Manulife Financial Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Acquisition of Comvest: Global WAM acquired a 75% stake in Comvest Credit Partners for USD 937.5 million, which is immediately accretive to core EPS, core ROE, and core EBITDA margin. Comvest is a rapidly growing middle market private credit manager with USD 14.7 billion on its platform, scaling the private markets business and enhancing private credit capabilities.
• Stakeholder Engagement: Phil Witherington highlighted engaging with customers, colleagues, partners, analysts, and investors to improve service, support, and generate value for shareholders. Focus on digital ambition and reimagining customer interactions with AI.
• Financial Results Discussion: Colin Simpson discussed APE growth, impact of ECL provision (expected $30 million to $50 million quarterly on average), reinsurance transactions reducing core earnings by $20 million, and strong performance in Asia and Global WAM.

Segment Performance

• Asia: APE increased 31% from the prior year, led by broad-based growth in Hong Kong, Mainland China, and Singapore within Asia Other. New business CSM and new business value increased 34% and 28%, respectively. Core earnings grew 13% year-on-year.
• Global WAM: Delivered positive net flows of nearly $1 billion. Core earnings grew 19%. Core EBITDA margin was 30.1%, expanding 380 basis points from the prior year. The transition to the new eMPF platform in Hong Kong is expected to impact core earnings, with a full quarterly run rate impact of approximately USD 25 million beginning in Q1 2026.
• Canada: APE sales decreased 34% from the prior year due to the nonrecurrence of a large case sale in group insurance, but individual insurance drove 32% growth in new business CSM. Core earnings increased by 4%.
• U.S.: APE sales grew 40%, new business CSM and new business value grew 59% and 12%, respectively. Core earnings decreased 53% from the prior year due to unfavorable mortality experience, lower investment spreads, and strengthened ECL provisions.

Guidance

• The acquisition of Comvest Credit Partners is immediately accretive to core EPS, core ROE, and core EBITDA margin.
• Plans to review the strategy in the coming months to assess refreshment for longer-term ambitions.
• Expect core EBITDA margin of Global WAM to decline post eMPF transition but then grow in line with Investor Day targets.
• The company remains confident in achieving its 2027 ROE target of 18% plus through strategic execution and capital deployment.

Risks

• Elevated U.S. mortality and ECL provision as short-term headwinds in the U.S. segment, viewed as normal claim volatility rather than a trend.
• Impact of eMPF transition on Global WAM's core earnings, with an expected quarterly run rate impact of approximately USD 25 million beginning in Q1 2026.
• Volatility in credit losses, particularly with below investment-grade loans, though the portfolio remains 96% investment grade and the ECL provision is expected to remain in the $30 million to $50 million quarterly range.

Q: John Aiken from Jefferies asks about other areas to bulk up organically or inorganically like the Comvest acquisition.

A: Paul Lorentz responds that they are excited about the Comvest fit and focus on organic opportunities, but continue to look for accretive inorganic opportunities that enhance strategic capabilities.

Q: Tom MacKinnon from BMO Capital Markets asks about GWAM margins and core definition change.

A: Paul Lorentz and Colin Simpson respond that GWAM margins will decline post eMPF transition and then grow, and the amortization of acquired intangibles from business combinations will be excluded from core earnings, with Comvest acquisition adding ~$30 million annually to that number.

Q: Gabriel Dechaine from National Bank Financial asks about the Hong Kong regulator caps and Asia sales.

A: Steve Finch responds that the Hong Kong regulator's sales cap on illustrations has no material impact on Manulife, as products are not materially affected.

Q: Doug Young from Desjardins Capital Markets asks about defending the valuation of the Comvest acquisition.

A: Paul Lorentz and Phil Witherington respond that Comvest is a profitable, at-scale platform that fits strategically, with strong growth potential and cultural alignment, satisfying high capital deployment criteria.

Q: Thomas Gallagher from Evercore ISI asks about U.S. long-term care triennial review and reinsurance.

A: Stephanie Fadous and Marc Costantini respond on long-term care trends and reinsurance pricing, stating normal claim volatility and no impact on future reinsurance pricing.

Q: Lemar Persaud from Cormark Securities asks about credit losses and Comvest cross-sell opportunities.

A: Trevor Kreel responds on credit loss volatility within $30 million to $50 million quarterly range, and Paul Lorentz states cross-sell opportunities are optimistic but specific numbers not shared yet.

Q: Mario Mendonca from TD Securities asks about U.S. business outlook and ROE target.

A: Brooks Tingle and Philip Witherington respond on U.S. business bullishness and confidence in achieving 18% plus ROE by 2027, considering adjusted core ROE year-to-date.