Thank you, and good morning. Welcome to Manulife's earnings conference call to discuss our fourth quarter and year-end 2020 results. We are conducting this call virtually. Our earnings release, financial statements and related MD&A, statistical information package and webcast slides for today's call are available on the Investor Relations section of our website at manulife.com. Turning to Slide 4. We'll begin today's presentation with an overview of our fourth quarter and year-end highlights and an update on our strategic priorities by Roy Gori, our President and Chief Executive Officer. Following Roy's remarks, Phil Witherington, our Chief Financial Officer, will discuss the company's financial and operating results. After the prepared remarks, which were recorded earlier this week to ensure optimal sound quality, we'll move on to the live question-and-answer portion of the call. We ask each participant to adhere to a limit of 2 questions. If you have additional questions, please re-queue, and we'll do our best to respond to all questions. Before we start, please refer to Slide 2 for a caution on forward-looking statements and Slide 40 for a note on the use of non-GAAP financial measures in this presentation. Note that certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from what is stated. With that, I'd like to turn the call over to Roy Gori, our President and Chief Executive Officer.

Thanks, Adrienne. Good morning, everyone, and thank you for joining us today. 2020 was an incredibly challenging year in many respects. Countless people were affected by illness and loss as well as isolation from loved ones, putting stress on their physical and mental health and creating anxiety for their financial well-being. We offer our deepest sympathies to those who have been directly impacted by illness and loss and our immense gratitude to all frontline workers globally for their incredible efforts through this unprecedented time. I also want to thank every colleague along with our agents and business partners for all they have done to make decisions easier and lives better for our customers over the past year. Turning to Slide 6 and our 2020 financial highlights. In 2020, we delivered net income of $5.9 billion, an increase of $269 million from 2019. The core earnings of $5.5 billion declined 9% from the prior year despite positive core earnings growth in 3 of our 4 operating segments, including Asia and Global WAM. The decline was primarily due to the absence of $400 million of core investment gains in the current year. APE sales were $5.6 billion in 2020, down only 8% from the prior year, reflecting our ability to leverage digital capabilities to engage customers despite a constrained selling environment. Our capital position remains strong with a LICAT ratio of 149%, and we continue to have substantial financial flexibility. And finally, Manulife's total AUMA reached $1.3 trillion, the highest in our company's history. And global WAM delivered net inflows of $8.9 billion in 2020, an outstanding result in the current environment. Turning to Slide 7. As you've heard me say in the past, Manulife's global diversity is one of our greatest strengths, and I'm very pleased with the resilience that our franchise exhibited throughout 2020 and the results that we delivered despite significant headwinds. Manulife entered 2020 in a position of strength, thanks to the hard work that we've done over the years to derisk our product offerings, reduce the company's sensitivity to market movements, optimize our legacy portfolio and strengthen the company's capital position, reducing our leverage. And last, but definitely not least, make meaningful investments in digital capabilities, whilst fostering a culture of expense discipline and efficiency. Our continued momentum and strong financial performance have resulted in a history of progressive dividend increases over the last 5 years. Markets were extremely volatile throughout 2020, and the relatively small variance between Manulife net income and core earnings is a testament to the effectiveness of our equity and fixed income hedging programs. We have a strong record of delivering robust growth in new business value. And while this figure declined versus the prior year, the fact that we generated new business value of $1.8 billion in 2020 despite significant headwinds exemplifies the strength and diversity of Manulife's global business. I'd like to take a few minutes to comment on the outstanding results that our 2 growth engines, global WAM and Asia delivered in 2020. Turning to Slide 8. Our Global Wealth and Asset Management businesses performed very well in 2020. AUMA reached a record high of $754 billion, an increase of 12% from 2019, benefiting from favorable markets and positive net flows. And our core EBITDA margin has improved considerably over the last 5 years, up 470 basis points, which reflects healthy top line growth and resilient fees, coupled with additional scale and a disciplined approach to expense management. Our global retirement business delivered strong growth in 2020, fueled by record gross flows in Indonesia and capturing 35% of Hong Kong MPF net flows as well as the top market share position for our new business in our target markets in Canada and in our core small business market in the U.S. and in Canada retail, our mutual fund business ranked #3 in terms of net flows on a cumulative 3-year basis with bank-owned fund company taking the top two positions. Our success was driven by superior investment performance and the impact of Manulife securities, the second largest investment dealer in the financial advice channel in Canada. Turning to Slide 9, which showcases the diversity and resilience of our businesses in Asia. Our strong and diversified presence across 11 markets in Asia was a key factor in delivering solid 2020 results in the region despite significant headwinds. You will notice that Asia Other, which includes many of Asia's fastest-growing emerging market economies, delivered exceptional results, including record core earnings and NBV, along with impressive margin expansion as we continued to build scale. The prominence of Asia Other has grown considerably in the last few years, with Asia Other contributing 43% of Asia's NBV in 2020 compared with 29% in 2016. Strong execution was another crucial driver of our success, and I could not be more proud of how the team stepped up to quickly adapt to the changing needs of our customers throughout the region. Turning to Slide 10, which displayed our market rankings and distribution capabilities. Our Asia franchise emerged from 2020 in a stronger position, with higher market rankings in 6 markets, and Manulife ranked in the top 5 in 7 markets in Asia. Manulife has a well-established agency force, which is reflected in our top ranking for agency sales in Hong Kong, China, Vietnam, Indonesia, and Cambodia. Through organic deployment of capital, we continue to recruit high-quality agents throughout 2020 and increased our agency force by 21% to over 115,000 agents. In addition to agency, our non-exclusive bancassurance partnerships and more than 100 bank partners have been key drivers of our success. During 2020, we entered into an exclusive bancassurance partnership with VietinBank, one of the largest banks in Vietnam. And we renewed our exclusive agreement with Bank Danamon Indonesia, extending our partnership to 2036. The deal with VietinBank is pending approval. And once it closes, we'll have access to over 30 million customers through exclusive partnerships, commencing our position as one of the leading insurers in bancassurance distribution in Asia. Outstanding distribution capabilities are the backbone of success for an Asian insurer and serve as a leading indicator of growth potential. Based on the quality of Manulife's distribution capabilities as well as our increasing scale and improving market rankings, I'm confident that we will achieve our 2022 target of 2/3 of core earnings generated from our highest potential businesses.

Thank you, Roy, and good morning, everyone. Turning to Slide 14 and our financial performance for the fourth quarter and full year. As Roy discussed, in 2020, we delivered solid operating results and made consistent progress against our 5 priorities, demonstrating our resilience amid a challenging environment. I will highlight the key drivers of our fourth quarter and full year performance with reference to the next few slides. Turning to Slide 15. Core earnings remained solid at $1.5 billion in the fourth quarter of 2020, largely in line with the prior year quarter on a constant exchange rate basis, reflecting the absence of core investment gains in the quarter and lower investment income in corporate and other. These items were offset by the favorable impact of in-force business growth in Asia and the U.S., higher average AUMA in our Global WAM business, and lower general expenses. Net income attributed to shareholders of $1.7 billion in the fourth quarter, was up $0.6 billion from the prior year quarter on a constant exchange rate basis, primarily due to higher investment-related experience gains, gains from reinsurance transactions compared with losses in the fourth quarter of 2019 and a lower charge from the direct impact of markets. Of note, we recognized a gain of $585 million from investment-related experience in the fourth quarter of 2020, reflecting the favorable impact of fixed income reinvestment activities, higher-than-expected returns on our older portfolio, primarily driven by fair value gains on private equity and the value of proceeds from the sale of NAL and favorable credit experience, partially offset by lower-than-expected returns on real estate. The loss of $674 million in the fourth quarter from the direct impact of interest rates was driven by narrowing corporate spreads, primarily in the U.S., partially offset by realized gains on available for sale bonds. The gain of $351 million from the direct impact of equity markets reflects the strong performance of global equity markets in the fourth quarter of 2020. Slide 16 shows our source of earnings analysis. Expected profit on in-force increased by 7% on a constant exchange rate basis, driven by in-force business growth across Asia and the U.S. As I mentioned last quarter, we continue to view 6% as a reasonable annual growth rate for our expected profit on in-force. New business gains were in line with the prior year quarter, reflecting favorable product mix in Hong Kong and Vietnam, offset by lower sales volumes in our international high net worth business related to COVID-19 and lower sales from both group and individual insurance in Canada. Overall policyholder experience in the fourth quarter was unfavorable, reflecting mortality losses from excess deaths in U.S. Life, partially offset by the impact of higher claims terminations in Long-Term Care and favorable claims experience in Long-Term Disability in Canada. Core earnings on surplus declined compared with the prior year quarter, largely due to lower yields and change in asset mix, partially offset by higher average asset levels and the favorable impact of markets on seed money investments.

First one on mortality, the losses in the U.S. life block. Can you tell me what you're seeing there? And is that a trend that could result in a reserve charge later on Q3, typically, because we're hearing from other insurers that there's excess mortality, but that's not necessarily in the insured population. So I'm wondering what your experience has been?

Thanks, Gabriel. It's Steve here. I'll address your question. It's important to consider the context of the impact of COVID on claims throughout the company. We're benefiting from our diversification strategy. As you know, we're experiencing losses in our life insurance business, especially in the U.S. due to claims, but we're also seeing gains in other business lines, and that balances out our overall company experience. Regarding U.S. Life, just a reminder that in 2019, our claims experience met expectations, aligning with our evaluation and best estimate assumptions. We conducted a thorough analysis last year and improved our mortality assumptions for older ages. So, I am confident in our mortality assumptions for the U.S. life business. In 2020, we've observed COVID-related claims coming through. We've also noticed some variability in large cases, which I consider normal. Additionally, we have made significant offsets in our Long-Term Care business, demonstrating one of the advantages of our diversification. We will keep monitoring the U.S. Life claims experience, but that’s the context, and I feel positive about our assumptions.

Okay. My other question is about the expense reduction. You’ve reached $1 billion now, which is great. However, when I review your financial notes, you mentioned various assumptions and how your business has performed both positively and negatively. It seems that expenses have had a negative impact for several years, including in 2020. I'm curious if there is additional cost-cutting needed or what changes would be required for the expense situation across the company to become favorable or neutral.

Thanks, Gabriel. This is Phil. I'll make a start, and then I might turn it over to Steve to talk about experience. So when it comes to expense assumptions, you're absolutely right, we've made substantial progress. And as Roy said in his remarks that we have achieved the $1 billion target that we set for ourselves, but we are not done. I recall very clearly at the Investor Day in 2018 when we stood up and said that we have two targets. We've got the $1 billion cost target as well as the expense efficiency ratio target. And we do remain committed to achieving that 50% or less expense efficiency ratio consistently by 2022, and that means there is work to be done. The ratio, if you look at 2020, was 52.9%, which I think is good in the environment. It was really resilient against a backdrop of revenue challenges. But as we look forward, there are a couple of ways to achieve that 50% cost efficiency ratio target, one is, to lower expenses. And for every $150 million of expenses, we can save, that does take a percentage point off that ratio. The other way to grow it to achieve the ratio, of course, is growing our revenues and $300 million of revenues would have a 1% impact on the ratio. Specifically with respect to experience, I'll hand over to Steve to comment.

Thank you, Phil. Gabriel, one area where we can see the impact of our expense actions is in the total company core experience, as outlined on Page 4 of our supplement. The core experience includes the policyholder experience, which remained stable compared to Q4 of last year, so it doesn't account for the significant improvement we are observing in core experience. The main factor contributing to this improvement is the expense actions we've implemented, which are reflected in that line.

I have a question about remittances. You reported $1.6 billion in 2020, and I understand that you sent $2.5 billion into Asia in the first four months of 2020, partly due to the unusually low interest rates. Does this suggest that under more typical conditions, the remittances would total $4 billion or more if we include that $2.5 billion? Could you share your outlook for remittances moving forward based on this calculation? I also have a follow-up question.

Thanks, Tom. This is Phil. I can confirm that in May, I mentioned we had injected approximately $2.5 billion into our operations in Asia. Regarding remittances, it's important to note that the average remittance over the five years prior to 2020 was $2.5 billion. In 2020, we generated $1.6 billion in remittances, which is lower than expected. The primary reason for this is the investment we made in our Asia businesses in the first half of the year. Most of the remaining remittances came from the U.S. and Canada, where both made significant contributions in 2020. Overall, when assessing our remittance generation and potential, it speaks to our diversification. Historically, we've generated an average of $2.5 billion annually, totaling $12.5 billion from 2015 to 2019. Of that amount, $6.9 billion came from the U.S., $3.7 billion from Canada, and Asia contributed $2 billion. This gives me confidence in our historical track record and medium-term remittance strength. Remittances are supported by strong earnings both in Canada and locally, and while there may be fluctuations in remittance timing, we have enough flexibility within MLI to manage that. Therefore, I believe the outlook is positive, and I don't have specific concerns about remittance generation, Tom.

Okay. And then the follow-up, we've seen lots of transactions with private equity firms or even reinsurers. Just with respect to annuity blocks, albeit it's probably more related to fixed and equity indexed annuity blocks. But maybe you can comment on some of the dialogues that you may have had with respect to reinsurers, what the outlook is for transactions in this environment? And I'll leave it there. Maybe just put some color on that.

Yes, thank you, Tom. I'll begin and then pass it over to Naveed. Portfolio optimization has been a significant focus for us, as we mentioned at our Investor Day. We set a target of raising $5 billion in capital by 2022, and we were pleased to achieve that goal by the end of 2019 and to continue making progress in 2020. This remains a top priority for us, particularly in executing transactions, but always with the best interests of our shareholders in mind. Given the current environment with excess liquidity, there's considerable interest, and I expect that to continue into 2021 and beyond. Now, I'll hand it over to Naveed for more details and context.

Yes. Thank you, Roy. We're still exploring reinsurance transactions. So I think there's still some runway there for us. As Roy said, we'll transact if in the best interest of shareholders. I think the BOLI transaction from Q3 is a good example of this. It was a considerable reduction in interest rate risk as a result of that transaction. As we talked about, there is definitely a lot of activity in the market and a lot of capital chasing deals. We especially closely monitor the risk transfer market for VA and LTC and probably more robust for VA than it is for LTC. But I mean, to reiterate, we're also heavily focused on organic work, on all of our legacy blocks. This includes V rates, buyout and transfer programs, claims management, and other in-force management initiatives. So really pleased with our success there. But again, regularly monitoring the market.

Just following on the remittances discussion. If my memory is correct, the downstreaming was tied to rates. So I'm wondering if you look out to '21, is there any chance that the rate environment could reverse what we saw in 2020? And could you see that have a very positive impact on remittances in 2021?

Thanks, Meny. This is Phil. You are right that the reason for the injections I mentioned in May regarding Asia was market conditions, particularly interest rates, which are very sensitive in Hong Kong. Additionally, one of the factors was the equity markets. I believe that as the macroeconomic environment improves and if we see a consistent improvement in interest rates, it could positively impact remittances, and I would expect to retrieve some of that capital.

Yes. I think let me start, and then I'll hand over to Phil. As you rightly pointed out and as Phil commented in the opening remarks, we're in a very strong capital position. I like our ratio at 149 is where we ended the year. And that basically translates into $29 billion of worth of excess capital over our supervisory limit. This, as you know, has been a strong focus for our organization as we've been really driving that agenda of a strong capital position, which provides us significant financial flexibility. At the same time, over the last 3 years, we've reduced our leverage ratio. Our leverage ratio was north of 30%, and now we've seen that come down quite significantly. So we really do feel good about the strong capital position that we're in. In terms of deployment of capital, I think one of the things that I'd lead with is that our geographic footprint in a bit of an enviable position that we don't need M&A to deliver on our medium-term goals of 10% to 12% core earnings per share growth. So I think that really is a source of strength, which ultimately means that when we do deploy capital, for any M&A, we will do that opportunistically, and we'll do that when we've got a high degree of confidence that we can execute against that agenda. And we'll be very, very disciplined on that front. Our priorities from a capital deployment perspective, as we've said in the past, is clearly organic growth, continuing our strong track record of dividend increases and buybacks. Buybacks have been a key source of value enablement for us. In fact, we returned $1.2 billion worth of capital to shareholders via buybacks, that's net of the drift. And when the OSFI restrictions are released that will be, again, another priority for us.

I’m glad to add a few points. Roy mentioned our capital deployment priorities, and dividends are at the top of the list. From 2017 to 2020, our dividend compound annual growth rate was 11%. Last year during the call, we announced a 12% increase to the dividend. It's also essential to note that regarding our normal course issuer bid, as you pointed out, we deployed $1.2 billion of capital for share buybacks, net of the dividend reinvestment plan. We were actively buying back shares until March 13, when OSFI implemented restrictions on dividend increases and NCIB programs. The decisions regarding dividends and the NCIB are made by the Manulife Board, but I can assure you that we review these matters quarterly. We meet with the Board to discuss capital deployment and the dividend level, and this regular routine positions us to respond quickly to changes in the external environment.

First question is with respect to the outlook for individual insurance sales. And I guess, sort of across geographies, namely Hong Kong, Canada, and Asia, and the reason I ask is you've put a lot of effort and focus on improving digital sales channels as well as making it easier for people to buy insurance with, with the lack of medical exams, but we continue to see life sales down year-over-year. So just wondering, like what is the catalyst for sales broadly to go higher? Is just as simple as the lifting of social distancing restrictions? Or are there other catalysts that could take sales higher on a year-over-year basis?

Thank you for the question, Roy here. I will begin and then pass it over to Anil and Mike to provide more details about our business in Asia and Canada. As mentioned in the opening remarks, since the pandemic began, our business has shown impressive resilience. The fact that our APE sales are only down 8% despite the challenges we faced in 2020 is quite remarkable. This success is due to three main factors. First, our global diversity played a significant role; we benefited from having a broad presence not just in Canada, the U.S., and Asia, but within different markets in Asia as well. When some markets experienced stricter conditions, others began to relax, and this diversity provided us with strength, which I believe will continue into 2021 as we observe various markets still dealing with lockdowns and easing. Second, our investment in digital infrastructure has been crucial. Over the last three years, we have invested more than $650 million to enhance this area. While we didn't anticipate COVID, we recognized the growing need for digital consumer engagement, and these investments paid off significantly in 2020. Going forward, we aim to build on this momentum and effectively use the digital tools we developed. Lastly, the strength of our sales channels has greatly benefited us. In Asia, for example, we have focused on expanding our agency force while ensuring they are highly professional. Our agency grew by 21% to 115,000. Additionally, we have made substantial investments in our banca distribution and are among the leaders in this sector in Asia. Following the closing of the VietinBank transaction, we will have ten exclusive bank partnerships and over 100 partners overall, giving us access to 30 million clients. Overall, I believe 2020 was a key year for us, showcasing our business's resilience, and I expect this momentum to carry into 2021. Now, I will hand it over to Anil and Mike for further insights on our sales momentum.

Thanks, Roy. And as Roy rightly pointed out, I think the diversified nature of our geography of our channel mix of our product has led to the significant resiliency that we've been able to show during the crisis. I think the investments that we continue to make in expanding our footprint, both on the agency as well as our bancassurance channel that allows us a great mix and diversified our diversification strength to our channel was absolutely pivotal in kind of driving the kind of success that we saw in 2020.

Yes, this is Mike. I'll just add a few comments. I won't cover many of the same themes affecting the Canadian business. At a high level, we remember that after the SARS crisis, we observed a rise in interest in life insurance, and I think this is a trend we will see globally as we move forward. We have indeed witnessed this already. From a Canadian standpoint, we have also taken the opportunity presented by the pandemic to digitize many of our processes, which will improve our ability to process sales and make things easier for both customers and advisers in the future.

That's helpful. Second question is also a big picture one. And going back to the earlier discussion regarding transaction activity in the U.S., a lot of folks are also talking about the Prudential Jackson National pending transaction. Now part of your answer has been talking about doing what's best for shareholders. I think it would be helpful for everyone to understand with a little bit more granularity how you view that lens? Like how are you viewing this balancing act between engaging in transactions? And what is best for shareholders? Like what are the key metrics or items that you're considering?

Thank you, Paul. To address your question, we evaluate a wide range of metrics, both financial and non-financial, to determine what best serves our shareholders. Our fundamental philosophy has been to keep all options open since we started our new strategy, which has yielded significant results through our portfolio optimization efforts. Additionally, as we observed in 2020, one of our main strengths lies in our global diversity. Our operations in the U.S., Canada, and Asia positioned us strongly in 2020, and I expect this advantage will persist in 2021 and beyond. We have consistently stated that we would not dismiss any potential transaction. However, regarding the Prudential transaction specifically, it is not a high priority for us. We believe that the global diversity of our business represents our primary strength, and we see tremendous opportunities to pursue through our current agenda, including both inorganic transactions and, as Naveed highlighted earlier, enhancing our business organically for better results.

I'd like to discuss the Wealth Management segment. The last couple of quarters have been quite positive, as the market is strong and margins are improving. However, I've noticed that expenses in this area have remained stable for nearly two years. This indicates that the company is effectively controlling costs while benefiting from a favorable environment. With that in mind, is there any reason to believe that Manulife should refrain from making significant investments in Wealth Management as asset growth continues? Alternatively, might we anticipate a rise in expenses once assets surpass $800 billion, $900 billion, or even $1 trillion? Do you foresee any necessity to invest more robustly in Wealth Management to elevate it further?

Great. Thanks, Mario. This is Paul speaking. Well, I'll just start by saying we actually did make quite a big investment in the global infrastructure through a go-program years ago, which moved all of our business on a global platform. And we're surely seeing benefits of that as we scale, what you're starting to see in our results. We've also, as we brought the organization together a couple of years ago, really found opportunities for efficiency to run the business better, to get better collaboration. And we've had a lot of those early wins, I would say, showing up in the results. We still think there's tremendous opportunity in the business to drive out efficiencies as we look at our global scale and make sure we leverage that for our local businesses. I mean, one of the things we do try and watch is just our expense growth relative to revenue growth. And I think I've said historically try and live within half of our revenue growth with expenses to make sure we can manage fee compression and continue to expand the margin, etc. But we do today in our expense line, already significantly invest in the business every year, and it's really a question of priorities. And so for us, we would expect that we'll see growth in expenses as the business grows. We won't be able to keep it flat forever, but we do expect we're going to be able to do that in the context of the revenue growth and continue to move the other metrics forward.

Yes. Mario, if I could just add, I think you touched on perhaps one of the biggest opportunities that we see in our Global Wealth and Asset Management business, and that is that we've got an infrastructure and a foundation that can support a business that's much larger without having to make significant investments beyond the ones that we've already made. So we feel that this is a key driver of not just improving our margin but improving our profitability trajectory for our global wealth and asset management business going forward. Paul highlighted some of the system investments that we've made, but we've also been investing significantly on the digitization front as well in terms of the way we interact with customers. So this is one of the reasons that we are most excited about the prospects that we see and have in the Wealth and Asset Management business as we continue to grow and build out our global footprint there. Yes. If we could now go back, Roy, to your answer to Paul's question. Paul was asking about the sort of the lens, or the goalpost you look at in assessing a transaction that would free up capital. Now without providing any numbers, because I know you can't negotiate a sale or a reinsurance transaction on a call like this. But would I be correct in saying that on the one hand, the company has to look at what kind of earnings would be given up and what sort of book value charge might arise, that would be one part of the scale? And on the other side, what kind of capital relief would be achieved? And what that capital could be put to use? Is that in a very simplistic way, the decision and the balancing act that the company faces when making decisions like this? Thank you, Mario. Your explanation captures some of the key factors involved in our decision-making process regarding transactions. The points you've mentioned are indeed crucial as we evaluate whether to proceed. Our primary focus is the best interest of our shareholders, which includes considering the valuation from The Street related to our businesses and the capital required for them. This is not a one-dimensional decision, and you have highlighted at least two of the important factors we always weigh when deciding on transactions, along with a few others. You are largely correct.

Hi, I don't want to question the success you've achieved in expense efficiency and the reduction of expenses. However, looking back at 2020, there were expense reductions across all operating segments, yet we have noticed inflation in corporate and other areas. Could you explain what is driving this? Is it related to the costs of digital initiatives being absorbed by corporate, or have there been changes in cost allocations?

Thanks, John. That's a good question and a good observation from our results. What you're seeing in corporate and other on the expense line is an increase in expenses of about $50 million. This increase is driven by a one-time charge related to the write-down of some IT assets on the balance sheet. It's nothing to be alarmed about considering everything happening in the backdrop of the pandemic, as we are closely examining our digital strategy and adjusting our projects to prioritize certain digital investments in this environment. We have thoroughly reviewed everything capitalized on the balance sheet and have written down certain items, but this is a one-time exercise that should not be projected forward.

I think it was Phil, and I think it's in the report as well, but your ALDA experience, you mentioned that real estate returns fell short of expectations. And maybe Scott can touch on, was this related to the office real estate book? I think that's something that you mentioned you have some concerns with on a go-forward basis? Just trying to get a bit of an update on that.

Sure. Thanks, Doug. It is Scott. And yes, we didn't have a loss in that portfolio. But as you know, if we don't achieve our assumed returns and they fall below that, loss does show up through our income statement. And that's what happened in the fourth quarter and for the full year. In fact, our real estate returns were about 0.5% in the fourth quarter, so still positive, but below the assumed return. And you're also correct, office is the biggest driver of that office is 2/3 of our portfolio. And we're just not seeing sort of the appraisal gains that we have historically seen and would need to see to get to those assumed returns. The income returns are still where they were. So it is something that we're watching going forward. I would say a protection on that part of the portfolio is that 25% of our real estate portfolio is in Asia, and we're not seeing the same dynamics of the work from home in Asia, so less concerned there. And then in North America, I mean, it is still to play out. There are folks that believe that there will be more spacing, which will create more demand. And we just have to see once we can all get back to the office where the demand will settle out. We do have a little over a 6-year average remaining lease term and 92% occupancy in the portfolio. So those should help us weather sort of the short-term here. But yes, basically, we're not seeing the appraisal gains we need. And on the office portfolio, even slight appraisal losses that give us that 0.5% total return in the fourth quarter.

Steve, I believe there was again some negative lapse experience in the U.S. that countered some of the gains in Long-Term Care insurance. Is that correct? Can you provide some numbers and discuss what you are observing? I recall that you took a reserve charge for lapse last year, or was it last Q3? In Q3, there was some negative lapse experience. I would appreciate an update on that situation.

Sure, Doug. Yes. One of the things we're observing in the U.S. is a diversification in our business results. Specifically, we are noticing some secondary effects from the pandemic in our medical and health sectors, with people showing hesitance in seeking care, yet we have seen some gains as well. In the U.S. Life business, customers of our protection-oriented products are valuing their coverage more and are retaining it longer compared to pre-pandemic times. Our lapse rates for this business are currently 20% to 25% lower than what we observed before the pandemic. This has resulted in an impact of about $25 million for the quarter. We expect these trends to gradually shift back towards pre-pandemic levels in time, and we will continue to monitor these patterns closely. You're highlighting an important observation that we view as short-term irregularities stemming from the pandemic.

I have two questions. The first one, I think is for Phil. Maybe Steve can chime in as well, but it should be straightforward. Phil, in your prepared remarks, you mentioned that a 6% EPIF growth is still reasonable, but I noticed it has fallen in Canada. Could you discuss the quarter-over-quarter changes and provide some insights into EPIF growth by segment, particularly in Asia, Canada, and the U.S.? Any assistance with this would be greatly appreciated.

Sure. I can take that, Darko, thanks. So Phil commented in his remarks that we expect roughly 6% growth in earnings on in-force on an annual basis. We expect higher growth close to 8% to 9% in Asia and then lower expected growth in Canada and the U.S., as we've got a higher proportion of legacy business. What we saw in the quarter, specifically in Canada, you mentioned quarter-over-quarter. We do see some seasonality; we see stronger expected profit in our group business in Q3. So the drop from Q3 was really seasonality. The other thing that it's not a big driver of the trends, but as you talk about by segment, in the basis change last year, as we push through all the changes mechanically, we saw a modest increase in our earnings on in-force in Asia and the U.S. and a modest decline in Canada. Total company, it was not a material change. So those are some of the drivers and expectations that we're seeing on earnings in in-force.

Okay. My second question relates to portfolio optimization. It was good to hear Naveed talk about transactions and organic opportunities. But when I sit back now and I think about other things, apart from lowering Long-term Care exposure of variable annuities, one thing that pops out in this kind of market environment is perhaps is it time to revisit ALDA? And I'm sitting here reading about Wall Street bets. I've got cryptocurrency and crazy, equity markets going nuts. Your ALDA portfolio is down. I acknowledge it's 9.5% now. I think 2019, 2018, it was 10%. But is it possible that we could perhaps free up capital and reduce ALDA? And is that something that you would be considering going forward, given, I think you mentioned excess liquidity in the marketplace? Whatever it is, is there a chance here that Manulife might consider once again reducing ALDA as a proportion of investments? And if not, why not?

Yes. Darko, let me start, and then I'll hand over to Scott. As you know, we did take some actions to reduce our ALDA return assumptions. And I'll remind everyone that the all-in padded assumption for us is 6.1% annual return. And again, we wouldn't rule anything out. But one thing that we will say is ALDA is an incredibly valuable asset class for us. And that's, I think, certainly the case even maybe more so now in an environment of lower interest rates. So having a diversified investment portfolio and having the experience and knowledge of alternates, I think, has been a huge source of strength for us over several decades. And I think actually, that will come to the fore even more so in the decade ahead with a lower interest rate environment. So for us, diversification is really critical, having assets that can back our long-term liabilities and deliver through the cycle is certainly a huge priority for us. So let me hand over to Scott to provide some further commentary.

Yes. Thanks, Roy. And that's really well said. I mean, it's really the right way to invest for long-term liabilities, speaking as an investment person, and you'll see that at the pension funds that we have very long liabilities that don't have liquidity issues. So backing them with ALDA makes a lot more sense. And as Roy points out, in a current environment where fixed income is returning that much lower, it makes that much more sense, and we're starting to see peers talk about doing more of it. So unfortunately, it comes with accounting noise as we saw this year. We saw it in the financial crisis; we saw it this time. So periodically, we're going to have some bad quarters when markets are upset. But relative to a fixed income strategy, the long-term earnings are much higher. And to your remarks on GameStop and bitcoin, there are definitely bubbles out there, but we're not seeing bubbles in our ALDA portfolio. So it's not like, if you like, this is a good time to be liquidating the ALDA portfolio. We think there's still relatively reasonably valued and expect we'll be able to achieve our expected returns going forward.

I have a question for Phil and Naveed. Could you provide an update on the amount of capital and earnings still tied up in legacy businesses that can be unlocked? You've made good progress, and I recall you mentioned in 2018 that it was about $23 billion in capital and $2 billion in earnings. I'd like to know where that stands today.

I can take that question. Yes, this is Naveed here. So David, thanks for the question. As you can see, we've taken considerable action on the capital front on the legacy side. I don't have the exact number, but the total capital allocated to legacy business is a bit lower than what we showed in 2018. And the earnings, despite the give up on some of the transactions, is sort of in line with where it was in 2018. So that gives you some reasonable guidance.

And just to add to that, when we regroup for the Investor Day later in the year, I think that's a good time for us to provide a more holistic update on execution of each of our strategies, including portfolio optimization.

Okay, great. I have another question for Phil. I'm curious about the 6% growth and expected profit on in-force. This is the largest component of core earnings, representing 70% to 75% of core earnings, assuming you have $400 million in investment gains. I'm trying to understand how you bridge the gap between the 6% growth and your target of 10% to 12% medium-term EPS growth. Specifically, how do you reconcile the 6% growth on 75% of your core earnings with reaching that EPS growth target?

Thank you, David. That's a great question. We are dedicated to achieving the 10% to 12% target. Given that our EPF and EPIF are consistently growing as expected, we anticipate a 6% growth over the medium term. Contributing factors include new business opportunities, particularly in our insurance sectors globally, especially in Asia, where we are experiencing significant growth. Additionally, we see potential for value generation through scale. Beyond new business, we expect our Wealth and Asset Management division to enhance our overall earnings growth. We've also focused on expense efficiency, which has positively impacted our bottom line over the past three years. It’s important to note that when we refer to 10% to 12%, we're talking about growth in core earnings per share. Depending on the appropriateness of the external environment, we would consider share buybacks to enhance the per share contribution to our growth target.

Just to focus on EPS growth, I understand the medium-term target is 10% to 12%. However, looking at 2021 compared to 2020, it seems like you might be positioned for stronger growth considering the hopefully positive impact of core earnings and investment gains, along with the potential easing of COVID-related challenges. Is there any reason to believe that 2021 won't exceed the longer-term target?

Yes. Thanks, Humphrey. Let me start, and then I'll hand over to Phil, who could supplement. Again, we obviously spend a lot of time thinking about 2021. And the first thing I'd say is that there is, obviously, a lot to be optimistic about when we think about the year ahead. But there's still a lot of uncertainty. And I think we're going to see a tale of certainly 2 halves and maybe even more challenging in the second half than what many are expecting. And I think that uncertainty is really going to come from a couple of things. The first is the vaccine deployment and the speed of the vaccine deployment. That's a key critical enabler for lockdown restrictions being eased. And I think the other big factor in everyone is across this is really a big question mark around the effectiveness of the vaccine against the various mutations. So the first thing I'd say is that there is certainly a lot to be optimistic about, but there is still a lot of uncertainty as to how 2021 will unfold. And that level of caution is something that we're absolutely focused on. Having said that, we are feeling incredibly optimistic about our future. And I highlighted a few things earlier, but I'll reinforce them. The first is around the fact that we have a very globally diverse franchise. And we've demonstrated in 2020, the resilience of our business to offset and overcome headwinds. The second was around our efforts to digitize. I think that again will be a critical enabler for us in 2021. And the third, and Mike highlighted this, we're seeing the increase in value and importance being placed on insurance protection and wealth. And obviously, those are our businesses, and that I think is going to be an incredible driver for us. And the last thing I'd say is that we do have, as, quite frankly, one of the core competencies of our franchise, an incredibly strong presence in many of the fastest-growing economies of the world, which had, by the way, the lowest insurance and wealth penetration. Asia, we've described as our jewel in the crown, has become a really big part of our franchise. When you think about Asia geography and there I'm grouping both insurance and wealth and when you normalize for core investment gains, in 2016, Asia represented about 35% of our earnings. In 2020, they represented 41%. And our expectation is that by 2025, our Asia geography, again, insurance and wealth will represent 50% of our franchise. So it is something that we're incredibly optimistic about. But at the same time, there is a degree of uncertainty that makes us somewhat cautious around putting down a firm commitment on how earnings per share will unfold. And we think of that more through the medium term and through the cycle. But let me hand to Phil to see whether he has any other supplements that to add.

Thanks for the question, Humphrey. So I guess, the short answer is, yes, we would, but we have to joint ventures in China. So let me kind of start. We're talking about our joint venture on the insurance side with Sinochem, and then ask Paul to chime in on the TEDA side. So as you know, on the insurance side, we have a joint venture with Sinochem, where we have management control. They have been an excellent partner and really a big contributor to the success and the trajectory that we've kind of set for ourselves in China. As you know, in China, we have extensive access in terms of distribution. So we have now with the approval of the recent Shaanxi branch, 52 cities and across 15 provinces in terms of access. So clearly, we would be keen to increase our shareholding, Humphrey, but as I said, we have to necessarily kind of align our objectives with our shareholders.

Yes. Thanks, Anil. China from a Wealth and Asset Management perspective is a very important market for us. And we do operate with our own wholly-owned foreign entity there, WFOE that does allow us to bring in some international capabilities as well as private market capabilities. But our partnership with M TEDA is also a really important pillar for our growth there in terms of the ability to bring domestic equity and fixed income capabilities to both local investors and foreign investors. And we've had a great partnership. We're very committed to that market and really look forward to continuing to grow China by leveraging that relationship and all the other aspects we have in the region.

And this is Philip. I could just add, when we look at our businesses in China, I think the future is more relevant than the current state. And you asked a question about earnings there, Humphrey. And in the ballpark of $140 million came from China in 2020, the full year 2020 earnings. But I think it's not really about the $140 million, it's about what that could grow to in the years to come.

I wanted to touch on core investment gains. And when I look at the last challenging year you had for core investment gains in 2015? Those gains didn't fully recover or get recaptured until 2017. So I wanted to get a sense of your expectations for 2021. Do you expect to fully recapture the $100 million in per quarter core investment gains?

Yes. Thanks, Nigel. It's Scott. Our core investment gains is an assumption over the cycle. And it's really difficult to predict in any given year. So as Roy highlighted, 2021 is still going to be a very uncertain year. The trajectory looks good at this point. Who knows? There's lots of risk out there. So we are going to have periods where we will underperform largely driven by ALDA which is mark-to-market, as you know. But as we look at last year, we saw underperformance in the first 2 quarters. And then I feel like we got a lot of that behind us. And in the third quarter and fourth quarter, we achieved and overachieved our $100 million per quarter run rate. So my best estimate at this point is that we will, but there continues to remain a lot of uncertainty. And it is really a number we expect to achieve through the cycle, not necessarily in any given quarter or any given year.

And Nigel, this is Phil, I could just add. The methodology that we apply, it does reset at the beginning of the calendar year. So the reason in Q3 and Q4, we didn't recognize the investment gains through core earnings is because we were behind from Q1 and Q2. As we're now in a new calendar year, if we generate a favorable investment experience, up to $100 million would flow through core earnings per quarter.

That's helpful. And the second question I had, if I could touch on earnings on surplus funds. And I want to get your sense on what the pathway is to getting that number back to 2019 levels? In other words, is the only way you get there through higher yields? Or can you get there through changes in asset mix or asset levels?

Thanks, Nigel. Let me make a start. Scott may wish to comment on this as well. I touched on it earlier. There is a headwind that exists when it comes to earnings on surplus. And that is that interest rates have fallen. And we do take a conservative view quite rightly on how the surplus investment portfolio is managed. A large proportion of it is held in U.S. Treasuries, which is part of our overall interest rate risk management strategy. And that does give rise to a very real headwind in the order of $50 million a quarter if we compare Q4 2020 compared to the fourth quarter of 2019. And there's not really a way of getting that back without interest rates coming back and the impact of that flowing through to yields over time. So I think that is one of the headwinds that we need to accept. And we don't really have an awful lot of appetite for materially increasing the risk of the investments in our surplus portfolio. The reason there is to provide stability and resilience in times of uncertainty, and that's exactly what we saw happen in 2020. Scott, I don't know whether you have anything to add.

I really don't. That was a very, very good and complete answer. Obviously, what we'll turn it around is if we get higher yields, and that will grow the earnings on surplus. But absent that, we do hold those long liquid government bonds as a hedge against market risk, and we'll continue to do that.

Thank you, operator. We'll be available after the call if there are any follow-ups. Have a nice morning, everyone.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.