Manulife Financial Corporation Q1 FY2026 earnings call

Overall Financial Performance

• Delivered solid Q1 2026 results building on 2025 momentum despite heightened macro uncertainty, with all insurance segments achieving double-digit new business CSM growth.
• Total CSM balance grew 18% year-over-year, strengthening future earnings potential; core EPS grew 11% year-over-year, in line with medium-term targets, and core ROE reached 16.5% (up 90 basis points year-over-year), keeping the firm on track for the 18%+ core ROE target by 2027.
• Adjusted book value per share increased 6% year-over-year to $39.01; the LICAT ratio remained strong at 136% ($25 billion above supervisory targets), and the leverage ratio of 22.5% was well below the 25% medium-term target, providing ample financial flexibility.
• Returned $1.2 billion in capital to shareholders in Q1 2026 via dividends and share buybacks, with $5.3 billion returned over the past 12 months under the active 2.5% outstanding share buyback program.

Strategic Execution

• Completed the acquisition of Schroders Indonesia, strengthening the firm's position as Indonesia's largest asset manager, and entered a strategic partnership with LNG to expand access to differentiated investment solutions across institutional, retirement, and retail channels.
• Expanded U.S. indexed and hybrid indexed universal life product offerings and grew the U.S. wholesaling team by more than 50% over the past year to deepen advisor relationships and support new product launches.
• Was named Asia's best insurance provider for wealth management, reflecting its innovative product suite and strong distribution partnerships in high net worth channels.

AI and Digital Transformation

• Scaled AI capabilities across the enterprise via strategic partnerships with ACCA and Adaptive ML to accelerate enterprise-wide AI deployment.
• AI tools boosted developer productivity by 30% in Q1; an AI-powered sales platform deployed in U.S. retail drove a 40% increase in meaningful advisor interactions.
• Rolled out new AI tools for distributors in Vietnam and enhanced existing advisor AI tools in Japan to improve productivity and customer reach; expanded the U.S. QuickQuote tool, automating nearly half of preliminary assessments and reducing turnaround time from days to minutes.

Customer and ESG/Health Leadership

• Launched a new partnership with Gardent Health to offer multi-cancer detection blood tests to eligible Asian customers, making Manulife the first Asian insurer to offer this early detection service.
• Partnered with Osara Health to provide evidence-based cancer support programs to eligible Canadian group benefits customers, helping patients navigate cancer treatment and recovery.

1. Asia: APE sales increased 11% year-over-year, with double-digit growth in Hong Kong, Japan, and Singapore; Hong Kong delivered record quarterly APE sales growth of 18% year-over-year. Core earnings grew 22% year-over-year, and new business CSM grew double-digits. New business margins modestly expanded on more favorable business mix. This segment contributed 22% core earnings growth to the firm's overall 11% core EPS growth.
2. Global Wealth and Asset Management (Global WAM): Generated net outflows of $4.4 billion, with gross flows hitting a new record of $56 billion. Strong institutional inflows from Convest and CQS partially offset North American retail active mutual fund outflows and U.S. retirement outflows. Core EBITDA margin expanded 60 basis points year-over-year, and core earnings grew 2% year-over-year.
3. Canada: AP sales declined 15% year-over-year due to lumpy lower large case group insurance sales, offset partially by strong individual participating life insurance sales growth. New business CSM increased 13% year-over-year driven by individual insurance growth. Core earnings declined 6% year-over-year due to unfavorable long-term disability and travel insurance experience and higher transformation expenses. This segment contributed a 6% core earnings decline to the firm's overall results.
4. U.S.: APE sales grew 29% year-over-year, driven by strong demand for insurance accumulation products, leading to robust new business CSM growth. Core earnings decreased modestly, primarily due to lower investment spreads, partially offset by favorable claims experience in life and long-term care (LTC) insurance. This segment contributed a modest core earnings decline to the firm's overall results.

• Reaffirms the 18%+ core ROE target by the end of 2027, noting Q1 2026's 16.5% core ROE included seasonal headwinds and that 2025 second half core ROE already reached 17.1-18.1%, with on-track execution expected to deliver incremental improvements through 2026.
• Expects Canada segment insurance experience to normalize by the end of 2026, with long-term disability recoveries trending back to typical levels after Q1 2026's unfavorable results.
• Expects Global WAM Q2 2026 core earnings run rate to increase by approximately $25 million from Q1 levels, adjusting for one-time EMPF transition costs and fewer trading days in Q1; if current equity market levels hold, they will provide an additional tailwind.
• Reaffirms the Global WAM 30% EBITDA margin target for 2027, with management confident of on-track delivery after absorbing one-time Q1 transition costs.
• Reaffirms the target of 60-70% of earnings converted to shareholder remittances, exceeding the 35-45% payout ratio for dividends and supporting continued share repurchases; the $22 billion cumulative remittance target remains on track with annual run rate already exceeding $5.5 billion.
• Reaffirms the long-term ALDA portfolio return assumption of 9-9.5%, noting it remains appropriate for forward-looking long-term performance.

• Heightened macroeconomic uncertainty and equity market volatility impact net investment results, market-related net income impacts, and Global WAM net flows, with active management outflows in North America expected to persist in the near term amid market uncertainty.
• Unfavorable short-term insurance experience in Canada's long-term disability group business, with higher incidence and lower recoveries driven by delayed onboarding of new case managers to handle growing caseloads from prior years' sales growth; travel insurance also saw losses from recent global disruptions in Q1.
• Investment spread compression, particularly in the U.S. segment, is driving a gradual shift in earnings composition from net investment income to core insurance earnings from CSM amortization, resulting in lower near-term net investment earnings.
• Legacy long-duration guaranteed product blocks in the U.S. are gradually running off as the firm shifts to 100% adjustable new business, but the runoff continues to pressure net investment earnings over time.
• One-time transition costs associated with the EMPF platform transition in Hong Kong created a one-time headwind to Q1 2026 Global WAM earnings, though costs are not expected to recur after Q1.
• A one-off $50 million Canadian pre-tax charge on the ALDA portfolio was driven by a fire at a large Australian timber asset, though the broader portfolio remains on track to meet long-term return targets.

Q: What is driving improving performance in Japan, how sustainable is current growth, and what is the outlook for the segment?

A: Japan's strong performance builds on 2025 momentum from product expansion that now covers a broader set of customer needs across distribution channels. New whole life and ILP products have aligned well with customer demand, and the higher interest rate environment has increased the attractiveness of insurance products for retirement savings. The underlying fundamentals are sustainable, with only minor quarter-to-quarter variability expected, and management is optimistic about continued growth.

Q: What explains the unfavorable insurance experience in Canada's group segment, and is this a temporary blip or persistent issue?

A: Q1 weakness came from three sources: modestly higher long-term disability incidence and lower recoveries (an industry-wide trend in Q1), unexpected travel insurance losses from temporary global disruptions, and higher investments in customer experience transformation and case manager hiring. Lower recoveries stemmed from delayed productivity of newly hired case managers brought on to handle growth from 2024 sales, and management expects overall group experience to normalize by the end of 2026. Individual insurance sales remain strong in Canada, and group persistency holds at healthy levels.

Q: What is driving the strong sales growth in the U.S. segment, and what is the guarantee profile of new products?

A: U.S. growth comes from multiple factors: a 50% (more than double from 18 months prior) expansion of the wholesaling team that is paying dividends, a differentiated value proposition as the only U.S. life insurer offering embedded wellness and longevity features, and new advisor tools like Vitality Pro that boost engagement. All new business is adjustable products with far lower guarantee exposure than the firm's legacy block, shifting future U.S. earnings composition from net investment income to CSM amortization, with a sustainable Q1/Q4 2025 run rate of $230-$240 million USD.

Q: What is Manulife's approach to M&A, particularly in the U.S. market following recent industry activity?

A: The firm's current primary focus is organic execution of its recently refreshed strategy and integration of already completed acquisitions including CQS, Comvest, and Schroders Indonesia. While Manulife maintains a strong capital position and has expressed strategic appetite for selective inorganic expansion across core markets including the U.S., the bar for new transactions is high, and inorganic growth is not a near-term priority.