Manulife Financial Corp (MFC) 2011 Q3 法說會逐字稿

Please be advised that this conference call is being recorded. Good afternoon and welcome to the Manulife Financial Q3 2011 financial results conference call for November 3, 2011. Your host for today will be Mr. Anthony Ostler. Mr. Ostler, please go ahead.

Thank you and good afternoon. Welcome to Manulife's conference call to discuss our third-quarter 2011 financial and operating results. Today's call will reference our earnings announcement, statistical package and webcast slides, which 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. We will then follow with a question-and-answer session. Available to answer questions about their businesses are the heads of the United States, Canada and Investments.

Today's speakers may make forward-looking statements within the meaning of securities legislation. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied.

For additional information about the material factors or assumptions applied and about the important factors that may cause actual results to differ, please consult the slide presentation for this conference call and webcast available on our website, as well as securities filings referred to in the slide entitled Caution Regarding forward-Looking statements.

When we reach the question-and-answer portion of our conference call, we would ask each participant to adhere to a limit of one or two questions. If you have additional questions, please requeue, as we will do our best to respond to all questions.

With that, I would like to turn the call over to Donald Guloien, our President and Chief Executive Officer. Donald.

Thank you, Anthony. Good afternoon, everyone, and thank you for joining us today. I am joined on the call by our CFO Michael Bell, as well as several members of our senior management team, including our US General Manager, Jim Boyle; our Canadian General Manager, Paul Rooney; Warren Thomson, our Chief Investment Officer; Scott Hartz, our EVP, General Account Investments; and Cindy Forbes, our Chief Actuary; as well as Rahim Hirji, our Chief Risk Officer.

This morning, we reported our third-quarter 2011 financial results. And while we are disappointed with the reported loss of CAD1.3 billion for the third quarter, we are pleased with our progress in executing key elements of our strategy. Our hedging programs worked effectively during these highly volatile markets, eliminating the majority, but not all, of the risk.

We are pleased at the underlying growth of our businesses against our objectives, particularly the strong growth in Asia and in Wealth Management, and the progress on protecting margins in many of our products around the world.

Our hedges generated over CAD3.3 billion in after-tax gains, which offset approximately 70% of the CAD4.8 billion earnings impact of VA guarantees and non-VA, equity-related losses. The remaining 30% includes elements that we have not yet hedged; are not able to hedge; things like PfADs, which we don't attempt to hedge; tracking error; volatility; policyholder behavior; and all other forms of ineffectiveness.

In terms of interest rates, we have now exceeded our 2014 interest rate risk reduction goal, reducing our sensitivity to a 100 basis point decline in interest rates to CAD1 billion after-tax. And we are ahead of our 2012 risk reduction goal for equity markets; now stand at 88% of our 2014 goal.

The MCCSR of our operating company, the Manufacturers Life Insurance Company, was 219% at the end of the third quarter. This ratio does not reflect the benefits of our derisking activities, including our equity and interest rate hedging progress over the last few years, which reduces the downside risk to our capital position, but is not reflected in the capital ratio formula.

On the investment front, general account asset performance continues to be a strength of our Company. This reflects our strategy of avoiding risk concentration with a diversified, high-quality portfolio, and our continuing excellent credit experience, despite the difficult markets of the last few years. And as you know, our exposure to more risky European sovereigns is minimal.

If you turn to slide 5, we are also pleased with the underlying growth of our businesses against our strategic priorities. Sales of insurance products targeted for growth increased 21%, if you exclude the new whole life product in Japan and certain insurance products in Canada, where deliberate price increases were implemented with the intention of protecting margin, to the detriment of sales. Including these products, sales increased by 5%.

Sales of wealth products targeted for growth grew by 12%, led by 20% growth in Asia and continued strong growth in mutual funds in both Canada and the United States.

The dramatic decline in interest rates in the third quarter, roughly 140 basis points at the long end, once again reduced our margins and was the main factor behind the 37% decline in new business embedded value relative to the second quarter of 2011. We are probably one of the few companies that report new business embedded value reflecting current interest rates so directly, but because interest rates are such a big component of both present and future profitability, we feel this is appropriate.

We continue to be committed to protecting our margins and have taken a number of repricing actions in the United States, Canada and Japan in order to achieve this.

In Asia, we continued to grow our agency force and added important new Bancassurance relationships. Subsequent to the end of the third quarter, we completed a strategic partnership with Bank Danamon in Indonesia, making our products available in its over 2300 branches.

In Canada, growth of targeted insurance and wealth products was up modestly on the whole, despite the continued implementation of price increases and product changes. Manulife Mutual Funds sales were up 32%, and Group Retirement Solutions sales, or Pension sales, increased 61%. Manulife Bank assets reached record levels, exceeding CAD20 billion as at September 30, 2011.

The momentum in the United States continued, with John Hancock Mutual Funds sales up 27% and Retirement Plan Services sales up 10%. The transition of our life insurance product portfolio continued to be successful, with targeted products up 42%, representing 89% of total life insurance sales at the end of the third quarter.

Finally, I would like to highlight that under US GAAP, our net income for the third quarter was CAD3.4 billion higher than under the Canadian version of IFRS. And our total equity was nearly CAD16 billion higher under US GAAP. The main factor driving this significant difference is the greater use of mark-to-market accounting under the Canadian version of IFRS, which requires us to more directly recognize the third quarter's macroeconomic environment sooner.

In summary, while we are not happy with the third quarter loss, we are very pleased with the positive impact the hedging programs are having on our results, the substantial buffer of safety that our capital provides, the continued strength of our investments, and the underlying growth of our businesses against our strategic plans.

With that, I will turn it over to Michael Bell, who will highlight our financial results and then open the call to your questions. Thank you.

Thank you, Donald. Hello, everyone. In the third quarter, the global financial markets experienced significant declines in both interest rates and equity markets. Under the Canadian insurance and regulatory capital regime, these market conditions were reflected in our third-quarter financial results.

Importantly, the impact was moderated by the significant hedging actions and changes in our business mix which we have consciously taken over the last few years to reduce our risk profile. So we are pleased to benefit from our decisions and actions in that regard.

As expected, based upon our communication last quarter, the third-quarter loss also included the CAD651 million after-tax charge related to our annual review of actuarial methods and assumptions, excluding the refinement to the ultimate reinvestment rate, or URR.

We continue to be ahead of the original timeline on reducing both interest rate and equity market sensitivities, despite the challenging market conditions. We have now exceeded our 2014 goal for a reduction in our interest rate sensitivity, and we view the resulting reduction in expected volatility in our future results to be a major positive.

MLI ended the third quarter with an MCCSR ratio of 219%, and this ratio does not reflect the benefit of our derisking activities, including our equity and interest rate hedging progress.

I would also note that our US GAAP earnings were a positive [CAD2.2] billion after-tax for the quarter, and our shareholder equity is now nearly [CAD16] billion higher under US GAAP than under IFRS, with the CGAAP actuarial reserves. This is a reminder that different countries' accounting regimes portray very different results, and the Canadian regime is much faster to recognize the impact of these unfavorable markets.

Turning to slide 8, you'll notice that there were a number of notable items impacting the third quarter after-tax earnings. There was an CAD889 million net loss due to the direct impact of equity markets and interest rates. Within this amount, the direct impact of equity markets resulted in a loss of CAD 556 million. Including the refinement to the URR assumptions, the direct impact of changes in interest rates in the quarter exceeded CAD300 million.

Importantly, our third-quarter results benefited from our expanded hedging for both equity markets and interest rates.

Excluding the refinement of the URR assumptions, there was a CAD651 million charge related to the actuarial basis changes. Other market factors caused a net after-tax impact of CAD900 million on the net increase in the liabilities of the hedged in-force VA block. And I will describe this in more detail in a few minutes.

The expected cost of our macro equity hedging program, based on our long-term valuation assumptions, was CAD107 million for the quarter. And we also recorded investment-related gains that amount to CAD307 million. These primarily related to derisking activities and investment gains primarily related to fixed income trading and favorable credit experience.

There was also a CAD303 million gain on the sale of our Life Retro business.

So overall, we are pleased with the benefit we received in the third-quarter results from the derisking actions that we have taken.

On slide 9, we see the impact of variable annuity and non-VA equity-related equity risk on our earnings in the third quarter. Between our dynamic and macro hedging programs, we offset 70% of the earnings impact of the third-quarter changes in VA and the non-VA equity-related liabilities. As shown in the pie chart and detailed in the footnotes, we had over CAD3 billion in after-tax gains from the hedges in place, which offset approximately 70% of the after-tax impact of CAD4.8 billion from the increase in our actuarial reserves due to the combination of unfavorable equity markets and interest rates.

Turning to slide 10, this shows additional detail on the third-quarter result. Now, there are risk factors that we are not able to hedge or consciously decided not to hedge. And in third quarter 2011, you can see that these factors included the impacts of higher realized volatility, unfavorable fund tracking and items not hedged, like provisions for adverse deviation and policyholder behavior.

As you can see on slide 11, we are still ahead of our original timetable for reducing equity market sensitivity, with 57% to 66% of the estimated current earnings sensitivity now hedged. This puts us ahead of our year-end 2012 target and close to our year-end 2014 target. As of September 30, our estimated earnings sensitivity to a 10% equity market decline was CAD680 million to CAD870 million, a much better result than our peak sensitivities in 2009 and 2010.

Turning to slide 12, we have exceeded our 2014 goal for interest rate sensitivity. Our estimated sensitivity to a 100 basis point decline was reduced to approximately CAD1 billion, ahead of our year-end 2014 target of CAD1.1 billion. Including 100% of the AFS bond offset, our estimated sensitivity was CAD300 million at the end of the third quarter, and we are very pleased with this progress in this area.

The results of our annual actuarial basis change are here on slide 13. In total, the net impact of these changes was a CAD651 million after-tax charge, excluding the refinements to the URR assumptions mentioned earlier.

Mortality studies were undertaken by a number of our business units in US, Canada and Asia. The US life-insurance review resulted in a reserve strengthening and a CAD475 million after-tax charge. As we have discussed, this review focused on mortality at older ages, and the emerging trends are subtle and vary depending upon the block of business.

For example, a large portion of the reserve strengthening is for the acquired John Hancock Permanent Life business, where losses started to emerge recently due to older age, older duration experience.

On other US life business, we are seeing different experience depending on the duration of the business. For example, while we continue to generate mortality experience gains on the early policy durations, we are seeing losses on later duration business and at older attained ages.

Additional mortality updates, particularly on the variable annuity block, and the implementation of future mortality and morbidity improvements in our valuation methodology for the North American Insurance segments contributed to a reserve release with a favorable impact of approximately CAD742 million after-tax.

VA policyholder behavior reserve strengthening was primarily due to reduced lapse rates on contracts beyond the surrender charge period in the US, and reduced lapses on contracts in Canada, which was partially offset by some other changes in assumptions. The net impact was a CAD309 million charge.

Investment updates were due to updates for the GMWB business and to other non-fixed income assumptions, including asset purchases. Included in Other is the impact of updated lapse assumptions on life insurance products in Canada, the impact of updated experience assumptions for US Life, and a number of other nearly offsetting model refinements.

Slide 14 is our source of earnings. The expected profit on in-force declined relative to the second quarter of 2011, and key contributors to the decline included the sale of our Life Retro business to Pac Life; the reinsurance of a block of individual insurance business in Canada; and the inclusion of future mortality improvements in our reserves as part of our annual basis change.

The impact of new business strain increased due to lower interest rates in North America and increased investment in Asia distribution.

Experience losses primarily reflect the mark-to-market impact of lower equity markets and interest rates, partially offset by gains on our macro hedges and investment gains primarily related to fixed income trading. Management actions and changes in assumptions include the impact of our actuarial basis change and the expected cost of macro hedging, partially offset by gains on the sale of AFS bonds and our Life Retro business.

On slide 15, you will see our insurance sales. Sales of our targeted insurance products grew by 5% over third quarter 2010 on a constant currency basis. Price increases on like products in Japan and Canada in response to the low interest rate environment reduced growth of our targeted insurance products compared to prior quarters.

On the other hand, in Asia, a number of regions delivered record sales. Hong Kong's record sales were mainly driven by a new product launched in the second quarter and the expansion of the Bancassurance channel.

The ASEAN region also delivered record sales. New products and expanded agency and bank distribution across the region contributed to these strong results.

In Canada, Affinity sales of regular premium products increased 12% compared to the third quarter of 2010. And in the US, we are very pleased with our 42% sales growth for the targeted life insurance products, as we have replaced the majority of the no-lapse guarantee UL sales with products with less interest rate risk. So overall, we are pleased with our sales of insurance products targeted for growth.

Turning to slide 16, sales of our targeted wealth products for the quarter grew by 12% over a year ago. In Asia, sales increased 20% compared to the same period in the prior year. In Canada, individual wealth management sales increased 2%, having been adversely affected by the continued decline in the interest rates and the volatility in equity markets. Despite the challenging market conditions, mutual fund sales were strong, increasing 32% compared to 2010, and group retirement sales increased 61%. Manulife Bank assets reached record levels, exceeding CAD20 billion.

In the US, John Hancock Mutual Funds delivered another strong quarter for sales, with a 27% increase over the third quarter of 2010. On a year-to-date basis, John Hancock Mutual Funds have already exceeded their sales for the full-year 2010, which had been a record year.

401(k) sales were up 10% in the third quarter, although we continued to see competitive pricing pressure in the industry.

So overall, we are pleased with our increase in nonguaranteed wealth sales.

On slide 17, you can see that we continue to change our business mix in order to improve our long-term ROE and risk profile. Products that we have targeted for growth have increased compared to the third quarter of 2010, while the premiums and deposits for the products not targeted for growth are down relative to a year ago, and even more so relative to 2009. As a result, our products targeted for growth now represent 88% of premiums and deposits.

As we discussed at our 2010 investor day, changing the mix of our business is an important priority, and we are pleased with our progress to date.

Slide 18 demonstrates that our diversified investment portfolio also remains high-quality. Our invested assets are highly diversified by sector and geography, and have limited exposure to the high-risk areas noted on the slide. We continue to view our investment management as a significant competitive advantage.

Turning to slide 19, you'll see that we booked a net credit experience gain in the third quarter. And this was our fourth net gain in this area in the last five quarters, a very good result.

Moving on now to slide 20, this slide summarizes our capital position for MLI. Our capital ratio for our main operating company was 219% at the end of the third quarter. And we believe that we have a substantial buffer versus our policy obligations, particularly in light of our provisions for adverse deviation and our increased hedging.

On slide 21, our sensitivities to changes in interest rates can be seen here in more detail. I would note that the Canadian Actuarial Standards of Practice require us to use the most conservative of a number of prescribed scenarios in our reserving. As a result of the recent changes in interest rates, the third-quarter sensitivities for a 100 basis point decline include the estimated impact of switching to a different reserving scenario in some geographies, and this is different than several prior quarters.

Please note that all the estimated sensitivities are approximate and based on a single parameter. As we have discussed before, there is no simple formula that can accurately model all of the moving parts.

Turning to slide 22, we have outlined some of the potential future impacts if we experience an unfavorable, prolonged low interest rate environment. We have identified three first order impacts. First, the initial reinvestment rate assumptions for fixed income investments used on policyholder liabilities are largely marked-to-market on our current balance sheet. And since we have already recognized the current drop in rates in our September 30 reserves, we would not expect further material charges if rates were to remain constant.

Second, the ultimate reinvestment rate, or URR, for fixed income investments, used when we reserve for cash flows 20-plus years in the future, is a formulaic calculation, defined as 90% of the 5- and 10-year moving average of the risk-free rates. If low interest rates continued into the future, the moving average would continue to drop closer to the current rates. And we estimate that if rates were to remain at September 30, 2011 levels for the next 10 years, the cumulative future URR charge would be approximately CAD2 billion to CAD3 billion after-tax.

The third impact would be higher new business strain, resulting from the difference between the current investable returns and the returns used in pricing the new business. This impact could continue until the products are repriced.

Now, there are also a number of second-order impacts listed here on the slide. And these second-order factors are more difficult to explicitly estimate, since there are so many moving parts; but some may add to the potential aggregate negative impact if interest rates remain low.

On slide 23, you see that our net income in accordance with US GAAP for the third quarter was CAD2.2 billion, which was CAD3.4 billion higher than our results under IFRS. The primary contributors to the difference in the third quarter were VA accounting differences, which totaled CAD2.5 billion, and other mark-to-market accounting differences, which totaled CAD900 million.

Turning to slide 24, total equity under US GAAP was nearly CAD16 billion higher than under IFRS. The main driver to this difference was the higher cumulative net income on a US GAAP basis of nearly CAD10 billion, as IFRS and the Canadian Accounting and Actuarial Regime has forced us to recognize the negative impact of recent unfavorable conditions more quickly.

I will now address three topics, listed here on slide 25, which may be on investors' minds. The first is whether there is any update to the 2015 Management Earnings Objective described at Manulife's Investor Day in November of 2010.

Let me start by reiterating what we have said previously, that the lower interest rates and underperforming equity markets since the investor day both do represent headwinds to management's 2015 earnings objective. Having said that, we did consciously build in contingency when we developed the 2015 consolidated objective.

While we recognize that the recent deterioration in the economic conditions is putting pressure on achieving management's objective to grow earnings to CAD4 billion by 2015, we remain committed to this as our earnings objective. Nevertheless, additional potential headwinds and risk factors have become evident as a result of higher economic uncertainty and volatility, which may result in a revision to these objectives at some point in the future.

So for example, additional actions taken to stabilize earnings and further strengthen capital, such as increased hedging, decreasing sales, additional reinsurance or other corporate actions, could reduce the 2015 earnings objective.

In addition, continued underperformance in equity markets and the impact of flat interest rates, including the second-order impacts on slide 22, could also make that objective unachievable.

Overall, we have not backed away from the CAD4 billion goal as our management objective, but we acknowledge that there are now a lot more headwinds and risk factors than there were earlier.

The second question is around the net impact of market factors on VA guarantee liabilities that are dynamically hedged. As a result of exceptional market volatility combined with the decline in equity markets and interest rate levels, there was a net after-tax impact of CAD900 million from the increase in VA guarantee liabilities on the block that is dynamically hedged.

Approximately one third of these impacts relates to the provisions for adverse deviation, or PfADs, on the hedged block of business. Recall that we do not attempt to hedge our exposures to changes in PfADs.

A number of items contributed to the balance of the net impact. These factors include, but are not limited to, higher realized volatility leading to higher hedging costs; fund tracking error; policyholder behavior; and other items in our hedged VA block that we do not, or cannot, hedge.

Overall, we feel good about the effectiveness of the hedging program to date, but recognize that hedging does not completely eliminate all earnings volatility or all of the VA risk.

The third question relates to the potential for goodwill impairment in the fourth quarter. In fourth quarter 2011, we will be conducting our annual goodwill impairment testing as part of finalizing our 2012 business plan, which includes the update for our in-force and new business embedded values. Early indications suggest that the current economic environment, including the persistent low interest rate, will likely put pressure on the recoverable goodwill amounts related to our US Life Insurance businesses.

In particular, these updates could result in an additional goodwill impairment. Now, we do not expect the impairment to exceed CAD650 million, but the impact may be material to net income in the fourth quarter of 2011. Now, this would have no impact on our MCCSR.

So overall in the third quarter, the direct impact of lower equity markets and interest rates would have been substantially worse without the significant expansion of our hedging programs over the last year. The net loss for the quarter included our annual update to actuarial methods and assumptions.

We remain ahead of our original timetable for reducing equity market and interest rate sensitivity. And in fact, we have now exceeded our 2014 goal for interest rate earnings sensitivity and are close to our 2014 goal for equity markets.

MLI's MCCSR ratio was 219% at the end of the third quarter, which we view as a strong capital buffer, particularly in light of the significant hedging. We also continued to successfully change our mix of sales to the products which we want to grow.

This now concludes our prepared remarks, and, operator, we will now open the line to Q&A.

(Operator Instructions). Tom MacKinnon, BMO Capital Markets.

Thank you. Good afternoon, everyone. A question, Mike, about potentially moving from the macro hedge to a dynamic hedge. What would it take you to -- what kind of level would we want to see in markets before you would start initiating that? What would be the potential gain in earnings or EPS if you were able to move from a favorable macro hedge to a dynamic hedge? And what other things would need to be considered before you would want to embark on that?

Thanks, Tom. Hello, everyone. In terms of the equity hedging program, in terms of being able to move either more of our macro hedging to the dynamic hedging program, or, in fact, just adding period to the dynamic hedging program, along the lines of the parameters that we have used over the last couple of years, we would need to see, number one, most importantly, a material increase in interest rates to make those economics work.

As you recall with the dynamic hedging program, when we short the equity futures, we are trading the total equity return for essentially a short-term LIBOR kind of rate, which is awfully close to zero these days. We then turn around and trade that floating-rate based on LIBOR for a long-term swap, typically something like a 30-year swap.

30-year swaps are so low that in effect by locking into that swap rate, it would be inordinately expensive, even if the equity markets themselves were up another 15% or 20% relative to where they are today.

In terms of the earnings impact going forward, again, there are a lot of moving parts. There would be an earnings impact at the time of making the decision. Again, if we followed our historic parameters, we would make that at a point in time where that would be pretty close to zero. But we always would have to go through that calculation.

In terms of the ongoing impact, it would very much depend upon the book of business. I think it is fair to say if you look at the macro hedging program costs that are laid out in the appendix, in the deck, based on the notional of what is shorted, and again, compare trading the equity return for the short-term, risk-free rate based on that, you would want to compare that to our rule of thumb, which is not always perfect, but it has tended to be pretty close, that on the dynamic hedging program -- again, under the parameters that I just mentioned -- the cost would be approximately 50 basis points a year on the dollars of guaranteed value that would be hedged.

So the short answer is that in the near term, I would not expect that we would add materially to the dynamic hedging position. Once we did, again, depending upon the parameters, there might be a one-time earnings impact. And again, the change in the ongoing earnings would depend upon that comparison that I mentioned.

Let me see if Rahim or Warren want to add.

No, Mike I think you have covered that pretty well. As I think you indicated earlier, it is the interest rate component that would really have to move materially for us to be moving into more dynamic hedging.

I don't really have anything to add to that. It's pretty much a complete answer.

Okay, but I guess the takeaway is if the macro environment does get to the right -- a proper position where you can make this -- economically make this change, there would be some sort of positive earnings impact as a result of running a dynamic hedge versus a macro hedge.

Well, potentially. It really does depend upon a lot of factors. I would not agree with your statement on a blanket basis. I can certainly dream up scenarios where the ongoing cost of the dynamic program could be greater than the macro program. So I wouldn't say it as a blanket statement.

Again, as a practical matter, I think for the next couple of years, it is sort of an interesting hypothetical question, but it is unlikely something that we would do. Because, again, the one-time impact, because the darn swap rates are so low, the one-time impact of making the flip over would be very expensive and detrimental to capital.

Okay, and one quick follow-up. You talked a lot about the volatility in the quarter, but I assume you are still comfortable with your volatility assumption you used in the stochastic modeling. Is that correct?

Yes, that is correct. I mean, obviously, we look at that all the time. I am sure Cindy will look at it every year as part of the basis change. Again, vol is one of those things that bounces up and down. We view the third-quarter 2011 volatility to be an extreme event and not the new run rate. We view it more like the September/October '08 period, where it was even worse than it was in third quarter, as more of an aberration, as opposed to something that changes our long-term view.

Okay, thank you.

Steve Theriault, Bank of America Merrill Lynch.

Thanks. First question, in the MD&A, you talk to your intention about starting to write credit default swaps. So can you talk to us a bit about the pace with which you might ramp the initiative? And can you take us through the mechanics of what you are doing here exactly?

And I know, Don, you have always avoided this arguably controversial asset class, so what makes you comfortable that this is the right timing and the right course of action?

In fairness -- I will answer that latter part first. I think it was my predecessor that talked more about credit default swaps. Credit default swaps, when they are properly tacked to a government bond, have no more risk than buying the cash in the cash market -- a cash bond in the cash market.

What really matters is the quality of credit adjudication, and that has always been my position on it. So we are quite comfortable with it. Scott will speak to the general movement and the pace.

Sure. So as Donald suggested, the intent is not to use credit default swaps to leverage at all. We actually hold a large amount of Treasuries on our balance sheet, backing our liabilities, a number of which were put on to reduce the interest rate risk over the last several years, and we are not earning any credit spread on those. So the average quality of the portfolio has been going up.

We would like to earn some credit spread. We think this is a less risky way of adding credit spread than to redeploy those long Treasuries into long corporate bonds. Here we would be buying five-year CDS.

So as far as pace goes, the plan is to start with a CAD500 million program, see how that goes. And certainly, we would never add more than the amount of Treasuries we have backing our liabilities. I would say that we plan to be a bit opportunistic with this. We will add when we perceive spreads to be wide. If spreads are narrow, we will not add.

And so should I think of it in terms of being a synthetic way to add spread?

Yes, we are synthetically converting the Treasuries into corporates, correct.

Exactly right. And it is a way to diversify the portfolio away from things that are available in the cash market -- or are not available in the cash market, that we would otherwise not get access to. So from a credit diversification standpoint, it is a very strong thing.

What is dangerous, and what my predecessor was worried about, is operations like -- you know, the Financial Products Group of AIG, where, with small amounts of capital not in a stapled format -- people were taking on credit risk without adequate recognition of the total amount of risk they were exposed to. By stapling it with a Treasury, we are absolutely conscious and it is replicating a cash bond.

And so by doing this, will that take your sensitivity to corporate spreads down, effectively?

It will reduce our economic sensitivity to corporate spreads, but only in a modest way.

Okay. And then one more, if I might. Michael, you talked about it -- you talked about the first-order impacts on slide 22 at some length. But just a question on the second-order impacts, and the first bullet point there, where you talk about the potential for valuing some reserves on a more conservative rate scenario, which would lead to increased sensitivity to interest rates. It sounds a little ominous. Can you give us some indication, with any level of precision, as to what level of rates would have to persist for how long to trigger this type of thing, and has this ever happened before?

Sure, I will start and I will ask Cindy to add. Steve, by way of background, the Canadian Actuarial Standards force us to look at nine different scenarios, and in effect, pick the scenario that results in the highest reserve of those nine. Certainly for the period of time since I have been in the job, that scenario has been the current interest rates ultimately grading to the URR. And what we have noted is that while that continues to be the most powerful scenario for most of our business, another scenario if rates, for example, went lower that would be a more powerful scenario would be the scenario that says today's interest rates stay that way forever.

And the reason that would have a more substantial interest rate sensitivity, would result in a higher interest rate sensitivity, is that that latter scenario throws out the URR and again basically says today's interest rates go forever. So what that means is with subsequent changes in interest rates, you don't get that kind of buffering of the URR. Instead you get the full impact of today's changes and interest rates as if that is going to be the new permanent curve.

Cindy, by all means, please add.

Yes, that's a very good summary, Mike. And the other difference between the current scenario that we use and the one that some of the geographies would come onto with rates moving down 100 basis points is that in the current scenario, we assume that credit spreads grade to sort of an expected long-term average after five years. And we also assume that our investment in corporates declines by 5% a year over five years, and that is stipulated by the standards of practice.

In the flat interest rates forever scenario, you use the current spreads forever and you also use your current investment in corporate credit forever. So there is no grading down over time. Those are the other key aspects that are different between the two scenarios.

Steve, it's Mike. I'd just add, obviously if that ever did come to pass, we would obviously want to look at other ways to reduce the interest rate sensitivity. So we really weren't trying to be ominous. We were simply trying to point out that because of the drop in interest rates at third quarter, we now have this different reserving scenario possibly kicking in. And again, we reflected that to our best ability to estimate it in the interest rate sensitivities that we publish for the 100 basis point change. But again, it is just a new wrinkle because rates have come down so much.

Did you say, Mike, in your remarks that there were some pockets that were switching to other scenarios like within slide 21?

Right, Canada and Japan in down 100 basis point scenarios switch to the flat rates forever. And in the MD&A, we say that that added CAD400 million to our interest rate sensitivity and CAD300 million to our exposure to the 50 basis point decline in corporate spread.

Thanks very much.

Robert Sedran, CIBC.

Hi, good afternoon. Mike, when I think about the interest rate assumption in the original five-year plan, I guess it was for no change. And the 10-year Treasury was somewhere in the low 3s, somewhere around 3.10% or 3.15%, I guess. Presumably there would have been need to build the URR even at that level. Is it just that it would have not have been material at that level?

Robert, it's Mike. That is my recollection, that the URR impact -- particularly remember, we were talking about 2015 earnings. So the URR impact, my recollection was at the time that that was not material to 2015 earnings.

Now obviously, there is the double-barreled impact of the recent drop in interest rates. Number one, obviously, we took the current hit in the quarter for the drop in interest rates. And that means less earnings in surplus, which now means now projected less interest on surplus going forward, because we have got less surplus because of the one-time earnings hit.

In addition, you have got now -- IOS is expected to be lower, based on the new lower rates. And then as you correctly point out, we now expect a steady diet of URR hits; if rates stayed exactly where they are now, we would expect a steady diet of URR hits that would include a hit in 2015.

Now again, I just want to reinforce what I said in a prepared remarks. We have not thrown in the towel on our 2015 earnings objectives. The point is we no longer have contingency and there are now more risk factors and other potential headwinds that were not there before.

And by now, you are basically referring to the yield curve as it existed on September 30?

That's correct.

Okay. And just a quick question on strain. It did bounce to a pretty high level this quarter, and there were two items mentioned. I wonder just if you could size the two, between Asia distribution investment and the impact of the rate environment -- which was the bigger factor here?

The rate environment was the bigger factor.

By orders of magnitude larger, or -- like is the vast majority of that increase just interest rates?

I would say roughly two thirds/one third.

Great, thank you.

Mario Mendonca, Canaccord Genuity.

Good afternoon. You referred to the CAD742 million related to the assumption that mortality continues to improve. It obviously has a detrimental effect on your expected profit, as you lay out in one of the subsequent exhibits.

My understanding is that you don't get a capital benefit here from assuming that -- taking that gain, that mortality improvement gain, at least that is our understanding right now. Why would you assume improving mortality if you don't get the capital benefit, knowing full well that you lose something in future earnings going forward. What was the logic behind that?

It's Cindy. Well, the logic is that the CIA standards really required you to reflect mortality improvements. And so to be in compliance with the standards, I felt obliged to reflect mortality improvement in line with the assumptions even that they put forward. So that was the driving factor.

And Mario, it's Mike. I would also add, that CAD742 million that you are referencing was not mainly the mortality improvement. If you look at the detail in the MD&A, the impact on the higher mortality in the variable annuity block was the bulk of that CAD742 million benefit, not the projected net impact of future morbidity and mortality improvement.

How much of the CAD742 million was the improved mortality and morbidity?

CAD97 million after-tax.

I'm sorry. Okay, I didn't realize it was the small amount.

No problem.

The second thing I wanted to quickly just touch on is there are a lot of references to US GAAP and the importance of US GAAP and how it maybe -- I don't know that you are actually telling us it is a better reflection. But when I look at your page 23, it demonstrates that under US -- this is your presentation -- it demonstrates that in what was what everybody is characterizing, including, Donald, yourself, like a pretty tough quarter, that under US GAAP, Manulife would have recorded record earnings of CAD2.2 billion. Isn't the message really then that US GAAP has no place in life insurance, at least for Manulife? Because like what is the point of this slide, if in fact US GAAP would send such an erroneous message?

Well, that is a good question. I think the answer is actually somewhere between Canadian and US GAAP. If you are looking for the right answer, it depends, in a way, on what happens four or five years from now. If interest rates, you know, bounce back to where they were before, I think people will say US GAAP sent the right signals, because it is a stable business and kept companies writing interest sensitive products and recording profits associated with them, and it will have been the better accounting system.

If, on the other hand, rates stay where they are, and Canadian GAAP issuers are forced to deal with that by raising prices, changing the nature of products and so on, we will be far better off in the long run, because we are sensitized to the situation.

As one of the rating agencies observed -- and if you haven't seen this -- two really good pieces have been put out, one by S&P and one by Moody's -- that talk about the differences. And they were just put out in the last week. And one of them concluded that the right answer is probably neither one of those scenarios; it's somewhere in between. And I think that is probably the best comment that I have seen in a long time on it.

The Canadian one is far too reactive to the current circumstance. If rates were to drop on the last day of the month, this would wreak havoc on a company and a Canadian reporting issuer. The US one, you know, wouldn't react at all. On the other hand, if you follow the US system, you continue to write products based on interest rates that prevailed sometime in the past, which may not be the most sensible thing in today's volatile economy.

I appreciate the thoroughness of the answer. Just one final thing. You make several comments throughout -- in your prepared remarks also -- that the regulatory environment has become one of those key risks -- or if not the most important thing you have to think about. What do you have in mind then? Do you have something like a decoupling of the MCCSR from our accounting standards? What do you have in mind when you suggest the regulators have perhaps just gone too far?

Well, regulators around the world are looking at making the standards tough, whether you are talking about Solvency II or Basel III applying to banks, or what Canadian regulators are looking for or -- looking at AG38 in the United States. Regulators everywhere are looking to make standards tougher.

At any point in time, we have a long laundry list of things that our regulators are looking for that would add up to billions of dollars. Now at the end of the day, they tend to be sensible people and only enact those things that are appropriate and justified.

You know, the fact is, when you look at the level of Provisions for Adverse Deviation our Company has -- and that is a bit of a technical term -- but, you know, sort of the pads, the buffer that is inherent in our reserves, our reserves alone are sufficient to extinguish our liabilities with a large margin for error.

When you add onto that capital at the required level, and then 219% of that capital, you know, which doesn't allow any credit for hedging that we have done, and we have got something on the order of CAD16 billion of hedges in place, this has to be one of the most secure institutions on the face of the earth.

It is hard to imagine in that kind of environment that somebody would want to impose a tougher capital standard on you or to make a Canadian company look weaker by imposing a tougher requirement in terms of the required capital. So that is my belief system; you can tell I feel a little bit of passion about it.

I wanted to give you the opportunity to have your say.

Thanks, Mario.

Thank you.

Gabriel Dechaine, Credit Suisse.

Hey, good afternoon. Just to tie in your capital levels into your long-term management objectives, it sounds like there is clearly a trade-off between hitting the objective and potentially having to take actions that are going to either reduce your capital sensitivity or strengthen it on an absolute basis.

Like where is your thinking at right now as far as your management actions on the horizon? Are they going to be geared more towards raising the capital ratios? And if so, could you describe those and what kind of impact we could have on that guidance? The earnings guidance, sorry.

Gabriel, it's Mike. I will start and see if Donald wants to add. First, just to recap the point, you heard it exactly right. As we look for opportunities to bolster our capital in the near term, many of those do have the impact of reducing future year earnings.

So let me just give a couple of examples. We obviously sold the Life Retro business. It boosted our MCCSR, but we sold a stream of approximately CAD50 million a year, after-tax, at the margin to achieve the capital benefit.

Similarly, we entered into a reinsurance contract in Canada; gave us an immediate boost to our MCCSR, gave us an immediate boost to capital in that quarter. But again, that comes with a price tag. So for several years, there will be a similar kind of headwind in terms of our earnings.

So what we are simply flagging is that as we look for other opportunities to bolster our capital position, either today or if markets continue to be under pressure, some of those actions may come at a price of lowering future earnings.

At this point, we have not thrown in the towel on the CAD4 billion. At this point, we feel good about the 219% ratio. As Donald said, that serves as a very strong buffer for policyholder obligations, when you include those PfADs on top of the capital.

But having said that, we are sensitive to the rating agencies, who are sensitive to the MCCSR. And again, we are cognizant to keep that regulatory capital ratio at a robust level.

So those are the trade-offs that we are thinking about. I think it is too early to try to predict that we are going to take action and it is going to have an earnings impact of X. I am simply flagging that as we -- that at 219%, with the kind of volatility that we are having out there, to me, it was an important risk factor to flag. But not ready yet to give you a prediction.

Presumably, you have got a few similar type transactions like the one you have already taken to bolster that capital ratio.

Well, that is our view, is that we do have those as potentials. Again, though, as we enter into more of those kinds of transactions, that would be potentially more headwind on our 2015 earnings objective. So there is no free lunch, and we will be evaluating that kind of trade-off going forward.

And last one, the steady diet -- a good way to put it -- of URR strengthening. Over the next four years, you say it is going to be CAD1 billion to CAD2 billion of that CAD2 billion to CAD3 billion over the next 10. Is that, like, a straight line? I guess it depends on if you are taking it down by 10 basis points at a time or what. Like, how much flexibility do you have there, or is it really just more mechanical and it is going to be downward sloping kind of number or what?

I will start and see if Cindy wants to add. You are right, that under our current process, it is in fact mechanical. If interest rates stayed where they were -- stayed where they are today, I would expect there to be a more significant hit in 2012. So of that CAD1 billion to CAD2 billion, the largest single impact would -- under this hypothetical scenario -- I would expect to be in 2012.

And then grading down; so you start getting into the out years, where you are moving past the five years -- the formula is a 10-year rolling average with the last five years double-weighted. As you move past the double-weighted period, we would expect less of an impact. So it could be in excess of CAD500 million here in 2012, depending upon how close rates stay to where they are today, but less impact when you get to the out years.

Nothing to add.

Thank you.

Doug Young, TD Securities.

Hi, just I guess my first question, going back, I think, to what Mario was talking about in slide 23, the depiction of Canadian GAAP to US GAAP. And I guess maybe is another way to really look at this is that there is really no way that a Canadian Life Co can compete in the US market. Is that a fair takeaway from that slide as well?

I don't think that is quite fair. Certainly, we compete very effectively in the US. I think it is just a reminder that accounting regimes matter and accounting regimes are different. And that as people are evaluating our results relative to our US competitors, I do think it would be unreasonable and inappropriate, not particularly helpful, for you to take the CAD1.3 billion loss that we had and compare it to big US companies. I think that is apples and oranges.

Once again though, back to Mario's points, we aren't trying to say that US GAAP is better. [CGAAP] simply is more punitive in unfavorable markets, and that is what we dealt with with this quarter.

But is it not fair to say it is very difficult to compete on a pricing perspective when there is that type of discrepancy?

I think products that give rise to the sensitivity -- the interest sensitivity -- I think that is a fair conclusion to make. Not only because of the accounting, but because that accounting feeds directly into our solvency formula. So we would have to provide more capital as a result of interest rates going down than a US company would have to do. That is a significant disadvantage.

Having said that, you know, the fact that interest rates are volatile and the fact that companies sell products with embedded guarantees, I think it sends a useful signal that that is a dangerous thing to do. I mean, if you look to the Japan experience, a number of companies went bankrupt as a result of having guarantees out there and not responding to them quick enough. And that is one good feature of the Canadian accounting regime.

But the fact that we have investors that you guys speak to who say, I like XYZ Company, a US GAAP reporter, because they have much more stable earnings profile than Manulife or some of our other Canadian peers, that is a totally invidious comparison. Because if you look at our US GAAP results, they are pretty stable - and as Mike has pointed out, would produce CAD16 billion higher capital than the Canadian formula. But it is fair for you to conclude that Canadian companies are being put at a competitive disadvantage operating in the United States, because we have to hold capital that is a direct reflection of the accounting regime, whereas the US has a far more stable solvency regime.

And Doug, it's Mike. Just to add one firm example of that. When we sold the Life Retro business to Pac Life, one of the things that we noted is that our view was that that was a win-win transaction in all likelihood for both parties, because that business was disadvantaged under the Canadian capital regime relative to how Pac Life could manage that business purely under the US regime. So that would be a tangible example.

Now again, that was primarily driven by capital, as opposed to accounting volatility. But the two are obviously linked here in Canada, because the Canadian capital regime is directly linked to C GAAP, unlike the US.

Okay. And just my follow-up is, you talked about taking potentially a pension charge of CAD864 million. I am wondering, Michael, is that a Q4 event? And if I could tie that in just to capital, obviously markets and rates are up higher, so that's going to have a positive implication for your capital ratio.

But if you do take that pension charge, it is a seven point impact. You have the reinsurance phase-in of three points. If we take that off of, obviously, where you were at the end of Q3, your capital ratio would start to go below [210]. And I am just looking at your comfort around that particular scenario, and is that going to expedite maybe looking for other alternatives, other levers to pull to boost your capital ratio?

Doug, first, just in terms of the facts, the new IFRS rules would go into effect January 1, 2013. So I believe that it would impact our opening balance sheet for 2013. It would not be an earnings issue in 2012, but would instead be an opening balance sheet issue in 2013.

Importantly, that CAD864 million number will move. That was the number as of year-end 2010. It will be what it will be at year-end 2012. But it is not something that you can pour in concrete at this point.

I also -- my recollection is that is a pre-tax number too, so you would want to tax effect it.

But putting aside the minutiae of the calculation for a second, the most important thing is that, to date, OSFI has not opined yet on how they would treat this. This impact would impact the opening OCI balance; it would not impact retained earnings. It would impact the opening OCI balance for 1/1/13. And OSFI has not opined on how they would treat that impact. So we don't know at this point whether it would impact the MCCSR or not.

As to your broader question on capital, obviously, we are cognizant of the fact that there are all sorts of scenarios you can dream up that could put additional pressure on our capital. At 219, again, without any explicit credit for hedging, we feel like it is a good capital level from a risk management standpoint, again, particularly if you add in the PfADs; a lot of policyholder protection there. But again, we are cognizant of the need to keep our externally published capital ratios at robust levels. And obviously, that is why it is always important for us to have contingency plans and other possible management actions on the shelf, as we try to do all the time, to be able to execute if we need to.

Okay, I will leave it at that. Thanks.

Peter Routledge, National Bank Financial.

Thank you. I hate to keep doing this -- I will come back to slide 24. Don, the clear implication of slide 24 is that book value in Canadian GAAP is somewhat understated. And I imagine that would impact John Hancock more than any of your other businesses.

So is a way of unlocking value looking at spinning off John Hancock in some fashion? I acknowledge maybe this quarter wouldn't be an accommodative quarter for it. But thinking forward, if you get a bit more growth, and Hancock's platform has seemed to have recovered quite nicely in selling the products you want to sell, why not try and unlock value for shareholders in that way?

Well, Peter, we look at a wide range of alternatives. We are very proud of what the John Hancock units are doing. I mean, great mutual fund sales, great 401(k) sales and great insurance sales. And, as Michael mentioned, 85% plus in products that don't give rise to the exceptional interest rate volatility. And variable annuities which, I think whether you look at it on a Canadian GAAP or US GAAP basis, or simple economics, are a product that we don't want to have a gigantic exposure to going forward. Moderate amounts are fine, but I think any sensible person would attenuate exposure to those products, given some of the risks they expose one to.

We are very proud of what the unit is doing. On the other hand, it is not unnoticed to us that that business operates under a very significant disadvantage because of our Canadian solvency regime and our Canadian accounting regime. And you know, if there were simple ways of unlocking value for shareholders, you know we would do that.

We would hope that more sanity would prevail over time and that there would be more uniformity of the solvency and accounting standards, so that we could judge comparable businesses on a comparable basis. That is the hope that we would have. But you also can't wait for 20 years for that to happen, and if there were ways of unlocking value to the benefit of shareholders, we would take those opportunities.

Having said that, in the meantime, we continue to drive the business in an incredibly positive direction, and I am very, very proud of what our guys are doing in the States. And they are delivering great value to shareholders under the considerable challenge under which they operate as a result of our Canadian accounting and solvency regime.

You answered that directly and very well. Thank you.

Darko Mihelic, Cormark Securities.

Actually, a couple of really quick and simple ones, I think. You mentioned -- or you actually incurred a small charge this quarter for URR refinement. Did you actually change your rate in there or is the rate the same as last quarter, and it's just a similar model refinement that has occurred?

Hi, it's Cindy. The charge this quarter was twofold. One was -- and the bulk of it was really in Q2, we booked the URR charge for our material businesses, and that didn't include Asia. So the bulk of the charge this quarter is to book that for our Asian businesses.

And the second piece was just a minor true-up due to the differences between interest rates at Q1 and Q2. We did our estimate for the Q2 booking based on interest rates that prevailed at the end of Q1.

Okay. And just a follow-up to that. The sensitivity to URR change -- actually, no, I will leave that for something else.

My last question really is just moving on to the NAIC task force that's considering life insurers' reserve methodologies in the US with respect to UL products. Do you guys have any exposure to that product?

Jim Boyle from the US. This is the AG38 question that you are referring to. Very early to tell right now. This is with an actuarial committee that is going to report up through more senior ranks in the NAIC.

To answer the question specifically, it was trying to address, effectively, term products that were put on a UL chassis. We have written none of that business. There are some that read the interpretation of the proposed refinements to the regs that seem to indicate that it would apply to all UL (technical difficulty), not just these specifically unique to term UL.

So if somehow it was all UL products, certainly we would have an exposure. But it is very early days and we have written none of the products that brought this to the table.

It's Mike. I would add just one point, and that is, as you know, typically in the US, when they make changes to the stat reserve standards, the NAIC typically makes those prospectively. And if that change was made prospectively, it would be really a very, very minimal impact for us.

Okay, that's helpful. Thank you.

Andre Hardy, RBC Capital Markets.

Thank you. Question is probably for Mike Bell, and it is on sources of earnings. If we actually expected profit on in-force, impact of new business and earnings on surplus funds, I guess there are reasons why the expected profit on in-force is down and that will stay down relative to the past.

But on the impact on new business, how aggressive are you at repricing product to reflect the current interest rate environment? And assuming you are active now, fair to say that it takes a couple of quarters before it is actually reflected in the strain?

And then on earnings on surplus, you had something that went the wrong way in the quarter. I hate asking for guidance, but what do you roughly expect out of that line item in a normal quarter? Presumably it is a higher number than CAD96 million.

Sure. I will start and I will see if Paul wants to comment here on Canada in particular.

In terms of new business strain, certainly our track record over the last several years, and certainly since Donald has been CEO, has been to respond quickly to what appears to be a semi-permanent drop in interest rates. So fair to say that with the drop we have seen over the last four months, that has been a very high priority, to update pricing plans.

Having said that, you are exactly right. There is normally a lag time in terms of sorting out the pricing decision, then getting that filed and then getting that implemented through the distribution channel. So you are right that it typically takes a couple months.

Let me just -- I will hit the IOS piece and I will ask Paul to comment on the Canadian price increases.

On the IOS, second quarter benefited from some market value gains on specifically some derivatives, but derivatives related to non-fixed income investments. Third quarter had essentially a reversal of about the same amount. Again, I don't want to give guidance here; I don't think that is a good game to get into. But I think it would be fair to say somewhere close to the middle of that would be the second quarter and third quarter answer, if you washed out the positive in Q2 and the negative in Q3. That wouldn't be a bad place to start in terms of your modeling.

But again, it is complicated; there are a lot of moving parts, so I probably ought to pause there. Let me see if Paul wants to talk about the price increases in Canada.

Yes, it's Paul Rooney here. You know, our strain in Canada comes from more than one place, the Bank; the Mutual Funds where you can't DAC some of the amortization there, the acquisition cost. But the biggest chunk is the level COI longtail universal life business.

Last year, we increased the prices to attenuate strain; virtually all of our competitors followed. Very recently, we significantly increased prices again to reflect the strain and the low level of interest rates. We haven't seen any competitors react yet, but we expect they will, given this low environment. And this round of price increases should largely eliminate the strain on the longtail universal life. If rates fall further, we are perfectly ready to adjust prices again to reflect the current and future nature of the economics.

So, yes, it takes some time to have pricing react to the current environment, but not that long.

Thanks, Paul.

(Operator Instructions). Michael Goldberg, Desjardins Securities.

Thanks. My first question relates to page 24 of the press release. I am just wondering, aside from that pension accounting change and the possible regulatory response to it, do the comments about regulatory actuarial and accounting risk there, to what extent can I view this as boilerplate versus new factors that may have an imminent impact?

Michael, I will start. It's Mike. We endeavor every quarter to make our disclosures as robust and up-to-date as possible. Consistent with what we have talked about, we see regulators around the world -- not just OSFI -- but regulators around the world getting tougher. And particularly at OSFI, they have done a number of things that they have talked about, and again, we felt like it was important to communicate very clearly.

On the professional standards piece, we are aware that the Canadian Institute of Actuaries in particular is looking at the calibration of standards that ultimately are used for VA reserving, and also required capital calculations. Again, that is something that I would not be surprised about if it came out sooner rather than later, and had a 2012 impact.

So again, it is both a global trend that we are seeing, but also, again, some sense that the CIA may act, and that could have an impact is also what we are communicating there.

Okay. And secondly, you know, I see the comparison that you show, US GAAP versus IFRS. But US companies are also driven by stat accounting. So I'm wondering how you would compare the US versus Canadian regulatory environment, where some US companies are raising or considering raising their common share dividends, while in Canada, companies are still perceived as under pressure to strengthen capital more. Or to put it another way, if you took your business, all other things being equal, and plunked it down in the US, is it conceivable that you would have 500% plus RBC and that you would be looking to increase your common share dividend also?

Michael, you are absolutely right. If we were a US GAAP issuer, we would have -- I can't say the ratio would be that, because we don't produce them, but it is probably a reasonable guess. And yes, we would probably be -- you look at companies in a much more fragile position than us in the United States that are actually increasing their dividends and actually buying back stock.

And our regime here in Canada -- I mean, the good news is it is conservative, but the bad news it is probably overly conservative, and I think you are bringing that out. It is what it is and we don't have roller skates.

Are you aware if there is any kind of Rosetta Stone that could actually translate from one to the other?

I don't think so. I mean, I guess we see and publish what our US business has, and we know what that translates to into Canadian MCCSR -- basically, multiply it by half. And with much more volatility having to do with interest rates and equity markets. We don't do US statutory reporting on the entire enterprise because it would be a lot of work, and other than answering your question, there would be no other use for it. So it would be an interesting thing to do, or to approximate.

I just wonder if OSFI might be interested or it might be worthwhile for them to be informed.

Yes, it might be. I have seen some analysis that people have done that compares, in the property casualty industry, the different solvency regimes. The Canadian regime is very reactive to current interest rates and current equity markets and far more reactive. That is the big difference.

And again, it depends. If you think the rates are going to stay where they are for the next 30 years, by far the Canadian is the more superior regime. If you think that in three or four years' time, things might get back to normalcy in the global economy, the US regime has a lot to be said for it.

Thank you.

Thank you. There are no further questions registered at this time. I would like to return the meeting over to Mr. Ostler.

Thank you, Jason. We will be available after the call if there are any follow-up questions. Have a good afternoon, everyone.

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.