Manulife Reports 2018 Net Income of $4.8B
Manulife Financial Corp. (PSE: MLF) has announced its 2018 and 4Q18 results. Net income attributed to shareholders reached $4.8 billion in 2018, up $2.7 billion from 2017, and $0.6 billion in 4Q18, up $2.2 billion from 4Q17.
Core earnings was at $5.6 billion in 2018, up by 23% from 2017, and $1.3 billion in 4Q18, up by 8% from 4Q17. The company also highlights positive net flows of $1.6 billion in 2018, despite negative net flows in 4Q18 of $9 billion reflecting market conditions. It also achieved improved capital efficiency of its legacy businesses in 2018, including selling alternative long-duration assets and executing several reinsurance transactions, contributing to a strong 143% LICAT ratio.
“We delivered the highest core earnings and net income in our company’s history in 2018. Core earnings increased 23% to $5.6 billion, with double-digit core earnings growth across all operating segments,” said Manulife President & Chief Executive Officer Roy Gori. “We continued to execute against our five priorities and ambition to become the most digital and customer-centric global company in our industry and launched a number of initiatives to streamline our businesses and enhance the customer experience,”
Phil Witherington, Chief Financial Officer, said, “In Asia, we achieved a 19% increase in new business value to US$1.1 billion in 2018. And, while net flows were negatively impacted by significant market volatility in the fourth quarter, we generated net inflows of $1.6 billion in 2018, our 9th consecutive year of positive net flows. During the year, we also made significant progress improving the capital efficiency of our legacy businesses. Once our announced initiatives are fully executed, we will have released $3.7 billion in capital, representing almost three-quarters of our 2022 target.”
2018 Business Highlights
Manulife announced a number of initiatives to improve the capital efficiency of its legacy businesses. In 2018, Manulife: sold alternative long-duration assets; entered into six reinsurance transactions covering legacy universal life and fixed annuity blocks; sold Signator Investors, its wholly-owned broker-dealer; and offered customers within some of its legacy segregated fund products in Canada an opportunity to convert to a less capital intensive segregated fund product. These initiatives released $3 billion in capital in 2018.
Manulife also delivered a number of digital, customer-centric initiatives. The company launched the innovative Goals-Based Investing program, which leverages dynamic liability-driven investment strategies, an industry first for retail customers in Canada. It launched eClaims in Hong Kong, Japan and Vietnam and became the first Canadian life insurer to underwrite using artificial intelligence. And in the U.S., Manulife became the first company to fully embrace behavioral-based life insurance with the launch of John Hancock Vitality Go on all life insurance policies at no additional cost to the customer.
Reported net income attributed to shareholders of $4.8 billion in 2018, an increase of $2.7 billion compared with 2017, and $0.6 billion in 4Q18, an increase of $2.2 billion compared with 4Q17
The increase compared with 2017 was due to the non-recurrence of the $2.8 billion charge in 2017 related to the impact of the U.S. Tax Cuts and Jobs Act (“U.S. Tax Reform”) and our decision to change the portfolio asset mix supporting our legacy businesses as well as strong core earnings growth, partially offset by charges in 2018 primarily related to the direct impact of equity markets.
The increase compared with 4Q17 was due to the non-recurrence of the $2.8 billion charge noted above, partially offset by charges in 4Q18 related to the direct impact of equity markets.
Achieved core earnings of $5.6 billion in 2018, an increase of 23% compared with 2017, and $1.3 billion in 4Q18, an increase of 8% compared with 4Q17
The increase compared with 2017 was driven by improved policyholder experience and the non-recurrence of 2017’s hurricane-related charges in our Property and Casualty Reinsurance business, business growth in Asia and Global WAM, the impact of lower U.S. tax rates and greater expense efficiency. These were partially offset by lower gains from the release of provisions for uncertain tax positions and the unfavorable impact of markets, in 2018, on seed money investments in new segregated and mutual funds. Core earnings in 2018 included net policyholder experience gains of $38 million post-tax compared with charges of $168 million post-tax in 2017.
The increase compared with 4Q17 was primarily driven by new business growth in Asia, the impact of lower U.S. tax rates, improved policyholder experience, and greater expense efficiency, partially offset by the impact of lower equity markets on seed money investments in new segregated and mutual funds and fee income, and actions to optimize our portfolio. Core earnings in 4Q18 included net policyholder experience gains of $11 million post-tax compared with charges of $34 million post-tax in 4Q17.
Business Growth
Achieved new business value (NBV) of $1,748 million in 2018, an increase of 20% compared with 2017, and $501 million in 4Q18, an increase of 27% compared with 4Q17
NBV was $1.7 billion in 2018, an increase of 20% compared with 2017. In Asia, NBV increased 19% to $1.4 billion due to higher sales, scale benefits and a favourable business mix. Canada NBV increased 8% to $207 million as the benefits from the launch of Manulife Par and product repricing were partially offset by lower group insurance sales. U.S. NBV increased 90% to $98 million driven by product repricing to improve margins.
NBV was $501 million in 4Q18, an increase of 27% compared with 4Q17. In Asia, NBV increased 23% to $402 million due to higher sales, scale benefits, and improved product mix. Canada NBV increased 6% to $51 million as the benefits from the launch of Manulife Par were partially offset by a less favourable business mix in group insurance. U.S. NBV almost tripled to $48 million due to actions to improve margins and a more favourable business mix.
Reported annualized premium equivalent (APE) sales of $5.5 billion in 2018, a decrease of 3% compared with 2017, and $1.5 billion in 4Q18, an increase of 14% compared with 4Q17
APE sales were $5.5 billion in 2018, a decrease of 3% compared with 2017. In Asia, APE sales increased 6%, as growth in Hong Kong of 11% and Asia Other2 of 13% was partially offset by a 3% decline in Japan sales due to competitive pressure during the first half of the year. In Canada, APE sales declined 29% due to lower large-case group insurance sales. Canadian individual insurance sales were in line with 2017 as benefits from the launch of Manulife Par offset the impact of price increases in the prior year. In the U.S., APE sales declined 8% driven by increased competition in the international high net worth segment and actions to maintain margins.
APE sales were $1.5 billion in 4Q18, an increase of 14% compared with 4Q17. In Asia, APE sales increased 15%, with growth across Japan, Hong Kong and Asia Other. APE sales in Japan increased 34% driven by the continued success of the new COLI term product. Hong Kong sales increased 8% driven by growth in our bancassurance channel. Asia Other APE sales increased 4% as higher sales of protection products were partially offset by lower sales of single premium investment-linked products, reflecting market volatility. In Canada, APE sales increased 25%, driven by the continued success of our recently-launched Manulife Par product and a large-case group insurance sale. In the U.S., APE sales declined 5% driven by increased competition in the international high net worth segment and actions to maintain margins.
Reported Global Wealth and Asset Management net flows of $1.6 billion in 2018, a decrease of $16.7 billion compared with 2017, and negative net flows of $9.0 billion in 4Q18, a decrease of $12.6 billion compared with positive net flows of $3.6 billion in 4Q17
Full year net flows of $1.6 billion in 2018, declined $16.7 billion compared with 2017. Net flows in Asia were $5.7 billion in 2018 compared with net flows of $6.6 billion in 2017, driven by lower gross flows in mainland China from retail money market funds. Net flows in Canada were $2.0 billion in 2018 compared with net flows of $3.7 billion in 2017, driven by higher retail redemptions. Net flows in the U.S. were negative $6.1 billion in 2018 compared with positive net flows of $7.9 billion in 2017, driven by higher retail redemptions amid the declines in equity markets.
4Q18 net flows were negative $9.0 billion compared with positive net flows of $3.6 billion in 4Q17. Net flows in Asia were $1.1 billion in 4Q18, compared with net flows of $2.3 billion in 4Q17, driven by lower gross flows in institutional asset management. Net flows in Canada were negative $0.7 billion in 4Q18 compared with positive net flows of $0.7 billion in 4Q17, driven by lower net flows in retail amid equity market declines and higher redemptions in retirement. Net flows in the U.S. were negative $9.4 billion in 4Q18 compared with positive net flows of $0.6 billion in 4Q17, driven by higher retail redemptions amid the declines in equity markets.
