Earnings Call Transcript
MANULIFE FINANCIAL CORP (MFC)
Earnings Call Transcript - MFC Q4 2022
Operator, Operator
Good morning, and welcome to the Manulife Financial Fourth Quarter 2022 Financial Results Call. Your host for today will be Mr. Hung Ko. Please go ahead, Mr. Ko. Thank you. Welcome to Manulife's earnings conference call to discuss our fourth quarter and year-end 2022 financial and operating results. Our earnings materials, including the webcast live for today's call, are available on the Investor Relations section of our website at manulife.com. Turning to Slide 4. We will begin today's presentation with an overview of our progress in 2022 and an outlook for 2023 by Rory 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 and provide an update on IFRS 17. After the prepared remarks, we will move to the live Q&A portion of the call. We ask each participant to adhere to a limit of 2 questions, including follow-up questions. If you have additional questions, please requeue and we will do our best to respond to everyone. Before we start, please refer to Slide 2 for a caution on forward-looking statements and Slide 45, for a note on the non-GAAP and other financial measures used 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. Roy?
Roy Gori, President and CEO
Thanks, Hung, and thank you, everyone, for joining us today. Yesterday, we announced our fourth quarter and full year 2022 financial results. We've made significant progress against our strategic priorities and are pleased to have delivered strong results, which are a testament to the resilience and strength of our diverse global franchise. We're especially pleased with these results against the backdrop of the year that was challenging for businesses broadly with multiple headwinds impacting our industry as well as ongoing market volatility. On our financial results, we're proud of two records we achieved in 2022: a record net income of $7.3 billion and the highest ever remittances of $6.9 billion. Meanwhile, we've also driven robust new business value growth in both of our North American segments in 2022, with NBV growth in the U.S. and Canada of 25% and 18%, respectively. This strong performance demonstrates the power of our diversified franchise, given the impacts of COVID-19 restrictions in Asia. We also took meaningful actions to significantly reduce the risk profile of our business. We reinsured more than 80% of our legacy U.S. variable annuity block through two transactions that released $2.5 billion of capital and further reduced our go-forward risk profile. Core earnings from the LTC and VA blocks represent only 18% of total company core earnings in 2022, a material reduction from 25% just two years ago, and we are on track to deliver on our 2025 business mix targets. Our sensitivity to market movements is also greatly reduced since 2009. At the end of 2022, our sensitivity to interest rate movements was approximately one-tenth of that in 2009, and our sensitivity to equity markets has more than halved during the same period. We're also growing our scale and market share globally. In Asia, we are not only at scale, but we were also the fastest-growing life insurer among the top three pan-Asian players between 2017 and 2021. Our Global WAM business recorded $3.3 billion of net inflows in 2022 against the industry backdrop of net outflows in North America. This performance extended our remarkable track record of delivering positive net flows in 12 of the past 13 years. In Canada, we grew our net income, core earnings, and NBV at double-digit growth rates in 2022. We continue to distribute significant cash returns to our shareholders. Between 2017 and 2022, we grew our common share dividend by 10% per year on average, and I'm pleased to share that our Board approved an increase of 11% starting in March of 2023. In addition to sustained dividend increases, in 2022, we enhanced shareholder returns through $1.9 billion of share buybacks, which represents 4.1% of outstanding common shares. We're also strategically deploying capital to invest for the future. In 2022, we acquired full ownership of Manulife TEDA, making us the first foreign company to be given approval to acquire an existing asset management JV in China. In Vietnam, we commenced offering insurance solutions under our 16-year exclusive partnership with VietinBank, one of the largest banks in Vietnam. Turning to Slide 7, the achievements that I've mentioned earlier were supported by our strong digital and ESG leadership as well as our winning team. We've made notable progress on our digital customer-centric initiatives, as evidenced by the 15 percentage point increase in our global straight-through processing metric compared with the 2018 baseline, with improvements across all segments. Our 2022 NPS marked a significant 19-point improvement from the 2017 baseline. We also led or were on par with the leading peers in 11 of the 16 business lines where we benchmark. We have invested $1 billion since 2018 to enhance our digital capabilities to make decisions easier and lives better for our customers, while at the same time, driving significant efficiency improvements in our operations. As a leader in ESG, we're also achieving strong results and serving our customers and other stakeholders in a socially responsible and sustainable way. In 2022, we shared our impact agenda, an articulation of our long-standing commitment to empowering health and well-being, driving inclusive economic opportunities, and accelerating a sustainable future. While we are already Net Zero in our Scope 1 and Scope 2 greenhouse gas emissions, we are committed to further reducing our absolute emissions by 35% by 2035 and to achieving Net Zero Scope 3 finance submissions in our general account by 2050. In recognition of our continued and strengthening commitment to sustainability performance, in 2022, we were once again named to the S&P Dow Jones Sustainability Index, one of only seven insurers across North America to be included, and within the top 10% of our industry peers globally. Our high-performing team in a winning culture has been key to our success. We have achieved a top quartile employee engagement ranking annually since 2020, and in 2022, we ranked in the top 6% among global financial and insurance companies. In addition, we've been consistently recognized as an employer of choice, including as one of the World's Best Employers by Forbes for the third consecutive year. The Canadian insurance industry will adopt IFRS 17 in 2023. While this is a significant endeavor, we are fully prepared for a successful implementation and are looking forward to the improved transparency and stability in our financial results that the new accounting standards will bring. Throughout 2022, we've been proactive in providing insights into the expected impacts of IFRS 17, both on transition and on our medium-term targets. Let me highlight a few points. First, IFRS 17 does not impact the fundamental economics of our business. Second, we expect our core earnings, book value, and LICAT to be more stable under IFRS 17. Third, the contractual service margin, or CSM for short, is a key value metric under IFRS 17. A growing CSM balance will drive future earnings growth. We have announced a target of growing our CSM balance by 8% to 10% per year. Turning to Slide 8. Looking ahead, while we continue to navigate macroeconomic uncertainties in the short term, we see both challenges and opportunities in 2023 and beyond. Some of the notable headwinds and tailwinds are: First, we may see volatility in equity markets and interest rates continuing in 2023, but higher rates are clearly beneficial to our insurance businesses as we've seen in our 2022 results. Second, while we may see short-term disruption related to the transition from COVID Zero policies in Asia, we expect business momentum to strengthen as pandemic restrictions normalize. Third, while in North America, we may see GDP growth slowing down, many Asian countries are forecast to deliver economic growth of 5% or higher in 2023, which is a benefit to our business, given our presence at scale in the most attractive growth markets across the region. Notwithstanding the pandemic and recent macro headwinds, the three megatrends that underpin our strategy remain unchanged. Our business is uniquely positioned to continue to capitalize on these megatrends. As a top 3 Pan-Asian insurer, we see significant growth opportunities emerging in Asia, including in Hong Kong, where we are a leading insurer and well-positioned to benefit from the significant MCV and GBA opportunities following the reopening of the border between Mainland China and Hong Kong. Our global WAM business is not only a leading global retirement solutions provider with approximately 9 million customers, but we are also a top 10 global retail multi-manager. In our home market of Canada, we serve one in four Canadians, and we are a leader across many of our business lines. Globally, we are a leader in our unique behavioral insurance offering. We are confident that our all-weather strategy, diverse business model, and considerable financial strength and flexibility position us well to win and deliver in 2023 and on our 2025 strategic targets. Thank you. And I'll hand it over to Phil Witherington, who will review the highlights of our financial results.
Phil Witherington, Chief Financial Officer
Thanks, Roy. Before we start, I would like to recognize that the fourth quarter of 2022 is our last reporting period under IFRS 4. Starting with the first quarter of 2023, we'll be reporting under IFRS 17 and IFRS 9. In the latter part of my presentation, I'll provide an update on our IFRS 17 transition impacts. I'll start on Slide 10. We generated core earnings of $1.7 billion, a modest 2% decrease from the prior year quarter. The results reflect a number of factors, including lower core earnings in Global WAM, lower new business gains in Asia and the U.S., and lower in-force earnings in the U.S. due to the VA reinsurance transactions. These were largely offset by higher yields on surplus fixed income investments, gains on seed money investments, lower withholding taxes in Corporate and Other, improved policyholder experience in North America, and in-force business growth in Asia and Canada. Net income attributed to shareholders of $1.9 billion decreased by $193 million from the prior year quarter, mainly due to losses from investment-related experience and a smaller gain from the direct impact of markets, partially offset by the favorable impact of an increase in the Canadian corporate tax rate. Of note, investment-related experience in the fourth quarter reflected losses in our older portfolio driven by real estate fair value appraisals, partially offset by the favorable impact of fixed income reinvestment activities and favorable credit experience. I'll speak more about our older performance in a moment. We recognized a net loss of $357 million from investment-related experience. A $100 million gain was included in core earnings, and a loss of $457 million was reported outside of core earnings. On a full-year basis, overall investment-related experience was a gain of $1.2 billion, of which $400 million was reported in core earnings. Our net income in the fourth quarter also included a $297 million gain from the impact of the Canadian corporate tax rate change, an $86 million fair value gain as a result of acquiring the remaining 51% equity interest in our Asset Management business in Mainland China, and a $35 million gain from the reinsurance of our legacy New York VA block. Slide 11 shows a recent history of our investment-related experience, including a total gain of $1.2 billion in 2022 that I noted earlier. In addition to the continued strong credit experience and gains from fixed income reinvestment activities in 2022, our older portfolio also achieved higher-than-expected returns, contributing $147 million to investment-related experience gains. The strong performance of our older portfolio is shown on Slide 12. The average annual return of our diversified portfolio since the acquisition of John Hancock 18 years ago was 9.3%, outperforming our current best estimate long-term return assumption of 9.2%. Slide 13 shows our source of earnings analysis for the fourth quarter of 2022 compared with the prior year quarter. Expected profit on in-force decreased by 1%, driven by lower U.S. Annuities in-force earnings due to the two reinsurance transactions completed in 2022, partially offset by in-force business growth in Asia and Canada. Excluding the impact of the VA reinsurance transactions, our in-force earnings would have grown by 5%. New business gains decreased by 21%, primarily driven by lower gains in Asia and the U.S. In Asia, the weaker customer sentiment in Hong Kong, seen in the third quarter continued into the fourth quarter, leading to lower sales volumes. This was partially offset by higher sales and improved margins in Japan. Lower new business gains in the U.S. were primarily due to lower brokerage sales. Policyholder experience was a net charge of $82 million on a pretax basis, an improvement of $38 million compared with the prior year quarter, mainly driven by improved policyholder experience in Canada. Slides 14 and 15 show our earnings by segment and return on equity in the fourth quarter and full year 2022. My remarks will focus on the fourth quarter results. Core earnings in our global WAM business decreased by 34%, primarily driven by a decrease in net fee income from lower average AUMA due to the unfavorable impact of markets. Core earnings in Asia increased by 1%, driven by favorable changes in new business product mix and in-force business growth, partially offset by the impact of lower new business volumes, primarily in Hong Kong due to the factors I noted earlier. We continued to deliver double-digit core earnings growth in Canada, with a 22% increase, reflecting more favorable experience gains in all business lines, higher Manulife Bank earnings, and higher in-force earnings. The core gain in Corporate and Other of $86 million was $165 million favorable compared with the prior year quarter, mainly due to higher yields on fixed income investments, gains on seeds money investments, and lower withholding taxes, partially offset by higher interest on allocated capital to operating segments. And we delivered core ROE of 13.2%, an improvement of 0.5 percentage point compared with the fourth quarter of last year. Turning to Slide 16, which shows our APE sales and new business value generation. In the fourth quarter, we generated APE sales of $1.3 billion, down 12% from the prior year quarter. In Asia, APE sales decreased by 9%, reflecting continued weak customer sentiment in Hong Kong. This was partially offset by higher sales in Japan and Asia Other and notably Mainland China. In Canada, APE sales decreased 15%, reflecting the lower segregated fund and power insurance sales, partially offset by higher group insurance sales. APE sales in the U.S. decreased 21%, reflecting lower customer demand amid volatile equity markets. And on a full year basis, APE sales decreased 7% compared with the prior year. In the fourth quarter, we delivered new business value of $525 million, a decrease of 9% from the prior year quarter. In Asia, NBV decreased 17%, reflecting lower sales in Hong Kong and unfavorable changes in product mix in Asia Other, partially offset by the benefit of higher interest rates and higher individual protection and other wealth sales in Japan. NBV increased 6% in Canada, primarily due to higher margins in our insurance businesses, partially offset by lower volumes in annuities. In the U.S., NBV increased 12%, driven by higher interest rates, higher international sales volumes, and product actions, partially offset by lower brokerage sales volumes. For the full year, we delivered new business value of $2.1 billion. Turning to Slide 17. Our Global WAM business recorded net outflows in the fourth quarter after eight consecutive quarters of positive net inflows. The net outflow of $8.3 billion reflects weak investor sentiment amid record industry fund outflows in North America mid-market volatility. On a full year basis, we delivered net inflows of $3.3 billion. In Retail, net outflows were $4.7 billion compared with net inflows of $7.5 billion in the prior year quarter. The decrease reflects higher mutual fund redemptions and lower investor demand amid higher interest rates and equity market declines. In Retirement, net outflows were $4.6 billion compared with net outflows of $1 billion in the prior year quarter, primarily driven by higher planned redemptions in the U.S. Our Institutional Asset Management business recorded net inflows of $0.9 billion compared with net inflows of $1.6 billion in the prior year quarter, driven by lower net flows in real estate, timberland, and infrastructure products, partially offset by higher sales of fixed income mandates. Overall, 2022 Global WAM's average AUMA decreased by 12% compared with the prior year quarter, driven by unfavorable market movements in the earlier part of 2022. Turning to Slide 18. Net fee income yield of 43.7 basis points was modestly lower than the prior year quarter, driven by lower fee spread. Our core EBITDA margin of 27.3% was 4 percentage points lower than the prior year quarter, reflecting lower fee revenue from lower average AUMA. For the full year, our core EBITDA margin was resilient at 30.4%, enabled by our substantial scale and disciplined approach to managing operating expenses. Moving to Slide 19, we have achieved a remarkable track record of generating positive net flows in 12 of the past 13 years, demonstrating our strong and diverse Global WAM franchise across retail, retirement, and institutional business lines and across geographies. Turning to Slide 20, our strategic focus on digitization and efficiency and disciplined approach to managing operating expenses enabled us to contain core general expense growth to 5% in the fourth quarter and remain in line with 2021 on a full-year basis. We achieved an expense efficiency ratio of 50.9% for both the fourth quarter and the full year 2022, despite the inflationary environment. We committed to the target efficiency ratio of below 50% and see it as an important strategic priority to deliver sustainable shareholder value. Slide 21 reinforces our strong balance sheet and capital position. Our LICAT ratio of 131% remains strong and represents approximately $20 billion of capital above the supervisory target. The 5 percentage points decrease compared to the third quarter was driven by a capital redemption, continued common share buybacks, and the unfavorable impact of market movements on capital, primarily due to the narrowing of corporate spreads. Our financial leverage ratio declined by 1.1 percentage points from the prior quarter, reflecting the redemption of $1 billion of subordinated debt, share buybacks, and retained earnings growth. We delivered record remittances of $6.9 billion in 2022, an increase of $2.5 billion compared with 2021, supported by two VA reinsurance transactions completed in 2022. Turning to Slide 22, we're committed to creating value for shareholders, including through the use of regular dividends and share buybacks. As Roy mentioned earlier, we have increased our dividend per common share by 10% on an annualized basis since 2017. And we announced yesterday a $0.035 or 11% increase to the quarterly dividend per common share. In addition, we repurchased 4.1% of the company's outstanding common shares for $1.9 billion in 2022, demonstrating our strong conviction to execute on buybacks. For the 5-year period from 2018 to 2022, we returned a total of $14.7 billion of cash to our shareholders, which represents approximately 33% of our market capitalization as at the end of 2022. Slide 23 shows the summary of our financial performance for the fourth quarter and the full year 2022, and Slide 24 outlines our medium-term financial targets and recent performance. Our performance reflects the resilience of our business against a backdrop of a challenging macro and operating environment in 2022. Turning to Slide 25, which provides additional information on our IFRS 17 opening balance sheet as of January 1, 2022. Our opening total equity under IFRS 17 was $46.9 billion, 20% lower than reported under IFRS 4 and in line with our previous guidance. The main driver of the decrease is the establishment of the CSM, partially offset by other measurement changes, including two provisions held for noneconomic risks and changes to discount rates. As a quick recap, one of the key impacts of IFRS 17 is the requirement to set up a new insurance liability component for CSM, which represents expected future profits and is treated as available capital under LICAT. For these reasons, we believe the CSM is an important metric for measuring future earnings capacity and the value of the business. As noted previously, we expect the new business CSM balance to grow at 15% per annum and the CSM amortization into core earnings to be approximately 8% to 10% per annum. The difference in discount rates used for IFRS 17 compared with IFRS 4 has a modestly negative impact. Under IFRS 17, liability discount rates reflect the characteristics of the liability and not the expected returns of assets supporting the liabilities. As such, the weighted average liability discount rate has decreased overall, but the impact varies between segments and business lines. Turning to Slide 26. Based on the preliminary results from our IFRS 17 parallel runs for 2022, which is still underway and is not yet complete, I would like to provide an update on our estimated transition impacts. Under IFRS 17, core earnings for the 2022 comparative year are expected to be lower than IFRS 4 2022 core earnings by 5% to 10% compared with the previous estimate of approximately 10%. As I noted earlier, opening balance sheet total equity declined 20% on January 1, 2022, in line with the guidance that we provided. With respect to January 1, 2023, we expect total equity to be approximately 15% lower on an IFRS 17 basis compared with IFRS 4 and book value per common share to be approximately 20% lower on an IFRS 17 basis compared with IFRS 4. Along with our second quarter results and with reference to the final 2023 LICAT guideline that was released by OSFI in July 2022, we announced that the estimated impact of IFRS 17 on our LICAT ratio was approximately neutral based on 30th of June market conditions. We also said that we expected the IFRS 17 LICAT ratio to be more stable than under IFRS 4 and, in particular, less sensitive to changes in interest rates. Changes in market conditions, specifically rate movements in the second half of 2022, have reduced our LICAT ratio under IFRS 4. Given the greater stability of our LICAT ratio under IFRS 17, we expect a low single-digit increase in our LICAT ratio as of January 1, 2023. There is no change to our medium-term financial targets, including the new CSM-related targets that were communicated last year. This concludes our prepared remarks. Before we move to the Q&A session, I would like to remind each participant to adhere to a limit of 2 questions, including follow-ups.
Operator, Operator
And the first question is from Meny Grauman from Scotiabank.
Meny Grauman, Analyst
Just wanted to ask about investment-related returns. Phil, you referenced fair value changes on real estate. Just wanted to get some more details on that in terms of the asset class geographies? Is it something concentrated? So I'll start there, please.
Scott Hartz, Chief Investment Officer
Sure, Meny. This is Scott Hartz. Thank you for your question. When we examine investment-related returns, as Phil mentioned, it has been a very strong year with $1.2 billion in investment gains, which is $800 million above what we would have recorded in core earnings. For the overall portfolio, we achieved gains of $147 million for the year, slightly surpassing our long-term return expectations. However, these returns can fluctuate from quarter to quarter, particularly as the returns are influenced by mark-to-market changes impacting earnings. In the fourth quarter, we experienced lower investment returns, primarily due to our real estate portfolio. Most of our other asset categories aligned with our long-term expectations. The total investment gains loss of $357 million was largely attributed to the real estate portfolio. It’s worth noting that nearly all of our real estate portfolio is marked-to-market by external appraisers each quarter, exceeding 95%, with just a few minor properties that are not. In the fourth quarter, external appraisers increased their discount rates on real estate across the board, affecting all categories, not just office properties, which have been weaker recently. We observed this weakness extend to all categories, especially in North America, while Asia performed slightly better. It is crucial to highlight that these were mark-to-market losses resulting from higher discount rates, and we expect to recuperate those losses in the future through higher returns. That’s essentially what drove this situation, Meny.
Meny Grauman, Analyst
Okay. Yes. I guess, it answers the question. I mean everyone is worried about office values in particular. So the question is, are we seeing the start of that downward revaluation of office properties? But you're saying it's more broad-based than that in terms of what we're seeing this quarter?
Scott Hartz, Chief Investment Officer
Yes, that's correct. I think we've seen weakness in office for a couple of years now. And we've got a highly diversified all the portfolio, other things we're doing well. So that didn't really show much. But in the fourth quarter, it really did extend to all categories of real estate.
Operator, Operator
The next question is from Gabriel Dechaine from National Bank Financial.
Gabriel Dechaine, Analyst
I've got a couple of questions. One is on the reopening in Asia, specifically Hong Kong. I know these things don't turn on a dime. I'm just wondering what sort of lag you expect from now until your sales hit what you consider their normal run rate or something above where they are today?
Damien Green, Executive Vice President
It's Damien here, and I appreciate the question. We observed an increase in Mainland Chinese visitor sales in the fourth quarter of 2022, which is very encouraging. We experienced strong double-digit growth in Mainland China both quarter-on-quarter and year-on-year in Macau, which is a positive indication. As we move into the first quarter, we're noticing a significant increase in Mainland Chinese visitor sales to Hong Kong, although it is starting from a low base. This is again very encouraging. While the recovery is clearly underway, the speed of this recovery in the coming months will need to be assessed. However, the signs so far are positive. Additionally, we are well positioned to take advantage of the returning Mainland Chinese visitor opportunity in Hong Kong. We have 12,000 agents and have focused extensively during the pandemic on enhancing our Mainland Chinese visitor sales capabilities and partnership channels, including with DBS Bank.
Gabriel Dechaine, Analyst
Somewhere it's more like back half where you expect it to ramp up?
Damien Green, Executive Vice President
Definitely. What I would say is we're expecting a significant recovery over the course of 2023, with a ramp-up in Q1, but that's the way I see it. Thanks.
Gabriel Dechaine, Analyst
Okay. My second question is about the policyholder experience. I'm not sure if you can provide a breakdown of that number. We only received one overall figure, which is fine, but I'd like to know how much of it was due to mortality gains in LTV, how much was positive, potentially from the group in Canada, and conversely, how much was impacted by negative lapse and mortality in the U.S.? Also, was the lapse experience associated with the no-lapse guarantee business?
Steven Finch, Chief Actuary
Thank you, Gabriel. This is Steve. I'll address that question. I'll provide a general overview of what we observed and then respond to your specific inquiries. In Q4, the overall policyholder experience was just over $80 million pretax, an improvement from both Q3 and the prior year's Q4. The primary factor behind this result was the unfavorable lapse experience in our U.S. Life business. Regarding mortality and morbidity, the claims results varied by business and region, but were neutral for the quarter overall. This was influenced by a few factors you mentioned. We experienced positive results in Group Benefits in Canada, which has been a consistent trend throughout the year. Additionally, there were gains in Long-Term Care, but we also encountered what I would label as normal large-case variability, which resulted in a charge in the U.S. Now, concerning the lapse situation, we updated our experiences and assumptions in the U.S. in 2021 to fully reflect the pre-pandemic context. Currently, we are witnessing a system shock due to health concerns linked to the pandemic and the recent fluctuations in markets coupled with economic uncertainty. This issue is affecting various product lines, not solely the guaranteed UL product line. However, I anticipate that these effects will moderate going forward and revert to pre-pandemic levels as the pandemic lessens and economic uncertainties clear. Ultimately, the focus should be on our long-term assumptions, and I remain confident in them as well as our reserves. My outlook is also informed by past experiences, particularly from the global financial crisis, where we observed similar disruptions across multiple product lines. It took time, but eventually, things returned to pre-crisis conditions, which shapes my current perspective. With regard to the no-lapse guarantees, those lapse rates reached their lowest point in mid-2021, and while we have seen some recovery, it has not fully returned to previous levels yet. I'll conclude my remarks there.
Operator, Operator
The next question is from Doug Young from Desjardins Capital Markets.
Doug Young, Analyst
Phil, I wanted to go back to Slide 26 and just a few things I wanted to clarify here. You say the equity hit from transitioning to IFRS 17 was 13%, but the book value hit is 20%. Just trying to understand the difference between the moves, 15% to 20% between those two? Why the difference in equity and the book value hit? And then can you also delve into a little bit on why the impact on core earnings 2022 comp went down from roughly 10% to 5% to 10%? If you can give maybe a little bit of detail as to what drove that.
Phil Witherington, Chief Financial Officer
Thank you, Doug, for the question. I'm happy to provide more details. To address the first part of your query regarding the balance sheet impact, the guidance we shared, along with our Q1 results in 2022, indicated an estimated 20% impact on total equity. This is indeed what has materialized. We published our opening balance sheet along with our results yesterday, confirming that the impact is 20%. However, we also noted that throughout 2022, we have observed a more stable IFRS 17 book value compared to IFRS 4. As a result, by the end of 2022, we anticipate the impact on total equity to be lower, around 15%. Regarding your question about the common shareholder book value per share being impacted by approximately 20% by the end of 2022, this relates to what I would define as the denominator effect. Excluding the impacts of preference shares and participating policyholders, the effect is roughly 20% by the end of 2022. For your second question about the anticipated effect on core earnings in 2022, when we provided the initial guidance last year, we expected 2022 to be a more typical year. However, it has turned out to be quite challenging. Consequently, new business gains on an IFRS 4 basis were about 20% lower than we had forecasted year-on-year. This has been a significant factor in the reduced expectation for core earnings, which we now project to be between 5% and 10%.
Doug Young, Analyst
Okay. So just to clarify, the total equity includes par and possibly all of those elements. That's different from the book value per share. Does that include shareholder equity?
Phil Witherington, Chief Financial Officer
Spot on.
Operator, Operator
The next question is from Paul Holden from CIBC.
Paul Holden, Analyst
So sticking with the IFRS 17 theme. One of your peers highlighted that there's more of an interest rate benefit under IFRS 17 versus IFRS 4, i.e., it flows through into core results faster under IFRS 17. Wondering if that's also true in your case, you suggest that there's less rate sensitivity. So maybe you can just address that and help us out.
Phil Witherington, Chief Financial Officer
Sure. Thanks, Paul. This is Phil. The main benefit that we see from interest rates on an IFRS 17 basis is actually the closer matching of the economics of the assets and liabilities. So what we have observed during the 2022 ongoing parallel runs is that the greater stability in our book value as a result of the largely offsetting movements in assets and liabilities due to movements in interest rates. And that really reflects the fact that when we manage our asset portfolio, we hedge our liability movements on an economic basis and IFRS 17 is a closer representation of the economics. So when you translate all that to what we see in an IFRS 17 environment, we see greater stability in the book value. When you compare that greater stability on an IFRS 17 basis to IFRS 4, during the course of 2022, we've seen rising interest rates that have had a lowering impact or an adverse impact on IFRS 4 equity, but very stable IFRS 17 equity, including a more stable LICAT ratio, which I think is a very positive factor for the future.
Steven Finch, Chief Actuary
And Phil, I'll just jump in there regarding the impact of interest rates on earnings. We anticipate that some of the benefits we've experienced under IFRS 4 in 2022 from higher rates, especially earnings on surplus, will also be reflected under IFRS 17.
Operator, Operator
The next question is from Tom MacKinnon from BMO Capital.
Tom MacKinnon, Analyst
Just continuing on this seed capital AFS gains guide that you gave, Phil. It was over $100 million in the quarter and you expect kind of a run rate of $80 million to $100 million. Seed capital gains in AFS equity gains are largely driven by increases in the equity markets. The fourth quarter, the equity market was up 7% from September 30 to December 31. So I think you generally assume the market would be up about 2% each quarter. So why would the number not be like, 2/7 of that over $100 million? Why wouldn't the guide be like significantly less than the $100 million going forward? And then I have a follow-up.
Phil Witherington, Chief Financial Officer
Thanks, Tom. So in a typical quarter, normal environment, we'd expect somewhere between $50 million and $100 million of aggregate seed capital and AFS equity gains. There's clearly some discretion as to the timing of AFS equity gains. So it's not entirely dependent upon what happens in any particular quarter. What happened in the fourth quarter, the aggregate gain was $110 million post tax. So I would say that's in the order of $10 million above the sort of typical range that you could expect in any particular quarter, Tom.
Scott Hartz, Chief Investment Officer
Yes. It's Scott. I might add to that. I think you're right. So that math doesn't work because of the AFS timing as well as in the seed capital, there are a bunch of bond funds, and rates were up in the fourth quarter. So that did not create the gains you might have otherwise expected.
Tom MacKinnon, Analyst
The inconsistency appears to stem from the timing of the AFS gains. Regarding the Global Wealth and Asset Management business, even when comparing quarter-over-quarter, while assets increased, core earnings and margins decreased significantly. Were there specific factors in the fourth quarter, such as elevated operating expenses or other one-time costs, that influenced this? How should we consider the potential for core earnings and margins in this business moving forward? The fourth quarter's performance in GWAM fell short in terms of margins and flows. Could you provide guidance on how to approach this segment in the future and identify any unique elements that contributed to the lowered margins in the fourth quarter?
Paul Lorentz, President, Global Wealth and Asset Management
Yes, thanks, Tom. It's Paul here. You're correct that we had some one-time items in both Q4 and Q3. I'll go through the quarter-over-quarter comparison and provide some perspective. In Q3, we had two favorable items affecting core earnings: a tax benefit typically seen in our U.S. Retirement business and a lower adjustment to our compensation expense, which resulted in a negative adjustment. Together, these contributed approximately $37 million to core earnings for Q3. In Q4, we also experienced one-time items, but they had a negative impact. This season, we usually see higher seasonal expenses in our Retirement business as we prepare for the upcoming year, which is common every Q4. Additionally, we incurred a restructuring charge during the quarter due to changes in GWAM aimed at improving efficiency. The combined effect of these items was about $34 million. Therefore, the quarter-over-quarter movement reflects a $71 million shift of the total $86 million change, with the remainder attributed to average AUMA movement and related fee income. To get a clearer picture, I suggest looking at the full year 2022 compared to 2021, which will account for the seasonal tax benefit and seasonal expenses, thereby smoothing out any one-time fluctuations between quarters. Focus on the overall AUMA as the main driver and the core EBITDA margin, as well as the stability of our net interest fee yield and our expense management over time. In 2022, for example, we saw a slight compression in the EBITDA margin compared to 2021, primarily due to average AUMA movement and fee income. While we managed to keep expenses flat, including the restructuring charge, we weren't able to fully counterbalance the decline in down markets; however, the opposite holds true in up markets. Historically, over the past three years, we've achieved margin expansion as markets improved and we've effectively managed our expenses. This is how I recommend considering the business, and I wouldn’t interpret Q4 as an indication of any change in the underlying earnings potential of the franchise.
Tom MacKinnon, Analyst
So we had 30% in 2022 or 29.9%, and that was a down market, if you will. And then 2021, up market, we had 31.5% in terms of core EBITDA margin. Should we be thinking that, going forward, it would be somewhere between those two if we got more stable markets?
Paul Lorentz, President, Global Wealth and Asset Management
Yes. It's really dependent on the markets and average AUMA. What I can say is what I reiterated before is we try and manage our expenses to about 50% of revenue growth over the long term to help drive that expansion. So I would just look at what's typically happened. And again, you would have thought about 110-basis-point last year decline based on that market. Again, we would see the opposite. If we saw markets improve as we would expect some leverage on our fixed expense base.
Operator, Operator
The next question is from Scott Chan from Canaccord Genuity.
Scott Chan, Analyst
Maybe going back to Asia, Damien. I see that core expenses were up in Q4, and I assume that's because of the ramp-up and you called out agents. And I noticed your agents were increased a lot, and I see that with peers. But as you head into 2023, like from the ground level, can you give us a sense of competition that you see is kind of more or less or if there's any certain Asia regions that you could refer to that might have that dynamic?
Damien Green, Executive Vice President
Yes. Thanks, Scott, for the question. Firstly, on the question of expenses, let me cover that briefly. We remain tightly focused on expense discipline and continue to track within our capital expense efficiency ratio target of 50% and did so for the full year of 2022 and for the fourth quarter. You will see some seasonality there, which we did see in the fourth quarter associated with us driving some business growth there. But generally, we're hanging on fairly well there. In terms of competition across markets, the first thing I'd say is, I mean, just a macro view on our competitive performance through the pandemic. We've demonstrated considerable resilience through the pandemic in comparison to peers, growing our core earnings at a CAGR of 4% between 2019 being the immediate pre-pandemic year and to the end of last year's reporting period 2022, pretty positive. We remain the top 3 Pan-Asian insurer, and we're a scaled player there operating in 11 markets. So typically, in terms of competitive dynamics, I'd have to say broadly, every market in Asia, whether it's an emerging market or a more mature market like Hong Kong or Japan, has considerable competition and quite intense competition. But our scaled franchise, particularly in cornerstone markets like Hong Kong, where we're a leader; Singapore, where we're #2 in the market; Vietnam, where we have the leading franchise by far, gives us scale advantages and comparative scale advantages. So I think we're very well equipped to continue to compete for the share of growth and value.
Scott Chan, Analyst
And maybe one follow-up for Roy. Just on capital deployment. You kind of talked about 100% ownership. But I saw that you did a minority stake in a private equity firm in Asia. So it seems like the theme of deployment in Asia, as you talked about in the past, is important. I'm just curious within your maybe current JV ownerships or outside of that looking at other asset management and bank insurance. And maybe if you can kind of talk about the pipeline now that Asia is reopening there?
Roy Gori, President and CEO
Yes, thank you for the question, Scott. I wanted to share a few points. First, our capital position is strong with a LICAT ratio of 1.31, and we have $20 billion above the supervisory minimum. This gives us significant confidence, especially after navigating three challenging years during the pandemic and facing an uncertain economic outlook for 2023 and beyond. Despite these challenges, our capital strength has positioned us well to create value through strategic capital deployment. In 2022, we repurchased 4.1% of our outstanding shares, allocating $1.9 billion to share buybacks, which we believe was a prudent way to enhance shareholder value. Over the period from 2017 to 2022, our dividend increased at a compound annual growth rate of 10%, and we are pleased to announce an 11% increase effective March 2023. Both dividend increases and share buybacks have been key components of our capital deployment strategy. We believe there might be potential M&A opportunities that we can consider, but we have the unique advantage of being able to grow and meet our targets without relying on acquisitions. This has allowed us to be more careful and selective in our capital deployment for M&A activities. Nevertheless, we have made investments in various initiatives, including the MTEDA joint venture acquisition, which we are very excited about. We were the first foreign company to receive approval for full ownership of a joint venture asset management company. Our partnership with our JV partner has lasted 10 years, and the performance has been excellent. The opportunity in China is particularly compelling, given its large market size of $3.8 trillion and the low penetration rates. The market has experienced a 20% CAGR over the past decade, which is very promising. We also established a joint venture with Mahindra in India, which we see as a significant opportunity given the growth potential in the Indian market. Additionally, we started a banking partnership with VietinBank in the first quarter of 2022, which provides us access to 14 million customers. Overall, we feel positive about the capital we've deployed and believe more opportunities may arise. Our strong capital position will enable us to explore these opportunities as they come. We have also recently filed for a new Normal Course Issuer Bid for 2023 with the TSX. Our capital strength has been a key advantage for our company, allowing us to create shareholder value, and we believe it will continue to do so in 2023.
Operator, Operator
The next question is from Mario Mendonca from TD Securities.
Mario Mendonca, Analyst
First, can you provide an update on the CSM balance? It's noted that the balance grows at 8% to 10%. Would it be reasonable to assume that amortization would also increase by 8% to 10%? Additionally, how quickly does the CSM amortize? Is it over 10 years, 20 years? Can you share insights on these two aspects?
Phil Witherington, Chief Financial Officer
Sure. Mario, thanks for the question. This is Phil. Your hypothesis is right there. We expect the amortization of the CSM to be about 8% to 10% per year. So over a 12-year period, it would emerge into income based on that math. But the reality is that we expect the CSM balance to not only remain stable as a result of the new business generation but grow by a similar magnitude at 8% to 10%. And that really reflects the growth opportunity in our global franchise, in particular, in Asia.
Mario Mendonca, Analyst
Okay. So the 8% to 10% you said in your opening comments, that was the 12 years you were referring to? I thought you said that was the growth in the balance?
Phil Witherington, Chief Financial Officer
It's both. So 8% to 10% of growth in the balance, but also 8% to 10% amortization of that balance per year.
Mario Mendonca, Analyst
I understand. Okay. My second question may be more appropriate for Steve. Regarding the changes in assumptions, I'm referring specifically to the economic assumptions, not the non-economic ones. Changes in assumptions for public equities and all of the related factors going forward. Under IFRS 4, these would have been immediately reflected in your LICAT, in net income, potentially taken out of core, and in book value and book value excluding OCI. However, under IFRS 17, my understanding is that changes in public equity assumptions and ALDA will impact net income, core, book value, and LICAT. Is that correct?
Steven Finch, Chief Actuary
Yes, you are correct. Under IFRS 4, we recorded the full present value of all future impacts as if we change the ALDA assumption. However, under IFRS 17, due to the separation of assets and liabilities, this does not affect the valuation. If the assumption changes, it likely indicates what will happen in the future, and this will be reflected over time.
Mario Mendonca, Analyst
And now, because it's going to come in over time in all areas, core earnings, net income, book value, LICAT, does that change your perspective on making changes to assumptions because it could have such a dramatic effect under IFRS 4? It's much more sensible under IFRS 17. Does that change your perspective on making changes to those assumptions?
Steven Finch, Chief Actuary
I think it affects the level of attention we give it because the capitalized impacts could be significant, as indicated by our sensitivities. However, the rigor we apply to those assumptions remains crucial for pricing, setting the right expectations for earnings projections, and for embedded value. Both Scott's group and my group will maintain the same level of rigor and attention. As mentioned in Phil's remarks, over the past 18 years since the acquisition, our assumptions have been almost spot on, just slightly above the current figures. Therefore, it will continue to receive the same focus, although likely with less public attention.
Operator, Operator
The next question is from Lemar Persaud from Cormark Securities.
Lemar Persaud, Analyst
I'll be really quick because most of my questions have been asked and answered. But just starting off here, I want to come back to Paul and Tom's questioning on earnings on surplus. So I just want to be clear here bottom line. Are you guys suggesting that this quarter is over $300 million in earnings on surplus is indicative of what we should expect moving forward or perhaps even some upside from that number from higher rates?
Phil Witherington, Chief Financial Officer
Thanks, Lemar, for the question. This is Phil. What we're observing this quarter is a reasonable baseline. The benefits from the seed capital and available-for-sale equity gains are at the higher end of our typical range, exceeding it by about $10 million post tax. The main benefit stems from higher interest rates, which is evident in our fixed income portfolio within surplus. Breaking down the increase in fixed income yield, there are a few factors. One is the effect of higher rates on the shorter-term instruments in that portfolio, and another is the impact of trading. Earlier, Roy noted a $170 million pretax benefit from higher rates in 2022, which contributes to our interest on surplus, specifically the fixed income earnings. Around $80 million of that $170 million arose from higher rates affecting shorter-term instruments, while $120 million came from trading longer-term instruments, which secured a higher yield. Offsetting this was a slight rise in the cost of debt due to the higher interest rate environment, resulting in the net $170 million pretax that Roy mentioned.
Operator, Operator
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.