Manulife reported net income attributed to shareholders of $1.6 billion (B) in the third quarter of 2021, down 23 per cent from net income of $2.1 billion attributed in Q3 2020.
In its third quarter 2021 report to shareholders, the insurer links the decline in net income mainly to a $532 million (M) charge. This charge is related to the impact of the updated ultimate reinvestment rate assumptions issued by the Actuarial Standards Board.
Return, solvency and debt
Manulife’s return on equity was 12.6 per cent in the third quarter of 2021, down from 16.4 per cent in Q3 2020.
Also in the third quarter of 2021, Manulife reported a core return on equity of 12.0 per cent. It was 11.4 per cent in Q3 2020.
The insurer’s Life Insurance Capital Adequacy Test (LICAT) ratio was 138 per cent in the third quarter of 2021 versus 155 per cent in Q3 2020.
The financial leverage ratio was 25.5 percent in the third quarter of 2021, compared with 26.7 percent in Q3 2020.
Manulife's core earnings were $1.5 billion in the third quarter of 2021, up 10 per cent from Q3 2020. The insurer links the increase partly to recognition of core investment gains during the quarter, along with higher fee income in the Global Wealth and Asset Management segment. This segment benefited from the favorable impact of the markets and net inflows.
Hurricane Ida and flooding in Europe
Among the other drivers of core earnings increases, Manulife mentions higher new business gains, growth in in-force business in Canada and Asia, and favourable policyholder experience in Canada.
Despite these positive factors, Manulife's core earnings were offset by a $152 million charge in its P&C reinsurance business. Manulife explained that this charge was for estimated losses related to Hurricane Ida and European floods, along with unfavourable policyholder experience in Asia and the United States.
Net loss in Canada
In Canada, Manulife posted a net loss attributed to shareholders of $26 million in the third quarter of 2021, down sharply from a net profit of $291 million in Q3 2020.
In Asia, Manulife generated net income of $822 million in the third quarter of 2021, a 26 per cent increase over Q3 2020.
In the U.S., Manulife's net income slid by 22 per cent in the third quarter of 2021, versus Q3 2020, to $697 million.
Global Wealth and Asset Management’s net income was $351 million in the third quarter of 2021, up 14 per cent from Q3 2020.
Favourable technical results
Manulife says its $26 million net loss in Canada comprises items excluded from core earnings, which represented a net charge of $337 million in the third quarter of 2021, compared with a net profit of $12 million in Q3 2020.
Core earnings in Canada were $311 million in the third quarter of 2021, 11 per cent higher than the $279 million in Q3 2020.
Manulife attributed the increase to favourable policyholder experience in the individual insurance sub-sector, higher in-force earnings from retail insurance products, and the non-recurrence of a number of smaller unfavourable experience-related items in Q3 2020.
In Canada, investment-related experience excluded from core earnings was $62 million in the third quarter of 2021, compared with $81 million in Q3, equal to a 23 per cent decline.
Globally, Manulife's investment-related experience excluded from core earnings was $700 million in the third quarter of 2021, versus $147 million in Q3 2020.
Real estate investment returns decline in Canada
After updating its investment return assumptions, Manulife added a post-tax gain of $168 million to the net income attributed to shareholders in the third quarter of 2021. This gain was the result of an update to corporate bond default rates to reflect recent experience, the insurer explains. “The Company reduced default assumptions for certain credit ratings in Canada, the U.S., and Japan,” the third quarter 2021 report states.
However, Manulife has had to lower its assumptions about real estate investment returns in Canada. “The impact of changes in actuarial methods and assumptions in Canada resulted in a $65 million post-tax charge to net income attributed to shareholders,” the insurer notes.
This charge primarily results from a downward adjustment to assumptions for real estate investment returns and from refining assumptions on several reinsurance agreements in individual insurance.
The health crisis is also forcing the insurer to revalue its assets. “As a result of COVID-19 and the associated economic environment, significant measurement uncertainty exists in determining the fair value of real estate and other invested assets,” Manulife adds.
Manulife says it has made progress along its digital journey in the third quarter of 2021. In Canada, the insurer explained that it launched a digital process in group insurance that collects the medical evidence required to review and approve short-term absence claims from physicians.
In Canada and the U.S., Manulife says it has implemented Microsoft's Azure Machine Learning technology. This tool allows the insurer to leverage large data sets to mine insights, drive business growth and improve the customer experience. Manulife believes the technology represents a meaningful shift toward greater cloud capabilities.