Manulife Financial Corp (MFC) 2006 Q2 法說會逐字稿

Please be advised that this conference call is being recorded. Good afternoon and welcome to the Manulife Financial Q2 2006 financial results conference call for August 3rd, 2006. Your host for today will be Patricia Kelly. Ms. Kelly, please go ahead.

Thank you and good afternoon. I would like to welcome everyone to Manulife Financial's earnings conference call to discuss our second quarter 2006 financial and operating results. If anyone has not yet received our earnings announcement, statistical package, and the slides for this call and Webcast, these are available in the investor relations section of our Website, at www.Manulife.com. As in prior quarters, our executives will be making some introductory comments. We will then follow with a question-and-answer session.

On behalf of the speakers that follow, I wish to caution investors that the presentation and responses to questions may contain forward-looking statements within the meaning of Safe Harbor provisions of the Canadian provincial securities laws and the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in these statements. For additional information about the material factors or assumptions underlying these statements, and about the material factors that may cause actual results to vary, please consult the PowerPoint presentation for this conference call that is available on our website, as well as under the heading Risk Factors in our most recent annual information form, and under the headings Risk Management and Critical Accounting and Actuarial Policies and Management's Discussion and Analysis in our most recent annual report.

I would now like to turn the call over to Dominic D'Alessandro, our President and Chief Executive Officer.

Thank you, Patricia, and good afternoon, ladies and gentlemen. Thank you for joining us on this call. Earlier this morning we announced record shareholder's earnings of $960 million and earnings per share of $0.61, a year-over-year increase of 14% and 17%, respectively.

Topline growth was also very strong, with premiums and deposits up 10% to 15.9 billion. On a constant currency basis, growth by this measure was 20%.

Reflecting the strong sales and improved margins, new business embedded value was $486 million this quarter, an increase of 46% from one year ago.

I am also pleased to report that shareholders equity -- return on shareholders equity was 16.3%, above our target of 16% for the second consecutive quarter, and a 200 basis point improvement over last year.

Overall, I am satisfied with the results that we achieved in the second quarter, particularly in light of the weaker equity markets and the continued pressure from [expensing] Canadian dollar.

As I have noted in the past, I believe our ability to deliver consistent earnings growth is a reflection of the diversity and strength of our businesses. In the U.S., our Wealth Management operations had a very solid quarter. Our Variable Annuity, Mutual Fund, and Group Pension businesses all continue to grow very nicely. Earnings were also up sharply in our Fixed Products businesses; a result of a favorable investment experience in the quarter.

In our U.S. Insurance group, earnings were down, primarily due to the impact of weaker equity markets. However, the business continues to perform well, with very strong sales, market share gains and improved new business margins.

Our Canadian division also had a very good earnings quarter. In-force growth from our Wealth Management operations and a gain related to the change in the corporate tax rate contributed to the quarter's earnings growth. Sales remained level as we continue to maintain our pricing discipline in a very competitive market.

Our Asia and Japan division continue to perform well. In particular, Japan earnings were very strong with experienced gains in a number of areas, and a reserve release related to the Daihyaku block.

And finally, reinsurance earnings increased compared to last year, reflecting hardening rates and improved margins in the P&C segment.

Sales overall remained very strong. Of note were strong gains from both our individual Insurance and Long Term Care businesses in the U.S.; as well, Wealth Management sales continued to demonstrate good growth, with exceptional gains in U.S. Variable Annuities, John Hancock Mutual Fund, and Individual Wealth Management in Hong Kong.

In China, we continue to expand our operations and we now have 15 licenses, the most of any foreign insurer.

Lastly, as many of you have already observed, we significantly increased our share buybacks in the second quarter with a repurchase of 25.7 million common shares. When we include our regular quarterly dividends, we returned well over 1.2 billion of capital to our shareholders this quarter.

So with that, I'd like to ask Peter to take us through the numbers in more detail, and then we will follow with the usual question-and-answer session.

Thank you, Dominic. Good afternoon, ladies and gentlemen. As is highlighted in slide 8 of the deck, second-quarter earnings were $960 million, up 14% compared to the same period last year.

Earnings per share were $0.61, a year-over-year increase of 17%. Strong in-force business growth improved new business margins and favorable investment experience contributed to the strong second-quarter results, while claims experience was somewhat unfavorable compared to one year ago.

Currency movements over the last year significantly reduced earnings. Considered on a constant currency basis, shareholders earnings would have been higher by $87 million, or $0.06 a share.

I'd also like to take a moment to remind you that the recent increase in long-term interest rates will ultimately have an overall positive affect on our results. However, for our insurance businesses, we expect the experience to most benefit -- we expect to most benefit from rising interest rates. Our practice is to update our assumptions on an annual basis, typically at year end, in conjunction with our annual valuation basis reviews. As a result, only a modest benefit from the increase in long-term rates has been associated with duration -- sorry -- only a modest benefit from the increase in long-term rates, associated with our more duration-matched wealth businesses, has been reflected in our accounts to date.

On slide 9 you will note several items that impacted our second-quarter results. Contributing positively to earnings were changes to the corporate tax rate, which added 27 million on a net basis, and recoveries on pre-merger assets, which resulted in a $25 million gain within the John Hancock Institutional Fixed segment.

Also included in our second-quarter results is a gain related to two arbitrated items. One case resulted in a favorable outcome, while developments in the other were unfavorable, resulting in a net benefit of $4 million.

Offsetting these gains were weaker equity markets, which reduced second-quarter earnings by some $40 million versus levels we would normally expect. In total, these items increased total company earnings by $16 million, post-tax.

Turning to slide 10, credit experience remained very strong in the second quarter, with net provisions of $16 million and a total portfolio yield of 5.9%. Total yield is down 62 basis points from last quarter as a result of weaker equity markets, in contrast to the quite strong markets in Q1 of this year.

On slide 11 you can see that in the second quarter we continued to take advantage of tight credit spreads and further reduced our exposure to below-investment-grade bonds. Overall, bonds in this category fell $[4.7] million, down 32% from a year ago. Compared to the previous quarter this reduction was 10%, or roughly $500 million, primarily due to sales and prepayments, and investment-grade bonds now represent 95% of our total bond portfolio.

Slide 12 illustrates the movement of funds under management over the last 12 months. As you will note, excluding currency movements, our funds under management grew by 10% as a result of strong growth in our Wealth Management products. This was achieved despite the 4.4 billion of scheduled maturities on the John Hancock Institutional business.

New business embedded value was $486 million in the second quarter, 46% over the levels reported one year ago. Strong sales of both Wealth Management and Insurance products contributed to these strong gains. The quarter-over-quarter change was expected, as is consistent with the seasonality of the Canadian Wealth Management businesses and the John Hancock Retirement segment, where sales tend to peak in the first quarter.

As illustrated on slide 14, expected earnings on in-force was $776 million in the second quarter, an increase of $98 million, or 14%, versus last year. On a constant currency basis, the increase was a quite strong 18%.

The second quarter loss on new business origination amounted to $60 million, an improvement from one year ago due to the post-merger product portfolio restructurings in both Canada and the United States.

Experienced gains were 354 million in the second quarter, an increase driven primarily by gains in the U.S. Institutional Fixed Products segment and by gains in the Japanese business.

Management actions and changes in assumptions reduced pre-tax earnings by $19 million. This was primarily related to an additional reserve against book value surrender exposures established in conjunction with the completion of our asset portfolio term-out in Japan.

I would now like to turn to a more detailed look at our divisional performance.

On slide 15, you can see that U.S. Insurance earnings were $113 million, down from 127 million one year ago. Within the John Hancock Life segment, strong sales, in-force business growth, and improved new business margins contributed positively to earnings. However, the positive benefit from these operational items was more than offset by the impact of weak equity markets and by somewhat less favorable claims experience. This contrasts to one year ago, when both equity markets and claims experience were favorable.

Within the Long Term Care segment, earnings rose through the continued growth of in-force business and due to the non-recurrence of unusual charges that occurred in 2005.

Turning to sales, our John Hancock Life segment had another very strong sales quarter, with record Q2 sales of 190 million U.S., up 34% over the same quarter last year. Sales momentum remained strong across all distribution channels and was broad-based across our entire product suite.

The recent sales success has resulted in market share gains, and in fact John Hancock ranked number one in overall sales over the last 12 months. We are extremely pleased with this performance, especially when compared to our ranking one year ago, when we were in the seventh position.

John Hancock Long Term Care also had a solid sales quarter with its fifth consecutive quarter of retail sales gains contributing to the 44% year-over-year sales growth. New marketing initiatives, the addition of new distribution partners, growth from existing sales channels all contributed to this quarter's sales success.

On slide 17 you'll see our U.S. Wealth Management segment variable products, which are variable annuities, return on pensions and mutual funds, and they all continued to deliver strong earnings growth, with second-quarter results up 30% to U.S. 114 million.

The primary driver of variable products earnings growth was in-force business growth in all three segments, producing 20% growth in funds under management and a resultant increase in fee income. This more than offset the impact of weakened equity markets.

Of note was the exceptional earnings growth in variable annuities, where earnings increased by 28%, and at Retirement Plan Services, where earnings grew by $13 million, both due to in-force business growth.

On slide 18 you'll see our variable products continued to deliver exceptional topline growth, with gross sales of 5.4 billion U.S., 43% above the 3.8 billion reported a year ago. Variable Annuity sales momentum continued, with gross sales of U.S. 2.5 billion, up 41% year-over-year, and net flows up over 50% to U.S. 1.4 billion. Recent sales surveys rank John Hancock as number two in the nonproprietary market, up from number four in the same quarter a year prior.

Our Retirement Plan Services business delivered strong sales growth, with net flows contributing over U.S. 1 billion to funds under management in the quarter.

In the Mutual Fund segment, recent sales and marketing initiatives, the addition of Lifestyle Funds, continued to drive strong topline growth. Deposits increased by 69% versus last year, while net deposits were up almost tenfold to U.S. $719 million.

On slide 19 you can see that second-quarter earnings in the Fixed Products segment were $154 million, up primarily as a result of very strong investment-related gains within the Institutional Products line. Included in the investment results are gains from the sale of certain pre-merger assets. At purchase, those assets that had been classified as impaired were included in our balance sheet at their fair value. For accounting purposes, gains on these pre-merger assets are deferred and amortized; however, actuarial reserves recognize these gains in this quarter as they have been achieved.

As well, gains on hybrid assets and the positive impact of interest rate and duration management actions contributed to the strong investment experience.

Net outflows of fixed products amounted to U.S. $1.1 billion -- you can see on slide 20 -- primarily driven by scheduled maturities of institutional products and restricted sales in this product category.

Turning to Canada, the Canadian division reported second-quarter earnings of $267 million, an increase of 40% over the same quarter last year. As previously noted, changes to the Canadian federal tax rate created a reduction in this division's deferred tax liability. The net impact in the Canadian division was $42 million of benefit to the second-quarter results. Excluding the tax impact, earnings would have increased 18% over the previous year, driven by continued in-force business growth and favorable (indiscernible) experience.

As well, the favorable impact on actuarial liabilities from actions taken to change the asset mix and investment profile within individual life insurance also had a positive impact on earnings. Weaker equity markets and less favorable claims experience in our group businesses also dampened year-over-year earnings growth.

On slide 22 you can see that in Canada, individual insurance sales were unchanged from a year ago, reflecting our continued pricing discipline in what we view to be an excessively competitive marketplace. Group benefit sales were down due to lower corporate sales, which tend to be lumpy in nature.

In group savings and retirement solutions, sales remained solid at $177 million, but were down from previous periods -- previous period, which was a record first quarter for this business. We recently announced a significant new large case sale to Rogers Communications, which we expect to close in the third quarter.

On slide 23 you can see the segregated fund and mutual fund net flows remained positive in the second quarter, but were down from previously reported levels. The decrease in segregated fund deposits from a year ago is primarily due to the closure of Manulife's 100% guaranteed product. A new segregated fund product is expected to be launched in the fourth quarter, and should revitalize sales in this segment; as well, the mutual fund business is moving to broaden its product offering and plans to launch several new funds in the third quarter.

On slide 24, you can see that our Asia and Japan division had another exceptional quarter with earnings of U.S. $178 million. In Japan, actions taken to extend the portfolio duration and reduce equity exposure in the Daihyaku block resulted in a net gain of U.S. $29 million. The gain was partially offset by the establishment of a new reserve against book value surrenders on this block of business. However, consistent with our stated practice, this valuation basis change is reflected within the corporate segment. Taken together, these changes benefited total company earnings by Canadian $16 million.

Excluding this gain, the Japan segment had a very strong quarter, with mortality gains, expense gains and growth in the variable annuity block, all contributing to very strong segment results. Other Asia earnings were consistent with last year, as in-force growth was offset by the impact of this quarter's weak equity markets.

Hong Kong earnings at U.S. 72 million in the second quarter were up 31% from a year ago. Strong Wealth Management earnings, including higher performance fees and higher fee income due to the growth in funds under management, contributed to the year-over-year gains.

On slide 25 you can see that in Japan, insurance sales were down from a year ago, in part due to the revision of reporting methods discussed during our first-quarter conference call, but also due to a reduction in agent count.

In other Asia, the expansion of our China operations contributed to the segment's topline growth. By the end of the second quarter we had operations in 12 cities in China, and were pre-operational in an additional three. Agency growth was also very strong, with the number of agents up 50% to 5220.

Insurance premiums in China increased a substantial 54% compared to the same quarter a year ago. Hong Kong insurance sales declined marginally from last year, as we continued to experience a shift to Wealth MANAGEMENT products.

On slide 26 you can see that Asia and Japan Wealth Management net flows increased 67%, to almost U.S. 1 billion in the quarter, compared to U.S. 580 million one year ago, with all segments contributing to the growth.

In Japan, gross sales remained solid at $745 million U.S., a year-over-year increase of 10%. As expected, sales were down from the record first quarter due to normal industry seasonality.

As was previously announced, we recently suspended sales of one of our VA products in Japan. The product had accounted for 30% of June's VA sales in Japan and 14% of the segment's segregated funds under management. We felt that this action was prudent as we await clarification of the appropriate treatment for policyholder taxation for certain purchasers. This is a somewhat technical tax matter that we expect will be resolved surely. In any event, we are planning to launch a fresh product offering in September, so the impact of this matter is likely to be both modest and short-term. Our relationships with distributors and [regulators] remain excellent, and we are working amicably with tax authorities to resolve this issue.

Net flows in other Asia moved into positive territory following several quarters of net redemptions. While we're beginning to see signs of recovery in the Indonesian mutual fund sector, we do not presently expect significant sales growth in this line. Strong Wealth Management sales in Hong Kong contributed to an 81% increase in net flows, as a new focus on wealth products, the introduction of new funds, good fund performance, and strong local equity markets have all contributed to these gains.

Turning to slide 27, reinsurance earnings amounted to U.S. $43 million in the second quarter. This represents an increase of U.S. 19 million over the second quarter of last year, due to improved life reinsurance experience gains and improved underwriting margins on the P&C business. P&C earnings, while positive, were somewhat below our expectations for this segment.

In the corporate and other segment, second-quarter earnings were $18 million, down from $80 million a year ago. Accounting for the majority of this decline in earnings was lower investment income compared to the second quarter of last year, a difference of $34 million pre-tax.

As well, the $19 million pre-tax impact of basis changes in the quarter also reduced earnings in the segment. The basis change impact is due to the new reserves set up in Japan related to potential book value surrenders that I described earlier.

I'd also note that the change in the corporate tax rate, which positively impacted earnings in the Canadian division, reduced corporate earnings by $15 million as this segment holds a deferred tax asset.

Finally, as I noted earlier, two arbitrated items resulted in a net gain of 4 million in the quarter, and this was also recorded in the corporate segment.

Turning now to slide 29, U.S. GAAP earnings were $[820] million, or 241 million lower than our C GAAP reported earnings. The lowest lower U.S. GAAP earnings primarily reflects lower levels of realized gains, which drop to the bottom-line in U.S. GAAP, but are deferred and amortized under Canadian GAAP, plus a larger impact from equity markets on seg fund guarantee reserves on a U.S. GAAP basis.

So in conclusion, I'm very pleased with our second-quarter results. Shareholders earnings and EPS continued to demonstrate strong growth and ROE was once again above 16%.

These results are particularly satisfying, given the unfavorable impact of currency movements and of equity markets in the quarter. Sales remain very strong overall, with our Wealth Management operations and U.S. Insurance once again delivering exceptional topline growth. New business embedded value rose by 46% this quarter, demonstrating excellent year-over-year growth as a result of strong sales and healthy product margins. We also made significant progress in redeploying our excess capital, investing $933 million on the repurchase of 25.7 million shares during the quarter.

Finally, despite these significant share repurchases, our balance sheet remains very conservative, with strong reserve positions, low leverage and significant levels of excess capital.

So with that observation, I'll turn the call back over to Dominic.

Thank you, Peter. Operator, we're ready for the question-and-answer portion of our call today.

(OPERATOR INSTRUCTIONS). Steve Cawley, TD Newcrest.

Peter, you talk about the market impact in the quarter being $40 million, and also you talk about interest rate movements upward are positive, yet they are not necessarily reflected in quarter, and you will look at things at year-end. Can you go into that a little bit more? Is it exactly -- there must have been some positive impact in quarter due to rising interest rates.

There was. Simon, I think -- was it 15 or $18 million?

The impact was about $20 million pre-tax on our Wealth Management businesses, which are the ones where we do reflect the interest each quarter.

So there's a sudden impact. But the bigger exposures for us are on the protection products. That's where we have the open positions, and the rising interest rates are considerably more valuable there.

And I believe at your investor day you didn't quantify that, but Dominic, I think, may have led us to believe that it was a material figure. And that continues to be a material figure.

I would describe it as not immaterial.

Let's put it this way. You would notice it.

The 40 million -- you brought your CTE level down to 68. Is it a fair question to ask what would have been the impact if you would have kept it at 76?

(multiple speakers)

(multiple speakers) that was the result of applying our methodology, the rolling four-quarter average (indiscernible); isn't it?

You can see that piece if you look at our [step] on page 38. We do actually break down the change in the actuarial reserve between what we actually booked and what would have happened if we had booked the content (technical difficulty). So looking at the (technical difficulty) booking at a constant CTE 70 is going to give you the same answer as your question, which was what if we hadn't changed the CTE level. And it's (indiscernible) we kept the cost of CTE, the change would have been 107 million as opposed to the change we booked.

Pre-tax.

I remember we've talked about this before, the CTE level; there's no precise number that you shoot for, but anywhere between 60 and 80 is basically your target level.

That's your quarter. What we do is quite mechanical; we apply the four-quarter rolling average, which will trend towards that range.

In the quarters when the markets are good, we don't emphasize the fact that we are underbooking the change in reserve. So similarly, this quarter you just get the opposite impact. Perhaps the most material observation I would make is that that CTE 68 level we booked ends up with a reserve that's only 40 million below the long-term CTE 70 amount that we are reverting to. So the balance sheet position we're showing is really very close to where we're going long-term.

One last one on this investment front. On slide 19, Peter, I guess I wasn't listening closely enough. The fixed products -- 154 million contribution. Strong investment-related gains. Can you just clarify that for me? What exactly happened there?

(indiscernible)

There's a big experience gain in your U.S. Retail Fixed group.

The biggest item is the one I noted, the actuarial recognition of the assets that had been written down and were disposed of with gains, versus their fair value carrying value. So what we've had essentially is good experience on older impaired assets that we've been able to get higher than the carrying values, and the actuaries reflect that cash value in the reserve.

Is that (multiple speakers) should we expect expected profit to be higher now?

It's the kind of thing that can happen from time to time; it's not going to happen every quarter. This was noteworthy in that there was more of it. But again, as our portfolio gets cleaner and cleaner there's less things you can have gains on from recoveries.

Ken Zerbe, Morgan Stanley.

Following up on part of that question, just within the wealth -- I think -- I'm sorry -- within Canada, can you quantify how much the portfolio repositioning benefited your earnings this quarter?

I think it was about 22 million post-tax.

Okay. And if I heard correctly, in Asia it was 29 million. Is that correct? And then there was some offset to that?

Yes. I think 16. (multiple speakers). I'd make a point on these items. They're not done to have an impact on the income statement; they're part of our regular management of our balance sheet. And to the extent that matching more closely or setting up an asset strategy has an accounting impact, we are required to reflect it. So ongoing, there's usually ups and downs, and I'm observing to you those which are most noteworthy. They wouldn't be the only ones, and some are not favorable; some are favorable, typically.

So we should expect similar changes such as this going forward in terms of the asset repositioning, whether it's in (multiple speakers)

I think there is always a tendency to look at opportunities to match more closely. For example, to the extent that our interest rate position isn't matched and rates rise, we will be turning out some of [the assets] over time. So there's always tuning, if you will, of your portfolio match going on. And it's usually fairly neutral, but it can go up or down in terms of its income statement impact by amounts that are worth noting.

Did I hear you correctly that you -- you've completed repositioning of the Daihyaku block?

Yes, the Japan term-out is now completed, and the asset strategy, I think, is fairly stable at this point.

Just a point of clarification on that last answer. I think that's true with respect to the insurance blocks, but I don't know that that's true with respect to the surplus (multiple speakers)

That's absolutely correct. Thank you, Dominic. The liability mismatch work has been completed. But you're quite right; there could be some opportunities to do things in the surplus (multiple speakers)

Not to go into it now, but as a result of the accounting changes that are going to be -- we're going to have to deal with starting in January of 2007, there will be some further asset repositioning and balancing that will be required in order to properly implement the requirements of those new accounting standards. So there will be some additional movement in our asset categories and portfolio durations.

Jim Bantis, Credit Suisse.

Just a couple of questions. Firstly, back on Japan. You highlighted, Peter, the technical issues with respect to the annuity product. But there it seems to me there was an instance with a couple of companies being sanctioned within the marketplace on protection products. And I'm wondering, are we seeing perhaps the regulators turning a little bit more difficult towards more insurers, or is this just maybe a confluence of events that are not coincidence.

No. Our situation is it's an innovative product and the tax regime is unclear. It's not an issue with the regulator at all.

Jim, I don't think that's what you're asking about. You're asking about some of the companies that have been sanctioned for their claims paying processes in Japan.

Exactly.

There has been heightened scrutiny of the industry, with a number of very large players having -- what do they call it, business remedial orders or something? And we have our own review going on of our claims-paying processes in Japan as we speak. We've got all of our claims going back to the year 2000 are being reviewed.

These claims are not [desk] claims; they're medical benefits, and whether or not you reimbursed the full dental cost or whatever, as opposed to -- and so it's a long, laborious process to go through them all. And we're hopeful that at the end of our review and discussions that there will be no need, the [FSA] will not feel the need to issue one of these remedial reprimands to our company. But I don't know how that's going to come out. I take some comfort from the fact that's it's an industry-wide review that's being done; it isn't something that's specifically targeted at any one company.

One question you asked about -- whether foreign companies (indiscernible)

Did you hear that, Jim?

To be honest, not much really.

Vick is here; here's at the other end of the table. What he said is -- you had asked specifically whether or not it was the foreign companies that were being targeted. And the answer is no, because the remedial orders that have been issued to date have all been against local companies.

That's great. With respect to the review that's ongoing with Manulife, Dominic, is there a sense of timing, Vick, when this could be wrapped up by?

We have to do it by the end of this year, basically.

Thank you. The other question I had was regarding the reinsurance pricing in terms of the UL product in the U.S. I know Bob Cook has been on top of this for quite some time, and other companies got a little bit caught off guard with respect to pricing of the UL product. Have you seen it level off in terms of reinsurance pricing at this point, (multiple speakers) increases?

This is John DesPrez. I think what you're referring to is one of our competitors who was faced with this in the prior quarter. We went through that round of repricing with the reinsurers in the first quarter of 2005. Essentially they started with the largest, we think. Essentially what happened with the reinsurers, they started with the largest UL players, and they're sort of working their way through. We have essentially put all that behind us and reflected that pricing in our new products that we brought out over the last year. We had in fact started to see a little bit of softening in the reinsurance pricing just in the last couple of months. That may change given the current problems with one of the players in that (technical difficulty). But that whole situation is -- was put behind us in the first part of 2005.

James Keating, RBC Capital Markets.

Just a couple points of clarification on slide 21, if possible. Peter, you note overall the Company had, I think, an estimated $40 million net negative impact from the equity markets. I was wondering if you can be more specific to Canada. Is there a breakout available on that? I'm also interested in the claims experience in the group side, just a little color on that, maybe quantification.

Simon is digging to see if we have some supporting materials to do the breakout. Just to clarify, that 40 million number is against what we would have expected, or sort of basically an assumption. I don't have a group number at my fingertips. I don't know, Bruce, if you recall that?

Group claims deteriorated in the second quarter is largely [expended] healthcare and dental. It does not appear to be a trend, and it's about $13 million quarter over quarter.

Bruce, while I've got you, if I may -- perhaps extrapolating a little bit here, but it seems to me that Manulife has been a little more cautious or a little more price discipline-conscious, if you will, on the life product in Canada. Where I want to go with this is -- was this also a feature in the U.S.? I kind of just want to get a sense as to your judgment as to where price discipline is going across North America on the UL product specifically.

Sure. John DesPrez is here as well. He can answer for the U.S. and Canada. Generally, your question is are we too conservative. We continue to, and have priced for profitable sales. We continue to do that. We have no expense loss. Reinsurance is about flat. We're meeting the Company hurdle rates.

That doesn't mean we are happy with sales at the level that they're at. And there were a couple of mentions in the narrative earlier about all of the product refreshment we're doing across the division. So there's the big sale in group benefits in July, one in pensions in August; product refreshment coming out in September. It's not target just at UL, and I don't think -- you do not see heavy strain on our sales, because we are pricing to our hurdle rates, using reinsurance appropriately. And I can't comment on what's happening to other companies.

Last quickie. Slide 14 (multiple speakers)

Just before you do that, on the first question on the Canadian impact of equities, it's just under half of the number that I observed.

Thanks a lot, Peter. Slide 14, here we go with the impact of new business, [60] million in the quarter. Any chance you might give us some color on how that breaks out regionally, North America-wise?

I think you have that in the (multiple speakers) source of earnings by (multiple speakers).

We have it for each at the divisional level. You've got the breakout.

(multiple speakers) my comment. It's Bruce again; sorry, Peter. On page 20, for the Canadian division, you can see the new business strain of 14 million. So there is strain but it's not huge, and that's there division by division.

Rob Wessel, National Bank Financial.

Three quick questions. The first one is -- I know, Peter, you alluded in your earlier comments that at the end of the year, or the beginning of next year, when you modify your interest rate assumptions, that there could be a not immaterial impact on profitability. Would you characterize that? Is that going to be a onetime -- when you say it is noticeable, that will be -- the impact of that will be seen in that quarter and not future quarters? Is that correct?

There'll be an impact in the quarter where we update our reserves, and depending what happens to subsequent interest rates, there could be additional impact. To the extent that we continue to have an open position and rates have risen, a fair amount will be reflected in our accounts, but some portion will only get booked once we match off and don't have uncertainty as to the future earnings stream. So, it would be both.

The second one is -- and I'm sorry; I know you had mentioned -- I was referring to the supplemental on page 38. I just want to make sure I understand this correctly. In order -- if Manulife had wanted to preserve their CTE level at last quarter's CTE 76 versus this quarter's CTE 68, it would have required reserve strengthening of 107 million. Is that correct? Is that the right way to think about that?

Pre-tax, that's correct.

And then -- fair enough. If I go to the investor presentation on slide 9, where it has equity markets negatively impacting by 40 million, is the impact of the CTE changes -- or the, I guess, lack of impact, if you will, is that reflected? Is that one of the items included in the 40 million?

No. This would be what we booked in our accounts versus what we would have expected if equity markets performed in an average manner.

So is maybe a different way to think about that instead of reducing earnings by 40, it added 67?

No. Because if we did that, that would be inconsistent with our accounting methodology. Our accounting methodology is to operate in the quarter reverting to the CTE 70, and it's quite formulaic. We have no judgment there.

So (multiple speakers) things that were put in the accounts (multiple speakers)

If our accounting was different your observation would be not inaccurate, but we can't change our accounting in a good or bad quarter at will.

That's good. I just wanted to see if that was reflected in the 40. Thank you very much.

Andre Hardy, Merrill Lynch.

I have three questions as well. On page 36, it looks like the provision for credit losses and actuarial liabilities was down a bit. I'd like some color on that please. Also, Peter or Vick, on Japan, what has happened to the sales of your other VA products since you suspended the sale of the one product? And one question on the U.S. for John. For FAs, for fixed annuities, on the retail side, you were targeting 2 to $300 million in sales per quarter. You have well exceeded that. Is that a function of spreads and returns being more attractive than you thought?

(inaudible) credit loss? The difference is primarily currency?

The decrease in the actuarial -- or the provisions for credit in reserves is mostly current. It's very little (indiscernible) in the underlying reserve.

Who is going to speak to our VAs?

On the VA thing, it's to early to say. (inaudible) impact on our third-quarter results (inaudible) second quarter (inaudible) the sales continued (inaudible)

But you can't tell us how the rest is behaving, the rest of your business?

I think we'd have to anticipate that the third quarter is not going to be a strong sales quarter for our variable annuities. I think that's about all we can say at this stage.

On the U.S. -- [Pete], I'm trying to figure out where you got your number. Sales of fixed annuities are running at about $85 million a month. There are some other items included, and some other product lines included in the line on page 17 (indiscernible) that's what you're looking at, the sales number of 386.

Yes, that's what I was looking at.

There's some other pieces in there, pension closeouts (technical difficulty) structured settlements and the like. (inaudible) the retail deferred fixed annuities sales are running at about, as I said, about 85 million a month, and the spreads have not materially improved at all.

Thanks for the clarification.

John Reucassel, BMO.

Just a question for Peter or Dominic. Almost $1 billion in buybacks this quarter. I guess I'm just curious as to the timing, why this quarter versus other? Why the ramp-up at this time? Is there any magic to that, or any internal thought on why that occurred?

I guess that you're overbullish on the future of our business is the only thing I could tell you. We weathered the evaporation of almost $40 billion of assets. We've eaten choppy equity markets. We've had some adverse experience in some of our other books, and the company keeps on turning good earnings. So we're looking at the future and saying, well, it's unlikely that the dollar will continue on its [torrid strengthening] pace; it will be above par if it does.

We're starting to feel the full effects of the merger on the cost side. Our sales forces are very productive everywhere. Why wait until we have a $5 billion excess capital problems? We decided to deal with it the way we have. You shouldn't take what I just said as necessarily an indicator that we are going to be in the market tomorrow wrapping up all the stock that's available. You asked for what our thought processes were; that's what they are.

And we shouldn't read from that either, Dominic, that there's any lack of acquisition opportunity?

You know, the market -- I would suspect you probably know it as well as we do. We certainly are alerted to opportunities that may arise, and there's some that we try to originate ourselves. But these things take a long time to happen. I'd just repeat what we've always said -- you must be bored of hearing it. We feel very good about our businesses and how we're positioned. Our organic growth is very, very good. We don't have to rely on doing acquisitions to expand our business base or grow our franchises. So we will only do deals that suit us.

Last question, I don't know, Dominic, maybe for you. You talked about further asset repositioning as we come into the implementation of 3855 here. Are you changing your approach to investment or your investment policies, or is -- what -- I'm just trying to understand what --

You know that with 3855, the insurance liabilities will have to be marked to market using (indiscernible) and the assets, given the treatment that we're going to ascribe to them, the available for sale, are also going to be fair valued at every reporting period.

So, in an ideal world, if both your assets backing those liabilities were perfectly matched to your liabilities, you would have a synchronous adjustment to both sides of your balance sheet. Right? Your assets if markets -- if rates went up, the asset values would go down, but then your liabilities would go down by an equal amount. So, clearly, we're going to try within the -- I don't think it's possible -- but to the extent that we can, we're going to try to reach that nirvana state, where we are in the shade of any of these movements.

And again, now, when you go down to your surplus there, the asset mix strategies are again going to be somewhat different, because you don't have actuarial liabilities with which to offset the movement in the assets. So at first [blush], you would tend to want to hold more stable assets that don't get marked to market at every accounting period; for example, real estate, or the (indiscernible) marked to market. So that's what we're trying to signal, is that these accounting and actuarial changes are going to have an impact on where we hold assets and what type of assets we hold.

So one of the [attractivenesses] of Canadian GAAP has always been, I thought, that (multiple speakers)

Tell me about it. I think it's the best insurance accounting model out there. My prediction is that long after I'm retired, this insurance will migrate back to where we are today.

Mario Mendonca, Genuity Capital Markets.

I sort of want to take the first question, Steve's, about the CTE level dropping to 68, and maybe turn that on its head. The markets, obviously, almost recovered what we lost in the second quarter. Is it fair to say, Simon, if we are to lock in today, we would essentially be back to maybe a CTE 74 or 5?

Do you mean in the third quarter?

No, I mean as in right now, given where equity -- say, that the TSX is right now. It's effectively made back what was lost in June, or made back what was lost in the second quarter.

I think that's substantially correct.

(multiple speakers) back there. Sort of a related question, Simon, goes to what you said at the investor day. You said Manulife really endeavors to be at the top half of the conservatism spectrum in any given -- the range of (indiscernible) for example. And I appreciate that you applied a formulaic approach. But dropping below 70 isn't consistent with what you suggested, [Simon]. I guess what I'm getting at is why in this instance was it appropriate to be below in the second -- in the bottom half of that conservative range?

We don't [intervene in each] order to book a reserve (indiscernible). We've got a methodology that we stated here, which is that we follow the market movement over a four-quarter perspective. And you are going to see the variations in it going above and below the CTE 70. The other comment I'd give you is that that CTE level is still over a 98 percentage confidence level. These reserves are still very conservative relative to the exposures that we have. We're entirely comfortable with (indiscernible)

[I think a] more meaningful interpretation of page 38 is on the (indiscernible) to just look at what we expect our present value of our guarantee costs. We expect that we'll generate $1.5 billion in present value terms of profit on those guaranteed, Mario.

And as you add the 478, you're upwards of almost $2 billion. I'm with you (multiple speakers)

One of the reasons I -- one of the reasons that we went to such a labyrinth detail, to lengths to show you our paths and our reserving levels, was to give you some comfort, and hopefully put a -- these conversations always degenerate into this number moved by 10, and that one moved by five. And we have -- what are our reserves?

130 billion.

$130 billion. And we have pads of 25 billion we've showed you. So, the numbers have to be used judiciously. Just as a previous questioner was asking -- well, if you hadn't done that your earnings would have been $100 million less is, I don't believe, a proper conclusion to draw from the events of the past quarter.

I understand what you're getting at there. I think everything is relative, and we're all sitting back right now just comparing that to what one of your peers did. And I think that's where the nature of the questions come from. But I know where you're going.

I don't know what my peer did. I don't know -- what is his actuarial liability? He says he had a CTA of 80, but has he got reserves on his books of $500 million? Why don't you ask him that?

I think the other comment I would make is (indiscernible) we have [disposed] this reserve to several quarters with all the details. And I think, really, when someone just says what a number is, I think you actually have to get the details underneath the number to really understand what it means.

Maybe sort of a related question then. Any thought going into hedging the exposure associated with the variable annuities? And if so, any idea what that might cost to do on a quarterly basis?

We are studying that. We've organized ourselves to, should we choose to be in a position to do it in the new year, we estimate, based on the calculations we've done, that it would cost us within 20 to 30 basis points. It's well within what we would get for that particular rider, what we would charge the customer for that guarantee.

Our work now is to satisfy ourselves that indeed you're getting 20 to 30 basis points of value if you put these programs in place. Some of us have been around a long, long time, and we want to proceed at a pace that is appropriate. (multiple speakers) into the markets, Mario, and just buy puts the way you used to; they have become (multiple speakers) expensive. The new techniques that are -- available techniques that are used to hedge this -- these products now require a great deal of sophistication and systems work, and very, very careful, obviously, monitoring. And so we're proceeding on that basis.

Is that 20 to 30 basis points of the fund value, the 54 billion on 38, page 38?

It would be 20 to 30 basis points of the new products sold with that guarantee.

Not on the existing business?

Most -- a lot of the existing business -- I mean, somebody wrote a comment -- a lot of the existing business is insured by (multiple speakers)

In the U.S.

When did that insurance run out for the U.S. business? (multiple speakers). In 2004. So that's what it is. (multiple speakers)

One final real quick question. You've talked about how equity markets had a negative impact on the U.S. individual life business. I would have thought most of that business is pass-through, in which case down equity markets shouldn't have had an effect. And the only way it might is if equities were used to support the liabilities, in which case it could have a negative effect.

It's primarily driven by VUL, where the asset values are lower and our income is based on the fees on those asset values. And we -- take a PV, if you will, based on the change in market value. So that tends to be a bit volatile. But over time, of course, it will [grade] to the long-run average.

I do understand that. Finally, if the Company is contemplating changing assets that are supporting liabilities -- and, Dominic, you made a very good example; if the liability were supported by a bond, the bond goes up; the liability (indiscernible) totally followed that. That doesn't quite work, though, if you're backing certain liabilities with things like, for example, equities or real estate (multiple speakers)

Of course; that's what I said. I prefaced my remarks by saying hypothetically (multiple speakers)

I fully acknowledge and understand what you're getting at. But Manulife has in the past, and I think still does, support things like Long Term Care with equities, which is an appropriate thing to do given the long-term nature of the business. If Manulife were to move away from equities to accommodate Section 3855, it would seem to me then that you'd probably have to lower your long-term sort of yield assumption, in which case the reserves would have to be higher. Am I reading that appropriately?

You're reading it absolutely correctly, which is why we're beavering away at business by business, unit by unit, to understand what the implications of the new accounting models are, and how we could best respond to them. Don wants to say a few words here. We will continue to be driven by what makes economic sense, but we can't be totally insensitive to the accounting impacts of some of our decisions. So that's where we are with the implementation of these new standards; they require a lot of care.

It just sounds very important to make that change, though, to go from equities to bonds (multiple speakers)

(multiple speakers) I don't know where you got the idea that we were going to get rid of all our equities behind (multiple speakers)

But even a modest change would be material.

I think that there (multiple speakers) material to the extent that -- and I'm not an actuary -- but to the extent that the asset you're replacing it with doesn't have the prospect of giving you the same long-term return as your equities. We've built up our reserves -- for example, as I believe we have, using a return equities of 8 to 9% or something long-term -- I don't know that you can't get some assets, whether it's real estate or timber or whatever, that has the same return profile without the inconvenience, if I can call it that, of being yo-yo'd in every accounting period.

It sounds like there's some work to do, obviously.

Yes.

(multiple speakers)

(multiple speakers) there's a lot of work to do, but you've captured the essence of it, and we're not about to give up the economic value that comes from holding equity-like instruments backing our liabilities. I guess I'd make a few comments.

Number one is that people tend to overestimate the amount of equities that we have backing our shareholder accounts, because they don't back out the amount that is backing par. They don't back out the amount that is basically backing index-linked products in Canada (multiple speakers) very substantial component. So the amount, basically, for the shareholders account is quite a bit smaller than the gross number that you see.

The second thing is we have been working for at least five years to develop a very diversified mix of equities. They are -- when you talked in your piece on 3855, this stuff is regularly harvested, not for an accounting reason. Because, obviously, under the Canadian accounting regime that we currently operate, there's no reason to do that. But just by the very nature of the investments they make, they come to maturities where we want to sell them.

A wide number of them, as Dominic said -- we've got a very extensive timber portfolio. We've got a very extensive agricultural portfolio. We also geographically diversify. Despite the fact that liabilities don't require it, we have very, very large holding of equities in Japan. We also have them in Europe. So with the diversified mix -- which, as anyone knows, reduces the volatility enormously. We've been tracking that internally and know how we would do under a variety of scenarios going forward with that equity mix, and the ability to harvest and the ability to reposition. And we're not particularly worried about it at this juncture.

A final point, if I can make it, is many of the changes will just be where we keep it within various blocks in our company, so that the accounting is more benign. It's not necessarily going to result in wholesale changes in any of our significant positions on a consolidated level. At least that's not our current expectation.

Thank you for your very complete answer.

Timothy Lazaris, GMP Securities.

Just two quick ones. Number one, just in Canada, the commentary about competitiveness in individual insurance -- I'm assuming that you're talking about UL. There's at least one competitor that's talking about raising prices in that market. Can you comment on that and how that might impact the competitive nature? And then I have a follow-up question for Dominic.

(multiple speakers). It's Bruce. The competitive nature of the market, part of it is UL, and I know who you're talking about (indiscernible) saying they're going to raise rates. Somebody did in the second quarter. But beyond that, there's competition in underwriting and in compensation, and we have chosen not to compete there at the moment to protect the margin. So part of what you said is true; it's UL. But, there's more than that out there.

Dominic, I have sort of a -- if you could put your M&A hat on for a second. I just notice constantly that Manulife's book value doesn't really reflect the success you're having in earnings. And I know that's a function of the way accounting works. But I'm wondering how important is a book value-based valuation for you when you're looking at acquisitions?

Just a sidebar there, the other reason our book value isn't growing as rapidly as you would expect is the exchange. That's why (indiscernible) a lot of our U.S. book value when denominating in Canadian dollars. You know, I think that it's a meaningful measure when you're doing -- it's not, in my opinion, necessarily the most important measure, but it's not one that I ignore. Clearly, the revenue prospects and the future income generation prospects are the most important. But if you overpay for assets -- and one of the ways of looking as to whether you're overpaying (indiscernible) start paying three or four times book value for something -- it's going to generate one hell of a lot of a big return to justify the four times. It's pretty simple. So I guess to me it's very important, and I think it's important to a lot of other investors.

I guess my point is, Dominic, is your book value is arguably understated by that exact point that you said, which is the exchange impact (multiple speakers)

It's understated for a number of things. Add back the pads to the extent that you feel any of them are excessive. Look at our DAC and how much bigger could it be if we were aggressive in how much we capitalized, or if we were less aggressive in how fast we amortized it. I would challenge you to go and ask other companies to tell you what their DAC is as a percentage of their assets under management, and compare it to see if it's anywhere near as low as ours is. So if you were going to do an apples-and-apples comparison, you would add back something for that as well.

When our assets are carried at very pristine values, you've got the market value differentials there shown. So there's a number of things that -- I think an embedded value is probably a better calculation and a better metric to use for purposes of seeing what the market-to-book ratio is. But then again, our embedded value, vis-a-vis the Europeans, is calculated differently. We calculate embedded value in a more conservative way; we don't reflect anticipated experience gains in our calculation of embedded value as the Europeans do. So we've got -- I, obviously, love my company, I own a lot of stock in it, and believe it has a great future.

Jukka Lipponen, KBW.

Two questions. What is your excess capital position currently?

It continues to be in excess of $3 billion.

My second question -- with the strong growth in the U.S. life sales, can you remind us what's your position and view towards the financed life sales? And what can you tell us to make us comfortable that that's not where your growth is coming from?

That's a good question. John?

Our position has been all along that we're very much against it. We would like our life business to be based on traditional and (indiscernible) interest concepts, and we were one of the first companies to come out with that position. We have taken a whole host of actions to try and [get the sales], to make sure to try to prevent these things from coming in. The people who package these products are very innovative and very aggressive in trying to get it through your system. The fact that it's well-known that we don't want it, frankly, deters a lot of people.

But nonetheless, we audit all the cases that fit the basic profile. There is a fairly consistent profile in terms of size and age of the insured, etcetera, and some of the structural issues around (technical difficulty) hold these policies, so that we have a profile of them. And every case that meets those profiles we do extra underwriting on. We've added questions to our application that puts people in jeopardy of having their policies rescinded if there are subsequent transfers of those policies. So we're taking a whole host of measures to try and prevent it. Having said that, there probably is some that get through, but nowhere near enough to be what's driving our sales numbers.

One additional one, if I may. How are you dealing with the other impact of the AXXX, and how is that playing into your margins on the new business?

It's obviously not helping any. Someone else asked us the question earlier about where is the price of UL going to go in Canada. In the United States the answer is, at least, that the (indiscernible) age is going to go up. And it's a bit of a -- we have seen one or two companies already take actions in that area. It's very likely that we will join that group. Because of the competitive issues, I'm not going to tell you when or how much we're going to raise our prices, or in how many stages. But, clearly, there needs to be pricing action as it relates to the older issue ages of guaranteed UL.

Any plans for securitization?

No. We have less expensive solutions for the problem that we're utilizing.

Michael Goldberg, Desjardins Securities.

I have a couple of questions. You got 53% increase in your (indiscernible) VNB this quarter on sales growth of 17%, and 36% in insurance on sales actually going down in aggregate by 2%. So broadly speaking, it sounds like you're getting the benefit of stronger margins, enriched product mix, or a combination of both, in wealth and insurance. Can you give us some color as to what is happening to mix and margin? Should we expect going forward that VNB growth will be closer, in closer alignment with your sales growth?

I can't recognize your numbers; they might be right, but they're not familiar. Let me make a first comment, and Simon can add to it. Compared to a year ago, a number of our products are more profitable. So if we're selling the same volume of a more probable product, you'll see that in the new business embedded value. And compared to a year ago, generally, our sales are quite strong, they're quite good, and particularly in products that have nice new business embedded value contribution. I don't know, Simon, if you can add all to -- at a macro level to the wealth and the insurance contributions.

Are you talking about year-over-year growth? Is that --

Yes I am.

Basically where you're seeing the growth is in -- on the insurance side is in the U.S. insurance businesses, which have gone through that repricing exercise. And on the wealth side you're seeing it pretty broad-based in the U.S. with the VA, and in Asia in pensions. And all of those products have been slightly -- been slightly repriced over the last year. So basically, you're seeing the benefits of strong pricing coming through in that number.

So going forward, should I be thinking of VNB growth, though, being -- coming closer into alignment with your sales growth?

I would say this rate of growth in new business embedded value is very pleasant, but it's not likely to be continued. So, somewhere between this level of growth and the sales level of growth, we're going to probably grade down. A lot of the gains have been from significant product redesign, and we've had very good sales. And the two together have moved the value of new business embedded value by huge amounts. Is that helpful to you, Michael?

A little bit. I have one other question. Given the recent developments in Japan, in terms of things they've talked about on postal savings and insurance, is there any new perspective that you can give us as to how this could affect your business there?

I don't know -- you know -- the post office is being privatized, but it's being done over such a long period of time. One of the things that frankly is happening to us that's positive with respect to the post office is that we have become -- we're securing the services of some good salespeople from the post office. I don't know how -- I don't have a good answer to give you. Clearly it will have an impact on the whole financial services sector, but we've had more immediate problems to turn our attention to.

Tom MacKinnon, Scotia Capital.

Just revisiting the decline that we saw on the individual insurance business in the U.S. as a result of weaker equity markets -- I would have thought we would have seen some sort of similar decline in the Canadian individual insurance business as well for the same reason. But was this in fact, I guess, in there but not really showing up in the numbers because of the 22 million increase from the portfolio repositioning, as well as the benefit of the tax change?

On the sales side, our UL market share --

No, I'm talking earnings here.

(multiple speakers)

There's got to be some MER impact there, and PVs on that. Is it the same sort of thing (multiple speakers)

(multiple speakers) that theoretically you get exactly the same impact.

Yes, so why not?

(multiple speakers) it's just that the U.S. portfolio is much bigger, several times bigger. So the number shows up there. In Canada the portfolio isn't that big. And your comment that it was more than offset by the real estate repositioning and such is true.

So there was an impact, and you haven't disclosed what it was.

The impact is like 5 or $6 million. It's not a very big number (multiple speakers)

If we had markets fall another 5% just from the levels they were at at June 30th, would we expect -- what would be the impact on both these individual insurance earnings, both in Canada and the United States? Would we see further strengthening of reserves there?

It wouldn't be good. I don't know that (multiple speakers)

A relative move would be not dissimilar in its impact in the quarter. And to the extent that markets moved, it would go back the other way.

One other question for maybe John DesPrez here. I guess we got pension legislation through the House and consideration of it in the Senate now. I assume that's got to be some positive here for some automatic enrollment, but it seems like it's opening up the door in terms of who can give investment advice here. And I'm wondering what do you see that doing to some [ALS] 401(k) business?

We actually think that the -- well, first let me just caution you. We don't know what the final contours of the bill are going to be, and there are several fairly materially different provisions in the various proposals. But as a general matter, it's all, I think, very positive for our 401(k) business. Because a whole host of provisions of those bills make it more attractive to employers to -- will encourage the trend towards defined contribution as opposed to defined benefit plan. We are a much bigger player in the DC side of life than we are in DB. So on the most macro level it's positive to us. There are other provisions of that legislation that effectively make 403(b) and 457 plans much more like 401(k) plans. To the extent that we can extend our administrative platform and whatnot to those markets without having to build new systems and the like, that broadens our market.

And then you get into the advice and auto enrollment issues -- obviously, the auto enrollment thing is something we've wanted for years. It will raise the participation rates, and therefore the assets and everything else of these plans very materially. The advice provision is a huge plus for us. We've found through the types of educational work that we do already that the more of that there is, the more money people put in the plans, because they realize how much they need to save more.

We don't view the potential for competition on the advice front to be a threat at all. The likelihood is that our -- these -- we have essentially an army of enrollers out in the field who sign people up for these plans today. To the extent that they could give a limited form of investment advice, it would be terrific. So we view this legislation as being quite positive in numerous dimensions.

I would now like to turn the meeting back over to Mr. D'Alessandro and his team.

Thank you very much, ladies and gentlemen. Thank you, operator. I guess that I would repeat that we feel very good about our earnings, the fact that the Company is as broadly diversified as it is and in so many different businesses, and we have a very, very clean balance sheet. Our distribution capability is becoming more and more evident. We do enjoy leading and growing the leadership positions in different markets. And we feel very good about our future prospects.

Again, I repeat that since last year, just the exchange impact alone on our earnings has been very significant. And we've been able to have other factors at work within our businesses to offset that, which I think is, again, a manifestation of the strength of the Company.

So with those remarks, I look forward to speaking to you again this time next quarter. Thank you very much.

Thank you. The conference has now ended. Please disconnect your lines at this time.