Manulife Financial's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Manulife Financial (MFC)

Q4 2011 Earnings Call

February 09, 2012 2:00 pm ET

Executives

Anthony Ostler -

Donald A. Guloien - Chief Executive Officer, President, Director and Member of Executive Committee

Michael W. Bell - Chief Financial Officer, Senior Executive Vice President and Member of Executive Committee

Paul L. Rooney - Member of Executive Committee, Chief Executive Officer of Manulife Canada Ltd. and President of Manulife Canada Ltd.

Cindy L. Forbes - Chief Actuary, Executive Vice President and Member of Executive Committee

James R. Boyle - Member of Executive Committee and President John Hancock Financial Services

Warren Alfred Thomson - Chief Investment Officer, Senior Executive Vice President, Member of Executive Committee, Chairman of Manulife Asset Management

Scott Sears Hartz - Executive Vice President of General Account Investments and Member of Executive Committee

Analysts

Tom MacKinnon - BMO Capital Markets Canada

Michael Goldberg - Desjardins Securities Inc., Research Division

Doug Young - TD Securities Equity Research

Peter D. Routledge - National Bank Financial, Inc., Research Division

John Aiken - Barclays Capital, Research Division

Darko Mihelic - Cormark Securities Inc., Research Division

Robert Sedran - CIBC World Markets Inc., Research Division

Mario Mendonca - Canaccord Genuity, Research Division

Steve Theriault - BofA Merrill Lynch, Research Division

Ohad Lederer - Veritas Investment Research Corporation

Gabriel Dechaine - Crédit Suisse AG, Research Division

Joanne A. Smith - Scotiabank Global Banking and Market, Research Division

Sumit Malhotra - Macquarie Research

Presentation

Operator

Please be advised that this conference call is being recorded. Good afternoon, and welcome to the Manulife Financial Q4 2011 Financial Results Conference Call for February 9, 2012. Your host for today will be Mr. Anthony Ostler. Mr. Ostler, please go ahead.

Anthony Ostler

Thank you, Anne, and good afternoon. Welcome to Manulife's conference call to discuss our fourth year 2011 and full year 2011 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 introductory comments. We will then follow with a question-and-answer session. Available to answer questions about their businesses are the Heads of Japan, the U.S., Canada, Investments and General Account Investments.

Today's 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 the securities filings referred to in the slide entitled Caution Regarding Forward-Looking Statements.

[Operator Instructions]

With that, I'd like to turn the call over to Mr. Donald Guloien, our President and Chief Executive Officer. Donald?

Donald A. Guloien

Thank you, Anthony. Good afternoon, everyone, and thank you for joining us today. We're joined on the call by our CFO, Michael Bell; as well as several members of our senior management team including our U.S. General Manager, Jim Boyle; our Canadian General Manager, Paul Rooney; our Japan General Manager, Craig Bromley; Warren Thomson, our Chief Investment Officer; Scott Hartz, our Executive Vice President, General Account Investments; Cindy Forbes, our Chief Actuary; and Rahim Hirji, our Chief Risk Officer.

This morning, we reported our fourth quarter 2011 and full year 2011 financial results. We are pleased with our improved full year 2011 net income, which is $129 million and improvement of $1.8 billion over the prior year. With the end of 2011, I'm pleased to announce that we achieved our 3-year product mix repositioning in all 3 of our geographies.

We have led our industry in repricing and redesigning products for the current interest rate environment which has us well positioned for sustainable growth. We're also pleased with the underlying growth of our businesses against our strategic priorities. In all 3 geographies, we generated sustainable growth of less risky, higher return new business. And as of December 31, 2011, we achieved a record $500 billion, that's $0.5 trillion in funds under management.

This growth was driven in large part by the investments that we've been making in distribution and in branding. We significantly expanded our equity market and interest rate hedging programs in the first half of the year and mitigated most of the equity market and interest rate risks as financial markets became increasingly volatile in the second half of 2011. In fact, our hedging programs offset nearly $3 billion of potential market impact.

We exceeded our 2014 interest rate reduction goal in 2011. Our sensitivity to a 100 basis point decline in interest rate, including the AFS bond offset is now $200 million. We're also ahead of our 2012 risk reduction goal for equity markets and now stand at 93% of our 2014 goal.

Throughout 2011, we maintained our strength. We bolstered our capital ratio for the divestiture of our life retrocession business, successful non-common equity capital issuances and a significant reinsurance transaction. The MCCSR of our operating company, the Manufacturers Life Insurance Company, was 216% at the end of 2011, and as of the third quarter 2011 continue to lead our peers. This ratio does not reflect the benefits of our equity hedging program, which reduces the downside risk to our capital position, but is not directly reflected in the capital ratio formula.

In summary, we're pleased with the progress we made in 2011 against our strategic plans. We achieved our 3-year product repositioning. Our hedging programs are having a positive impact in volatile markets. And our businesses are delivering underlying growth of less risky, higher return new business. Also noteworthy are the almost equal contributions of Asia, Canada and the United States to our operating results, a highly balanced portfolio.

Thanks to these efforts and initiatives, I'm confident in Manulife's strength and that we're well positioned to pursue more sustainable, better diversified growth going forward.

Before I turn it over to Michael Bell, our CFO, I'd like to say that when Michael joined Manulife almost 3 years ago, he moved his family to Toronto from their home in Philadelphia. Last June, his family returned to Philadelphia, which is obviously not an ideal situation from a prospective of his interest or those of the company. Today, we have announced that Michael will be leaving Manulife. He's agreed to remain with Manulife to oversee the company's annual 2011 financial reports and to continue beyond that time to allow us to hire a replacement CFO and allow for an orderly transition. Although we'll have plenty of time to say our goodbyes to Michael, I'd like to thank him for his substantial ongoing contributions to Manulife. He's done a superb job in building strong financial teams across our geographies and relating our financial position to our investors and analysts community. We are very appreciative that he has agreed to stay with us until our replacement CFO is hired and to assist in the transition.

With that, I'll turn it over to Michael Bell who will highlight our financial results and then open the call to your questions. Thank you.

Michael W. Bell

Thank you, Donald. Hello, everyone. First of all, I'd like to thank you, Donald, for those very kind words and support. It has been a tremendous pleasure and privilege to work with the great people at Manulife and to live here in Canada. We've made tremendous progress as a company in the last 3 years under Donald's leadership and I am confident that we'll have even more success in the future. Since my transition timetable is open and it just reinforced that I'll be fully engaged for as long as I'm here and will likely have plenty of time for goodbyes at a later date.

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