Manulife Monetary Company (MFC) Presents at twenty fifth Scotiabank Financials Summit Convention (Transcript)

Begin Time: 13:30 January 1, 0000 2:00 PM ET

Manulife Monetary Company (NYSE:MFC)
twenty fifth Scotiabank Financials Summit Convention
September 05, 2024, 13:30 AM ET

Firm Members

Roy Gori – President and CEO

Convention Name Members

Meny Grauman – Scotiabank

Operator

Meny Grauman

Whats up, once more. It is my pleasure to shut out the Lifeco portion of the day with Roy Gori, President and CEO of Manulife.

Roy Gori

Good to see you, Roy.

Meny Grauman

Good to see you as effectively.

Roy Gori

I feel the final time I noticed you in individual we have been in Hong Kong.

Meny Grauman

Certainly, Investor Day.

Roy Gori

That is proper. Which is an efficient segue as a result of I needed to speak concerning the Investor Day, a really profitable Investor Day, and perhaps get your ideas to kick issues off when it comes to key takeaways that you just needed traders to return again to Toronto with from that occasion.

Meny Grauman

Sure, thanks, Meny, and good afternoon, everybody. It is nice to be right here once more and looking out ahead to a possibility to speak to a lot of you afterward right this moment as effectively. Investor Day was a very necessary occasion for us and perhaps extra necessary than previous Investor Days as a result of it was, for us, marking perhaps the ending of an period and the start of a brand new period for our firm. So to reply your query extra instantly, Meny, I’d have stated that there are most likely three key takeaways that we needed to go away with of us. The primary was that we now have remodeled the corporate.

We’re a radically totally different firm right this moment than we have been in 2017. And you may have a look at that from a wide range of totally different measures or other ways. The ROE of our firm has gone from 11% to 16%. The legacy companies, as outlined by long-term care and VA, has gone from contributing 24% of earnings all the way down to 12%, 11% on a pro-rata foundation. Expense effectivity, 55%, improved to 45%, dramatic digitization of our enterprise, enchancment in our NPS scores, STP and so forth and so forth. And I may rattle on for ages.

So the primary level that we actually needed to ship and execute was that we’re a modified firm. We aren’t the dangerous enterprise that we have been post-GFC. And in consequence, we expect we’re a way more thrilling proposition. The second message is that we consider that we’re uniquely positioned to capitalize on the megatrends which can be shaping the worldwide economic system, these being the expansion of the center class in Asia. There are 2 billion folks within the center class right this moment, forecast to develop to three.5 billion by 2030. That is fueling the expansion that’s Asia.

The second is that we now have an ageing inhabitants. The worldwide demographic is ageing at a price that we have by no means seen earlier than, and we see a dramatic digitization of the client base. There are few firms, if any, which can be capable of capitalize on that in addition to we’re, given our geographic footprint. And to place a finer level on it, we articulated targets for our enterprise for the subsequent three years that actually seize what we consider the potential of our franchise is. One was a rise of our ROE goal to 18% plus. The second is reinforcing the truth that our 10% to 12% earnings development stays.

We checked out our effectivity ratio persevering with to enhance, however we additionally talked about money and the truth that we count on to ship remittances over the subsequent 4 years of $22 billion. So we’re distinctive and we consider that the targets that we have established articulate that. And fairly frankly, there are only a few firms that may discuss to money, earnings development and ROE in the way in which that we’ve not, are capable of.

After which the third message is that we’re demonstrating execution success in opposition to that. Quarter in, quarter out, we have been capable of truly exhibit progress, not solely in opposition to the objectives and ambitions that we now have, however in opposition to our market comparability friends. So these are most likely the three messages and why it was an necessary investor day for us.

Meny Grauman

I needed to observe up with numerous various things that you just talked about, particularly the ROE, however first, perhaps simply as a observe up. So it is clear why you introduced traders to Hong Kong. That is your hub. That is actually the middle of your operations. However then you definately took folks to Indonesia. So I simply need you to simply clarify why. What was the considering there? Why Indonesia?

Roy Gori

Sure. Nicely, I feel it is at all times nice to get traders and analysts out to Asia to expertise what is going on on, on the bottom in that a part of the world. And most people that journey to Asia usually go to Hong Kong or Singapore and do not enterprise additional than that. And Asia is a lot extra than simply Hong Kong and Singapore.

And the second goal was that Indonesia is an amazing alternative. When folks take into consideration Asia, they usually take into consideration China and perhaps India. I feel Indonesia will get uncared for. And for our business, it is an enormous alternative. Firstly, there’s nearly 300 million folks that stay in Indonesia. The center class goes to triple within the subsequent twenty years. And the insurance coverage penetration is roughly 1%, the truth is, just a little bit lower than 1%, which is a 3rd of the remainder of Asia.

So the demographics and the chance which can be represented in Indonesia are sometimes beneath appreciated and uncared for. And we now have a management place there. We have been there for greater than 30 years. We have got an excellent group. And we have been executing in opposition to that agenda. And we expect that that is actually one of many alternatives that will likely be a standout for us within the subsequent 5 to seven years.

Meny Grauman

And when it comes to ROE, you talked about 16% ROE in Q2. The goal is eighteen% plus by 2027. So perhaps you may assist us determine how do you get there when it comes to constructing blocks? What will get you to 18% plus?

Roy Gori

Sure, I feel that is an excellent query. And at our Investor Day, this was a key focus of our consideration. And we not solely articulated our purpose to get to 18% plus. And the plus is as a result of, by the way in which, we’re not incorporating any inorganic transactions in our roadmap to attending to the 18%. So we expect that something that we do inorganically ought to be accretive [ph] to that 18% purpose. As a result of that was a giant purpose on the market from a perspective of the place a lot of our opponents are and positively an enormous development from the place we’re right this moment to share factors, I’ll remind of us that we truly elevated our ROE 4 share factors from 2017. So we do have a observe document. However that was a reasonably large purpose.

And in consequence, we put plenty of disclosure in opposition to how we’ll get there, way more than we usually would at an Investor Day. So we broke that down by phase. And we confirmed for GWAM, for Asia, for Canada, and for the U.S. segments precisely how we’ll get there. And if anybody desires to see any of the small print on that, we are able to make them obtainable to you or you may undoubtedly see them on our web site. But when I needed to type of pull it up just a little bit and provide you with a few of the large actions, it would not shock you that GWAM and Asia are going to be the most important shifting components when it comes to attending to that goal or that purpose. Asia contributes about 1 share level of that development. And GWAM represents about 0.6, 0.7.

Our Asia enterprise ROE goes to develop from 16% to 21% over this time interval. And GWAM goes to go from 25% to twenty-eight%. And in Asia, a big a part of that’s simply persevering with the momentum that we now have. The advantages of scale come to the fore, which is why being a scale participant in Asia actually issues. And we’ll proceed to develop our distribution and diversify our Asia enterprise while driving expense effectivity. We nonetheless suppose there’s much more to do on driving price out of our enterprise by taking a look at digitizing and enhancing the effectivity of our franchise.

I feel Gen AI is one other key issue that is going to speed up that, and we are able to speak about that for those who’re . After which clearly with GWAM, it is related. We proceed to get the advantages of scale. We obtained $1.4 trillion of property beneath administration. And as we proceed to develop that enterprise, we’ll get scale, and that interprets into ROE enchancment that we have seen to this point, however we proceed to count on to see as we glance ahead.

Meny Grauman

I needed to speak about reinsurance transactions. The $13 billion reinsurance deal that you just introduced again in December was very effectively obtained by the market, very, very effectively obtained. I feel you’ve got been fairly clear that you just wish to ship one other transaction, broadly related kind of transaction.

So do you’ve any updates when it comes to, perhaps even simply to reiterate that outlook, clearly any announcement right here would assist the convention lots, so for those who may do one thing for me. However any replace when it comes to what you are fascinated with there when it comes to what’s probably, what’s attainable, deal construction, timing, measurement?

Roy Gori

Sure, so we have been very lively in coping with our legacy companies and liberating up capital from decrease ROE companies. That is no shock to anybody. We set a purpose in 2017 to unencumber $5 billion price of capital, and lots of stated that is a reasonably formidable goal. And we have truly delivered $11 billion price of capital. And the common ROE on that $11 billion that we freed up was about 4% to five%. In order that’s been a key driving power as to why we have moved from an 11% ROE firm to 16%.

And the LTC transaction we did in December was one thing that we’re very happy with. Clearly, we all know and knew that LTC has been a stumbling block for us and for a lot of traders when it comes to whether or not they would need to put money into Manulife, and we knew that we needed to get a transaction on the market to point out a real market worth of our portfolio. And we consider that there was a big low cost embedded in our inventory worth that could possibly be eradicated if we transact at an affordable worth.

And we did, and due to this fact we have been rewarded with important appreciation of the market cap and the share worth. It is nice that now the query is, when are you going to do one other transaction? Earlier than it was, may you ever do an LTC transaction? So I am blissful that that form of narrative has modified. And I’d say that we’re seeing the market open up fairly considerably, and that is not unusual for any of those companies. We noticed the identical factor with VA.

A few years in the past, VA was untransactable. First transaction was executed, after which we noticed a collection of transactions that adopted, and at way more engaging multiples sooner or later. I feel that pattern line would be the case for LTC as effectively. And we have seen many extra events . And I’d simply say that when of us have checked out LTC over the past seven years, we definitely have been working exhausting to see if there was a transaction that was attainable. We might at all times get to the desk with, commercially, it may make sense for the opposite occasion, however there was this damaging halo that was at all times there, which was a priority for a possible purchaser.

And I feel the primary transaction has gone a great distance in direction of eliminating that damaging halo, and folk are actually ready to take a look at it extra commercially. So, I will disappoint you, Meny, and never announce something now, or provide you with a forecast on date or timing. However I’ll say that it’s a precedence for me to nonetheless get one other transaction out. I feel it was good to get one executed. I feel it could be even higher to get one other transaction executed, and I feel that may assist our shareholders. However I need to do a great transaction.

I have been fairly disciplined, I feel you realize, round what offers we’d do, and eager want to verify we exhibit that we’re creating worth, and we’ll apply that very same self-discipline because it pertains to a attainable future LTC transaction.

Meny Grauman

I needed to dig into what’s driving this curiosity. You are speaking about elevated counterparty curiosity. So, a part of it’s simply the transaction itself setting a precedent, however what else is happening that you’d spotlight that’s serving to type of enhance the market right here?

Roy Gori

That is a very good query. So, I do suppose the damaging halo, eliminating that could be a large issue. I would not underestimate how large that’s. I feel the second large issue is that we’re having a maturing of knowledge. The most important problem with LTC has been that, there is a fan of outcomes when it comes to how the portfolio will finally carry out and behave. And yearly that is passed by, we’re capable of get extra knowledge to help the assumptions that we have got, which scale back the fan of outcomes. So I feel that is been our pal.

I feel the third issue is we’re placing much more effort and time into the way to handle this enterprise organically higher. And we’re seeing plenty of worth from that. There is a collection of issues that we are able to and can do, and once we’ve talked to counterparties and shared with them what we expect we are able to do, a lot of this stuff usually are not embedded within the reserves. They get fairly excited by this, and these embody clearly the worth will increase that we have been capable of execute.

In ‘22 once we did our foundation overview, we had C$2 billion in our reserves. We have already executed greater than 70% of that. And that is purported to be a lifetime assumption. So we have been very efficient at getting the worth will increase. We have developed our worth will increase. It was simply getting a worth improve or not. Now it is worth improve versus a touchdown spot, which is not any worth improve, you may maintain the identical worth, however we’ll scale back your advantages, which is equally priceless to us.

The third evolution now for us on worth will increase or on pricing is that we now supply the choice to purchase the coverage again from the client. So, this is a lump sum to purchase your coverage again. So it is like doing an LTC transaction on the most granular degree. That is an alternative choice. So I feel these present numerous alternative.

We have been seeking to scale back our fraud, waste, and abuse by utilizing expertise. I will provide you with an instance. We now geoprint our healthcare suppliers once they go to long-term care clients’ properties. So, previously, they might have stated, look, I spent an hour there, however they perhaps simply spent 45 minutes.

Now I can geoprint the healthcare supplier and know the way lengthy precisely they have been on the house, maintaining folks in properties for longer. Clearly, if they do not go to a long-term care facility, that is considerably advantageous to us. So how can we maintain folks of their properties for longer? We go into their home and really make their home much less susceptible to points in order that they will keep. Temperature detectors in stoves, pillboxes with alarms, handles, rails, eliminating carpet that might trigger falls and stoppages and so forth. So, there’s lots we are able to do, and we’re doing.

We’re nonetheless on the early half there, however I feel that is an enormous alternative for us. And the statistic that I usually present it’s that if we are able to simply merely defer somebody going into care by one 12 months, even when they keep in care for a similar period of time, that is a CA$2 billion alternative in its personal proper. And by the way in which, I have never talked about all the brand new prescribed drugs which can be coming on the market. Medication which can be affecting or which can be enhancing Alzheimer’s and dementia, I feel have gotten a big potential to assist us as effectively. So lengthy reply to your query. However I truly consider we have moved from this being a closely discounted enterprise to perhaps extra impartial, and I feel it could possibly develop into truly a constructive if we are able to execute and exhibit a observe document in opposition to a few of these objects.

Meny Grauman

And while you speak about these natural instruments that you’ve got, it sounds prefer it’s a sluggish course of. I simply need to get a way, as a result of typically I get the query, why cannot you pace it up? Why cannot you make it extra of a precedence and actually press the fuel on a few of these?

Roy Gori

We’re urgent the fuel. So, we have got a devoted group of folks that simply do that and do nothing else. The problem is that it takes time to see the affect of these objects. So if I am going in and work to maintain you in your house for longer by doing A, B, and C, the query is how can I truly translate that into the complete portfolio? How do I’ve sufficient knowledge to have the interpretation?

So, I truly suppose that we’re not a mile away from attending to a important mass level, however it does take time to have the ability to exhibit that these adjustments and these initiatives organically convert into upside alternative. However we’re definitely not holding again. We’re not going sluggish.

Meny Grauman

And when it comes to worth will increase, is there any, earlier than we have been speaking concerning the attention-grabbing politics within the US proper now, very contentious politics, is there any politicization of those worth will increase? Any points that you just’re seeing?

Roy Gori

We have not seen important points when it comes to our skill to get worth will increase executed. If something, these different choices make it just a little bit simpler for the regulator to approve. Like if I am going to a regulator and I say I need a 30% worth improve, that is form of exhausting for them to get their head round. But when I say, look, I will supply the client a no improve in worth with the advantages, it makes it just a little bit simpler for them to approve that bundle than simply the worth improve. After which with the buyback now, it is just a little bit higher. So the quick reply is that there is at all times going to be that push and pull, however we’ve not seen any dramatic adjustments that give us much less confidence in our skill to execute in opposition to our rightful worth improve authority and functionality. And we have got to do our half to make that extra compelling in order that it is extra simply approvable.

Meny Grauman

And is it additionally true that you just’re speaking about these natural instruments that you’ve got, that that has implications on the inorganic facet as effectively, proper? As a result of on the finish of the day, you are still holding on to a few of this danger. You are not giving up 100%.

Roy Gori

Once we do transact, the transacting occasion usually desires us to have pores and skin within the recreation. And we now have no downside with that. We need to be aligned with them. And that is additionally another excuse why they might be extra excited to do a transaction in the event that they see that we’re not simply placing our fingers up and saying over to you. However they’ve been very enthusiastic about these inorganic actions. And fairly frankly, a lot of them are coming to the desk and providing their concepts and options and are eager to lean in and really assist us with this. So I feel that mixture is definitely very encouraging.

Meny Grauman

I needed to shift gears, speak about ALDA returns. That is an space the place I get plenty of questions from traders, ALDA returns, missed expectations as soon as once more in Q2. However I feel it is necessary to spotlight the dynamics. There is a shift right here beneath the floor when it comes to what’s driving that miss versus expectation. So for those who may simply speak about that, the shift between actual property and PE and particularly what occurred in Q2?

Roy Gori

Sure. So let me simply type of step again and I’d begin by saying that alternates is a very priceless asset class. The truth is, the final speaker talked just a little bit about that and was seeing plenty of curiosity from a number of segments on the wealth facet for this asset class as a result of it offers superior returns with much less volatility and it diversifies their portfolio. Makes plenty of sense. That is the identical cause we like ALDA. And we have been investing in ALDA for greater than 20 years and that is additionally very important as a result of to speculate on this asset class, it is advisable to perceive it actually very effectively. And over the lengthy time period, it has delivered superb returns with decrease volatility than equities, for instance. Infrequently, we’ll see underperformance versus our benchmarks and targets and over efficiency.

And what usually occurs is when we now have a interval of underperformance, we now have that adopted by a interval of over efficiency. In 2020, we delivered beneath our benchmarks. In 21, we exceeded. The truth is, we exceeded by greater than we would underperformed within the prior 12 months. So we’ll see that. And one would possibly argue that proper now we’re seeing that underperformance and hopefully that’ll translate briefly order into some over-performance. However the nuance issue that you just spotlight, Meny, is totally proper and that’s that it particularly pertains to increased charges. We have seen some segments inside older develop into just a little bit extra challenged and particularly because it pertains to a better price surroundings. That is been actual property as a sector and clearly the return to workplace has been one other issue driving some softening in that sector.

And by the way in which, we have considerably decreased our actual property holdings over numerous years. So for that, it has been much less of a difficulty. After which non-public fairness, particularly leveraged non-public fairness has been one other extra challenged phase. However now with the yield curve shifting in the way in which that it has and the quick finish of the curve beginning to come down, that perhaps will translate into some constructive momentum sooner or later. I am not going to declare when that could be. The encouraging factor that we’d additionally level to is that in the actual property sector itself, we have seen steady enhancements. So the problem that we have seen there’s regularly reduced in size and smaller each quarter, fairly frankly, since Q2 of final 12 months.

Meny Grauman

Though presently makes up 14% of invested property, so how do you see that share evolving over the approaching years?

Roy Gori

Sure. So that you’re proper, it is about 14% of invested property, however I feel it is extra necessary to take a look at the shareholder portion of that. So a big chunk of that, nearly half of that, goes to par or collaborating policyholders. So it is roughly about 7% from a shareholder lens perspective. And that is been fairly steady. I’d count on that — that may proceed to be both steady or lower in time. And the opposite benefit of doing long-term care kind transactions is that it permits us to perhaps divest a few of these portfolios or make them obtainable to collaborating or third occasion clients who’re taking a look at these asset courses. In order that’s one other divestiture possibility that we regularly have obtainable to ourselves. So it is definitely not an space that we need to develop. We just like the asset class. We predict it is a good contributor from a returns volatility and from a diversification perspective. However we will surely prefer to see or not it’s perhaps the place it’s or barely smaller.

Meny Grauman

I needed to speak about an attention-grabbing measure that you just talked about at your latest Investor Day, LROC, lifetime return on capital. Simply needed to get your perspective on why you consider it is a good measure of efficiency for Manulife. Ought to we be specializing in it extra — greater than ROE in your opinion, simply extra basically? How ought to we have a look at it?

Roy Gori

We do and I do suppose that LROC is a very necessary measure that is not getting anyplace close to sufficient consideration. I would not say it is extra necessary than ROE, however the way in which I have a look at it’s, the ROE is your portfolio return on fairness whereas your LROC is the return on the brand new enterprise that you just’re writing. And you may win market share, however for those who’re doing that at very poor LROCs, that is not going to bode effectively for the longer term. Nobody would discover that for a few years, definitely in any CEO’s tenure. And I feel that is why it deserves much more consideration and we have been centered very a lot on that. So the way in which I can enhance my ROE is I could make my in-force enterprise extra worthwhile, I can try this organically, or I can try this by divesting components of my enterprise that have gotten low ROE.

And we have talked just a little bit about how we have executed that and what we have executed on that entrance. The opposite method I enhance ROE is to verify, that the brand new enterprise that I am writing is at excessive ROEs. And that is what we have executed. The truth is, we have elevated our ROE on new enterprise in Asia, for instance, from 16% in 2017 to now it is 25%, truly larger than 25%. And the whole portfolio LROCs have elevated very dramatically. So it isn’t simply sufficient to win market share, it is advisable to win market share with good return on fairness and that is going to be the stream that finally is the pattern line for the place the ROE of the complete franchise will go. That isn’t a measure that it’s best to have a look at in isolation, for my part. There is a mixture of a number of elements.

We stress take a look at our LROCs for varied financial eventualities, in order that’s one other factor that we have a look at. I additionally have a look at the capital payback 12 months. So how shortly do I get my capital paid again? I can have an excellent LROC, but when it takes me 10 years to get my capital again, that is not essentially a great return both. And on LROC, we have improved, sorry, on capital payback 12 months, we have improved our payback 12 months, from about seven years in 2017 to now it is 3 years. So it is a very quick payback of capital. It is a excessive return. And that actually talks to the standard of our franchise and the standard of our ROE and the place it will likely be going sooner or later, past the 18% quantity.

Meny Grauman

I needed to ask you about, effectively, on the investor day, there was a really attention-grabbing presentation, a video in your Prenuvo partnership. And I needed to make it broader, simply when it comes to the broad ecosystem of companions that you have put collectively when it comes to including worth added type of well being companies to your product providing. And actually ask it from the attitude of a shareholder. So these are very attention-grabbing. Possibly you can discuss just a little bit about what Prenuvo is, however the query is, why ought to traders care? What’s the important thing takeaway from an investor’s standpoint from these initiatives?

Roy Gori

Sure, is anybody aware of Prenuvo? Present of fingers? Nobody? One individual. GRAIL? Anybody aware of GRAIL? Gallery take a look at, GRAIL? Okay. So we have got some educating to do. So I firmly consider that the way forward for our business is behavioral insurance coverage. And to make a finer level on that, the historical past of our business is one the place you come and purchase a life insurance coverage coverage from us, I am simplifying, and we do not discuss to you for 20, 30 years, and really, we’ll most likely discuss to you on the subsequent of kin. And we’ll make a declare cost to you.

The way forward for our business, for my part, goes to be the place I work with you to get outcomes which can be good for you and good for me. What’s an final result that is good for me as a life insurance coverage firm? It is you residing longer. Why is that higher? I feel that is form of apparent. I get to take your premiums and I earn a return over an extended time period. So, I win for those who stay longer. Guess what? You win too for those who stay longer, so long as you are residing more healthy. So, we would like you to stay more healthy too. So, we’re fully aligned. That is a great factor. All proper, so behavioral insurance coverage is the place I work with you. As an alternative of simply promoting you this insurance coverage coverage, I work with you that will help you stay longer. So, we have now constructed this program of behavioral insurance coverage, which is connecting with our clients and serving to them stay longer. How do they stay longer?

You are taking a Prenuvo take a look at. Prenuvo is a full-body MRI. It will detect cancers early or some other points that might create morbidity or longevity points for you. When you get them early, you’ve got obtained a ten instances probability of fixing them. GRAIL, it is a blood draw take a look at that may detect 50 cancers. When you’re over 50 on this room and you have not executed a GRAIL take a look at, please go and do it. We have got clients which have executed the take a look at, had no concept that they have been unhealthy or prone to most cancers and have been recognized with early stage most cancers. You get most cancers early stage detection, your probability of survivorship will increase by 10 instances. And we have got clients, and also you noticed the video of Kelly King, who’ve realized that they have most cancers and are actually capable of take care of this and stay a very regular life. We all know that for those who sleep higher, you are going to stay longer and more healthy.

So, we have got partnerships with ŌURA, Fitbit, Apple Watch to trace and detect. We all know that for those who do 10,000 steps a day, you are going to try this. So we have got this connectivity, and we’ll reward you for doing the issues that assist you to stay longer. So which will embody providing you with vouchers and Apple Watches free of charge or providing you with reductions in your premiums. Why can I try this? Since you’re a decrease danger to me and you are going to make me much more cash. That is the way forward for our business. We are the chief on this area. We have got 2 million clients already, who’re behavioral insurance coverage and are doing this with us. And fairly frankly, this ought to be 70% of our enterprise, simply in order that, fairly frankly, individuals are capable of take pleasure in the advantages of detecting issues early.

One other nice correlating issue for longevity is folks that do an annual medical. When you do an annual medical, you are more likely to stay longer than folks that do not. So we’ll encourage you to do annual medicals. And all this stuff, by the way in which, we have got now accomplice firms that we work with. We get large reductions from them as a result of we’re giving them volumes, that we are able to supply to clients, in order that they will truly do these issues.

Meny Grauman

You are a good insurance coverage salesman, Roy. There you go. I’ve much more questions, however we’re out of time.

Roy Gori

We’ll have software types on the again if anybody’s .

Meny Grauman

You get fee.

Query-and-Reply Session

Roy Gori

Thanks all. Actually respect it. Thanks.

Meny Grauman

Thanks.

Roy Gori

Thanks.