Manulife Financial Corp (MFC) 2013 Q4 法說會逐字稿

Please be advised that this conference call is being recorded. Good afternoon and welcome to the Manulife Financial fourth-quarter 2013 financial results conference call for Thursday, February 13, 2014. Your host for today will be Ms. Anique Asher. Ms. Asher, please go ahead.

Thank you and good afternoon. Welcome to Manulife's conference call to discuss our fourth-quarter and full-year 2013 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 remarks. We will then follow with a question-and-answer session.

Today 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.

We have also included a Note to Users slide that sets out our performance and non-GAAP measures used in today's presentation. 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, and 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, Anique. Good afternoon, everyone, and thank you for joining us today.

I am joined on the call by our Chief Financial Officer, Steve Roder, as well as several members of our senior management team, including: Bob Cook, our Asia General Manager; Marianne Harrison, our Canadian General Manager; Craig Bromley, our U.S. General Manager; Chief Operating Officer, Paul Rooney; Chief Investment Officer, Warren Thomson; our Executive Vice President, General Account Investments, Scott Hartz; our Chief Actuary, Cindy Forbes; and our Chief Risk Officer, Rahim Hirji; and last but not least, our Treasurer, Steven Moore. I hope you will make some use of these people on the call today by directing questions to one or more of them.

This morning, we announced our fourth-quarter and full-year 2013 financial results. They were quite satisfactory.

As you can see from the chart, we have enjoyed an impressive trajectory in net income. In 2010, we had a loss of CAD1.7 billion; in 2011, a small gain; 2012 earnings increased to CAD1.8 billion; to full-year 2013, a further improvement to CAD3.1 billion.

While this trajectory is impressive, I want to dissuade anyone from applying a straight rule to that graph to extrapolate the growth rate in net income for next year. That is because our net income in 2013 benefited from unusual items, including exceptional investment-related experience of CAD906 million, which we would not expect to recur, at least immediately. In addition, we realized a CAD350 million gain on the sale of our Taiwan business, definitely a nonrecurring item.

These were partially offset by other items including updates to actuarial models and market-related factors, which netted to a CAD543 million charge.

It is for this reason that we introduced the core earnings metric, as it is a better measure of long-term earnings capacity of our business going forward. You look back in terms of history, core earnings were not comparable in 2010 because at that time we did not have hedging in place. But since that time core earnings have grown nicely, and for the full-year 2013 were 16% higher than they were in the previous year. We are very proud of that.

In terms of top line, we ended 2013 with another record year for wealth management sales, with contributions from each of our territories and the sub-businesses beneath the major territories. Our insurance sales in 2013 were slightly lower than what we would have liked, but they were accompanied by much improved margins, leading to higher profit margins overall, better operating earnings, and improved new business embedded value.

In terms of capital, we ended the year with an MCCSR ratio of 248%, a 37-point increase over the prior year. We are very pleased with the balanced growth of our business over the last year. Our strategy is unfolding into strong operating results, and our financial performance shows that we are delivering on our long-term objectives.

In terms of progress on our major growth strategies, in terms of developing our Asian opportunity to the fullest, in 2013 we achieved record wealth sales of CAD8.5 billion, an increase of nearly 60% from the prior year. We had new fund launches, which substantially contributed to wealth sales. And we successfully executed on the Mandatory Provident Fund's Employee Choice Arrangement in Hong Kong, where we now hold the leading position in new cash flows in that region.

We also expanded our distribution platform across the region. We secured and deepened important distribution agreements with key partners, including a new bancassurance agreement and a wealth management acquisition in Malaysia.

We achieved strong growth in our professional agency force, ending the year with a record 57,500 agents, an increase of nearly 4,000 agents from the prior year. As a result of these and other activities, insurance sales in 2013 were below expectations for most of the year, but momentum improved dramatically in the fourth quarter, with sales up 20% on a currency-adjusted basis over the prior quarter.

We also continued to grow our wealth and asset management businesses around the world. Manulife Asset Management grew its assets under management by 18% to CAD243 billion, and continues to generate strong investment performance, with all public asset classes exceeding their benchmarks for one-, three-, and five-year periods.

We ended the year with a total of 70 funds rated Four and Five Stars by Morningstar, an increase of ten funds since September 2013. Our funds under management at the end of the year was CAD599 billion, our 21st consecutive quarter of record funds under management.

2013, we achieved almost CAD16 billion in net mutual fund flows, more than triple our 2012 results, reflecting a strong product suite, our robust distribution partners, as well as improved market conditions.

In terms of Canada, we continued to build our balanced Canadian franchise and made strong progress across our diverse businesses within Canada. We achieved record mutual fund deposits of over CAD6.5 billion, an increase of 61% from 2012.

Life insurance sales in Canada were slower than the prior year, but with much higher margins. Group Retirement Solutions sales grew 25% to CAD1.4 billion. Group Benefits continued to lead the market throughout 2013.

Manulife Bank ended the year with record net lending assets of almost CAD19 billion despite an overall slowdown in the residential mortgage market. We also expanded our distribution reach through increased broker-dealer penetration, as well as two transactions to bolster our mortgage creditor life and our travel insurance business executed during the year.

In the United States, we continued to grow our higher-ROE, lower-risk businesses, a fantastic turnaround from our U.S. operation. We achieved record mutual fund deposits of over $23 billion, an increase of 79% from 2012, which contributed to record funds under management.

On the insurance front, we continue to generate strong sales for our repriced, lower-risk insurance product suite. In the Retirement Plan Service business, we launched new products, expanding into the mid-market 401(k) business. With several commitments now being funded, we are building momentum in this market.

We also expanded our distribution reach through the acquisition of a broker-dealer, which will further fuel wealth management and insurance sales growth.

Our U.S. operation has turned around nicely, and along with our very strong Asian and Canadian businesses, leads us to a very well-balanced portfolio, with earnings split almost evenly between our three major operating geographies. We are also well balanced between insurance and wealth.

In conclusion, we are pleased with the progress we made in 2013. As we embark on 2014, I am very confident that Manulife is well positioned to continue to deliver the disciplined and sustainable growth required to meet our long-term objectives.

With that, I will turn the call over to Steve Roder, who will highlight our fourth-quarter financial results and then open the call to your questions. Thank you.

Thank you, Donald, and hello, everyone. Let's start on slide 6, where we highlight our financial and operating results for the fourth quarter of 2013.

We reported net income attributed to shareholders of CAD1.3 billion, up CAD220 million from the prior period. In terms of our operating performance, we generated core earnings of CAD685 million, up 24% from the fourth quarter of last year; achieved strong wealth sales of over CAD12 billion, up 15%; and delivered new business embedded value of CAD316 million, up 27%.

Insurance sales, however, declined in the fourth quarter of 2013, reflecting normal variability in our market-leading Group Benefits business in Canada.

Turning to slide 7, you can see that we are demonstrating solid progress on growing both our core and reported earnings. For the full year, we generated CAD2.6 billion of core earnings, an increase of almost CAD370 million, driven by growth in our wealth business; improved new business strain, primarily in our North American insurance businesses; and lower amortization of deferred acquisition costs. These were partly offset by higher legal and other expenses.

In the fourth quarter of 2013, we reported core earnings of CAD685 million, up CAD131 million from the fourth quarter of 2012, driven by many of the same factors as our annual results.

Turning to slide 8 and the progression of our total Company core earnings over the previous quarter. In Asia, the decline in core earnings was largely driven by a one-off tax adjustment and normal variability in our branding initiatives.

In Canada, last year's core earnings included a one-time benefit from a release of prior years' tax provisions. Excluding that benefit, core earnings in Canada improved as a result of higher fee income from our growing wealth businesses and improved insurance new business strain.

In the U.S., core earnings reflected favorable claims experience, largely offset by additional dynamic hedging costs.

Corporate core earnings were in line with the prior quarter, as higher earnings on our P&C reinsurance business and favorable tax items were offset by higher legal and other expenses.

Expected macro hedging costs declined due to the favorable market environment and a shift towards more dynamic hedging. The shift to dynamic hedging is largely offset by increased hedging costs in the divisions, which I will discuss later in the presentation.

Turning to slide 9, in the fourth quarter our reported net income benefited from strong investment-related experience of CAD265 million, CAD50 million of which was included in core earnings; a gain on the sale of our Taiwan insurance business of CAD350 million; and other items including in-force product actions, the recapture of a reinsurance treaty in Asia, updates to actuarial models, and market-related factors -- all of which netted to a CAD47 million benefit.

On slide 10, here is our Source of Earnings or SOE. You might recall that transferring the hedging of equity exposures from the macro to the dynamic hedging program impacts both the expected profit and the management actions lines of the SOE. Dynamic hedging costs are reflected as a decline in expected profit, and the expected cost of macro hedging is reflected in management actions.

The impact of the transfer from macro to dynamic hedging is largely offsetting. After adjusting for the geography issues on hedge costs and currency, expected profit was in-line with the prior quarter.

New business strain continues to benefit from our efforts to re-price and improve the risk profile of our insurance businesses. Experience gains include favorable policyholder experience and the impact of our investment activity and the market environment.

The management actions line primarily reflects the gain related to the sale of our Taiwan insurance business, in-force product actions, and a reinsurance recapture transaction. This was partially offset by the expected cost of the macro hedging program, as well as model refinements.

Earnings on Surplus increased primarily due to favorable tax-related items, which are largely offset in the tax line below.

Turning to slide 11 and insurance sales. Insurance sales in the fourth quarter declined 32% over the prior-year period and full-year sales declined 13%. The decline for the year and the quarter reflects strong prior-year sales in advance of product changes in Japan and normal variability in our market-leading Canadian Group Benefits business. Excluding these impacts, insurance sales grew 7% over the fourth quarter of 2012.

While we saw a decline in insurance sales in 2013, insurance new business embedded value increased substantially, demonstrating that our product actions and re-pricing have positioned us well for continued success.

On slide 12, you can see that we achieved record wealth sales of nearly CAD50 billion in 2013. Wealth sales grew 37%, reflecting record wealth sales in Asia and record mutual fund sales in Canada and the U.S. In the fourth quarter, wealth sales exceeded CAD12 billion and grew 15% over the prior-year period.

Wealth sales in Asia declined, reflecting strong prior-year sales that benefited from a successful fund launch in Japan and the start of the Mandatory Provident Fund's Employee Choice Arrangement in Hong Kong. Canadian and U.S. wealth sales improved due to continued strong mutual fund sales.

Turning to slide 13, new business embedded value, or NBEV, was CAD1.2 billion in 2013, representing a 16% increase over 2012. NBEV in the fourth quarter was CAD316 million, up 27% over the prior-year period.

We are pleased with the increases in both periods as it demonstrates the successful execution of our strategies, including the repositioning of our product mix and re-pricing. This reaffirms that the profitability of our underlying new business continues to improve.

On slide 14 we illustrate the change in in-force embedded value for the Company. In-force embedded value increased to nearly CAD42 billion or CAD22.62 per share, up approximately 10% over the prior year. The increase is largely due to the unwinding of the impact of discounting and the addition of 2013 new business.

Turning to slide 15, premiums and deposits in 2013 increased 17% to over CAD88 billion. However, P&D in the fourth quarter declined, reflecting the non-recurrence of strong volumes in the prior year related to product changes in Japan and a large deposit in the institutional advisory business.

Turning our focus to the operating highlights of our divisions, we begin with the Asia Division on slide 16. Asia Division core earnings of $216 million were down 7% from the previous quarter. However, on a full-year basis, adjusting for currency fluctuation and the higher hedging costs, Asia core earnings increased 6% over the prior year.

In 2013, Asia Division achieved record wealth sales, with contributions from most territories. Fourth-quarter wealth sales were $1.6 billion, a decline of 18%, reflecting strong prior-year results which included the successful launch of the Strategic Income Fund in Japan and a strong start to the Employee Choice Arrangement in Hong Kong.

While insurance sales in 2013 and in the fourth quarter declined versus the prior year, largely reflecting the run-up in sales ahead of tax changes and product re-pricing in Japan, we had a 20% increase in insurance sales over the third quarter, with record quarterly sales in Hong Kong and Indonesia due to the success of agency sales campaigns. We also achieved record quarterly sales in the Philippines and Vietnam.

Total annualized premium equivalents in 2013 increased 8% over 2012, driven by growth of wealth sales in most territories. And total weighted premium income in 2013 increased 7%, reflecting in-force business growth in most territories, higher mutual fund sales in China and Taiwan, and higher single premium unit-linked sales in the Philippines.

Turning to our Canadian Division's operating highlights on slide 17, core earnings for the Canadian Division decreased 13% from the prior quarter to CAD233 million. In 2013, we achieved record wealth sales, an increase of 21% from 2012; however, insurance sales declined 14% due to normal variability in Group Benefits.

Wealth sales in the fourth quarter of CAD3.1 billion were up 24% versus the prior-year period, driven by robust mutual fund and Group Retirement Solutions sales. Fourth-quarter insurance sales of CAD162 million declined 59% versus the prior-year period, reflecting normal variability in our market-leading Group Benefits business. Partly offsetting this decrease was strong double-digit growth in individual insurance, where new annualized premium sales increased 16% over the fourth quarter of 2012.

Moving on to slide 18 and the highlights for the U.S. Division, core earnings in the U.S. were $349 million, in line with the prior quarter. 2013 wealth sales rose 39%, driven by strong mutual fund sales growth, while insurance sales declined 6% reflecting our actions to improve margins and new business mix.

In the fourth quarter, wealth sales grew 22% over the prior year to $7.1 billion, driven by continued strong mutual fund sales growth across all channels. This more than offset lower Retirement Plan Services sales, which declined as a result of the competitive pressures and a general slowdown in the industry.

Fourth-quarter insurance sales of $137 million were down 21% from the prior-year period. The decline reflects the introduction of new products with increased margins which, as expected, are taking time to generate momentum.

Turning to slide 19, funds under management at the end of 2013 were CAD599 billion, our 21st consecutive record quarter of funds under management.

Slide 20 summarizes the capital position for The Manufacturers Life Insurance Company. We ended the year with a further strengthened regulatory capital ratio of 248%, an increase of 19 points over the third quarter of 2013. The increase in our capital ratio reflects contribution from earnings; a reduction in capital requirements for variable annuity guarantees as a result of rising equity markets; the sale of our Taiwan insurance business; and a subordinated debt issuance executed during the fourth quarter.

Before I conclude, I would like to address a couple of topics which may be on the minds of our investors. The first topic that I want to discuss is capital deployment.

Our strong MCCSR ratio of 248% provides a solid cushion against adverse markets. But there are other factors that would have to be considered in making a decision to recommend a higher dividend to the Board of Directors.

Some of these factors would include: a continued trend of stable and increasing core earnings and net income; a leverage ratio that is trending towards our long-term target of 25%; ability to organically fund the capital requirements of our fast-growing businesses; and more clarity on the direction of the evolving capital and accounting frameworks.

We are pleased with the progression of our earnings trajectory and we continue to expect financial leverage to decline, based on organic growth in retained earnings, to the 25% range by the end of 2016. But until we have some further clarity on some of the other factors, we do not expect to recommend any changes to the dividend to our Board.

The second topic I would like to address is an update on our E&E initiative. In 2012, we announced that we were embarking on an Efficiency and Effectiveness initiative, now known as an E&E initiative, that would allow us to leverage our global scale and capabilities and our local market focus, to achieve operational excellence throughout the organization. I am pleased that E&E has become a new way of life for Manulife that will continue well past 2016.

We made significant progress on this project in 2013. We completed our Organizational Design project, which resulted in fewer layers in the organization and wider spans of control. We have identified over 300 projects, which will improve efficiency and effectiveness, of which over 60% are currently in execution.

Some examples of these projects include our Workplace transformation initiative which is being rolled out across North America. The project's goal is to improve and modernize our workplace environment to promote collaboration, global mobility, and flexibility. The project also results in a smaller real estate footprint, which will realize cost savings.

Second, through our Global Procurement project we have significantly upgraded our processes to leverage our global scale in vendor negotiation, and are already achieving significant cost savings as a result.

Third is in regard to Global Infrastructure. We have consolidated our information technology teams from the various business units into a global function and are achieving efficiencies through better data and information storage management. We will also be consolidating and standardizing systems globally to achieve significant savings.

The annual pre-tax run rate savings from E&E were over CAD200 million in 2013. These savings were achieved throughout the year, and we continue to invest in the planning and execution of a very significant number of projects.

As I have said in previous quarters, the net impact in 2013 was immaterial. However, we do expect pre-tax net savings of approximately CAD100 million in 2014, increasing thereafter. And we can see our way to net pre-tax savings of CAD400 million by 2016.

So in conclusion, in 2013 we generated strong growth in both net income and core earnings; achieved record wealth management sales; improved new business embedded value, despite a decline in insurance sales; delivered record funds under management; and increased MLI's capital position.

This concludes our prepared remarks. Operator, we will now open the call to questions.

(Operator Instructions) Robert Sedran, CIBC World Markets.

Hi, good afternoon. Steve, just a follow-up on the expense issue. I know it was noted in a couple of places, I guess, both on a year-over-year and for the quarter, for the quarter and the year, that expenses were a drag on core earnings.

So when you think about those savings that you disclosed and you talk about net savings, is that reinvestable expenses into other growth initiatives? Or is that CAD400 million that over time you would expect to fall down to the bottom line?

Thanks for the question, Rob. Yes, the CAD400 million I would say over time will fall down to the bottom line and be available to us to do with what we will, if you like. Of course, we always have new initiatives.

But based on the projects we have identified right now, by the time it gets to 2016 we would expect CAD400 million to fall through to the bottom line. The caveat I would put around that is I think I said on the call that E&E is a way of life, so we don't want a sense of our new-found culture coming to an end in 2016, as it were.

But essentially, yes, it drops to the bottom line.

In terms of the quarter, and your reference to the quarter and year-on-year, yes; we did have one or two costs that we had to take into core earnings in Q4. I can say as an accountant, if I ever see in earnings trend where you see a very nice, neat, straight-line improvement from one quarter to the next, I am pretty cynical about that, and it never happens that way.

There is always odds and ends that impact a quarter. And this quarter we did have a couple of expenses, legal and other, that we highlighted that did impact core earnings.

Okay, thank you. I want to ask a question about new business embedded value as it relates to insurance sales. For a few quarters now or at least a couple of quarters, we have been hearing that insurance sales have not been tracking as expected. But new business embedded value would seem to be doing exactly what you would want out of insurance sales.

So this sounds like a softball, but I don't intend it as such. When I look at new business embedded value versus insurance sales, are there other issues from a business perspective we should be thinking about that would make us look at the insurance sale number? For example, I am thinking of things like expense accruals or perhaps issues with the distribution network that might not make you as attractive a partner if you don't have a high-enough dollar value of sales.

Should we just look at new business embedded value? Or does the dollar value of sales really matter from a business perspective?

Yes, Rob, I think it is a great question. Most salespeople like to be associated with a growing organization. It is not an issue of the scalability or -- obviously, the more we sell, the more we cover fixed costs, and that is an issue.

We have scaled back certain products considerably. But in our core businesses, we like to see growth. Everybody likes to see growth.

We are playing a balance between selling them at the right margin, but also getting a sales increase year-on-year. I think the balance has been pretty good for the shareholder and that we have increased new business embedded value. You can see core earnings going up, both of them by 16%.

It is absolutely a result of those factors. But we also don't want to see sales fall off precipitously.

Okay, thank you.

Tom MacKinnon, BMO Capital Markets.

Yes, thanks very much. Good afternoon. Steve, wonder if you can elaborate on slide 8 what some of these little one-timer items might be, the higher legal and other accruals, and the one-off tax adjustment in Asia. Than I've got a follow-up.

Yes, okay. Well, first of all, let me just say at the outset, Tom, I would say that on balance you can always have a discussion about what is a one-off item. How one-off is a one-off item? So some of these things are harder than others.

I would say this quarter if you take all these items together, they largely net out, possibly slightly negative to us in the quarter; whereas last quarter they were slightly favoring core earnings. You may recall last quarter we highlighted the favorable tax item in the Canadian Division.

So the trend line is negative, but if you look underneath it I would say it is probably pretty much flat or very slightly positive.

In terms of the items themselves, I can't comment on the nature of the legal item which we took this quarter. But we decided we needed to make a provision there. The net amount was on the order of CAD20 million.

In Asia, again, we took a tax accrual based on perception of interpretation of a tax law in a particular jurisdiction. Magnitude there, Tom, roughly CAD10 million.

Okay, thank you for that. If I look over at the Source of Earnings exhibit on slide 10, I think you had mentioned if you ex-out currency and as well the transfer and the offsetting transfers from the macro, the dynamic, as they work between expected profit and Management Action, I think you said expected profit excluding those items was flat quarter-over-quarter.

Now given that the equity markets went up nicely, you have been building all this wealth management business, presumably you get higher fee income coming in, and that would flow right into expected profit. Why wouldn't we have expected expected profit to be up a little bit quarter-over-quarter? What may have been working against it?

Sorry, you are on slide 10, Tom?

Yes.

Yes, well, the expected profit was marginally up quarter-over-quarter. I believe -- or, no, actually -- currency adjusted. Sorry, I will see if Cindy (multiple speakers)

Maybe, Steve, I can add some color. Hello, Tom. It's Cindy. There is always a little bit of variability in earnings on in-force quarter to quarter. It is impacted by things like corporate spreads and just investment actions or the timing of when swaps reset or mature.

So there is a little bit of noise. And you are just seeing some downward pressure from that noise in the fourth quarter, but it will -- it is just really period-to-period noise. It is not a trend.

Okay. And then --

Tom, if I could just correct myself. What I should have said is the decline that you see, if you currency-adjust it, there is still a marginal decline, which Cindy is referring to. But it is not as pronounced as the headline number.

Yes, I mean one of the things I think it's -- don't you have the dynamic costs in the expected profit and the macro costs in the management actions? So those two things kind of net out. But I thought you said net of that as well it was flat quarter over quarter. Do you follow --?

Yes.

Yes

Okay.

Well, everybody -- Tom, you can't hear, but everybody here is agreeing with your analysis of the geography. As we move from macro to dynamic, it shows up as a reduction in expected profit, but not a loss for the Company.

Okay. I guess my final question is really just with respect to the capital deployment and the solid cushion you talk about, but a series of steps you want to see before you would consider increasing the dividend. One was more clarity in terms of a capital and accounting framework.

You did mention in the release that you -- I think this is the first time we have heard something like that -- but with respect to the Actuarial Standards Board, that you don't anticipate the implementation of what they are proposing here is going to have any impact on net income. So I would take that as being a checkmark in the clarity box there.

What other things do you need here before we -- I understand the leverage and the stability in the earnings. But if we want to keep looking for clarity in terms of capital and accounting in insurance-land, we could be not ticking that box for another 30 years here.

Very good point. I think the item that is probably top of our agenda in that category right now, Tom, would be IFRS and the IASB issue and where that is going to end up. So we are waiting for further clarification from the International Accounting Standards Board on what they are intending to do about accounting for insurance.

And then the question will be: how does that translate into regulation here in Canada? So I think that is certainly one large cloud we would like to see move away from the horizon.

I would agree with you, however, that in terms of the Actuarial Standards Board that particular cloud has become significantly more benign in recent months. Cindy, do you want to add anything?

Sure. Thanks, Steve. The only thing I would say, Tom, is we didn't say no impact; we said it wasn't significant. And we did point to the fact that it is somewhat -- the impact will depend a little bit on interest rates at the point of implementation.

And of course we only have a draft, exposure draft, not the final one. So there is some uncertainty out there, just to put it in perspective.

Tom, Don here. We have to be mindful also of capital change in other jurisdictions. The United States, the AG38 seems to be going in a positive direction; there is principal based reserving coming in, a whole bunch of things. Development is going on in Asia as well. So we have to be wary of capital rules in the territories in which we operate, not just the Canadian ones.

All right, thank you.

Mario Mendonca, TD Securities.

Good afternoon. Steve, when you refer to the leverage ratio reaching 25% by 2016, should we interpret that to mean that the Company wouldn't do anything to reduce the leverage ratio ahead of time? And in fact, the intention is to allow it to decline organically?

Not necessarily, Mario. We have a significant amount of debt coming due over the next two years. So we do have some flexibility, but it is probably fair to say that our current bias is towards refinancing whilst interest rates remain low.

But we perhaps have an outlook for the future where they may increase. So given the volume of refinancing that we have coming up, we are probably more than likely to refinance in the short-term. But no, we are not locked into any particular position.

Then a detailed question on experience. Could you just give us an understanding of what expense experience was like in the quarter? After-tax is fine as well, if you had an expense experience loss -- it sounds like you did.

And if you could just talk about policyholder experience more generally, like mortality and morbidity, it sounds like it was somewhat positive this quarter. If you could just flesh that out.

Hi, Mario. It's Cindy. On the mortality/morbidity experience, yes; it was positive in the quarter, largely on our U.S. life business. There is some volatility or variability in our claims experience quarter-to-quarter on that business because the policy sizes are quite large, so we do see some variation Q-to-Q, and this was a good quarter.

On expenses I actually don't have that number with me in terms of our expense impact this quarter, the gain or loss. It would have been a loss this quarter; but I don't have the exact number with me.

Thank you.

Steve Theriault, Bank of America Merrill Lynch.

Thanks very much. A couple questions. The first one is probably for Warren. Warren, in the report to shareholders you indicate investment-related experience a positive CAD265 million; and I know only CAD50 million gets included in core.

But I am interested. You flag yield enhancement within part of the text in the report to shareholders. I was just hoping you could tell us how much yield enhancement actually came through within that CAD265 million. And if you could size that for us in terms of what kind of an opportunity is this going forward.

Thanks, Steve. I would break it down into two items. We don't, I think, give the actual details on it.

But in terms of what the two items are, it is largely credit experience is one of the big contributors; and we've had good credit experience for several quarters now. Obviously this credit environment has been quite benign.

And one of the items that did occur in 2013 is we did have some recoveries on positions that we had previously provided for. So that is included in the better recovery numbers in 2013 as well as in Q4 specifically.

The second thing that was probably more important in Q4 was the actual deployment of Treasuries. Again, if you will recall, in Q2 we actually had a lot of Treasuries for which we had a weaker experience gain in that quarter. And those Treasuries were deployed in Q4 into spread product; and that deployment into spread product gives rise to the experience gains.

So it is really those two were the big contributors this quarter. There was a lot of issuance in the market, and because of that level of issuance, that is what we were able to take advantage of and deploy the Treasuries.

So the yield enhancement this quarter is probably better characterized as a bit more one-time in nature than something that is going to be ongoing. Is that right?

I would say that both were probably higher than we would expect on an ongoing basis. Actually what we are flagging, they are much -- it was a very robust quarter for both.

Again we are in a more benign credit environment, so we expect -- likely to see favorable credit experience continue as long as the economy stays on its current path. Issuance is again a function of where markets are at. So again -- but again Q4 was a very good quarter for us across-the-board from an issuance perspective.

Okay. Secondly, life insurance sales have been, as you said, Don, a little lower than you would've liked. So I was hoping maybe we could ask Bob Cook to provide maybe a quick outlook on what he is looking for, for insurance sales next year, in terms of, Bob, where you are seeing momentum specifically.

And is there any more pricing changes in the pipeline or on the near-term horizon that could affect momentum either positively or negatively?

Yes, thanks, Steve. I think as we indicated, or Steve indicated in his comments, we saw a number of areas of improving momentum in the fourth quarter, notably in Hong Kong and Indonesia, two of our largest businesses. Towards the end of the quarter, even though the total quarter numbers for Japan were still down, toward the end of the quarter we started to see some recovery in Japan.

I think looking forward to 2014 that will be the big question mark. We have some new product launches that we have made earlier this month in February in the corporate market, and corporate sales peak at the end of the first quarter in Japan. So that will be a good test for the quality of the new products that we have launched.

I guess in terms of the last part of your question about ongoing pricing and product changes, I think for the most part we can look at them as improvements to competitive position from here on in, as opposed to addressing any particular risk issues in the portfolio.

Okay, great. Thanks for that.

Peter Routledge, National Bank Financial.

Yes, just coming back to the capital issue, if I look at your MCCSR, which is quite high this quarter, it is 248%, you're probably CAD3.6 billion in capital above 220%, which I always thought is a pretty stellar MCCSR. But you are talking like you don't have a lot of excess capital.

You are talking about refinancing debt that is coming; delaying the dividend for a couple years; no mention of share repurchases. Should we just take it that 240% is the new minimum for Manulife, just in this environment?

Not at all. I am glad you asked the question, Peter. We have a very, very healthy capital ratio and we clearly have excess capital, as you have indicated. But the last thing we want to do is start using that capital too early until, as Steve so capably indicated, a few things are resolved.

They seem to be getting resolved. Tom MacKinnon asked earlier. The picture is getting clearer and clearer all the time. But it is not one yet that we'd want to declare victory.

Again, I draw your attention to some of the big changes that are being discussed right now in the United States, as just one jurisdiction that we deal with. So while the picture is much clearer in Canada, it is a little less clear than it used to be in other jurisdictions.

We are not particularly worried about anything. We don't anticipate any issue. But just to be a little bit better prudent, than set expectations and then have to reset them later.

Are you worried at all about the OSFI framework, particularly either the HoldCo capital regime or maybe a different treatment of internal reinsurance?

No, not at all. No worries there at all.

I think you are quite right and others, in terms of the OSFI capital framework is getting clearer and clearer by the minute and is not causing us any concern whatsoever. The other ones aren't particularly causing us concern either; we just want to be very prudent.

Because when we next increase the dividend, which is not a likelihood, it is a certainty, the question is when. When we recommend that to the Board we want to be able to do it in a way that has almost zero probability of that ever having to be reversed in any reasonable period of time.

Okay. Thanks very much.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to Ms. Asher.

Thank you very much. We will be available after the call if there any follow-up questions.

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