Good morning, everyone. Thank you so much for joining us today here, and welcome to Manulife's Investor Day 2024. My name is Hung Ko. I'm Global Head of Investor Relations, and I'll be your MC for this event over the next few days. We're excited to be here hosting our group-wide Investor Day in Asia again for the first time since 2017. A special thank you to all of you who traveled around the world to come here to join us in person, and we're happy to have you here in Hong Kong and in Jakarta in a couple of days. For those of you joining us virtually, welcome, and thanks for tuning in. Before we begin, let me point you to the legal slides here that in the presentation today, you will see that we'll be having a caution language around the forward-looking statements.
And at the end of each presentation, which you can find online, there will be a slide and also addenda that identify all the Non-GAAP and other financial measures being used. Comments made today may contain forward-looking statements as defined by the securities legislation, and I would like to note that forward-looking statements are made with material factors assumptions, which we applied, and they actually may differ materially from what's stated. Before we go further, let's have a few housekeeping items. For those of us joining here, the presentation will be on the webcast, and you can find the material on the website at manulife.com.
For those of you here in person, you will see that the presentation will be presented on the screen here, and you can find the detail on the app that you have just downloaded, hopefully. Second thing is, for those of us in the room, please do turn your devices into silent mode. Before we discuss our agenda, I would like to first introduce our executive leadership team in the room, our ELT. So, seven of them will be presenting over the event. That would be including Roy Gori, our President and CEO; Colin Simpson, our CFO; Paul Lorentz, our President and CEO of Global WAM; Phil Witherington, our President and CEO of Asia; Naveed Irshad, our President and CEO of Canada; Brooks Tingle, President and CEO of John Hancoc k; and Karen Leggett, our Chief Marketing Officer.
We are very excited to have the rest of the ELT in the audience as well. Since we're in Asia right now, obviously, we take the opportunity to showcase some of our key markets, and they'll be including Hong Kong, Singapore, Vietnam, and other emerging markets, as well as our global high-net-worth business. Our executives are spread here across the room in different tables, and I would very much encourage you to engage with them during breaks, lunch, dinners, and at our site visits. With that, let's turn the agenda over the next two days. We'll begin with a presentation from Roy Gori, who will update us on the transformation journey that we have and how we're raising the bar. With that, we follow up by Colin Simpson, who will talk about our delivery to shareholders and also how we set up for success.
After that will be Paul Lorentz and Phil Witherington, who will dive deeper into GWAM and Asian markets. Tomorrow, we'll be visiting one of our Prestige customer center in Hong Kong here, and that will be followed by presentation from Hong Kong business, our digital customer leadership, our Canada, and the U.S. business. And that we will have opportunity for all of us in attendance here to engage with our presenters and panelists, and please to ask your question as you see them. Just before we hear from Roy, I would like to look at the journey that we've traveled together over the last seven years and the tremendous progress we have made.
Manulife was founded in 1887, ensuring the lives of 900 Canadians with 2 innovative insurance products. In the more than 130 years since opening our doors, we've paved the way for our industry through a history of firsts, spanning the globe. We were the first North American company to insure people living with diabetes, the first life insurance company to have a joint venture in Mainland China. We're proud to have been the first life insurance carrier to issue a green bond and to lead the industry on offering access to GRAIL's multi-cancer early detection test. Most recently, we announced a historic long-term care reinsurance transaction, the largest ever in our industry.
We are a dramatically different company today to the one that we were six years ago, and that doesn't happen by chance. The journey that we've been on since 2018 to transform our company, it has been a journey of amazing progress and phenomenal success.
Today, we have more than 38,000 colleagues, 98,000 agents, and serve more than 35 million customers in markets across Canada, the U.S., Europe, and Asia. In Asia, we serve more than 13 million customers across 12 markets, and through our 100 bancassurance partnerships, we have access to another 35+ million customers.
The ingredients for success are in place. We are in the right markets, and we have the ambition to win.
We are a leader in behavioral insurance, with a commitment to the longevity economy and the future of health and well-being.
Our desire to be on the leading edge of innovation focuses on one area, primarily: helping people live longer, healthier, and better lives.
We operate in 20 geographies globally, with access to 75% of the world's investable assets.
We have a clear ambition to unlock new opportunities and continue our strong growth.
Every day, we're walking side by side with more and more Canadians in health, in retirement, in finance, and in life.
Our goal is to be the undisputed leading insurer in Canada.
We've invested CAD 1 billion in digital capabilities since 2017 and delivered a 22-point improvement in NPS. We strengthened our capital position, lowered our financial leverage, and benefited from strong cash generation from diversified sources, all while returning CAD 21 billion of capital to shareholders since 2017. But our progress would not be possible without our winning team.
Our culture is our superpower.
Guided by our mission to make decisions easier and lives better, we are building on our history of firsts and transforming to move from great to extraordinary, and the best is still yet to come.
2023 was a milestone in our organization's history, and I'm incredibly excited about the momentum that we have ahead of us.
Good morning! Welcome to Hong Kong, and welcome to Manulife's 2024 Investor Day. It's fantastic to see so many familiar faces in the room, and I'm delighted that you could join us for this very important Investor Day. Now, Hong Kong is a very special place for me. It's the place that I called home when I joined Manulife first in 2015. So I can't think of a better backdrop to talk about the journey of transformation that we've been on for the last seven years and our plans for the future. We are, in fact, raising the bar with bold yet achievable targets to reflect the ambition that we have for the next phase of our journey.
We have a tremendous opportunity ahead of us, and the team has incredible energy and excitement to outperform the market and capture that opportunity. I can't think of a better place to have that conversation than here in Asia, which is a significant source of growth and opportunity for our franchise overall. Now, my presentation is divided into two parts: looking back and looking ahead. The looking back provides an overview of the progress that we've made on our journey of transformation over the last seven years. I'm really much more excited to talk to you about the journey ahead and what we're gonna do to really help transform our future and really deliver against the opportunities that I articulated a little bit earlier. Now, there are five key takeaways that I'd like to leave you with from my presentation.
The first is that Manulife is a different company today to the one that we were in 2017. We've moved from being a high-risk, low ROE business to being a lower risk, high ROE business. Second, we have a world-class team that has demonstrated strong execution and results delivery. Third, we are uniquely positioned to capitalize on the mega trends that are shaping the global economy. Fourth, we're raising the bar with our new financial targets to reflect the ambition that we have for this tremendous opportunity and the journey ahead. And last, but certainly not least, I believe that we remain a very compelling investment opportunity. Now, we're gonna spend time on each of these 5 takeaways over the course of the next 3 days. When we embarked on the journey to transform Manulife in 2017, we had to have an honest look in the mirror.
In fact, I invited many of you in the room to lunch with me in the first couple of months when I assumed my new role and position, and I asked you what you liked and what you disliked about the company, and you certainly didn't hold back. What I heard from you was that you liked the footprint and the opportunity, but you also said that the returns of the business are too low, Long-Term Care and Variable Annuities represents too large a percentage of the business, and the operating results are too inconsistent with too many surprises. This was valid feedback. However, addressing these issues alone wouldn't be enough to deliver and define success.
We knew that we had to also strategically transform the company in order to prepare us for the future, and that's gonna also require from us a focus on, number one, transforming the customer experience, two, building a world-class team and culture, three, dramatically digitizing our business, and then finally, growing our highest potential franchises as well. Now, I'm gonna spend the next 10 minutes or so walking you through the progress that we've made against that agenda. The first step in the journey was to have a clear articulation of our new strategy, and you've seen this slide, I think, many, many times, as have our employees, and it's what we call our enterprise strategy or strategy on a page. Now, at the very top, you can see our vision, that is to be the most digital customer-centric company in our industry.
We define success through the lens of the four key stakeholders of our company: customers, team, shareholders, and community. We've defined what success looks like for each of those. Next is the pyramid, and that's the roadmap to deliver against that ambition or those success metrics. The pyramid includes the why, the what, and the how. The why is our mission, and that's about making decisions easier and lives better. It's our North Star. It's what guides every single employee who works for the company. The what are our strategic priorities, the five priority areas that guide us and that really consume the majority of focus, energy, and resources across the entire franchise. Then last, but certainly not least, our values are our how. They underpin our culture, and they describe how we behave and what is the fundamental underpinning of our culture.
Now, what I would argue is that this strategy hasn't changed. It's as relevant today as it was in 2018. However, the key initiatives and focus areas under the strategic priorities have evolved, and I'm gonna share more on how they've evolved a little bit later in my presentation. We are continuing to execute against this strategy today, and it's delivered tremendous results for our franchise. Now, you all know that strategy is nothing if it can't be executed. How have we performed? Our disciplined execution against the strategy has resulted in very strong financial operating results since 2017. You can see that our core ROE has grown from 11% to 16%. Our core earnings per share have grown at a CAGR of 8% despite the headwinds of the pandemic and IFRS 17.
Our expense efficiency's improved by 10 percentage points despite an inflationary environment. We've gone from 55% to 45%, and our adjusted book value per share has grown at a CAGR of 9%. These are strong results. It's not enough to simply compare your results to prior periods. We also believe that it's important and critical to compare your results to your peers, and from this chart, you can see that we've also outperformed our peers over this time period. This is true for our core ROE growth, core earnings per share growth, dividend growth, as well as current cash flow yield. For me, these results really demonstrate the resilience of the business, as well as the strong focus on performance and execution.
Beyond the financials, we also track the progress against our strategic transformation agenda, and you'll know that for each of the five priority areas, we established clear goals and targets to measure our progress. This was critical to demonstrate transparency but also accountability. We've measured our progress on each of these items in every single one of our quarterly earnings calls. Now, the summary or key takeaway that I'd like to leave you with from this slide is that we have made significant progress transforming the company and reshaping our business. The second is that we have largely achieved or exceeded our targets, and then finally, we are on track to achieve the remaining targets that we've established. Now, this is all really critical because it highlights the execution capability and therefore the confidence to deliver on future targets that we establish.
I want to take a moment just to double-click on our efforts to reshape the portfolio. As at Q1 of this year, we've delivered CAD 11 billion worth of capital releases via portfolio optimization, and you'll recall that we had a target of freeing up CAD 5 billion by 2022, and we've clearly largely exceeded that goal. Now, we've achieved this largely through divesting riskier businesses, where the ROE on average for these businesses was lower than 10%. So what have we done with the excess capital? First thing we've done is we've decreased our leverage from about 30% to 24%. Second, we bought back shares, CAD 6.2 billion, in fact, as at May of this year, generating approximately CAD 3 billion worth of shareholder value.
We still do have CAD 1.3 billion to continue to execute for the remainder of this year at a minimum. Then finally, we've significantly strengthened our capital position. When we first moved to LICAT in Q1 of 2018, we had CAD 4 billion in excess of the upper operating range. Today, that excess is greater than or approximately CAD 10 billion. So this has all provided us with significant financial flexibility to consider attractive acquisition opportunities and/or buy back more shares. Now, I know it's not lost on any of you that our historic long-term care transaction that we completed late last year illustrates that we do have a quality long-term care book that is very well reserved, and we are, in my opinion, at a pivot point in the market for long-term care transactions.
We're gonna again double-click on that and talk about that in a little bit more detail. Reducing volatility and de-risking our business has also been an important priority, and we've achieved this through, firstly, the divestitures that I mentioned earlier, but also from our hedging strategies to reduce our sensitivity to market movements. Now, these actions, together with the implementation of IFRS 17, have resulted in significant reductions in the book value sensitivities to interest rates and equity market movements. As a result of all of that, our book value movement today is now much less driven by market movements and primarily driven by business fundamentals. I know that everyone in this room appreciates that cash generation is critical, and this has been a priority, priority area for us, and we've really focused on this in two key ways.
Organically, to improve our cash generation, we've increased our earnings growth. Second, we've doubled the lifetime return on capital, our LROC, on new business, and we've halved the capital payback period for our new business. Now, this is a dramatic rethink and reshaping of the way we allocate capital organically and the returns that we're generating from our new business, and Colin's gonna talk about this in a lot more detail in his presentation. In addition, inorganically, we've also freed up capital from low ROE businesses. Now, the result of all of that is that we've generated CAD 27 billion worth of remittances, and we've returned 75% of that to shareholders through dividends and share buybacks, totaling CAD 21 billion. The outcome of all of this is that it's translated into strong shareholder value.
Seven years ago, we established the goal to deliver top quartile TSR for our shareholders, and the slide here illustrates that we're delivering on this goal. With our strong momentum that we currently have and the significant opportunities that we have ahead of us, I believe that we will remain a compelling investment case for shareholders. In summary, looking back, I'm proud of what the team's achieved. We are a very different company today to the one that we were in 2017, but the team and I believe that the best is, in fact, still ahead of us. Now, I'm really excited to talk to you about the ambition that we've set for the future.
The first thing I'd like to say is that our track record of delivering strong results and the efforts that we've placed into strengthening the foundations of the firm have put us in good stead, and those give me confidence for the next phase of the company's journey. We are, in fact, because of this, increasing our ambition and raising the bar on our financial targets. I really do believe that our unique business footprint positions us well to continue to outperform our peers and continue to deliver strong operating results. Today, I'm pleased to announce that we're increasing our Core ROE target from 15%+ to 18%+, and we're also introducing a new target for cumulative remittances, CAD 22 billion over the period 2024-2027.
I'm also pleased to say that all of our operating segments will be contributing to the remittances and the increase in ROE. From the presentations over the next three days, you'll understand why we have confidence in our plans for achieving these new targets. Those two new targets, together with our existing core earnings per share growth target of 10%-12%, I believe, position us uniquely in our industry and versus our key peers. As a company that is high growth, high return, and high cash generation. I believe that by establishing and then achieving these targets, we will demonstrate why we are one of the few global insurance and wealth and asset managers that is both a leader and at scale. At the same time, we're certainly not stepping away from our existing medium-term targets.
Our momentum and execution success gives us greater confidence about our ability to achieve those targets. It's also worth noting that we're updating our expense efficiency goal of from 50% to less than 45%, and this is a function of the great work that we've done to drive the benefits of scale across our business. But it also reflects the opportunities that we see ahead to continue to further digitize our business. Now, there are three things that give us, and hopefully you, confidence in our ability to achieve these new targets. The first is that the megatrends that are shaping the global economy over the next decade are favorable to Manulife's business. The second is that we have a footprint that uniquely positions us to capitalize on these trends.
And then third, we have a very clear set of focused initiatives and priorities that will drive the outcomes that we've identified, and all of those give us confidence to be able to deliver those targets. So first, let me double-click on the megatrends. The next decade will be very different to the last decade. The three megatrends that are shaping the global economy include, number one, the continued growth of the middle class in Asia. There are currently 2 billion people in the middle class in Asia, and that's forecast to grow to 3.5 billion by 2030. Two-thirds of the world's middle class will reside in Asia in 2030. The second is of an aging population. There are currently 800 million people globally aged 65 and above. Now, that's forecast to double to 1.6 billion people by 2050.
Then finally, the dramatic digitization of the consumer, which is being amplified by GenAI. Now, these are all very interesting trends, but more importantly, they translate into significant opportunities. The first of which is that Asia GDP is forecast to grow between 4%-7%. The second is that the retirement gap globally is forecast to increase from about $100 trillion today to $400 trillion. And then finally, customers will engage with companies, and quite frankly, each other, in dramatically more digital ways than ever before. Our footprint, as you can see here, positions us extremely well to uniquely capture these opportunities. We have fantastic leading businesses in Canada and the U.S., providing tremendous returns, cash, and stability with highly differentiated offerings such as Vitality.
Our approximately 130-year history in Asia means that we are at an at-scale tier one leader, up from number 6 in 2014. Our global WAM business is very unique from a geographic and from a business line diversity perspective, and our strong focus on retirement and the wealth gap is a source of strength, which has translated into our ability to deliver positive net flows in 13 of the last 14 years. And finally, our significant global scale and digital capabilities means that we can provide solutions more cost effectively while generating superior returns. We have a clear roadmap to capitalize on these trends. As I said earlier, our five priorities don't change, but the initiatives underpinning those priority areas have evolved, and I'm gonna just sort of give you a little bit of a flavor for what some of those priority areas are.
The first is that we do believe that there will be further opportunities to continue to pursue long-term care and low ROE inorganic transactions. At the same time, we believe that we can continue to improve our returns by focusing on organic in-force actions. Our digital efforts, amplified by GenAI, should provide further efficiency and scale improvements. We're well-positioned in each market with very compelling customer propositions, which allow us to continue to outgrow the market. Whilst we've made significant improvements in the customer experience, we're doing more to leverage data and technology to deliver even greater personalization and better experiences for customers. Finally, our strong culture and quality team will ensure that our success is sustainable and repeatable. Our businesses are also well-positioned to continue to grow and take advantage of the mega trends that I've mentioned.
In Asia, where, as you all know, distribution is absolutely critical, we're gonna continue to grow our professional agency force. We're gonna deepen the penetration of our existing banca partnerships whilst leveraging the significant synergies that exist between our life company and our wealth and asset management business. In GWAM, we're continuing to drive the scale of our business. We're growing our direct and affiliated distribution channels whilst leveraging our private market capabilities. In Canada, where we are a market leader, the insurance and wealth gaps are significant, and our focus on healthcare will continue to provide profitable growth opportunities. And finally, in the U.S., our unique and differentiated Vitality offering will allow us to capture a disproportionate share of the 100 million population whose life insurance needs are currently going unmet. Another reason why we're well-positioned to accelerate our growth is because of our focus and investments in digital.
I really do believe that the next decade will be defining the losers from the winners through their focus on digital innovation and the investments that they're making in this space, and this is gonna be especially true with the advent of Gen AI. Now, we've made the deliberate decision to be a leader in this space and not a follower or a fast follower. We've invested $1 billion over the last 5 years, and we've committed to another $1 billion over the following 3 years. As a result of those investments, we have significantly improved our capabilities, and the metrics reflect the dramatic shift in our position. I'm incredibly excited about the work that we've done, the platform that we now have, and the progress that we're already making to leverage Gen AI. Karen and Jonny are gonna talk you through this in a lot more detail tomorrow.
I don't think you can talk about business transformation without talking about the importance of talent and culture. Talent and culture make success sustainable and repeatable, and we've placed significant focus not just on recruiting great talent, but developing great talent and ensuring that we also create an environment within our organization where people feel that they can thrive and achieve their potential. As a result of that, we have a world-leading team and culture, and this has been validated by multiple external independent organizations such as Gallup and Forbes. I believe that now our team and culture are a real source of differentiation. I'm excited that you're gonna have an opportunity over the next three days to connect with our amazing team.
Finally, when we look to measure our success, it's important that we also consider the impact that we make to the environment and the communities that we operate within. On climate, we're one of the few companies that can say that they're net zero in their Scope 1 and 2 emissions, and we have plans for further reductions. On DE&I, we believe that diverse workforces help companies make better decisions, and we've seen significant improvements in our diversity metrics across the board. Finally, we're refocusing our business from one that's centered on death and claims to one that's about helping customers live longer and healthier lives. As an example of that, we've seen dramatic improvements in the well-being and health of our customers who have signed up for Vitality, and Brooks will talk very passionately about this when he talks to you later in the program.
So, as I wrap up my session, a few thoughts I'd like to leave you with. The first is that I'm incredibly proud of what the team has accomplished over the last seven years. We have, in fact, transformed Manulife, and we are, as a result of that, a radically different company today to the one that we were in 2017. We have all the ingredients that give me confidence that the best is, in fact, still ahead of us, and I know that the team is incredibly excited to show you why they believe the same. So with that, I'm gonna now hand the floor over to Colin, who'll provide a deeper dive into our financials and our plans to achieve the new targets. Thank you.
... here today to talk about how we're raising the bar at Manulife. You just heard about our new targets from Roy, an 18%+ core ROE and CAD 22 billion of remittances. Now, this speaks to the quality of our franchise, and I'm gonna show you how we're gonna achieve these targets. First, let me set the scene from a financial performance standpoint. When I look back over the past six years, we've delivered significant superior financial performance. We've improved our capital position. We've built a culture of expense efficiency by leveraging our global scale to create significant synergies. I believe Manulife has succeeded where many other companies have not. We have delivered both growth and cash generation. I'll turn into our financial KPIs, and Roy touched on these, and it may seem a bit repetitive, but we're incredibly proud of our performance.
You can see that we've grown our core EPS by 8% compound. We've improved our core ROE from 11.3% to 15.9%. These are the levels from which we're raising the bar. We've improved our expense efficiency by 10%, and we've grown our adjusted book value by 9% compound. Now, within this adjusted book value is the contractual service margin, or CSM. We've been successful in growing the CSM, which is a store of future profit, by 25% in the first year of IFRS 17. So as a CFO, looking at this track record of performance, I'm incredibly encouraged about the future. Now, Roy talked about some of the strategic accomplishments over the recent past: investments in digital, growth in Asia, acquisitions in GWAM, and of course, talent and culture.
There's also been a lot of heavy lifting behind the scenes to build this, to build the transformation, the capability to transform the organization. I'm gonna start with the global technology optimization. We've taken fragmented systems and aging platforms, and over multiple years, we've built an infrastructure to set us up for success. Portfolio optimization is one of our key strategic priorities, and we've used reinsurance as an effective way to partner with reinsurers to improve our ROE and our risk profile. We've closed the largest ever LTC reinsurance transaction. We've closed the largest ever Canadian Universal Life transaction. We've reinsured over 80% of our U.S. variable annuities just in the past 3 years.
In doing these transactions and the ones that went before them, we've built an infrastructure to, for us to continue using reinsurance as a tool to further improve our ROE and risk profile. Now, my last point on some of the heavy lifting relates to the conversion to IFRS 17 and IFRS 9. I believe IFRS 17 will dramatically improve the stability and resilience of our earnings profile. Why do I say that? Well, it's how IFRS 17 treats new business. It's the stable amortization of CSM and risk adjustment into the P&L, and then it's the way we manage our balance sheet. Now, life insurance is competitive, and in some instances, we sell products that are commoditized, so we understand the importance of efficiency in delivering superior returns.
We've made significant progress with our expense efficiency ratio improving by 10 percentage points to 45.5%. We've grown our earnings by 7%, but our FTE, full-time equivalents, by only 2%, and then general expenses by 3%, leveraging our scale and investment in technology. We're decisive and impactful. GWAM was running an expense growth of 12% at the third quarter of last year. We took a number of actions, and I would expect that expense growth to be more like small single digits in 2024. On to the balance sheet, which underpins the commitment we make to our customers. The numbers on the slide start at 2018 because that's when we adopted the LICAT regime.
But since the start of 2018, we've improved our LICAT ratio from 129% to 137%. At the same time, we've reduced our leverage ratio from 30% down to 24%. Now, these two outcomes together have created an extra CAD 12 billion of capital flexibility. We've got CAD 22 billion of capital in excess of our regulatory minimum, but we wouldn't let our LICAT ratio go down to anything close to 100%. So I would consider 120% to be more appropriate for a company of our size, scale, and risk profile. That makes us incredibly well-capitalized with CAD 10 billion of capital in excess of this 120% number.
And then we can use this capital to allocate to organic or inorganic activities, as well as return to shareholders, but I'll cover that in a little bit later. We're not gonna be spending a lot of time on this at this presentation on our investment portfolio, but that's not to underplay its importance in delivering an 18%+ ROE. We've got a very stable and high-quality portfolio, and so I wanna leave you with three key takeaways. One is that with 50% of our investments in cash, high-quality corporate credit, and government bonds, we've got a high-quality portfolio. Two, it's well-diversified. Public and private credit, equities, alternatives, real estate. We feel very good about the diversification. And three is that our assets are built around our liabilities.
We don't seek out interest rate risk, we don't seek out currency risk, and the investments that you see on the screen are a great match for our liabilities. You cannot talk about life insurance without talking about cash generation, and that plays into our strengths at Manulife. First, an important definition. When we talk about cash, we mean cash and cash-like securities transmitted, transferred from our foreign subsidiaries to Canada, as well as generated in Canada for use by our ultimate parent company, MFC. Understandably, investors have grown more concerned with cash generation in the life insurance industry because of the low interest rate environment, and the industry's responded with a number of cash-like metrics. Now, these are often non-GAAP and actually quite difficult to compare. We're not introducing new cash metrics to you today, and let me explain why.
With IFRS 17, you no longer have this big discrepancy on day one, where you make lots of IFRS profit and then incur solvency strain. But in addition, at Manulife, we've got a large asset manager and short-term insurance business, whose earnings are effectively cash flow and easily remittable. So our message to you today is: use our IFRS 17 earnings as a guide to our future cash flow. Not all of it, but 60%-70% of our earnings should be available in the form of cash at any given year. Because at the highest level, Manulife has large and established books of business in the U.S., Canada, and Hong Kong, and these fund our faster-growing businesses with ample room for dividends and debt costs. Now, my final point on this slide is that this is just formalization of how we've been operating for some time.
You can see from this slide that since 2017, we've generated CAD 27 billion of remittances, and this has enabled us to return CAD 21 billion to shareholders in the form of steadily increasing dividends and share buybacks. We've used share buybacks often as a way to neutralize the per share impact of various transactions. Roy talked earlier about our unique global footprint and the benefits that this brings. We put this value at over CAD 800 million of core earnings per annum. There are some obvious synergies. We're able to centralize our procurement and negotiate large contracts globally. We're big enough to support our own staffing centers in the Philippines and China, and even our U.S. business benefits from having a number of Canadian staff, creating an element of wage arbitrage.
With our extensive adoption of global solutions in IT, synergies are significant, but importantly, this builds resilience. You know, in periods of local downtime, we've been able to transfer work across the organization, ensuring a very resilient platform. In the U.S. and Canada, when we sell wealth products out of our insurance-regulated entities, there's capital and tax advantages. And with earnings emerging from four very different types of businesses, that creates a level of stability, and that supports a lower funding cost. But it's not just about cost synergies. There are lots of revenue synergies as well. Our agents in Asia, particularly here in Hong Kong, actually, sell insurance, wealth management, and retirement products. And our bank insurance partners, and we're gonna hear from them later in this event, they sell our products across a number of different geographies.
Many of the successful strategies sold by our institutional fund management business were born out of managing the general accounts. And actually, our seed capital portfolio, which sits at $1.2 billion, has been responsible for a number of successful product launches. Then you've got the less tangible benefits. When we speak to reinsurers, we're able to bring together different books of businesses from different geographies to create win-win solutions. And many of the presenters you're gonna hear over the next few days have worked in more than one segment or geography, and this ensures expertise and knowledge sharing and really solidifies the culture of winning through collaboration. So at the start of this presentation, I said to you that Manulife had succeeded where others had not, and we'd delivered both growth and cash generation, and here's the proof.
Since the start of 2017, we've grown our earnings by 8% per annum, CAGR, against a peer average of less than 5%, and we're on track to return over 9% of our start-of-year market cap to the market, and that's significantly ahead of both our global and Asian peers. So hopefully, you've seen evidence of strong and credible execution, improved efficiency, as well as a unique growth and cash generation profile. Let's now look at how we're gonna raise the bar. We're determined to grow faster and generate more cash, thus differentiating us as a preeminent financial services company for investors. In this section, you're gonna see what financial targets are important to us, but importantly, how we're gonna achieve them. There is a common theme, cash, as measured by remittances and attractive growth opportunities.
We will also continue to extract value from in-force organic and inorganic activity. So let's revisit today's new targets. We're increasing our core ROE from 15%+ to 18%+. We're introducing a remittance target of $22 billion to be achieved cumulatively from 2024 to 2027, and we're reducing our efficiency ratio from 50% and below to 45% and below. All our other medium-term targets still remain. We will look to grow... We will target growing our core EPS by 10%-12%. We'll maintain a leverage ratio of 25% and a dividend payout ratio of 35%-45%. Our CSM targets are also unchanged.... Let's look to our path to a sustainable 18%+ core ROE. We ended last year just shy of 16%, ahead of our 15%+ long-term target.
Over the course of the next two days, you're gonna hear from each of our leaders of the four businesses on how we're gonna improve ROE in each of our segments. The biggest contribution will come from Asia and GWAM. And while this is in part supported by the mega trends that Roy just talked about, we're not letting the macroeconomic environment do all the work. Phil's gonna talk to you about building scale in more markets and accelerating growth. In GWAM, the story is about operational leverage, operational excellence, and organic growth. We're also improving the situation in Canada and the US. Naveed's gonna talk about his four Ds, and Brooks has got a number of digital and in-force organic activities to boost the US ROE.
Importantly, you can see from the right-hand side of this chart that getting to 18% does not rely on disposal, further disposal of low ROE businesses or other inorganic activity. This you would expect to further improve our ROE. But our assumptions do imply a certain element of capital return, and that gives us flexibility beyond just earnings growth in hitting this target. That's why I believe that an ROE target, coupled with a remittance target, is incredibly important. More cash at the center gives us additional flexibility on our equity base, ensuring that we will hit our target. Now, if we just touch on some of our other medium-term targets, our core EPS growth has good momentum, having achieved 8% CAGR since 2017, despite the impact of COVID and the conversion to IFRS 17.
Strong growth in Asia and our GWAM has seen our highest potential businesses make up 67% of core earnings at the Q1 stage and 44% for Asia. Now, there are many factors that will accelerate growth in earnings in GWAM and Asia, but I will remind you that Global Minimum Tax, which was substantially enacted last week, will move in the other direction. So despite the very strong start to 2024, with Q1 core EPS up 20%, I can assure you, there's no sign of complacency at Manulife. Our new cumulative remittance target of CAD 22 billion represents over one-third of our current market cap. The previous four years have seen us generate CAD 18 billion of remittances through a combination of BAU remittances of CAD 17 billion, management actions, and market impacts.
Now, market impacts over this period have gone against us, but looking forward, which is on the right-hand side, we would expect to generate $24 billion of remittances of capital generation before new business strain. We'll obviously look to invest in profitable new business, and then we've got capital optimization activities to arrive at a $22 billion cumulative remittance target. Once we achieve this target, you would expect the go-forward remittance ratio to be between 60%-70%, as I mentioned. Actually, when you look at our track record of performance, that $17 billion on your screen is within the 60%-70% of core earnings. Now, the obvious question to ask is: what are we gonna do with this cash that we generate?
As a management team, this is our number one priority, and our job is to allocate to fast-growing, high-ROE businesses, and I'm really excited about the opportunities that sit before us. Our second most priority is dividend growth, and with a 35%-45% payout ratio and 10%-12% earnings growth target, you can imply a very strong dividend growth trajectory. Now, if we're remitting 60%-70% of our earnings to the center and paying out 35%-45%, you can see that there's an element of buffer, and this buffer can be used to continue buying back stock, which has so far created CAD 3 billion based on the current share price, or we can use it for M&A.
But on the point of M&A, given no obvious gaps in our portfolio, we can afford to be incredibly disciplined when looking at external opportunities. Now, this slide captures the reason why our number one use for our own capital is to invest in our own business. Moving from left to right on this slide, you can see that we operate in very deep markets of Asia, the US, and Canada, in both insurance and asset management. Many of the countries that we operate in are growing fast and have low insurance penetration. Take a look at Vietnam, Philippines, Indonesia, and China, all of which have a penetration rate of 2% and below. And even when markets have a higher penetration, like in Hong Kong, changing demographics throw up really attractive retirement opportunities for us. So in a nutshell, we've got great opportunities to invest in our own business.
Now, in addition to demographic trends that have created attractive growth opportunities, we've been improving our pricing discipline and shifting our product mix away from capital-intensive products, which has led to ROCs, lifetime return on capital or new business IRRs, improving significantly. No more lifetime guarantees in the U.S., faster growth and group benefits in Canada, and more scale in Asia have contributed to the picture you see on the screen. But also, don't forget, higher interest rates really improve product profitability because we sell long-duration products, and so this has also contributed to what you see. So we've got fantastic growth opportunities. We're writing products with strong margins and have plenty of capital to invest. All of this bodes well for ROE expansion.
... I would be remiss not to mention in-force management before we move to Q&A. The vast majority of our profits come from product, from policies already written, and we've got a number of actions in place to improve our ROE with, in our in-force book. There are a number of organic actions that we can take. They're on your screen. We can increase our prices where appropriate and allowed. We can control persistency by enhancing our customer experience, and we can optimize existing reinsurance agreements. We've got product buyouts and exchanges that can create win-win solutions, and then we've got digitization, health, wellness. All of this work together to try and bend the morbidity and the mortality curves. So when it comes to long-term care, there's an inordinate amount of work underway to bend the morbidity curve.
But we'll also look to inorganic activity, and following two recent reinsurance transactions led by Marc Costantini, who's gonna join us on stage for the Q&A, we've been able to de-risk our balance sheet and improve our ROE using share buybacks as a tool to neutralize the per share earnings impact. This very much remains part of our go-forward strategy. So let me summarize: We're raising, we're raising the bar with ambitious new financial targets that speak to the quality of our franchise. We have credible plans in place to deliver these targets, and Manulife is on a journey to further improve growth and cash, and this, we are convinced, will be rewarded in superior total shareholder returns. So with that, I'm gonna hand it back to Hung.
Next, we'll be having our first panel, and I'll moderate a Q&A session for about 15 minutes. Before we go forward, I would like to have a few reminders. Please raise your hand if you want to ask a question, and we'll have a microphone coming over to you so that your question will be heard for both here in person as well as for those online. Before you ask a question, I do like to welcome you to raise your name as well as the firm, and we'll be taking question only for those in audience here with us today. And now I'd like to welcome Colin, Roy, and our Global Head of Strategy and In-Force Management, Marc Costantin i, to join us on the stage to talk more about our strategy and the path forward. All right, we kick start. Any question? At the back there.
Hi, yeah, Doug Young from Desjardins. So maybe just starting, we can drill down on... You talked about capital remittances, brings up the question around M&A. What is your focus for M&A in Asia? And I know there's nothing that you need to do, but you were in South Korea before you left. Is that an attractive market? India, you're in joint venture with an asset manager. Is that something in insurance where you want to go back into, or is there other areas?
Yeah. Thanks, Doug. Well, let me say a couple of things. First is, as you sort of alluded in the beginning, the good news is we don't need M&A to deliver against the targets we've established. I think that's a really important point because companies get into all sorts of trouble when they need to do M&A to deliver against targets that they've set. So we do have a unique footprint. We've got plenty of organic growth opportunity through that footprint to deliver against the targets that we have. So I, that A, gives me a lot of confidence, and it means that when we look at M&A, we can be really robust and judicious.
We know that there's a graveyard full of companies that have done M&A that's really very bad and that have caused, you know, huge problems for companies to unravel the problems in the, in the future. So that's the first statement. The second is that we are really well capitalized, and that gives us the license to look at M&A and identify where we would focus our time and energy. So where would we be putting more of that energy and, and prioritization? The obvious answer there is that it would be Asia and Global Wealth and Asset Management. Within Asia, we've got a diverse footprint across multiple markets. We've been working hard over the past 5, 7, 10 years to create greater diversification, so we're less reliant on any one market.
And we're gonna continue to execute against that agenda organically, but if we could use M&A to accelerate that diversification, we would definitely look at that, and that could be buying portfolios or businesses, or it could be bancassurance agreements as well. And my priority within that would be the markets that we currently operate in, rather than looking to new markets, although we wouldn't rule that out. So within Asia, continue the acceleration of the diversification of our business and continue to grow the scale that we have here. In Global Wealth and Asset Management, we're scaling our business. We're getting the benefits of scale through our efficiency and operating metrics. So again, we can continue to drive that agenda organically, but if we can accelerate that scale, that would be a tailwind to our business.
At the same time, we'd probably consider acquisition opportunities in the private space, where we have a long history, but as we see the demand for privates, continue to increase, not just from institutional, investors, but from retail and also pension companies, that's gonna be an area of focus for us as well. We're probably gonna double-click on this question a little bit more in the Asia and WAM sessions, but those would be how I would think of the prioritization of the capital deployment for M&A.
That's great. And just the second one from-
Yeah.
Maybe for Marc. You know, the legacy businesses, there's some. Maybe I'll ask it this way: Do you have a target in terms of how much common equity of the firm you want to be back, to be backing the legacy businesses? By my math, it's 30%-35%. Is the target to get it to 20%? How quickly can you get there, organically or inorganically? Thank you.
... Yeah, thank you for your question, Doug. So I guess I would rephrase the premise to say that the responsibility of my team is to look around the firm for all, I would say, lower performing ROE businesses, right? And I think we've shown a track record in the remarks from, you know, obviously Roy and Colin, that we have a great track record of looking around the firm. And I think it's pivoted from focusing on these legacy businesses, which are, you know, long-term care, variable annuities, and some UL, to really optimizing our balance sheet, optimizing our capital, optimizing the return. And I would say the LTC transaction we did in December, which was pivotal, obviously, has solidified the strength of our balance sheet.
But the transaction we did in Q1, on the UL kind of spoke to actually identifying these lower performing ROE businesses and optimizing them. So, and our commitment is to continue doing so, and really get those transactions to economically, and from a cash flow perspective, support these objectives that, you know, obviously Roy and Colin espouse. So I would pivot that perspective from this point on, and I'm not sure if Roy or Colin want to add to that, but I wouldn't focus necessarily on how you premised the question.
I would just add that, you know, we've been really disciplined in our divestments. We haven't, you know, tried to execute at a pace that wasn't sensible for shareholder value. What I've said on many earnings calls is that when we divest low ROE businesses, we're going to do it in a way that creates shareholder value. And if you think about our VA transaction and the multiple that we traded at, it was an attractive shareholder accretive transaction. And again, we feel that we achieved the same with long-term care and then our universal life transaction as well. So, you know, we're going to continue to look at those. And the interesting thing is that there is more parties that are willing to have those conversations.
The higher rate environment is certainly helping, but I think there's further upside opportunity for divestitures of low ROE or lower ROE blocks.
That's great. Thanks. Next question?
Colin, you haven't had a chance to speak yet, sorry. John Aiken from, Jefferies. I'll give you the-
You're better all right with that.
So, Colin, with the higher ROE target, and you pointing out the surplus capital that you have, obviously, this leads into the questions that we have about M&A. But my question to you is, with the higher ROE target, has that done... does that have any impact in terms of the hurdle rates that you're looking for in terms of M&A? And secondarily, when you talk about, and this might be more for the broader panel, but when you talk about not having any gaps to infill, should we expect the transactions that may be coming down the pipeline to actually be smaller and smaller pieces, more manageable, I guess, would be my editorial comment.
I mean, John, 'cause you gave the gift of that question to me, I'll start, and then others can jump in there. I think what 18% ROE does is makes it very clear, both internally and externally, that that's what we would expect to achieve from anything we do. Now, with M&A, we all appreciate that that might not happen from day one, so we might make a strategic acquisition that will get 8%-18% in due course, not necessarily from day one. But the good news is, because we've got the capital, we can afford to do that.
So we're going to take a very judicious approach, and so I wouldn't say to you like, "Oh my goodness, you know, 18% is the right hurdle rate and, and no, no, no lower," because there are some strategic opportunities that may well pop up that make a lot of sense. There was a second part to your question.
Size.
Size of the transaction. No, I wouldn't, I wouldn't say that that pushes us into smaller or larger transactions at all. Roy?
No, I think you've, you've answered it well. Obviously, you know, smaller transactions give you a greater degree of confidence around the ability to execute against outcomes. But I think Colin hit the nail on the head. You know, when we look at M&A, we look at it from two lenses. One is the financial lens, and we want them to be accretive and for them to be value adding. But we also look at them from a strategic lens, and it's the combination of the two. So there's no one formula of every M&A needs to have a greater than X IRR. But, you know, we don't want to be diluting our ROE. We think that, you know, 18% as a target is a good target and demonstrates the power of our franchise, so we want to be accretive to that.
As Colin highlighted in his slide, the LROC, so lifetime return on capital of our new business, is in excess of that 20%, so that's a good indicator of where our future ROE is going beyond the 18%.
We'll go with the next question. Up here, please.
Hi, it's Meny Grauman from Scotiabank. You just mentioned the LROC. Slide 19 is an interesting slide. So it shows the LROC by segment and also capital buyback by segment, and obviously, a significant improvement from 2017 to 2023. I'm just wondering, as we think about the future, if we look out to 2027, 2028 and beyond, do you expect to see a significant improvement in those indicators going forward? Is that part of what's underpinning some of your targets here, or are we at a level now that you should just hope to maintain but not improve on?
Let me start. Colin can chime in as well. So I think the purpose of that slide was to illustrate that we're really disciplined in the way we're allocating capital organically to new business, and it's a dramatic shift from where we were. We're not looking at just measuring sales through APE growth that we can sort of celebrate in a quarterly earnings call. It's about profitable growth that's going to generate good ROE, but also that's going to generate cash relatively quickly. You can see that we've halved the capital payback period in nearly every single one of our segments. That gives us confidence around the future ROE of our franchise, and it talks to the scale that we have in our business. 'Cause generating those kind of ROCs and capital payback periods is a function of the discipline.
Also, it looks at the business mix that we've been focused on, and it also talks to the scale of our franchise. So I think they're good indicators of what the future ROE of the business is, but we're not setting a bar on ROCs that is going to limit our ability to grow. And in most markets, we've been outgrowing our market average, and we think that that is something we can continue.
... Yeah, I think, you know, many, there's no particular area of the business that we're pushing on our leaders to say, "You've got to really jump up your prices." And so we feel that current ROCs are fantastic. But because they're so much higher than ROE, we can actually afford to accept lower ROCs, and so we've got the flexibility.
Got it. And, and just another question in terms of, EPS growth target 10%-12%. Colin, you highlighted, obviously, you haven't been able to hit the bottom end of that range, and so I'm trying to understand the confidence that you have to get to 10%-12%. Now, obviously, COVID is a factor, but is that the main factor here? And, and, and so just trying to understand how you get to 10%-12% if we haven't really been able to see you get there up until now.
Yeah, I think there's a couple of factors that explain why we haven't got there. I mean, COVID is one factor. It's not the only factor, and then we've got the conversion to IFRS 17, which brought down earnings. But I think there are a couple of obvious factors. The obvious factor is we're more active in share buybacks now, so that certainly helps your share count. And then the second factor is we're really excited about the recovery post-COVID of Asia, and so that will drive earnings growth. Paul's got a lot of initiatives that he's gonna talk about to improve his margins, so that's gonna be GWAM. And then the US and Canada have really starting to hit their stride.
So overall, you put that all together, and we're confident in the 10%-12% and just feel like with that extra buyback opportunity, it solidifies that.
I, I would just add that, you know, 8%, over a period that includes, you know, 2-3 years of the pandemic, plus a conversion IFRS 17, which, as you know, was a headwind from an earnings perspective. We had new business gains that were capitalized into earnings, and they went away. So I, I think that's quite an impressive result, and we're not far from the lower end of that target, despite those big headwinds. And then when we look at our peers, we've almost delivered a result that's double of our peers. So actually, we take a lot of confidence from that when we look at the 10%-12% as a goal going forward, again, just given the footprint of the business.
Let's move to the next question, table four.
Thank you. Good morning, Paul Holden, CIBC. So first question is with respect to those LROC targets and the ROE, which I think are the right targets. You've talked more broadly about how business mix has changed to achieve those targets. Have you had to change business mix at all within the Asia segment, to achieve those targets, or were they already hurdling?
You want to start? Yeah, I will start. I think, Paul, what's been encouraging in Asia is definitely the shift towards more protection business and well, the focus on that and the focus on health. Health is great ROE business and LROC, and I would really encourage you to ask Phil on that. But what's important in the Asian side that's driving improved ROCs is when we get more scale in some of our smaller markets. You know, those extra policies are being shared, are sharing the expense burden, and that boosts the profitability. So nothing sort of headline grabbing on anything that we've had to do on any particular product.
I would, again, just add that, you know, we've moved from just measuring success as one that's focused on APE and sales, which with the league tables that come with the APE measurements and the comparisons, to one that's been really focused on new business value, new business value margin, and we've improved our new business value margin over the last six, seven years, which is reflected in the LROC improvements. Business mix is certainly a factor there, but so is scale. So as we continue to scale our business, we get that benefit as it relates to the ROCs.
Okay. Second question, and a very important theme for you is reduction in risk. So we talk a lot about the targets on a core EPS, core ROE basis. So maybe talk to us a little bit more about how the portfolio or the balance sheet's being de-risked that gives you confidence that the IFRS earnings are also gonna sort of come along for the ride and look similar to core over time.
Yeah, you're absolutely right, and it's been an overarching effort, but some of the inorganic activity that we've done has reduced our guaranteed segment, and so that's naturally reduced our ALDA. And so that's one area that we've reduced risk. But what's important is as Marc continues on, inorganic activity on the in-force portfolio, you would expect our guaranteed segment, certainly in the U.S., to carry on reducing, and with that will mean lower asset risk. We've done so much work around effective hedging. I don't feel like there's a lot more to go on how we manage our ALM. So it really becomes a how do we keep the participating and pass-through business growing and continue to reduce the guaranteed segment where appropriate, and this will naturally reduce the risk.
Great. Any other questions? Table over there. Please. Please, could we have a microphone over there, please?
Connor McGrath from Fidelity Investments. I just had a question for Colin, just on, I think it was slide 16. You talk about capital optimization activities. Could you maybe just kind of walk us through, like, what those are? I guess as you maybe think about your different jurisdictions, where there's maybe low-hanging fruit from a capital point of view or any changing regimes. I know in Asia, there's a few markets that are like... So maybe just kind of help us level set that.
Yeah, Connor, it's a great question, and obviously, I, you know, I'd rather announce them once they've happened. So the ones that are obvious are certainly the two transactions that we've done, and that will contribute to the remittances, the LTC transaction and the Canadian Universal Life transaction. But we've got changing capital regime in Hong Kong, and the move to a more economic capital regime is certainly helpful for us because that's how we manage the business, and so we've got a number of ideas in place to make sure that we operate at an optimized level. So, and then, you know, a few other things that we hope to announce in due course.
... over there, please.
Hi, good morning. Gabriel Dechaine, National Bank of Canada. Three questions for Colin, Marc, and probably Roy as well. So your 60%-70% of earnings equals cash generation. Is that at all impacted by dispositions? Somebody asked about M&A earlier, I'm thinking about more dispositions. And then, Marc, you sold what, 15% of your LTC, something like that? In the future, do you have to throw in some better businesses as a package deal? And what might that change in the equation? And then, long-term return on capital, how do you measure that? And is that part of your compensation?
Well, let me start with the first. I think the second's to Marc and then Colin. So our 60%-70% remittances as a percentage of earnings does not incorporate any assumption around divestitures. So that's just BAU, business. Marc?
Yeah. So, thanks for the question. So, I would say when, first of all, just to level set, the two transactions we just did, that released a combined CAD 2 billion of capital is all remittable, right? And, one of the things we try very hard in execution, and it's what's done as well with the variable annuity transaction, is to make sure that, both economically from an accounting regulatory perspective and cash back to the parent, that these transactions are accretive. And then obviously we can, do share buybacks or other, activities with the cash. So that's always one of the key, I would say, objectives of these transactions, in addition to reducing the risk. So, that component is, one of the, drivers.
So the next part of your question was to do that if we were to transact again on LTC, you know, the first transaction, obviously, we had a block of structured settlement in the US that was included in a block of Japanese liabilities. Now, just to level set for everybody, when we did that transaction, we... The two other businesses and blocks of business were relatively lower performing ROE businesses as well, which were attractive to our counterparty, Global Atlantic, in that case.
As we look forward, there was again some interest from other parties at the time, and there's some interest from some additional parties now in the environment that we're in, that Roy referred to. I would say that our objective would still be to combine LTC if need be with some lower performing ROE businesses, and more importantly, to target trading the package at book value, and then substantiate again the strength of our balance sheet, the strengths of our provisioning across all our lines of business and the economic profile of again, you know, bringing that capital back to the parent as a result of those transactions. So, maybe I'll stop there and see if that answers your question.
Gabe, just on your question on compensation, we've got to be a little bit careful to overindex on ROE because we don't want to be a management team that just sits back and gives all the capital back to shareholders to boost the ROE. So we're very motivated and very well compensated to grow the adjusted book value per share, but also our core earnings. So no real change in compensation metrics at this time, but they all feed into a higher ROE.
Oh, okay. The reason I ask about the cash generation, because a lot of these blocks are mature, right? The long-term care is, whatever, 40 years old or something like that, and it's cash generative. If you get rid of all of it, does that change your cash generation as an entity? You know what I mean?
Yeah.
I have a view on that.
Go for it.
Yeah. So, I would say-
Right
... first of all, all the businesses at Manulife are cash-generating businesses. So, that's, and the profile, and the ROCs and the paybacks that, Roy and Colin mentioned are, again, key ingredients and indicators of that to be the case. It is true, and this ties to the question before by Doug, that as the in-force block matures, by osmosis, the reserve basically peak out, as Steve has mentioned a number of times, and they start to decrease, and they become, as a natural component, lesser, obviously, exposure to Manulife. Now, they do throw off a lot of cash and predictable economics, which even if they're lower ROE profile in that case, makes them more predictable and are more susceptible to a transaction, which is a win-win for us and the counterparty, so...
But I don't think that they're necessarily, you know, overindexed on cash versus the rest of the organization and the cash-generating power we have across the globe, and-
Yeah, and we still feel that 60%-70%, Gabe, is the right target, 'cause again, it's also a function of the new business that we're writing and the fact that the capital payback period for that new business is actually quite tight or quite low. So we feel pretty good about the 60%-70%. We don't think that our agenda for divestitures is gonna dramatically change that, at, if at all, if anything.
Right. Let's move to middle here.
Mario Mendonca, TD Securities. First, Marc, in one big swath, you got rid of 80% of the variable annuity business. I think it was one big transaction. Long-term care, not, not so quick. Now, I understand why. The assumptions are very different across the two. Could you ever envision a time when Manulife could exit 80% of long-term care, or are the assumptions so tricky and so hard for others to stomach that this will be a much slower process?
Okay. Thank you, Mario. Good question. So, perspective, the first transaction in variable annuity that was done post-crisis was a small subset of the Cigna's block. And, and from there, as the market established, and you had obviously greater and greater percentages of the blocks being traded, and obviously us, as you mentioned, we traded 80% of the whole U.S. block. And so we felt, and we feel, and we continue to feel that the same kind of process is going to take place in long-term care. And we traded 15% of our block as a, as an opening kind of transaction, and we felt quite proud that it, you know, kind of validated everything we've been saying.
There was vibrant interest from parties, and there continues to be vibrant interest in our block and in other blocks in the industry as a result. So we feel this was the impetus to more transaction liquidity in the space, which I think benefits all of the market participants. Having said so, we and both Roy and Colin referred to this, we are doing an immense amount of work organically to optimize this block of business, and we could see a time in the future where keeping a part of the business would be economically attractive for everybody in this room and ourselves. We are bending this morbidity curve organically.
And, you know, rough numbers, there's a couple billion of claims we pay a year in this business, and I think there's a lot of opportunity to bend the curve there and improve the economics as we move forward, as the block matures. And if you combine that with... You know, obviously, Brooks will be here tomorrow. We'll talk about everything we're doing in behavioral insurance. There's a quick and very close tie-up there. So we think the combination of inorganic activity, which we will continue to pursue and actively pursue, and if it's to the benefit of our shareholders, we will definitely transact, but at the same time, we are bending the curve. Now, the last thing I'll say as well is that we've been extremely successful in securing all of the premium rate increases that we've put into our reserves.
To remind everybody, when Steve did his, his last review in 2022, we put $2 billion there, out of a $6.5 billion ask. And as we sit here today, you know, we are over 70% of that has already been achieved, and, you know, we've got another year to go before, you know, we perform our next review there. So we feel confident that we're securing the right premium accruals, which will help the economics. We're doing the right things organically, manage the block, and then we've got obviously this inorganic avenue that we were the first to open up for the whole market.
Mario, when we talk to LTC counterparties, what they're excited by most is, A, the maturing of the data. The data has evolved to a point where you can have much greater confidence into what the future outcomes are going to look like for this business. And the second thing is the actions that Marc talked to about driving organic in-force optimization, claims management, greater processes around price increases, and so on and so forth. And that's, I think, why the market is now starting to open up, and I think that's going to continue to be a trend that we see in coming years.
A different kind of question, props, probably for Colin. It's one thing to be aggressive in buying back your stock when Manulife trades at 1 times book, and it's another thing altogether when it's up 45% in the last 12 months. Does that factor into your thinking?
So obviously, Mario, you know, the higher our share price goes, the more expensive, the more costly it is to buy back our stock. But at 1.4, 1.5 times book value, where we are now, we still see it as incredibly good value. So we're not having discussions saying, "Well, should we slow down because our stock's run up?" We still see phenomenal potential, especially when you look at an 18%+ ROE. That, you know, that conversation is just not in our minds at the moment, so we're excited about buying back stock at current levels.
Question over here.
Yeah, thanks. Tom MacKinnon, BMO Capital. Maybe just more of a philosophical question for the group. ROE, like, if I look at you've got over half the earnings coming out of Asia, and if you look at the Asian peers, you're gonna look at a presentation that they're gonna do, and there's no mention of ROE. Then you got, like, 20% or so coming out of GWAM. You can look at it, your wealth and asset management global peers, there's no mention of ROE. So now we're into, like, 70% of the business where your peers would not even have an ROE as a metric. So thoughts on that? Why do you value ROE as a metric when your peers... Are they missing something by not having that as a metric?
Just, just-
Yeah.
You're not a bank.
Yeah, let me start, and Colin can chime in. Marc, you might want to chime in as well. You know, I would argue that ROE is an absolutely critical measure to assess us and our industry, and I don't know whether I would agree that our peers don't look at it. Yeah, maybe it's less of a focus in Asia, and the focus has historically been around new business value generation and APE sales growth because it was a growing market, and that was where a lot of the attention has been. However, that's changing quite dramatically. I think some of our peers are now being held to account more on not only ROE but also cash generation, something, Tom, you've been very passionate about.
So I think in Asia, the old story of just drive sales growth and we'll worry about the rest, I think is starting to fade. I think everyone's now looking at capital payback periods, the cash generation, remittances, and now ROE is becoming much more front and center. For shareholders, I think this is a critical way to measure companies. I think IFRS 17 helps that. I think in the old accounting methodology, when you took new business gains in, ROEs didn't make as much sense as they do now. So I think we're going to continue to see the evolution, certainly in Asia, and I think, you know, many of our asset management, you know, counterparties will also, you know, focus on it as one of several metrics.
What do you look at them all kind of part and parcel, and how do you compensate the various regions then that are contributing to this ROE?
Yeah.
You don't have a segmented ROE. What is the form of compensation, say, for a GWAM?
Yep.
It's margin growth, earnings growth, that would be, and asset growth. And what is the form of compensation out of Asia? Is it remittances and new business value and NBV margin? Is that the-
Yep.
Is those the things we should be focusing on with respect to those various regions?
Yeah, that's a great question, Tom. So I think the first thing I'd say is that success is not really gonna be defined from one metric alone. It's not just gonna be core ROE, and that's why we sort of highlight the earnings growth as an important and key metric, but also cash generation. So at the top of house, we've got the three targets that are critical, and we think actually will demonstrate the differentiation of our platform versus our peers. There are very few companies that can talk about high return, high earnings growth, and high cash. So that's top of house, but you can imagine that when we run the business and measure success at each of our segments, we're looking at things in an even more granular way.
Obviously, a lot of those metrics form part of how we measure success and what's in scorecards for each of the segments. But it's not one or two of those metrics alone, it's a combination. We believe that there's tremendous opportunity to continue to grow our businesses, so we look at growth, we look at earnings. Again, in Asia, I think earnings has mattered less, but we've been able to demonstrate good earnings growth out of our Asia franchise, which is absolutely critical. So, you know, a combination of multiple metrics, including those, are included in our scorecards, and we look at them in totality. And I would say it's not just the metrics. Again, in Asia, I'm gonna measure success by how much we continue to diversify our business, 'cause we don't want to be reliant on just one marketplace. So it's a combination of multiples.
Next question?
Sorry, just a follow-up, maybe for Colin on ALDA.
Mm-hmm.
Yeah, as you sort of think about the business, let's say over the next three to five years, you know, there's a mix shift happening towards Asia and WAM as a contribution of earnings. So the way I think about that is a lot of your on-balance sheet ALDA exposure is probably more U.S. and Canada. So that, does that almost, I guess, de-emphasize the role of ALDA in your balance sheet and your earnings profile, and it, you know, in theory, maybe shrinks more on an organic basis, just as a composition of your balance sheet, and then if you do more legacy transactions, that kind of accelerates that process?
Yeah, Colin, I think the first point I would make is very generic. It's we're very pleased with our ALDA performance, and we think it's a fantastic add to our portfolio. It's non-diversified return. But you picked up the transition really well. I mean, a lot of the ALDA backing our guaranteed segment will run off. We've stopped writing long-term care and a lot of lifetime guarantees. So there's a natural evolution, but at the same time, we're writing some really good participating and pass-through products that are backed by ALDA. You take our protection UL business in the US, you know, 30%-40% of that is backed by ALDA.
So as that grows, as customer demand for alternatives grows over the long run, sure, at the moment, interest rates are high, and it keeps a lot of cash on the sidelines, but this will be an attractive customer, attractive asset class for our customers. So we hope to grow the participating pass-through business, and then, and that will add to our ALDA growth, but it will be reduced by lower guaranteed segment ALDA growth. And so you would naturally see neither aggressive growth or shrinkage of ALDA over the next 10 years, would be my prediction.
I think we have one question at the back there.
Thanks. Lemar Persau d, Cormark Securities. Maybe it's just the time change, but Colin, did you mention that CAD 800 million in synergies and efficiencies, is that incorporated in that 18% ROE target?
So, Lemar, that's a really good question. I'm glad you asked for clarification. That's really our quantification of what we achieve at this point in time. It's baked into who we are and where we operate. It's not what we set out as future synergies to achieve within any time period.
So it is, in fact, actual-
Yep
... synergies that are driving actual financial value in our current P&L.
Okay, perfect. And then for Marc, I wanna take this de-risking and reinsurance in another direction. If we see rates go down, does that mean that these transactions are harder to close?
Yeah, that's a good question. I would say as interest rate increases have been a tailwind to transactions, but the other thing that's been a tailwind for us is the move to IFRS 17 and the disassociation of the discount curve directly to the asset portfolio backing the liabilities, which we just talked about, ALDA. So it's the combination of interest rate risings, and if you look at the target kind of counterparts that we look at and you know where they get their alpha out of their investment activities, obviously, that sweet spot of investment activity is the one that will drive future successes as well. But we do see scenarios if interest rates decrease of still having the potential to transact for the reasons I just mentioned.
So I wouldn't directly tie the outcomes in the future to the movement in the term structure of interest rates. I think it'll be more the asset classes and the specialty and where these counterparties add alpha and credit spreads to their activity versus you know how they see our liabilities and predictability of our cash flows.
Thank you. Any further questions from the audience? This one down here, please.
Yes. Hi, it's Michael Chang from China Galaxy Securities International. Just a quick question on the ROE target. I like the decomposition in terms of Asia, the 5 percentage point increase in terms of the target. Maybe you can shed some light on where that's coming from, because right now, sitting within Asia, it looks like the mainland Chinese visitor segment actually is growing very rapidly. But then again, there's some investor concern about increased regulatory attention on that front. So how do you see that impacting the future rise of ROE within the Asia context, maybe more so Hong Kong?
Let me start, and Colin, you might want to chime in, but I, I'm not gonna answer that in too much detail because Phil's gonna actually cover that question in a lot of detail in his presentation. He's gonna—as will all the other segment heads, by the way. They're gonna dissect the ROE improvement we see by segment into a lot more granularity in terms of how we're gonna actually deliver against that goal. But I'd say that, you know, the largest, I guess, factor driving the improvement in ROE is coming from, A, the focus on the profitable new business that we're generating, but it's also the benefits of scale.
You know, I talk quite extensively about the fact that being a tier one player in Asia really matters, and it matters not just because you're relevant in the consumer eye, but it also matters because of the scale benefits that you get, which translates into new business profitability and ultimately ROE. And as a, you know, tier one player, that has been a key factor that's really driven what we've already seen in terms of improvements in ROE and what we're projecting to see go forward. Because as we write new business, our fundamental expense base that we've got underpinning our franchise doesn't dramatically change. The variable nature of our business from an expense perspective, of course, there are some increases in costs, but the fixed cost is there regardless of whether you've got a business that's double the size or half the size.
So that's been the real driving force, plus the fact that new business is generating very high ROCs. Again, Phil will show that in detail in his presentation. So we're not seeing some of those headwinds that you mentioned being a real detraction or an issue as it relates to ROE, but Phil will cover that in much more granular form. Colin, anything that you'd like to supplement with?
I mean, the only thing I'd say is that the reliance on Mainland China is just not, not really that significant. So the items you mentioned don't really apply in as much much scale to us.
Okay. Let's one last look at the audience. Any other questions? Barring none, well, we'd like to thank you for joining us with the panelists. Thank you so much. And with that, we will be moving on to the next break, and I will note that the panelists and presenters are gonna be here throughout the event. And please, if you have any further questions you would like to ask, please engage with them. We will be back to this room at about 10:50. So take a bit of break, and we'll be back to kick off the segment level presentations, starting with Paul Lorentz on the GWAM. See you soon. Welcome back, everyone. Hope you had a good break.
Our next speaker is Paul Lorentz, our President and CEO of Global Wealth and Asset Management. Paul will give us an update on our Manulife Investment Management's record of results delivery, as well as the positioning for the future growth. Following that, Paul will be joined by two of his members of his leadership team on stage for Q&A panel. With that, before we go ahead, let's show a quick video on some highlights of our Manulife Investment Management.
For more than 150 years, we've been there for our customers, empowering them to build a better future. We've been there for them through some big changes, both in their own lives and in society. But we understand the world never stops moving and changing, and neither do we. Through our global scale and local expertise, 19 million investors across 20 geographies trust us to help them achieve their investment, retirement, and savings goals. This includes a suite of in-house capital solutions that span the full spectrum of private markets offerings, such as infrastructure, real estate, and timberland and agriculture, where we are the world's largest manager of natural capital. We are also a leading public market solutions provider, including expanded multi-asset credit capabilities through our recent acquisition of CQS and world-leading Asia fixed income capabilities, helping local investors unlock access to critical capital markets.
We connect with millions through our global distribution channels. We provide end-to-end financial advice and wealth management solutions to retail investors. We are the world's sixth-largest multi-manager platform, reaching millions of third-party clients. Our leading retirement business serves over 9 million individuals in North America and Asia, addressing the world's pressing retirement funding crisis. We provide customers with long-term investment strategies and advice they need to build a better, more secure financial future as life expectancies increase across the globe. Our institutional business is a growing global player with expertise in generating returns through natural capital, renewables, and transition investing. Through our insurance business, we are uniquely positioned to manage money within insurance solutions and provide our clients with capital for new investment products, benefiting from scale most standalone asset managers don't have.
We are well positioned for the next stage of growth and to capture opportunities ahead for our clients, for our shareholders, and for future generations. Manulife Investment Management, empowering investors for a better tomorrow.
Good morning, everyone. It's great to be here. You know, as I was presenting the material for day today, I was thinking about what would be the types of questions that you would want me to answer through the presentation, and I really thought of three. I thought of, you know, "How have we done since we brought this business together in terms of an operating segment?" The second one was, "What makes us unique versus every other fund company in the market?" And the third one is whether the differentiation which got us to where we are today is that the right platform that's gonna allow us to achieve the ambition? And similar to the content of the presentations, I'm gonna start with a look back and kind of walk you through that journey.
... So let me start with a look back, and there's really three takeaways I'd want to leave you with here. First of all, we have an excellent track record of delivering results. We've outperformed peers on our key metrics, and we're leveraging our global scale not to just deliver value for end investors, but also for shareholders. Let me start with a little context around what does our global platform look like? You've seen this in some of the videos. We're essentially based in 20 different geographies. We have leading market share positions in each of the markets in our major business lines, and that includes one of the largest fixed income teams here in Asia.
We have over 625 investment professionals that are on the ground in the local markets, and that's really important, particularly in a lot of the emerging market here, emerging markets here in Asia, to really understand where the investment opportunities are and to really understand credit quality and counterparty risk as it relates to fixed income. The platform includes very strong performance and allows us to serve over 19 million individual investors. Now, we're actually able to extend our reach to even more individual retail investors by, by working very closely with our insurance affiliates. And here in Asia, we actually manage money within some of Phil's products, unit-linked products, and that actually allows us to serve needs of even more than 19 million customers.
In terms of the total contribution to the company, we represented at the end of the year, 20% of the company's earnings. Our core return on equity was 25%, and over 90% of our global earnings are remittable back to our parent through the various regions in which we operate. Now, this is a big question I get a lot: What makes you unique versus every other company out there? We spent quite a bit of time trying to understand that ourselves, to be honest, when we put the strategy together. There's really six differentiators for us, and it's not any one of these. There'll be other companies that would have some of these. It's really the combination of all six, and I'll just give you a few examples just to highlight some of those proof points.
The first is that our geographic business diversity and business diversity is a strength, and that's not just from a stability of results perspective. It actually gives us access to higher-margin markets and higher-margin product lines. Our business lines within the wealth and asset management business are highly complementary. You know, we look at our distribution channels as really that for our asset management capabilities, whether it's our private capabilities, public capabilities, we look to leverage that within retail, within retirement, and within our institutional business. We also see leverage within the regions between our retail businesses and our retirement platforms, not just in terms of building the solutions, making sure the sales team's compensations are aligned to work together in the region, and really driving the value in the local markets.
We also see an opportunity in terms of capture, capturing members who leave their employer from those platforms in individual retail solutions. The fourth, or the third one is an important one. We benefit from the strength and stability of the insurance company, and there's two ways we... There's more than two ways, but I'll highlight two ways we do that. First of all, we actually manage assets in insurance structures, vehicles, and directly for our balance sheet to support the liabilities. That is a proprietary channel for us that other fund companies would love to have. We earn revenue and fees on that, no different than third-party investors would, and it's captive to us. The second thing is we leverage the insurance agents here in Asia to access their customer base to introduce pure mutual fund solutions as another example. Four, we're well-positioned to capitalize on global trends.
I won't, I won't go into this in too much detail here. Roy touched on it, and I'm gonna speak a little bit later of what does that mean for the wealth and asset management business. We're committed to make a positive impact, not only at a company level are we net zero on our, our emissions from an operational perspective, but we are the largest manager of natural capital in the world. And that not only allows us to help our, our organization accomplish that, but it helps us work with other organizations that are trying to reduce their carbon footprint, and it creates a great commercial opportunity for us with our business. And lastly, none of this is possible without great people. And Roy talked about culture, engagement, and that is all critical to really doing really building that.
But one of the other things we have going for us is that people wanna be part of a winning platform. You know, the fact that we're a growing business attracts a lot of talent to our organization, and the fact that we're global and have the breadth that we do, allows individuals really to build their career and really take it wherever they wanna go. That's very attractive, not just for attracting talent, but retaining talent. It's allowed us to build a global platform that's at scale. We have over $1 trillion in assets under management. Of that, $873 billion is assets under management. Within that, if you look at the middle chart, we've actually shown you how much of that comes from our traditional third-party channels or retail retirement, institutional.
But we've also broke out that affiliated channel, where we're managing money in that captive channel for the insurance company. And I want to make a couple comments on this one. One is, this is a, a, a fee-generating asset base that's quite material. You know, it's about, it's—you can see on here, it's 23% of our total AUM. It's close to $250 billion in a captive channel that provides scale for us. It makes us more competitive in our other traditional channels, and again, is one of our key differentiators. The chart to the right of the AUM that we sourced, about three-quarters of that come from what we call direct and affiliate. What do we mean by that?
Well, if you think of intermediated, intermediated is where we're putting our investment solutions on a platform where the distributor is using that to serve their customers, and we really don't interact or even know who the end customer is in many of those cases. The direct and affiliated are channels where we have ability to interact with the end investor. Why is that important? Well, one, we can better control the customer experience. It allows us to better understand the customer needs, and when we can better understand their needs, we can provide a better solution for them, and that typically results in greater share of wallet, and a happier customer is tends to be a stickier customer. A good example of that is in our Canadian wealth platform in Canada.
We have independent advisors that provide financial planning, holistic advice, and what we see with those advisors is not only are they supporting our mutual fund sales, but they're also selling insurance products that Naveed makes available, banking products, and they're really taking a holistic approach. Success wouldn't be possible without strong investment performance at the core, and, you know, this is absolutely key to everything. We wouldn't have the scale we have, we wouldn't have the customers we serve, if we didn't deliver strong investment performance. You can see with the chart on the left, the diversification of our portfolio by asset class, and this is across all of the channels in terms of approaching individual investors.
And you can also see at the right, the strong investment performance, particularly over the 5-year and 10-year, with 77% of our assets outperforming the peer group on a 5-year and 86% over the 10-year. This is actually a new disclosure. So previously, we've reported something very similar, but it's been based on an internal calculation that we were doing relative to our internal benchmarks, relative to a peer set. We're actually switching to the Morningstar database for go-forward disclosures, and there's a number of reasons for that. First of all, it's a completely independent view of our performance. It's how we're gonna be assessed in the market by investors looking at our capabilities, 'cause they're gonna be looking at relative to other options available.
The second thing is it allows for a 10-year track record, which we had within the composite for the Morningstar funds we have available. And more importantly, it's more comparable peers. If you look at a lot of our peer disclosures around performance, you'll notice that it's based on the Morningstar database. Now, why does performance matter? Why does delivering strong term performance really matter? And I'm gonna use the U.S. as an example. If you look at the U.S. active fund flow, it's a very competitive market. Almost 100% of the flows in active go into five-star rated Morningstar funds. A little bit goes into four, but four or five-star funds drive the performance of flows, so you have to really be there. You don't get a rating from Morningstar until you hit the 3-year track record, so that's why track record is so important.
But the longer your track record, the greater weighting it gets in terms of the comparison to the peer group. And the way it works is in any given category, Morningstar assesses all the companies in the category on risk-adjusted returns. How much risk are you taking to generate the alpha? And then they force rank that into bottom, bottom group, one star, two star, three star, four star, five star. And so, consistent long-term performance, as you get 5-year, it has a heavier weighting than 3-year. As you get 10-year, it is a heavier weighting, and then 5-year, and then 3-year. So delivering long-term, consistent, risk-adjusted performance is absolutely critical, and our investment team's just done that. They've done that, and we wouldn't have the success today if it wasn't for them. All of this has contributed to very strong top-line results.
Positive flows of 13 of the last 14 years. You can see the, the chart on the bottom, I'll just explain this, so you can understand what's going on there. Anywhere you see shading or the green shading, that is where either the region or the business line contributed positive net flows. So you can see in certain times where certain channels and/or regions are out of favor, other regions and/or channels have stepped up, and still in the end result is positive flows, and that speaks to the stability of our results. This chart on the right actually highlights, if you actually compare the net flows relative to the size of our business, so it looks at flows as a percentage of AUMA or assets under management and administration, we've also outperformed peers there.
There's a couple other interesting or important points I want to make on this slide. The first is, we do not include any flows from affiliates. I talked about money we manage for the insurance guy. We currently don't disclose it. This is purely third-party money. Now, we haven't disclosed that historically, 'cause it's already reported as a premium in for the insurance segments. So this is strictly our track record on third-party flows. The second thing is, you can see the consistency of Asia in here. You know, if you look at the bottom chart, the top row, they have delivered positive net flows every single time period, despite the market cycle, despite some of the challenges that have happened. And I think it just speaks to the opportunity and how we are differentiated here because of our position on global trends.
Then the last point I would make is, if you just look at the last couple of years, we've actually delivered that in a rising interest rate cycle, where essentially all fixed income flows left the market, got paid to sit on the sidelines, got a pretty good yield for sitting there, and frankly, hasn't come back yet. We actually think it'll come. Some of it's starting to come, but we think as soon as the Fed actually starts cutting rates, you're gonna see money come back into the market, and that's gonna be a tailwind, not just for the industry, but I think for ourselves as well. The other thing worth noting is that while we, particularly those of us from North America, have seen just the run-up that happens in the markets, particularly the U.S., Asia market has actually been down quite significantly.
When I was in Shanghai and with my management team in March, investors were down 30% on their capital from 3 years ago. And so to be able to deliver positive flows when Asia hasn't really performed the way we'd expect over long term, I think, again, it just speaks to, to the quality of the platform and the diversification that we have. That diversification also contributes to our revenue. And I talked earlier about, you know, not just stability for diversification, but access to higher margin regions and/or business lines like alternatives, as an example. But if you look at the middle chart, you'll actually see that U.S. and, or U.S. and Europe is about 55%, Canada and Asia is 45%.
If you actually move over to the bar chart, Canada and Asia, which are 45% of AUM, actually make up 54% of the revenue. If you actually looked at our split at the end of 2023, it would represent 60% of core earnings. My point is that every dollar of AUM is not equal to us. And in fact, one of the reasons we bought the business together globally is to make sure that as we look at discretionary spend, as we look at capital, we're allocating it to the best return of those dollars. And that was a big shift for the management team and how the business was run when it used to be decentralized previously. The second important point is that over 90% of our revenue is tied to asset growth, and that includes our global retirement business.
There's been a lot of talk around record-keeping, but a very small proportion of our record-keeping fees are actually per participant costs. They're actually tied to the funds or market growth. And that's important because we do expect markets to grow over time. We expect to manage our expenses lower than market growth. That's gonna provide core earnings growth above just beta markets and also drive margin expansion. The end result of this is actually financial metrics that we're extremely proud of. If we look at how we've delivered relative to peers, and I'll start with the two on the far right, our core revenue and core earnings, the bar charts show the growth of that from 2017 to 2023, and below that, you'll see our CAGR growth relative to our peer set.
The platform we have has really delivered value over and above what peers have been able to do in a similar market. The other point worth noting here is the net... That's, that's for about the same growth in AUM.