's quarterly reports on Form 10-Q, each filed with the US Securities and Exchange Commission. Investors are cautioned not to place undue reliance on the Company's forward-looking statements. 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 our second-quarter conference call. With me in the room are Peter Rubenovitch, who will making some remarks about the financial results following my comments. And we also have with us Jim Benson, John DesPrez, Donald Guloien, Simon Curtis, Marianne Harrison (ph) and a few other members of our senior management team, so that we can answer your questions fulsomely in the question-and-answer session.

So, just over three months ago, we created one of the largest insurers in the world, with the merger of Manulife Financial and John Hancock. And as you read in the press release, we are moving forward quickly on our integration, and are on target to complete the restructuring by the end of 2005. While it is still early days, we're very confident that we will achieve and may even exceed our targeted expense synergies. Our new organization structure and leadership team has been formed and, as previously announced, several of the former John Hancock senior management have decided that this is an opportune time to move on. We will miss their contributions, and wish them well. I particularly want to thank David D'Alessandro for providing strong leadership and direction to our transition and integration efforts.

While we have been very busy with the integration of John Hancock, these efforts have not kept us from achieving the goal of organically growing all of our core businesses. As we said before, the merger of Manulife and Hancock is best categorized as a revenue story and not as an expense story. I am very pleased to report that sales have been strong across almost all of our operations, and that we are already enjoy revenue synergies from selling Manulife products through Hancock distribution channels and vice versa.

Second-quarter earnings were a record $660 million or 93 cents per share. Excluding the two-month contribution from John Hancock, shareholders net income increased by a very strong 28 percent. Consistent with this growth in earnings, the Board yesterday approved an increase in our quarterly dividend of 5 cents per share to a new level of 26 cents per quarter. Return on shareholders' equity for the quarter was 14 percent, which is above the level indicated when our acquisition was first announced, despite the significantly larger capital base post-merger. While this is below our target of 16 percent, we remain confident in our ability to return to this level of profitability within a reasonable timeframe.

Total premiums and deposits for the quarter were $13 billion, of which John Hancock accounted for 3.6 billion. Strong sales in our wealth management businesses were a key driver of the growth. Funds under management were $360 billion at the end of the quarter. The merger with John Hancock contributed 190 billion of that.

Looking very briefly at our operating results by division, in addition to adding significant scale, our merger with John Hancock has diversified our businesses, particularly by product and distribution channel. This is especially evident in North America. Our US operations are now reported in two segments -- wealth management, led by John DesPrez, and protection, headed by Jim Benson. US wealth management operations now include Manulife's variable annuities and group pension businesses, complemented by Hancock's fixed annuities and mutual fund operations.

Improved equity markets drove strong core sales performance in variable annuities, group pensions and mutual funds this quarter. US protection includes our individual life and long-term care business. In the life insurance segment, there were no signs of post-merger sales attrition, with both companies maintaining their first-quarter sales momentum. By contrast, sales in the long-term care business were somewhat soft, reflecting the generally difficult conditions affecting providers at the present time. We're very well-positioned in this market, and expect improvements in the near term.

In Canada, sales increased strongly across all our core products. We're benefiting from expanded distribution reach in the MGA channel, as well as access to new products such as the individual disability insurance. All of the operations are very focused on maintaining our reputation for superior customer service during the transition and integration process.

In Asia, we have added new businesses in Malaysia and Thailand and expanded our operations in Singapore, Indonesia and the Philippines. Manulife-Sinochem opened its new branch in Beijing in May, and by the end of the quarter we had more than 160 agents there.

Our earnings in Japan continue to grow, and show very good momentum. This is the first quarter of variable annuity sales arising from our recently signed strategic alliance with the Bank of Tokyo Mitsubishi, and the very strong results to date give us considerable optimism for this relationship.

During the quarter, our reinsurance operations successfully integrated the Hancock international group business. This is a network of life insurance companies coordinated by Hancock that offers group insurance and pension products to multinational corporations.

And finally, guaranteed and structured financial products is a new division as a result of the Hancock merger. Although the current environment is challenging, we're maintaining a disciplined approach to writing new business. Sales this quarter in the G&SFP division were down significantly from the levels reported by Hancock a year ago, as we chose not to participate in several market segments in response to narrowing spreads and a very competitive marketplace. As a result, funds under management for this business declined from the closing of the merger to the quarter end by about $1 billion.

Now, I'd like to ask Peter to review the details of our financial results.

Thank you, Dominic. As you all know, effective April 28, Manulife acquired all the outstanding common shares of John Hancock Financial by issuing approximately 342 million Manulife Financial common shares. Today, I will take you through our Q2 results and the continuing positive momentum that we are seeing across all of our divisions. I will then briefly review our accounting for the John Hancock purchase, and summarize how our resulting opening balance sheet reflects John Hancock as part of our merged organization. Finally, I will conclude with the discussion of our capital plans, EPS growth and ROE metrics.

Turning to the financial results for the second quarter, shareholders earnings for the quarter were $660 million, with the existing Manulife businesses contributing 494 million and the John Hancock operations providing two months of earnings, totaling $166 million. Return on shareholders' equity was a very strong 14 percent in the second quarter, with earnings per share of 93 cents. Overall, operationally, we had a good quarter with solid growth in insurance and wealth management sales, good operational and integration expense management, continued excellent credit experience and good equity-market-related results in our wealth management businesses, including approximately $21 million of segregated fund guarantee-related earnings, as a result of rising equity values over the prior four-quarter period that we use in the calculation of the our segregated fund reserves.

With respect to credit, we ended the quarter with net provisions of $0.2 million, as modest credit provisions were offset by credit-related recoveries. With the fair valuing of John Hancock's assets as of April 28, we expect new credit provisions on the acquired assets to grade in over time, barring major credit adversity. As I have previously mentioned, we do not expect the last few quarters' very favorable credit results to be sustainable. However, weakening of credit markets would also likely result in some widening of spreads, which would be beneficial to our fixed-rate businesses.

During the quarter, our funds under management grew significantly to $360 billion with the acquisition of John Hancock, as well as the results of very favorable net policyholder cash flows. You can see this on chart number 10 of the slide deck. Premiums and deposits in the quarter were $13 billion, offset by 9 billion of policyholder benefits and withdrawals. This resulted in strong net policyholder cash flows in the quarter of $4 billion.

Slide number 11 shows the many successes of the combined organization. As you can see from our leading rankings in the LIMRA surveys, for the first quarter of 2004, the combined organization posted very strong sales rankings for US life insurance, group pensions and long-term care products. As well, Canadian group benefits and Canadian life insurance sales also ranked very high.

Before I review the results of our businesses, I'd to note the distribution of earnings that Manulife enjoys postmerger. Slide number 12 shows how our earnings stream has become even more diversified as a result of the John Hancock transaction.

The next slide summarizes the results of our US protection business, which is comprised of the individual life insurance and long-term care operations. US protection reported earnings of US $100 million for the quarter, with the addition of John Hancock's life insurance and long-term care operations contributing US $37 million to the division's earnings. Individual earnings on pre-acquisition Manulife lines are up 26 percent from the prior year, driven by favorable claims experience compared to modest losses a year ago.

The John Hancock insurance businesses experienced mortality gains across all product lines, although earnings were somewhat dampened by a strain on the strong level of universal life new business sales. Long-term care earnings in the quarter were reduced somewhat by poor claims (ph) and termination results.

We experience very strong individual insurance sales of US $115 million. Universal life sales continue to dominate the product sales mix for both Manulife and John Hancock. The combined sales result of both organizations ranked US insurance second in America in market share overall at the end of the first quarter, based on the LIMRA study. This reflects very positive sales performance, with 40 percent growth over historical pro forma combined sales, compared to a 10 percent industry average rate of growth.

Long-term care sales of US $22 million for May and June were down from a year ago, due to price increases introduced in late '03 and a changing business environment that has temporarily impacted sales for this line. In the US wealth management operations, the merger has resulted in a more diversified business mix, with the combination of Manulife's existing variable annuities and group pension businesses complemented by John Hancock's fixed annuities and mutual fund lines.

Earnings for the division were US $73 million, with John Hancock's annuity and mutual fund operations contributing US $25 million in the two months since the merger. Excluding the John Hancock operations, wealth management earnings were 63 percent higher than in the prior year, reflecting continued strong business growth in the variable annuities and pension businesses, driven by improved equity markets and tight management of discretionary expenses.

The next slide, number 16, shows record variable annuity sales of 1.6 billion, 45 percent higher than for the second quarter of 2003. The improved performance is primarily attributable to the launch of our new Principal Plus Rider, which accounted for 40 percent of second-quarter sales, up from 17 percent in the first quarter of this year. The John Hancock distribution channels also generated solid sales of Manulife variable annuity products during the second quarter, and the Signator sales group ranked number five, while Essex ranked number 12 amongst all our distribution relationships, and this is a very, very substantial contribution and is new to the group.

Industry-wide fixed annuity sales were down over the previous year, in response to favorable equity markets and the expectation of rising interest rates. This was also reflected in our sales results. As shown on slide 17, total shareholders' earnings in the Canadian division were $144 million, with the previously existing Manulife business lines contributing 123 million and Maritime Life adding 21 million. Good segregated fund performance was offset by poor mortality experience, compared to the gains of a year ago. As well, unfavorable long-term disability claims within the previously existing Manulife business were partially offset by favorable extended health claims results in Maritime Life.

Individual insurance sales for the quarter were $61 million, with Maritime contributing $14 million of sales while the existing Manulife businesses saw growth of 16 percent. The union with Maritime Life has benefited the distribution network, combining Manulife's strength in the independent advisory channel with Maritime's expertise in the managing general agency channel.

Turning to overseas, Asia's earnings in the second quarter were US $60 million, up 14 percent versus a year ago. This increase was driven by the Hong Kong individual insurance and mutual fund operations, reflecting business growth and the impact of stronger equity markets. The addition of John Hancock's Asian operations was modest, with the contribution to earnings of US $2 million in Asia this quarter.

New regular premium insurance sales were down marginally in Hong Kong, Vietnam and China, due to weak agent growth, while other territories experienced double-digit sales growth. Sales of single- premium insurance products remained strong, particularly in Singapore.

Earnings in Japan in the quarter were $44 million, $19 million higher than the prior year, driven by strong mortality and lapse experience, a more profitable product mix of universal life and the new premier variable annuity products, and an improved expense position due to expense initiatives undertaken in 2003. The new alliance with the Bank of Tokyo and Mitsubishi began in the second quarter; and, as slide number 21 shows, quarterly sales of variable annuities in Japan exceeded $500 million for the first time, a level that was more than twice that of the second quarter of '03. This was another very good quarter for our Japanese operations.

On slide number 22, you'll see that the earnings of US $46 million in our reinsurance division were 28 percent higher than in the prior year, reflecting good claims experience and the impact of stronger equity markets on segregated fund guarantees in the quarter. The international group program -- or IGP -- operations of John Hancock is included in the reinsurance division this quarter. IGP is a network of life insurance companies coordinated by John Hancock and offering group insurance products to multinational corporations.

Strong life retrocession new business volumes continued in the quarter, with US $3.2 billion of new business face value written. Property and casualty volumes, on the other hand, were down slightly in the quarter, but remain on track year to date. The guaranteed and structured financial products known as G&SFP is a new business line for Manulife, as a result of the merger with John Hancock. G&SFP offers a wide variety of fixed-rate fund products to institutional and retail investors. In the quarter, the division earned earnings of US $42 million in a continuing tight spreads market. G&SFP sales for the quarter were US $282 million, approximately half that reported by Hancock in the same period a year ago, due to a deliberate reduction in sales in response to narrowing market spreads. The outlook has improved somewhat, subsequent to the quarter end, but this marketplace remains very competitive. Funds under management declined by $1.3 billion US, due to maturities and reduced new issuance.

Turning to expenses on slide number 24, you can see that general expenses for the quarter were $118 million, with John Hancock contributing 292 million of this total. Total integration-related spend in the quarter was $42 million, of which 8 million had been previously accrued as part of the purchase equation. Excluding integration costs, combined Manulife/John Hancock general expense level decreased versus the prior year by approximately $33 million, and this is based on a high-level proration of expenses for the same period a year ago. We are encouraged to see that expenses are already on a good downwards trend. Expenses synergies realized to date are on track, and we fully expect to, at a minimum, achieve the commitments made at the time of the deal announcement. We are confident that we will meet and probably exceed our targeted run rate synergies of US $255 million by '06.

The final purchase equation is reflected on slide 25 and in the notes to our financial statements, and is reflective of the fair values of John Hancock's assets and liabilities at closing. The assets and liabilities other than actuarial liabilities were generally fair-valued on a basis consistent with John Hancock's previous practices, as outlined in more detail in their previously issued 10-K's and 10-Q's. The changing value of the actuarial liabilities, on the other hand, requires the elimination of the (indiscernible) actuarial reserves and several other policy liability-related items on the existing John Hancock financial statements, which are then replaced with revised fair-value actuarial liabilities. We did that. The intangible assets set up in the purchase equation were just under US $1.5 billion, consisting of the value of the John Hancock brand, fund management contracts, distribution networks and other contracts and assets.

As shown on slide number 26, included in the post-acquisition opening balance sheet is an accrual for restructuring costs totaling US $134 million. This reflects anticipated costs related to redundant staff and the consolidation of systems equipment and facilities. As well as part of John Hancock's transaction costs, change of control expenses have been included in other liabilities in the opening accounts. Our integration launch was surprisingly smooth, and both revenues and customer service are at high levels. Our expectation of achieving US $255 million of run rate synergies per annum has been confirmed by all business units, and our 2005 business planning cycle is expected to improve upon this baseline synergy commitment.

On slide 27 are EPS and ROE charts. As mentioned earlier, our earnings per share for the quarter was 93 cents, 96 cents after excluding the impact of expense and integration charges. We are very pleased with this result, given that we have not repurchased the up to $3 billion of shares as originally anticipated. Share repurchases to date have totaled approximately $200 million, including John Hancock shares purchased prior to the close of the deal, and we ended the quarter with some 811 million shares outstanding.

There was a concern that at the closing of the John Hancock transaction, there would be an excess of MFC shares in the marketplace. However, exactly the opposite occurred as, on close, there was a demand for more MFC shares than were available. As a result, to date we have not done a significant level of share buybacks. Had the buybacks taken place as originally anticipated, our EPS excluding integration costs this quarter would be about to 2 cents stronger, and our ROE for the second quarter would have been 15.2 percent. We continue to monitor market conditions, and expect to utilize our substantial excess capital for share buybacks at the appropriate time.

As Dominic has already indicated, we are raising our dividend this quarter from 21 cents to 26 cents, and are elevating our target payout ratio to 25 to 35 percent of earnings. These changes reflect our confidence in our earnings potential, and are good progress on the John Hancock amalgamation effort.

With all the changes introduced with the John Hancock merger, we have taken this opportunity to bring a new look to our supplementary information package, and have revamped portions of our disclosure this quarter. We have introduced a number of changes, including full business unit income statements starting with Q1 of this year, detailed roll-forwards of our funds under management by business unit, total company insurance and wealth management sales summaries, and a financial reporting structure chart that clarifies and identifies our new division and business-unit rollouts.

You will notice that we did not publish a source-of-earnings statement for the quarter. We have temporarily discontinued this disclosure, while we develop a robust source-of-earnings infrastructure for the John Hancock businesses. I would, however, like to reiterate that we are committed to our source-of-earnings reporting, and anticipate releasing SOE results in the fourth quarter, at which time we will plan to provide this report for each of the quarters of 2004. As well, we are working to introduce US GAAP on a quarterly basis, as indicated at the announcement of the transaction, and are hoping to be able to release quarterly US GAAP results commencing in the third quarter.

In conclusion, we are very pleased with the progress that we are making at integrating the John Hancock operations into Manulife Financial, and with the strong earnings that we have reported this quarter. I look forward to reporting to you next quarter on our integration progress, as we work to combine these two fine organizations into a new, efficient market leader. Thank you very much.

Operator, that concludes our prepared remarks. We are now ready for the question-and-answer session of our conference call today.

(OPERATOR INSTRUCTIONS). Steve Cawley, TD Newcrest.

Great quarter, guys. The first question I've got for you is long-term care. I was wondering, with that product, under Canadian GAAP, what sort of impediments are there in terms of profit emergence? If I look at the margins this quarter, they were only 2 percent. I know you've outlined a couple of reasons why it's lower, but just under Canadian GAAP, will this business just look not as strong as it did under US GAAP?

Well, I'll ask Simon to give you some of the technical explanations for why the profit emergence under Canadian reserving practice might be somewhat different than it is under US actuarial practice. But I guess I would say that the more we learn about this business, and understand what it's for and how it sold and what it needs as a response (ph) in the marketplace, we really like the business. We think this is going to be a terrific product offering in the marketplace, and there is a huge demand for it, and we are very pleased that we are a leader with the market share that we enjoy in the United States today.

Simon, could you give Steve some color around the reserving differences?

Yes. I think the important thing to note up front is that the same level of earnings will emerge over time. There will be some timing differences between Canadian and US GAAP. US GAAP generally is a revenue-based model (inaudible) that the earnings (inaudible) to premium, whereas Canadian GAAP has more of a release-from-risk type approach. So you get your profits formed (ph) in proportion to being released from risk, and that has a tendency to push the further profits into the future. But over time, we will get the same level of profits and a steady buildup of profitability assistance.

And there is some talk in the industry, Dominic, right, that there might be some shakeup right now that might make it more interesting?

Well, there has been. Maybe I can ask Jim Benson, who's here, and under whose responsibility long-term care falls. But there has been some quite aggressive pricing action taken by a number of providers, which is one of the reasons that for the industry overall, sales were somewhat soft in the quarter. I don't know, Jim, whether you want to --

Well, there is a bit of a change. A lot of the original players, which were smaller companies, are exiting the business. Products are being repriced and rationalized, and larger-name players in addition to John Hancock, the traditional business, is coming in. And I think over the course of the next several years, prices will firm. The business is a new business, the risk tolerance will be better understood and there will be a very, very strong business going forward.

So if I look at all of Manulife, Dominic, you've got a 9 percent or so profit margin. Long-term care had 2 percent this quarter. Is there something that you could share with us on where you hope the profit margin on this business will go, or is it too early in the game?

Well, I guess I would say it's going to go up. But it's too early in the game for me to give you any kind of informed -- I think, in the quarter, as well, that the profit margins are abnormally compressed because of some experienced losses that were --

Atypical.

Atypical. But I don't have an exact number that we are targeting for it ultimately to earn as a margin, Steve.

I'll just limit myself to one more question. It's on the credit provision side. Some of your coverage ratios are not as strong as they were before. Obviously, we are in a benign credit environment. But can you just talk about the sufficiency of them?

The first thing I should say is that our credit-related reserves are very substantial. I think they total around $5 billion, and I don't think anybody would describe that as weakened or inadequate. The second thing is John Hancock did have more credit-related risk than Manulife historically had taken on, but we've reviewed those exposures, and are satisfied they are appropriately accounted for, and that they earn a return that justifies the risk that we're taking. So we are feeling very, very comfortable.

With respect to the nonproductives and whatever, those ratios are just a so tiny that you have like meaningless amounts of nonproductive and coverage ratios. And it could probably move up or down if any even medium-sized foil (ph) went to current or non-accrual. So I think the thing to look at is whether the adequacy of credit provisions is sufficient, and we are pretty satisfied.

And also, we've had an extremely good few quarters on credit -- Manulife individually and, this quarter, Manulife and John Hancock -- and it is a very good credit environment, but we don't plan for that to continue. And I'll just comment in my remarks that I would expect credit provisions to go to more normal levels over time.

Jamie Keating, RBC Capital Markets.

Well done on the sales, everyone, especially in the US and Asia. Canadian sales are pretty good, but the earnings profile looks like it's flattened out, at least for Manulife proper. I just wanted to address the sustainability or nature of the claims experience, which looked like it was part of the issue, perhaps. I wonder if Peter might address or maybe Simon address the lapse experience in that number, specifically, if possible.

Also, more of a general question, perhaps for Peter, is on the underlying earnings for Manulife, I think, fall out at somewhere in the $494 million range. The original share count looks like a big EPS number. I may be doing something wrong, but I'm trying to figure out why JHF is not in fact that dilutive to earnings. I want to know if it's just timing and expense allocations, or whether I'm doing something incorrect there.

Well, let me start with the last one first. We tried to give you a flavor for the breakout, but it's not nearly as meaningful as it would have been when the companies were separated and even starting next quarter. We've mixed the ingredients to make a soup. We have some distribution selling only one or the other of the Company's product lines, expenses have been comingled, and so talking about make contributions from Manulife and Hancock is already an imperfect art, and it's going to become less relevant very, very quickly. So I wouldn't read too much into that split. It's trying to be informative, and it's most relevant on asset-related or identifiable sales-related metrics. So that would be the first comment.

The second is the illustrations on financial impact we have done previously assume that $3 billion buyback, and so you'd have to recast the numbers to have something meaningful to compare it to.

With respect to the Canadian earnings results, we had weaker claims experience in long-term care, some adverse experience in mortality, I think. Is that correct, Simon?

Yes; it was actually in LTD.

I'm sorry; I misspoke. Thank you. Long-term disability, our group product -- thank you, Simon -- had some adverse experience, and mortality experience was unfavorable. Now, you'll recall that that does dance around. The mortality, in particular, moves from quarter to quarter. So this was an unfavorable quarter for mortality. There's nothing to suggest we should be concerned about that. We also had some very good mortality quarters in recent periods.

The long-term disability item seems like a blip. We've seen subsequent months return to more normal levels. And what happens there is if we have a bubble of claims or we have lower discharges due to adjudication or whatever, we accrue quite conservatively as the long-term disability claim ages, and unless we see a trend, I wouldn't be too focused on that, as well. I would describe it as a rather average quarter, maybe a little soft on the experience side. But they had had a series of extraordinary quarters where everything went quite well, and that's unlikely to happen regularly. So we are not unhappy with the Canadian result, I guess, would be my comment.

We are much happier with the Canadian result than the earnings would indicate.

That's very helpful. I wanted also to follow up, Peter, if you could perhaps forward to us your calculation on the 40 percent organic growth in US life. That's eye-popping, and I just had trouble reconstructing that with our disclosure, and maybe we just need some more numbers.

We'll get somebody to show you the hash total. And I apologize in advance if I have erred or the process isn't the one you would use, but our number is extraordinary, and I think you'll see we calculated it, I believe, in a conventional way. We'll do that off-line.

That would be appreciated, thanks. Could quarter.

Eric Berg, Lehman Brothers.

Two questions. First, historically you have reported virtually all your operations, I believe, using Canadian GAAP. And virtually all of the disclosure -- not all of it, but most of the disclosure -- has been in Canadian dollars. Correct me if I'm wrong, but it seems to me that in the new disclosure, certainly with respect to the US business, you gave unusual prominence to the results under Canadian GAAP in US dollars. Am I describing the disclosure and the importance that you ascribe to the US dollar results correctly? And if I am, what was the motivation behind taking this tack?

Let's start off with we run our business in US dollars, always have. And previously, we did a lot of redundant sheets were we had Canadian dollars and US dollars. We actually got feedback that folks know the exchange rate and can do the calculation. We are trying to make our disclosure as digestible as possible. And so, with respect to the US business, we felt that we had to pick one, the US dollar would be the most representative one, as how we review the line. We've always been a CGAAP shop, in terms of measuring performance, and remain that. So as a result, you are seeing a slightly bigger emphasis on CGAAP in US dollar accounts for the US line, which of course is a much bigger business for us now than it was before. But there's nothing special about it.

So we are disclosing it this way to help comprehension, is the answer.

You are not really sending a message that you're looking at the business differently?

No, no change at all.

My second question relates to your anchoring in Asia, or an anchor in Asia, which is an important business, that is, your Hong Kong business. And I noticed that agent count continues to be stable there, neither increasing or decreasing. I presume that is not part of the plan; I presume you want to increase your agent count in the Hong Kong territory. What is happening there, and what is the outlook?

Well, you presume correctly. We are a tad disappointed that our agency forces, as you point out, remain stable, and we are looking actively at ways of regenerating growth. There's a whole host of reasons that are advanced as to why that is, and as to whether people have more opportunities, given the recovery in the economy and so on, whether our agency force and our particular model, given the maturity of it and how well the existing agents do, as to whether or not they are as aggressive in recruiting new agents to the fold as they might have been. There's a review of our incentives as to how competitive they are in the marketplace vis-a-vis our competition. So there's a whole host of issues, Eric, that are being addressed by Vic. I would say this is probably one of his top priorities in the region, is to stimulate growth in the agency force in Hong Kong.

Brad Smith, Merrill Lynch Canada.

I have two quick questions. Peter, first of all, with respect to your credit allowance position, I see that your actuarial credit default reserve jumped up quite substantially. My question is this -- with respect to the mix of credit in the combined company's portfolio, I believe your BBB and lower-rated paper is now running around 39 percent of the total bond portfolio, versus 21 percent of the end of the first quarter, when it was Manulife alone. And yet, the actuarial credit default reserve remains sort of static, at around 2 percent of the total book value. Would we not have expected that to have gone up a bit, with the reduction in the overall credit profile of the combined company's investment mix?

Brad, there's too things. I think, first of all, you will recall that I have been describing our credit provisions as excessively generous in prior periods. So I wouldn't use what had become a very generous reserve as a benchmark. $5 billion of credit provisions for this portfolio, I think, if you consult anybody, is very, very conservative, and I'm quite satisfied. As well, the view is that this is a mix that will migrate over time, and we have to reflect what we are likely to have as loss experience over the portfolio life. And I'm quite satisfied with the reserve we have, and I think it compares advantageously against that of any of our competitors.

So, Peter, if it was exceptionally conservative before, it's less so, now, then?

I think it's still very conservative, but there's no question Manulife was very, very conservative, with respect to credit pre-transaction. I believe it still remains quite conservative with respect to credit plus transaction.

And I just had a question about Japan. The sales there are very strong. Obviously, this new arrangement on the variable annuity business is working out very well for you. I guess I was a little surprised that earnings were as strong. I sort of anticipated there might be some strain from that business. Can you discuss a little bit what the structure of this V-8 product is, what guarantees may be involved and whether or not there is, in fact, strain being generated by those sales?

Yes. One of the things that we didn't mention in the text is, of course, that interest rates in Japan have quadrupled since the second quarter of last year. And we have, for that business, a very large proportion of our assets that were very short and held in government JGBs earning 0.5 percent that are now earning close to 2. So that made a big difference, as well.

With regard to the product itself, the variable annuity product that we're selling, I don't believe that the earnings out of that product are particularly robust. Most of the earnings experience we have this quarter and last quarter is because of the reduced expense gap, the more efficient distribution system, the higher level of sales, the things that have been mentioned to you.

And our two traditional products that we been selling for the last few years are what is generating the earnings you're seeing.

Exactly. And as to the features of the variable annuity product, it's quite a bit different than what we have sold here in Canada, and, we believe, quite a bit less risky. And the period to realization of benefits is much longer; it's 20 years. But the benefit is that you get your capital back after 20 years.

And then there's some restrictions on the fund choice, as well, so we think it's a guarantee that has very good risk parameters for us.

Tom MacKinnon, Scotia Capital Markets.

First, with respect to the purchase balance sheet you put on slide 25, and I'm trying to make some comparisons with that to the circular. It looks like the goodwill plus intangibles is about US $1.4 billion greater, and I guess it seems like the reserves are about 3.5 billion greater, and that's kind of offset, I guess, by about 1.7 difference between the invested assets. So I realize the proxies -- with the September 30th, you were nine months further along, but I wondered if you could comment on the movement in this actuarial liability estimate, and was it due to business growth or was it due to any changes in assumptions? And what were those assumption changes and why? And I have one follow-up question.

Well, let me start, and then I'll ask Simon to give you a little more detail. I think the first point I'd make is the proxy was a technical update of our original estimate with partial information, and we've actually, subsequently, done detailed modeling and a lot of calculations. So most of the movement relates to that detailed information and calculations being completed and reflected in the accounts. And I was actually quite delighted to find the metrics roughly similar to what we started with, although certainly I would have been even more delighted, had they been closer to the interim report in the proxy. But they turned out to be much like we initially expected, not quite as good with respect to the goodwill magnitude, not as low goodwill as the proxy indication. But that reflects the additional detailed modeling and getting everything sorted out correctly and right.

Simon, can you add to that?

Yes. It certainly true that most of the change in the goodwill numbers between the proxy and the close on a Canadian GAAP basis was driven by changes to the actuarial reserves. When we did the proxy, we did not have any proper Canadian GAAP reserve models for the Hancock business, so we were really working with some approximations. And as we've gone through finalizing the models, there has been a number of changes. I guess the most material one I'd point out was that when we were reviewing our long-term care reserves, we had to sort of do a lot of work around the interest rate risk on all our products. And for the LTC, we decided to hold a higher reinvestment risk reserve, reflecting some of the long-term risks on that business that you have to reserve for under Canadian GAAP.

And as a follow-up -- I know you probably hate going back to this slide that you put out in September when you announced the deal, but it had a haircut to John Hancock's earnings in Canadian dollars of $127 million of credits and investment losses. This was some sort of guideline that everybody is kind of following, to some extent.

But I'm wondering if you can comment on what the actual experience was in the quarter, with respect to the actual haircut you would have put on John Hancock's operating -- the actual that happened, versus (inaudible) expected 127. I know it's a (multiple speakers) --

Tom, I don't have that at my fingertips. With respect to credit, it was approximately half that number. With respect to the investment accounting, I don't have a summary at my fingertips because the investment accounting is so dramatically different, US GAAP to CGAAP. And looking at the adjustment, we haven't done a reconciliation that I can summarize, but I would guess that that number is not dissimilar from our macro number, give or take -- but I'm guessing.

You talked about a really good credit environment, and I'm wondering if that was sort of baked -- was that optimism baked into the initial 127 that you put in here back in September? Would you state that you had better-than-expected credit experience with respect to the Hancock block?

I think this was a very good credit quarter, better than we would have expected. But if you're looking medium-term, Tom, the kind of indications we've talked about before would still apply.

Jim Bantis, Credit Suisse First Boston.

A couple of quick questions. On slide 15, in terms of looking at the US wealth management business, clearly we are seeing the strong earnings momentum out of stand-alone Manulife on a year-over-year basis, the pickup in the equity markets and the expense management. But could John DesPrez talk about the flattening in terms of the earnings over the past three quarters, and some of the reasons for that?

And my second question just relates to the share buyback program going forward. Clearly, Peter, your comments had indicated that the 3 billion would be used for an excess supply of shares and, given that that is not the case, what are the intentions with respect to the normal course as you (ph) bid for the next three or four quarters?

Well, John, the question is, why are US wealth management earnings flat for the last three quarters?

You are referring to the MFC portion of the wealth management earnings, and that's largely reflective that you had a big jump in the assets at the beginning of that period, and they have more or less levelized (ph) through that, with the exception of the very strong cash flow. We have, certainly in our annuity business, taken a more aggressive position -- a more conservative position, I guess I should say -- in how we account for acquisition costs. We are incurring fewer acquisition costs, as a general proposition, on our annuity business, and we are capitalizing fewer of them. As a result of that, there's more strain on the sale of those products, which is probably the largest contributing factor to why the earnings have not tracked entirely the growth in the assets in the business.

I think we have shortened up the amortization period of the DAC, as well.

Shortened the amortization period, and we are creating less of it, so we are expensing more of our acquisition costs currently.

And that change in the DAC amortization period is just recent, in terms of the end of the fourth quarter?

What did we do exactly, Simon?

It was actually in 2003. We now amortize the acquisition expenses over the life time of the DSC -- the deferred surrender charge period -- which I believe is about approximately seven years. And that's the gap in earnings growth over the last 12 months. We are, as John mentioned, being less aggressive on the DAC capitalization. And in addition, with the new guarantee feature, which we don't (technical difficulty) on that feature.

So a lot of this is not that business is any less economically attractive, it's just that the earnings emergence is a little slower, because we're more conservative on items that are sensitive (technical difficulty).

And I guess, could that be somewhat offset or improved with respect to the expense synergies between two companies in these businesses?

Yes, it will be. We will achieve some meaningful expense synergies on the annuity side of the business, and we have basically about 300,000 fixed annuity policies that we put on the same operating system as our variable annuity business; we have about 500,000 policies. That whole back-office integration will lead to unit-cost reductions that will improve our overall profitability picture.

Jim, on your second question, about share buyback, in my prepared remarks, I indicated that we do have a share buyback facility, and that we will do appropriate buybacks in an appropriate timeframe. I'm not more helpful because it is a substantial program, and its timing is something that can be gained (ph). But we still believe that using a significant portion of our excess cash for buybacks is appropriate.

Okay. No, that's helpful. It sounds like you will be more opportunistic going forward.

Mario Mendonca, CIBC World Markets.

I want to touch on a couple of the issues that people have brought up already. It sort of relates to the credit provisions -- and incidentally, I thought the credit provisions, particularly the C1 (ph) risk reserves, were really high. I didn't think those were too low. I was looking for something lower than that, anyway.

But I want to sort of tie that in to the goodwill, the goodwill being a fair bit higher than the proxy suggested. Also tie that into the DAC -- the DAC capitalized as part of this acquisition -- only 495 million on Hancock's wealth management business, given that Hancock had something like almost 4.9 billion in DAC, in total. And also Simon's comments on long-term care and how you had to strengthen reserves there.

All of those seem to suggest to me that future earnings from Hancock are going to be materially higher than what was reported under US GAAP. And when you gave us the numbers originally, back in September, what your sort of guidance was, that was based on Hancock's original US operating earnings under US GAAP. It just seems to me that Hancock now should be materially more profitable, because the DAC amortization has got to be lower, the credit provisions are sort of -- the credit losses are taken care of and long-term care is suddenly more profitable. Peter, have I got that right?

I wouldn't characterize it with the same gusto and enthusiasm, but over some timeframe one would expect, if we've been too conservative in the reserves, that they will turn up as income. What we've tried to do, just to be really clear, is to appropriately reserve for these items. And the question is whether we've been right or too conservative or not conservative enough. If we've been too conservative or more conservative than they were under the US GAAP basis, then your postulation would be accurate. But I'm not prepared to endorse that theory at this time.

Perhaps I could ask a similar sort of question. Let's assume for a moment that those businesses could possibly be more profitable. Does this impact Manulife's flexibility in reporting US GAAP -- I'm sorry, Canadian GAAP earnings -- or does it just affect the level of earnings going forward?

I think the key thing is the timing of earnings recognition. If you have a conservative reserve, it means you recognized income more slowly. We don't have flexibility; you can't wake up in the morning and change your mind or fiddle around with your accounts. What you have it is some core assumptions and, as you know, periodically we would review those assumptions if they proved to be inaccurate, and that would change the earnings emergence pattern. But the protocol has standards; the Institute of Actuaries gives guidance. Manulife seeks to be at the conservative end of the spectrum, but you can't guard the boat (ph) opportunistically.

Now for a less technical question --

But that was a good question, Mario.

Thank you, thank you. And it was polite.

It was polite. It was a good question.

Thank you. The next thing I want to touch on is the cross-selling in the revenues that you focused on. And Jim Benson can probably help with this. When Hancock first mutualized, there was a push into the broker-dealer channel that didn't work out. Hancock's products just weren't accepted in the broker-dealer channel. How, then, might Manulife's relationships in the broker-dealer channel benefit Hancock's state (ph) or variable annuities with those long-term care features on them? If such products were not attractive to the broker-dealer channel to start with, why now, with Manulife's distribution in the broker-dealer channel?

Well, both John and I will respond. Mercifully, I was not with John Hancock when that decision was made, but I think one of the problems that Hancock had in 2000 and 2001, as it related to variable annuities in the broker-dealer channel, is that there was not a strong distribution system. There was not a good wholesale distribution system to make the variable annuity product come alive, much less variable annuities with certain features such as long-term care. And I think that, as John will comment in a moment, the power of the Wood Logan distribution system, which is really terrific, I think, tend to introduce products, as Bob Casada (ph), the head of the group, would say, thematic (ph) bases -- they sold concepts in place of commodities. I think the Wood Logan system would be ideal to take some of that Hancock long-term care features attached to annualized Manulife variable annuity products and make those products really sing in that market (ph).

John, do you --?

Well, that's exactly it. We just have a much broader distribution platform in the variable annuity world, and (technical difficulty) world and have shelf space in all the major outlets that Hancock did not have.

So essentially, Hancock has still got a good product; now there's just good distribution for it, as well?

Exactly.

But looking the other way now, you've got Signator for Hancock was never really a great seller of variable annuities, either. What is causing Signator to suddenly want to sell Manulife's variable annuities?

Speaking for that system, again, I think the Manulife product, that Manulife variable annuity product is a more robust offering that what we had been offering previously as John Hancock. The funds are better, the product features are better. It was a brand-new feature with (indiscernible) feature that is resonating not only at Signator but, frankly, across all channels. And so Signator could, in fact, be the number one outlet this year or next year. And retirement planning is an area that the Signator system is dwelling on -- full needs planning -- not just life insurance, not just long-term care. So we think there's great cross-selling opportunities for John's wealth management products, whether they be variable annuities or the college savings program, or whatever the case might be.

So perhaps it's not appropriate to snicker when we hear revenue synergies, because that is normally what we do when we hear things like that.

You shouldn't. You should bear in mind what we've told you, that this is a revenue story, and hold us to it. The question is always asked, how are you going to get your ROE up? Well, of course, we're going to get it up by getting expense synergies and maybe getting the capital levels to more appropriate levels. But I think the real answer is in getting the revenue synergies is growing the topline. One of the things that attracted us to the transaction was the total complementarity of these two companies in the US marketplace; that was just phenomenal.

I agree. I guess that's the story -- it's a revenue story. At that point, then, you have to ask, how can we hold you to this over time?

Well, we'll report -- you'll see the growth in the revenue. If we do sustain market share positions and do emerge as one of the leading providers of savings and protection products in the United States, it will have to be because our distribution is efficient and effective, and that will be because the combination of the two companies has worked out.

And how about maybe stuff like providing statistics like Signator sold (multiple speakers) stuff like that?

Sure. Absolutely. And John, what are the numbers for this quarter alone? This is after two months; Signator has already emerged as a significant --

In the month of June, Mario, about two months after the merger but really about six months after working with the system -- because what we've done here is we have basically had the Wood Logan wholesaling operation start to service Signator just like any other large firm. From their point of view, it's just another major account. And in the month of June, Signator was the fifth-largest seller of our variable annuities, behind only LPL, Merrill Lynch, Smith Barney and Paine Webber, I think.

The Manulife variable annuities?

Exactly. So, I mean, that's after six months. We fully expect Signator to become the number one account here, in a reasonable period of time.

That could be a good part of the story going forward. Thank you.

Michael Goldberg, Desjardins Securities.

I had a couple of questions. First, if I could return to the question about the organic growth for Manulife in the second quarter, 28 percent is certainly spectacular. I guess, in a very simplistic way, if we just apply that on an earnings-per-share basis, excluding Hancock, it suggests that your earnings would have been even 10 cents higher. Now, I recognize there's all kinds of problems separating the apples from the oranges, but in a very, again, simplistic way, is there any way to identify the key factors that account for the strength in this organic growth?

Well, I think, Michael, you can break it down within the Canadian operations and within the units within -- and in the US by pieces. Across the board, the pension business is growing very nicely, the variable annuities -- and the reasons that these businesses are growing is the same, quarter after quarter, year after year, is the fact that we have good products that are kept up to date and refreshed on a timely basis. We don't let our products get old. We have product features; we are constantly surveying the market as to what's attractive in the marketplace. We invest and continue to invest mightily in our distribution systems. That's the story in our business, is that you've got to have distribution. Over the years, we've transformed our distribution systems in Canada and the United States, and have much broader reach now than we ever did. You saw this with initiatives that we launched to go in Canada, to open up in the MGA channel. A few years ago, we started to distribute product through the securities houses. And all of these initiatives have effect. So high level of service. We invest enormously in making sure our service levels are second to none, and we get recognized for that, by the way. It's not me telling you that our service levels are good; our customers are telling us that our service levels are good.

So it's a combination of a whole host of things. There's no one item, and if you go back through our annual reports or quarterly reports over the -- and you'll see the gradual progression that's been made. We try to highlight the significant developments every quarter, and they all fall in these themes -- product, distribution, service.

I don't know, John and Jim, whether you wanted to add something?

I think one comment -- the other thing is this transaction has created a lot of excitement among our distribution channels within our organization, and a certain amount of pride. And I think that has spilled over into some effectiveness in the sales and distribution channel. So it's synergistic in more than just the accounting ways, and so we are actually thrilled with how things are unfolding.

I had one other question. You referenced this many times during the call this morning, the timing of earnings emergence. I guess it's a good segueway to this question. Can you give us some idea of organic VNB growth in the second quarter and the impact of Hancock?

Yes. I don't have the exact numbers just yet, but we will be making that information available at the appropriate time. Preliminary indications suggest that the Hancock transaction is very modestly dilutive to our embedded value, like modestly in a couple of percentage points. And all the other preliminary indications are that our business is continuing, our other business, our regular business -- because, as you would expect, it's been a good year, sales have been very good and our experience has been very good. The earnings have been good. So embedded value is progressing consistent with what we're reporting on the revenue line and on the earnings line.

I would just suggest that, as mentioned, and I know there is this case that this is a revenue enhancement story. Perhaps one of the best ways to demonstrate that would be with the detail on the incremental VNB growth from Hancock.

We agree with you completely, Michael. You have to remember, of course, that John Hancock had no embedded value infrastructure in place. In fact, I'm delighted with how comprehensive our information flow is in the first consolidated quarter, but there's still plenty of things like that that haven't been finished.

Timothy Lazaris, GMP Securities.

My question has to do with the change in the actuarial liabilities, and I don't really want to get an actuarial lesson here, but I do want to understand why the normal change to new and enforced policies was a reduction in the liability this quarter, where it's always in the past been a positive number, and if that had any impact in the P&L in the quarter.

No, Tim. The normal change in actuarial liabilities actually would have been an increase of about $600 million. You can see the number in the statement of cash flow. Has that been sent out, the cash flow statement?

Yes.

It's in your package. You can see where we show the cash flow, and the reason it's -400 million on the P&L statement is because we had, as I said in my remarks, the G&SFP business contracted by a little over $1 billion in the two months. So the contraction, the runoff, is the release of the reserves, and the new business is in addition to the reserves, but the releases this quarter are greater than the additions.

So, by definition, did that flow into income in the quarter?

No. The charge to income for the quarter for new reserves is about $600 million, which you'll see in the cash flow statement. Maybe, Simon, you can amplify this?

I'll just make one comment, that there were no unusual changes and actuarial liability this quarter. So that change in the actuarial liability just reflected the normal change in reserves and (inaudible) with the cash flows on the business. As the business goes off, we, in this case, looked at the outflow. We similarly released the reserves supporting it.

To make it simple, Tim, if we had elected to maintain the size of in-force and the guaranteed and structured financial products business, you would have seen actuarial liabilities in the operation period go up by some $600 million.

And just a follow-on to that question. You talk about choosing (ph) not too, I guess, write business in that segment because of competitive margin pressure. Is there any sensitivity that you've been able to assess as to what the earnings would look like on a normal basis, in a rising interest rate environment, say, in a one-percent interest increase?

Will, I guess it's appropriate to clarify -- that business has several components to it. It has a retail component which we quite like, and the funding there is available because of the distribution and so on in the John Hancock brand. It does give us access to funding below LIBOR, as a matter of fact. So we quite like that, and we haven't curtailed that.

What has been curtailed is a portion of the business that is extremely price sensitive, and it's the institutional portion. This is where we go to a pension plan, or a pension plan asks for bids, and you're bidding against seven or eight other companies, and it goes on the basis of a basis point. If your offer is one basis point below someone else's offer, you don't get the business.

So it is very opportunistic, and then, of course, you turn around and try to invest or (technical difficulty) in BBB's or like (ph) type credits. And we have chosen to emphasize the retail component and to deemphasize because, in the marketplace today, the spreads between AA's, which is, let's say, our rating, and BBB's is about 50 basis points, and you can't really make any money. And so we said, well, we don't want to make 7 percent on $1 billion of new fundings. And so we've chosen to sit on our hands there.

But I wouldn't conclude from that remark that I've just make that the whole G&SFP piece is unattractive. In fact, the retail component, as I said, is very attractive, and there are times, depending on where spreads are, where the institutional piece could become attractive again. And when it does, we could then make a decision whether we wanted to participate again.

I gather part of your question relates to the sensitivity to interest rates, and this is a matched book. So, barring any change in spreads, which Dominic has discussed, if interest rates simply went up 1 percent, there should be no material impact on earnings with respect to that line of business. It is a matched book.

John Reucassel, BMO Nesbitt Burns.

Just to follow up on the revenue synergies, can you give us an idea of what the individual life sales were in US dollars through Signator in the last quarter, and maybe what it was for the M Financial (ph) group?

Do you have that information with you?

I have it, but in another room.

John, we'll have to get back to you.

Okay. Just for my -- (multiple speakers).

They were both good.

Okay. It would be interesting to see that. And I guess, Don, the last question would be for you. It looks like you have more excess capital today than when you announced the deal. And you've talked a bit about the buyback and whatnot, and (technical difficulty) have a good -- you're just two months into integration. But do you see any pieces of business out there that you'd like to add onto, that you could see would make interesting opportunities for you? I guess I'm just trying to understand what your access capital is today, and sort of where you could see opportunities.

Well, we love the insurance business. We loved the protection and the wealth management businesses. We love the geographies where we are. We'd loved to expand our company some more. We prioritize; our priority and focus for the total organization now, or at least almost all of it, is on the successful integration of our two companies. We know that this is an important initiative that everybody is looking at, our directors, our shareholders. And I think it would be bordering on irresponsible to undertake another major initiative at this time. We are very, very conscious of the capital that we have, and the need to service capital well, and to earn very good returns, as we said to you -- as we said and I said in my remarks, that we're confident of getting back up to the 16 percent levels. That will be done in a combination of maybe reducing the capital, getting additional revenues and reducing costs. And I don't think I want to say much more.

We're in a very, very delicate time. I don't have to spell out to you that, geopolitically, there have been more benign periods in recent times, and things can get very volatile. And to have some extra capital for a period of time -- this might not be the best time to employee it. I'm very comfortable keeping it where it is for the time being.

And I guess, just one last question, then. The individual life sales in Hong Kong -- it looks like they were down a bit. It's been good for the last little while. Has it just slowed down here, or is this related to the agency network?

Well, I think it's partly related to the agency network and partly, again, in candidness, we are looking at our product offering, and traditionally, we have offered very high-margin, long-term product. And maybe we have to put a bigger emphasis now on wealth management products in that marketplace, and perhaps some shorter-term products. So that's another aspect of the review that's being undertaken in Hong Kong to recapture the growth.

Operator, we have time for one last question, if there are any more questions.

Tom MacKinnon, Scotia Capital Markets.

You may have said this in the call, Peter, but I think you talked about a payout ratio or what's the target payout ratio. Was there a movement in the target payout ratio? Maybe I didn't here that correctly.

Yes. Our previous frame of reference was a 20 to 30 percent payout ratio, and our new frame of reference is 25 percent to 35 percent of earnings.

And you are below your target payout ratio right now, then, at 22.8 percent?

Well, we've changed our dividend, and I think you'll find we're in our payout ratio range.

And I guess so the trend is to move towards the midpoint, at least, and can you give us any feel for the time (ph) to move (multiple speakers) --

Well, no. I think the trend is to be in that target ratio, and we have just announced a significant change in the dividend, and we think it's going to be well-received.

Okay. Well, thanks, everybody, for joining us today. As you can tell by our press release and our remarks, we are very heartened by our position (technical difficulty) to our merger and the acceptance that our businesses are enjoying in their respective marketplaces. So we look forward to speaking to you some more next quarter. Thank you.

Ladies and gentlemen, this concludes the Manulife Financial second-quarter 2004 results conference call. This conference call will be available after 2 PM today by calling 416-695-6061. It will be available until the close of business on August 13, 2004. An archive of the webcast will be available on www.Manulife.com, beginning after 2 PM Eastern today.