Manulife Financial Corp. 2026 Q2 Earnings Call

Welcome to Manulife's earnings conference call to discuss our second quarter 2026 financial and operating results. Our earnings materials, including the webcast file for today's call, are available in the investor relations section of our website at manulife.com. Before we start, please refer to slide two for a caution on forward-looking statements and slide 32 for a note on the non-GAAP and other financial measures used in this presentation. Please note that certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from what is stated. Turning to slide four. We'll begin today's presentation with Phil Witherington, our President and Chief Executive Officer, who will provide a highlight of our second quarter 2026 results, a strategic update, and an overview of our latest long-term care reinsurance transaction.

Following Phil, Colin Simpson, our Chief Financial Officer, will discuss the company's financial and operating results in more detail. After their prepared remarks, we'll move to the live Q&A portion of the call. With that, I'd like to turn the call over to Phil.

Thanks, Hang, and thank you, everyone, for joining us today. Before we begin, I'd like to take a moment to recognize and welcome the newest members of our executive leadership team that we announced in May. Patrick Graham has assumed the role of President and CEO of Manulife Canada. Patrick previously led our Hong Kong and Macau business and brings deep expertise across both distribution and health that will help accelerate our Canada growth strategy. I'd also like to congratulate Jodie Wallis on her expanded mandate as Chief AI Officer, which now spans both AI and enterprise data. Jodie remains instrumental in driving responsible AI adoption at scale to support growth, improve efficiency, and enhance customer experience, and her appointment to the executive leadership team further reflects the importance of this work across our enterprise. In addition, Stephanie Fadous and Shamus Weiland have taken on broader responsibilities.

These important leadership changes further strengthen our team, both at the enterprise level and in our key markets. I'm confident they position us to deliver on our strategic priorities and drive sustainable growth. I'll now provide an overview of our second quarter financial performance before turning to the standalone long-term care reinsurance transaction we just announced. Let's start on slide six. We delivered strong results this quarter, demonstrating disciplined execution and the benefits of our diversified portfolio. Our insurance businesses generated strong top-line results with APE sales growth of 21% year-over-year, supported by double-digit growth across all segments. APE sales momentum remains strong in Asia, which was driven by broad-based contributions from key markets such as Hong Kong, Singapore, and Japan, and was supported by our high-quality agency force, which I will discuss further momentarily.

Growth in overall sales drove a double-digit increase in value metrics, including year-over-year new business CSM growth of 16%. This contributed to CSM balance growth of 20%, positioning us well for future earnings generation. In Global WAM, record gross flows supported net inflows of CAD 4 billion this quarter. Net inflows were driven by strength in our institutional business, including continued contributions from CQS and Comvest. In terms of profitability, core EPS grew 16%, reflecting 12% growth in core earnings and the benefits of continued share buybacks. This strong result was led by Asia, where core earnings grew 21% from the prior year to a record level, as well as Global WAM, where core earnings increased 9% despite the impact of the transition to eMPF.

While we saw some insurance experience headwinds in Canada and the U.S., the overall results reflect the strength and resilience of our diversified business. We delivered a solid core ROE of 16.3%, up 130 basis points from the prior year quarter. Turning to our balance sheet, we maintained a strong capital position with a LICAT ratio of 136% and a leverage ratio well below our medium-term target, providing us with substantial financial flexibility and supporting continued return on capital to shareholders through dividends and share buybacks. Turning to slide seven, we continue to make strong progress in the execution of our strategy, which is underpinned by our ambition to be the number one choice for customers.

In Asia, we achieved a 9% year-over-year increase in Million Dollar Round Table members, the highest increase among the top 10 multinational insurers, reflecting continued progress in scaling our high-quality agency force. In fact, APE sales per active agent increased over 30% year-over-year in the second quarter. This speaks to the effective execution of our agency strategy, including efforts to enhance the quality of our agency force through Manulife Business Academy training programs, AI-enabled capability building, and broader advisor excellence initiatives. In addition, we expanded our global high-net-worth offerings with two innovative insurance solutions that address the evolving wealth protection and legacy planning landscape. This includes the introduction of an insurance savings solution that uniquely combines the benefits of our participating life products with investment diversification through a Manulife CQS strategy, further differentiating our value proposition to high-net-worth individuals.

In Global WAM, we expanded our ETF-based offerings for North American retail customers, and in the U.S., we enhanced our variable universal life offering, broadening the reach of our life insurance solutions while delivering greater protection, flexibility, and long-term value. Being an AI-powered organization is a key priority within our refreshed strategy, and our continued innovation and industry recognition reflect the meaningful progress that we're making across the enterprise. We are proud to be recognized by Evident as the number one life insurer for AI maturity for the second consecutive year, ranking first in North America and top three overall among 30 major insurers across North America and Europe. We were also recognized for our AI-enabled underwriting capabilities in Canada and named the model insurer for data, analytics, and AI by Celent. In Global WAM, we launched new scalable agentic AI solutions.

The portfolio of solutions includes document intelligence readers and knowledge assistants, which are enhancing customer experience while driving greater operational efficiency. Finally, the rollout of our enterprise AI platform continues, providing our AI developers and data scientists with a scalable and secure foundation to design, build, and govern AI responsibly. It allows us to reuse capabilities across businesses and markets, accelerating delivery and reducing duplication. This platform lays the foundation for accelerated development and AI value generation. Overall, these achievements and the recognition we've received underscore the meaningful progress that Jodie and the team have made embedding AI across our organization. Similarly, we're proud of our longevity leadership, where we're helping customers achieve better health and wealth outcomes across their lifespan while driving sustainable growth for our business.

In collaboration with the MIT AgeLab, our U.S. insurance and retirement businesses launched a first-of-its-kind longevity preparedness tool, helping customers assess and improve their readiness for living longer, healthier, and better lives. We also enhanced our health and wellness offerings for eligible Canada group retirement and private wealth customers through preferred rate access to select health and wellness solutions. In Hong Kong, we're providing customers with greater healthcare options, quadrupling our medical specialist network to more than 900 providers through our strategic partnership with Bupa. Collectively, these achievements highlight the meaningful impact that we're making to empower customer health, wealth, and longevity. Before I turn it over to Colin, I'd like to discuss the long-term care reinsurance agreement with Munich Re that we just announced, which is our third long-term care transaction within the past three years.

A couple of elements of this transaction differentiate it from our prior deals. First, it is a full risk transfer of biometric risk on CAD 3.2 billion of reserves at 80% quota share. Second, it is a standalone long-term care block. The pricing is similar to our previous transactions with a modest negative cede, further reinforcing the robustness of our reserves and assumptions. The transacted block is an older vintage but has richer benefits, including greater lifetime benefits and policyholder inflation protection compared with our retained book. Inclusive of prior transactions, we will have reduced LTC morbidity risk by 24%, significantly improving our overall risk profile. The impact to capital is expected to be largely neutral, as the benefit from reducing morbidity risk required capital is offset by the release of the associated risk adjustment and the ceding commission.

Unlike our previous deals, there is no capital benefit from the disposal of investments as no assets are being transferred. Foregone core earnings is relatively immaterial at CAD 30 million per annum in the first year, and that will reduce over time as the block runs off. More broadly, this transaction demonstrates how we are continuing to de-risk our in-force portfolio through innovative actions. Looking ahead, we continue to focus on improving our long-term care portfolio through organic initiatives that will enhance risk-adjusted returns and drive shareholder value. For example, our long-term care transformation program is focused on helping customers remain healthier and more independent for longer and reducing fraud through enhanced claims management. The program is already generating strong results with current run rate LTC claim savings of over 6%, which also helped contribute to the attractiveness of the transacted block.

In closing, I am pleased with our performance this quarter and delighted to have delivered a third long-term care in-force reinsurance transaction. We continue to execute on our strategy, innovate across our diversified business, drive sustainable growth, and deliver insights and solutions to help our customers across their lifespans and for generations to come. With that, I will hand it over to Colin to discuss our quarterly results in more detail.