Good morning and welcome to the Manulife Financial Q4 2019 Financial Results Conference Call. Your host for today will be Ms. Adrienne O’Neill. Please go ahead, Ms. O’Neill. Adrienne O’Neill: Thank you, and good morning. Welcome to Manulife’s earnings conference call to discuss our fourth quarter and year-end 2019 results. Our earning 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’ll begin today’s presentation with an overview of our fourth quarter and year-end highlights and an update on our strategic 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. After the prepared remarks, we will move to the question-and-answer portion of the call. We are aiming to conclude the call in one hour today and thus ask each participant to adhere to a limit of two questions. If you have additional questions, please requeue, and we will do our best to respond to all questions. Before we start, please refer to slide two for a caution on forward-looking statements and slide 35 for a note on the use of non-GAAP financial measures 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 that could cause actual results to differ materially from those stated. With that, I’d like to turn the call over to Roy, our President and Chief Executive Officer. Roy?

Thank you, Adrienne. Good morning, everyone, and thank you for joining us today. Turning to slide five. Yesterday, we announced our fourth quarter and the full year 2019 financial results. We delivered net income of $1.2 billion, more than doubled the prior year quarter and core earnings of $1.5 billion, an increase of 10% versus the fourth quarter of 2018. Core ROE was solid at 12.5%, including the impact of portfolio optimization actions. The core EBITDA margin in our Global Wealth and Asset Management business increased 90 basis points versus the fourth quarter of 2018 as we continue to build scale. And we returned to positive net flows, delivering net inflows of $4.9 billion, an increase of $13.9 billion compared to the prior year quarter. Finally, we achieved our medium-term leverage target of 25%, after taking into account the $500 million debt redemption in January of this year. Turning to slide six. We continue to deliver strong growth on both the full year basis and five-year time horizon. In 2019, we delivered net income of $5.6 billion, an increase of $800 million from the prior year. The year-over-year increase was driven by growth in core earnings, the non-recurrence turns of the 2018 restructuring charge, and higher investment-related experience gains, partially offset by a $500 million charge related to updated Ultimate Reinvestment Rate assumptions, issued by the Canadian Actuarial Standards Board. Core earnings of $6 billion increased 5% from the prior year, driven by double-digit growth in Asia and growth in the U.S., as well as Global Wealth and Asset Management. This was partially offset by portfolio optimization actions undertaken over the last 12 months, unfavorable policyholder experience and the impact of lower new business volumes in Japan. And it’s also worth noting that core EPS grew 8% from the prior…

Thank you, Roy, and good morning, everyone. Turning to slide 11 and our financial performance for the fourth quarter and full year. As Roy mentioned, in 2019, we delivered solid operating results, consistent progress against our five priorities and generated top quartile shareholder returns, and our fourth quarter metrics were generally positive. I will highlight the key drivers of our fourth quarter and full year performance with reference to the next few slides. Turning to slides 12. We generated core earnings in the fourth quarter $1.5 billion, up 10% from the prior year quarter on a constant exchange rate basis. The increase in core earnings was primarily driven by in-force and new business growth in the U.S., Hong Kong and Asia Other, higher average asset levels in Global Wealth and Asset Management, and the favorable impact of strong equity markets on seed money investments in our surplus portfolio, compared with losses in the fourth quarter of 2018. This was partially offset by unfavorable policyholder experience in Canada and the U.S., lower new business volumes in Japan, and the impact of actions taken over the last 12 months to improve the capital efficiency of our legacy businesses. Net income attributed to shareholders was $1.2 billion in the fourth quarter, which more than doubled compared with the prior period, primarily due to strong investment-related experience gains versus losses in the fourth quarter of 2018 under lower charge related to the direct impact of markets. Of note, we delivered strong investment-related experience gains of $282 million in the quarter, driven by fixed income reinvestment gains, higher than expected returns on older and favorable credits experience. Full year investment-related experience was a gain a $766 million, $$400 million of which was reported in core earnings. The loss from the direct impact of interest rates…

Thank you, Ms. O’Neill. [Operator Instructions] And the first question is from Sumit Malhotra from Scotiabank.

Thank you. Good morning. First question is probably for Steve. On the Canadian policyholder experience in the quarter, you mentioned there was -- some issues there and we’ve seen that from a couple of the other companies that reported last night as well. Any specifics you can provide as to what the issues were, and maybe we can talk about sustainability after that?

Sure, Sumit. I’ll make a comment and pass it over to Mike for more color. What we saw in Canada in Q4, the driver of the negative experience was large claims on our Canadian retail insurance business. It was a handful of large claims and it’s not something that we’ve seen very often. We look at it and attribute it to normal variability. The other thing that we’re commenting on is we had been seeing very favorable group claims experience, and that moderated somewhat, in Q4 it was more neutral. Mike, I don’t know if you have more to add on to group.

Yes. I think that’s right. We’re going to see some seasonality. There’s nothing alarming at this point in the individual claims. So, we do think that that’s just a normal volatility on the block of that size.

So, coming after the quarter in which you normally do your actuarial assumptions, just to see the experience line turn more negative than we’ve seen in a while. It doesn’t sound like you’re saying it’s something that is already on the watch list, if you will, to have to be reviewed in terms of reserves strengthening going forward. Is that accurate?

Correct. As I said, this is large claims is an aberration in terms of what we’ve seen historically. So, no trend there.

And second and last question is for Phil. Does the removal of the discount on the DRIP have any impact on how the Company considers share repurchases, the two -- the MCIB and the discounted DRIP were obviously announced at the same time. You removed one of them. Does this have -- not having that capital inflow, if you will, via the heavier share issuance that comes with the discount? Does that change how you think about buybacks?

Hey Sumit, thanks for the question. This is Phil. So, we’ve always looked at the NCIB, net of DRIP, and that’s consistently how we’ve reported our progress. And I think, it is worth highlighting that when we look at our capital deployment priorities, NCIB does remain part of that. And I think that’s relevant in the context of the strong capital position under the 40% LICAT. But, in particular this quarter, given that we have achieved our medium -term leverage target, I think it’s worth saying that we do have substantial financial flexibility. So, when we look at the capital deployment priorities, at the top of the list really is organic growth and continuing to invest in organic growth, particularly when we look at our ability to expand our distribution channels in Asia, and also building the scale of our Global Wealth and Asset Management business. We also believe in sustainable dividend growth, and that really is the context for the 12% increase in the dividend this quarter. And when appropriate, we will buy back shares. We continue to believe that buying back shares is an efficient use of capital.

The next question is from Tom MacKinnon from BMO Capital Markets. Please go ahead.

With respect to hitting the $5 billion target three years ahead of time in terms of capital free-up, I think, you mentioned you’re going to sort of keep your foot on the gas here and look to further optimize the legacy portfolio. Is there any low-hanging fruit still left in the legacy portfolio to optimize here? What are your next -- what are your plans with respect to this, if you want to continue to move forward and go beyond this $5 billion target?

Let me start and I’ll hand over to Naveed. As you highlighted, we’re really pleased with the progress we’ve been making on portfolio optimization. To achieve our goal three years ahead of schedule is obviously something that we’re extremely proud of. But perhaps more so was the trade-off that we were able to make in terms of freeing up that capital. And the net core earnings give on the $5 billion effectively on a full year basis is actually less than $200 million. And as we said earlier, we’re not going to wave the victory flag at this point. We’re going to continue to focus on portfolio optimization and making sure that we’re looking for the most efficient use of our capital. So, further work, both organic and inorganic is certainly on our horizon and what we’re going to be absolutely laser focused on. And we clearly feel that there is much more opportunity for us to progress on that front. But, I’ll let Naveed sort of share a little bit more on that and have more detail.

It’s Naveed Irshad here. I’d say, we’re still working on some inorganic reinsurance transactions. So, I think there’s still some runway there. So, it’s an area we’re continuing to focus on. I would say, though, that in terms of where the team is spending its time, there’s been a bit of a shift towards more of the organic side. So, this includes in-force management, rerate, buyouts and transfer programs, claims management. So, I’m really actually quite excited about those opportunities. I think, there’s even more runway to go on there.

And as a follow-up, assuming that the businesses that you freed up were probably consuming more capital, is it safe to say that your -- you have increased ability to sort of organically generate excess capital in your business now? And can you put any metric around, or have you thought about trying to put any metric around what you just organically free up in terms of capital outside of these extra initiatives, especially given the fact that you’ve got a 140 LICAT?

Yes. Tom, it’s Steve. Overall, we’re happy with the capital generation, whether it’s with respect to portfolio optimization or organic. I don’t think we’ve parsed it in terms of looking at the generation of capital from the businesses where we’ve been lightening up, but just overall, in general, very-focused on continuing to generate capital organically.

Okay, thanks.

Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.

Good morning. This question is for Phil. So, when I look at the year, it looked like a pretty strong year. Markets were great, no issues on changes of assumptions, solid experience, very solid investment gains. But, yet the Company didn’t meet the 10% to 12% target. In fact, I think, if I remember correctly, it’s about 5%. So, where I’m getting at is, does the 10% to 12% -- what kind of year does it take to generate 10% to 12%, or maybe you could answer it by saying, what was it about 2019 that prevented you from making the target this year?

Hey, Mario, thanks for the question. This is Phil. So, the 10% to 12% target related to core EPS growth, and in 2019 our EPS growth was 8%. So, slightly short of that target range that’s correctly called out. The historic experience is that we have achieved the -- in fact overachieved the 10% to 12%. But, when we look at 2019, there were some specific factors that were certainly headwinds for us. The low interest rate environment of course is one. That may be something that persists but we are I think well-prepared to be able to deal with the low interest rate environment. It was also a challenging time for the Global Wealth and Asset Management business, particularly off the back of the market declines we had seen in the fourth quarter of 2018, which presented a headwind throughout 2019. And then, when we look at our Asia business, the tax changes that we had seen around COLI products in Japan that was a headwind, and also the protests in Hong Kong were also a headwind for us to deal with. And for us to get to 8% EPS -- core EPS growth in a year like that, we’re actually very pleased with the outcome. When I look forward from here, there are factors that are quite different to a year ago. So, if we look at where, for example, in wealth and asset management, the AUMA landed at the end of 2019, we’re 16% above the level of 2018. And so, I think that’s -- you can see that through the numbers when you look at the earnings growth in wealth and asset management in Q4 of 16%. I think, that’s potentially a tailwind, positive story for 2020. So, all-in-all, we feel good about the year ahead and the medium term targets that we have.

Yes. Mario, let me just add. I think that’s a great summary by Phil. I would also say that the 8% core earnings per share outcome in a quite a challenged environment was also delivered despite the portfolio optimization actions and the earnings impact of those actions off the back of a very solid 2018 starting point as well. And as Phil said, I feel that we really have strong momentum. There are a lot of opportunities on the horizon, but there is clearly not going to be a shortage of challenges either. I think to think that 2020 will be without its challenges would be incorrect.

Okay. Maybe just a quick follow-up. Is there anything you would point us to -- you’d have us think about regarding the coronavirus that could impact next quarter or 2020 generally?

Yes. Thanks, Mario. Look, it’s really too early to say anything meaningful about the coronavirus at this point and certainly as it relates to a forecast of 2020. We’re obviously watching the situation very closely as is everyone else that has a business in that part of the world. And obviously, the safety of our staff, agents and customers is our highest priority. But, from a forecast perspective, the message I’d leave you with is that it’s way too early to make any predictions on how that will pan out, at this point. We’re watching it closely and as we get more information, we’ll obviously be willing to share that.

The next question is from Scott Chan from Cannacord Genuity. Please go ahead.

Good morning. Just to focus on Japan. Noted some of the insurance sales were kind of -- or the APE sales were kind of flattish quarter-over-quarter. I thought that we kind of maybe see gradual improvement with the new regulations, and maybe you could just provide an update on that.

Sure. Thanks for the question. This is Anil Wadhwani here. So, despite the headwinds in Japan on account of the new tax rules governing of COLI, we were able to deliver a resilient 5% core earnings growth in quarter four and 11% for the full year. We continue to see very strong momentum in geographies, like Hong Kong and Other Asia. So, despite some other challenges that were mentioned earlier in the call as well, I think overall, we’re pretty pleased with the resilient performance that we showed in Asia. As far as Japan is concerned, the sales were as I said challenged on account of the tax rules that pretty much came into force in quarter three of 2019. We delivered $45 million on COLI, as opposed to $21 million of COLI sales in quarter three. But, the year-on-year comparison would obviously be challenged because we had an exceedingly strong quarter four of 2018 on back of some strong momentum at that point in time on COLI. Now, we’re putting a number of initiatives in flight. So firstly, we are launching a new COLI product. We are also launching a new FX Life product with Nomura. We’re expanding our distribution. So, we are onboarding new NGAs to offer other wealth and retail products. We’ve launched more recently, the MFA channel in Japan on the back of the success that we had witnessed in Singapore, as well as we are looking at and taking actions on reshaping our cost base in Japan, so as to drive ongoing efficiency in the Japanese market. So, number of initiative, as you can tell in the pipeline, and we continue to watch the COLI situation very closely.

Thanks. And my second question, just on global WAM, nice total net inflow quarter $4.9 billion, compared to last year and last quarter. You called out some large fixed income mandates that were won. And I was wondering if you can kind of quantify that like you did last quarter, just to kind of see maybe to help us kind of think about the visibility going forward over the next few years?

Yes. Thanks, Scott. It’s Paul Lorentz here. Yes. In terms of the fixed income mandates, they weren’t as material as some of the other ones we typically disclose. I think, if it’s in the billions, this was a number of smaller mandates, less than $1 billion that contributed to the quarter. So, it was more wide base. It wasn’t one particular mandate. It was actually two different teams that were split. So, we feel quite good just about the momentum. I think, if you look at particularly the net flows in the quarter and just looking at how we’re starting this year versus last year. We’re just in a completely different position. Net flows were positive as you would have seen across all geographies, all business lines. We’ve had our fourth consecutive quarter of improvement in net flows in our U.S. business as well as our retail global product line. And then, gross flows were up from last quarter as well as from last year, again, across all geographies and all business lines. We feel we’re starting from a position of strength. And that was supported by some wins, as you mentioned, in fourth quarter, strong market share, but our investment performance also improved across the franchise. And we launched a new product in our private markets business, private equity fund-of-funds in the corner that was successful and contributed. So, we feel quite good just about the broad-based momentum we have and our ability to continue to generate net flows over the medium and long term.

The next question is from Gabriel Dechaine from National Bank Financial. Please go ahead.

Good morning. A quick numbers one. Can you remind me of the earnings impact of the portfolio optimization, transactions that you executed on this year and what the I guess the full run rate would be in 2020?

Sure. Thanks, Gabriel. This is Phil. So, in the fourth quarter, the cumulative impact was in the order of $45 million. And if we look at the ongoing run rates impacts, including the actions we’ve taken in the fourth quarter, a good rule of thumb here would be about $50 million a quarter. So, we’re looking $200 million on an annualized basis. If we compare the fourth quarter 2019 to the fourth quarter of 2018, the incremental impact on run rate there is the order of $20 million. So, in terms of the extent to which that has been a headwind, it’s in the order of 2 percentage points of growth.

And then, my real question, I guess, and in Japan as well, was there anything else going on other than sales that led to the earnings drop, because it did take a step down in the quarter versus Q2 and Q3? And COLI in particular, I know it’s an older issue. But, how does that compare in terms of strain or gains or impact versus products you sell across the region, is it one of the juiciest, because if there’s a sales slowdown in other areas of -- caused by other factors, I’m just wondering, if it’s sort of a linear type expectation, I should have?

So, Thanks for the question. This is Anil again. So, on Japan, the difference, as you pointed out, is on account of two reasons. One is, obviously the lower volumes on account of COLI, as well as we had a certain product mix that kind of caused the variation on new business quarter-on-quarter. We also took, as I alluded earlier, certain expense -- we took certain expense calls, onetime expense calls to reshape our expense base in Japan, so that we kind of drive ongoing efficiency. So, combination of the product mix as well as the onetime expense led to the decline that you were referring to. In respect to your second question on COLI margins, we continue to be very-satisfied with the COLI margin. So, they are not that different from what they were before the tax rules were introduced. And again, we keep a very sharp eye on volumes versus value. And as we’ve mentioned earlier, we do prioritize value over volume. So, we do keep ongoing and a very sharp eye in driving the right balance.

Yes. Gabriel, just to add a quick comment to Anil’s. I’d say that we’re really quite frankly pleased with Asia’s performance in 2019. And obviously had some significant headwinds, not just COLI but interest movements, which is something that we’ve obviously dealt with across the entire franchise. But, despite that headwind, core earnings grew 11% for the full year and new business value grew 8%. And if you take out Japan, we grew core earnings and new business value in excess of 20%. So really, it does, I think, underscores the diversity of the franchise that we have, both at the global level, but then in particular, in Asia, where over the past few years, we’ve really worked hard to build scale in markets outside of Japan and Hong Kong, which have historically been the real drivers of growth and momentum for us. Now, we’ve got Singapore, Vietnam, Philippines, Indonesia, China that are now contributing much more significantly to our business there and will in the future.

Thank you.

The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.

Hi, thanks. Just a quick follow-up on the coronavirus. I’m just wondering -- I mean, I’m trying to interpret how you -- when you say it’s too early to sort of think about the impact of it. Is that to say that so far in January and February, sales and everything else is fine, and you haven’t seen an impact, or is it, there has been an impact and you’re just hoping that it’s going to subside?

Yes. Let me start. And I’ll hand over to Anil. He might want to provide some extra commentary. I think that the bottom line for us is that when I say too early, we just don’t have enough data points to really drive a trend line. From a year-on-year comparison perspective, we’ve got obviously Chinese New Year that’s in the mix. And, certain markets are more impacted than others. Obviously, we kick into high gear with business continuity plans. We have folks working from home to really minimize the disruption. But, it’s really hard to declare whether this is something that’s going to impact our momentum and our results or not. So, we really want to be cautious and not call something out prematurely or inaccurately. Anil, anything you’d like to add?

No. Specifically, just the outbreak got into focus towards the end of January. And, since then, as I said, our preeminent focus has been the safety of our people, as well as our agents. And we have kind of taken enhanced steps to ensure that we are able to service customers during these times. That’s really been our primary focus. We have taken actions obviously in the city of Wuhan. And so, we have temporarily obviously shut down the office. Wuhan contributes to a very small proportion of the China sales. But, temporarily in the short-term, it will cause a little bit of disruption in terms of people flow. But, it’s kind of hard for us to kind of gauge the impact as, Roy mentioned, and it’s too early for us to be specific about it.

Okay. And my other question is for Phil. Phil, can you just remind us what happened to remittances, why they fell so precipitously this year? And what the -- I mean, if there are one-offs in there, and what the expectation would be for 2020, given that you increase your dividends significantly?

Thanks, Darko. You may recall that remittances in 2018 were $4 billion. That was in historic high, something that is a great outcome in 2018. For 2019, our remittances were $2.8 billion. And you may recall on the -- I think, it was the third quarter call, we had a question about the potential impact of interest rates on remittances. We said at that time that interest rates are one factor that can impact remittances from year-to-year. And we had decided to defer some remittances that had been scheduled from Hong Kong, in response to the low rate environment. And that’s an example of one of the items that that has caused this year’s number to be lower than last year. But overall, I feel good about remittances. And, that’s part of the context for the increase in dividend that has been proposed -- announced not proposed. It’s there, 12%.

It’s Steve. I just want to add that we don’t expect sort of a linear growth in remittances. There will be variability. What we really live to is long-term sustainability and we feel confident with our medium-term long-term remittances capabilities.

Your next question is from Humphrey Lee from Dowling & Partners. Please go ahead.

My first question is for Naveed. So, about the VA transfer program in the U.S., I was wondering if you can kind of share some color in terms of the benefits that you got in terms of derisking your exposure. It is kind of hard to tell based on the change in the net amount of risk since there was the tailwind of the strong equity market. So, I was wondering if you can share anything in terms of maybe the risk reduction or whether the net amount of risk or account value or the guaranteed amount of related to the block that you have to buy out.

Okay. Thank you for the question, Humphrey. So, the buyback program was for Phase 1. And we have further phases planned. The block that we targeted in this phase has about US$4 billion of guaranteed value and 35,000 policies, representing about 15% of our overall U.S. GMWB block. So, we started in early November and it’s run through early February. Essentially, the program offers customers with principal plus for life product an account value enhancement in exchange for forfeiting withdrawal and debt benefit guarantees. At year-end, we were at an 8% acceptance rate. And actually, as of the end of the program, which was early February, we ended up at 17%. In terms of the actual risk reduction, it was approximately $40 million of net amount of risk that was reduced as part of -- as of year-end, as part of the 8% acceptance rate. So, that number will be higher as of the end of the phase.

So, this is helpful. And obviously, you continue to do that throughout 2020. Shifting gear and just want to follow-up on Japan with Anil. So, in terms of the management actions that you’ve talked about being in flight, how should we think about the impact in the current quarter? And then, also should we expect any kind of more expenses related to these management actions in the coming quarters, as you continue to right size your expense base, and also kind of adding new distribution and all the turnaround efforts?

Unfortunately, I can’t make any forward-looking statements. So, I can’t be specific about the impacts in the current quarter. I guess, what we are very focused on is ensuring that we are taking initiatives around launching new products, as I mentioned. The new version of COLI, also given the fact that on account of the diminished tax advantage, COLI is going to be a smaller portion of the Japanese market, we are focused on introducing newer products on the retail, as well as on the other wealth side. We have also, Humphrey, been focusing on expanding our distribution. So motivating and training MGA partners just to offer other wealth and retail products, as well as, as I said, we’ve taken certain expense actions to reshape our expense base in Japan. So, we, as I said, have a number of initiatives that are in flight. But unfortunately, I can’t kind of talk about the current quarter and the specific impact of that on a go-forward basis.

Humphrey, sorry. Roy here. I was just going to say, it’s probably important to note that the tax regulation that Anil has been talking about, specifically as it relates to COLI, was enacted in Q2 of 2019. So, basically it rolled through accordingly.

No, just so is it fair to assume, because you have seen some actions that is going to -- be ongoing in 2020. I know you don’t want to provide any guidance, but there will be some additional efforts or expenses you could incur because of these initiatives?

Humphrey, this is Phil. Maybe it will help if I quantify the impact on the fourth quarter on the restructuring charge and then what payback that may have. So, in the fourth quarter, the additional expense that we have seen from the restructuring actions within the order of C$8 million to C$10 million. And when we take these actions, we really do look for a one-on-one payback, and we expect that to flow through in 2020.

Thank you. The question is from Meny Grauman from Cormark Securities. Please go ahead.

Just a question on the portfolio optimization. Will you be releasing a new target in the coming, I don’t know, the Investor Day or anytime in the future, is that up for consideration?

Hey, Meny, Roy here. Look, at this stage, we’re not planning to reissue a target. And that’s not to imply that we’re not going to continue to focus on portfolio optimization. We feel that that guidance that we provided at the previous Investor Day was critical to illustrate A, the commitment that we were going to make and the accountability that we wanted to drive. Having achieved that goal, as I mentioned earlier, we’re going to continue to focus on the efficiency of our capital and the allocation of our capital across our franchise through the various inorganic and organic measures. So, at this stage, no plan to reissue target.

Thanks for that. And then, just on the P&C reinsurance business, we don’t talk a lot about it. But given talk on climate change, I’m just wondering if you’ve changed your view of the risk profile of that business. If you could comment on how you view that business and why you feel that it’s an important part of your overall business?

Thanks, Meny. This is Phil. We’re still very positive about that P&C re business. It provides diversification, very much contained risk, given that it’s short business that we know very quickly, whether or not there’s been a catastrophe. And if we look at our experience over a number of years, it has actually been very favorable. This tends to be five, six years where we get no very minimal claims and then there will be a seventh year when there is a significant claim. I think, the other point to make as well with respect to the P&C re business is that it’s something that is -- because it’s short-term business, it’s something we can reprice annually. And our experience over the past 12 months and going through the current new business cycle is that the market is hardening, partly because of concerns potentially about increased risk to natural catastrophes, but certainly a hardening market is something that’s favorable. So, no change in view from us on the P&C re business.

Thank you.

Thank you. The next question is from Steve Theriault from Eight Capital. Please go ahead.

Thanks very much. We talked about leverage. And now that you’re on a pro forma basis below that 25% level, I did want to ask how proactive you think you’ll be in managing that. And it was some time ago, but I remember a time when the leverage drifted down to the 20% range. Would that be an acceptable outcome here that could happen naturally, or would you expect to use buybacks, debt issuance, other tools, and kind of want to be close to that 25% level to optimize ROE and all that stuff?

Steve, this is Phil. Thanks for the question. I think, the first thing I should say, of course, we’re very pleased that we’ve achieved our medium term leverage target with a pro forma 24.5%. It is important to highlight that 25% is not a cap for us. So, what the 25 or below 25 means is that we do have quite substantial financial flexibility and the leverage ratio. But equally, I don’t think it’s necessary for us to try and manage exactly to 25% either. So, I think what we have here is, some flexibility either side of 25% and looking at how we deploy capital. And we talked about capital deployment earlier. But, our highest priority is that the opportunity to organically invest. And we are in a fortunate position that we do generate organic capital. But, we’ll also be looking for opportunities to accelerate the organic deployment opportunities. And that of course to some extent may mean NCIB, but also it means that if there are inorganic opportunities out there, we may consider them. But, one thing you can be assured of is that will be very -- it will be very disciplined when we’re looking at inorganic transactions.

And last thing for me, thanks Phil, on the value of business side. I noted that the U.S. was up almost around 60% from run rate. It looks like it’s from strong sales from John Hancock Life, but can you provide a little detail on what’s going on there and driving that?

Yes. It’s Marianne here. You’re absolutely right. It was from the strong sales. We had a very strong fourth quarter. Our Vitality product has been very effective for us. And we’ve seen a lot of sales as it relates to that. We also saw there were some changes that were regulatory changes being made in the fourth quarter. So, that was also a reason why the sales went up, we saw it around the industry where they were a lot more sales in the fourth quarter, and that’s helping to drive the new business value. We also have taken a lot of actions over the last couple of years as well in terms of getting unprofitable products out there, and lowering our acquisition costs as well. So, there’s been a lot of focus on that to drive the new business value higher.

Have you been happy with the take-up on the Vitality side in terms of utilization rates or however you -- adoption rates, however you think about that?

Yes, we are very happy actually. In 2019, Vitality sales represented about 45% of our overall sales. And in the fourth quarter it was a lot higher than that. So, we are seeing a lot of take up. We just launched a new product as well at the end of the year, called John Hancock Aspire, which is the first ever integrated diabetes-specific product. And we’re seeing a lot of excitement around that. So, we have been very pleased with the Vitality take up.

Yes. Steve, I’ll just add that the whole push around behavioral insurance is something that we’re really very passionate about it. It’s truly in the U.S., but it’s also true for us in Canada, where we have Vitality as well, but then you have Asia ManulifeMOVE. And in addition to the interest and the sales growth that we’re able to generate across all the geographies, we’ve seen a real step-up in customer satisfaction. The NPS scores that we use to measure how satisfied or loyal customers are, are a many multiple of the traditional products. And we really think that is a key driver for future engagement with customers and ultimately, that will translate also to sales.

Thank you. The next question is from David Motemaden from Evercore. Please go ahead.

Just a question for Phil, and following up on the remittances. Just wondering where you think the remittances will be as a percentage of core earnings over the medium term, just assuming rates are at these levels. And also, if you could give some sense for the expenses at the holding company in terms of interest expenses and other -- other costs outside of the dividend and share repo that would be helpful as well.

Hi, David. Thanks for the question. This is Phil. So, our dividend -- the target dividend guidance is 30% to 40% of core earnings. And what we target is for remittances to at least cover that and any debt servicing costs. I can quite confidently say that our experience in recent years has been absolutely that that we’ve been able to cover through remittances, the dividend and debt servicing costs. So, when I look at the $2.8 billion for 2019, that is the case there as well. So, I don’t have particular concerns about future remittances. But, as Steve said earlier, it is -- it’s a number that will bounce around from year-to-year.

Okay. And I guess no sort of outlook in terms of like -- I know it bounces around but no sort of outlook in terms of where you think that conversion ratio, in terms of core earnings -- level of remittances as a percentage of core earnings that you think you should be able to generate over the medium term?

No, it’s not something we’ve issued guidance on, David.

Okay, fair enough. And I’d like to just squeeze in a quick one on long-term care. I was a bit surprised to see the adverse experience there. I was wondering if you could quantify the dollar amount that it was adverse.

David, sure. It’s Steve here. So, the dynamic of what we saw, and it was covered in Phil’s remarks, but I’ll repeat for the group here that we saw lower rates of mortality across the U.S. businesses. And that manifested itself in a gain in claims in U.S. Life and a loss in LTC. That was the driver of what we saw on LCC this quarter. I won’t quantify the exact number, but I would categorize it as modest. And we have seen this type of seasonality in the past. It’s not every year, but we have definitely seen the seasonality in the past. And we don’t adjust our reserve assumptions to reflect the seasonality. It’s not that granular.

Got it. Okay. And if I could just ask a high level one to Roy, just on overall earnings growth for the Company, the 8% EPS growth. I guess, I’m just wondering -- I’ve calculated the drag from low rates to really be like about 2 points off earnings growth for the entire Company. I guess, is that about right, and where do you see that going, if rates remain at these levels?

Yes. Well, we don’t disclose the impact on rights specifically. And over longer period, obviously, we think that there are mitigants that we can put in place. The 8% earnings -- core earnings per share growth is something that we’re really quite pleased with. We saw 2019 was a year with significant headwinds. And as Phil highlighted, we obviously started the year on the wealth side with quite dramatic equity market, which meant the starting positions were under some pressure. And then, obviously, interest rates in Japan also posed significant headwinds for us as well. So, delivering 8% in that environment and then adjusting for portfolio optimization impacts -- you’d be closer to 9, it’s actually a pretty good outcome. We feel good about the 10% to 12% target. Specifically to your question on interest rates, we feel that lower rates for longer is profitable. So, we’re not working on an assumption of rates bouncing back anytime soon. And we feel that the assets that we put in to really right size our cost base and other actions we are taken to really drive the performance of our franchise will put us in good state to really deal with some of those headwinds. The only other thing I’d say, and we’ve talked about this at Investor Day and at previous forums, there are three big mega trends that we see that are really shaping the economies of the world and will continue to do so over the next decade. And we think that we’re really well-positioned to capitalize on those three mega trends. The first is that of an aging population. There’s 900 million people aged 65 and above in the world today, and that’s forecast to grow, 2 billion by 2050. The retirement gap is currently $70 trillion. That’s…

No. That’s great. I really appreciate the color, Roy. Thanks.

Thank you. The next question is from Doug Young from Desjardins Capital Markets. Please go ahead.

Good morning. I’ll try to keep this relatively quick. The core expense loss, Steve, was $143 million. In the press release, you called out $38 billion [ph] related to policyholder experience. I think, that was Canada and the U.S. Just trying to get a sense, what was the other items? Because that was on a core basis. And then, if you can kind of maybe push that into the $62 million of negative core policyholder, negative experience in the U.S. And it sounds like the mortality was an offset between life and long-term care insurance. So, was the $62 million mostly lapse? Maybe you can give a bit of color on that. Thank you.

Sure, Doug. So, in terms of core experience, a reminder of what’s in there, it’s policyholder experience, expense impacts, which would include expenses where we don’t reserve for them, and Asia regional office expenses. And then, there are other experience items which are dominated by reinsurance-related items. So, the 143, which you mentioned in terms of core experience and you’ve noted correctly $39 million of that was policyholder experience. In the fourth quarter, the remainder is primarily expense results. And then, when we go to the U.S., you are asking about the core experience there. Again, similar drivers in terms of policyholder experience and expense. On the policyholder experience front, correct, in terms of the life claims and the LTC which we covered. The remainder was we saw some adverse lapse experience. It was spread across a number of product lines. About half of it is on certain products where we saw some I’d say early duration or shorter term issues which we don’t expect to persist. We did see some lower lapse rates on LTC wealth [ph] business, which we have not really seen in 2018, too early to say whether that’s a trend or not, but reminder that, we strengthened lapse assumptions materially over time. And these long term products, lapse rates, our current lapse assumption are for lapses well under 1%, often under 0.5%. So, just some context for what we’re seeing.

And Doug, this is Phil. Just to elaborate on the expense component. The year-over-year impacts of expenses, there’s about $14 million of adverse experience. Part of that is the restructuring costs that we referred to earlier in the context of Japan, but also the impact of the investments we’re making in some of our platforms in digital initiatives. And one example of that is something we’ve talked about before in the U.S., the fact that we are consolidating various legacy systems onto a single platform. And that really has the benefit of changing a fixed cost into a variable cost, which is really important, given the portfolio optimization strategy.

So, this is something that -- it sounds like the expense item could persist, it’s not something you built into your reserve assumptions, but it is something that could persist in 2020 essentially. And Steve, of that $62 million, how much of that was expense? Because I get the sense from the 143, but for the 62, how much was expense versus lapse?

Yes. So, I’ll take the first part and Phil can comment on the ongoing -- or Marianne. We haven’t disclosed the split within that core experience line, but they’re both material items of the total there.

And so, from my perspective on the -- this is Phil, the impact of expenses, as said earlier, it’s about $40 million. So, it’s fairly equivalent in terms of impact to the policyholder experience.

And most of that work has been done on the outsourcing happened last year and this year, and we’ll probably see a little less next year. So, I don’t expect it to continue.

The next question is from Paul Holden from CIBC.

I’ll just ask one question that’s related to the U.S. business. So, saw a nice uptick in expected profit. I think this quarter, which is the first quarter we seem positive in almost a year and a half. So, maybe you can comment on that. Like sort of -- are the headwinds of portfolio optimization behind this business segment, or expense initiatives having a positive impact? I was wondering if you can talk about some of the dynamics driving that.

Yes. And I guess from a U.S. perspective, we’re seeing the regular release on the -- emergence on the in-force. Yes, we have had negative impact as it relates to the portfolio optimization. And as we said, in the quarter, it was about $10 million for the quarter, but we -- there was sort of nothing unusual that was happening outside of that.

So, I mean, the change in trend, right, so from negative to positive, and we should expect positive expected profit growth going forward is kind of the message here?

Yes. I think -- it’s Steve. So, clearly, we’ve seen the headwind from the portfolio optimization initiatives in the U.S. And, I’d say, all else being equal, we would see that return to growth. Overall, companywide, if you normalize for the portfolio optimization, our growth and earnings on in-force are 6% for the year, which is around what we would expect with higher growth in Asia and relatively lower growth, but growth in both Canada and the U.S. Obviously, if this team continues to have the success, there could be headwinds, but they would be based on very favorable trade-offs for shareholders overall.

Yes. Just to clarify one thing that we did have a significant portfolio optimization transaction that was executed in Q3 last year, and that is impacting the run rate, as Steve said. The expected profit growth is actually reported in 2019, 6%. And if we adjust that in fourth quarter, 6% growth, if we adjust that for the impact of the portfolio optimization initiatives, it would actually be 8%.

Correct. 6% was for full year.

Correct.

The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.

Hi. Thank you for taking my follow-up question. I’m going to ask this only because I just saw Industrial Alliance’s report. In their report, they’re taking a litigation provision of about $15 million after-tax. Obviously I’ll ask IAG what it’s related to, but I thought maybe I’d just ask you guys while we have the floor. Is there any sort of update in that case that’s in Saskatchewan that’s been appealed?

No. Darko, I think that -- Roy here. So, as you know, we had the case last year, and as expected, we had a favorable ruling. We continue to believe that that case is one -- or the foundation of it is legally unfounded and that we’re in a very strong position. The appeal was heard in January of this year. I expect that there will be some time before judgment is made. But our position on that case has not changed. We feel very confident about our position and the foundation that we’re on.

There are no further questions registered at this time. I’d like to turn the meeting back over to Ms. O’Neill. Adrienne O’Neill: Thank you, operator. We’ll be available after the call, if there are any follow-up questions. Have a nice morning.

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