Manulife CFO discusses the insurer's business outlook and new financial targets

It's an 18% core are we, which is just a fantastic way for us to express the express the quality of our franchise. The biggest improvement is going to come from our Asian and GM businesses. GM is our asset management and wealth business and that's in part driven by some of the great demographic trends we see in Asia. And so we've got low insurance penetration rates. So that should drive further growth. And also we're building scale in many markets. You mentioned Jakarta in Indonesia, a great, a great example of a market that once we build scale, we're going to see some fantastic profitability come through that's going to drive the group Roe up. So very exciting targets and we think another great step in our journey of transformation. In a recent months, you guys announced some reinsurance deals. You completed the largest long term care insurance reinsurance deal in history. This has freed up capital for share buybacks. What is the impact to earnings? Because in my reading, some analysts are taking note that the reinsurance strategy does not appear to have unduly weighed on core earnings. Has it weighed on earnings at all? Yeah, it's a great point action. You know, you mentioned the two transactions we did, the one in December acted as a real catalyst for our share price and we we transacted with Global Atlantic and we transacted on a $6 billion of long term care reserves. Now sure that did reduce earnings a little bit, but what it did is it freed up capital by more and allowed us to buy back stock. And so our earnings per share actually went up and our core ROV went up as a result. So that's all in line with our strategy of getting to an 18% core ROV company. Now Asia is important a market for you guys. It makes up about 37% of your core earnings. You've pushed back to 2027 by two years for the Asia unit to get to 50%. Now the pandemic of course is part to blame for everything and but how much of it has to do with some of the patchiness in terms of an economic recovery we're seeing from China? Yeah, it's, you know, there were two items associated with the pushback in our target. The first was sure the the, the recovery from the pandemic took a little bit, was a little bit more uneven than we expected, but also we had a big accounting change. And so that impacted IFRS 17 did impact some of the earnings emergence from our Asian region. These two factors did make us pause and and push our target out to 2027. But I will say that at the Q1 stage, we were 44% of our earnings came from Asia. So we're showing good progress from the full year number that you quoted. And you know if you think about the demographic tailwinds that are going to push growth in this region, we're very comfortable with the 2027 target. I'm excited about the region as a whole really in the region here you service 13 markets, I believe at generating or I should say servicing 13 million customers. This region has been an area of strength. What is the outlook for Asia? We, you know, we, there's a reason why we're bringing investors from all over the world to come and see us here in Hong Kong. You know, just fantastic energy in the business, fantastic momentum in the business. And you know, you mentioned the, the economic environment, we saw Peace of Mind. So sometimes globe global macroeconomic developments don't necessarily drive insurance sales. And and we're able to be that, that company that's always going to be here with the great brand. We've got a great products product set. And so it's just the demographic tailwinds that have been in place for many years continue to be in place. And we, we just want to take advantage of that and also showcase it. We're looking at some other companies that double down in the region. You guys have invested into Macau, you're expanding there. The population is 110th of Hong Kong, but I believe the penetration of insurance is only half of what we're seeing in Hong Kong. What are you doing here in this city in Macau to further expand in the Greater Bay Area? Yeah. So Macau, we've just got new offices, so fantastic presence for Manulife in Macau, one of the 11 Greater Bay Area city. So again, fantastic opportunity to meet visitors coming over from the mainland to see our product suite. We've got a great range of products and be it savings, protection, retirement, health and we've seen great momentum in sales in that region. So Macau is smaller than Hong Kong, but the Greater Bay Area as a whole has, as you mentioned, much lower insurance penetration than Hong Kong, so another tailwind to growth. The largest insurer in Canada, Bank of Canada recently cut rates. So they've started their rate cutting cycle. What are the risks and the impact to your profitability? Yeah, you're right. We had a quarter point rate in reduction in in the early June. And actually our economists think there's probably going to be another three more in 2024 and more in 2025. Now the good news for Manulife is that actually we're more susceptible, we're more sensitive to the long end of the curve and the long end of the curve has stayed more resilient. But at the same time, we don't take big interest rate risk. We know we look to try and make, we look to make our money from underwriting and selling great health products. And so we're less focused on what where the rate, interest rate, the interest rate movements may move from here, but at the same time, short term interest rates not a big deal for manual life. You guys are engaged in share buybacks. Tell us in terms update us on your capital reserves and how much do you intend to return to shareholders? Yeah. You know we've got $22 billion of capital in excess of our regulatory minimum and we wouldn't go down to bare bones on the regulatory minimum. So we consider having our capital base to be around $10 billion of excess above what we call our upper operating limit. So our most important use for our capital is to invest in our own business because we know it so well and it's it's generating great returns. So that's why we're here in Asia is we we're showing people where we're allocating capital to. Our second most important use for our capital is dividend growth. We've got a earnings per share growth target of 10 to 12%. And if we're paying up 35 to 45% in dividends, you can see a really good dividend trajectory. And then the third item is, is whether we do M&A or share buybacks. And so far, share buybacks have generated $3 billion of value based on the current share price. So that's been an attractive lever for us. But we'll continue to look at external opportunities. But we can be incredibly disciplined when it comes to external opportunities.