Manulife Financial Corp. Q3 FY2026 earnings call

• Strategic Execution & Growth:

  • Executing on a refreshed enterprise strategy to become the number one choice for customers, focusing on health, wealth, and financial well-being.
  • Achieved record core EPS, up 6% year-over-year, demonstrating the resilience of its diversified global portfolio.
  • Delivered strong core Return on Equity (ROE) of 17.8%, progressing toward the 18%+ target for 2027.
  • Adjusted book value per share increased 9% year-over-year to $41.78.

• Innovation & AI Integration:

  • On track to achieve and exceed $1 billion in cumulative enterprise AI value by 2027.
  • Expanded partnership with Microsoft, extending Copilot to over 30,000 colleagues.
  • AI-enabled advisory capabilities launched in China and Malaysia; AI-driven advisor engagement platform rolled out in North America retail, identifying four times more product opportunities.
  • Recognized by CELENT as a model insurer for AI use in underwriting.

• Product & Partnership Expansions:

  • Health & Wellness: Activated partnership with Bupa in Hong Kong for medical specialist networks; expanded access to multicancer early detection tests via Grail (North America) and Guardant Health (Asia); partnered with Sword in Canada for AI-enabled virtual physiotherapy.
  • Distribution: Renewed bank assurance partnership with China Bank in the Philippines; partnered with L&G in Global WAM for differentiated investment solutions; expanded wholesaling team in the US for high-net-worth markets.
  • Market Entry & Acquisitions: Established joint venture with Mahindra in India; acquired Schroders in Indonesia; successfully integrated Convest Credit Partners.

• Operational Highlights:

  • Completed annual review of actuarial assumptions (basis change), resulting in an overall favorable impact on reserves.
  • Active risk management included selling over $1 billion of equities during the quarter.
  • Returned $5.3 billion of capital to shareholders over the past 12 months.

• Asia: New Business Premium (APE) sales were broadly in line with the prior year, driven by strong growth in Hong Kong (+45%) and Japan (+39%), offset by declines in the Chinese mainland. Core earnings increased 17% year-over-year, supported by business growth and favorable actuarial basis changes, partially offset by higher expected credit loss (ECL) provisions.
• Global Wealth and Asset Management (WAM): Pre-tax earnings were broadly in line with the prior year. Net outflows of $3.6 billion occurred, primarily driven by retirement businesses due to plan sponsor redemptions and member withdrawals. This was offset by net inflows in institutional channels (led by Manulife Convest) and neutral retail flows. Core earnings decreased 5%, impacted by the EMPF transition in Hong Kong and higher workforce expenses, though partially mitigated by higher fee income from AUM growth.
• Canada: APE sales increased 3% year-over-year, driven by individual insurance (including a large affinity market sale) and participating life products. Core earnings grew 3%, aided by favorable claims experience in individual insurance and higher investment spreads, but offset by unfavorable group insurance claims and increased ECL provisions.
• United States: APE sales were in line with the strong prior year. Core earnings increased 5%, driven by favorable life insurance claims experience, business growth, and favorable tax items, partially offset by increased ECL provisions and unfavorable lapse experience.

• The company maintains its long-term expected returns for older assets at 9% to 9.5%, asserting that current headwinds are temporary and do not reflect structural changes.
• Management expects older returns to show near-term headwinds and potential valuation declines for a couple of quarters due to interest rate environments, but anticipates trending back to long-term assumptions as rates stabilize or rise further.
• The core ROE target remains at 18% plus for 2027, with conviction in delivering this target despite short-term challenges in specific segments like Canadian group benefits.
• No explicit upward or downward revisions to full-year financial guidance were announced, but management emphasized confidence in the medium-term trajectory towards the 2027 targets.

• Older Portfolio Performance: Net income was impacted by lower-than-expected older returns, particularly in private equity, real estate, and farmland investments, influenced by short-term geopolitical and interest rate headwinds.
• Claims Experience Variability: Unfavorable claims experience persisted in US life lapses and Canadian group insurance, although modest sequential improvements were noted.
• Regulatory Changes in Asia: Regulatory clampdowns and tax news in Hong Kong regarding Comprehensive Medical (CMV) policies have led to slower decision-making and pausing in the short term, though structural demand is expected to continue.
• Actuarial Assumptions: While the annual basis change was favorable overall, there were adverse lapse experiences in the US life block and mortality considerations in Vietnam, requiring continued monitoring.
• Transition Costs: The transition to EMPF in Hong Kong and integration costs from acquisitions (Convest, Schroders) have temporarily impacted profitability and operating leverage in Global WAM.

Q: Analyst asked about sustainability of Japan's strong growth and demand drivers between Hong Kong vs Singapore. / A: Steve Finch noted Japan's growth is supported by favorable macro factors (higher interest rates) and expanding product propositions, expecting some normalization as macro conditions shift but maintaining a favorable outlook. Hong Kong’s double-digit growth is driven by high-net-worth (HNW) demand for savings products from global clients. Singapore showed Q3 variability but has strong YTD growth; confidence remains high in HNW demand there as well.

Q: Analyst questioned the decline in Hong Kong margins (sub-40% vs 50s previously) due to mix shift towards less profitable offshore HNW savings products. / A: Finch explained that HNW customers prefer savings-oriented products which are competitive with lower margins. However, Manulife focuses on absolute value creation (NBCSM/NBV) rather than just margin percentage. The business is accretive to the 18%+ ROE target, and the focus is on meeting customer needs and driving volume/value across a diversified portfolio.

Q: Analyst asked about the sustainability of Asia's 17% core earnings growth given flat APE sales and concerns about future bottom-line growth drivers. / A: Finch highlighted that CSM from new business grew 10%, indicating future earnings potential. The flat APE was due to a tough comparable in China mainland (strong Q3 prior year) offsetting strong HK/Japan growth. He expects stronger Q4 in China and noted that IFRS 17 reduces core earnings variability. Long-term optimism remains for multi-channel/multi-market growth in Asia.

Q: Analyst sought clarity on the persistent gap between Core and Reported Net Income (high 20s%), asking if it is structural or due to ALDA/market volatility. / A: Phil Witherington stated the gap is largely due to ALDA performance and accounting asymmetries (gains deferred to OCI/CSM, charges recognized quickly). He confirmed no structural reason for the gap to persist long-term. Once short-term interest rate impacts work through, results should trend back to long-term assumptions. Current variance is typical for the immediate term given the rate environment.

Q: Analyst asked about GWAM flow deterioration and whether the business is off-plan regarding the 18% ROE target, specifically citing EMPF transition and expense growth. / A: Paul Lorentz attributed flow weakness to industry-wide headwinds (strong markets negative for retirement flows, ETF transitions) but highlighted strong gross flows ($56B, +16%) and institutional strength. He stated the business is on-plan for the Investor Day targets. Expense growth adjusted for acquisitions is <3%. Operating leverage is expected to improve as EMPF transition concludes, with margins stable at 29.6%.