Good afternoon, and welcome to the Manulife Financial fourth quarter 2013 financial results conference call for Thursday, February 13, 2014. Your host for today will be Ms. Anique Asher. Ms. Asher, please go ahead.

Thank you, and good afternoon. Welcome to Manulife conference call to discuss our fourth quarter and full year 2013 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 remarks. We will then follow with a question-and-answer session. Today speakers may make forward-looking statements within the meaning of securities legislation. Certain material factors or assumptions are implied 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. We've also included a note to use the slide that sets out the performance on non-GAAP measures used in today's presentation. When we reach the question-and-answer portion of our conference call, we would ask each participant to adhere to a limit of one or two question. If you have additional questions, please re-queue, and we'll do our best to respond to all questions. With that, I'd like to turn the call over to Donald Guloien, our President and Chief Executive Officer. Donald?

Thank you, Anique. Good afternoon, everyone and thank you for joining us today. I'm joined on the call by our Chief Financial Officer, Steve Roder; as well as several members of our senior management team, including Bob Cook, our Asian General Manager; Marianne Harrison, our Canadian General Manager; Craig Bromley, our U.S. General Manager; Chief Operating Officer, Paul Rooney; Chief Investment Officer, Warren Thomson; our Executive Vice President and General Account Investments, Scott Hartz; our Chief Actuary, Cindy Forbes; and our Chief Risk Officer, Rahim Hirji; and last but least, our Treasurer, Steven Moore. I hope you'll make maximum use of these people in the call today by directing questions to one or more of them. This morning, we announced our fourth quarter and full year 2013 financial results. They were quite satisfactory. As you can see from the chart, we've enjoyed an impressive trajectory in net income. In 2010, we had a loss of $1.7 billion; in 2011, a small gain; 2012, earnings increased to $1.8 billion; and for full year 2013, a further improvement to $3.1 billion. While this trajectory is impressive, I wanted to dissuade anyone from applying a straight rule to that graph to extrapolate the growth rate and net income for next year. That is because our net income in 2013 benefited from unusual items, including exceptional investment-related experience of $906 million, which we would not expect to recur at least immediately. In addition, we realized a $350 million gain on the sale of our Taiwan business, definitely a non-recurring item. These were partially offset by other items, including updates to actuarial models and market-related factors, which netted to a $543 million charge. It is for this reason that we introduced the core earnings metric, as it is a better measure of long-term earnings capacity…

Thank you, Donald, and hello, everyone. Let's start on Slide 6, where we highlight our financial and operating results for the fourth quarter of 2013. We reported net income attributed to shareholders of $1.3 billion, up $220 million from the prior period. In terms of our operating performance, we generated core earnings of $685 million, up 24% from the fourth quarter of last year. We achieved strong wealth sales of over $12 billion, up 15%. And delivered new business embedded value of $316 million, up 27%. Insurance sales however declined in the fourth quarter of 2013, reflecting normal variability in our market-leading Group Benefits business in Canada. Turning to Slide 7, you can see that we are demonstrating solid progress on growing both our core and reported earnings. For the full year we generated $2.6 billion of core earnings, an increase of almost $370 million driven by growth in our wealth business, improved new business strain, primarily in our North America insurance businesses and lower amortization of deferred acquisition costs. These were partly offset by higher legal and other expenses. In the fourth quarter of 2013, we reported core earnings of $685 million, up $131 million from the fourth quarter of 2012, driven by many of the same factors as our annual results. Turning to Slide 8, and the progression of our total company core earnings over the previous quarter. In Asia, the decline in core earnings was largely driven by a one-off tax adjustment and normal variability in our branding initiatives. In Canada, last year's core earnings included a one-time benefit from a release of prior year's tax provisions. Excluding that benefit, core earnings in Canada improved as a result of higher fee income from our growing wealth businesses and improved insurance new business strength. In the U.S., core…

(Operator Instructions) And the first question comes from Robert Sedran from CIBC World Markets.

Steve, just a follow-up on the expense issue. I mean, I know it was noted in a couple of places, I guess on both on a year-over-year and for the quarter. For the quarter and year that expenses were a drag on core earnings. And so when you think about those savings that you disclosed and you talked about net savings, is that reinvestable expenses into other initiatives or is that $400 million that over time you would expect to fall down at the bottomline?

Thanks for the question Rob. The $400 million, I would say, over time, it will fall down for the bottomline and be available to us to do with what we well if you like. Of course, we always have new initiatives, but based on the projects we have identified right now by the time we get to 2016, we'd expect $400 to fall through to the bottomline. The caveat I would put around that is I think I said on the call that E&E is a way of life. So we don't want to sense of our newfound culture coming to an end in 2016 as it were, but essentially, yes, it drops to the bottom line. In terms of the quarter, and your reference to the quarter and year-on-year, yes, we did have one or two cost that we have to take into core earnings in Q4. And I can say as an accountant, if I ever see an earnings trend where you see a very nice, neat, straight line improvement from one quarter to the next, I am pretty cynical about that and it never happens that way. There is always odds and ends that impact a quarter. And this quarter, we did have a couple of expenses, legal and other that we highlighted that did impact core earnings.

I want to ask a question about new business embedded value and as it relates to insurance sales. For a few quarters now or at least a couple of quarters, we have been hearing that insurance sales have not been tracking as expected. But your new business embedded value would seem to be doing exactly what you would want out of insurance sales. So this sounds like a softball, but I don't intend it as such. When I look at new business embedded value versus insurance sales, are there other issues from a business perspective we should be thinking about that would make us look at the insurance sale number? For example, I am thinking of things like expense accruals or perhaps issues with the distribution network that might not make you as attractive a partner if you don't have a high-enough dollar value of sales. Should we just look at new business embedded value? Or does the dollar value of sales really matter from a business perspective?

Rob, I think it's a great question. More sales people like to be associated with a growing organization. It's not an issue what the scalability. Obviously, the more we sell, the more we cover the fixed cost. And that is an issue. We've scaled back certain products considerably. But in our core businesses, we like to see growth. Everybody likes to see growth. And we were playing a balance between selling them at the right margin, but also getting sales increase year-on-year. I think the balance has been pretty good for the shareholder and that we've increased new business embedded value, you can see core earnings going up, both them by 16%. It's absolutely a result of those factors, but we also don't want to see sales fall on precipitously.

Your next question is from Tom MacKinnon from BMO Capital Markets.

Steve, I wonder if you can elaborate on Slide 8, what some of these little one-timer items might be, the higher legal and other accruals and one-off tax adjustment in Asia? And then I've got a follow-up.

Well, first of all, let me just say at the outset, Tom, I would they're on balance. You could always a discussion about what's a one-off item, how one-off is one-off item and so some of these things are harder than others. I'd say this quarter if you take all these items together they largely net out possibly slightly negative to us in the quarter, whereas last quarter, they were slightly favoring core earnings. You may recall last quarter we highlighted the favorable tax item in the Canadian division, so that they trend line is negative, but if you look underneath it, I'd say it's probably pretty much flat or very slightly positive. In terms of the items themselves, I can't comment on the nature of the legal item, which we took this quarter, but we decided we need to make a provision there, and the net amount was in the order of $20 million. And in Asia, again, we took a tax accrual based on perception of interpretation of a tax law in a particular jurisdiction. Call it, magnitude there, Tom, roughly $10 million.

If I look over at the Source of Earnings exhibit on Slide 10, I think you had mentioned if you ex-out currency and as well the transfer, the offsetting transfers from sort of the macro, the dynamic, as they work between expected profit and management action, I think you had said the expected profit excluding those items was flat quarter-over-quarter. Now given the equity markets went up nicely, you have been building all this wealth management business, presumably you get higher fee income coming in and that would flow right into the expected profit. Why wouldn't we have expected the expected profit to be up a little bit quarter-over-quarter? What may have been working against it?

So you're on Slide 10.

Yes.

The expected profit was marginally up quarter-over-quarter, I believe -- or no, actually currency adjusted.

There is always a little bit of variability in earnings on in-force quarter-to-quarter. It's impacted by things like corporate spreads and just investment actions or the timing of when swaps reset or mature. So there is a little bit of noise and you're just seeing some downward pressure from that noise in the fourth quarter, but it's just really period-to-period noise, it's not a trend.

If I can just correct myself, what I should have said is that the decline that you see, if you currency adjust it, that there is still a marginal decline, which Cindy is referring to, but it's not as pronounced as the headline number.

I mean one of the things, I think is that don't you have the dynamic costs in the expected profit and the macro costs in the management actions? So those two things kind of net out, but I thought you said net of that as well it was flat quarter-over-quarter?

Tom, just you can't hear, but everybody here is agreeing with your analysis of the geography, as we move from macro to dynamic, it shows up, the reduction in expected profit, but not a loss for the company.

And I guess my final question is really just with respect to the capital deployment and the solid cushion you talk about, but a series of steps you want to see before you would consider increasing the dividend. And one was more clarity in terms of a capital and accounting framework. You did mention in the release, I think this is the first time we have heard something like that, but with respect to the Actuarial Standards Board, that you don't anticipate the implementation of what they are proposing here is going to have any impact on net income. So I would take that as being a checkmark in the clarity box there. What other things do you need here? I understand the leverage and the stability in the earnings, but if we want to keep looking for clarity in terms of capital and accounting in insurance-land, we could be not ticking that box for another 30 years here or so?

I think the item is probably at the top of our agenda in that category right now. Tom, it would be IFRS and IASB issue and where that's going to end up, so we're waiting for further clarification from the International Accounting Standards Board. What they're intending to do about accounting for insurance and then the question will be how does that translate into regulation here in Canada. So I think that that's certainly one large cloud we'd like to see move away from the horizon. And I would agree with you, however, that in terms of the Actuarial Standards Board that particular cloud has become significantly more benign in recent months. Cindy, do you want to add anything.

The only thing I would say, Tom, is we didn't say no impact, we said it wasn't significant, and we did point to fact that, it is somewhat -- the impact will depend a little bit on interest rates at the point of implementation. And of course, we only have exposure's draft, not the final one. So there is some uncertainty out there. Just to put in perspective.

We have to be mindful also of capital change in other jurisdictions. The United States, AG38 seems to be going in a positive direction. There is principal-based reserving coming in, a whole bunch of things, developments going on in Asia as well. So we have to be weary of capital rules in the territories, which we operate, not just the Canadian ones.

The next question is from Mario Mendonca from TD Securities.

Steve, when you refer to the leverage ratio reaching 25% by 2016, should we interpreted that to mean that the company wouldn't do anything to reduce the leverage ratio ahead of time? And in fact, the intention is to allow it to decline organically?

Not necessarily, Mario. We have a significant amount of debt coming due over the next two years. So no, we do have some flexibility. But it's probably fair to say that our current bias is towards refinancing whilst interest rates remain low, but we perhaps have an outlook for the future where they may increase. So given the volume of refinancing that we have coming up, we are probably more than likely to refinance in the short-term. No, we're not locked into any particular position.

And then a detailed question on experience. Could you just give us an understanding of what expense experience was like in the quarter? After-tax is fine as well. If you had an expense experience loss, it sounds like you did? And if you could just talk about policy holder experience more generally, like mortality and morbidity, it sounds like it was somewhat positive this quarter, if you could just flesh that out?

On the mortality morbidity experience, yes, it was positive in the quarter, largely on our U.S. life business. There is some volatility or variability in our claims experience quarter-to-quarter on that business, because the policy sizes are quite large. So we do see some variation Q-to-Q and this is was a good quarter. On expenses, I actually don't have that number with me, in terms of our expense impact this quarter, the gain or loss. And it would have been a loss this quarter, but I don't have the exact number with me.

The next question is from Steve Theriault from Bank of America Merrill Lynch.

A couple questions. First one is probably for Warren. Warren, in the report to shareholders as you indicate investment-related experience of positive $265 million; and I know only $50 million gets included in core. But I am interested. You flag yield enhancement within part of the text in the report to shareholders. I was just hoping you could tell us how much yield enhancement actually came through within that $265 million. And if you could size that for us in terms of what kind of an opportunity is this going forward?

I would break it down into two items. We don't, I think give the actual details on it, but in terms of what the two items are, it's largely credit experience is one of the big contributors and we've had good credit experience for several quarters now. Obviously, this current environment has been quite benign. And one of the items that did occur in 2013, as we did have some recoveries on positions that we had previously provided for us, so that's included in the sort of better recovery numbers in 2013, as well as in Q4 specifically. The second thing that was probably more important in Q4 was the actual deployment of treasuries. And again, if you recall in Q2, we actually had a lot of treasuries for which we had a weaker experience gain in that quarter. And those treasuries were deployed in Q4 into spread product. And that deployment into spread product gives rise to experience gains. And so it's really those two were the big contributors this quarter. There was a lot of issuance in the market, and because of that level of issuance, that is what we're able to take advantage of and deploy the treasuries.

So the yield enhancement this quarter is probably better characterized as a bit more one-time in nature than something that's going to be ongoing. Is that right?

I would say that both were probably higher than we would expect on an ongoing basis. Actually what we are flagging, it was a very robust quarter for both. I mean, again, we are in a more benign credit environment, so we expect likely to see favorable credit experience continue as long as the sort of economy stays on its current path. And the issuance, it was again a function of sort of where markets are at. So again, Q4 was a very good quarter for us across the board from an issuance perspective.

And so secondly, life insurance sales have been, as you said, Don, a little lower than you would have liked. So I was hoping maybe we could ask Bob Cook to provide maybe a quick outlook on what he is looking for, for insurance sales next year, in terms of, Bob, where you're seeing momentum specifically? And is there any more pricing changes in the pipeline or on the near-term horizon that could affect momentum either positively or negatively?

Steve, I think as we indicated, or as Steve indicated in his comments, we saw a number of areas of improving momentum in the fourth quarter, notably Hong Kong and Indonesia is two of our largest businesses. And towards the end of the quarter, even though the total quarter numbers for Japan were still down, towards the end of the quarter we started to see some recovery in Japan. I think looking forward to 2014 that will kind of be the big question mark. We have some new product launches that we've made earlier this month in February in the corporate market, and corporate sales peak at the end of the first quarter in Japan. So that will be a good test for the quality of the new products that we have launched. I guess in terms of last part of your question, about ongoing pricing and product changes, I think for the most part we can look at them as kind of improvements to competitive position from here on in as opposed to addressing any particular risk issues in the portfolio.

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

Just coming back to the capital issue, if I look at your MCCSR, which is quite high this quarter, it's 248%, you're probably $3.6 billion in capital above 220%, which I have always thought is pretty stellar MCCSR. But you're talking like you don't have a lot of excess capital. You're talking about refinancing debt that's coming, delaying the dividend for a couple years, no mention of share repurchases. Should we just take it that 240% is the new minimum for Manulife, just in this environment?

I am glad you asked the question, Peter. We have very, very healthy capital ratio. We clearly have excess capital, as you've indicated. But last thing we want to do is start using that capital too early until, as Steve so capably indicated, a few things are resolved. They seem to be getting resolved. I mean Tom MacKinnon asked earlier, the picture is getting clear and clear all the time, but it's not one year that we want to declare a victory. And again I draw your attention to some of the big changes that are being discussed right now in the United States. It's just one jurisdiction that we deal with. So while the picture is much clearer in Canada, it's a little less than it used to be in other jurisdiction. We're not particularly worried about anything. We don't anticipate any issue, but just to be a little bit better prudent than set expectations and then have to reset them later.

Are you worried at all about the OSFI framework, particularly either the Holdco capital regime or maybe a different treatment of internal reinsurance?

No, not at all. No worries there at all. I mean I think you're quite right. In terms of the OSFI capital, framework is getting clear and clear by the minute and is not causing us any concern or whatsoever, and the other ones aren't particularly causing us concerns either. We just want to be very prudent, because when we next increase the dividend, which is not likely, but it's a certainty, the question is when, when we recommend that to the board we want to be able to do it in a way that has almost zero probability that ever having to be reversed in any reasonable period of time.

Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to, Ms. Asher.

Thank you very much. We'll be available after the call, if there are any follow-up questions.

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