Please be advised that this conference call is being recorded. Good morning, and welcome to the Manulife Financial's First Quarter 2018 Financial Results Conference Call for Thursday, May 3, 2018. Your host for today will be Mr. Robert Veloso. Please go ahead, sir.

Thank you and good morning. Welcome to Manulife's earnings conference call to discuss our first quarter 2018 results. Our earnings release, financial statements and related MD&A, statistical package and webcast slides for today's call are available on the Investor Relations section of our website at manulife.com. We will begin today's presentation with an overview of our first quarter highlights and a strategic update on our priorities by Roy Gori, our President and Chief Executive Officer. Following Roy's remarks, Phil Witherington, our Chief Financial Officer, will discuss the Company's financial and operating results. We will end today's presentation with Steven Finch, our Chief Actuary; who will discuss the new LICAT Capital regime and the Company's embedded value position. After the prepared remarks, we will move to question-and-answer portion of our call. We ask that each participant adhere to a limit of one or two questions, and if you have additional questions, please re-queue and we will do our best to respond to all questions. Before we start, please refer to Slide 2 for a caution on forward-looking statements and Slide 37 for a note on the use of non-GAAP financial measures used in this presentation. Note, that certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from what is stated. The slide also indicates where to find more information on these topics and the factors could cause actual results to differ materially from those stated. With that, I'd like to turn the call over to Roy Gori, our President and Chief Executive Officer. Roy?

Thank you, Robert. Good morning, everyone and thank you for joining us today. Turning to Slide 5; yesterday we announced our financial results for the first quarter of 2018. We delivered strong net income and core earnings of $1.4 billion and $1.3 billion respectively with core earnings increasing 22% year-over-year. We also reported our year-end embedded value of $49.2 billion as at December 31, 2017, an increase of 6% year-over-year. However, more importantly, our organic embedded value growth was a strong $6.3 billion or 14% year-over-year. Moving to Slide 6; we continue to make solid progress transforming our business and putting the customer first, and are encouraged by the early progress we've made today, both from a portfolio optimization perspective, we took several strategically important actions in our legacy business addressing both profitability and capital. Second, we executed two initiatives as part of our priority to aggressively manage cost, enhance our competitiveness and create value. I'll expand on these items in more detail later. We're accelerating growth in our highest potential businesses and we'll continue to invest to ensure we make the most of the significant opportunity they represent. Asia and global WAM are just two great examples of our success and they continue to perform well in the first quarter of 2018 with each delivering core earnings growth of over 20%. We generated positive net flows of $10 billion in our global WAM business and continue to deliver solid new business value in Asia. Companies that delight their customers outgrow their competitors, and our industry is no different; we're taking action to deliver on customers' expectations and has made significant progress in 2018 on several fronts. We launched our award winning ManulifeMOVE program in Singapore and enhanced the program in China with the introduction of the Apple Watch. Also…

Thank you, Roy. Good morning, everyone. Before I discuss the quarterly results I'd like to draw your attention to some of the changes we have made to our disclosures. We have broken out our wealth and asset management businesses into a separate reporting segment to reflect that we are managing these businesses globally. Our Asia, U.S. and Canada general managers continue to be accountable for wealth and asset management results which will ensure our WAM and insurance businesses are integrated within each of our geographies. Other changes we have made include enhancements to our source of earnings analysis which provides greater transparency to the drivers of business performance. These disclosure changes reflect input from the investor community and we welcome ongoing feedback on opportunities for further enhancement. Turning to Slide 11 and our financial performance for the first quarter of 2018; we delivered strong results and most of our key performance indicators showed improvement. I'll highlight the key drivers of our first quarter performance in the next few slides. Turning to Slide 12; we generated core earnings of $1.3 billion, up 22% from the prior year on a constant exchange rate basis. This was driven by $96 million of core investment gains compared to $46 million in the prior year quarter, strong earnings growth in Asia and global WAM, the impact of U.S. tax reform and improved policyholder experience. We are also pleased that we delivered strong net income of $1.4 billion and that net income and core earnings were aligned. The $50 million gain from the direct impact of markets in the quarter reflected widening of corporate spreads and a higher and flattening U.S. yield curve partially offset by unfavorable equity market movements. Slide 13 shows our detailed source of earnings analysis; of note, expected profit on in-force business…

Thank you, Phil. Good morning, everyone Turning to Slide 21; effective January 1, RC introduced a new capital framework for Canadian life insurance companies. The new LICAT where life insurance capital adequacy test replaces the previous MCCSR framework and moves Canadian capital regulation from a primarily factor based system to a more risk based systems. Compared to MCCSR there are higher capital charges for public equity and alternative long duration assets, credit risk for private bonds, reinsurance counterparty credit risk, and interest rate risk due to limited duration attributed to all the assets. However, there are now credits for participating business which is a substantial business for us in North America and in-force, and a growing business for us in Asia. In addition, there are credits for adjustable business and for the diversification of risks between assets and insurance risks and within insurance risks such as longevity and mortality. We give you a simplified calculation for the MCCSR and LICAT ratios on the slide. You will notice that the numerator for LICAT includes the benefit for the surplus allowance which is the PFAT for insurance and interest rate risks. Given the long-term nature of some of our businesses, this provide a substantial benefit to us which mitigates the impact of more punitive asset charges. On a LICAT basis, our solvency ratio for MOI was 129% in the first quarter which represents almost $16 billion of capital off of the supervisory target. Importantly, it reflects all capital impacts of the fourth quarter charges for all of the portfolio asset mix changes and U.S. tax reform but only a small portion of the expected benefits, and nothing for potential future portfolio optimization actions. We have a healthy capital position and our priorities are to continue execution on all the asset sales and…

So in conclusion, we are taking actions to optimize our portfolio becoming bolder and more ambitious on driving expensive efficiency, accelerating growth in high return businesses such as Asia and global WAM, improving our customer experience through innovation and digitization, and improving accountability to deliver on short-term results while executing on long-term opportunities. Before I open the lineup for questions; I want to remind you that we'll be hosting our 2018 Investor Day on Wednesday, June 27 in Toronto. The day will include presentations focused on our legacy businesses, our cost program, and our plans for our North American businesses; we look forward to seeing you that. This concludes our prepared remarks. Operator, we'll now open the call to questions.

[Operator Instructions] The first question is from John Aiken of Barclays.

Phil, in your prepared commentary I just wanted to clarify; you discussed positive experience in long-term care in terms of the source of earnings?

Yes. As you may recall, in the fourth quarter we provided some clarification that since our more detailed review in the third quarter of 2016. Our total experience for long-term has been neutral, that trend has continued into the first quarter and if we look at our overall experience, it has infact been positive this quarter. Steve Finch may wish to comment further.

The one thing I'd add to Phil's comments is that in the first quarter we saw elevated levels of mortality across our North American businesses, and that resulted in losses relative to our expected results in our life insurance businesses but gains in our annuities business and in long-term care and that was one of the drivers of this quarter's long-term care results.

So Steve, I guess against the news that came out yesterday from one of your U.S. competitors; is Manulife still comfortable at this point with the reserves you have against the U.S. long-term care business?

Yes, we're comfortable, we've provided information in the past that highlights the differences between Manulife under the Canadian reserving standards where we are updating our assumptions on an ongoing basis. Our deep dives every three years and updating assumptions and reflecting current market conditions and interest rates on a quarterly basis. On that basis we've disclosed that we have significant excess of Canadian IFRS reserves over our NAIC reserves of 30% excess because we've been showing up all the way along. And I think that puts us in a strong position from the reserving standpoint.

The following question is from Linda Sun [ph] of Bernstein.

I have two questions, actually kind of related so I want to get a little bit of clarity from Roy and Phil. The first one is the release of capital in the U.S. business net of $1 billion [ph]. How do you plan to deploy these capital? And reading in relation to that we've noted that Asia has grown very strong, multiple in insurance but mostly in the WAM business. I look at the net flow in Asia in Q1, it's over 90% growth, that's very strong growth, so congratulations but I'm just wondering whether that growth will need more capital to back it? And how do we look at the long-term land growth in Asia, especially after announcement in China it's finally opening up to foreign competition.

I appreciate the question and we're obviously very keenly focused on our capital position and a lot of our efforts over the last 9 months has been on looking at optimizing our portfolios that we can release capital and show that we deploy that to where we can get the best possible return. And as we have stated in the presentation, and previously, the actions we took in Q4 of last year will allow for us to release $2 billion worth of capital over 12 to 18 months. And as Phil highlighted, with 15% of the way through that journey. How we will deploy that capital is sort of [indiscernible] your second question, and obviously we look throughout high growth business opportunities; Asia and WAM to grow organically and accelerate the pace of growth and therefore organic growth will be one of our top priorities as we think about capital deployment. Obviously, continuing to strength our balance sheet is another priority for us. We've talked about the fact that our long-term target for our leverage ratio is 25%, so we see that that's another area of focus and where we'll also like to see our capital focus and deployment.

Roy, can I just clarify on this point. So the partially deployment into high growth area which is good news, and then reducing the leverage ratio; does that mean you are unlikely to do share repurchase or surprise in dividend growth rate?

We're not going to comment specifically on the details of the execution around exactly how we would deploy the capital but what I would just leave you with is that our high priority areas of focus would absolutely be against our organic opportunities, and obviously again, strengthening our balance sheet there are second-third order priorities which are included in what you've suggested or the areas that you have mentioned.

The only other comment I'd make on Asia is the growth was broad-based, so we had strong growth across our institutional -- our retirement business, as well as retail in Malaysia and Indonesia; they were all contributing factors.

And do we expect this type of growth rate to continue? What kind of WAM growth rate can we expect in Asia?

I mean, we don't really forecast growth because it's dependent on markets and conditions but we feel we have a very diversified business, and I think that comes through the results this quarter across not only our geographies, globally, but even within the country should the different business lines. And so we feel we have a broad grace [ph] to react to all market conditions to -- just to make sure we continue to grow.

The following question is from Meny Grauman of Cormark Securities.

Question on the reinsurance transaction. And as you look at reinsurance, how does it play into your goal to free-up capital? Is this a source where you have more potential to free-up additional capital? And just as related point; is this decision here that that you announced -- is there something that specifically precipitated this decision, the introduction of LICAT potentially?

I'm Naveed Irshad here. So just on the transaction that took place in Q1, it was with a highly rated reinsurer, it was on a level cost of insurance universal life lock, with 45,000 policies and $13 billion of sum assured, essentially the way it works is that we're responsible for paying the expected cash flows and the reinsurer pays the actual cash flows, essentially we've insured [ph] full mortality and lapse risks to the reinsurer and released the associated capital. Now in terms of whether you can think of this in terms of future transactions, let me just tell you that we're working on a number of other reinsurance transactions on the block [ph]. I mean, I think the concept of slicing and dicing the risk and feeding some of the risk and freeing up capital is something that does have the runway.

The following question is from Humphrey Lee of Dowling & Partners.

Just a question on the global WAM net flows. Obviously, it was very strong in this quarter across the regions. I was just wondering if you can provide some additional color in terms of the production in the quarter, like how are the full spread across different products in different regions, do any kind of have specific products that were particularly favorite in a quarter or just more broad-based?

It's Paul here. The flows were broad based across all geographies and all business lines, and so we were quite pleased with that result and I think it speaks to the diversification of the business we have locally, as well as the geographic diversification.

I guess, what to think about the gross flow that was $36 billion in the quarter? Like, what would be that the largest transaction that you had -- I mean, in terms of single case in the current quarter?

I'm going to have to get back to you on that one, we had a number -- I think little institutional flow of $1 billion from one existing clients. I think that was the largest but we can confirm that.

Okay, $1 billion of the $36 billion, that's still pretty good. I guess you said, you can't really forecast any growth given the volatility of this business but can you talk about the pipeline that you see in the coming quarters, like it's -- are there any mandates that you have won but haven't funded yet or any type of potential product launch that you're planning to do in the coming quarters?

Yes, I guess I'll just speak generally. I mean, we are constantly looking at investing in a number of strategic priorities to make sure we have new products, new solutions that we're delivering to our customers. I think -- I mean, I would really just look historically to the net flows that we've been able to drive over a number of years and I think it still comes back to where we are located from a geographic perspective, diversification, and really the strength of our distribution globally. And I think the retirement, the institutional, and the retail; they provide -- they really help diversify against one another. Our retirement business is more focused on the platform in individual participants versus the investment solutions whereas institutional is more of pure asset management plan. I think that bodes well for our strategy.

And then just a question for Steven; on the LICAT -- so you talked about 115% would be comparable to a 200% MCCSR but I guess is -- so should we think about the 115% as your target or do you set put a target as that will be higher than the 115%? And then additionally with depending all the divestitures that are coming up, like what will be the pro forma impact if you were to complete all the other divestiture today?

I provided the 115% to 200% more just to give you a sense for how we're benchmarking in the industry. 200% was used by I think many in the industry as a benchmark to gauge capital strength. Clearly, we operated well above that and we would continue to plan to operate with a very strong capital position. Similar to the past, we're not disclosing exact targets but we're comfortable with our capital positioning considering it quite healthy under the LICAT. In terms of the pro forma impact, I think your question was related to all the dispositions. As Phil pointed out earlier, we anticipate that as we achieve that full benefit it will be 4 percentage points on the LICAT ratio of which we realized approximately 0.6 in the first quarter.

The following question is from Gabriel Dechaine of National Bank Financial.

Just quick numbers; one, the hedging cost. Why don't you break that out anymore and how is that trending?

I think you're referring to the macro hedging costs. So, as -- I think we commented on this when we released the fourth quarter results, we've actually been through the process of shifting to the extent possible, our hedging program to dynamic hedging which is imbedded within each of our businesses. So really the macro hedging program is now as to Damon [ph] in this level and the costs are just in consequential, we want to see them going forward. If at any point we decide to scale up the macro hedging program, we'll start disclosing them again.

The real question I guess is on the balance sheet optimization transaction that you announced here. So the $240 million capital freed up, you get an upfront gain; I appreciate you back that out of the core grade but also no consequential or material impact on the earnings on a go forward basis. But I think the balance sheet optimization thing is a game of trade-off and in this case you didn't really give up anything; how many -- like, how common do you expect that to be going forward? Is this one special or maybe you can walk through some of the trade-off decisions you're willing to make.

Just to clarify; again, it was $240 million of free capital generated, there was -- in terms of the in-force block where this transaction took place, there was -- there is a sort of a future core earnings trade-off, it was sort of $11 billion through ongoing. Well, you can compare that $11 billion to the $240 million that was straight up and get a sense of -- you have an actual overall net impact of that, it's not material. But there is some trade-off, in this case we felt the trade-off was favorable for us.

So is that going to be a typical transaction? I know that's probably a really simplistic question but I think given the lack of visibility over what kind of businesses you have on the books and the legacy blocks, they'd be helpful if you could give some sort of qualitative or and quantitative assessment?

I think this one, I mean we started with maybe the lowest hanging fruit I would say. So I think this one is probably one of the most favorable one, so we think it would work -- we talk to our reinsurance partners regularly and talk with different views on types of business, if your existing risk profile -- what works for them and what works out; this one was the most obvious one. As I said earlier there's others that we're looking at but I would characterize this one as probably what was the better one.

Gabriel, the only other thing I'd add is that we want to actually spend a lot of time talking about portfolio optimization at our upcoming Investor Day, that in cost will be the two key focus areas. So what we're hoping to do there is to give you a little bit of color on our game plan and our thinking from a prioritization perspective, I'll demonstrate also some of the actions that we've taken to date and what we see as perhaps more short and medium-term opportunities, and perhaps where our thoughts are from a longer term perspective. So we really think this is an important area of focus for us, and these have been in the role now for four months or so and I think it's the right time to give you more color and that's clearly what everyone is looking for.

My next one is on the experience gains line; so -- I know there is a lot that goes into that line, consolidated on a core basis of $18 million positive, you talk about policyholder experience being positive in the U.S., offset by charges in Asia, but when I look at Asia, it looks like there is no -- it was flat, there was nothing going on there. So can you help me kind of understand what's policyholder experience? Why Asia had no policy experience gains or losses? And what's the offset there?

So, in addition to policyholder experience what we're showing in the core experience gains or losses includes expense related experience, a number of other smaller items, as well as in Asia, it includes our unallocated regional overhead costs. In terms of what was going on in Asia, you can see that it was -- the total experience gained was neutral in the quarter, we had some favorable reinsurance items that was offset by the impact of expenses and some modest policyholder experience losses. And then in the U.S. and in Canada what was going on in terms of policyholder experience was as I mentioned earlier, the impact of elevated mortality levels; so losses in life insurance but gains in annuities and in long-term care. And in the U.S., the last piece of sort of translation between policyholder experience and the experienced gain line was as we had noted in our disclosures at onetime reinsurance again.

The following question is from Tom MacKinnon of BMO Capital.

Roy, you mentioned the actions you're taking to improve expenses and you sight $70 million pretax and expense saved as a result of some of the rationalization of real estate in the U.S. and consolidation of IT vendors. How much of this amount that you mentioned would flow to the bottom line or does it all just kind of get reinvested? And I have a follow-up.

I think that's a very important question, Tom and one that we have to provide a lot more clarity on. So what I'll stop by saying is again, at Investor Day we're really going to be focusing in on our expense ambition, what our targets are, at least a range of our targets and how we're planning to go about that. And whilst we clearly need to continue to invest in the franchise; we want to see a very significant improvement in our run rate as it relates to growth. Phil, you might want to add?

I think it's fair to expect about half of that to flow through to the bottom line in 2019, the other half of it would take a number of years to reach full execution. But I think the point is that here we are into execution, so Roy commented that managing the cost base of the organization is a very important priority to us. We have already got started, we saw the growth rates of our expenses come down in 2017, we're very focused now that we're in 2018 on making some important strategic decisions that help us to take costs out of the organization and this really is the start of that and we'll share more at Investor Day.

And then a follow-up for Steve Finch. Just to help us understand kind of your risk tolerances now with LICAT and maybe your approach to target capital onto this framework. Can you share with us some of the assumptions that go into your pricing with respect to LICAT and how it's related to and MCCSR? I believe you said you sort of priced to a 14% hurdle, let's say for North American insurance; and what did you assume for an MCCSR when you priced at that hurdle and what do you assume for a LICAT ratio when you price this hurdle now?

I guess what I would point to is, we disclosed in our embedded value report the assumptions underlying our embedded value and we're not really changing those items. With respect to how much capital we're pricing for; we haven't changed our philosophy and will be pricing for a similar level of capital as we are under MCCSR, what will be different is that some of the risks we'll generate higher capital under LICAT versus MCCSR such as long duration guarantee businesses but other business lines will actually generate less required capital in the products such as adjustable products and participating products. But really no change in the overall chart of returns that we're looking for, or in how much capital in total we're allocating to new business.

And if you were held to somewhat of a higher capital standard versus the -- under the MCCSR and part due to the fact that that calculation wasn't as robust enough with respect to some alternative assets; now that LICAT is, do you see yourself in around less than what a 220 would have been, say under MCCSR and maybe closer to 200? I'm just trying to help gauges because the way we're -- we've got a much more robust capital standard now.

Yes, so under the new capital standard it's more risk based, it reflects the risks in the underlying businesses and when you look at our in-force, we're seeing higher capital requirements related to ALDA and long duration guaranteed businesses, we're seeing less capital on our -- because of the reflection of the underlying risks on our participating and our pass-through business. In terms of our new business portfolio relative to 5 to 10 years ago, where we've shifted strategically where we're writing far less of those products with much greater risk. So our new business portfolio -- we've made the strategic changes to be an effective strategy -- a product strategy under LICAT. Now we will -- as you can imagine, we will be evaluating on a product-by-product basis, reinsurance asset strategies but I view that as more tactical; we've made that strategic changes that we need to make.

Thank you. The following question in from Sumit Malhotra of Scotia Capital.

I want to start with Phil going back to the experience line and it's helpful to provide this on a core basis since it did strips out a lot of the market volatility that we've seen from the company overtime. But just first off, clarify what's in here now; when we look at the core experience line, am I right to say that this is now essentially showing us only the trend in what happens with policyholder experience relative to your assumptions and expenses? So there is no more market factors in here?

It takes out all of the investment components that fall outside of core earnings. And the core components of experience includes everything else, the principal points being policyholder experience and expense experience, so you're right.

And that leads to the obvious one on the numbers that you've provided us for the last two years. I'll average here the experience line on this new core basis, on a full year basis was $650 million per year loss and you've got a slight positive here today as was referenced. So what's the bigger delta here from where you were running in the last two years this quarter? Is it -- you've talked about LTC being a modest positive, there was a comment on Canada having improved disability experience; what was the bigger source of improvement relative to where you'd been running, is it the policyholder side or in your view is it significant outperformance on expenses?

I'll hand over to Steve to elaborate on that one in more depth.

Maybe I could go back to what our policyholder experience has been to give you a sense for how to gauge the first quarter here. And we have disclosed the policyholder experience in the past, it has ranged from -- in 2017 from losses from $30 million to about $90 million, pretax per quarter. And just one item off note is that line was reported at the P&C claim that we had incurred in the third quarter; so I've not included that in there. But this quarter was -- it was favorable relative to past quarters being roughly neutral in the quarter.

So from that you're telling me that it's -- there was a significant improvement on the policyholder side?

Yes. And if you recall the last couple of basis changes, we had strengthened our LTC assumptions and saw a benefit in the experience line. Last year we had disclosed that as part of the assumption reviews, we've further strengthened reserves and improved that policyholder experience line. We will see this continue to bounce around quarter-to-quarter but Q1 was a favorable result.

And I'll tie in the expense commentary here and maybe this is more for Roy or Phil; I don't want to set the bar too high for June 27 but I'm sure that's already taking place internally. But when the commentary on efficiency being a major initiative; going forward you mentioned just now that some of the U.S. savings or half of it will hit the bottom line, you've also given us this -- an allocated overhead disclosure and that's something that's been talked about with respect to Manulife for a couple of years. In your view Roy, for us on the outside, what's the best way to measure your progress on the efficiency mandate? And I don't want to go too long here but I think in previous years there was commentary from the company that we've reached an initiative or exceeded it but it was difficult to see where it was actually benefiting the financial performance. So there's a lot there but just wanted to ask you what do you think is the best metric for us to track on how Manulife is progressing on efficiency?

Thanks Sumit, and it's a really good question and it's one that we spend a lot of time discussing internally as a management team and appreciate the frustration that maybe we haven't seen as transparent as you would have liked in relation to the efforts on expenses in the past. So I'm going to sort of pump it a little bit to our Investor Day because we are going to spend a lot time focused on how you should be measuring up and how we're holding ourselves accountable to a high bar on expenses, and a big part of that will be to demonstrate how it drops to the bottom line, we think it's critical that you see a tangible -- I guess impact of our expense efforts and that it's not just a reporting exercise. So I'm going to pump that a little bit and just sort of ask you to wait till that June Investor Day but it is a huge area of focus for us, we are really being very bold on our focus efforts and we think that we've got a good game plan that will get us to what we are trying to achieve.

I'll wait patiently for the -- or maybe impatiently for June 27. Last one for me; we talk a lot about the legacy assets at Manulife, one asset I feel like we haven't discussed very much and maybe we're getting a chance to do more of it now is Manulife Bank here in Canada. You've given us some disclosure that shows us it's a $200 pretax business; I also for the first time and what feels like a few years seem to be seeing a lot more advertising from Manulife Bank. So simply put is this the legacy asset that you don't view as core to the future of the Company going forward or is it not the right way to think about it?

So we don't see Manulife Bank as a legacy business. I'd ask Mike to provide some commentary but you know, we've really made some great progress without our bank and quite frankly, when we talk about holistically meeting our customer needs, we're thinking how we can really integrate the bank more into that offering. But I'll really hand over to Mike because he's spent a lot of time with the team thinking about this and strategizing on how we can do better on that front.

Thanks, Roy. I mean, I think you've covered a lot of it. I know there have been other questions just about the disclosure, and I think it's really just reflecting that the bank is becoming an important -- has grown to become an important part of our business. We do view it as a great differentiator for us and we serve about one-third of all the Canadian households, none of our -- kind of core competitors can offer some of the things that we can offer through Manulife Bank. So we do think that there is a strategic value to it from our perspective in terms of not only reaching new Canadians but more deeply serving the customers that we do have.

The following question is from Paul Holden of CIBC.

Two questions. First, I want to go back to the discussion on policyholder experience and particularly, for Canada; so good disability is a line of business that seems to bounce a lot around from quarter-to-quarter, not just from Manulife but also for your competitor. So wondering if there is specific actions you can point to that would suggest going forward the experience might be more consistent or and/or more favorable?

Certainly group disability is a business that the experience does bounce around, we have -- we pay a lot of attention to that line of our business. And as you know, it's an area that where you can impact the price in a number of ways; you can do it by working with individual plans to change their plan design, and to pay attention of the disability happening in their companies, you can do it through repricing which we do on an annual basis based on experience and working particularly with planned sponsors, and of course, we can do it through very active management of the business. So it is an area where we have unusually bad results in Q1 of last year, we've seen a big improvement; but we continue to be very very focused on that area.

And then second question is with respect to LICAT. I want to get a better sense of how you're thinking about the total ratio versus core, and maybe how -- or at least your understanding of how HOSPI [ph] is thinking about total versus core? My view and understanding is that totals are focused for now but core overtime could become more of a focus.

Sure, it's Steve, I'll take that one. Just to remind everyone that under the LICAT ratio there are now four ratios; total and core for both operating company and holding company, that's actually the same as under MCCSR, so that's not new. I think though your comments that overtime core area is a focus of the regulator as part of their supervisory framework to focus on the level of equity like capital, and currently we're continuing our -- with our past disclosures of focusing on the operating company total ratio, we think that's appropriate. And I think it's an indicator of the overall strength of the capital position of the company, and we'll see how it evolves overtime.

The following question is from Mario Mendonca of TD Securities.

It's kind of hard to pull closer this quarter but I'm going to give it a try anyway. If we look at the Asia business, new business gains; they remained strong, no doubt but we're not seeing the level of growth this quarter that we've seen throughout 2017-2016, I think going back a fair bit. What is your outlook on new business gains, specifically in Asia? And maybe you could take that in the context of both, the volume of sales and the margins on those sales.

So if you look at the trajectory in quarter one, I think the Hong Kong and other Asia combined has kind of grown pretty well. So if you want to kind of remove the impact of Japan, the growth in APE is at 14% and the growth in NBV is 28%, and that's on account of the fact that we are seeing some good consistent momentum in markets like Hong Kong, Singapore, China, Indonesia and Vietnam. And you've kind of seen that trajectory pretty much throughout 2017. We believe that we've kind of got the focus on building the foundational stuff, so be it expanding our distribution, leveraging our banker relationships, investing in our customer experience, as well as building digital properties, and some of this impact is starting to kind of make it's way in terms of the impact that you're kind of seeing on new business gain. Also we are getting scale in a lot of markets, Hong Kong being a great example of that; and as we start to kind of get a sequential growth in some of the other Asia market, you will see some of this benefit translate to the new business gain and to new business value. So we feel pretty confident and hopefully, we will be able to demonstrate sustained growth in the coming quarters as well.

I'll just add to Anil's comments, that -- he highlighted ex-Japan, our new business value grew about 28%, and Japan had an exceptional quarter in 2017, in fact new business value grew at 50% in Q1 of 2017 versus the prior year and there is a variety of reasons for that. But we really are -- it's a lot over the progress across our markets, we are building scale and we've said in the past that scale is the path towards improved margins and we feel that trajectory will continue.

So you feel like Japan will continue to make the contribution to new business gains going forward?

We do. We think there are some headwinds there, the competitive pressures on some of our product and some of our distribution channels will be something we'll have to work hard to overcome but that's not something that we haven't had to do in the past.

And then just finally on Asia; looking at expected profit and one measure I look at, I suspect others do as well, as your expected profit to the average assets in that business. So it's just a way of looking at a margin if you will. That margin has shown a little bit of deterioration overtime to the extent that we have the new disclosure or are we only going back a few quarters now of course. But is there anything you could highlight that would -- because it would appear that the embedded profit in this business has started to shrink a little bit, and I'm trying to understand -- and this is on a per dollar basis of course, I'm trying to understand what are we seeing here, why would this margin be coming off a little?

I'm going to have to speak to that and maybe Phil can then kind of offer his kind of comments. But if we specifically look at the new business value margin, that has got to improve year-on-year, and that's on account of -- Roy mentioned about the scale that we're going to getting in in a few markets as well as some of the product mix changes that we are driving in certain geography, so that's starting to kind of translate into some of the margin improvements that you're witnessing.

Sorry, just to be clear; what I'm referring to the new business margin, I was thinking about the expected profit to average assets. Is that just not something you focus on and maybe it's not even fair to ask that question because it's something I care about but…

Mario, it's Steve. I think Anil has highlighted the key point that we view that value generation from the Asia new business is increasing. I think your question is more where is it showing up in the results? You know, it will show up in the new business gains, the expected profit on in-force, and maybe we'll take it away because we haven't sort of looked at it in that fashion in terms of which individual component would be contributing to the increases, certainly new business gains have been a driver.

And I think it just to supplement, I think it's fair to say that we're not seeing a dilution of our total value of the business generated in Asia, so it remains -- as our scale has grown, it's remained as profitable as it was in the past.

Can I just restate the question because I'm not sure I expressed it properly. What I'm getting at is expected profit, nothing to do with new business gains now; I'm talking about with respect to profit. Is that the question you're answering and may be we're not interpreting it correctly?

I think that's the question we should takeaway. Your question is the expected profit relative to the assets.

Okay. Is it something that you don't look at, that's fine, I just -- that's the way I think I look at it and I suspect a lot of people do and that margin has been deteriorating but if it's something maybe we could take offline, it will be helpful.

The following question is from Doug Young of Desjardins Capital Markets.

Good morning, lots of my questions have been asked and answered but Steve, maybe just on the long-term care insurance in light of recent events and the questions that I seem to be getting. I think there is still confusion as to the difference between you and your U.S. peers; and so I was hoping maybe you could just flush that out a little bit more, that's my first question.

Sure. So I think on the reserve end -- and I would state as well that we are planning on providing additional information at Investor Day, it's been clear that very clear feedback that there's a desire for more information and we do intend to do that. In terms of the real differences and the reserving is that we've been updating assumptions frequently overtime, the U.S. companies really only update assumptions under their reserving regime once all the margin's gone. So the fact that we've been updating assumptions all the way along prompted us to be very early to be raising premiums on the in-force business and that's been a key hallmark of our managing that business. On that reserving front, we've got under our IFRS reserves as we've updated them overtime, we have a 30% higher IFRS reserves versus any IC reserves which represents very significant margins to the fees that the future claims. Another difference that I point out is that under the Canadian standards, I am subject each year to a full review of our actuarial assumptions by a professional third-party reviewer which is not a requirement in the U.S. And in terms of the mix of our business, this is where we'll provide more information at Investor Day but one factoid [ph] in terms of the underlying risk of our portfolio, I believe is relatively less than industry average, one point is the amount of lifetime benefits which are the riskiest benefits in the business, that's 14% of our policies have lifetime benefits. So I think those are the key differences and we'll look forward to providing more at Investor Day.

And just that 14%, do you know what it would be for the industry?

I don't have an average number, I know it's higher but I don't have an average.

And then maybe Roy or Phil, just – when I think of your new business value margin expanding but new business value as a whole was flat; and I know last year is a tough comp on the sales side with single premium sales in Japan and increased competition and [indiscernible] sales or getting over that business in the U.S., and in Canada it was a tough comp. But when you look at this, and -- which is more important; is it new business value margin expansion or is it just absolute new business value growth?

They are clearly both important but I would certainly prioritize new business value, absolute value increasing, it's certainly a big priority; the margin reflects -- I guess the underlying profitability of the products that we're riding. And whilst it's flat, total new business value so as I mentioned earlier, it is a bit of an unfair comparison because Q1 was an exceptional one, not just for Asia but actually for other parts of our business. And again, I cited that 50% growth in Japan which is a serious contributor to the new business value for our Asia business. But the profitability of the business that we're booking is a key driver and a key way that we're looking at the quality of our sales, so this will continue to be a big focus for us.

Yes, I completely agree with everything that Roy said and the way we think of this is that with the focus being on absolute value generation; one of the tools that we have at our disposal is improving mix generating higher margin that contributes to improve the NVB; but of course, the other component is growth in our scale. And whilst we haven't seen the growth in the overall scale, this quarter it's something that we remain confident about in the future as the demographic demand, particularly in Asia remains very strong.

The following question is from Darko Mihelic of RBC Capital.

These are questions for Steve with respect to LICAT. The first question Steve is, I calculate a core ratio of 90% MLI, is that correct?

That is correct and just for everyone, it can't be calculated off the supplement, there is -- the information is available in the supplement for that calculation.

And secondly though, when it comes to the MFCs LICAT ratio to 117, you see predominantly $4.9 billion of senior debt is deducted but there is still something else because I need to get to past $6 billion. What else is being removed from that ratio? The reason why I ask is I'm trying to also calculate the core for MFC.

The biggest item is the one that you mentioned, I don't have handy what the other items are but we can follow-up offline.

And I guess lastly, Steve -- what I'm -- the reason why I'm asking this questions, off the three ratios that I see -- you mentioned in your prepared remarks that you have about $16 billion of capital over and above the supervisory target for the total ratio but it's only $15 billion for the MFC LICAT ratio and it's only $11 billion using the total or the core ratio. So in other words, the core ratio seems to be the one that's the binding constraint not the total. So I guess the question is why should -- why shouldn't I look at the core ratio because you only have $11 billion of buffer there. If I burn down your equity by that much you would trip that ratio long before your trip your total.

Yes. So in terms of the various ratios; I think we've got a healthy position over -- on all of our ratios. One of the things in terms of transitioning to the LICAT, there were some changes in terms of how some of the debt that we raised counts as capital, we've been transitioning overtime our debt structure with benefit the MLI core ratio overtime. So that's why I say overtime we believe that the MLI total ratio will be a good indicator of the overall capital strength.

[Operator Instructions] The following question is from Steve Theriault of Eight Capital.

If we could circle back just quickly to ALDA disposals; you're 15% of the way there as you mentioned and showed in the deck, but you mentioned you have commitments for additional transactions. Can you size that for us or I guess give us a sense of what percent of the assets have been dealt with so far on more of a pro forma basis?

Steve, it's Scott Hartz here. So as you point out for the first quarter we've got 15% of our goal. I think we also announced the sale of two real estate properties for $500 million, that was publicly announced so we didn't include that in the disclosure this time. And that will further us towards the goal, we've been a little circumspect around describing exactly the amount of assets we plan to sell and what specifically they are for sort of the obvious reasons; so I guess I just give you the bigger picture and that we're ahead of the pace we had assumed internally and we remain very confident that we'll get to our goals by the end of the year.

So are you saying that $500 million is included in the 15%? I don't think so, right; so if it's a $300 million and the $500 million is that more like 40% of the way there?

Again, and -- no, the $500 million is not included in the 15%, so that further is for our progress and that will occur in the second quarter but there is other things on the go as well in the second quarter; so we will achieve more than that in the second quarter.

And just to clarify, the $300 million benefit that we referred to earlier that's a capital benefit, the $500 million that Scott's referring to is the fair value of the real estate that's being transferred to the REIT.

And then secondly, I know it's a part -- we're just getting into it and I know it's a priority to improve the overall momentum in Canada and I noticed a couple of times on the call today that power products were mentioned in a favorable light. Is there any consideration being given to reintroducing a traditional power product in Canada at this point?

Yes, there is. And there was discussion earlier about under LICAT the fact that these products have significantly better capital treatment than some of the -- sort of guaranteed long duration products. It also represents about 50% of all the sales of life insurance in Canada; so we have been actively working to re-enter the participating space and we expect to do that by the end of the second quarter and so we're quite excited about that opportunity.

And then last for me, to Steve Finch please; the long-term care -- some good disclosure on mortality helping this quarter. So maybe this is a little granular but when as your competitors have been having issues there's been -- obviously, talk of incidence of claim in lots. Can you give us a sense this quarter what the experience was like in terms of claims incidence and lapse in the long-term care block?

Yes, we did see some higher levels of claims incidence in Q1, that's pretty typical, seasonally we tend to see that. But that was more than offset by the impact of elevated levels of mortality on both, the active life and on our -- for the policies on claim as well; so higher claim terminations. Those were the key drivers in the quarter.

Thank you. There are no further questions registered at this time. I'll turn the meeting back over to Mr. Veloso.

Thank you, operator. We'll be available after the call for some follow-up questions. Have a good morning everyone, thank you.

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