Earnings Call Transcript
MANULIFE FINANCIAL CORP (MFC)
Earnings Call Transcript - MFC Q1 2025
Operator, Operator
Good morning ladies and gentlemen, and welcome to the Manulife Financial first quarter 2025 financial results conference call. I would now like to turn the meeting over to Mr. Hung Ko. Please go ahead, sir.
Hung Ko, Host
Thank you. Welcome to Manulife’s earnings conference call to discuss our first quarter 2025 financial and operating results. Our earnings materials, including webcast slides for today’s call, are available on the Investor Relations section of our website at Manulife.com. Before we start, please refer to Slide 2 for a caution on forward-looking statements, and Slide 34 for a note on non-GAAP and other financial measures used in this presentation. Please note that certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from what is stated. Turning to Slide 4, we’ll begin today’s presentation with Roy Gori, our President and Chief Executive Officer, who will provide a highlight of our first quarter 2025 results and strategic update. Following Roy, Colin Simpson, our Chief Financial Officer, will discuss the company’s financial and operating results in more detail, before we hand it back over to Roy for closing remarks. After their prepared remarks, we’ll move to the live Q&A portion of the call. Before I pass over to Roy, I’d like to take this opportunity to acknowledge that this will be his last earnings call with us as CEO. I would like to thank him for his leadership in transforming Manulife during his tenure. With that, I’d like to turn the call over to Roy.
Roy Gori, CEO
Thanks Hung, and thank you everyone for joining us today. Yesterday, we announced our first quarter 2025 financial results. We delivered strong first quarter results and maintained the momentum that we built through 2024. We generated strong growth across our top line metrics for each of our insurance segments. Of note, Asia AP sales increased 50%, reflecting strong customer demand and continued execution in the region. Global WAM once again generated positive net flows, a solid result given the increased market volatility. Core EPS increased 3%, reflecting the continued momentum in our Asia and Global WAM businesses as well as the impact of share buybacks. You’ll see our first quarter results include a charge in our P&C reinsurance business related to the California wildfires, as well as a higher ECL provision reflecting market conditions in the first quarter. After normalizing for these two items, our core EPS would have increased 9%. Despite the increasingly volatile operating environment, I’m proud of our results which are a function of our disciplined execution and a testament to the strength of the Manulife franchise and our team. I know this is top of mind for many of you, and while we won’t be immune to the potential macroeconomic headwinds brought on by the trade tensions, I’m going to spend a few moments reinforcing the work that we’ve done with the transformation of Manulife to put us in a position of strength. First, as expected, our results are more stable under IFRS-17, and during the quarter, we continued to steadily grow our book value while returning capital to shareholders. In addition, our balance sheet remains robust, supported by our strong LICAT ratio of 137% and a leverage ratio of 23.9%, which is well below our 25% medium term target. Our robust balance sheet is a significant source of strength which, coupled with our business and geographic diversity, positions us well to navigate and capitalize on opportunities through times of change. Moving to Slide 7, Manulife is certainly a very different company today than during the global financial crisis. We have taken meaningful actions to de-risk our business, including implementing hedging strategies and executing multiple reinsurance transactions. Together with the implementation of IFRS-17, we have significantly reduced our book value sensitivity to interest rate and equity market movements, which is now similar to our Canadian peers. On Slide 8, our portfolio transformation towards higher return and lower risk has been supported by our recent milestone LTC transactions and Canadian Universal Life transaction. We also reinsured the majority of our U.S. variable annuity book several years ago. These transactions have been instrumental in reducing risk both on the asset and liabilities sides and have improved our return profile, all while securing attractive terms. The right half of this slide further demonstrates one way that we’ve improved our risk profile for shareholders. Over the past eight years, we’ve reduced the proportion of total ALDA with direct shareholder exposure by 24 percentage points, and it now only represents 7% of our total invested assets. This reflects the benefits of reducing ALDA as part of our reinsurance transactions as well as transforming our product portfolio. Looking forward, we’d expect this trend to continue with a growing proportion of our ALDA backing participating or pass-through business, where experience is shared or passed through to policyholders. As you can see on Slide 9, our diversification is another key source of strength. First, as a fundamental need, economic uncertainty could actually spur demand for protection products in the future. Second, it’s important to remember that most of our products and services are sold within each market, so we don’t expect any direct impact to our products or services from tariffs. While we could see second order impacts such as lower market returns, elevated unemployment, or slowing growth, these would be industry-wide impacts and not specific to Manulife. Moments like this highlight the importance of our transformation journey and the benefits of the diversification of our franchise, which we have strengthened over the past decade. We’ve made significant progress growing Asia and Global WAM, two of our highest potential businesses. This is consistent with our strategy, but as you can see, our Canada and U.S. businesses are material contributors to total company earnings and remain attractive businesses with large in-force books. Within Asia, we’ve made tremendous progress growing a diverse set of markets, including Hong Kong, Singapore, mainland China, international high net worth, and several emerging markets. The megatrends in the region, including the growth of the middle class, large protection gaps, and aging populations, which are important drivers of demand for our business, will persist despite current macroeconomic or geopolitical headwinds. On Global WAM, we are also diversified by geography. Additionally, we’re not over-indexed to any particular business line, which is an asset during market volatility. For example, our retirement business includes administration fees which are less driven by markets and AUM. Our broad business diversification provides a resilient earnings profile that is less exposed to equity market performance. Onto Slide 10, which dives deeper into Asia, the segment has been focused on execution and has delivered strong growth. We’ve grown from the sixth largest pan-Asian life insurer in 2014 to top three today, and we are outperforming our peers, as you can see from the growth in MBV, and this has continued in the first quarter. This success has been supported by productivity gains as well as improving the customer experience, where our net promoter score improved from negative-2 in 2017 to positive-57 today. Manulife’s substantial digital transformation has been a key contributor to both outcomes. With that, I’ll hand it over to Colin to review the highlights of our first quarter financial results. Colin?
Colin Simpson, CFO
Thanks Roy. Coming off a strong 2024, we maintained our momentum into the first quarter, and while the macroeconomic environment has become more challenging, I’m encouraged by the strong set of results we’ve delivered. Let’s begin on Slide 12. We delivered strong growth of over 30% and record results across AP sales, new business CSM, and new business value. Our AP sales increased 37% from the prior year, with contributions from all our segments, in particular tremendous growth of 50% in Asia. This supported our significant growth in value metrics with 36% growth in new business value and 31% growth in new business CSM, with the latter contributing to a strong 11% annualized organic CSM growth. This strong top line momentum, particularly in Asia where we continue to execute, will drive earnings for many years to come, including through higher CSM amortization. Global WAM continued to deliver positive net flows of $500 million despite the challenging market environment, demonstrating the resilience of our diversified business with strength in our institutional business offset by outflows in our retirement business. Our core earnings results are on Slide 13, and I’d like to highlight some of the key drivers of our earnings relative to the prior year. Our insurance businesses continue to grow, contributing to higher insurance service results. Improved overall insurance experience across all insurance segments also supported this increase, but this was partially offset by a P&C reinsurance charge of US $35 million pre-tax related to the California wildfires, which is reported in our corporate segment. Our net investment result was impacted by lower investment spreads and a net charge in the expected credit loss, or ECL provision which compares with an ECL release in the prior year, when the credit environment was fairly benign. While our actual credit experience is immaterial, the $46 million pre-tax ECL charge was driven by updates to our ECL model to reflect the deteriorating economic environment through the first quarter and is still within our guidance of $30 million to $50 million. The impact of the P&C reinsurance charge and high ECL moderated our core earnings growth by five percentage points. You will note that Global WAM remained the second largest contributor to core earnings and once again generated strong growth, achieving over 20% growth in pre-tax core earnings for the sixth consecutive quarter. I would also highlight that the three reinsurance transactions with RGA and Global Atlantic over the past year reduced core earnings by $12 million across multiple lines of the DOE. Onto Slide 14, core EPS increased 3% as the modest decline in core earnings was more than offset by the impact of share buybacks. During the quarter, we reported a non-core charge of $781 million from realized losses, mostly from fixed income asset disposals related to our LTC reinsurance transaction with RGA, which closed in the beginning of January. This impact was largely offset in OCI, resulting in a neutral impact on book value and capital. We also took a $208 million charge during the quarter as public equity returns were lower than expected, and we reported a charge of $275 million in our ALDA portfolio, mainly due to lower than expected return on commercial real estate and private equity investments. While this disrupted the recent trend of sequential improvement in our ALDA experience, we remain confident that we will return to our long term return assumptions. The impact of the current challenging macroeconomic environment on our performance, however, does mean that our expected normalization will likely be delayed in the near term. Moving onto the segment view of results, we’ll start with Asia on Slide 15. Our Asia segment continued to generate very strong growth in new business metrics with record level results. AP sales increased strongly by 50% from the prior year, primarily driven by growth in Hong Kong which delivered growth across all channels and Japan, as well as mainland China and Singapore within Asia Other. The overall increase in sales contributed to robust growth in new business CSM and new business value of 38% and 43% respectively. We also generated record core earnings in Asia this quarter with solid 7% growth year-on-year, reflecting continued business growth momentum partially offset by an increase in the ECL provision and the impact of foregone earnings from the Global Atlantic reinsurance transaction that closed in early 2024. In addition, we generated strong sequential growth of 8% in core earnings and delivered another quarter of favorable insurance experience in both core earnings and CSM. Moving to one of our other high potential businesses, Global WAM on Slide 16, Global WAM had another strong quarter with 24% growth in core earnings. This was again supported by higher average third party AUMA, higher performance fees, and our ongoing focus on expense management. We delivered positive net flows for the quarter of $500 million driven by inflows from our institutional business, but these were largely offset by net outflows from our retirement business due to pension plan redemptions and member withdrawals in North America. We again generated positive operating leverage with a core EBITDA margin of 28.4%, which expanded 290 basis points from the prior year. Next, we come to Canada on Slide 17, where we delivered strong new business results during the quarter. AP sales increased 9% from a year earlier with contributions from all business lines, which supported the double-digit growth in new business CSM and new business value. Core earnings increased by 3% thanks to another quarter of favorable overall insurance experience and continued group insurance business growth, but this was partially offset by an increase in the ECL provision as well as lower Manulife bank earnings, with the latter impacted by a reduction in net interest margin following the Bank of Canada’s recent interest rate cuts. Lastly, our U.S. segment results on Slide 18. In the U.S., we once again delivered solid AP sales growth of 6%. Demand for accumulation insurance products from affluent customers has remained firm, contributing to the growth in new business value of 30%. Core earnings decreased 25% from a year earlier due to unfavorable net claims experience recorded in earnings, lower investment spreads, an increase in the ECL provision, as well as the net impact of the basis change last year, partially offset by favorable lapse experience. Our U.S. earnings have been declining over the last few quarters due to a few factors, including the impact of the LTC reinsurance transactions, but this was offset in core EPS through share buybacks, a higher ECL provision given the current macroeconomic challenges, lower investment spreads, and last year’s basis change which reduced the CSM. Despite these recent headwinds, we remain confident in the U.S. segment’s ability to deliver steady earnings given the growth in profitable new business. Bringing you to our book value on Slide 19, you can see we are continuing to steadily grow our adjusted book value per share with 12% growth from the first quarter of 2024 to $36.66, even after returning nearly $6.4 billion of capital to shareholders through dividends and share buybacks over the past year. As previously announced, we launched a new buyback program in late February 2025 allowing us to return freed up capital from our recent LTC reinsurance transaction to shareholders, and together with dividends and share buybacks, we returned over $1.2 billion of capital to shareholders during the quarter. Onto our robust balance sheet on Slide 20, our LICAT capital ratio remained strong at 137%, and our financial leverage ratio was 23.9%, staying well below our 25% medium term target. These metrics reflect our strong financial resilience. Together with our significantly lower risk profile, they reinforce my confidence in our ability to operate from a position of strength in today’s uncertain economic environment. While we have observed heightened market volatility in the second quarter, our robust balance sheet management and regular monitoring suggests very little impact to these metrics as we stand today. Finally on Slide 21, you will see the summary of how we are tracking against our 2027 and medium term targets. To conclude, while we saw an impact on our bottom line due to a few factors that I noted earlier, we are pleased that our top line results continue to exhibit strong momentum, and I’m proud of the results we’ve achieved this quarter. We remain focused on executing against our targets, and I am confident that we are well positioned to navigate through the economic cycle and capitalize on growth opportunities as they arise. With that, I will turn it back over to Roy for some closing remarks.
Roy Gori, CEO
Thanks Colin. In closing, I want to say that it’s truly been an honor to serve as CEO of Manulife. Today marks my 41st and final quarterly earnings call, and it is bittersweet for me. I’m incredibly proud of our transformation, our achievements, and of the momentum that we’ve created. We’ve become a digital customer leader, growing our highest potential businesses and reduced our risk profile and volatility, while significantly improving shareholder returns. We also have a strong capital and financial position. Our high performing leadership team and our diverse business and geographic footprint will allow us to continue delivering profitable growth, outpacing our peers while delivering superior returns to our shareholders. Our strong business momentum, particularly in a challenging environment, is a testament to the strength of our franchise. While I will miss the incredible team and culture that we’ve built, looking forward, I know the company is in great hands with Phil. We’ve worked together for many years and he has a tremendous track record of execution and delivery. I couldn’t be more excited to watch him take Manulife to even greater heights. Before moving to Q&A, I’d like to thank our customers without whom we wouldn’t have a business. Thank you to our outstanding global team. Your dedication and engagement have been inspiring, and I continue to believe that our culture remains a real source of differentiation. Thank you to our analysts and shareholders. You haven’t shied away from holding us accountable but have also recognized our progress and accomplishments when deserved. With that, this concludes our prepared remarks. Operator, we will now open the call to questions.
Operator, Operator
Thank you. We will now take questions from the telephone lines. Our first question is from John Aiken from Jefferies. Please go ahead.
John Aiken, Analyst
Good morning. You obviously highlighted the strong sales that you saw in Asia. Was wondering if you could give us a sense in terms of what you’re seeing on the ground and what that may translate for the remainder of the year?
Phil Witherington, Incoming CEO
Great, thank you John - this is Phil. You’re right, and as Colin referenced and Roy referenced, it has been a very strong start to 2025 for Asia, and that’s off the back of a record 2024. What we’ve seen in the first quarter, and it’s really a continuation of the trend from last year, is very strong demand for saving solutions to support retirement needs, generational wealth transfer needs, and this is across Hong Kong, Singapore, China, and we’re also seeing strong growth in Japan as well, where we had launched last year, towards the end of last year, a new product that has proved to be very successful in financial institution channels. You asked about the outlook on sales, and I will draw your attention to last year across Q2 and Q3, we did have a step up in sales momentum, and so I would expect as we go through the course of 2025 to see the growth rate normalize to more typical levels, but I think the run rate that you see in sales is something that I feel good about. Now of course, we are operating in an environment of some macroeconomic uncertainty, and while that doesn’t have, I suppose, a direct impact on us, I suppose what I would draw your attention is that an uncertain external environment can impact consumer sentiment and cause them to defer buying decisions. But at this point, I remain cautiously optimistic about the year ahead.
John Aiken, Analyst
Thanks Phil. I just wanted to pass on my congratulations to Roy - all the best in your retirement.
Roy Gori, CEO
Much appreciated, thank you John.
Operator, Operator
Thank you. The following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Doug Young, Analyst
Hi, good morning. Phil, could you elaborate on the sales in Asia? Japan sales were strong, as you mentioned. I'm wondering how much of your sales in Japan are from U.S. dollar-denominated products and if you anticipate any changes in demand for this product going forward. Regarding Japan, I’d also like to know more about Hong Kong sales, which were also strong with solid growth in new business value. Can you discuss the factors contributing to that and if there was any advancement of sales this quarter? Thank you.
Phil Witherington, Incoming CEO
Thank you, Doug. This is Phil. I'll address the question about Japan sales first. It's important to note that a key differentiator for us in Japan is our ability to offer international capabilities, and a significant portion of our overall business, around 80%, is linked to U.S. dollar-denominated products. The demand for these products is primarily driven by the diversification they provide to our customers, as well as the yield advantage of U.S. dollars compared to Japanese yen. Both factors are still relevant, so while we might experience fluctuations in currency exchange rates, I don’t view the exchange rate itself as the primary factor influencing demand for foreign currency-denominated products. Looking at our new business in Japan, we saw considerable sales volumes in the second quarter last year, influenced by various factors. Therefore, I expect the growth rate to moderate as we approach Q2, Q3, and Q4. However, I find our current run rate to be solid and sustainable, especially in light of a new product launch late last year that has generated some momentum within financial institutional channels. Now, regarding Hong Kong, we are witnessing robust customer demand across all channels, as Colin mentioned. Broker channels are experiencing the fastest growth, but all channels are performing well. The demand stems from our core domestic customer base and the continued growth of mainland Chinese visitors. This demand is mainly driven by a need for saving solutions, although we have recently introduced a couple of critical illness protection products that should boost demand to meet the health and protection needs of both our domestic customers and mainland Chinese visitors. I'm optimistic about the growth in Hong Kong. There is some external uncertainty that might affect customer sentiment and potentially lead some customers to postpone their buying decisions. Similarly to my earlier comments about Japan, we saw a significant increase in sales volumes in Hong Kong from the second quarter of last year into the third quarter, so I expect growth rates to return to more normalized levels as we progress through this year.
Doug Young, Analyst
Okay, and just second question, and I’m sorry, Phil - I’m going to pick on you again here, but you put out an earnings growth target for Asia of 15%, and I know that’s medium term. Just trying to gauge how you feel about achieving that in this year or in 2026. This quarter, Japan was down, and I think I understand why that was, and other was flat. Hong Kong was obviously the big driver of the beat and there’s lots going on in the region right now, so I’m just trying to get a sense of how you’re feeling about that target as we look at 2025 and 2026.
Phil Witherington, Incoming CEO
Thank you, Doug. Our earnings guidance applies at the total company level, targeting 10% to 12%. In the past, we've explained how this breaks down across segments, but it's not specific guidance for each one. The momentum in Asia has been strong, showcasing impressive earnings growth through 2024. Although the growth was a bit lower in the first quarter of 2025 at 7%, it’s important to note that this was impacted by year-on-year changes in ECL. A year ago, in the first quarter, we benefited from a favorable impact in Asia due to the Global Atlantic reinsurance transaction, particularly in Japan. If we account for that, the growth in Asia would have been around 11% year-on-year and is actually 8% higher than Q4, indicating a positive trend quarter-on-quarter. My expectation for the full year is that the first quarter's run rate is indicative of standard growth from the expansion of CSM, with typical variations in ECL and policyholder experience. I am confident in the potential for ongoing earnings growth, especially considering the 16% increase in the contractual service margin in 2024. The normalized organic growth rate in the CSM for the first quarter of 2025 was 12%, which points to encouraging trends.
Doug Young, Analyst
Appreciate the color, and Roy, thanks for everything and all the best.
Roy Gori, CEO
Thank you Doug.
Operator, Operator
Thank you. The following question is from Gabriel Dechaine from National Bank Financial. Please go ahead.
Gabriel Dechaine, Analyst
Hey, just a different Asia sales question. Sales numbers have been pretty good for a while, now very good. I’m wondering if mix is still a bit of a challenge from a margin standpoint. I know for a while there, you were selling the savings products that aren’t super profitable, and if you’re seeing a shift there or have seen a shift there, and what the outlook for that trend particularly looks like. I have a follow-up.
Phil Witherington, Incoming CEO
Okay, thanks Gabriel - this is Phil. You are right - over the course of the past year, we’ve seen strong demand for saving solutions, and that’s been across Hong Kong, it’s been in Singapore, it’s been in mainland China, and these are all big markets that are driving some of the key trends in the numbers. We’re really focused on fulfilling customer needs, and we have a range of different solutions on the shelf. As we look forward, I do see the potential for supplementing the savings demand with the fulfillment of other customer needs - health and protection needs, I referenced earlier the launch of some critical illness products in Hong Kong, and we expect that to generate a little bit of excitement. When you look at the quarter-on-quarter margin trends, particularly for Hong Kong, what you’ll see is that there has been a bit of an uplift, a bit of a pick-up in Q1 relative to Q4. I think what you see in terms of sales and new business value momentum in the first quarter, I think that’s a good indication of what you can expect in the near term, subject to normal variability in sales volumes that can arise, particularly where we’ve got a presence in third party channels, and notably in Hong Kong, there has been quite a strong emergence in the industry of the broker channel, and broker channels can always give rise to greater variability quarter-on-quarter, year-on-year relative to agency and bank assurance, which do of course remain our core channels both in Hong Kong and across Asia.
Gabriel Dechaine, Analyst
Is it plausible that the sales numbers will still be good, but with this macro environment, maybe the shift to the more higher margin mix might be deferred or delayed?
Phil Witherington, Incoming CEO
It’s hard to be specific about what scenario might play out. I think in the near term, I expect the demand for savings to continue. A big portion of our business, particularly in Hong Kong for example, is U.S. dollar-denominated, and the yield on U.S. dollar business is attractive relative to other currencies.
Roy Gori, CEO
Gabriel, I’d just add that our savings products are still very good margin, so I really want to dispel the myth that the savings products are low margin. We’ve got quite profitable savings products across the geographies in Asia, and as Phil said, I think one of the unique aspects of our franchise is the diversification not just from a product perspective, but also from a channel perspective, so having a strong agency, strong banker capabilities, and then our broker, which is now a much more important part of our distribution, it allows us to continue that story of margin improvement and, as Phil said, at the end of the day, we’re going to sell products that meet the needs of consumers. Again, we’re delighted to have a strong savings product that does that.
Gabriel Dechaine, Analyst
Got it, and then U.S. quickly, you mentioned some of the headwinds that have resulted in the trend line in profits going down. Expenses picked up quite a bit this quarter - I forget what it was last quarter there, but just wondering what the story is there - are you investing to reposition the business or what, because on a consolidated level as well, that contributed to the efficiency ratio popping up over your 45% target.
Brooks Tingle, COO
Thanks Gabriel, it’s Brooks Tingle. Appreciate the question. I would look at Q1 expenses as very much an aberration tied to some unique and important investments in things like gen-AI, digital, things that will yield further efficiency gains in the future. If you look over multiple years now, the U.S. has been extremely focused on efficiency ratios, taking out a lot of expense, and we intend to continue to operate with extreme expense discipline.
Gabriel Dechaine, Analyst
Okay, great; and Roy, I think I wished you a happy retirement or next phase last quarter. I’ll do it again.
Roy Gori, CEO
I’ll take it twice, Gabriel. Thank you.
Operator, Operator
Thank you. The following question is from Tom MacKinnon from BMO Capital Markets. Please go ahead.
Tom MacKinnon, Analyst
Yes, thanks. Just before I ask a question, just want to say congratulations to Roy, and thanks for all your help. All the best as you move onto your next adventures.
Roy Gori, CEO
Appreciate that, Tom.
Tom MacKinnon, Analyst
I have a question for Marc regarding the interest in additional legacy transactions. What percentage of your core earnings is considered legacy now? You are generating significant capital, and your LICAT has remained stable over the past year despite approximately $3.5 billion in buybacks. Do you really need to pursue another transaction, or do you have any comments on that? Thank you.
Marc Costantini, CFO
Yes, good morning Tom, it’s Marc. Thanks for the question, I appreciate it. There’s a few things there you mentioned to unpack. You talk about transactions, and I think I’d be remiss if I didn’t say that, as Roy mentioned in his opening remarks, that we’ve done three transactions over the last, I’ll say 18 months, that resulted basically in $2.8 billion of capital released, as you imply as well in terms of what we’ve done in terms of returning that to shareholders. But more importantly, two of those transactions included long term care, and we’ve basically reinsured over 18% of the risk at the same time, as both Roy and Colin mentioned, we sold off $3.8 billion of ALDA assets tied to these things, and we traded the whole thing at book value, and long term care itself was traded inside 5% negative C to our book value, so we feel quite confident that we accomplished what we wanted and it’s been demonstrated, obviously, by the results that have ensued. More importantly, when you combine that with the variable annuity transaction we did in 2022 and you combine with these transactions, our long term care and VA earnings are less than 10% of the firm’s earnings, and I would venture to say that mission accomplished in terms of what we wanted to do in terms of de-risking the portfolio, what we wanted to do in terms of demonstrating the robustness of the liabilities and the assets backing these liabilities, and more importantly as we’ve discussed a few times on these calls, we have very vibrant and robust organic plans tied to managing the business on a go-forward basis in long term care, and those are showing a lot of very positive results. As you actually can see in the quarterly results this quarter, the overall long term care experience was modestly positive, and it’s been the case for a few quarters when we look at the experience, so we feel quite confident that there is absolutely no need to do another transaction. Having said so, the mandate of the inforce group is to actively manage organically and inorganically and optimize the risk-reward trade-offs of the balance sheet, so we will continue to do so. Our first mandate is to do so organically, and then we will do so inorganically if it demands, but we feel no obligation and as we demonstrated, we always do so for the benefit of our shareholders while keeping the promises to our policyholders.
Colin Simpson, CFO
Tom, this is Colin. If I could just add…
Tom MacKinnon, Analyst
That’s great, sorry, please continue, Colin.
Colin Simpson, CFO
No, I was just going to jump in on the buyback point. You referenced our capital position - incredibly strong, 137% LICAT ratio, so we don’t need a reinsurance transaction to do buybacks. But I will emphasize, buybacks don’t rank ahead of investing in the business, that’s our number one priority. But the good news about our capital base is that we can do both quite comfortably, as well as look at inorganic opportunities.
Tom MacKinnon, Analyst
Okay, great. The second question, or the final question is just with respect to the insurance experience gains we’re seeing in Asia - pretty solid US $17 million, kind of the best we’ve seen in a while. What’s driving that? Are we past any of the Vietnam lapse issues right now, if you can just address some of that, and what should be the outlook for insurance experience in Asia going forward? Thanks.
Steve Finch, Chief Actuary
Yes, thanks Tom, it’s Steve here. As you noted, if we set aside the property and casualty provision and focus on our other insurance segments, we've had positive experiences in each segment in terms of overall insurance performance. Regarding Asia, we experienced favorable claims related to both mortality and morbidity across several markets, which was a significant factor. Although we had some minor lapse losses in certain markets, these were more than compensated for by other positive experiences, resulting in strong results in Asia. In the U.S., the overall performance is positive as well. Marc mentioned a net positive trend in long-term care experience, which has been consistent with the trends we've observed both during and after the pandemic. We noticed some modest claims losses in life insurance, which we attribute to normal seasonal patterns, and our experience has been in line with or slightly better than our assumptions since COVID, so we are optimistic about that. In Vietnam, the previous challenges are behind us, and we reported gains for the quarter. Those headwinds were expected to ease in the latter half of last year, and we have continued to see positive developments. Overall, while there can always be some variability, particularly in the large case market within the U.S. life business, we are confident about the outlook.
Tom MacKinnon, Analyst
Okay, thanks for the color.
Operator, Operator
Thank you. The following question is from Paul Holden from CIBC. Please go ahead.
Paul Holden, Analyst
Thank you, good morning. First question is with respect to the negative ALDA experience this quarter - not unexpected, but just want to drill down a little bit in terms of maybe you can give us some color on what drove the negative experience specifically, and just confirmation that it’s lower than assumed returns versus necessarily any impairments.
Trevor Kreel, CFO
Hi Paul, it’s Trevor. Thanks for the question. Just let me start by saying we still like the strategy, it’s a good match for long term liabilities, and it produces strong returns with low volatility, but it is not going to be immune from the broader economic environment. As you noted, we did see weaker ALDA experience in the quarter, similar to some peers and consistent with slower public markets in Q4 and a little bit of increased economic uncertainty in Q1. Just to note, even in this environment the portfolio continues to provide positive total returns. To your question, the main driver of the non-core loss was again real estate - it does continue to improve slowly, while energy outperformed quite substantially. Private equity, though, which given some lumpy gains had been quite strong in Q3 and Q4 of last year, was a little bit below target in Q1. Then in terms of the outlook, we do expect to get back to our long term assumptions. I think given the current uncertainty, the timing is probably a little bit deferred from our prior expectations, and you may see performance from quarter to quarter being a little bit dependent on the broader economic environment; but we still do expect to get back to our long term assumptions. Thanks for the question.
Paul Holden, Analyst
Thank you. I have a follow-up question regarding ALDA's ongoing negative experience, which I believe has persisted for four consecutive years. At what point do you think it's necessary to revise the return assumptions? What factors would trigger this reevaluation? Is it simply a matter of how many periods of underperformance we experience compared to the current assumptions, or do changes in the base value, such as increased impairments, also play a role? What would be the criteria for altering the ALDA return assumption?
Trevor Kreel, CFO
Hi Paul, it's Trevor again. I appreciate the follow-up. As we've mentioned previously, we have not met our target returns for the past two years and one quarter. However, these expectations are long-term and not fixed; we do have a structured process for updates, which is not as mechanical as you might think. Historically, our experience aligns closely with our assumptions, though we've experienced periods of both overperformance and underperformance in recent years. Regarding our process, both Steve and my teams review these assumptions annually. We assess our own performance compared to benchmarks, consider market expectations, and evaluate current transactions we are underwriting, including those with expected yields exceeding our long-term assumptions. Looking ahead to 2025, we will incorporate this year's weaker performance and consider the possibility of slower growth in the long term, but we believe our assumptions are still appropriate. While we acknowledge the existing uncertainties, I remain confident in our strategy and in achieving our long-term target returns.
Steve Finch, Chief Actuary
It’s Steve. I’ll just add that while not giving a specific, you know, what would it take to change, if we look back when we reduced the return assumptions back in 2017, one of the factors that drove that was interest rates had come down significantly, that was impacting cap rates and expectations of future return on our real estate portfolio, so that was one example. Obviously interest rates are materially higher than at that point.
Paul Holden, Analyst
Got it, that’s helpful. Thank you very much.
Operator, Operator
Thank you. The following question is from Meny Grauman from Scotiabank. Please go ahead.
Meny Grauman, Analyst
Hi, good morning. First, Roy, I want to congratulate you and wish you the best. I wanted to ask for more detail on what influenced the ECL line this quarter. Is it related to economic assumptions or scenarios? I just want to understand how this ECL line is evolving as we consider it going forward.
Trevor Kreel, CFO
Hi Meny, it’s Trevor. Thanks for the question. Yes, in terms of the ECL, as you noted, the ECL charge was larger this quarter but in Q4, but to your point, the underlying investment growth credit experience remained actually quite benign. Just to remind people, the ECL charge is broadly made up of two components. The first one is the impact of defaults and rating changes, and the second is this modeled impact that reflects changes in the broader economic environment. ECL and IFRS-9 is actually similar to the large Canadian banks, and we include both of those components in core earnings. Specifically to the Q1 experience, our underlying credit experience from rating changes and defaults was actually neutral, which is a pretty strong result. With the ECL increase that you see, it’s largely model driven due to the volatility in investment markets in Q1, so it really was basically the broader economic environment as well as some changes to the scenario weights. We increased the weights of the adverse scenarios within the model. In terms of the outlook, I think Q2 has actually been quite volatile to date, so it’s probably too early to say where it’s actually going to end up; but the portfolio, I think is still in pretty good shape, it’s 96% investment grade, and so we do still feel that the $30 million to $50 million a quarter that I think we’ve guided to is an appropriate run rate, I think for normal conditions.
Meny Grauman, Analyst
Got it. My second question is about Asia, Phil. I wanted to clarify your comments regarding the impact of tariffs on consumer behavior in the business. Are you noticing any signs of changing customer behavior, or is your commentary suggesting that you wouldn't be surprised to see some changes in the future? I'm just checking if there's anything at the moment that indicates tariffs are actually affecting the business in terms of consumer behavior and demand specifically.
Phil Witherington, Incoming CEO
Hey Meny, this is Phil. Thank you for that follow-up question. You’ve interpreted my comments right - we’re not seeing anything right now that suggests any notable change in consumer sentiment, and of course you referenced tariffs, there’s no direct impact of tariffs on our business. Our products to a large extent are sold within each of our markets. But I think there is inherently a risk that where there is uncertainty in the macro environment, that could start to impact customer sentiment and cause customers to defer some decisions around particularly long term financial product commitments. We’re not seeing it yet, but it’s just on the radar as something that could emerge in the quarters ahead, and we’ll keep you posted on that.
Roy Gori, CEO
And Meny, just to the broader question of impact of tariffs beyond Asia sales, I think what we’ve said many times in the past is that trade wars aren’t going to be good for GDP, inflation or unemployment, and as Phil said, we haven’t seen it yet impact sentiment, though it could. I think that that’s largely a function of the fact that our products typically are needs, not wants, and I think that’s true for not just us but the entire industry, which has so far meant that we’ve been somewhat more immune to the impact of the uncertainty. However, who knows how that transpires over the course of the coming quarters, so I think it’s important to be cautious there. I think the biggest impact as it relates to the uncertainty related to the trade war situation is that it will impact markets, and we saw that obviously in Q1 and to some extent earlier in the period. We highlighted earlier that we’ve reduced our sensitivity to market movements quite significantly over the last decade. Our interest and equity market sensitivity is a fraction of what it used to be, and under IFRS-17, the amortization of our earnings is really a function of our back book. Again, I don’t want to paint too rosy a picture, but there is certainly a lot of resilience in our business that will put us in good stead.
Meny Grauman, Analyst
Got it, thank you so much.
Operator, Operator
Thank you. The following question is from Mario Mendonca from TD Securities. Please go ahead.
Mario Mendonca, Analyst
Good morning. There have been many good questions regarding the sales and momentum of insurance in Asia.
Hung Ko, Host
Sorry Mario, we have a bit of static here. Would you mind just restarting again? Thank you.
Mario Mendonca, Analyst
Sorry, is that any better?
Hung Ko, Host
Yes, yes. Thank you.
Mario Mendonca, Analyst
There have been some good questions regarding insurance in Asia and the momentum of insurance sales. My main concern is a practical one. The obvious effect is that it slows down the additions to the CSM, and if this persists for a long time, it will eventually hinder the amortization of that CSM into earnings. That's the clear part. What I'm uncertain about is whether there are other factors I might be overlooking. Are there any additional impacts on the earnings drivers in Asia, such as expense loads or reserve adjustments, if sales were to decline and remain low for an extended period?
Phil Witherington, Incoming CEO
Hey Mario, this is Phil. Thanks for the question. I’m happy to start, and then Steve Finch can provide additional insights from a technical perspective. If we were to see a prolonged decline in sales, it would likely affect the customer success management, which would initially remain stable and then start to decline as well. However, this would require a significant and sustained drop in sales, and everything I’ve observed so far does not indicate that this is likely to happen. When I examine the long-term demand drivers in Asia, they still appear very strong. This is due in part to demographic trends and the growing significance of key markets in Asia such as Hong Kong and Singapore as emerging centers of international wealth, along with the increased interest in transferring generational wealth, given the wealth accumulated in the region over the last three to four decades. Steve, do you have any thoughts from a technical perspective?
Steve Finch, Chief Actuary
Yes, I’d like to add that regarding your question about how it affects our view on expense assumptions, this usually unfolds over a long time. We actually experienced some of this during COVID when sales in the industry were affected in various markets at different times, and we analyzed that through expense studies. The business does take steps if there is a prolonged period of contraction, which we do not anticipate here, but it would also take time to reflect any expense actions in our future outlook, so I don’t believe there’s anything you’re missing from that perspective.
Roy Gori, CEO
Mario, the only other thing I’d chime in and add to that is that as we’ve thought about trade wars and the tariff situation and how it could unfold from a risk management perspective, what we think is a source of strength for our franchise is that we’ve got a very diverse business. Where this trade war may create more pain is specifically one or two countries who may be more impacted, and the fact that we have such a diverse business globally, we think is a source of strength. Again, we don’t want to paint too rosy a picture, but that is something just to keep in the back of the mind as well.
Mario Mendonca, Analyst
Okay. Maybe for Phil as the incoming CEO, I’m interested in your philosophical view on share buybacks in a period of stress, and what I’m getting at is the banks, you can see a change in their share buyback activity pretty abruptly when things turn sour. There were several that were very active in the first few months of their Q2 and then shut it down in April pretty hard, when Liberation Day came and passed. For you and for Manulife, is there a similar philosophy around buybacks that, despite having plenty of excess capital, you shut it down in periods of extreme volatility? Perhaps it’s a little unfair because you haven’t really sat in the seat yet, but how do you look at that?
Phil Witherington, Incoming CEO
Mario, thank you for the question, and it’s a very fair question. Firstly, I’d just like to say how excited I am to be taking on the role - it’s an incredible privilege that I take very seriously. But with specific reference to your buyback question, I do note that we’re in a very strong capital position - Colin referenced that earlier, and it’s not just that we’re in a strong capital position now, the capital generation from our businesses and that translating to remittance flows is also very strong, and that continues to be the case. We also have a track record of delivering on share buyback programs when we’ve announced them, and so Colin referenced the 2025 program that we announced in February. As I transition with Roy, there is absolutely no change to our intent with respect to that program, and of course as is always the case with share buybacks, we will be responsible, we’ll keep an eye on what’s happening in the external environment, but the strength of our capital position provides us to be resilient and actually sort of dollar cost average, if you like, consistency over time will serve us well with the share buyback. With respect to decisions on future share buyback programs, those decisions will be made at the appropriate time, taking into account the facts and circumstances internally, externally, including alternative opportunities to deploy capital, and as Colin said, our number one capital deployment preference is investing in our business, and it’s really the excess capital deployment that then gets given back to shareholders by way of buybacks.
Mario Mendonca, Analyst
Okay, and Roy, as the outgoing CEO, I have no questions for you, just my best wishes to you in retirement.
Roy Gori, CEO
Appreciate that, Mario. Thank you.
Operator, Operator
Thank you. The following question is from Lemar Persaud from Cormark. Please go ahead.
Lemar Persaud, Analyst
Yes, thanks for squeezing me in here. I’ll start off by saying, Roy, congratulations on your retirement. Then maybe I’m reading too much into it here, and there’s been a lot of discussion about the outlook for Asia, but Roy, your comments to remind us about the contributions of Canada and U.S. to earnings, it sounds like you’re setting us up for potential weakness in Asia. Obviously that’s not the way this conference call has gone, but tell me why I’m perhaps reading too much into it. Maybe there is something there, like maybe the singling out of tariffs on China and the impacts that could have on the broader Asia business is why you’re reminding us about the contributions of Canada and the U.S. You’re not seeing it now, clearly, based on the answers in this call, but perhaps preparing us that there could be something in the coming quarters because of the interconnectedness and importance of China to these other Asian geographies. Hopefully that makes sense.
Roy Gori, CEO
Yes, well thanks Lemar, and firstly thank you for your best wishes - appreciate that, and I appreciate engaging with you and your fellow analysts, and obviously the shareholders as well over the last 10 years. It’s been an absolute pleasure. I would say you’ve misread maybe my comments if you’ve interpreted us signaling for maybe weakness in Asia. The thing that I really want to emphasize is that one of the greatest strengths of our franchise is that we have a very diverse business, and I think that makes us more resilient. To be perfectly honest, if you think about the last decade, we’ve seen all boats rising and the value of the diversified business was actually much less, but as we look at the next chapter with uncertainty, both macro-economically and geopolitically, having a diverse business that’s not reliant on any one particular market, I think is a massive source of strength. That’s true for our insurance business, but it’s equally true for our Global WAM business, which again has demonstrated phenomenal resilience, and we’ve talked about the fact that we’ve had 14 years of positive net flows where, again, others have seen massive outflows. The message that I was certainly trying to deliver is that we will see challenges from time to time in one market or another - it could relate to trade and tariffs, or quite frankly it could relate to other factors, and having a business that is as diverse as ours, I think really puts us in a position of strength and resilience that will allow us to navigate the challenges. We saw that in ’24 - we had, as we’ve described, the banner year in ’24, and that was again a year where there was lots of uncertainty and volatility, but I think we demonstrated the resilience of our franchise.
Phil Witherington, Incoming CEO
Yes, thanks Roy. I agree with everything you’ve said, and when I look at the first quarter earnings run rate for Asia, I think it’s a good indication of what to expect in coming quarters, of course plus or minus the impacts of ECL and routine policyholder experience variations from quarter to quarter. That stability in earnings is one of the advantages of IFRS-17, so I’m not too worried about the impact of short term variations in sales volumes on the earnings outcomes.
Lemar Persaud, Analyst
Appreciate it, thank you.
Operator, Operator
Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Ko.
Hung Ko, Host
Thank you Operator. We’ll be available after the call if there are any follow-up questions. Have a good day everyone.
Operator, Operator
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.