Manulife Financial Corporation (MFC) Q3 2011 Earnings Report, Transcript and Summary

Please be advised that this conference call is being recorded. Good afternoon, and welcome to the Manulife Financial Q3 2011 Financial Results Conference Call for November 3, 2011. Your host for today will be Mr. Anthony Ostler. Mr. Ostler, please go ahead.

Thank you, and good afternoon. Welcome to Manulife's conference call to discuss our third quarter 2011 financial and operating results. Today's call will reference our earnings announcement, statistical package and webcast slides, which are available in the Investor Relations section of our website at manulife.com. As in prior quarters, our executives will be making some introductory comments. We will then follow with a question-and-answer session. Available to answer questions about their businesses are the Heads of United States, Canada and Investments. Today's speakers may make forward-looking statements within the meaning of securities legislation. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied. For additional information about the material factors or assumptions applied and about the important factors that may cause actual results to differ, please consult the slide presentation for this conference call and webcast available on our website, as well as the securities filings referred to in the slide entitled Caution Regarding Forward-Looking Statements. [Operator Instructions] With that, I'd like to turn the call over to Donald Guloien, our President and Chief Executive Officer. Donald?

Thank you, Anthony. Good afternoon, everyone, and thank you for joining us today. I'm joined on the call today by our CFO, Michael Bell; as well as several members of our senior management team, including our U.S. General Manager, Jim Boyle; our Canadian General Manager, Paul Rooney; Warren Thompson, our Chief Investment Officer; Scott Hartz, our EVP, General Account, Investments; and Cindy Forbes, our Chief Actuary; as well as Rahim Hirji, our Chief Risk Officer. This morning, we reported our third quarter 2011 financial results, and while we are disappointed with the reported loss of $1.3 billion for the third quarter, we are pleased with our progress in executing key elements of our strategy. Our hedging programs worked effectively during these highly volatile markets, eliminating the majority, but not all of the risk. We are pleased at the underlying growth of our businesses against our objectives, particularly the strong growth in Asia and in Wealth Management, the progress on protecting margins in many of our products around the world. Our hedges generated over $3.3 billion in after-tax gains, which offset approximately 70% of the $4.8 billion earnings impact of VA guarantees and non-VA equity-related losses. The remaining 30% includes elements that we have not yet hedged, are not able to hedge, things like the PfADs, which we don't attempt to hedge, tracking error, volatility, policy beholder behavior and all other forms of ineffectiveness. In terms of interest rates, we have now exceeded our 2014 interest rate reduction goal, reducing our sensitivity to 100 basis point decline in interest rates to $1 billion after-tax. And we're ahead of our 2012 risk reduction goal for equity markets, now stand at 88% of our 2014 goal. The MCCSR of our operating company, the Manufacturers Life Insurance Company, was 219% at the end of the third quarter. This ratio does not reflect the benefits of our derisking activities, including our equity and interest rate hedging progress over the last few years, which reduces the downside risk to our capital position but is not reflected in the capital ratio formula. On the investment front, general account asset performance continues to be a strength of our company. This reflects our strategy of avoiding risk concentration with a diversified, high-quality portfolio and our continuing excellent credit experience despite the difficult markets of the last few years. And as you know, our exposure to more risky European sovereigns is minimal. If you turn to Slide 5. We're also pleased with the underlying growth of our businesses against our strategic priorities. Sales of Insurance products targeted for growth increased 21%, if you exclude the no whole life product in Japan and certain insurance products in Canada, where deliberate price increases were implemented with the intention of protecting margin to the detriment of sales. Including these products, sales increased by 5%. Sales of wealth products targeted for growth grew by 12%, led by 20% growth in Asia and continued strong growth in mutual funds in both Canada and the United States. The dramatic decline in interest rates in the third quarter, roughly 140 basis points at the long end, once again reduced our margins and was the main factor behind the 37% decline in new business embedded value relative to the second quarter of 2011. We are probably one of the few companies that report new business embedded value reflecting current interest rates so directly. Because interest rates are such a big component of both present and future profitability, we feel this is appropriate. We continue to be committed to protecting our margins and have taken a number of repricing actions in the United States, Canada and Japan in order to achieve this. In Asia, we continued to grow our agency force and added important new bancassurance relationships. Subsequent to the end of the third quarter, we completed a strategic partnership with Bank Danamon in Indonesia, making our products available in its over 2,300 branches. In Canada, growth of targeted insurance and wealth products were up modestly on the whole, despite the continued implementation of price increases and product changes. Manulife Mutual Funds sales were up 32%, and Group Retirement Solutions sales or pension sales increased 61%. Manulife Bank assets reached record levels, exceeding $20 billion as of September 30, 2011. The momentum in the United States continued with John Hancock Mutual Funds sales up 27% and Retirement Plan Services sales up 10%. The transition of our Life Insurance product portfolio continued to be successful, with targeted products up 42%, representing 89% of total Life Insurance sales at the end of the third quarter. Finally, I would like to highlight that under U.S. GAAP, our net income for the third quarter was $3.4 billion higher than under the Canadian version of IFRS, and our total equity was nearly $16 billion higher under U.S. GAAP. The main factor driving the significant difference is the greater use of mark-to-market accounting under the Canadian version of IFRS, which requires us to more directly recognize the third quarter's macroeconomic environment sooner. In summary, while we are not happy with the third quarter loss, we are very pleased with the positive impact of the hedging programs are having on our results, the substantial buffer of safety that our capital provides, continued strength of our investments and the underlying growth of our businesses against our strategic plans. With that, I'll turn it over to Michael Bell, who will highlight our financial results and then open the call to your questions. Thank you.

Thank you, Donald. Hello, everyone. In the third quarter, the global financial markets experienced significant declines in both interest rates and equity markets. Under the Canadian Insurance and regulatory capital regime, these market conditions were reflected in our third quarter financial results. Importantly, the impact was moderated by the significant hedging actions and changes in our business mix, which we've consciously taken over the last few years to reduce our risk profile. So we're pleased to benefit from our decisions and actions in that regard. As expected, based upon our communication last quarter, the third quarter loss also included the $651 million after-tax charge related to our annual review of actuarial methods and assumptions, excluding the refinement to the ultimate reinvestment rate or URR. We continue to be ahead of the original timeline on reducing both interest rate and equity market sensitivities despite the challenging market conditions. We've now exceeded our 2014 goal for a reduction in our interest rate sensitivity, and we view the resulting reduction and expected volatility in our future results to be a major positive. MLI ended the third quarter with an MCCSR ratio of 219%, and this ratio does not reflect the benefit of our derisking activities, including our equity and interest rate hedging progress. But also note that our U.S. GAAP earnings were a positive $2.2 billion after-tax for the quarter, and our shareholder equity is now nearly $16 billion higher under U.S. GAAP than under IFRS with the CGAAP actuarial reserves. This is a reminder that different countries' accounting regimes portray very different results, and the Canadian regime is much faster to recognize the impact of these unfavorable markets. Turning to Slide 8, you'll notice that there were a number of notable items impacting the third quarter after-tax earnings. There was an $889 million net loss due to the direct impact of equity markets and interest rates. Within this amount, the direct impact of equity markets resulted in a loss of $556 million. Including the refinement to the URR assumptions, the direct impact of changes in interest rates in the quarter exceeded $300 million. Importantly, our third quarter results benefited from our expanded hedging for both equity markets and interest rates. Excluding the refinement of the URR assumptions, there was a $651 million charge related to the actuarial basis changes. Other market factors caused a net after-tax impact of $900 million on the net increase in the liabilities of the hedged in-force VA block, and I'll describe this in more detail in a few minutes. The expected cost of our macro equity hedging program, based on our long-term valuation assumptions, was $107 million for the quarter. And we also recorded investment-related gains that amounted to $307 million. This is primarily related to derisking activities and investment gains primarily related to fixed income trading and favorable credit experience. There was also a $303 million gain on the sale of our Life Retro business. So overall, we are pleased with the benefit we received in the third quarter results from the derisking actions that we've taken. On Slide 9, we see the impact of variable annuity and non-VA equity-related equity risk on our earnings in the third quarter. Between our dynamic and macro hedging programs, we offset 70% of the earnings impact of the third quarter changes in VA and the non-VA equity-related liabilities. As shown in the pie chart and detailed in the footnotes, we had over $3 billion in after-tax gains from the hedges in place, which offset approximately 70% of the after-tax impact of $4.8 billion from the increase in our actuarial reserves due to the combination of unfavorable equity markets and interest rates. Turning to Slide 10. This shows additional detail on the third quarter result. There are risk factors that we are not able to hedge or consciously decided not to hedge. In third quarter 2011, you can see that these factors included the impacts of higher realized volatility, unfavorable fund tracking and items not hedged like provisions for adverse deviation and policyholder behavior. As you can see on Slide 11, we're still ahead of our original timetable for reducing equity market sensitivity with 56 -- excuse me, 57% to 66% of the estimated current earnings sensitivity now hedged. This puts us ahead of our year end 2012 target and close to our year end 2014 target. And as of September 30, our estimated earnings sensitivity to a 10% equity market decline was $680 million to $870 million, a much better result than our peak sensitivities in 2009 and 2010. Turning to Slide 12, we've exceeded our 2014 goal for interest rate sensitivity. Our estimated sensitivity to 100 basis point decline was reduced to approximately $1 billion, ahead of our year end 2014 target of $1.1 billion. Including 100% of the AFS bond offset, our estimated sensitivity was $300 million at the end of the third quarter, and we are very pleased with this progress in this area. The results of our annual actuarial basis change are here on Slide 13. In total, the net impact of these changes was $651 million after-tax charge, excluding the refinements to the URR assumptions mentioned earlier. Mortality studies were undertaken by a number of our business units in U.S., Canada and Asia. The U.S. Life Insurance review resulted in a reserve strengthening and a $475 million after-tax charge. As we've discussed, this review focused for mortality at older ages, and the emerging trends are subtle and vary depending upon the block of business. For example, a large portion of the reserve strengthening is for the acquired John Hancock permanent life business, where losses started to emerge recently due to older age, older duration experience. On other U.S. Life business, we're seeing different experience depending upon the duration of the business. For example, while we continue to generate mortality experience gains on the early policy durations, we're seeing losses on later duration business and at older attained ages. Additional mortality updates, particularly on the variable annuity block and the implementation of future mortality and morbidity improvements in our valuation methodology for the North American insurance segments contributed to a reserve release with a favorable impact of approximately $742 million after-tax. VA policyholder behavior reserve strengthening was primarily due to reduced lapsed rates on contracts beyond the surrender charge period in the U.S. and reduced lapses on contracts in Canada, which was partially offset by some other changes in assumptions. The net impact was a $309 million charge. Investment updates were due to updates in the GMWB business and the other non-fixed income assumptions including asset purchases. Included in Other is the impact of updated lapse assumptions on Life Insurance products in Canada, the impact of updated experience assumptions for U.S. Life and a number of other nearly offsetting model refinements. Slide 14 is our source of earnings. The expected profit on in-force declined relative to the second quarter of 2011, and key contributors to the decline included the sale of our Life Retro business to Pac Life, reinsurance of a block of individual insurance business in Canada and the inclusion of future mortality improvements in our reserves as part of our annual basis change. The impact of new business strain increased due to lower interest rates at North America and increased investment in Asia distribution. Experience losses primarily reflect the mark-to-market impact of lower equity markets and interest rates, partially offset by gains on our macro hedges and investment gains primarily related to fixed income trading. Management actions and changes in assumptions include the impact of our actuarial basis change and the expected cost of macro hedging, partially offset by gains on the sale of AFS bonds and our Life Retro business. On Slide 15, you'll see our Insurance sales. Sales of our targeted Insurance products grew by 5% over third quarter 2010 on a constant currency basis. Price increases on life products in Japan and China -- excuse me, Japan and Canada in response to the low interest rate environment, reduced growth of our targeted Insurance products compared to prior quarters. On the other hand, in Asia, a number of regions delivered record sales. Hong Kong's record sales were mainly driven by new product launch in the second quarter and the expansion of the bancassurance channel. The ASEAN region also delivered record sales. New products and expanded agency and bank distribution across the region contributed to these strong results. In Canada, Affinity sales of regular and premium products increased 12% compared to the third quarter of 2010. And in the U.S., we're very pleased with our 42% sales growth for the targeted Life Insurance products as we've replaced the majority of the No-Lapse Guarantee UL sales with products with less interest rate risk. So overall, we are pleased with our sales of insurance products targeted for growth. Turning to Slide 16. Sales of our targeted wealth products for the quarter grew by 12% over a year ago. In Asia, sales increased 20% compared to the same period in the prior year. In Canada, Individual Wealth Management sales increased 2%, having been adversely affected by the continued decline in the interest rates and the volatility in equity markets. Despite the challenging market conditions, Mutual Fund sales were strong, increasing 32% compared to 2010, and Group Retirement sales increased 61%. Manulife Bank assets reached record levels, exceeding $20 billion. In the U.S., John Hancock Mutual Funds delivered another strong quarter for sales, with a 27% increase over the third quarter of 2010. On a year-to-date basis, John Hancock Mutual Funds have already exceeded their sales for the full year 2010, which had been a record year. 401k sales were up 10% in the third quarter, although we continued to see competitive pricing pressure in the industry. So overall, we are pleased with our increase in non-guaranteed wealth sales. On Slide 17, you can see that we continue to change our business mix in order to improve our long-term ROE and risk profile. Products that we've targeted for growth have increased compared to the third quarter of 2010, while the premiums and deposits for the products not targeted for growth are down relative to a year ago and even more so relative to 2009. As a result, our products targeted for growth now represent 88% of premiums and deposits. As we discussed in our 2010 Investor Day, changing the mix of our business is an important priority and we're pleased with our progress to date. Slide 18 demonstrates that our diversified investment portfolio also remains high quality. Our invested assets are highly diversified by sector and geography and have limited exposure to the high-risk areas noted on the slide. We continue to view our investment management as a significant competitive advantage. Turning to Slide 19. You'll see that we booked a net credit experience gain in the third quarter, and this is our fourth net gain in this area in the last 5 quarters, a very good result. Moving on now to Slide 20. This slide summarizes our capital position for MLI. Our capital ratio for our main operating company was 219% at the end of the third quarter, and we believe that we have a substantial buffer versus our policy obligations, particularly in light of our provisions for adverse deviation and our increased hedging. On Slide 21, our sensitivities to changes in interest rates can be seen here in more detail. I'd note that the Canadian actuarial standards of practice requires to use the most conservative of a number of prescribed scenarios in our reserving. As a result of the recent changes in interest rates, the third quarter sensitivities for 100 basis point decline include the estimated impact of switching to a different reserving scenario in some geographies, and this is different than several prior quarters. Please note that all the estimated sensitivities are approximate and based on a single parameter. As we've discussed before, there is no simple formula that can accurately model all of the moving parts. Turning to Slide 22. We've outlined some of the potential future impacts if we experience an unfavorable, prolonged low interest rate environment. We've identified 3 first-order impacts: First, the initial reinvestment rate assumptions for fixed income investments used on policyholder liabilities are largely mark-to-market on our current balance sheet. And since we've already recognized the current drop in rates in our September 30 reserves, we would not expect further material charges if rates were to remain constant. Second, the ultimate reinvestment rate or URR for fixed-income investments, used when we reserve for cash flows 20-plus years in the future, is a formulaic calculation defined as 90% of the 5- and 10-year moving average of the risk-free rates. If low interest rates continued into the future, the moving average would continue to drop closer to the current rates, and we estimate that if rates were to remain at September 30, 2011 levels for the next 10 years, the cumulative future URR charge would be approximately $2 billion to $3 billion after-tax. The third impact will be higher new business strain resulting from the difference between the current investable returns and the returns used in pricing the new business. This impact could continue until the products are repriced. And there are also a number of second-order impacts listed here on the slide, and these second-order factors are more difficult to explicitly estimate since there are so many moving parts, but some may add to the potential aggregate negative impact if interest rates remain low. On Slide 23, you see that our net income in accordance with U.S. GAAP for the third quarter was $2.2 billion, which is $3.4 billion higher than our results under IFRS. The primary contributors to the difference in the third quarter were VA accounting differences, which totaled $2.5 billion, and other mark-to-market accounting differences which totaled $900 million. Turning to Slide 24. Total equity under U.S. GAAP was nearly $16 billion higher than under IFRS. The main driver to this difference was the higher cumulative net income on a U.S. GAAP basis of nearly $10 billion as IFRS and the Canadian accounting and actuarial regime has forced us to recognize the negative impact of recent unfavorable conditions more quickly. I'll now address 3 topics listed here on Slide 25, which may be on investor's minds. The first is whether there is any update to the 2015 management earnings objectives described at Manulife's Investor Day in November of 2010. Let me start by reiterating what we've said previously, that the lower interest rates and underperforming equity markets since the Investor Day both do represent headwinds to management's 2015 earnings objective. Having said that, we did consciously build in contingency when we developed the 2015 consolidated objective. While we recognize that the recent deterioration in the economic conditions is putting pressure on achieving management's objective to grow earnings to $4 billion by 2015, we remain committed to this as our earnings objective. Nevertheless, additional potential headwinds and risk factors have become evident as a result of higher economic uncertainty and volatility, which may result in a revision to these objectives at some point in the future. So for example, additional actions taken to stabilize earnings and further strengthen capital such as increased hedging, decreasing sales, additional reinsurance or other corporate actions could reduce the 2015 earnings objective. In addition, continued underperformance in equity markets and the impact of flat interest rates, including the second-order impacts on Slide 22, could also make that objective unachievable. Overall, we have not backed away from the $4 billion goal as our management objective, but we acknowledge that there are now a lot more headwinds and risk factors than there were earlier. The second question is around the net impact of market factors on VA guarantee liabilities that are dynamically hedged. As a result of exceptional market volatility, combined with the decline in equity markets in interest rate levels, there was a net after-tax impact of $900 million from the increase in VA guarantee liabilities on the block that is dynamically hedged. Approximately 1/3 of these impacts relates to the provisions for adverse deviation or PfADs on the hedge block of business. Recall that we do not attempt to hedge our exposure to changes in PfADs. A number of items contributed to the balance of the net impact. These factors include but are not limited to higher realized volatility leading to higher hedging costs, fund tracking error, policyholder behavior and other items in our hedged VA block that we do not or cannot hedge. Overall, we feel good about the effectiveness of the hedging program to date, but recognize that hedging does not completely eliminate all earnings volatility or all the VA risks. The third question relates to the potential for goodwill impairment in the fourth quarter. In fourth quarter 2011, we will be conducting our annual goodwill impairment testing as part of finalizing our 2012 business plan, which includes the update for our in-force and new business embedded values. Early indications suggest that the current economic environment, including the persistent low interest rate, will likely put pressure on the recoverable goodwill amounts related to our U.S. Life Insurance businesses. In particular, these updates could result in an additional goodwill impairment, that we do not expect the impairment to exceed $650 million, but the impact may be material to net income in the fourth quarter of 2011. Now this would have no impact on our MCCSR. So overall in the third quarter, the direct impact of lower equity markets and interest rates could have been substantially worse without the significant expansion of our hedging programs over the last year. The net loss for the quarter included our annual update to actuarial methods and assumptions. We remain ahead of our original timetable for reducing equity market and interest rate sensitivity, and in fact, we've now exceeded our 2014 goal for interest rate, earning sensitivity and are close to our 2014 goal for equity markets. MLI's MCCSR ratio was 219% at the end of the third quarter, which we view as a strong capital buffer, particularly in light of the significant hedging. We also continue to successfully change our mix of sales to the products which we want to grow. This now concludes our prepared remarks and operator, we'll now open the line to Q&A.

[Operator Instructions] The first question is from Tom MacKinnon of BMO Capital Markets.

Question, Mike, about potentially moving from the macro hedge to a dynamic hedge. What would it take you to -- what kind of level would we want to see in markets before you would start initiating that? What would be the potential gain in earnings or EPS if you were able to move from a favorable macro hedge to a dynamic hedge? And what other things would need to be considered before you would want to embark on that?

In terms of the equity hedging program -- in terms of being able to move either more of our macro hedging, Tom, to the dynamic hedging program or in fact, just adding period to the dynamic hedging program along the lines of the parameters that we've used over the last couple of years, we would need to see: number one, most importantly, a material increase in interest rates to make that -- to make those economics work. As you'll recall with the dynamic hedging program, Tom, when we short the equity futures, we're trading the equity, the total equity return for essentially a short-term LIBOR kind of rate, which is awfully close to 0 these days. We then turn around and trade that floating rate based on LIBOR for a long-term swap, typically something like a 30-year swap. 30-year swaps are so low that, in effect, by locking into that swap rate, it would be inordinately expensive even if the equity markets themselves were up another 15% or 20% relative to where they are today. Now in terms of the earnings impact going forward, again, there are a lot of moving parts. There would be an earnings impact at the time of making the decision. Again, if we followed our historic parameters, we would make that at a point in time where that would be pretty close to 0, but we always would have to go through that calculation. In terms of the ongoing impact, it would be very much depend upon the book of business. I think it's fair to say if you look at the macro hedging program costs that are laid out in the appendix in the deck, based on the notional of what's shorted and again, compare the -- trading the equity return for the short-term risk-free rate based on that, you'd want to compare that to a rule of thumb which is not always perfect but it's tended to be pretty close, that on the dynamic hedging program, again under the parameters that I've just mentioned, the cost would be approximately 50 basis points a year on the dollars of guarantee value that would be hedged. So the short answer is that in the near term, I would not expect that we would add materially to the dynamic hedging position, once we did, again, depending upon the parameters there might be a one-time earnings impact and again, the change in the ongoing earnings would depend upon that comparison that I mentioned. Let me see if Rahim or Warren want to add.

Mike, I think you've covered that pretty well. As is, I think, you indicated earlier, the interest rate component that would really have to move materially for us to be moving into more dynamic hedging.

I don't really have anything to add to that. Pretty much a complete answer.

But the -- I guess the takeaway is, if the macro environment does get to the right proper position where you can make this -- economically make this change, you would -- there would be some sort of positive earnings impact as a result of running a dynamic hedge versus a macro hedge?

Well potentially, Tom. It really does depend upon a lot of factors. I would not agree with your statement on a blanket basis. I can certainly dream up scenarios where the ongoing cost of the dynamic program could be greater than the macro program, so I wouldn't say it as a blanket statement. Again, as a practical matter, I think for the next couple of years, it's sort of an interesting hypothetical question but it's unlikely something that we would do because, again, the one-time impact -- because of the darn swap rates are so low, the one-time impact of making the flip over would be very expensive and detrimental to the capital.

And one quick follow-up. You talked a lot about the volatility in the quarter, but you're still -- I assume you're still comfortable with your volatility assumption you used in the stochastic modeling. Is that correct?

Yes, that's correct, Tom. I mean, obviously, we look at that all the time. I'm sure Cindy will look at it every year as part of the basis change. Again, vol is one of those things that bounces up and down. We view the third quarter 2011 volatility to be an extreme event and not the new run rate. We view it more like the September, October '08 period where it was even worse than it was in third quarter as more of an aberration as opposed to something that changes our long-term view.

Next question is from Steve Theriault of Bank of America Merrill Lynch.

First question, in the MD&A, you talked to your intention about starting to write credit default swaps. So can you talk to us a bit about the pace with which you might ramp the initiative? And can you take us through the mechanics of what you're doing here exactly? And I know, Don, you've always avoided this arguably controversial asset class, so what makes you comfortable that this is the right timing and the right course of action?

Well, in fairness, I'll answer that latter part first. I think it was my predecessor that talked more about credit default swaps. Credit default swaps, when they're properly tacked to a government bond, have no more risk than buying the cash in the cash market or cash bond in the cash market. What really matters is the quality of credit adjudication and that has always been my position on it, so we're quite comfortable with it. Scott will speak to the general movement and the pace.

Sure. So as Donald suggested, the intent is not to use credit default swaps to leverage it all. We actually hold a large amount of treasuries in our balance sheet backing our liabilities, a number of which were put on to reduce the interest rate risk over the last several years and we're not earning any credit spread on those, so the average quality of the portfolio has been going up. We'd like to earn some credit spread, we think this is a less risky way of adding credit spread and to redeploy those long treasuries into long corporate bonds -- -- here we'd be buying 5-year CDS. So as far as pace goes, the plan is to start with a $500 million program, see how that goes. And certainly, we would never add more than the amount of treasuries we have backing our liabilities. I would say that we plan to be a bit opportunistic with this. We will add when we perceive spreads to be wide, spreads are narrow we will not add.

And so is it -- so should I think of it in terms of being a synthetic way to add spread?

Yes, we're synthetically converting the treasuries into corporates, correct.

And exactly right, and it's a way to diversify the portfolio away from things that are available in the cash market -- or not available in the cash market that we would otherwise not get access to. So from a credit diversification standpoint, it's a very strong thing. What is dangerous and what my predecessor is worried about is operations like the financial products group of AIG, where with small amounts of capital, not in a staple format, people were taking on credit risk without adequate recognition of the total amount of risk they were exposed to. By stapling it with the treasury, we're absolutely conscious and it is replicating a cash bond.

And so by doing this, will that take your sensitivity to corporate spreads down effectively?

It will reduce our economic sensitivity to corporate spreads, but only in a modest way.

And then one more if I might. Michael, you talked about it. You talked about the first-order impacts on Slide 22 at some length. But just a question on the second-order impacts in the first bullet point there, where you talk about the potential for valuing some reserves on a more conservative rate scenario, which would lead to increased sensitivity to interest rates. It sounds a little ominous. Can you give us some indication with any level of precision as to what level of rates would have to persist for how long to trigger this type of thing? And has this ever happened before?

Sure. I'll start and I'll ask Cindy to add. Steve, by way of background, the Canadian actuarial standards force us to look at 9 different scenarios and in effect, pick the scenario that results in the highest reserve of those 9. Certainly, for the period of time since I've been in the job, that scenario has been the current interest rates ultimately grading to the URR. And what we've noted is that while that continues to be the most powerful scenario for most of our business, another scenario if rates, for example, went lower, that would be a more powerful scenario would be the scenario that says today's interest rates stay that way forever. And the reason that would have a more substantial interest rate sensitivity would result in a more -- in a higher interest rate sensitivity is that, that latter scenario throws out the URR, and again, basically says today's interest rates go forever. So what that means is in -- with subsequent changes in interest rates, you don't get that kind of buffering of the URR. Instead, you get the full impact of that -- of today's changes in interest rates as if that's going to be the new permanent curve. Cindy, by all means, please add.

That's a very good summary, Mike. And the other difference between the current scenario that we use and the one that some of the geographies we come onto with rates moving down 100 basis points, is that in the current scenario, we assume that credit spreads grade to sort of an unexpected monthly average up to 5 years, and we also assume that we are investing in corporate declines by 5% a year, over 5 years, and that is stipulated by the standards of practice. And the flat interest rate forever scenario, the current spread is forever, and you all see your current investment in corporate credit forever. So there's no grading down over time. Those are the other key aspects that are different between the 2 scenarios.

Steve, it's Mike. I'll just add. Obviously, if that ever did come to pass, we would obviously want to look at other ways to reduce the interest rate sensitivity. So we really weren't trying to be ominous. We were simply trying to point out that because of the drop in interest rates at third quarter, we now have this different reserving scenario possibly kicking in. And again, we reflected that to our best ability to estimate it in the interest rate sensitivities that we publish for the 100 basis point change. But again, it's just a new wrinkle because rates have come down so much.

Did you say, Mike, in your remarks, that there were some pockets that were switching to other scenarios like within Slide 21?

Right. Canada and Japan in the 100 basis point scenarios, switched to the flat rates forever. And in the MD&A, we say that, that added $400 million to our interest rate sensitivity and $300 million to our exposure to the 50 basis point decline in corporate spread.

The next question is from Robert Sedran of CIBC.

Mike, when I think about the interest rate assumption in the original 5-year plan, I guess it was for no change, and the 10-year treasury was somewhere in the low 3%, somewhere around 3.10% or 3.15% I guess. Presumably, there would have been a need to build the URR even at that level. Was it just that it would not have been material at that level?

Robert, it's Mike. Yes, that is my recollection, that the URR impact -- particularly, remember we were talking about 2015 earnings. So the URR impact -- my recollection was at the time that, that was not material to 2015 earnings. Now obviously, there's the double-barreled impact of the recent drop in interest rates. Number one, obviously, we took the current hit in the quarter for the drop in interest rates, and that means less earnings in surplus, which now means now projected less interest on surplus going forward because we've got less surplus because of the one-time earnings hit. In addition, you've got now IOS, is expected to be lower based on the new lower rates. And then as you correctly point out, we now expect a steady diet of URR hits. If rates stayed exactly where they are now, we expect a steady diet of URR hits that would include a hit in 2015. Now again, I just want to reinforce what I said in the prepared remarks, Robert, we have not thrown in the towel on our 2015 earnings objective. The point is we no longer have contingency and there are now more risk factors and other potential headwinds that were not there before.

And by now, you're basically referring to the yield curve as it existed on September 30?

That's correct.

And just a quick question on strain. It did bounce to a pretty high level this quarter and there were 2 items mentioned. I wonder just if you could size the 2 between Asia distribution investment and the impact of the rate environment. Which was the bigger factor here?

The rate environment was the bigger factor.

Like by orders of magnitude larger or like is the vast majority of that increase just interest rates?

I would say roughly 2/3-1/3.

The next question is from Mario Mendonca of Canaccord Genuity.

You referred to the $742 million related to the assumption that mortality continues to improve, that obviously has a detrimental effect on your expected profit as you lay out in one of the subsequent exhibits. My understanding is that you don't get a capital benefit here from assuming that -- taking that gain, that mortality improvement gain, at least that's our understanding right now. Why would you assume improving mortality if you don't get the capital benefit, knowing full well that you lose something from future earnings going forward? What was the logic behind that?

It's Cindy. Well, the logic is that the CIA standards really required you to reflect mortality improvements. And so to be in compliance with the standards, I felt obliged to reflect the mortality improvements in line with the assumptions even that they put forward. So that was the driving factor.

And Mario, it's Mike. I'd also add that $742 million that you're referencing was not mainly the mortality improvement. If you look at the detail in the MD&A, the impact on the higher mortality in the variable annuity block was the bulk of that $742 million benefit, not the projected net impact of future morbidity and mortality improvement.

Right.

How much of the $742 million was the improved mortality and morbidity?

$97 million after-tax.

I'm sorry, I didn't realize it was the small amount. The second thing I wanted to quickly just touch on is there's a lot of -- there are a lot of references to U.S. GAAP and the importance of U.S. GAAP and how it maybe -- I don't know if you're actually telling us it's a better reflection, but when I look at your Page 23, it demonstrates that under U.S. GAAP -- this is your presentation, it demonstrates that in what was -- what everybody is characterizing, including Donald, yourself, like a pretty tough quarter, that under U.S. GAAP, Manulife would have recorded record earnings of $2.2 billion. Isn't the message really than that U.S. GAAP has no place in Life Insurance at least for Manulife because like what is the point of this slide if, in fact, U.S. GAAP would send such an erroneous message?

Well, that's a good question, Mario. I think the answer is it's actually somewhere between Canadian and U.S. GAAP if you're looking for the right answer. It depends in a way what happens 4 or 5 years from now. If interest rates bounce back to where they were before, I think people will say U.S. GAAP sent the right signals because it's a stable business and kept companies writing intra-sensitive products and recording profits associated with them, and it will have been the better accounting system. If on the other hand, rates stay where they are and Canadian GAAP issuers are forced to deal with that by raising prices, changing the nature of products and so on, we will be far better off in the long run because we're sensitized to the situation. As one of the rating agencies observed -- and if you haven't seen, there's 2 really good pieces been put out, one by S&P and one by Moody's that talks about the differences, and they've just put out in the last week. And one of them concluded that the right answer is probably neither one of those scenarios. They're somewhere in between, and I think that's probably the best comment that I've seen a long time on it. The Canadian one is far too reactive. And to the current circumstance, if rates were to drop on the last day of the month, this would wreak havoc on a company in a Canadian reporting issuer. The U.S. one wouldn't react at all. On the other hand, if you follow the U.S. system, you continue to write products based on interest rates that prevailed sometime in the past, which may not be the most sensible thing in today's volatile economy.

I appreciate the thoroughness of that answer. Just one final thing. You make several comments throughout -- in your prepared remarks also, that the regulatory environment has become one of those key risks, or if not the most important thing you have to think about. What do you have in mind then? Do you have something like a decoupling of the MCCSR from our accounting standards? Like what do you have in mind when you suggest that the regulators have perhaps just gone too far?

Well, regulators around the world are looking at making the standards tough, whether you're talking about Solvency II or Basel III applying to banks or what Canadian regulators are looking for -- looking at, AG 38 in the United States. Regulators everywhere are looking to make standards tougher. At any point in time, we have a long laundry list of things that our regulators are looking for that would add up to billions of dollars. Now at the end of the day, they tend to be sensible people and only enact those things that are appropriate and justified. The fact is when you look at the level of provisions for adverse deviation our company has -- and that's a bit of a technical term, but sort of the pads, the buffer that's inherent in our reserves. Our reserves alone are sufficient to extinguish our liabilities with a large margin for error. When you add onto that capital at the required level, and then 219% of that capital, which doesn't allow any credit for a hedging that we've done, and we've got something on the order of $16 billion of hedges in place, this has to be one of the most secure institutions on the face of the Earth. It's hard to imagine in that kind of environment that somebody would want to impose a tougher capital standard on you or to make a Canadian company look weaker by imposing a tougher requirement in terms of the required capital. So that's my belief system. You can tell I feel a little bit of passion about it.

The next question is from Gabriel Dechaine of Credit Suisse. Gabriel Dechaine - Crédit Suisse AG, Research Division: Just to tie in the -- your capital levels into your long-term management objectives, it sounds like there's clearly a trade-off between hitting the objective and potentially having to take actions that are going to either reduce your capital sensitivity or strengthen it on an absolute basis. Like where is your thinking at right now as far as your management actions on the horizon? Are they going to be geared more towards raising the capital ratios? And if so, could you describe those? And what kind of impact it could have on that guidance? The earnings guidance, sorry.

Gabriel, it's Mike. I'll start and see if Don wants to add. First, just to recap the point. You heard it exactly right. As we look for opportunities to bolster our capital in the near term, many of those do have the impact of reducing future year earnings. So let me just give a couple of examples. We obviously sold the Life Retro business. It boosted our MCCSR, but we gave away a stream of approximately $50 million a year after-tax at the margin and earnings stream for that. Similarly, we entered into a reinsurance contract in Canada, gave us, say, an immediate boost to our MCCSR, gave us an immediate boost to capital in that quarter. But again, that comes with a price tag. So for several years, there'll be a similar kind of down headwind in terms of our earnings. So what we're simply flagging is that as we look for other opportunities to bolster our capital position, either today or if markets continue to be under pressure, some of those actions may come at a price of lowering future earnings. At this point, we've not thrown in the towel on the $4 billion. At this point, we feel good about the 219% ratio, as Donald said, that serves as a very strong buffer for policyholder obligations when you include those PfADs on top of the capital. But having said that, we're sensitive to the rating agencies who are sensitive to the MCCSR. And again, we're cognizant to keep that regulatory capital ratio at a robust level. So those are the trade-offs that we're thinking about. I think it's too early to try to predict that we're going to take action and it's going to have an earnings impact of x. I'm simply flagging that as we -- that at 219%, with the kind of volatility that we're having out there, to me, it was an important risk factor to flag, but not ready yet to give you a prediction. Gabriel Dechaine - Crédit Suisse AG, Research Division: Presumably, you've got a few similar type transactions like the ones that you've already taken to bolster that capital ratio?

Well, Gabriel, that's our view, is that we do have those as potentials. Again though, as we enter into more of those kinds of transactions, that would be potentially more headwind on our 2015 earnings objective. So there's no free lunch and we'll be evaluating that kind of trade-off going forward. Gabriel Dechaine - Crédit Suisse AG, Research Division: And last one, the steady diet, a good way to put it, of URR strengthening over the next 4 years, you're saying it's going to be $1 billion to $2 billion of that $2 billion to $3 billion over the next 10. Is that like a straight line? I guess it depends on if you're taking it down by 10 basis points at a time or what? Like how much flexibility do you have there or is it really just more mechanical and it's going to be downward sloping kind of number or what?

I'll start and see if Cindy wants to add. You are right that under our current process, it is, in fact, mechanical. If interest rates stayed where they were -- stayed where they are today, I would expect there to be a more significant hit in 2012. So of that $1 billion to $2 billion, the largest single impact would -- under this hypothetical scenario, I would expect to be in 2012. And then grading down -- so you start getting into the out years where you're moving past the 5 years, the formulas the 10-year rolling average for the last 5 years double weighted. As you move past the double-weighted period, we would expect less of an impact. So it could be in excess of $500 million here in 2012 depending upon if -- how close rates stayed where they are today but less impact when you get to the out years.

Next question is from Doug Young of TD Securities.

I guess my first question, going back, I think, to what Mario was talking about in Slide 23, the depiction of Canadian GAAP to U.S. GAAP. And I guess maybe is another way to really look at this is that there's really no way that a Canadian Life Co can compete in the U.S. market. Is that a fair takeaway from that slide as well?

Well, Doug, I don't think that's quite fair. I mean, certainly, we compete very effectively in the U.S. I think it's just a reminder that accounting regimes matter and accounting regimes are different. And that as people are evaluating our results relative to our U.S. competitors, I do think it would be unreasonable and inappropriate, not particularly helpful for you to take the $1.3 billion loss that we had and compare it to big U.S. companies. I think that's apples and oranges. Once again though, back to Mario's points, we're not trying to say that U.S. GAAP is better. It simply is more punitive in unfavorable markets and that's what we dealt with, with this quarter.

Is it not fair to say it's very difficult to compete on a pricing perspective when there is that type of discrepancy?

Well there is -- I think in products that give rise to the sensitivity, the interest sensitivity, I think that is a fair conclusion to make. Not only because of the accounting but because that accounting feeds directly into our solvency formula. So we would have to provide more capital as result of interest rates going down than a U.S. company would have to do. That is a significant disadvantage. Having said that, the fact that interest rates are volatile and the fact that companies sell products with embedded guarantees, I think it sends a useful signal that, that's a dangerous thing to do. I mean, if you look to the Japan experience, a number of companies went bankrupt as a result of having guarantees out there and not responding to them quick enough. And that's one good feature of the Canadian accounting regime. But the fact that we have investors that you guys speak to who say, I like XYZ company -- a U.S. GAAP reporter, because they have much more stable earnings profile than Manulife or some of our other Canadian peers, that is a totally invidious comparison because if you look at our U.S. GAAP results, they're pretty stable and as Mike is pointed out, would produce $16 billion higher capital than the Canadian formula. But it is fair for you to conclude that Canadian companies are being put at a competitive disadvantage operating in the United States because we have to hold capital that is a direct reflection of the accounting regime, whereas the U.S. has a far more stable solvency regime.

And Doug, it's Mike. Just to add one firm example of that. When we sold the Life Retro business to Pac Life, I mean, one of the things that we noted is that our view was that, that was a win-win transaction in all likelihood for both parties because that business was disadvantaged under the Canadian capital regime relative to what -- how Pac Life could manage that business purely under the U.S. regime. So that would be a tangible example. Now again, that was primarily driven by capital as opposed to accounting volatility. But the 2 are obviously linked here in Canada because the Canadian capital regime is directly linked to CGAAP unlike the U.S.

Okay, and just my follow-up is you talked about taking potentially a pension charge of $864 million. I'm wondering, Michael, is that a Q4 event? And if I can tie that in just to capital obviously, markets and rates are up higher so that's going to have a positive implication for your capital ratio. But if you do take that pension charge it's a 7-point impact, you've got the reinsurance phase-in of 3 points. If we take that off of obviously where you were at the end of Q3, your capital ratio would start to go below 2010. And I'm just looking at your comfort around that particular scenario and is that going to expedite maybe looking for other alternatives or other levers to pull to boost your capital ratio.

Okay, well Doug, first just in terms with the facts, the new IFRS rules would go into effect January 1, 2013. So I believe that it would impact our opening balance sheet for 2013. It would not be an earnings issue in 2012. It would instead be an opening balance sheet issue in 2013. Importantly, that $864 million number will move, and that was the number as of year end 2010, it will be what it will be at year end 2012. But it's not something that you can pour in concrete at this point. And also, my recollection is that's a pretax number too, so you'd want to tax affect it. But putting aside the minutiae of the calculation for a second, the most important thing is that, to date, OSFI has not opined yet on how they would treat this. This impact would impact the opening OCI balance, it would not impact retained earnings. It would impact the opening OCI balance for 01/01/13 and OSFI has not opined on how they would treat that impact. So we don't know at this point whether it would impact the MCCSR or not. Now as to your broader question on capital, obviously, we're cognizant of the fact that there are all sorts of scenarios you can dream up that could put additional pressure on our capital. At 219%, again without any explicit credit for hedging, we feel like it's a good capital level from a risk management standpoint, again, particularly if you add in the PfADs, a lot of policyholder protection there. But again, we're cognizant of the need to keep our externally published capital ratios at robust levels. And obviously, that's why it's always important for us to have contingency plans and other possible management actions on the shelf as we try to do all the time to be able to execute if we need to.

The next question is from Peter Routledge of National Bank Financial.

I hate to keep doing this, I'll come back to Slide 24. Don, the clear implication of Slide 24 is that book value in Canadian GAAP is somewhat understated. And I imagine, that would impact John Hancock more than any of your other businesses. Those -- is a way of unlocking value looking at spinning off John Hancock in some fashion? I acknowledge maybe this quarter wouldn't be an accommodative quarter for it, but thinking forward, if you get a bit more growth and Hancock's platform has seemed to have recovered quite nicely in selling the products you want to sell. Why not try and unlock value for shareholders in that way?

Well, Peter, we look at a wide range of alternatives. We're very proud of what the John Hancock units are doing. I mean, great mutual fund sales, great 401k sales and great Insurance sales. And as Michael mentioned, 85-plus percent in products that don't give rise to the exceptional interest rate volatility. And variable annuities, which I think -- whether you look at on a Canadian GAAP or U.S. GAAP basis or simple economics, are a product that we don't want to have a gigantic exposure to moving forward. Moderate amounts are fine but I think any sensible person would attenuate exposure to those products, given some of the risks they expose one to. We're very proud of what the unit is doing. On the other hand, it is not unnoticed to us that, that business operates under a very significant disadvantage because of our Canadian solvency regime and our Canadian accounting regime. And if there were simple ways of unlocking value for shareholders, we would do that. We would hope that more sanity would prevail over time, and that there would be more uniformity of the Solvency and accounting standards so that we could judge comparable businesses on a comparable basis. That's the hope that we would have. But you also can't wait for 20 years for that to happen. And if there were ways of unlocking value to the benefit of shareholders, we would take those opportunities. Having said that, in the meantime, we continue to drive the business in an incredibly positive direction, and I'm very, very proud of what our guys are doing in the States. And they're delivering good value for shareholders under the considerable challenge under which they operate as a result of our Canadian accounting and Solvency regime.

The next question is from Darko Mihelic of Cormark Securities.

I actually have a couple of really quick and simple ones, I think. You mentioned or you actually incurred a small charge this quarter for URR refinement. Did you actually change your rate in there or is the rate the same as last quarter and just some other model refinements that's occurred?

It's Cindy. The charge this quarter was two-fold, one was -- and the bulk of it was really in Q2, we booked the URR charge for our material businesses and that didn't include Asia. So the bulk of the charge this quarter is to book that for our Asian businesses. And the second piece was just a minor true-up due to the differences between interest rates at Q1 and Q2. We did our estimate for the Q2 bookings based on interest rates that prevailed at the end of Q1.

Okay. And just a follow-up to that. The sensitivity to URR change -- actually, no, I'll leave that for something else. My last question really is in just moving on to the NAIC task force, considering life insurers' reserve methodologies in the U.S. in respect to UL products. Do you guys have any exposure to that product?

Darko, Jim Boyle from the U.S. This is the AG 38 question that you're referring to. Very early to tell right now. This is with a actuarial committee that's going to report up through more senior ranks in the NAIC. To answer the question specifically, it was trying to address effectively term products that were put on a UL chassis. We've written none of that business. There are some that read the interpretation of the proposed refinements to the regs that seem to indicate that it would apply to all UL, not just the specifically unique to term UL. So if it somehow was all UL products, certainly we'd have an exposure. But it's very early days and we've written none of the products that brought this to the table.

Darko, it's Mike. I'd add just one point, and that is that as you know typically in the U.S., when they make changes to the stat reserve standards, the NAIC typically makes those prospectively. And if that change was made prospectively, it would be really a very, very minimal impact for us.

The next question is from Andre Hardy of RBC Capital Markets.

Question is probably for Mike Bell, and it's on sources of earnings. If we isolate expected profit on in-force, impact of new business and earnings on surplus fund, I guess there are reasons why the expected profit on in-force is down and that will stay down relative to the past. But on the impact on new business, how aggressive are you at repricing product to reflect the current interest rate environment? And assuming you're active now, fair to say that it takes a couple of quarters before it's actually reflected in the strain? And then on earnings on surplus, you had something that went in the wrong way in the quarter, I hate asking for guidance, but what do you roughly expect out of that line item in a normal quarter, presumably it's a higher number than $96 million?

Sure. Andre, I'll start. I'll see if Paul wants to comment here on Canada in particular. In terms of new business strain, certainly our track record over the last several years, and certainly since Donald has been CEO, has been to respond quickly to what appears to be a semipermanent drop in interest rate. So fair to say that with the drop that we've seen over the last 4 months, that's been a very high priority to update pricing plans. Having said that, you're exactly right. There is normally a lag time in terms of sorting out the pricing decision, then getting that filed and then getting that implemented through the distribution channel. So you are right that it typically takes a couple of months. Let me just -- I'll hit the IOS piece and I'll ask Paul to comment on the Canadian price increases. On the IOS, second quarter benefited from some market value gains on -- specifically some derivatives, but derivatives related to non-fixed-income investments. Third quarter had essentially a reversal of about the same amount. Again, I don't want to give guidance here. I don't think that's a good game to get into, but I think it would be fair to say somewhere close to the middle of that would be the second quarter and third quarter answer if you washed out the positive in Q2 and the negative in Q3. That wouldn't be a bad place to start in terms of your modeling. But again, it is complicated, there are a lot of moving parts, so I probably ought to pause there. Let me see if Paul wants to talk about the price increases in Canada.

Yes, it's Paul Rooney here. Our strain in Canada comes from more than one place, the bank mutual funds where you can't stack some of the amortization or the acquisition costs. But the biggest chunk is the level of COI long-tail Universal Life business. Last year, we increased the prices to attenuate strain. Virtually all of our competitors followed. Very recently, we significantly increased prices again to reflect the strain and the low level of interest rates. We haven't seen any competitors react yet but we expect they will given this low environment. And this round of price increases should largely eliminate the strain on the long-tail Universal Life. If rates fall further, we're perfectly ready to adjust prices again to reflect the current and future nature of the economics. So yes, it takes some time to react to -- to have pricing react to the current environment, but not that long.

[Operator Instructions] The next question is from Michael Goldberg of Desjardins Securities.

My first question relates to Page 24 of the press release. And I'm just wondering, aside from that pension accounting change and the possible regulatory response to it -- do the comments about regulatory actuarial and accounting risks there, to what extent can I view this as boilerplate versus new factors that may have an imminent impact?

Michael, I'll start, it's Mike. I mean again, we endeavor every quarter to make our disclosures as robust and up-to-date as possible. Consistent with what we've talked about, we see regulators around the world, not just OSFI, but regulators around the world getting tougher. And particularly at OSFI, they've got a number of things that they've talked about. And again, we felt like it was important to communicate very clearly. On the professional standards piece, we are aware that the Canadian Institute of Actuaries, in particular, is looking at the calibration standards that ultimately are used for VA reserving and also required capital calculations. Again, that is something that I would not be surprised about if it came out sooner rather than later and had a 2012 impact. So, again, I'd say it's both a global trend that we're seeing but also again, some sense that the CIA may act and that could have an impact is also what we're communicating there.

And secondly, I see the comparison that you show, U.S. GAAP versus IFRS, but U.S. companies are also driven by stat accounting. I'm wondering how you'd compare the U.S. versus Canadian regulatory environment where some U.S. companies are raising or considering raising their common share dividends while in Canada, companies are still perceived as under pressure, the strength in capital more? But to put it in another way, if you took your business, all other things being equal and plunked it down in the U.S., is it conceivable that you'd have 500%-plus RBC and that you'd be looking to increase your common share dividend also?

Michael, you're absolutely right. If we were a U.S. GAAP issuer, we would have -- I can't say the ratio would be that. But because we don't reverse them, but it's probably a reasonable guess. And yes, we'd probably be -- you look at companies in a much more fragile position than us in the United States that are actually increasing their dividends and actually buying back stock. And our regime here in Canada, I mean, the good news is it's conservative. But the bad news is it's probably overly conservative, and I think you're bringing that out. It is what it is and we don't have roller skates.

Are you aware if there is any kind of Rosetta Stone that could actually translate from one to the other?

I don't think so. I mean, I guess we see and publish what our U.S. business has, and we know what that translates to into Canadian MCCSR, basically multiply it by half, and with much more volatility having to do with the interest rates and equity markets. We don't do U.S. statutory reporting on the entire enterprise because, a, it'll be a lot of work, and other than answering your question, there would be no other use for it. So it would be an interesting thing to do or to approximate.

I just wonder if OSFI might be interested or might be worthwhile for them to be informed?

Yes, it might be. I mean, I've seen some analysis that people have done that compares in the property casualty industry the different Solvency regimes. The Canadian regime is very reactive to current interest rates and current equity markets and far more reactive. That's the big difference. And again, it depends. If you think that rates are going to stay where they are for the next 30 years, by far, the Canadian is a more superior regime. If you think that in 3 or 4 years' time things might get back to normalcy in the global economy, the U.S. regime has a lot to be said for.

There are no further questions registered at this time. I would like to return the meeting over to Mr. Ostler.

Thank you, Jason. We will be available after the call if there are any follow-up questions. Have a good afternoon, everyone.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.