Exhibit 99.1

 

Manulife Financial Corporation
Annual Report
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In 2021, we launched Elevate, a global program to encourage and nurture our colleagues’ well-being through healthy activities, mindfulness, and eating well. Decisions made easier. Lives made better. “Our ability to adapt and serve customers across the globe continues to drive our operating results, and we are well-positioned to continue helping them live better, happier, and healthier lives.” Roy Gori, President and Chief Executive Officer 2

Manulife by the numbers     7.1 Net Income Attributed to Shareholders     5.9 5.6     $7.1 billion     Net income attributed to shareholders     increased $1.2 billion from 2020.     2019    2020 2021 6.5 6.0     Core Earnings     5.5 $6.5 billion     Core earnings increased 26% versus 2020.     2019    2020 2021 New Business Value     2.2 2.0    1.8 $2.2 billion     New business value increased 31%     compared with 2020.    2019 20202021 Common Share Dividend     $1.12/sh $1.17/sh $1.17/share    $1.00/sh Common share dividend increased 4%     versus 2020, driven by an 18% increase     in the fourth quarter of 2021.    2019 20202021 Assets Under Management and Administration     $1.4 trillion     Total invested assets: $427 billion     Segregated funds net assets: $400 billion     Mutual funds: $291 billion     Institutional asset management: $106 billion     Other funds: $14 billion     Assets under administration: $188 billion     Note: Core earnings and assets under management and administration are non-GAAP financial measures and percentage change in core earnings on a constant exchange rate basis is a non-GAAP ratio. Percentage change in new business value is also on a constant exchange rate basis. For more information on non-GAAP and other specified financial measures used in this report, see the section “Non-GAAP and Other Financial Measures” in our 2021 Management’s Discussion and Analysis below. 1 3

John Cassaday Chairman of the Board Fellow shareholders, Last year, we reflected on Manulife’s response to COVID-19, highlighting the way in which our core value of sharing our humanity came to life across our company through an incredibly challenging time. This year, once again inspired by our dedicated global team, we’ll reflect on how Manulife continues to excel by embracing another of our core values: get it done together. Your Board is proud of Manulife’s many achievements this year and grateful for the thoughtful leadership of our President and CEO, Roy Gori, and the Executive Leadership Team (ELT). We truly appreciate the continued dedication, resilience, and energy demonstrated by the Manulife team around the world, who continue to keep our customers at the core of everything we do. Our teams and leaders continue to be guided by the understanding that we are all in this together and our care for each other is our most powerful point of connection. We know this has been a tremendously challenging time and we have been honoured to offer meaningful resources to support our colleagues’ physical and mental well-being, and to continue initiatives like our Act of Kindness program, offering our teams the opportunity to ‘pay forward’ a contribution to a cause of their choice. We believe these investments in developing our team and culture are incredibly important. We are gratified to hear so often from leaders that it is our unique culture that provides a competitive advantage in both the recruitment and retention of the top talent essential to our ongoing success. We’re also pleased to see so many examples of individuals and teams getting it done together, including a terrific partnership between Global Technology and Global Procurement, which has not only delivered cost savings, but more importantly, underscored the power of effective partnership both internally and with our strategic partners. Our U.S. Segment implemented continuous delivery, a new way of working focused on driving execution success and business 2    | 2021    Annual Report 4

outcomes tied to the customer experience. With this approach, cross-functional teams of subject matter experts are empowered to work in an agile way and use a constant feedback loop designed to help make decisions more quickly, accelerate growth, and enable digital transformation. In Asia, our digital transformation, customer focus, and high performing team have combined to deliver a significant uplift in insurance customer satisfaction, resulting in a record Relationship Net Promoter Score of 46 in 2021. We’ve also introduced more opportunities for meaningful interaction between members of the Board and your management team through small focus groups, where subject matter experts come together to tackle some of our highest priorities. Your Board’s activities in 2021 As we navigated the ongoing prevalence of COVID-19, your Board has remained focused on providing oversight and guidance to management, continuing to leverage technology to maintain a high level of interactivity and collaboration during our sessions. As we did in 2020, we’ve continued to gather feedback from all directors throughout the year to ensure everyone’s voice was being heard and to identify opportunities for improvement. We are proud of the robust and constructive dialogue that took place around our virtual table and are honoured to have been ranked in first place by the Globe and Mail’s Report on Business for best board governance in Canada. Looking to the future, we are implementing a hybrid meeting schedule that will include both in-person and virtual sessions, which we believe will not only enable optimal participation from all directors but also allow us to continue attracting talented directors from around the globe. While we look forward to the opportunity to meet in-person in the future, we are confident in the knowledge that we have maintained and even enhanced our connectedness in the virtual setting. Your Board brings a robust and diverse skill set, and we continued to deploy their expertise as we remained focused on the company’s strategic growth opportunities, both in the near- and long- term, in particular our growth engines of Global Wealth and Asset Management and our Asia segment. We are also excited about the opportunities presented by accelerating our digital transformation and optimizing our portfolio, and we’ve focused a number of learning sessions on related topics such as cybersecurity, disruptive business models, blockchain, and cryptocurrency. We were delighted to have May Tan, former Chief Executive Officer of Standard Chartered Bank (Hong Kong), join our Board in December 2021, bringing with her extensive leadership experience in financial services and deep knowledge of our industry in Asia. We were also pleased to announce that Vanessa Kanu, Chief Financial Officer of Telus International, Inc., recently joined our Board, bringing expertise in public company finance and extensive leadership experience. We are proud to have maintained our aspiration of gender parity in representation among independent directors, with seven women among the 13 independent directors nominated for election at our upcoming 2022 annual meeting. Thank you In closing, we would like to thank Sheila Fraser, who resigned as a director in June, and John Palmer, whose term will end as of the end of our 2022 annual meeting. We have valued their good advice and counsel to Manulife. We would also like to acknowledge Roy and the ELT for their tireless efforts in delivering another year of solid results in what has remained an unpredictable environment. We are particularly proud of the way they have continued to lead with our values, working together to engage and inspire the team, and to embed our winning culture. We send special thanks to each of our more than 38,000 Manulife team members around the world. We truly appreciate their commitment to our customers, and to each other, and we are inspired each day by the way they live our values, and by what they have achieved together. Finally, we would like to thank you, our fellow shareholders, for the trust you have placed in us, for your support, and your candid feedback. The past two years have been challenging, but we remain optimistic about the future, driven by our mission, and united by our shared values. Sincerely, John Cassaday Chairman of the Board Manulife3 5

Roy Gori President and Chief Executive Officer Dear fellow shareholders, Reflecting on the past year, I am tremendously proud of our team and of how we continued to deliver for our customers, our communities, and each other. 4    | 2021    Annual Report In my last letter to you, I expressed my optimism for the year ahead and my confidence in our ability to achieve the goals we’d set for ourselves because of our colleagues’ resilience, energy, and capabilities. While the pandemic has persisted, bringing sustained challenges and heartbreak around the world, I’m immensely grateful for the incredible dedication of caregivers and others, and deeply appreciative of the sacrifices they have continued to make. I’d also like to extend that same depth of gratitude to our global colleagues, many of whom have worked under very trying circumstances. The experience of the past two years has underscored the critical role that our products and services play for our customers around the world, and we can be proud of the way we have supported them and their families through the most challenging of times. In 2021, we welcomed approximately 1.6 million new customers, for a total of more than 33 million customers, and supported them with over $31 billion in claims paid. Our success over time depends on our ability to continue delivering for each of our key stakeholders: our customers, the communities where we live and work, the planet we all share, our colleagues, and you, our shareholders. I’m pleased to share some highlights of our progress with you. Commitment to our customers Our ambition is to be the most digital, customer-centric global company in our industry, and in 2018, we set an ambitious goal to improve our Net Promoter Score by 30 points. Since then, we’ve invested more than $850 million to enhance our digital capabilities and
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have increased our Relationship Net Promoter Score by 20 points to 21, as of the end of 2021, as we continue to meet, and exceed, our customers’ expectations. Throughout the pandemic, our customers, agents, and partners have accelerated digital adoption and our investments in technology have enabled us to provide a seamless experience and drive higher customer satisfaction. We now process more than 90% of claims digitally and have achieved 82% straight-through-processing, a measure of customer interactions that are completely digital. In response to our customers’ desire to continue improving their well-being, we’ve evolved and expanded our behavioural insurance offerings to support them in achieving their goals. From offering Vitality Points™ to North American customers who have received their COVID-19 vaccination, to expanding our partnership offerings, Manulife Vitality and John Hancock Vitality continue to have a positive impact on our customers’ lives, while also driving higher rates of interaction, in turn leading to improved health outcomes. We’ve done the same in Asia through several enhancements to our ManulifeMOVE experience, including an updated app, access to exclusive programs, and 24/7 self-service functionality. We continue to invest in the creation and innovation of faster, simpler, and more relevant experiences to help our behavioural insurance customers live healthier, better lives. We’re also supporting our customers and clients with their investment needs and we’re proud of Global Wealth and Asset Management’s track record of positive net flows and strong investment performance. Investing for positive impact Driven by our mission, we understand that we can and should create value for—and be valued by—all of our stakeholders in order to be successful now and in the future. We’re particularly focused on the environment, health and well-being, and supporting the communities where we live and work. In 2021, we were proud to share the first phase of our Climate Action Plan, a robust and long-term commitment to reducing our environmental footprint, supporting the transition to a net zero future, and investing in climate change mitigation and resilience. Our substantial natural resource holdings have enabled us to realize net zero operations, meaning we remove more carbon from the atmosphere than our business operations emit. But we know we need to do more and we have additionally committed to reducing our absolute Scope 1 and 2 emissions by 35% by 2035. We have also committed to achieving net zero financed emissions by 2050. We have further embedded these commitments by adding goals linked to our Climate Action Plan into our executive performance and compensation, and by committing to the Science Based Targets initiative. We’re also bringing these commitments to life through our business, including through our acquisition of 89,800 acres of forested land as an impact-first investment, as well as the expansion of our sustainable investing products with the launch of investment strategies in Sustainable Asia Bond, Global Climate, and ESG Asian Multi-Asset Income. We continue to invest in the communities where we live and work to empower sustained health and well-being, drive inclusive economic opportunity, and create a sustainable future. Alongside our partners, we delivered on high-impact initiatives, including our second “MOVE for GOOD” challenge that motivated our customers collectively to walk 100 million steps to unlock a donation that encouraged underserved children in Hong Kong to be more active. The year also marked our 14th annual MLK Scholars program, an award-winning cross sector collaboration we lead in the U.S. Since its inception in 2008, we’ve invested over US $15 million to provide jobs and professional development opportunities to over 6,000 youth. “We know that our people are our most important asset and that our culture is one of the only truly sustainable long-term competitive advantages. We’re committed to investing in both.” Manulife 5 7

We remain committed to helping communities respond to COVID-19 with a contribution to Project HOPE, and to natural disaster relief efforts in the U.S., Canada, and Asia—including Typhoon Rai in the Philippines—with donations to the Red Cross. In Hong Kong, Japan, the Philippines, Indonesia, and Vietnam, we were honoured to facilitate access to COVID-19 vaccines for our colleagues and their immediate families, as well as our agents and financial advisors in collaboration with local governments and other third parties. We were pleased to be named one of Canada’s Best 50 Corporate Citizens by Corporate Knights and to have improved our ranking on the Dow Jones Sustainability Index for North America to the 81st percentile. As well, Manulife Investment Management was accepted as a signatory to the UK Stewardship Code, which is recognized globally as a best practice benchmark in investment stewardship. Developing our winning team We know that our people are our most important asset and that our culture is one of the only truly sustainable long-term competitive advantages. We’re committed to investing in both. Here, our ambition has always been to achieve top quartile engagement results, and despite a tremendously challenging year, our 2021 engagement scores again increased year over year, ranking Manulife in the top 15% of Gallup’s financial and insurance company benchmark. We’ve achieved this through our focus on driving inclusion, promoting well-being, and enhancing our culture of care. In 2021, we enhanced our learning and development offerings We remain committed to helping communities respond to COVID-19 with a contribution to Project HOPE, and to natural disaster relief efforts in the U.S., Canada, and Asia—including Typhoon Rai in the Philippines—with donations to the Red Cross. In Hong Kong, Japan, the Philippines, Indonesia, and Vietnam, we were honoured to facilitate access to COVID-19 vaccines for our colleagues and their immediate families, as well as our agents and financial advisors in collaboration with local governments and other third parties. We were pleased to be named one of Canada’s Best 50 Corporate Citizens by Corporate Knights and to have improved our ranking on the Dow Jones Sustainability Index for North America to the 81st percentile. As well, Manulife Investment Management was accepted as a signatory to the UK Stewardship Code, which is recognized globally as a best practice benchmark in investment stewardship. Developing our winning team We know that our people are our most important asset and that our culture is one of the only truly sustainable long-term competitive advantages. We’re committed to investing in both. Here, our ambition has always been to achieve top quartile engagement results, and despite a tremendously challenging year, our 2021 engagement scores again increased year over year, ranking Manulife in the top 15% of Gallup’s financial and insurance company benchmark. We’ve achieved this through our focus on driving inclusion, promoting well-being, and enhancing our culture of care. In 2021, we enhanced our learning and development offerings through our new AI-powered learning platform, bringing together a host of online and anytime learning resources. These resources allow our team to develop their capabilities and learn new skills that will be essential to accelerate our future growth. We’re also supporting our leaders to become even better at building high-performing teams through tailored learning sessions and more robust Diversity, Equity, and Inclusion training, that will help us continue deepening our focus on driving an inclusive environment. We are mindful of the importance of well-being, and we continue to make this a priority through a broad range of initiatives. We gave everyone five additional personal paid days off in 2021 and will do so again in 2022, and we launched a program called Fuel Up Friday, which provides our team with the opportunity to dedicate time on the second Friday of each month to advance their personal development by taking advantage of our learning programs. We’ve also welcomed speakers to share inspiration and provide our team with a range of well-being resources on mindfulness, nutrition, exercise, and more. We continue to make progress on our ambition to promote Diversity, Equity, and Inclusion through expanded hiring commitments, education, and community support for organizations helping Black, Indigenous, and People of Colour. In June, we brought our global colleagues together for our first Afternoon of Reflection and Learning, to allow all team members to explore the many dimensions of diversity through speaker sessions, guided discussions, and more. We’re honoured to be named as one of Canada’s Most Admired Corporate Cultures for 2021 by Waterstone Human Capital, and as one of Canada’s Top 100 Employers 2022 by Mediacorp Canada Inc. We were also pleased to be recognized as one of Forbes World’s Best Employers for 2021, and to be named to Bloomberg’s 2022 Gender-Equality Index for the fourth consecutive year. Our U.S. business, John Hancock, received a top score of 100 on the Human Rights Campaign’s 2022 Corporate Equality Index for the eighth year in a row, again earning the designation as a “Best Place to Work for LGBTQ+ Equality.” And we were proud to be acknowledged by the Equal Opportunities Commission of Hong Kong for efforts made on Gender Equality, Family Status Equality and Racial Equality & Inclusion. Accelerating growth in 2022 We have an unparalleled platform for growth that is global in nature and poised to capitalize on key global megatrends shaping the future, including the growth and emergence of the middle class in Asia, an aging global population, and the digitization of the consumer. More than one billion people in Asia are expected to join the middle class by 2030, and by 2032, they are expected to account for more than 50% of consumer spending. By 2030, one in six people globally will be 60 and over, and 60% of those over the age of 65 are expected to be in Asia. Manulife is uniquely positioned to succeed with our strong leadership position in 13 of the fastest growing, most profitable markets in Asia. Looking at our growth engines, Global Wealth and Asset Management drove performance, delivering net inflows of $27.9 billion in 2021. We improved our global money manager ranking from 32nd to 27th, as measured by Pensions & Investments, and demand 6    | 2021    Annual Report

“We have an unparalleled platform for growth that is global in nature and poised to capitalize on key global megatrends shaping the future.” for our products continues toincrease with the widening ofthe retirement gap and the expansionof household wealth inthe U.S.and Asia. In Asia, our coreearnings grew to $2.2 billion and net incomeattributed to shareholders grew to $1.8 billion, despite the headwinds we faced in some markets. Our new business value of $1.7 billionrepresenteda 27% increase over the prior year on a constant exchange rate basis Crucially, we gainedmarket sharein five geographies across Asia during the year and we continued to scale our business to grow across thediverse markets we servein Asia.We completedour acquisition of AvivaVietnam andbegan a16-year exclusive bancassurance partnership withVietinBank, allowing us the opportunitytoprovide an additional 14 million customers with a full suite of insurance, wealth, andretirement solutions in Vietnam. We also continuedto makesignificant progress on our portfolio optimization commitments, as evidencedby the announcement of our legacy U.S. variable annuity reinsurance transaction with Venerable Holdings Inc., which closed in February 2022. This transaction will unlock valueand meaningfully reduce our go-forward risk profile, while contributing to our goal ofshifting the earnings mix of ourfranchise to focus on our highest potential businesses. Our ability to adapt and serve our customers across the globe who are navigating a veryuncertain environment continues to drive our operating results and we are well-positioned tocontinue helping them live better,happier, and healthier lives. Thank you In closing, I would liketoacknowledge my Manulife colleagues around the world for what we have achieved together and how we’ve done it. remain in aweof your dedication, resilience, and care, without which we couldn’t have deliveredour2021 results.Thank you. On behalf of the entire team, I’dlike to thank our Chairman, John Cassaday, and our Board of Directors, for their supportand good counsel throughout the year I’dalso liketo thank you, my fellow shareholders and customers, for the trust you’ve placed inour team. We have been steadfast in pursuit of our five strategic priorities, and we are confident that our continuedstrong execution against those priorities will ultimately result in substantial rewards for you. Aswe look tothe year ahead, our mission—Decisions made easier Lives made better.—will continue to guide us in building our winning company and culture. Sincerely Roy Gori President and Chief Executive Officer 7

Caution regarding forward-looking statements From time to time, Manulife Financial Corporation (“MFC”) makes written and/ or oral forward-looking statements, including in this document. In addition, our representatives may make forward-looking statements orally to analysts, investors, the media and others. All such statements are made pursuant to the “safe harbour” provisions of Canadian provincial securities laws and the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document include, but are not limited to, statements with respect to expected annual savings related to actions taken in 2021, the Company’s strategic priorities and 2022 targets and 2025 supplemental goals for net promoter score, straight-through-processing, employee engagement, its highest potential businesses, expense efficiency and portfolio optimization, possible share buybacks under our normal course issuer bid (“NCIB”), the impact related to the reinsurance of our legacy U.S. variable annuity block, and also relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as “may”, “will”, “could”, “should”, “would”, “likely”, “suspect”, “outlook”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”, “forecast”, “objective”, “seek”, “aim”, “continue”, “goal”, “restore”, “embark” and “endeavour” (or the negative thereof) and words and expressions of similar import, and include statements concerning possible or assumed future results. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements and they should not be interpreted as confirming market or analysts’ expectations in any way. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to the performance, volatility and correlation of equity markets, interest rates, credit and swap spreads, currency rates, investment losses and defaults, market liquidity and creditworthiness of guarantors, reinsurers and counterparties); the ongoing prevalence of COVID-19, including any variants, as well as actions that have been, or may be taken by governmental authorities in response to COVID-19, including the impacts of any variants; changes in laws and regulations; changes in accounting standards applicable in any of the territories in which we operate; changes in regulatory capital requirements; our ability to execute strategic plans and changes to strategic plans; downgrades in our financial strength or credit ratings; our ability to maintain our reputation; impairments of goodwill or intangible assets or the establishment of provisions against future tax assets; the accuracy of estimates relating to morbidity, mortality and policyholder behaviour; the accuracy of other estimates used in applying accounting policies, actuarial methods and embedded value methods; our ability to implement effective hedging strategies and unforeseen consequences arising from such strategies; our ability to source appropriate assets to back our long-dated liabilities; level of competition and consolidation; our ability to market and distribute products through current and future distribution channels; unforeseen liabilities or asset impairments arising from acquisitions and dispositions of businesses; the realization of losses arising from the sale of investments classified as available-for-sale; our liquidity, including the availability of financing to satisfy existing financial liabilities on expected maturity dates when required; obligations to pledge additional collateral; the availability of letters of credit to provide capital management flexibility; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; the availability, affordability and adequacy of reinsurance; legal and regulatory proceedings, including tax audits, tax litigation or similar proceedings; our ability to adapt products and services to the changing market; our ability to attract and retain key executives, employees and agents; the appropriate use and interpretation of complex models or deficiencies in models used; political, legal, operational and other risks associated with our non-North American operations; acquisitions and our ability to complete acquisitions including the availability of equity and debt financing for this purpose; the disruption of or changes to key elements of the Company’s or public infrastructure systems; environmental concerns; our ability to protect our intellectual property and exposure to claims of infringement; and our inability to withdraw cash from subsidiaries. Additional information about material risk factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in this document under “Risk Management and Risk Factors” and “Critical Actuarial and Accounting Policies” and in the “Risk Management” note to the Consolidated Financial Statements as well as elsewhere in our filings with Canadian and U.S. securities regulators. The forward-looking statements in this document are, unless otherwise indicated, stated as of the date hereof and are presented for the purpose of assisting investors and others in understanding our financial position and results of operations, our future operations, as well as our objectives and strategic priorities, and may not be appropriate for other purposes. We do not undertake to update any forward-looking statements, except as required by law. 8    | 2021    Annual Report 10

Table of contents
10 Management’s Discussion and Analysis
10 Manulife Financial Corporation
21 Asia
24 Canada
27 U.S.
30 Global Wealth and Asset Management
34 Corporate and Other
36 Investments
41 Fourth Quarter Financial Highlights
44 Risk Management and Risk Factors
84 Capital Management Framework
87 Critical Actuarial and Accounting Policies
99 Controls and Procedures
100 Non-GAAP and Other Financial Measures 126 Additional Disclosures
136 Consolidated Financial Statements 141 Notes to Consolidated Financial Statements 214 Additional Actuarial Disclosures 216 Board of Directors 217 Executive Leadership Team 218 Office Listing 220 Glossary of Terms 221 Shareholder Information 221 Dividend Information
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Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) is current as of February 9, 2022.

1. Manulife Financial Corporation

Manulife Financial Corporation is a leading international financial services group that helps people make their decisions easier and lives better. With our global headquarters in Toronto, Canada, we operate as Manulife across our offices in Asia, Canada, and Europe, and primarily as John Hancock in the United States. We provide financial advice, insurance, and wealth and asset management solutions for individuals, groups and institutions. At the end of 2021, we had more than 38,000 employees, over 119,000 agents, and thousands of distribution partners, serving over 33 million customers. At the end of 2021, we had $1.4 trillion (US$1.1 trillion) in assets under management and administration¹, including total invested assets of $0.4 trillion (US $0.3 trillion), and segregated funds net assets of $0.4 trillion (US$0.3 trillion), and during 2021, we made $31.8 billion in payments to our customers. Our principal operations are in Asia, Canada and the United States where we have served customers for more than 155 years. We trade as ‘MFC’ on the Toronto, New York, and the Philippine stock exchanges, and under ‘945’ in Hong Kong.

Our reporting segments are:

 

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Asia – providing insurance products and insurance-based wealth accumulation products in Asia.

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Canada – providing insurance products, insurance-based wealth accumulation products, and banking services in Canada and has an in-force variable annuity business.

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U.S. – providing life insurance products, insurance-based wealth accumulation products and has an in-force long-term care insurance business and an in-force annuity business.

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Global Wealth and Asset Management (“Global WAM”) – providing investment advice and innovative solutions to our retail, retirement and institutional clients around the world under the Manulife Investment Management (“MIM”) brand.

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Corporate and Other – comprised of investment performance on assets backing capital, net of amounts allocated to operating segments; financing costs; costs incurred by the corporate office related to shareholder activities (not allocated to operating segments); our Property and Casualty (“P&C”) Reinsurance business; and run-off reinsurance business lines.

In this document, the terms “Company”, “Manulife”, “we” and “our” mean Manulife Financial Corporation (“MFC”) and its subsidiaries. The term “MLI” means The Manufacturers Life Insurance Company and its subsidiaries.

Profitability

Profitability

 

As at and for the years ended December 31, ($ millions, unless otherwise stated)		2021				2020
Net income attributed to shareholders		$	7,105			$	5,871
Core earnings(1)		$	6,536			$	5,516
Diluted earnings per common share ($)		$	3.54			$	2.93
Diluted core earnings per common share ($)(2)		$	3.25			$	2.75
Return on common shareholders’ equity (“ROE”)			14.2%				11.6%
Core ROE(2)			13.0%				10.9%
Expense efficiency ratio(2)			48.9%				52.9%
General expenses		$	7,828			$	7,510

 

(1)	This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.

(2)	This item is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.

Our net income attributed to shareholders was $7.1 billion in 2021 compared with $5.9 billion in 2020. Net income attributed to shareholders is comprised of core earnings (consisting of items we believe reflect the underlying earnings capacity of the business), which amounted to $6.5 billion in 2021 compared with $5.5 billion in 2020, and items excluded from core earnings of $0.6 billion of net gains in 2021 compared with $0.4 billion of net gains in 2020.

 

1	This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.

 

10   |  2021 Annual Report  |  Management’s Discussion and Analysis

The $1.2 billion increase in net income attributed to shareholders in 2021 compared with 2020 was driven by gains from investment-related experience compared with losses in 2020 and growth in core earnings. Investment-related experience gains reflected higher-than-expected returns (including fair value changes) on alternative long duration assets (“ALDA”) primarily driven by gains on private equity and infrastructure, strong credit experience and the favourable impact of fixed income reinvestment activities. Partially offsetting the gains was a net charge from the direct impacts of markets (compared with gains in 2020). The net charge was primarily driven by a $532 million charge relating to the impact of updated ultimate reinvestment rate (“URR”) assumptions issued by the Canadian Actuarial Standards Board (“ASB”).

The $1.0 billion or 26%¹ increase in core earnings on a constant exchange rate basis compared with 2020 was driven by the recognition of core investment gains² in 2021 (compared with nil core investment gains in 2020), higher new business gains in all segments, higher net fee income from higher average AUMA³ in Global WAM, which benefitted from the favourable impact of markets and net inflows, higher investment income in Corporate and Other which benefitted from higher net gains from available-for-sale (“AFS”) equities and seed money investments in 2021, and in-force business growth in all segments. These items were partially offset by unfavourable policyholder experience and a charge in our P&C Reinsurance business for losses related to Hurricane Ida and the European floods. In 2021, core earnings included a net charge of $110 million ($127 million pre-tax) related to policyholder insurance and annuity experience compared with a net gain of $83 million ($76 million pre-tax) in 2020.⁴ Actions to improve the capital efficiency of our legacy business resulted in $3 million lower core earnings in 2021 compared with 2020.

Core earnings by segment is presented in the following table. See Asia, Canada, U.S., and Global WAM sections below.

 

For the years ended December 31, ($ millions)														% change(1)
		2021								2020				2021 vs 2020
Core earnings by segment
Asia		$	2,176							$	2,110				10%
Canada			1,179								1,174				–
U.S.			1,936								1,995				4%
Global Wealth and Asset Management			1,406								1,100				33%
Corporate and Other (excluding core investment gains)			(561	)							(863	)			35%
Core investment gains(2)			400								–				100%
Total core earnings		$	6,536							$	5,516				26%

 

(1)	Percentage change in core earnings on a constant exchange rate basis is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.

(2)	See note (2) in the table below. This item is disclosed under the Office of the Superintendent of Financial Institution’s (“OSFI’s”) Source of Earnings Disclosure (Life Insurance Companies) guideline.

 

1

Percentage growth / declines in core earnings, core general expenses, pre-tax core earnings, assets under management and administration, assets under management, core EBITDA, general expenses, Manulife Bank average net lending assets and Global Wealth and Asset Management revenue are stated on a constant exchange rate basis, a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.

2	Core investment gains are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.

3	For more information on this metric, see “Non-GAAP and Other Financial Measures” below.

4

Policyholder experience includes gains of $29 million post-tax in 2021 (2020 – gains of $60 million post-tax) from the release of margins on medical policies in Hong Kong that have lapsed for customers who have opted to change their existing policies to the new Voluntary Health Insurance Scheme (“VHIS”) products. These gains did not have a material impact on core earnings as they were mostly offset by new business strain.

 

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The table below presents 2021 and 2020 net income attributed to shareholders consisting of core earnings and items excluded from core earnings.

 

For the years ended December 31, ($ millions)		2021				2020
Core earnings		$	6,536			$	5,516
Items excluded from core earnings:(1)
Investment-related experience outside of core earnings(2)			1,642				(792	)
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities			(817	)			932
Direct impact of equity markets and variable annuity guarantee liabilities(3)			289				(228	)
Fixed income reinvestment rates assumed in the valuation of policy liabilities(4)			(346	)			(1,015	)
Sale of AFS bonds and derivative positions in the Corporate and Other segment			(228	)			2,175
Changes to the ultimate reinvestment rate(5)			(532	)			–
Change in actuarial methods and assumptions(6)			(41	)			(198	)
Restructuring charge(7)			(115	)			–
Reinsurance transactions, tax-related items and other(8)			(100	)			413
Total items excluded from core earnings			569				355
Net income attributed to shareholders		$	7,105			$	5,871

 

(1)	These items are disclosed under OSFI’s Source of Earnings Disclosure (Life Insurance Companies) guideline.

(2)

In accordance with our definition of core earnings, we include up to $400 million of net favourable investment-related experience reported in a single year, as core investment gains (see “Non-GAAP and Other Financial Measures” below). Items excluded from core earnings include net investment-related experience in excess of $400 million per annum or net unfavourable investment-related experience on a year-to-date basis. In 2021, the investment-related experience net gain of $1,642 million reflected higher-than-expected returns (including fair value changes) on ALDA primarily driven by gains on private equity and infrastructure, strong credit experience and the favourable impact of fixed income reinvestment activities. In 2020, the investment-related experience net charge of $792 million reflected lower-than-expected returns (including fair value changes) on ALDA primarily driven by investments in oil & gas and real estate, partially offset by the favourable impact of fixed income reinvestment activities.

(3)

In 2021, the net gain related to equity markets of $289 million included a gain of $1,873 million from gross equity exposure, partially offset by a loss of $1,581 million from dynamic hedge experience and a modest charge of $3 million from macro hedging experience. In 2020, the net charge of $228 million included a charge of $1,641 million from gross equity exposure and a modest charge of $7 million from macro hedging experience, partially offset by a gain of $1,420 million from dynamic hedge experience.

(4)

In 2021, the charge due to fixed income reinvestment rates of $346 million was primarily due to the increase in risk-free interest rates and the overall steepening of the yield curve in U.S. and Canada. In 2020, the charge due to fixed income reinvestment rates of $1,015 million was primarily due to the reduction in risk-free rates and, to a much lesser extent, lower corporate spreads, with spreads for some tenors and ratings being slightly below their respective 2019 levels.

(5)

In June 2021, the Canadian Actuarial Standards Board issued a new promulgation with reductions to the URR and updates to the calibration criteria for stochastic risk-free rates. The updated standard included a reduction of 15 basis points in the URR and a corresponding change to stochastic risk-free rate modeling and was effective October 15, 2021. The long-term URR for risk-free rates in Canada is prescribed at 2.9% and we use the same assumption for the U.S. Our assumption for Japan is 1.5%.

(6)	See “Critical Actuarial and Accounting Policies – Review of Actuarial Methods and Assumptions” section below for further information on the 2021 and 2020 charges.

(7)

In 2021, we reported a restructuring charge of $150 million pre-tax ($115 million post-tax) related to actions that are expected to result in recurring annual expense savings of $250 million (pre-tax) by 2023; $100 million (pre-tax) of these savings have been realized in 2021, and $200 (pre-tax) million is expected to emerge in 2022.1

(8)

The 2021 net charge of $100 million included a $119 million charge relating to updating the impact of the 2017 U.S. Tax Cuts and Jobs Act and a $37 million charge resulting from a reinsurance transaction in the U.S., partially offset by a $37 million gain related to affiliate reinsurance transactions in Asia and a $19 million gain related to the divestment of our Thailand operation. In 2020, the $413 million gain included the impact of reinsurance transactions in the U.S., Asia and Canada which contributed gains of $262 million, $58 million and $21 million, respectively. In addition, we reported tax benefits of $72 million in 2020 from the U.S. CARES Act, as a result of carrying back net operating losses to prior years, which had higher tax rates.

Net income attributed to shareholders by segment is presented in the following table. See Asia, Canada, U.S., and Global WAM sections below.

 

For the years ended December 31, ($ millions)		2021				2020				% change(1)   2021 vs 2020
Net income attributed to shareholders by segment
Asia		$	3,057			$	1,762				73%
Canada			1,354				195				594%
U.S.			2,080				1,269				64%
Global Wealth and Asset Management			1,406				1,100				28%
Corporate and Other			(792	)			1,545				–
Total net income attributed to shareholders		$	7,105			$	5,871				21%

 

(1)	Percentage change is on an actual exchange rate basis.

Diluted earnings per common share was $3.54 in 2021, compared with $2.93 in 2020. Diluted core earnings per common share was $3.25 in 2021, compared with $2.75 in 2020. The changes in these measures were related to the increase in both net income and core earnings, respectively. The diluted weighted average common shares outstanding was 1,946 million in 2021 and 1,943 million in 2020.

Return on common shareholders’ equity (“ROE”) for 2021 was 14.2%, compared with 11.6% for 2020 and core return on shareholders’ equity (“core ROE”) was 13.0% in 2021 compared with 10.9% in 2020. The increase in 2021 ROE was primarily driven by an increase in common shareholders’ net income and the increase in 2021 core ROE was primarily driven by an increase in common shareholders’ core earnings.

 

1	See “Caution regarding forward-looking statements” above.

 

12   |  2021 Annual Report  |  Management’s Discussion and Analysis

Expense efficiency ratio was 48.9% for 2021, compared with 52.9% in 2020. The 4.0 percentage point improvement in the ratio compared with 2020 was driven by a 25% increase in pre-tax core earnings¹ and a 5% increase in core general expenses¹. The 5% increase in core general expenses on a constant exchange rate basis was due to temporary reductions in discretionary and distribution-related expenses in 2020 and the impact of stronger 2021 sales, substantially offset by 2021 efficiency programs.

Total general expenses increased 9% on a constant exchange rate basis due to the items noted above for core general expenses as well as a restructuring charge and the establishment of a legal provision. Total general expenses increased 4% on an actual exchange rate basis reflecting the previously-noted items partially offset by the favourable impact of the strengthening of the Canadian dollar compared with the U.S. dollar.

 

Business Performance

Business performance

 

As at and for the years ended December 31, ($ millions, unless otherwise stated)		2021				2020
Asia APE sales		$	4,050			$	3,869
Canada APE sales			1,227				1,148
U.S. APE sales			788				609
Total APE sales(1)			6,065				5,626
Asia new business value			1,666				1,387
Canada new business value			307				255
U.S. new business value			270				160
Total new business value(1)			2,243				1,802
Global Wealth and Asset Management gross flows ($ billions)(1)			144.7				130.2
Global Wealth and Asset Management net flows ($ billions)(1)			27.9				8.9
Global Wealth and Asset Management assets under management and administration ($ billions)(2),(3)			855.9				753.6
Global Wealth and Asset Management total invested assets ($ billions)(3)			4.5				4.8
Global Wealth and Asset Management segregated funds net assets ($ billions)(3)			252.6				229.8
Total assets under management and administration ($ billions)			1,425.8				1,297.4
Total invested assets ($ billions)			427.1				411.0
Total net segregated funds net assets ($ billions)			399.8				367.4

 

(1)	For more information on this metric, see “Non-GAAP and Other Financial Measures” below.

(2)	This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.

(3)

The Global WAM portion of AUMA as at December 31, 2021 was $855.9 billion, an increase of 14%, compared with December 31, 2020, driven by the favourable impact of markets, 2021 net inflows of $27.9 billion, and assets acquired of $1.6 billion. The Global WAM segregated funds net assets were $252.6 billion as at December 31, 2021, an increase of 10%, compared with December 31, 2020 on an actual exchange rate basis driven primarily by the favourable impact of markets partially offset by segregated funds net outflows.

Annualized premium equivalent (“APE”) sales were $6.1 billion in 2021, an increase of 13%² compared with 2020. In Asia, there continued to be varying degrees of adverse impacts on select markets across the region related to COVID-19. Asia APE sales increased 11% compared with 2020 primarily as a result of strong APE sales in Hong Kong, Singapore, mainland China and Other Emerging Markets³ partially offset by a decline in APE sales in Japan resulting from lower corporate-owned life insurance (“COLI”) product sales. In Hong Kong, APE sales increased 10% compared with 2020, reflecting strong growth in our bank channel, demand from mainland Chinese visitors through our Macau branch, and an expanded agency force. Singapore APE sales increased 51% compared with 2020, reflecting double-digit growth across agency, bank and broker channels. China APE sales increased 12% compared with 2020, primarily reflecting growth in our bank channel. Vietnam APE sales increased 7% compared with 2020, reflecting growth in agency and bank channels, partially offset by the impact of COVID-19 containment measures during the second half of the year. In Other Emerging Markets, APE sales increased 17% compared with 2020, despite the impact of COVID-19 containment measures in 2021. Japan APE sales decreased 26% compared with 2020, driven by lower COLI product sales. In Canada, APE sales increased 7% compared with 2020 primarily driven by increased customer demand for our lower risk segregated fund products and higher individual insurance sales in participating products, partially offset by variability in the large-case group insurance market. In the U.S., APE sales increased 38% compared with 2020, due to strong international sales, which is reported as a part of the U.S. segment results, and our differentiated domestic product offerings which include the John Hancock Vitality feature and higher customer demand for insurance protection in the current COVID-19 environment of greater consumer interest in improving baseline health. APE sales of products with the John Hancock Vitality PLUS feature in 2021 increased 34% compared with 2020.

New business value (“NBV”) was $2.2 billion in 2021, an increase of 31% compared with 2020. In Asia, NBV of $1.7 billion increased 27% compared with 2020 driven by higher sales volumes in Hong Kong, Singapore, mainland China, Vietnam and Other Emerging Markets, favourable product mix in Singapore and Vietnam and favourable interest rates and product management actions in Hong Kong; partially offset by a decline in Japan due to lower sales. In Canada, NBV of $307 million increased 20% compared with 2020 primarily due to higher margins in annuities and individual insurance. In the U.S., NBV of $270 million was up 80% compared with 2020 primarily driven by higher sales volumes and improved margins, notably due to higher international sales.

 

1	This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.

2	Percentage growth / declines in APE sales, gross flows, net flows, and NBV are stated on a constant exchange rate basis.

3	Other Emerging Markets includes Indonesia, the Philippines, Malaysia, Thailand, Cambodia, and Myanmar.

 

		13

Global WAM gross flows of $144.7 billion increased $14.5 billion or 16% compared with 2020, driven by higher gross flows in Retirement and Retail partially offset by a decline in Institutional Asset Management. See “Global Wealth and Asset Management” section below for further details.

Global WAM net inflows were $27.9 billion in 2021, compared with net inflows of $8.9 billion in 2020. Net inflows in Retail were $29.2 billion in 2021 compared with net inflows of $3.5 billion in 2020, driven by double-digit growth in gross flows across all geographies amid increased investor demand and lower mutual fund redemption rates. Net outflows in Institutional Asset Management were $2.4 billion in 2021 compared with net inflows of $3.8 billion in 2020, driven by a $9.4 billion redemption in Asia in the first quarter of 2021 (“1Q21”), and the non-recurrence of a $6.9 billion sale in Canada in 2020. This was partially offset by the non-recurrence of a $5.0 billion redemption in Europe in 2020, lower redemptions in Asia and the U.S., and higher sales of infrastructure, timberland and real estate mandates. Net inflows in Retirement were $1.1 billion in 2021 compared with net inflows of $1.6 billion in 2020, reflecting the non-recurrence of a large-case plan sale in 2020 and higher member redemptions, partially offset by growth in member contributions.

Assets under Management and Administration (“AUMA”)

AUMA as at December 31, 2021 was $1.4 trillion, an increase of 11%, compared with December 31, 2020, primarily due to the net favourable impact of markets and net inflows. Total invested assets and segregated funds net assets increased 4% and 9%, respectively, on an actual exchange rate basis primarily due to the favourable impact of markets.

Assets under Management and Administration

 

As at December 31, ($ millions)		2021				2020
Total invested assets		$	427,098			$	410,977
Segregated funds net assets(1)			399,788				367,436
Mutual funds, institutional asset management and other(1),(2)			411,271				356,335
Total assets under management			1,238,157				1,134,748
Other assets under administration			187,631				162,688
Total assets under management and administration		$	1,425,788			$	1,297,436

 

(1)	Segregated fund assets, mutual fund assets and other funds are not available to satisfy the liabilities of the Company’s general fund.

(2)	Other funds represent pension funds, pooled funds, endowment funds and other institutional funds managed by the Company on behalf of others.

Revenue

Revenue includes (i) premiums received on life and health insurance policies and fixed annuity products, net of premiums ceded to reinsurers; (ii) investment income comprised of income earned on general fund assets, credit experience and realized gains and losses on assets held in the Corporate and Other segment; (iii) fee and other income received for services provided; and (iv) realized and unrealized gains and losses on assets supporting insurance and investment contract liabilities and on our macro hedging program. Premium equivalents from administrative services only (“ASO”), as well as deposits received by the Company on investment contracts such as segregated funds, mutual funds and managed funds are not included in revenue; however, the Company does receive fee income from these products, which is included in revenue. Fees generated from deposits and ASO premium and deposit equivalents are an important part of our business and as a result, revenue does not fully represent sales and other activity taking place during the respective periods.

In 2021, revenue before realized and unrealized investment gains and losses was $65.8 billion compared with $59.9 billion in 2020. The increase was driven primarily by the non-recurrence of a large ceded premium from the reinsurance of a block of legacy U.S. Bank-Owned Life Insurance (“BOLI”) business in 2020 and higher premiums from in-force business growth.

In 2021, the net realized and unrealized investment losses on assets supporting insurance and investment contract liabilities and on the macro hedging program were $4.0 billion compared with gains of $19.0 billion for 2020. The 2021 losses were primarily due to the impact of interest rate increases partially offset by fair value gains in ALDA and higher equity markets. The 2020 gains were primarily due to the impact of interest rate declines and higher equity markets.

See “Impact of Fair Value Accounting” below. Also, see “Profitability” above for additional information on the impact on 2021 net income attributed to shareholders from the direct impact of equity markets and interest rates and variable annuity guarantee liabilities.

 

14   |  2021 Annual Report  |  Management’s Discussion and Analysis

Revenue

 

For the years ended December 31, ($ millions)		2021				2020
Gross premiums		$	44,344			$	41,408
Premiums ceded to reinsurers			(5,279	)			(8,491	)
Net premium income			39,065				32,917
Investment income			15,627				16,433
Other revenue			11,132				10,591
Revenue before realized and unrealized investment gains and losses			65,824				59,941
Realized and unrealized investment gains and losses on assets supporting insurance and investment contract liabilities and on the macro hedge program(1)			(4,003	)			18,967
Total revenue		$	61,821			$	78,908

 

(1)	See “Impact of fair value accounting” section below. Also see “Profitability – Items excluded from core earnings” section above for information on direct impact of equity markets and interest rates and variable annuity guarantee liabilities.

Financial Strength

Financial strength metrics

 

As at and for the years ended December 31, ($ millions, unless otherwise stated)		2021				2020
MLI’s LICAT ratio(1)			142%				149%
Financial leverage ratio			25.8%				26.6%
Consolidated capital(2)		$	66,005			$	61,064
Book value per common share ($)		$	26.78			$	25.00
Book value per common share excluding accumulated other comprehensive income ($)		$	24.12			$	21.74

 

(1)	This item is disclosed under OSFI’s Life Insurance Capital Adequacy Test Public Disclosure Requirements guideline.

(2)	This item is a capital management measure. For more information on this metric, see “Non-GAAP and Other Financial Measures” below.

The Life Insurance Capital Adequacy Test (“LICAT”) ratio for MLI was 142% as at December 31, 2021, compared with 149% as at December 31, 2020. The seven percentage point decrease from December 31, 2020 was driven by the impact of market movements primarily from an increase in risk-free interest rates and a narrowing of spreads.

MFC’s financial leverage ratio decreased to 25.8% as at December 31, 2021 from 26.6% as at December 31, 2020, driven by growth in retained earnings, partially offset by net issuance of securities¹, a reduction in the carrying value of AFS debt securities, and the unfavourable impact of a stronger Canadian dollar.

Consolidated capital was $66.0 billion as at December 31, 2021 compared with $61.1 billion as at December 31, 2020, an increase of $4.9 billion. The increase was primarily driven by growth in total equity, partially offset by redemption of capital instruments. The increase in total equity is due to higher retained earnings and the net issuance of preferred shares and other equity instruments.

Remittances² were $4.4 billion in 2021 compared with $1.6 billion in 2020, an increase of $2.8 billion. The increase was primarily due to capital injections made to our Asia operations in 2020 in response to the COVID-19 related decline in interest rates.

Cash and cash equivalents and marketable assets³ was $268.4 billion as at December 31, 2021 compared with $262.9 billion as at December 31, 2020. The increase of $5.5 billion was in line with the growth in value of total invested assets. Refer to “Liquidity Risk Management Strategy” below for more information.

Book value per common share as at December 31, 2021 was $26.78, an increase of 7% compared with $25.00 as at December 31, 2020, and the book value per common share excluding accumulated other comprehensive income (“AOCI”) was $24.12 as at December 31, 2021, an increase of 11% compared with $21.74 as at December 31, 2020. The increase in the book value per common share was primarily driven by an increase in retained earnings and the issuance of other equity instruments, partially offset by a reduction in the carrying value of AFS debt securities. The number of common shares outstanding was 1,943 million as at December 31, 2021 and 1,940 million as at December 31, 2020.

 

1	Net issuance of securities consists of issuance of Limited Recourse Capital Notes (reported as other equity instruments) of $3.2 billion, and redemption of preferred shares of $0.6 billion, long-term debt of $1.3 billion, and capital instruments of $0.8 billion.

2	For more information on this metric, see “Non-GAAP and Other Financial Measures” below.

3

Includes cash & cash equivalents, comprised of cash on deposit, Canadian and U.S. Treasury Bills and high quality short-term investments, and marketable assets, comprised of investment grade government and agency bonds, investment grade corporate bonds, investment grade securitized instruments, publicly traded common stocks and preferred shares.

 

		15

Impact of Fair Value Accounting

Fair value accounting policies affect the measurement of both our assets and our liabilities. The difference between the reported amounts of our assets and liabilities determined as of the balance sheet date and the immediately preceding balance sheet date in accordance with the applicable fair value accounting principles is reported as investment-related experience and the direct impact of equity markets and interest rates and variable annuity guarantees, each of which impacts net income.

We reported $4.0 billion of net realized and unrealized investment losses in investment income in 2021 (2020 – gains of $19.0 billion).

As outlined under “Critical Actuarial and Accounting Policies” below, net insurance contract liabilities under IFRS are determined using Canadian Asset Liability Method (“CALM”), as required by the Canadian Institute of Actuaries (“CIA”). The measurement of policy liabilities includes the estimated value of future policyholder benefits and settlement obligations to be paid over the term remaining on in-force policies, including the costs of servicing the policies, reduced by the future expected policy revenues and future expected investment income on assets supporting the policies. Investment returns are projected using the current asset portfolios and projected reinvestment strategies. Experience gains and losses are reported when current period activity differs from what was assumed in the policy liabilities at the beginning of the period. We classify gains and losses by assumption type. For example, current period investing activities that increase (decrease) the future expected investment income on assets supporting the policies will result in an investment-related experience gain (loss). See description of investment-related experience in “Non-GAAP and Other Financial Measures” below.

Public Equity Risk and Interest Rate Risk

At December 31, 2021, excluding impacts from asset-based fees earned on assets under management and policyholder account value, the impact of a 10% decline in equity markets was estimated to be a charge of $570 million and the impact of a 50 basis point decline in interest rates, across all durations and markets, on our earnings was estimated to be a charge of $200 million. See “Risk Management and Risk Factors” below.

Impact of Foreign Exchange Rates

We have worldwide operations, including in Canada, the United States and various markets in Asia, and generate revenues and incur expenses in local currencies in these jurisdictions, all of which are translated into Canadian dollars. The bulk of our exposure to foreign exchange rates is to movements in the U.S. dollar.

Items impacting our Consolidated Statements of Income are translated to Canadian dollars using average exchange rates for the respective quarterly period. For items impacting our Consolidated Statements of Financial Position, period end rates are used for currency translation purpose. The following table provides the most relevant foreign exchange rates for 2021 and 2020.

 

Exchange rate		Quarterly																								Full Year
		4Q21				3Q21				2Q21				1Q21				4Q20								2021				2020
Average(1)
U.S. dollar			1.2601				1.2602				1.2282				1.2660				1.3030								1.2536				1.3414
Japanese yen			0.0111				0.0114				0.0112				0.0119				0.0125								0.0114				0.0126
Hong Kong dollar			0.1618				0.1620				0.1582				0.1632				0.1681								0.1613				0.1729
Period end
U.S. dollar			1.2678				1.2741				1.2394				1.2575				1.2732								1.2678				1.2732
Japanese yen			0.0110				0.0114				0.0112				0.0114				0.0124								0.0110				0.0124
Hong Kong dollar			0.1626				0.1637				0.1596				0.1618				0.1642								0.1626				0.1642

 

(1)	Average rates for the quarter are from Bank of Canada which are applied against Consolidated Statements of Income items for each period. Average rate for the full year is a 4-point average of the quarterly average rates.

Net income attributed to shareholders and core earnings from the Company’s foreign operations are translated to Canadian dollars, and in general, our net income attributed to shareholders and core earnings benefit from a weakening Canadian dollar and are adversely affected by a strengthening Canadian dollar. However, in a period of net losses in foreign operations, the weakening of the Canadian dollar has the effect of increasing the losses. The relative impact of foreign exchange in any given period is driven by the movement of currency rates as well as the proportion of earnings generated in our foreign operations.

Changes in foreign currency exchange rates from 2020 to 2021, primarily due to the strengthening of the Canadian dollar compared with the U.S. dollar, decreased core earnings by approximately $351 million in 2021. The impact of foreign currency exchange rates on items excluded from core earnings does not provide relevant information given the nature of these items.

Mosten Litigation Update

In our third quarter of 2018 MD&A, we disclosed developments in the litigation Mosten Investment LP (“Mosten”) brought against the Company in Saskatchewan. The basis of the claims by Mosten has been that life insurers can be compelled to accept unlimited premium payments into certain universal life policies and associated side accounts. In effect, Mosten was seeking to use insurance policies to invest sizeable sums that have no connection to the insurance coverage.

 

16   |  2021 Annual Report  |  Management’s Discussion and Analysis

On October 4, 2018 Manulife issued a press release regarding certain short-selling activity relating to the Mosten litigation, stating that the short seller’s report was an attempt to profit at the expense of our shareholders. We further stated that we disagree with the conclusions of the report and that we continue to believe that Mosten’s position is legally unfounded as we firmly believe that the consumers purchasing universal life policies, and the insurers issuing these policies, never intended to have the policies function as deposit or securities contracts. On October 29, 2018, the Government of Saskatchewan published new regulations that limit the amount of premiums a life insurer may receive or accept for deposit in certain life insurance policies and associated side accounts. In his March 15, 2019 decision, the trial judge accepted Manulife’s position on the interpretation of the policies, namely that they do not permit making unlimited deposits for investment purposes unrelated to the payment of life insurance premiums. The trial judge also ruled that the 2018 regulations had prospective effect only with respect to new policies issued after the date of the regulation.

In its March 10, 2021 decision, the Saskatchewan Court of Appeal rejected the trial judge’s interpretation of the polices but, ruling in Manulife’s favour, held that the 2018 regulations (and subsequent 2020 regulations) operate prospectively in a manner that prohibits Saskatchewan-licensed insurers from accepting deposits that do not relate to the payment of life insurance premiums, thereby preventing Mosten from using existing or new insurance policies as an investment vehicle. Similar legislation has been enacted by the governments of Ontario, Prince Edward Island, Alberta, New Brunswick, Nova Scotia and Quebec.

On May 10, 2021 Manulife received notice that Mosten has sought leave to appeal the Saskatchewan Court of Appeal’s decision regarding the regulations to the Supreme Court of Canada. Manulife has opposed Mosten’s application for leave to appeal and has also sought conditional leave to cross-appeal the Saskatchewan Court of Appeal’s decision regarding interpretation of the policies to the Supreme Court of Canada. On November 4, 2021 the Supreme Court of Canada dismissed Mosten’s application for leave to appeal with costs, and therefore did not decide Manulife’s conditional application for leave to cross-appeal. With the Supreme Court’s dismissal of Mosten’s application for leave to appeal, we consider this matter closed.

Strategic priorities progress update

Strategy

Our ambition is to be the most digital, customer-centric global company in our industry. The goals for our stakeholders are:

 

				Customers Improve Net Promoter Score (“NPS”) by +30 points and delight customers1
				Employees Engage our employees — achieve top quartile engagement2
				Shareholders Deliver top quartile returns3

 

1	As compared to a baseline of +1 in 2017, by 2022.

2	Top quartile employee engagement compared to global financial services companies and insurance peers by 2022.

3	MFC’s Total Shareholder Return was 26th percentile compared with our performance peer group for the five-year period ended December 31, 2021. Please refer to Manulife’s most recent Management Information Circular for more information on our performance peer group.

 

		17

Our mission, strategic priorities and values are summarized below:

 

 

Strategic Priorities

Our strategy is underpinned by five strategic priorities. At Manulife’s Investor Day on June 29, 2021, we announced that we have entered a new phase of our strategy, with a greater focus on accelerating growth of our highest potential businesses and a commitment to meaningful metrics to measure our progress through to 2025. We are confident our five strategic priorities remain the right areas of focus to achieve our ambition of being the most digital, customer-centric global company in our industry.

Accelerate Growth – We remain committed to generating two-thirds of core earnings from our highest potential businesses¹ by 2022 and will target a 75% contribution by 2025. We also aspire to generate one-half of core earnings from our Asia region (Asia segment and Asia wealth and asset management (“Asia WAM”)) by 2025. Focal areas within this pillar are to:

 

•

Execute on organic and inorganic growth opportunities in Asia

•

Execute on organic and inorganic growth opportunities in Global WAM

•

Expand our behavioural insurance offering to provide innovative solutions and support positive health for customers

•

Drive new business growth and persistency in group insurance

Digital, Customer Leader – We remain committed to a NPS of +31 by 2022 and will target NPS of +37 by 2025. We also introduced a new metric, straight-through-processing (“STP”)², which represents customer interactions that are completely digital, and aim to achieve STP of 88% by 2025. Focal areas within this pillar are to:

 

•

Have brilliant basics and industrialize improvements by harnessing the voice of the customer

•

Build differentiated, market-leading priority customer experiences

•

Extend customer relationships through value-added advice and new services by using open innovation

•

Drive NPS through a globally consistent NPS system

Expense Efficiency – We have already delivered on our original 2022 target of $1 billion in expense efficiencies and achieved an expense efficiency ratio of less than 50% in 2021. We remain focused on driving efficient growth and are committed to consistently achieving an expense efficiency ratio of less than 50% by 2022 and beyond while ensuring scalable growth, outstanding customer experience, and digital ways of working. Focal areas within this pillar are to:

 

•

Leverage our global scale and operating environment

•

Streamline business processes

•

Eliminate activity not valued by our end customers

•

Continue to sustain a culture of expense efficiency and driving efficient growth

 

 

1	Highest potential businesses include Asia, Global WAM, Canada group benefits, and behavioural insurance products.

2	Straight-through processing includes money movement.

 

18   |  2021 Annual Report  |  Management’s Discussion and Analysis

Portfolio Optimization – We have surpassed our 2022 target to release $5 billion of capital by 2022. Together with a focus on increasing the core earnings from our highest potential businesses, we will continue to focus on optimizing our legacy businesses in the next phase of our strategy and plan to reduce the combined contributions from long-term care insurance (“LTC”) and variable annuities (“VA”) businesses to less than 15% of core earnings by 2025 through organic optimization. Focal areas within this pillar are to:

 

•

Deliver capital release from legacy businesses, including legacy annuity businesses, long-term care insurance and select long-duration, guaranteed insurance products.

•

Optimize our portfolio in order to improve our risk profile

•

Optimize our portfolio in order to improve our Return on Equity

•

Create tangible value through in-force management initiatives

High Performing Team – We are committed to enabling a high performing team and maintaining our top quartile employee engagement compared to global financial services and insurance peers. Focal areas within this pillar are to:

 

•

Drive organizational effectiveness and speed of decision making

•

Deepen Manulife’s diversity, equity, and inclusion

•

Develop our talent with differentiated capabilities

•

Enable a culture of recognition through a global recognition program to reward excellence and promote company values

Our medium-term targets include: core EPS growth of 10% to 12% over the medium term, core ROE of 13% or more, a leverage ratio of 25%, and a common share dividend payout ratio of 30% to 40% of core earnings.

Progress Update

Manulife’s mission – Decisions made easier. Lives made better – guided our business throughout 2021. Our focused efforts produced solid results on our five strategic priorities as noted below.

 

Strategic priorities		2022 Targets and 2025   Supplemental Goals1		2021 Performance		Highlights on our progress
1.  Accelerate Growth		•   Generate two-thirds of core earnings from highest potential businesses by 2022 and 75% by 2025 •   Generate one-half of core earnings from Asia region (Asia segment and Asia WAM) by 2025		•   63% of our core earnings in 2021 were generated from highest potential businesses, compared with 62% in 20202 •   39% of our core earnings in 2021 were generated from Asia region, compared with 41% in 20202		•   Continued to expand the reach of our agency in China as Manulife-Sinochem opened its 15th provincial branch in Shaanxi province •   Completed the acquisition of Aviva Vietnam and commenced a 16-year bancassurance partnership with VietinBank to better meet the growing financial and insurance needs of the Vietnamese people •   Surpassed $1 trillion in Global WAM-managed AUMA •   Continued to show strong momentum in Manulife iFUNDS, Asia Retail’s online investment platform, with a 39% increase in gross flows compared with 2020 •   Secured Alternative Investment Fund Managers license to offer European Union private market funds in our key European markets •   Continued our expansion of behavioural-based wellness insurance products through our Manulife Vitality program in Canada, “Vitality for All” strategy in the U.S. and ManulifeMOVE in Asia
2.  Digital, Customer Leader		•   Achieve NPS of +31 points by 2022 and +37 points by 2025, an improvement of +30 and +36 respectively, as compared to a baseline of +1 in 2017 •   Achieve straight-through-processing of 88% by 2025		•   rNPS3 score of +21, a 20 point improvement from the 2017 baseline and a 9 point improvement from 2020 •   STP of 82%, compared with 81% in 2020		•   Continued use of ePOS in Asia, enabling our agents with faster, error free submissions •   Completed the iPipeline integration with the JH brokerage eApp. This integration provides our regular distribution partners with access to next-generation sales tools and decreases the overall cycle time for applications submitted •   Aided by the above initiatives, overall new business applications submitted digitally increased by 15 percentage points in 2021 to 71% •   Launched Singapore’s first flexible digital retirement plan with DBS Bank •   Entered into a new digital collaboration with Rewardz to further incentivize customers that are part of our ManulifeMOVE Program to be physically active •   Became the first Canadian company to use artificial intelligence in underwriting mortgage creditor insurance in our individual insurance business, resulting in auto adjudication of more than $1 billion of face amount in 2021

 

1	See “Caution regarding forward-looking statements” above.

2	To provide a consistent basis for year over year comparison, 2020 total company core earnings were normalized to include $400 million of annual core investment gains.

3

Relationship Net Promoter Score (“rNPS”). In 2021, we adjusted the weightings in our relationship NPS methodology to more closely align with our focus on our highest potential businesses. This adjustment had no impact on the 2017 NPS baseline of +1 and would have modestly increased the score in 2018, 2019, and 2020.

 

		19

Strategic priorities		2022 Targets and 2025 Supplemental Goals		2021 Performance		Highlights on our progress
3.  Expense Efficiency		•   Achieve a less than 50% expense efficiency ratio •   Deliver $1 billion in expense efficiencies		•   Delivered expense efficiency ratio of 48.9% and achieved the target of less than 50% in 2021. This compares with 52.9% in 2020 •   Achieved expense efficiencies target of $1 billion in 2020, 2 years ahead of schedule		•   Pre-tax core earnings increase of 25% outpaced core general expense growth of 5% •   Continued to implement automation across the organization to enable scalability of our operations both in terms of capacity and efficiency with lower cost per unit •   Continued to invest in the consolidation and outsourcing of policy administration systems to make the cost base more variable •   Achieved annual savings of $100 million in 2021 resulting from restructuring in the first half of 2021
4.  Portfolio Optimization		•   Release a total of $5 billion in capital from legacy businesses •   Reduce core earnings contribution to less than 15% from long-term care insurance and variable annuities businesses by 2025		•   Achieved release of capital target 3 years ahead of schedule •   Delivered $6.3 billion of cumulative capital benefits, including $0.4 billion in 2021 •   Core earnings contribution of 20% from LTC and VA businesses, compared to 25% in 20201,2		•   Entered into an agreement to reinsure over 75% of the U.S. Variable Annuity block, which is estimated to result in a capital release of approximately $2.0 billion3, reducing risk, and unlocking value from legacy.4 The transaction closed on February 1, 2022 •   Released $225 million of capital through our annuity guaranteed minimum withdrawal benefit offer program in the U.S.
5.  High Performing Team		•   Achieve top quartile employee engagement compared to global financial services and insurance peers		•   Continued to rank in the top quartile amongst our designated peer group on employee engagement in 2021		•   Ranked in the 86th percentile amongst global financial services and insurance peers on our 2021 employee engagement survey •   Named a World’s Best Employer by Forbes for the second year in a row •   Recognized as one of Canada’s Top 100 Employers 2022 by Mediacorp Canada Inc.

 

 

1	To provide a consistent basis for year over year comparison, 2020 total company core earnings were normalized to include $400 million of annual core investment gains.

2	2021 and 2020 total company and U.S. LTC core earnings were normalized to remove estimated gains on U.S. LTC policyholder experience due to COVID-19.

3	Projected capital release based on September 30, 2021.

4	See “Caution regarding forward-looking statements” above.

 

20   |  2021 Annual Report  |  Management’s Discussion and Analysis

2. Asia

Our Asia segment is a leading provider of insurance products and insurance-based wealth accumulation products, driven by a customer-centric strategy, leveraging the asset management expertise and products managed by our Global Wealth and Asset Management segment. Present in many of Asia’s largest and fastest growing economies, we are well positioned to capitalize on the attractive underlying demographics of the region, underpinned by a rigorous focus on creating value for our customers, employees and shareholders.

We have insurance operations in 11 markets¹: Japan, Hong Kong, Macau, Singapore, mainland China, Vietnam, Indonesia, the Philippines, Malaysia, Cambodia, and Myanmar.

We have a diversified multi-channel distribution network, including over 117,000 contracted agents and over 100 bank partnerships. We also work with many independent agents, financial advisors, and brokers. Among our bancassurance partnerships we have exclusive partnerships, including a long-term partnership with DBS Bank across Singapore, Hong Kong, mainland China and Indonesia, and VietinBank in Vietnam, that give us access to over 30 million bank customers.

In 2021, Asia contributed 32%² of the Company’s core earnings from operating segments and, as at December 31, 2021, accounted for 11%² of the Company’s assets under management and administration.

Profitability

Asia reported net income attributed to shareholders of $3,057 million in 2021 compared with $1,762 million in 2020. Net income attributed to shareholders is comprised of core earnings, which were $2,176 million in 2021 compared with $2,110 million in 2020, and items excluded from core earnings, which amounted to a net gain of $881 million for 2021 compared with a net charge of $348 million in 2020.

Expressed in U.S. dollars, the presentation currency of the segment, net income attributed to shareholders was US$2,437 million in 2021 compared with US$1,322 million in 2020 and core earnings were US$1,736 million in 2021 compared with US$1,576 million in 2020. Items excluded from core earnings are outlined in the table below and amounted to a net gain of US$701 million in 2021 compared with a net charge of US$254 million in 2020.

Core earnings in 2021 increased 10% compared with 2020, after adjusting for the impact of changes in foreign currency exchange rates. Core earnings increased 17% in Hong Kong, 45% in Singapore and 24% in Vietnam, benefiting from higher new business volumes, favourable product mix, and in-force business growth. Core earnings increased 7% in Japan due to in-force business growth, partially offset by the impact of lower new business volumes. Core earnings decreased 36% in China and 24% in Other Emerging Markets reflecting unfavourable policyholder experience and, in China, unfavourable product mix. Asia was also impacted by lower investment income on allocated capital, which decreased by US$21 million compared with 2020 (see Corporate and Other Segment).

The table below presents net income attributed to shareholders for Asia for 2021 and 2020 consisting of core earnings and items excluded from core earnings.

 

For the years ended December 31, ($ millions)		Canadian $												US $
		2021				2020								2021				2020
Core earnings		$	2,176			$	2,110							$	1,736			$	1,576
Items excluded from core earnings:(1)
Investment-related experience related to fixed income trading, market value increases in excess of expected alternative assets investment returns, asset mix changes and credit experience			313				218								251				167
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities(2)			169				(583	)							133				(433	)
Change in actuarial methods and assumptions			343				(41	)							273				(32	)
Reinsurance transactions, tax-related items and other			56				58								44				44
Total items excluded from core earnings			881				(348	)							701				(254	)
Net income attributed to shareholders		$	3,057			$	1,762							$	2,437			$	1,322

 

(1)	For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.

(2)

The direct impact of markets in 2021 was a gain of US$133 million and included a gain of US$98 million related to fixed income reinvestment rates and a gain of US$35 million related to equity markets and variable annuity guarantee liabilities. The direct impact of markets in 2020 was a charge of US$433 million and included a charge of US$415 million related to fixed income reinvestment rates and a charge of US$18 million related to equity markets and variable annuity guarantee liabilities.

 

1	In 2019, we made the decision to exit Thailand, and we completed the transaction in the first half of 2021.

2	This item is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.

 

		21

Business Performance

(all percentages quoted are on a constant exchange rate basis)

APE sales in 2021 were US$3,229 million, representing an increase of 11% compared with 2020. APE sales increased in Hong Kong, Singapore, mainland China, Vietnam and Other Emerging Markets, and declined in Japan. There continued to be varying degrees of adverse impacts on select markets across the region related to COVID-19. In Hong Kong, APE sales in 2021 were US$850 million, a 10% increase compared with 2020, primarily reflecting strong growth in our bank channel, demand from mainland Chinese visitors through our Macau branch, and an expanded agency force. Singapore APE sales in 2021 were US$782 million, a 51% increase compared with 2020, reflecting double-digit growth across agency, bank and broker channels, as domestic demand rebounded from 2020 levels that were impacted by COVID-19 containment measures. China APE sales in 2021 were US$478 million, a 12% increase compared with 2020, reflecting growth in our bank channel. Vietnam APE sales in 2021 were US$375 million, a 7% increase compared with 2020, reflecting growth in agency and bank channels, partially offset by the impact of COVID-19 containment measures during the second half of the year. Other Emerging Markets APE sales in 2021 were US$311 million, a 17% increase compared with 2020, despite the impact of COVID-19 containment measures in 2021. Japan APE sales in 2021 were US$433 million, a decrease of 26% compared with 2020, reflecting lower COLI product sales.

New business value (“NBV”) was US$1,329 million in 2021, an increase of 27% compared with 2020. We experienced higher NBV in Hong Kong, Singapore, mainland China, Vietnam and Other Emerging Markets, partially offset by lower NBV in Japan. In Hong Kong, NBV in 2021 was US$612 million, a 32% increase compared with 2020, reflecting higher sales volumes, favourable interest rates and product management actions. NBV in 2021 was US$260 million in Singapore, and US$180 million in Vietnam, an increase of 75%, and 24%, respectively, compared with 2020. The increase reflects higher sales volumes and favourable product mix. NBV in China was US$122 million in 2021, a 14% increase compared with 2020 primarily due to higher sales volumes. NBV of Other Emerging Markets in 2021 was US$58 million, a 6% increase compared with 2020, reflecting higher sales volumes. Japan NBV in 2021 was US$97 million, a decrease of 25% compared with 2020, reflecting lower APE sales.

The new business value margin (“NBV margin”)¹ was 44.9% in 2021, an increase of 6.1 percentage points compared with 2020.

APE Sales and NBV

 

For the years ended December 31, ($ millions)		Canadian $												US $
		2021				2020								2021				2020
Annualized premium equivalent sales		$	4,050			$	3,869							$	3,229			$	2,892
New business value			1,666				1,387								1,329				1,037

Assets under Management²

Asia’s assets under management were US$122.0 billion as at December 31, 2021, an increase of US$13.4 billion or 16% compared with December 31, 2020, driven by higher total invested assets and segregated funds net assets due to net customer inflows of US$13.1 billion.

Assets under Management

 

As at December 31, ($ millions)		Canadian $												US $
		2021				2020								2021				2020
Total invested assets		$	129,207			$	115,430							$	101,893			$	90,639
Segregated funds net assets			25,505				22,948								20,112				18,016
Total assets under management		$	154,712			$	138,378							$	122,005			$	108,655

 

1	For more information on this metric, see “Non-GAAP and Other Financial Measures” below.

2	This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below.

 

22   |  2021 Annual Report  |  Management’s Discussion and Analysis

Revenue

Total revenue of US$23.6 billion in 2021 increased US$2.4 billion compared with 2020. Revenue before net realized and unrealized investment gains and losses increased US$3.8 billion compared with 2020 due to an increase in net premium income. The net premium income increase was primarily driven by the growth of in-force business and new business sales.

Revenue

 

For the years ended December 31, ($ millions)		Canadian $												US $
		2021				2020								2021				2020
Gross premiums		$	24,013			$	21,592							$	19,152			$	16,129
Premiums ceded to reinsurers			(1,027	)			(1,113	)							(819	)			(834	)
Net premium income			22,986				20,479								18,333				15,295
Investment income			3,207				2,874								2,557				2,145
Other revenue			1,696				1,346								1,353				1,004
Revenue before net realized and unrealized investment gains and losses			27,889				24,699								22,243				18,444
Net realized and unrealized investment gains and losses(1)			1,682				3,756								1,391				2,783
Total revenue		$	29,571			$	28,455							$	23,634			$	21,227

 

(1)	See “Financial Performance – Impact of Fair Value Accounting” above.

Strategic Highlights

Asia continues to be a core driver of growth for Manulife, supported by a clear strategy, a focus on execution, a strong team, and a diversified footprint in 11 markets. Our growth is underpinned by powerful economic secular trends including middle-class emergence, low insurance penetration and an estimated mortality protection gap of more than US$100 trillion by 2030 driving continued demand for financial solutions.

We continued to accelerate growth by expanding and digitizing distribution. In 2021 we:

 

•

Completed the acquisition of Aviva Vietnam Life Insurance Company Limited (“Aviva Vietnam”) and commenced a 16-year bancassurance partnership with VietinBank, which together provides a full suite of insurance, wealth and retirement solutions to VietinBank customers;

•

Increased the number of contracted agents to over 117,000 and our number of Million Dollar Round Table agents grew by 64% compared with 2020;

•

Continued to expand the reach of our agency force in China with the opening of our newest branch in Shaanxi province. We now operate in 52 cities across 15 provinces, providing access to over 60% of China’s population and which represents over 70% of GDP; and

•

Grew our customer base to approximately 13 million customers and achieved the highest rNPS score in Asia segment’s history.

We continued to enhance our digital capabilities and rolled out numerous key initiatives to advance our strategy to become a digital, customer leader. In 2021:

 

•

ePOS, our digital onboarding app, is enabling our agents in Asia with faster, error-free submissions with 82% of applications digitally submitted, representing a 22% year-over-year increase. 79% of submitted cases are auto-underwritten;

•

Our enhanced digital claims experience is now live in six markets across Asia. This experience has resulted in faster claims adjudication, automated payments, and significantly decreased turn-around times. 71% of customer claims are submitted digitally and 31% are auto adjudicated;

•

We continued to strengthen our health engagement and behavioural insurance platform, ManulifeMOVE. As of December 31, 2021, we had more than 1.5 million MOVE eligible customers, up 24% compared with 2020; and

•

Asia received two honourable mentions at the 2021 Design Management Institute Design Value Awards for:

•

the redesigned customer websites (the Philippines, Hong Kong and Vietnam); and

•

development of a centralized repository for all digital design assets that has improved the consistency and quality of Manulife’s digital experiences.

 

		23

3. Canada

Our Canada segment is a leading financial services provider, offering insurance products, insurance-based wealth accumulation products and banking services, has an in-force variable annuity business, and leverages the asset management expertise and products managed by our Global Wealth and Asset Management segment. The comprehensive solutions we offer target a broad range of customer needs and foster holistic long-lasting relationships.

We offer financial protection solutions to individuals, families and business owners through a combination of competitive products, professional advice and quality customer service. We provide group life, health and disability insurance solutions to Canadian employers, with approximately 25,000 Canadian businesses and organizations entrusting their employee benefit programs to Manulife’s Group Insurance. We also provide life, health, disability and specialty products, such as mortgage creditor and travel insurance, through advisors, sponsor groups and associations, as well as direct-to-customer. We continue to increase the proportion of products with behavioural insurance features.

Manulife Bank offers flexible debt and cash flow management solutions as part of a customer’s overall financial plan. Products include savings and chequing accounts, guaranteed interest certificates, lines of credit, investment loans, mortgages and other specialized lending programs, offered through financial advisors supported by a broad distribution network.

In 2021, Canada contributed 18% of the Company’s core earnings from operating segments and, as at December 31, 2021, accounted for 11% of the Company’s assets under management and administration.

Profitability

Canada’s full year 2021 net income attributed to shareholders was $1,354 million compared with $195 million in 2020. Net income attributed to shareholders is comprised of core earnings, which was $1,179 million in 2021 compared with $1,174 million in 2020, and items excluded from core earnings, which amounted to a net gain of $175 million for 2021 compared with a net charge of $979 million in 2020. Items excluded from core earnings are outlined in the table below.

The $5 million increase in core earnings was driven by higher in-force earnings across all businesses, non-recurrence of unfavourable travel related policyholder experience in 2020 and higher retail insurance product sales. These items were partially offset by less favourable policyholder experience in retail and group insurance. Canada was also impacted by lower investment income on allocated capital, which decreased by $95 million compared with 2020.

The table below presents net income attributed to shareholders for Canada for 2021 and 2020 consisting of core earnings and items excluded from core earnings.

 

For the years ended December 31, ($ millions)		2021				2020
Core earnings		$	1,179			$	1,174
Items excluded from core earnings:(1)
Investment-related experience related to fixed income trading, market value increases in excess of expected alternative assets investment returns, asset mix changes and credit experience			329				(260	)
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities(2)			(89	)			(817	)
Change in actuarial methods and assumptions			(65	)			77
Reinsurance transactions, tax-related items and other			–				21
Total items excluded from core earnings			175				(979	)
Net income attributed to shareholders		$	1,354			$	195

 

(1)	For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.

(2)

The direct impact of markets in 2021 was a charge of $89 million and included a charge of $69 million related to fixed income reinvestment rates and a charge of $321 million related to changes to the URR, partially offset by a gain of $301 million related to the direct impact of equity markets and variable annuity guarantee liabilities. The charge in 2020 related to fixed income reinvestment rates and the direct impact of equity markets and variable annuity guarantee liabilities.

 

24   |  2021 Annual Report  |  Management’s Discussion and Analysis

Business Performance

APE sales were $1,227 million in 2021, an increase of $79 million or 7% compared with 2020. Individual insurance APE sales in 2021 of $425 million increased $16 million or 4% compared with 2020, driven by higher participating product sales, partially offset by higher large-case Affinity markets sales in 2020. Group insurance APE sales of $442 million in 2021 decreased $51 million or 10% compared with 2020 due to variability in the large-case group insurance market. Annuities APE sales in 2021 of $360 million increased $114 million or 46% compared with 2020 due to increased customer demand for our lower risk segregated funds. We are focused on growth in lower risk segregated fund products, which accounted for 88% of Annuities APE sales in 2021.

Sales

 

For the years ended December 31, ($ millions)		2021				2020
APE sales		$	1,227			$	1,148

Manulife Bank average net lending assets¹ were $23.1 billion in 2021, up $0.6 billion or 3% compared with 2020, driven by growth in residential mortgages and bank loans.

Assets under Management

Assets under management of $162.0 billion as at December 31, 2021 increased by $2.7 billion or 2% from $159.3 billion at December 31, 2020, due to higher segregated funds net assets, driven by growth in equity markets, partially offset by lower total invested assets, primarily reflecting the unfavourable impact of higher interest rates.

Assets under Management

 

As at December 31, ($ millions)		2021				2020
Total invested assets		$	119,872			$	121,657
Segregated funds net assets			42,124				37,650
Total assets under management		$	161,996			$	159,307

Revenue

Total revenue of $12.4 billion in 2021 decreased $6.3 billion from $18.6 billion in 2020 primarily driven by year-to-date net realized and unrealized investment losses in 2021 compared with gains in the prior year. Revenue before net realized and unrealized investment gains and losses of $15.4 billion in 2021 increased $1.5 billion from $13.9 billion in 2020 due to investment income and growth in premiums.

Revenue

 

For the years ended December 31, ($ millions)		2021				2020
Gross premiums		$	11,251			$	10,756
Premiums ceded to reinsurers			(1,690	)			(1,589	)
Net premium income			9,561				9,167
Investment income			4,495				3,711
Other revenue			1,336				1,013
Revenue before net realized and unrealized investment gains and losses			15,392				13,891
Net realized and unrealized investment gains and losses(1)			(3,026	)			4,747
Total revenue		$	12,366			$	18,638

 

(1)	See “Financial Performance – Impact of Fair Value Accounting” above.

 

1	This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below for more information.

 

		25

Strategic Highlights

In 2021, we added innovative customer-centric enhancements across our product shelf to help Canadians focus on improving their health and wellness. We also advanced our digital capabilities across our businesses to stay connected with our clients and strengthen their experience with us. We further executed on our expense reduction strategy to strengthen financial results and improve the risk-return profile. Our Canada segment remains focused on building and fostering holistic long-lasting relationships with our clients by expanding and integrating our insurance, insurance-based wealth accumulation and certain related banking solutions to meet customers’ needs and by leveraging the strength of our group franchise.

We further advanced digital solutions across our businesses. In 2021, we:

 

•

Became the first Canadian company to use artificial intelligence (“AI”) in underwriting mortgage creditor insurance in our individual insurance business. Since its introduction, one-third of our applications have been approved using AI, resulting in auto adjudication of more than $1 billion of face amount in 2021;

•

Added new features to our website including live-chat and health & dental comparison tools for our prospective affinity clients to better support them in finding the right plan for their needs; and

•

Launched a new online advisor portal across our businesses to improve advisors’ experiences with us.

We continued to offer a differentiated customer experience through our products. In 2021, we:

 

•

Introduced Personalized Medicine, which provides access to advanced pharmacogenetics to help group benefit members and their health team find the most effective medication for their condition;

•

Expanded our Manulife Vitality program to reward customers who received their COVID-19 vaccine; and

•

Launched the Manulife Vitality HealthyMind reward program to help our individual insurance customers improve their mental and emotional wellbeing.

 

26   |  2021 Annual Report  |  Management’s Discussion and Analysis

4. U.S.

Our U.S. segment provides a range of life insurance products, insurance-based wealth accumulation products, and has an in-force long-term care insurance business and an in-force annuity business.

The insurance products we offer are designed to provide estate, business and income-protection solutions for high net worth, emerging affluent markets and the middle market, and to leverage the asset management expertise and products managed by our Global Wealth and Asset Management business. Behavioural insurance features are standard on all our new insurance product offerings. The primary distribution channel is licensed financial advisors. We aim to establish lifelong customer relationships that benefit from our holistic protection and wealth product offerings in the future.

Our in-force long-term care insurance policies provide coverage for the cost of long-term services and support.

Our in-force annuity business includes fixed deferred, variable deferred, and payout products.

In 2021, U.S. contributed 29% of the Company’s core earnings from operating segments and, as at December 31, 2021, accounted for 17% of the Company’s assets under management and administration.

Profitability

U.S. reported net income attributed to shareholders of $2,080 million in 2021 compared with $1,269 million in 2020. Net income attributed to shareholders is comprised of core earnings, which was $1,936 million in 2021 compared with $1,995 million in 2020, and items excluded from core earnings, which amounted to a net gain of $144 million in 2021 compared with a net charge of $726 million in 2020. The changes in net income attributed to shareholders and core earnings expressed in Canadian dollars were due to the factors described below and, in addition, the change in core earnings reflected a $136 million unfavourable impact from the weakening of the U.S. dollar compared with the Canadian dollar.

Expressed in U.S. dollars, the functional currency of the segment, 2021 net income attributed to shareholders was US$1,667 million compared with US$987 million in 2020 and core earnings were US$1,544 million in 2021 compared with US$1,485 million in 2020. Items excluded from core earnings are outlined in the table below and amounted to a net gain of US$123 million in 2021 compared with a net charge of US$498 million in 2020.

The US$59 million increase in core earnings was driven by higher new business gains as a result of higher sales and improved margins, lower effective tax rates, and higher Insurance in-force earnings. These items were partially offset by a US$119 million decrease in investment income on allocated capital (see Corporate and Other Segment) and unfavourable policyholder experience. Compared with 2020, unfavourable life insurance policyholder experience was partially offset by favourable annuities policyholder experience and favourable long-term care policyholder experience.

The table below presents net income attributed to shareholders for the U.S. for 2021 and 2020 consisting of core earnings and items excluded from core earnings.

 

For the years ended December 31, ($ millions)		Canadian $												US $
		2021				2020								2021				2020
Core earnings		$	1,936			$	1,995							$	1,544			$	1,485
Items excluded from core earnings:(1)
Investment-related experience related to fixed income trading, market value increases in excess of expected alternative assets investment returns, asset mix changes and credit experience			1,341				(717	)							1,074				(515	)
Direct impact of equity markets and interest rates and variable annuity guarantee liabilities(2)			(727	)			30								(578	)			46
Change in actuarial methods and assumptions			(314	)			(301	)							(249	)			(226	)
Reinsurance transactions, tax-related items and other			(156	)			262								(124	)			197
Total items excluded from core earnings			144				(726	)							123				(498	)
Net income (loss) attributed to shareholders		$	2,080			$	1,269							$	1,667			$	987

 

(1)	For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.

(2)

The direct impact of markets in 2021 was a charge of US$578 million and included a charge of US$493 million related to fixed income reinvestment rates and a charge of US$85 million related to the direct impact of equity markets and variable annuity guarantee liabilities. The direct impact of markets in 2020 was a gain of US$46 million and included a gain of US$113 million related to fixed income reinvestment rates, partially offset by a charge of US$67 million related to the direct impact of equity markets and variable annuity guarantee liabilities.

 

		27

Business Performance

U.S. APE sales in 2021 of US$628 million increased 38% compared with 2020 across almost all product lines. The increase was due to strong international sales and our differentiated domestic product offerings which include the John Hancock Vitality feature and higher customer demand for insurance protection in the current COVID-19 environment of greater consumer interest in improving baseline health. APE sales of products with the John Hancock Vitality PLUS feature in 2021 were a record-setting US$295 million, an increase of 34% compared with 2020.

Sales

 

For the years ended December 31, ($ millions)		Canadian $												US $
		2021				2020								2021				2020
APE sales		$	788			$	609							$	628			$	455

Assets under Management

U.S. assets under management of US$192.8 billion as at December 31, 2021 increased 2% from December 31, 2020. The increase in total invested assets and segregated funds net assets was due to the net favourable impact of markets, partially offset by the continued run-off of the annuity business.

Assets under Management

 

As at December 31, ($ millions)		Canadian $												US $
		2021				2020								2021				2020
Total invested assets		$	164,830			$	162,508							$	130,013			$	127,638
Segregated funds net assets			79,620				77,053								62,801				60,519
Total assets under management		$	244,450			$	239,561							$	192,814			$	188,157

Revenue

Total revenue in 2021 of US$10.7 billion decreased US$6.6 billion compared with 2020. Revenue before net realized and unrealized investment gains and losses was US$12.7 billion, an increase of US$3.1 billion compared with 2020, primarily due to the non-recurrence of the reinsurance of a block of our legacy U.S. BOLI business in 2020 and higher investment income.

Revenue

 

For the years ended December 31, ($ millions)		Canadian $												US $
		2021				2020								2021				2020
Gross premium income		$	8,965			$	8,952							$	7,151			$	6,678
Premiums ceded to reinsurers			(2,594	)			(5,821	)							(2,069	)			(4,355	)
Net premium income			6,371				3,131								5,082				2,323
Investment income			7,771				7,029								6,197				5,254
Other revenue			1,824				2,711								1,456				2,025
Revenue before net realized and unrealized investment gains and losses			15,966				12,871								12,735				9,602
Net realized and unrealized investment gains and losses(1)			(2,710	)			10,490								(2,010	)			7,701
Total revenue		$	13,256			$	23,361							$	10,725			$	17,303

 

(1)	See “Financial Performance – Impact of Fair Value Accounting” above.

Strategic Highlights

At John Hancock, we are focused on building holistic and long-lasting customer relationships by offering innovative products and solutions and making it easier for customers to do business with us. We are focused on growing our insurance business by expanding our product offerings, modernizing the delivery process, and enhancing customer experience. In 2021, we:

 

•

Experienced sales momentum with sales ahead of the prior year in almost every major category and reported record sales in our international business. We achieved record full year sales of US$295 million, an increase of 34% compared with 2020, from products with the John Hancock Vitality PLUS feature. We believe John Hancock’s Vitality feature is proving to be the right solution for these times as there is a heightened awareness around wellbeing highlighted by COVID-19;

•

Launched a preferred partnership with Allstate, which provides insurance to approximately 15 million customers, to be one of three carrier partners for its more than 11,000 agents and 1,000 life specialists. In time we expect this relationship, enabled by our digital submission capabilities, will drive significant life insurance sales1; and

 

1	See “Caution regarding forward-looking statements” above.

 

28   |  2021 Annual Report  |  Management’s Discussion and Analysis

•

Expanded John Hancock’s Vitality Program to reward program members for: 1) receiving a COVID-19 vaccine, and 2) achieving safe driver status through Allstate’s safe driving program Drivewise®. These rewards provide customers with meaningful and engaging experiences while also helping them understand how their daily choices support their overall well-being and longevity.

We continued to enhance our digital capabilities and are seeing positive results. In 2021, we:

 

•

Completed the iPipeline integration with the JH brokerage eApp. This integration provides 66% of our regular distribution partners with access to next-generation sales tools and decreases the overall cycle time for applications submitted via this preferred channel by 49% compared with 2020. It also enabled access to over 250 firms, including a new partnership with Allstate and its more than 11,000 agents;

•

Advanced 10 spots to 8th place on J.D. Power’s 2021 U.S. Life Insurance Study for overall customer satisfaction and were highlighted with “most improved website”;

•

Leveraged data analytics to execute a series of pilots to detect fraud in our LTC business; and

•

Continued to achieve operational efficiencies through implementation of enhanced digital capabilities, including:

•

Rationalized our websites to improve our customer and producer experience and optimize for search engines, resulting in a 100% increase in weekly traffic to JohnHancock.com;

•

Provided annuities customers with access to chatbots 24/7, with 96% of chats resulting in successful outcomes and only 4% of customers seamlessly being passed to a customer service representative;

•

Updated the Vitality login experience which reduced call volumes this year by 40%; and

•

Drove customer adoption of digital claims submissions to an increase of 41% compared with 2020.

We continued to make significant progress to optimize our portfolio through both organic and inorganic initiatives and create tangible shareholder value through various in-force management actions. In 2021, we:

 

•

Completed legacy optimization initiatives that contributed over $2.3 billion of cumulative capital benefits through December 31, 2021;

•

Concluded our Annuity Guaranteed Minimum Withdrawal Benefit offer program which released approximately $225 million of capital in 2021 and $425 million since the start of the program in the fourth quarter of 2019; and

•

Entered into an agreement to reinsure over 75% of the legacy variable annuity block, consisting primarily of policies with guaranteed minimum withdrawal benefits riders. Upon closing, the transaction is estimated to release approximately $2.0 billion of additional capital1, reflecting approximately $1.3 billion of net LICAT required capital2, and a one-time after-tax gain of approximately $750 million to net income attributed to shareholders.3 The transaction closed on February 1, 2022 (see note 6 of the Consolidated Financial Statements).

 

1	Projected capital release based on September 30, 2021.

2	100% of the Life Insurance Capital Adequacy Test capital requirement multiplied by the OSFI scalar for the Base Solvency Buffer of 1.05 and grossed up based by an operating range.

3	See “Caution regarding forward-looking statements” above.

 

		29

5. Global Wealth and Asset Management

Our Global Wealth and Asset Management segment, branded as Manulife Investment Management (“MIM”), provides investment advice and innovative solutions to retirement, retail, and institutional clients. Our leading capabilities in public and private markets are strengthened by an investment footprint that spans 18 geographies¹, including 10 in Asia with 120 years of on-the-ground experience.

In retirement, we provide financial guidance, advice, investment solutions and recordkeeping services to over 8 million plan participants and rollover individuals in North America and Asia while they are in the accumulation phase with their employer, and increasingly as they prepare for their retirement outside their employer’s plan. In North America, our Canadian retirement business focuses on providing retirement solutions through defined contribution plans, and also to group plan members when they retire or leave their plan; and in the United States, we provide employer sponsored retirement plans as well as personal retirement accounts when individuals leave their plan. In Asia, we provide retirement offerings to employers and individuals, including Mandatory Provident Fund (“MPF”) schemes and administration in Hong Kong. Additionally, we provide retirement solutions in several emerging retirement markets in Asia including Indonesia and Malaysia.

We distribute investment funds to retail clients through our own proprietary advice channels in Canada and Asia as well as through intermediaries and banks in North America, Europe and Asia, and offer investment strategies across the world, through affiliated and select unaffiliated asset managers. In Canada, we also provide holistic personal advice to individual clients and investment management, private banking and wealth and estate solutions to high-net-worth clients. Our institutional asset management business provides comprehensive asset management solutions for pension plans, foundations, endowments, financial institutions and other institutional investors worldwide. Our solutions span all major asset classes including equities, fixed income, alternative assets (including real estate, timberland, farmland, private equity/debt, infrastructure, and liquid alternatives). In addition, we offer multi-asset investment solutions covering a broad range of clients’ investment needs.

We are committed to investing responsibly across our businesses. We continue to enhance and develop innovative global frameworks for sustainable investing, and maintain a high standard of stewardship where we own and operate assets.

In 2021, Global WAM contributed 21% of the Company’s core earnings from operating segments and, as at December 31, 2021, represented 60% of the Company’s total assets under management and administration.

Profitability

Global WAM’s 2021 net income attributed to shareholders was $1,406 million compared with $1,100 million in 2020, and core earnings were $1,406 million in 2021 compared with $1,100 million in 2020. Items excluded from core earnings are outlined in the table below and amounted to nil in both 2021 and 2020.

Core earnings increased $306 million or 33% on a constant exchange rate basis reflecting growth in net fee income driven by higher average AUMA, from the favourable impact of markets and net inflows. This increase was partially offset by higher general expenses, mainly from growth in business volumes and other variable expenses. Net income attributed to shareholders increased $306 million in 2021 compared with 2020 driven by the same factors noted above for core earnings.

The table below presents net income attributed to shareholders for the Global WAM segment for 2021 and 2020 consisting of core earnings and items excluded from core earnings.

 

For the years ended December 31, ($ millions)		2021				2020
Core earnings
Retirement		$	819			$	641
Retail			551				435
Institutional			36				24
Core earnings			1,406				1,100
Items excluded from core earnings:
Reinsurance transactions, tax-related items and other			–				–
Net income attributed to shareholders		$	1,406			$	1,100

 

 

 

1	United States, Canada, Japan, Hong Kong, Singapore, Taiwan, Indonesia, Vietnam, Malaysia, India, the Philippines, England, Ireland, Switzerland, and mainland China. In addition, we have timberland/farmland operations in Australia, New Zealand, and Chile.

 

30   |  2021 Annual Report  |  Management’s Discussion and Analysis

In 2021, core EBITDA¹ for Global WAM was $2,062 million, $656 million higher than core earnings. In 2020, core EBITDA was $1,676 million, $576 million higher than core earnings. The increase in core EBITDA of $386 million or 28% on a constant exchange rate basis was driven by higher net fee income partially offset by higher general expenses as mentioned above. Core EBITDA margin² was 31.5% in 2021 compared with 29.2% in 2020. The 230 basis points increase was driven by a combination of higher net fee income, operational benefits from increased scale, and disciplined expense management. Income before income taxes for Global WAM was $1,641 million in 2021, an increase of $369 million compared with 2020, driven by similar factors as noted above for core EBITDA.

Core EBITDA

 

For the years ended December 31, ($ millions)		2021				2020
Core earnings		$	1,406			$	1,100
Amortization of deferred acquisition costs and other depreciation			323				319
Amortization of deferred sales commissions			99				85
Core income tax expense (recovery)			234				172
Core EBITDA		$	2,062			$	1,676
Core EBITDA margin			31.5%				29.2%
Income before income taxes		$	1,641			$	1,272

Business Performance

Gross Flows and Net Flows

Gross Flows were $144.7 billion in 2021, an increase of 16% compared with 2020. By business line, the results were:

 

•

Retirement gross flows in 2021 were $50.6 billion, an increase of 8% compared with 2020, with positive contributions from all geographies. The increase in gross flows was driven by growth in member contributions, partially offset by the non-recurrence of a large-case plan sale in 2020.

•

Retail gross flows in 2021 were $78.3 billion, an increase of 41% compared with 2020, reflecting double-digit growth in gross flows across all geographies amid increased investor demand. In the U.S., the increase was driven by strong intermediary sales and higher institutional model allocations. In Asia, the increase was driven by higher gross flows in Japan, China, and Indonesia. In Canada, the increase was driven by higher gross flows in equity and balanced fund products.

•

Institutional Asset Management gross flows in 2021 were $15.7 billion, a decrease of 27% compared with 2020, driven by the non-recurrence of a $6.9 billion sale in Canada in 2020, partially offset by higher sales of infrastructure, timberland and real estate mandates.

Net Inflows were $27.9 billion in 2021, compared with net inflows of $8.9 billion in 2020. By business line, the results were:

 

•

Retirement net inflows were $1.1 billion in 2021 compared with net inflows of $1.6 billion in 2020, reflecting the non-recurrence of a large-case plan sale in 2020 and higher member redemptions, partially offset by growth in member contributions.

•

Retail net inflows were $29.2 billion in 2021 compared with net inflows of $3.5 billion in 2020, driven by double-digit growth in gross flows across all geographies amid increased investor demand and lower mutual fund redemption rates.

•

Institutional Asset Management net outflows were $2.4 billion in 2021 compared with net inflows of $3.8 billion in 2020, driven by a $9.4 billion redemption in Asia in 1Q21, and the non-recurrence of a $6.9 billion sale in Canada in 2020. This was partially offset by the non-recurrence of a $5.0 billion redemption in Europe in 2020, lower redemptions in Asia and the U.S., and higher sales of infrastructure, timberland, and real estate mandates.

Gross Flows and Net Flows

 

For the years ended December 31, ($ millions)		2021				2020
Gross flows		$	144,681			$	130,212
Net flows			27,893				8,919

 

 

 

1	This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below.

2	This item is a non-GAAP ratio. See “Non-GAAP and Other Financial Measures” below for more information.

 

		31

Assets under Management and Administration

In 2021, AUMA for our wealth and asset management businesses were $855.9 billion, 14% higher compared with December 31, 2020 on a constant exchange rate basis driven by the favourable impact of markets, 2021 net inflows of $27.9 billion, and assets acquired of $1.6 billion. As of December 31, 2021, Global WAM also managed $246.8 billion in assets for the Company’s non-WAM reporting segments. Including those assets, AUMA managed by Global WAM¹ was $1,102.7 billion compared with $984.4 billion² as at December 31, 2020.

Segregated funds net assets were $252.6 billion for December 31, 2021, 10% higher compared with December 30, 2020 on an actual exchange rate basis, driven also by the favourable impact of markets, partially offset by year-to-date segregated fund net outflows. Total invested assets in our general fund form a small portion of Global WAM AUMA.

Changes in Assets under Management and Administration

 

For the years ended December 31, ($ billions)		2021				2020
Balance January 1,		$	754			$	681
Acquisitions/Dispositions			2				1
Net flows			28				9
Impact of markets and other			72				63
Balance December 31,		$	856			$	754
Average assets under management and administration		$	798			$	698

 

Assets under Management and Administration

 

As at December 31, ($ billions)		2021				2020
Total invested assets		$	4			$	5
Segregated funds net assets(1)			253				230
Mutual funds, institutional asset management and other(1),(2)			411				356
Total assets under management			668				591
Other assets under administration			188				163
Total assets under management and administration		$	856			$	754

 

(1)	Segregated funds net assets are comprised of Retirement AUM, consisting primarily of fee-based products with little or no guarantees.

(2)	Other funds represent pension funds, pooled funds, endowment funds and other institutional funds managed by the Company on behalf of others.

Revenue

Total revenue in 2021 of $6.5 billion increased 19% compared with 2020, driven by growth in fee income from higher average AUMA.

Revenue

 

As at December 31, ($ millions)		2021				2020
Fee income		$	6,513			$	5,710
Investment income			28				39
Total revenue		$	6,541			$	5,749

Strategic Highlights

Leveraging our integrated business model and global scale; we have a clear strategy to pursue high-growth opportunities in the most attractive markets globally through our three business lines: Retirement, Retail and Institutional Asset Management. Our strategy includes being a global retirement leader by supporting financial wellness; expanding our presence in retail distribution platforms across the globe; leveraging a multi-manager model; and providing differentiated institutional active asset management capabilities across high performing equity and fixed income strategies, outcome-oriented solutions and alternative assets.

 

 

1	This item is a non-GAAP financial measure. See “Non-GAAP and Other Financial Measures” below.

2	Effective January 1, 2021, Manulife’s AUMA managed by Global WAM includes certain private equity, private credit and infrastructure asset classes. Total AUMA managed by Global WAM as at December 31, 2020 has been restated for comparability.

 

32   |  2021 Annual Report  |  Management’s Discussion and Analysis

We executed on a number of initiatives to accelerate growth in our franchise. In 2021, we:

 

•

Achieved assets under management and administration of more than $1 trillion, reflecting our track record of positive net flows and strong investment performance1, as well as growth in assets managed on behalf of the Company’s other segments;

•

Expanded our sustainable investing products with the launch of investment strategies in Sustainable Asia Bond, Global Climate, and ESG Asian Multi-Asset Income. Additionally, Manulife Investment Management was accepted as a signatory to the UK Stewardship Code, which is recognized globally as a best practice benchmark in investment stewardship. Nearly 200 asset managers, pension funds and others applied but only 123 were accepted after a rigorous review by the Financial Reporting Council2;

•

Secured an Alternative Investment Fund Managers (“AIFM”) license to offer European Union (“EU”) private market funds in our key European markets, positioning us to drive the expansion and offering of our private market investment capabilities within the EU;

•

Broadened our Global Retirement financial wellness offering through increased access to managed accounts in the U.S., expansion of our PlanRight advice platform in Canada, and enhancement of our Hong Kong Worksite Marketing program to allow individual members to register for public virtual education sessions;

•

Continued to build out our Private Markets business with the successful fundraising of the Manulife Infrastructure Fund II, L.P. of approximately $6 billion, and our second private equity co-investment fund, Manulife Co-Investment Partners II, L.P., of nearly $1 billion with commitments from both third-party investors and Manulife’s general account; and

•

Expanded our retail product line-up beyond traditional mutual funds with new actively managed Exchange Traded Funds in both Canada and the U.S. and furthered Separately Managed Accounts offerings in the U.S., with each category generating over $1 billion in net inflows in 2021.

We continue to make progress on our digital customer leader strategy.

 

•

Cogent Syndicated Study recognized our U.S. Retirement defined contribution plan participant website for earning a 77% customer satisfaction rating for online capabilities – the second-highest rating among 24 plan provider sites;

•

In U.S. Retirement, we launched a mobile app to encourage participants to sign up for plans, view account details, make changes, access financial tools and receive personal financial guidance. Since the launch in July, we have surpassed 150,000 unique users;

•

In Asia Retail, our online investment platform, Manulife iFUNDS, continues to show strong momentum in 2021 compared with 2020, with a 39% increase in sales and a 29% increase in new accounts opened, and a 198% increase in monthly investment plans;

•

In U.S. Retirement, 88% of plan enrollees adopted our new digital express enrollment capability, that delivers a simple, fast, and seamless way to enroll in their plan and benefit from access to personalized guidance. This resulted in an 11% increase in participation and six times the managed accounts conversion rate when compared to the previous enrollment process; and

•

We launched a new customized, digital dashboard globally for institutional clients and prospects. These enhancements represent a leap forward in creating a better user experience.

 

1

Investment performance for the 3- and 5-year period ending December 31, 2021 reflects 74% and 78%, respectively, of assets outperforming their peers or their respective index, and is based on assets under management of $629 billion. The $629 billion represents Global WAM managed AUMA excluding 3rd party products, liability-driven invested assets, Private Markets strategies, and passive strategies, as well as certain assets managed on behalf of the Company’s other segments and select Retirement assets in Canada.

2	The Financial Reporting Council regulates auditors, accountants and actuaries, and sets the UK’s Corporate Governance and Stewardship Code. It promotes transparency and integrity in business.

 

		33

6. Corporate and Other

Corporate and Other is comprised of investment performance on assets backing capital, net of amounts allocated to the operating segments; financing costs; costs incurred by the corporate office related to shareholder activities (not allocated to the operating segments); our P&C Reinsurance business; as well as our run-off reinsurance operation, including variable annuities and accident and health.

For segment reporting purposes, settlement costs for macro equity hedges and other non-operating items are included in Corporate and Other earnings. This segment is also where we reclassify favourable investment-related experience to core earnings from items excluded from core earnings, subject to certain limits (see “Non-GAAP and Other Financial Measures” below). In each of the operating segments, we report all investment-related experience in items excluded from core earnings.

Profitability

Corporate and Other reported a net loss attributed to shareholders of $792 million in 2021 compared with net income attributed to shareholders of $1,545 million in 2020. Net income (loss) attributed to shareholders was comprised of core loss and items excluded from core loss. Core loss was $161 million in 2021 compared with a core loss of $863 million in 2020. Items excluded from core loss amounted to a net loss of $631 million in 2021 compared with a net gain of $2,408 million in 2020.

The favourable variance in the year-to-date core loss of $702 million was primarily attributable to $400 million of core investment gains in 2021 compared with nil in the same period of 2020, lower interest on allocated capital to operating segments of $309 million in 2021, higher net gains from AFS equities and seed money investments in 2021 compared with prior year and lower interest on external debt. These gains were partially offset by P&C Reinsurance provisions and lower yields on fixed income investments.

Items excluded from the year-to-date core loss were a net loss of $631 million in 2021 compared with a net gain of $2,408 million in 2020. The unfavourable variance was primarily driven by large gains on the sale of AFS bonds in 2020 compared with losses in 2021.

The items excluded from core earnings are outlined below.

The table below presents net income (loss) attributed to shareholders for Corporate and Other for 2021 and 2020 consisting of core loss and items excluded from core loss.

 

For the years ended December 31, ($ millions)		2021				2020
Core loss excluding core investment gains		$	(561	)		$	(863	)
Core investment gains			400				–
Total core loss			(161	)			(863	)
Items excluded from core loss:(1)
Direct impact of equity markets and interest rates(2)			(170	)			2,302
Changes in actuarial methods and assumptions			(5	)			67
Investment-related experience related to mark-to-market items(3)			59				(33	)
Reclassification to core investment gains above			(400	)			–
Restructuring charge(4)			(115	)			–
Reinsurance transactions, tax-related items and other(5)			–				72
Total items excluded from core loss			(631	)			2,408
Net income (loss) attributed to shareholders		$	(792	)		$	1,545

 

(1)	For explanations of items excluded from core earnings, see “Items excluded from core earnings” table in the total Company “Profitability” section above.

(2)

The direct impact of markets in 2021 included losses of $228 million related to the sale of AFS bonds and losses on derivatives, partially offset by gains in fixed income investments supporting a portion of the capital in Asia that are classified as fair value through profit and loss. The direct impact of markets in 2020 included gains of $2,175 million related to the sale of AFS bonds. Other gains of $127 million in 2020 were mostly from fixed income investments supporting a portion of the capital in Asia that are classified as fair value through profit and loss.

(3)	Investment-related experience includes mark-to-market gains or losses on ALDA other than gains on AFS equities and seed money investments in new segregated or mutual funds.

(4)	Please see “Manulife Financial Corporation – Profitability” above for explanation of the restructuring charge.

(5)	In 2020, we reported tax benefits from the U.S. CARES Act, as a result of carrying back net operating losses to prior years, which had higher tax rates.

Revenue

Revenue of $87 million in 2021 decreased $2,618 million compared with $2,705 million in 2020 largely due to realized losses on AFS bonds and losses on derivative positions in 2021 compared with gains in the same period of 2020, and lower yield on fixed income investments, partially offset by higher net gains from AFS equities and seed money investments in 2021 compared to prior year and lower interest on allocated capital.

 

34   |  2021 Annual Report  |  Management’s Discussion and Analysis

Revenue

 

For the years ended December 31, ($ millions)		2021				2020
Net premium income		$	147			$	140
Investment income (loss)			113				2,830
Other revenue(1)			(237	)			(189	)
Revenue before net realized and unrealized investment gains and losses and on the macro hedge program			23				2,781
Net realized and unrealized investment gains and losses(2) and on the macro hedge program			64				(76	)
Total revenue		$	87			$	2,705

 

(1)	Includes a consolidation adjustment related to asset management fees earned by Manulife Investment Management from affiliated business (the offset to the consolidation adjustment is investment expense).

(2)	See “Manulife Financial Corporation – Impact of Fair Value Accounting” above.

Strategic Highlights

Our P&C Reinsurance business provides substantial retrocessional capacity for a very select clientele in the property and casualty reinsurance market. The business is largely non-correlated to Manulife’s other businesses and helps diversify our overall business mix. We manage the risk exposure of this business in relation to the total Company balance sheet risk and volatility as well as the prevailing market pricing conditions. The business is renewable annually, and we currently estimate our exposure limit in 2022 for a single event to be approximately US$300 million (net of reinstatement premiums) and for multiple events to be approximately US$600 million (net of all premiums).¹

 

1	See “Caution regarding forward-looking statements” above.

 

		35

7. Investments

Our investment philosophy for the General Fund is to invest in an asset mix that optimizes our risk adjusted returns and matches the characteristics of our underlying liabilities. We follow a bottom-up approach which combines our strong asset management skills with an in-depth understanding of the characteristics of each investment. We invest in a diversified mix of assets, including a variety of alternative long-duration asset classes. Our diversification strategy has historically produced superior risk adjusted returns while reducing overall risk. We use a disciplined approach across all asset classes, and we do not chase yield in the riskier end of the fixed income or alternative asset market. Our risk management strategy is outlined in the “Risk Management and Risk Factors” section below.

General Fund Assets

As at December 31, 2021, our General Fund invested assets totaled $427.1 billion compared with $411.0 billion at the end of 2020. The following table shows the asset class composition as at December 31, 2021 and December 31, 2020.

 

		2021																2020
As at December 31, ($ billions)		Carrying value				% of total				Fair value								Carrying value				% of total				Fair value
Cash and short-term securities		$	22.6				5			$	22.6							$	26.2				6			$	26.2
Debt Securities and Private Placement Debt
Government bonds			79.7				19				79.7								80.8				20				80.8
Corporate bonds			141.6				33				141.6								134.8				33				134.8
Securitized/asset-backed securities			2.9				1				2.9								3.1				1				3.1
Private placement debt			42.8				10				47.3								40.8				10				47.9
Mortgages			52.0				12				54.1								50.2				12				54.2
Policy loans and loans to bank clients			8.9				2				8.9								8.4				2				8.4
Public equities(1)			28.1				7				28.1								23.7				6				23.7
Alternative Long-Duration Assets (“ALDA”)
Real Estate			13.2				3				14.4								12.8				3				14.0
Infrastructure			9.8				2				10.0								9.1				2				9.4
Timberland and Farmland			5.3				1				5.7								4.8				1				5.4
Private Equity			11.6				3				11.6								8.0				2				8.0
Oil & Gas			1.9				0				1.9								2.3				1				2.3
Other ALDA			2.6				1				2.6								2.0				0				2.0
Leveraged Leases and Other			4.1				1				4.1								4.0				1				4.0
Total general fund invested assets		$	427.1				100			$	435.5							$	411.0				100			$	424.2

 

(1)	Includes $5 million of public equities as of December 31, 2021 that are managed in conjunction with our alternative long-duration asset strategy.

The carrying values for invested assets are generally equal to their fair values, however, mortgages and private placement debt are carried at amortized cost; loans to bank clients are carried at unpaid principal balances less allowance for credit losses; real estate held for own use is carried at cost less accumulated depreciation and any accumulated impairment losses; and private equity investments, including power and infrastructure, oil and gas, and timber, are accounted for as associates using the equity method, or at fair value. Certain government and corporate bonds and public equities are classified as AFS, with the remaining classified as “fair value through profit or loss”.

As at December 31, 2021, the carrying value of renewable energy assets, including energy efficiency projects, was $13.1 billion (2020 – $13.7 billion).

Shareholders’ accumulated other comprehensive pre-tax income (loss) at December 31, 2021 consisted of a $873 million gain for bonds (2020 – gain of $2,056 million) and a $288 million gain for public equities (2020 – gain of $255 million). Included in the $873 million gain for bonds was a $293 million loss related to the fair value hedge basis adjustments on AFS bonds (2020 – loss of $317 million).

Debt Securities and Private Placement Debt

We manage our high-quality fixed income portfolio to optimize yield and quality while ensuring that asset portfolios remain diversified by sector, industry, issuer, and geography. As at December 31, 2021, our fixed income portfolio of $267.0 billion (2020 – $259.5 billion) was 97% investment grade (rated BBB or better) and 72% was rated A or higher (2020 – 97% and 73%, respectively). Our private placement debt holdings provide diversification benefits (issuer, industry, and geography) and, because they often have stronger protective covenants and collateral than debt securities, they typically provide better credit protection and potentially higher recoveries in the event of default. Geographically, 23% is invested in Canada (2020 – 25%), 49% is invested in the U.S. (2020 – 47%), 4% is invested in Europe (2020 – 4%) and the remaining 24% is invested in Asia and other geographic areas (2020 – 24%).

 

 

36   |  2021 Annual Report  |  Management’s Discussion and Analysis

Debt Securities and Private Placement Debt – by Credit Quality⁽¹⁾

 

		2021																				2020
As at December 31, ($ billions)		Debt securities				Private placement debt				Total				% of Total								Debt securities				Private placement debt				Total				% of Total
AAA		$	40.1			$	1.0			$	41.1				15							$	40.7			$	1.1			$	41.8				16
AA			39.6				5.7				45.3				17								37.1				4.8				41.9				16
A			90.0				16.2				106.2				40								89.4				15.6				105.0				41
BBB			49.4				16.2				65.6				25								47.2				15.8				63.0				24
BB			3.7				1.1				4.8				2								3.0				1.2				4.2				2
B & lower, and unrated			1.4				2.6				4.0				1								1.3				2.3				3.6				1
Total carrying value		$	224.2			$	42.8			$	267.0				100							$	218.7			$	40.8			$	259.5				100

 

(1)

Reflects credit quality ratings as assigned by Nationally Recognized Statistical Rating Organizations (“NRSRO”) using the following priority sequence order: S&P Global Ratings (“S&P”), Moody’s Investors Services (“Moody’s”), DBRS Limited and its affiliated entities (“DBRS Morningstar”), Fitch Ratings Inc. (“Fitch”), Rating and Investment information, and Japan Credit Rating. For those assets where ratings by NRSRO are not available, disclosures are based upon internal ratings as described in the “Risk Management and Risk Factors” section below.

Debt Securities and Private Placement Debt – by Sector

 

As at December 31, (Per cent of carrying value, unless otherwise stated)		2021																2020
		Debt securities				Private placement debt				Total								Debt securities				Private placement debt				Total
Government and agency			35				11				32								37				12				33
Utilities			14				38				18								15				39				18
Financial			15				10				15								15				8				14
Industrial			9				12				9								8				12				9
Consumer (non-cyclical)			8				14				9								7				14				8
Energy – Oil & Gas			8				5				7								8				5				8
Energy – Other			0				1				0								0				1				0
Consumer (cyclical)			3				6				3								3				6				3
Securitized (MBS/ABS)			1				1				1								1				1				1
Telecommunications			2				0				2								2				0				2
Basic materials			2				2				2								2				2				2
Technology			2				0				1								1				0				1
Media and internet and other			1				0				1								1				0				1
Total per cent			100				100				100								100				100				100
Total carrying value ($ billions)		$	224.2			$	42.8			$	267.0							$	218.7			$	40.8			$	259.5

As at December 31, 2021, gross unrealized losses on our fixed income holdings were $1.6 billion or 0.6% of the amortized cost of these holdings (2020 – $0.6 billion or 0.3%). Of this amount, $11 million (2020 – $16 million) related to debt securities trading below 80% of amortized cost for more than 6 months. Securitized assets represented $2 million of the gross unrealized losses and none of the amounts trade below amortized cost for more than 6 months (2020 – $10 million and none, respectively). After adjusting for debt securities supporting participating policyholder and pass-through products and the provisions for credit included in the insurance and investment contract liabilities, the potential impact to shareholders’ pre-tax earnings for debt securities trading at less than 80% of amortized cost for greater than 6 months was approximately $7 million as at December 31, 2021 (2020 – $14 million).

Mortgages

As at December 31, 2021, our mortgage portfolio of $52.0 billion represented 12% of invested assets (2020 – $50.2 billion and 12%, respectively). Geographically, 66% of the portfolio is invested in Canada (2020 – 65%) and 34% is invested in the U.S. (2020 – 35%). The overall portfolio is also diversified by geographic region, property type, and borrower. Of the total mortgage portfolio, 14% is insured (2020 – 14%), primarily by the Canada Mortgage and Housing Corporation (“CMHC”) – Canada’s AAA rated government-backed national housing agency, with 35% of residential mortgages insured (2020 – 31%) and 2% of commercial mortgages insured (2020 – 2%).

 

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