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Risk Management
 12 Months Ended
Dec. 31, 2024
Risk Management [Abstract]  
Risk Management Risk Management
Manulife offers insurance, wealth and asset management products and other financial services, which subjects the Company to
a broad range of risks. Manulife manages these risks within an enterprise-wide risk management framework. Manulife’s goal in
managing risk is to strategically optimize risk taking and risk management to support long-term revenue, earnings and capital
growth. Manulife seeks to achieve this by capitalizing on business opportunities and strategies with appropriate risk/return
profiles; ensuring sufficient management expertise is in place to effectively execute strategies, and to identify, understand and
manage underlying inherent risks; ensuring strategies and activities align with its corporate and ethical standards and operational
capabilities; pursuing opportunities and risks that enhance diversification; and in making all risk taking decisions with analyses of
inherent risks, risk controls and mitigations, and risk / return trade-off.
Market and liquidity risk
Market risk is the risk of loss resulting from market price volatility, interest rate change, credit and swap spread changes, and
adverse foreign currency exchange rate movements. Market price volatility primarily relates to changes in prices of publicly
traded equities and alternative long-duration assets. The profitability of the Company’s insurance and annuity products, as well
as the fees the Company earns in its investment management business, are subject to market risk.
Liquidity risk is the risk of loss resulting from the inability to access sufficient funds or liquid assets to meet expected and
unexpected cash and collateral demands.
Please read below for details on factors that could impact the level of market risk and the strategies used to manage this risk:
Market and liquidity risk management strategy
Market and liquidity risk management strategy is governed by the Global Asset Liability Committee which oversees the market
and liquidity risk program. The Company’s overall strategy to manage its market & liquidity risks incorporates several component
strategies, each targeted to manage one or more of the market & liquidity risks arising from the Company’s businesses. At an
enterprise level, these strategies are designed to manage the Company’s aggregate exposures to market & liquidity risks against
limits associated with earnings and capital volatility.
The following table outlines the Company’s key market & liquidity risks and identifies the risk management strategies which
contribute to managing these risks.
Risk Management Strategy
Key Market & Liquidity Risk
Public
Equity Risk
Interest Rate
and Spread
Risk
ALDA
Risk
Foreign
Currency
Exchange Risk
Liquidity Risk
Product design and pricing
ü
ü
ü
ü
ü
Variable annuity guarantee dynamic hedging
ü
ü
ü
ü
Macro equity risk hedging
ü
ü
ü
Asset liability management
ü
ü
ü
ü
ü
Foreign currency exchange management
ü
ü
Liquidity risk management
ü
Product design and pricing strategy
The Company’s policies, standards, and guidelines, with respect to product design and pricing, are designed with the objective of
aligning its product offerings with its risk taking philosophy and risk appetite, and in particular, ensuring that incremental risk
generated from new sales aligns with its strategic risk objectives and risk limits. The specific design features of Manulife’s
product offerings, including level of benefit guarantees, policyholder options, fund offerings and availability restrictions as well as
its associated investment strategies, help to mitigate the level of underlying risk. Manulife regularly reviews and modifies key
features within its product offerings, including premiums and fee charges with a goal of meeting profit targets and staying within
risk limits. Certain of the Company’s general fund adjustable benefit products have minimum rate guarantees. The rate
guarantees for any particular policy are set at the time the policy is issued and governed by insurance regulation in each
jurisdiction where the products are sold. The contractual provisions allow crediting rates to be reset at pre-established intervals
subject to the established minimum crediting rate guarantees. The Company may partially mitigate the interest rate exposure by
setting new rates on new business and by adjusting rates on in-force business where permitted. In addition, the Company
partially mitigates this interest rate risk through its asset liability management process, product design elements, and crediting
rate strategies. All material new product, reinsurance and underwriting initiatives must be reviewed and approved by the Chief
Risk Officer or key individuals within risk management functions.
Hedging strategies for variable annuity and other equity risks
The Company’s exposure to movement in public equity market values primarily arises from insurance contract liabilities related to
variable annuity guarantees and general fund public equity investments.
Dynamic hedging is the primary hedging strategy for variable annuity market risks. Dynamic hedging is employed for new
variable annuity guarantees business when written or as soon as practical thereafter. 
Manulife seeks to manage public equity risk arising from unhedged exposures in its insurance contract liabilities through the
macro equity risk hedging strategy. The Company seeks to manage interest rate risk arising from variable annuity business not
dynamically hedged through its asset liability management strategy.
Variable annuity dynamic hedging strategy
The variable annuity dynamic hedging strategy is designed to hedge the sensitivity of variable annuity guarantee insurance
contract liabilities to fund performance (both public equity and bond funds) and interest rate movements. The objective of the
variable annuity dynamic hedging strategy is to offset, as closely as possible, the change in the economic value of guarantees
with the profit and loss from the hedge asset portfolio.
The Company’s variable annuity hedging program uses a variety of exchange-traded and over-the-counter (“OTC”) derivative
contracts to offset the change in value of variable annuity guarantees. The main derivative instruments used are equity index
futures, government bond futures, currency futures, interest rate swaps, total return swaps, equity options, and interest rate
swaptions. The hedge instruments’ positions against insurance contract liabilities are continuously monitored as market
conditions change. As necessary, the hedge asset positions will be dynamically rebalanced to stay within established limits. The
Company may also utilize other derivatives with the objective to improve hedge effectiveness opportunistically.
The Company’s variable annuity guarantee dynamic hedging strategy is not designed to completely offset the sensitivity of
insurance contract liabilities to all risks associated with the guarantees embedded in these products. The profit (loss) on the
hedge instruments will not completely offset the underlying losses (gains) related to the guarantee liabilities hedged because:
•Policyholder behaviour and mortality experience are not hedged;
•Risk adjustment related to cost of guarantees in the insurance contract liabilities is largely hedged;
•A portion of interest rate risk is not hedged;
•Credit spreads may widen and actions might not be taken to adjust accordingly;
•Fund performance on a small portion of the underlying funds is not hedged due to lack of availability of effective exchange-
traded hedge instruments;
•Performance of the underlying funds hedged may differ from the performance of the corresponding hedge instruments;
•Correlations between interest rates and equity markets could lead to unfavourable material impacts;
•Unfavourable hedge rebalancing costs can be incurred during periods of high volatility from equity markets, bond markets,
and / or interest rates, which is magnified when these impacts occur concurrently; and
•Not all other risks are hedged.
Differences in the profit (loss) on the hedge instruments versus the underlying losses (gains) related to the guarantee liabilities
hedged are reported in CSM.
Macro equity risk hedging strategy
The objective of the macro equity risk hedging program is to maintain the Company’s overall earnings sensitivity to public equity
market movements within the Board approved risk appetite limits. The macro equity risk hedging program is designed to hedge
earnings sensitivity due to movements in public equity markets arising from all sources (outside of dynamically hedged
exposures). Sources of equity market sensitivity addressed by the macro equity risk hedging program include general fund equity
holdings backing guaranteed, and adjustable liabilities.
Asset liability management strategy
Manulife’s asset liability management strategy is designed to help ensure that the market risks embedded in its assets and
liabilities held in the Company’s general fund are effectively managed and that risk exposures arising from these assets and
liabilities are maintained within risk limits. The embedded market risks include risks related to the level and movement of interest
rates and credit and swap spreads, public equity market performance, ALDA performance, and foreign currency exchange rate
movements.
General fund product liabilities are categorized into groups with similar characteristics in order to support them with a specific
asset strategy. The Company seeks to align the asset strategy for each group to the premium and benefit patterns, policyholder
options and guarantees, and crediting rate strategies of the products they support. The strategies are set using portfolio analysis
techniques intended to optimize returns, subject to considerations related to regulatory and economic capital requirements, and
risk tolerances. They are designed to achieve broad diversification across asset classes and individual investment risks while
being suitably aligned with the liabilities they support. The strategies encompass asset mix, quality rating, term profile, liquidity,
currency, and industry concentration targets.
Foreign currency exchange risk management strategy
Manulife’s policy is to generally match the currency of its assets with the currency of the liabilities they support. Where assets
and liabilities are not currency matched, the Company seeks to hedge this exposure where appropriate to stabilize its earnings
and consolidated capital positions and remain within its enterprise foreign exchange risk limits.
Liquidity risk management strategy
Global liquidity management policies and procedures are designed to provide adequate liquidity to cover cash and collateral
obligations as they come due, and to sustain and grow operations in both normal and stressed conditions. They consider legal,
regulatory, tax, operational or economic impediments to inter-entity funding. The asset mix of the Company’s balance sheet takes
into account the need to hold adequate unencumbered and appropriate liquid assets to satisfy the requirements arising under
stressed scenarios and to allow Manulife’s liquidity ratios to remain strong. Manulife manages liquidity centrally and closely
monitors the liquidity positions of its principal subsidiaries.
Manulife seeks to mitigate liquidity risk by diversifying its business across different products, markets, geographical regions, and
policyholders. The Company designs insurance products to encourage policyholders to maintain their policies in-force, to help
generate a diversified and stable flow of recurring premiums. The Company designs the policyholder termination features with
the goal of mitigating the financial exposure and liquidity risk related to unexpected policyholder terminations. The Company
establishes and implements investment strategies intended to match the term profile of the assets to the liabilities they support,
taking into account the potential for unexpected policyholder terminations and resulting liquidity needs. Liquid assets represent a
large portion of the Company’s total assets. Manulife aims to reduce liquidity risk in the Company’s businesses by diversifying its
funding sources and appropriately managing the term structure of its funding. The Company forecasts and monitors daily
operating liquidity and cash movements in various individual entities and operations as well as centrally, aiming to ensure
liquidity is available and cash is employed optimally.
The Company also maintains centralized cash pools and access to other sources of liquidity and contingent liquidity such as
repurchase funding agreements. Manulife’s centralized cash pools consist of cash or near-cash, high quality short-term
investments that are continually monitored for their credit quality and market liquidity.
Manulife has established a variety of contingent liquidity sources. These include, among others, a $500 committed unsecured
revolving credit facility with certain Canadian chartered banks available for the Company, and a US$500 committed unsecured
revolving credit facility with certain U.S. banks available to the Company and certain of its U.S. subsidiaries. There were no
outstanding borrowings under these facilities as at December 31, 2024 (2023 – $nil). In addition, John Hancock Life Insurance
Company (U.S.A.) (“JHUSA”) is a member of the Federal Home Loan Bank of Indianapolis (“FHLBI”), which enables the
Company to obtain loans from FHLBI as an alternative source of liquidity that is collateralizable by qualifying mortgage loans,
mortgage-backed securities, municipal bonds, and U.S. Treasury and Agency securities. As at December 31, 2024, JHUSA had
an estimated maximum borrowing capacity of US$3.8 billion (2023 – US$4.3 billion) based on regulatory limitations with an
outstanding balance of US$500 (2023 – US$500) under the FHLBI facility.
The following table outlines the maturity of the Company’s significant financial liabilities.
Maturity of financial liabilities(1)
As at December 31, 2024
Less than
1 year
1 to 3
years
3 to 5
years
Over 5
years
Total
Long-term debt
$-
$2,829
$-
$3,800
$6,629
Capital instruments
-
-
-
7,532
7,532
Derivatives
2,320
2,304
1,244
8,379
14,247
Deposits from Bank clients(2)
15,690
3,774
2,599
-
22,063
Lease liabilities
105
151
52
47
355
(1)The amounts shown above are net of the related unamortized deferred issue costs.
(2)Carrying value and fair value of deposits from Bank clients as at December 31, 2024 were $22,063 and $22,270, respectively (2023 – $21,616 and $21,518
respectively). Fair value is determined by discounting contractual cash flows, using market interest rates currently offered for deposits with similar terms and
conditions. All deposits from Bank clients were categorized in Level 2 of the fair value hierarchy (2023 – Level 2).
Through the normal course of business, pledging of assets is required to comply with jurisdictional regulatory and other
requirements including collateral pledged to partially mitigate derivative counterparty credit risk, assets pledged to exchanges as
initial margin, and assets held as collateral for repurchase funding agreements. Total unencumbered assets were $516.6 billion
as at December 31, 2024 (2023 – $470.2 billion).
Market risk sensitivities and market risk exposure measuresVariable annuity and segregated fund guarantees sensitivities and risk exposure measures
Guarantees on variable annuity products and segregated funds may include one or more of death, maturity, income and
withdrawal guarantees. Variable annuity and segregated fund guarantees are contingent and only payable upon the occurrence
of the relevant event, if fund values at that time are below guarantee values. Depending on future equity market levels, liabilities
on current in-force business would be due primarily in the period from 2025 to 2044.
Manulife seeks to mitigate a portion of the risks embedded in the Company’s retained (i.e., net of reinsurance) variable annuity
and segregated fund guarantee business through the combination of dynamic and macro hedging strategies (see “Publicly
traded equity performance risk sensitivities and exposure measures” below).
The table below shows selected information regarding the Company’s variable annuity and segregated fund investment-related
guarantees, gross and net of reinsurance.
Variable annuity and segregated fund guarantees, net of reinsurance
2024
2023
As at December 31,
Guarantee
value(1)
Fund value
Net amount
at risk(1),(2),(3)
Guarantee
value(1)
Fund value
Net amount
at risk(1),(2),(3)
Guaranteed minimum income benefit
$3,628
$2,780
$918
$3,864
$2,735
$1,156
Guaranteed minimum withdrawal benefit
33,473
33,539
3,339
34,833
33,198
4,093
Guaranteed minimum accumulation benefit
18,987
19,097
70
18,996
19,025
116
Gross living benefits(4)
56,088
55,416
4,327
57,693
54,958
5,365
Gross death benefits(5)
8,612
19,851
644
9,133
17,279
975
Total gross of reinsurance
64,700
75,267
4,971
66,826
72,237
6,340
Living benefits reinsured
23,768
23,965
3,016
24,208
23,146
3,395
Death benefits reinsured
3,430
2,776
289
3,400
2,576
482
Total reinsured
27,198
26,741
3,305
27,608
25,722
3,877
Total, net of reinsurance
$37,502
$48,526
$1,666
$39,218
$46,515
$2,463
(1)Guarantee Value and Net Amount at Risk in respect of guaranteed minimum withdrawal business in Canada and the U.S. reflect the time value of money of these
claims.
(2)Amount at risk (in-the-money amount) is the excess of guarantee values over fund values on all policies where the guarantee value exceeds the fund value. For
guaranteed minimum death benefit, the amount at risk is defined as the current guaranteed minimum death benefit in excess of the current account balance and
assumes that all claims are immediately payable. In practice, guaranteed death benefits are contingent and only payable upon the eventual death of policyholders
if fund values remain below guarantee values. For guaranteed minimum withdrawal benefit, the amount at risk assumes that the benefit is paid as a lifetime
annuity commencing at the earliest contractual income start age. These benefits are also contingent and only payable at scheduled maturity/income start dates in
the future, if the policyholders are still living and have not terminated their policies and fund values remain below guarantee values. For all guarantees, the amount
at risk is floored at zero at the single contract level.
(3)The amount at risk net of reinsurance at December 31, 2024 was $1,666 (December 31, 2023 – $2,463) of which: US$293 (December 31, 2023 – US$391) was
on the Company’s U.S. business, $1,021 (December 31, 2023 – $1,559) was on the Company’s Canadian business, US$100 (December 31, 2023 – US$140) was
on the Company’s Japan business, and US$56 (December 31, 2023 – US$155) was related to Asia (other than Japan) and the Company’s run-off reinsurance
business.
(4)Where a policy includes both living and death benefits, the guarantee in excess of the living benefit is included in the death benefit category as outlined in footnote 5.
(5)Death benefits include stand-alone guarantees and guarantees in excess of living benefit guarantees where both death and living benefits are provided on a
policy.          Investment categories for variable contracts with guarantees
Variable contracts with guarantees, including variable annuities and variable life, are invested at the policyholder’s discretion
subject to contract limitations, in various fund types within the segregated fund accounts and other investments. The account
balances by investment category are set out below.
As at December 31,
2024
2023
Investment category
Equity funds
$51,457
$45,593
Balanced funds
37,381
35,801
Bond funds
9,017
8,906
Money market funds
1,712
1,559
Other debt investments
2,082
1,907
Total
$101,649
$93,766
Caution related to sensitivities
In the sections that follow, the Company provides sensitivities and risk exposure measures for certain risks. These include
sensitivities due to specific changes in market prices and interest rate levels projected using internal models as at a specific date,
and are measured relative to a starting level reflecting the Company’s assets and liabilities at that date. The risk exposures
measure the impact of changing one factor at a time and assume that all other factors remain unchanged. Actual results can
differ significantly from these estimates for a variety of reasons including the interaction among these factors when more than
one changes; changes in liabilities from updates to non-economic assumptions, changes in business mix, effective tax rates and
other market factors; and the general limitations of the Company’s internal models. For these reasons, the sensitivities should
only be viewed as directional estimates of the underlying sensitivities for the respective factors based on the assumptions
outlined below. Given the nature of these calculations, the Company cannot provide assurance that the actual impact on
contractual service margin, net income attributed to shareholders, other comprehensive income attributed to shareholders, and
total comprehensive income attributed to shareholders will be as indicated.
Publicly traded equity performance risk sensitivities and exposure measures
The tables below include the potential impacts from an immediate 10%, 20% and 30% change in market values of publicly traded
equities on net income attributed to shareholders, CSM, other comprehensive income attributed to shareholders, and total
comprehensive income attributed to shareholders. The potential impact is shown after taking into account the impact of the
change in markets on the hedge assets. While the Company cannot reliably estimate the amount of the change in dynamically
hedged variable annuity and segregated fund guarantee liabilities that will not be offset by the change in the dynamic hedge
assets, the Company makes certain assumptions for the purposes of estimating the impact on net income attributed to
shareholders.
This estimate assumes that the performance of the dynamic hedging program would not completely offset the gain/loss from the
dynamically hedged variable annuity and segregated fund guarantee liabilities. It assumes that the hedge assets are based on
the actual position at the period end, and that equity hedges in the dynamic program offset 95% of the hedged variable annuity
liability movement that occurs as a result of market changes.
It is also important to note that these estimates are illustrative, and that the dynamic and macro hedging programs may
underperform these estimates, particularly during periods of high realized volatility and/or periods where both interest rates and
equity market movements are unfavourable. The method used for deriving sensitivity information and significant assumptions did
not change from the previous period.
Potential immediate impact on net income attributed to shareholders arising from changes to public equity returns(1)
Net income attributed to shareholders
As at December 31, 2024
-30%
-20%
-10%
+10%
+20%
+30%
Underlying sensitivity
Variable annuity and segregated fund guarantees(2)
$(2,050)
$(1,240)
$(560)
$470
$860
$1,190
General fund equity investments(3)
(1,240)
(820)
(400)
390
780
1,180
Total underlying sensitivity before hedging
(3,290)
(2,060)
(960)
860
1,640
2,370
Impact of macro and dynamic hedge assets(4)
720
430
190
(150)
(260)
(360)
Net potential impact on net income attributed to
shareholders after impact of hedging and before impact
of reinsurance
(2,570)
(1,630)
(770)
710
1,380
2,010
Impact of reinsurance
1,320
810
370
(320)
(590)
(830)
Net potential impact on net income attributed to
shareholders after impact of hedging and
reinsurance
$(1,250)
$(820)
$(400)
$390
$790
$1,180
Net income attributed to shareholders
As at December 31, 2023
-30%
-20%
-10%
+10%
+20%
+30%
Underlying sensitivity
Variable annuity and segregated fund guarantees(2)
$(2,370)
$(1,460)
$(670)
$550
$1,010
$1,390
General fund equity investments(3)
(1,170)
(770)
(390)
380
760
1,140
Total underlying sensitivity before hedging
(3,540)
(2,230)
(1,060)
930
1,770
2,530
Impact of macro and dynamic hedge assets(4)
880
530
240
(190)
(340)
(460)
Net potential impact on net income attributed to
shareholders after impact of hedging and before impact
of reinsurance
(2,660)
(1,700)
(820)
740
1,430
2,070
Impact of reinsurance
1,470
900
420
(350)
(650)
(910)
Net potential impact on net income attributed to
shareholders after impact of hedging and
reinsurance
$(1,190)
$(800)
$(400)
$390
$780
$1,160
(1)See “Caution related to sensitivities” above.
(2)For variable annuity contracts measured under the VFA approach, the impact of financial risk and changes in interest rates adjusts CSM, unless the risk mitigation
option applies. The Company has elected to apply risk mitigation and therefore, a portion of the impact is reported in net income attributed to shareholders instead
of adjusting the CSM. If the CSM for a group of variable annuity contracts is exhausted, the full impact is reported in net income attributed to shareholders.
(3)This impact for general fund equity investments includes general fund investments supporting the Company’s insurance contract liabilities, investment in seed
money investments (in segregated and mutual funds made by Global WAM segment), and the impact on insurance contract liabilities related to the projected
future fee income on variable universal life and other unit-linked products. The impact does not include any potential impact on public equity weightings. The
participating policy funds are largely self-supporting and generate no material impact on net income attributed to shareholders as a result of changes in equity
markets.
(4)Includes the impact of assumed rebalancing of equity hedges in the macro and dynamic hedging program. The impact of dynamic hedging represents the impact
of equity hedges offsetting 95% of the dynamically hedged variable annuity liability movement that occurs as a result of market changes, but does not include any
impact in respect of other sources of hedge accounting ineffectiveness (e.g., fund tracking, realized volatility, and equity and interest rate correlations different from
expected among other factors).
Potential immediate impact on contractual service margin, other comprehensive income to shareholders and total
comprehensive income to shareholders from changes to public equity market values(1),(2),(3)
As at December 31, 2024
-30%
-20%
-10%
+10%
+20%
+30%
Variable annuity and segregated fund guarantees
reported in CSM
$(3,420)
$(2,110)
$(970)
$840
$1,580
$2,250
Impact of risk mitigation - hedging(4)
940
560
250
(190)
(350)
(470)
Impact of risk mitigation - reinsurance(4)
1,670
1,020
470
(400)
(740)
(1,050)
VA net of risk mitigation
(810)
(530)
(250)
250
490
730
General fund equity
(1,140)
(740)
(370)
370
750
1,110
Contractual service margin (pre-tax)
$(1,950)
$(1,270)
$(620)
$620
$1,240
$1,840
Other comprehensive income attributed to
shareholders (post-tax)(5)
$(840)
$(560)
$(280)
$270
$530
$790
Total comprehensive income attributed to
shareholders (post-tax)
$(2,090)
$(1,380)
$(680)
$660
$1,320
$1,970
As at December 31, 2023
-30%
-20%
-10%
+10%
+20%
+30%
Variable annuity and segregated fund guarantees
reported in CSM
$(3,810)
$(2,370)
$(1,100)
$940
$1,760
$2,470
Impact of risk mitigation - hedging(4)
1,150
700
310
(250)
(450)
(600)
Impact of risk mitigation - reinsurance(4)
1,850
1,140
530
(450)
(830)
(1,150)
VA net of risk mitigation
(810)
(530)
(260)
240
480
720
General fund equity
(940)
(610)
(300)
290
590
870
Contractual service margin (pre-tax)
$(1,750)
$(1,140)
$(560)
$530
$1,070
$1,590
Other comprehensive income attributed to
shareholders (post-tax)(5)
$(730)
$(490)
$(240)
$230
$460
$680
Total comprehensive income attributed to
shareholders (post-tax)
$(1,920)
$(1,290)
$(640)
$620
$1,240
$1,840
(1)See “Caution related to sensitivities” above.
(2)This estimate assumes that the performance of the dynamic hedging program would not completely offset the gain/loss from the dynamically hedged variable
annuity and segregated fund guarantee liabilities. It assumes that the hedge assets are based on the actual position at the period end, and that equity hedges in
the dynamic program offset 95% of the hedged variable annuity liability movement that occur as a result of market changes.
(3)OSFI rules for segregated fund guarantees reflect full capital impacts of shocks over 20 quarters within a prescribed range. As such, the deterioration in equity
markets could lead to further increases in capital requirements after the initial shock.
(4)For variable annuity contracts measured under VFA the impact of financial risk and changes in interest rates adjusts CSM, unless the risk mitigation option applies.
The Company has elected to apply risk mitigation and therefore a portion of the impact is reported in net income attributed to shareholders instead of adjusting the
CSM. If the CSM for a group of variable annuity contracts is exhausted the full impact is reported in net income attributed to shareholders.
(5)The impact of financial risk and changes to interest rates for variable annuity contracts is not expected to generate sensitivity in Other Comprehensive Income.
Interest rate and spread risk sensitivities and exposure measures
As at December 31, 2024, the Company estimated the sensitivity of net income attributed to shareholders to a 50 basis point
parallel decline in interest rates to be a benefit of $100, and to a 50 basis point parallel increase in interest rates to be a charge
of $100.
The table below shows the potential impacts from a 50 basis point parallel move in interest rates on CSM, net income attributed
to shareholders, other comprehensive income attributed to shareholders, and total comprehensive income attributed to
shareholders. This includes a change in current government, swap and corporate rates for all maturities across all markets with
no change in credit spreads between government, swap and corporate rates. Also shown separately are the potential impacts
from a 50 basis point parallel move in corporate spreads and a 20 basis point parallel move in swap spreads. The impacts reflect
the net impact of movements in asset values in liability and surplus segments and movements in the present value of cash flows
for insurance contracts including those with cash flows that vary with the returns of underlying items where the present value is
measured by stochastic modelling. The method used for deriving sensitivity information and significant assumptions did not
change from the previous period.
The disclosed interest rate sensitivities reflect the accounting designations of the Company’s financial assets and corresponding
insurance contract liabilities. In most cases these assets and liabilities are designated as FVOCI and as a result, impacts from
changes to interest rates are largely in other comprehensive income. There are also changes in interest rates that impact the
CSM for VFA contracts that relate to amounts that are not passed through to policyholders. In addition, changes in interest rates
impact net income as it relates to derivatives not in hedge accounting relationships and on VFA contracts where the CSM has
been exhausted.
The disclosed interest rate sensitivities assume no hedge accounting ineffectiveness, as the Company’s hedge accounting
programs are optimized for parallel movements in interest rates, leading to immaterial net income impacts under these shocks.
However, the actual hedge accounting ineffectiveness is sensitive to non-parallel interest rate movements and will depend on the
shape and magnitude of the interest rate movements which could lead to variations in the impact to net income attributed to
shareholders.
The Company’s sensitivities vary across all regions in which the Company operates, and the impacts of yield curve changes will
vary depending upon the geography where the change occurs. Furthermore, the impacts from non-parallel movements may be
materially different from the estimated impacts of parallel movements.
The interest rate and spread risk sensitivities are determined in isolation of each other and therefore do not reflect the combined
impact of changes in government rates and credit spreads between government, swap and corporate rates occurring
simultaneously. As a result, the impact of the summation of each individual sensitivity may be materially different from the impact
of sensitivities to simultaneous changes in interest rate and spread risk.
The potential impacts also do not take into account other potential effects of changes in interest rate levels, for example, CSM at
recognition on the sale of new business or lower interest earned on future fixed income asset purchases.
The impacts do not reflect any potential effect of changing interest rates on the value of the Company’s ALDA. Rising interest
rates could negatively impact the value of the Company’s ALDA. More information on ALDA can be found below in the
“Alternative long-duration asset performance risk sensitivities and exposure measures” section.
Potential impacts on contractual service margin, net income attributed to shareholders, other comprehensive income
attributed to shareholders, and total comprehensive income attributed to shareholders of an immediate parallel change
in interest rates, corporate spreads or swap spreads relative to current rates(1),(2),(3)
As at December 31, 2024
Interest rates
Corporate spreads
Swap spreads
(post-tax except CSM)
-50bp
+50bp
-50bp
+50bp
-20bp
+20bp
CSM
$100
$(200)
$-
$(100)
$-
$-
Net income attributed to shareholders
100
(100)
100
(100)
100
(100)
Other comprehensive income attributed to shareholders
(100)
200
(200)
300
(100)
100
Total comprehensive income attributed to shareholders
-
100
(100)
200
-
-
As at December 31, 2023
Interest rates
Corporate spreads
Swap spreads
(post-tax except CSM)
-50bp
+50bp
-50bp
+50bp
-20bp
+20bp
CSM
$-
$(100)
$-
$(100)
$-
$-
Net income attributed to shareholders
100
(100)
-
-
100
(100)
Other comprehensive income attributed to shareholders
(300)
300
(200)
300
(100)
100
Total comprehensive income attributed to shareholders
(200)
200
(200)
300
-
-
(1)See “Caution related to sensitivities” above.
(2)Estimates include changes to the net actuarial gains/losses with respect to the Company’s pension obligations as a result of changes in interest rates.
(3)Includes guaranteed insurance and annuity products, including variable annuity contracts as well as adjustable benefit products where benefits are generally
adjusted as interest rates and investment returns change, a portion of which have minimum credited rate guarantees. For adjustable benefit products subject to
minimum rate guarantees, the sensitivities are based on the assumption that credited rates will be floored at the minimum.
Alternative long-duration asset performance risk sensitivities and exposure measures
The following table shows the potential impact on CSM, net income attributed to shareholders, other comprehensive income
attributed to shareholders, and total comprehensive income attributed to shareholders resulting from an immediate 10% change
in market values of ALDA. The method used for deriving sensitivity information and significant assumptions made did not change
from the previous period.
ALDA used in this sensitivity analysis includes commercial real estate, private equity, infrastructure, timber and agriculture,
energy1 and other investments.
The impacts do not reflect any future potential changes to non-fixed income return volatility. Refer to “Publicly traded equity
performance risk sensitivities and exposure measures” above for more details.
Potential immediate impacts on contractual service margin, net income attributed to shareholders, other
comprehensive income attributed to shareholders, and total comprehensive income attributed to shareholders from
changes in ALDA market values(1)
As at
December 31, 2024
December 31, 2023
(post-tax except CSM)
-10%
+10%
-10%
+10%
CSM excluding NCI
$(200)
$200
$(100)
$100
Net income attributed to shareholders(2)
(2,500)
2,500
(2,400)
2,400
Other comprehensive income attributed to shareholders
(200)
200
(200)
200
Total comprehensive income attributed to shareholders
(2,700)
2,700
(2,600)
2,600
(1)See “Caution related to sensitivities” above.
(2)Net income attributed to shareholders includes core earnings and the amounts excluded from core earnings.
Foreign exchange risk sensitivities and exposure measures
The Company generally matches the currency of its assets with the currency of the insurance and investment contract liabilities
they support. As at December 31, 2024, the Company did not have a material unmatched currency exposure.
Liquidity risk exposure strategy
Manulife manages liquidity levels of the consolidated group and key subsidiaries against established thresholds, which are based
on extreme but plausible liquidity stress scenarios over varying time horizons.
The Company’s use of derivatives for hedging purposes is a significant source of liquidity risk through collateral and cash
settlement requirements for OTC bilateral and centrally cleared derivatives under adverse market conditions. To assess these
potential liquidity needs, the Company regularly stress tests the market value of its derivative portfolio under various stress
scenarios and measures and monitors the contingent requirements against its liquid asset holdings. Additionally, the Company
maintains a liquidity contingency plan with diverse sources of contingent liquidity that can be utilized under severe stress
conditions.
Credit risk
Credit risk is the risk of loss due to inability or unwillingness of a borrower, or counterparty, to fulfill its payment obligations.
Worsening regional and global economic conditions, segment or industry sector challenges, or company specific factors could
result in defaults or downgrades and could lead to increased provisions or impairments related to the Company’s general fund
invested assets.
The Company’s exposure to credit risk is managed through risk management policies and procedures which include a defined
credit evaluation and adjudication process, delegated credit approval authorities and established exposure limits by borrower,
corporate connection, credit rating, industry and geographic region. The Company measures derivative counterparty exposure as
net potential credit exposure, which takes into consideration fair values of all transactions with each counterparty, net of any
collateral held, and an allowance to reflect future potential exposure. Reinsurance counterparty exposure is measured reflecting
the level of ceded liabilities. The Company also ensures where warranted, that mortgages, private placements and loans to Bank
clients are secured by collateral, the nature of which depends on the credit risk of the counterparty.
Credit risk associated with derivative counterparties is discussed in note 8 (f) and credit risk associated with reinsurance
counterparties is discussed in note 8 (k).
Credit quality
The following tables present financial instruments subject to credit exposure, without considering any collateral held or other
credit enhancements, and other significant credit risk exposures from loan commitments, with allowances, presenting separately
Stage 1, Stage 2, and Stage 3 credit risk profiles. For each asset type presented in the table, amortized cost and FVOCI financial
instruments are presented together. Amortized cost financial instruments are shown gross of the allowance for credit losses,
which is shown separately. FVOCI financial instruments are shown at fair value with the allowance for credit losses shown
separately.
As at December 31, 2024
Stage 1
Stage 2
Stage 3
Total
Debt securities, measured at FVOCI
Investment grade
$197,840
$1,338
$-
$199,178
Non-investment grade
5,625
363
-
5,988
Total carrying value
203,465
1,701
-
205,166
Allowance for credit losses
228
42
-
270
Debt securities, measured at amortized cost
Investment grade
1,496
-
-
1,496
Non-investment grade
-
-
-
-
Total
1,496
-
-
1,496
Allowance for credit losses
1
-
-
1
Total carrying value, net of allowance
1,495
-
-
1,495
Private placements, measured at FVOCI
Investment grade
41,796
721
-
42,517
Non-investment grade
5,004
1,133
148
6,285
Total carrying value
46,800
1,854
148
48,802
Allowance for credit losses
126
127
123
376
Commercial mortgages, measured at FVOCI
AAA
205
-
-
205
AA
7,234
-
-
7,234
A
14,035
-
-
14,035
BBB
5,679
873
-
6,552
BB
11
663
-
674
B and lower
-
21
71
92
Total carrying value
27,164
1,557
71
28,792
Allowance for credit losses
41
39
55
135
Commercial mortgages, measured at amortized cost
AAA
-
-
-
-
AA
-
-
-
-
A
225
15
-
240
BBB
-
-
-
-
BB
-
-
-
-
B and lower
112
5
5
122
Total
337
20
5
362
Allowance for credit losses
1
1
-
2
Total carrying value, net of allowance
336
19
5
360
Residential mortgages, measured at amortized cost
Performing
22,870
1,151
-
24,021
Non-performing
-
-
41
41
Total
22,870
1,151
41
24,062
Allowance for credit losses
3
2
1
6
Total carrying value, net of allowance
22,867
1,149
40
24,056
Loans to Bank clients, measured at amortized cost
Performing
2,265
38
-
2,303
Non-performing
-
-
10
10
Total
2,265
38
10
2,313
Allowance for credit losses
1
1
1
3
Total carrying value, net of allowance
2,264
37
9
2,310
Other invested assets, measured at FVOCI
Investment grade
-
-
-
-
Non-investment grade
389
-
-
389
Total carrying value
389
-
-
389
Allowance for credit losses
22
-
-
22
Other invested assets, measured at amortized cost
Investment grade
4,302
-
-
4,302
Non-investment grade
-
-
-
-
Total
4,302
-
-
4,302
Allowance for credit losses
2
-
-
2
Total carrying value, net of allowance
4,300
-
-
4,300
Loan commitments
Allowance for credit losses
9
1
1
11
Total carrying value, net of allowance
$309,080
$6,317
$273
$315,670
As at December 31, 2023
Stage 1
Stage 2
Stage 3
Total
Debt securities, measured at FVOCI
Investment grade
$197,562
$2,252
$-
$199,814
Non-investment grade
5,367
596
-
5,963
Total carrying value
202,929
2,848
-
205,777
Allowance for credit losses
283
54
6
343
Debt securities, measured at amortized cost
Investment grade
1,373
-
-
1,373
Non-investment grade
-
-
-
-
Total
1,373
-
-
1,373
Allowance for credit losses
1
-
-
1
Total carrying value, net of allowance
1,372
-
-
1,372
Private placements, measured at FVOCI
Investment grade
37,722
1,644
-
39,366
Non-investment grade
5,210
295
81
5,586
Total carrying value
42,932
1,939
81
44,952
Allowance for credit losses
126
108
83
317
Commercial mortgages, measured at FVOCI
AAA
279
-
-
279
AA
6,815
-
-
6,815
A
14,111
86
-
14,197
BBB
5,513
984
-
6,497
BB
10
532
-
542
B and lower
-
36
107
143
Total carrying value
26,728
1,638
107
28,473
Allowance for credit losses
40
42
143
225
Commercial mortgages, measured at amortized cost
AAA
-
-
-
-
AA
-
-
-
-
A
148
48
-
196
BBB
-
-
-
-
BB
-
-
-
-
B and lower
145
35
-
180
Total
293
83
-
376
Allowance for credit losses
1
2
-
3
Total carrying value, net of allowance
292
81
-
373
Residential mortgages, measured at amortized cost
Performing
20,898
1,570
-
22,468
Non-performing
-
-
60
60
Total
20,898
1,570
60
22,528
Allowance for credit losses
4
2
2
8
Total carrying value, net of allowance
20,894
1,568
58
22,520
Loans to Bank clients, measured at amortized cost
Performing
2,387
44
-
2,431
Non-performing
-
-
8
8
Total
2,387
44
8
2,439
Allowance for credit losses
2
-
1
3
Total carrying value, net of allowance
2,385
44
7
2,436
Other invested assets, measured at FVOCI
Investment grade
-
-
-
-
Non-investment grade
360
-
-
360
Total carrying value
360
-
-
360
Allowance for credit losses
16
-
-
16
Other invested assets, measured at amortized cost
Investment grade
3,791
-
-
3,791
Non-investment grade
-
-
-
-
Total
3,791
-
-
3,791
Allowance for credit losses
1
-
-
1
Total carrying value, net of allowance
3,790
-
-
3,790
Loan commitments
Allowance for credit losses
9
1
2
12
Total carrying value, net of allowance
$301,682
$8,118
$253
$310,053
Allowance for credit losses
The following tables provide details on the allowance for credit losses by stage as at and for the year ended December 31, 2024
and 2023.
As at December 31, 2024
Stage 1
Stage 2
Stage 3
Total
Balance, beginning of year
$483
$209
$237
$929
Net re-measurement due to transfers
4
(22)
18
-
Transfer to stage 1
12
(12)
-
-
Transfer to stage 2
(7)
7
-
-
Transfer to stage 3
(1)
(17)
18
-
Net originations, purchases, disposals and repayments
36
(8)
(159)
(131)
Changes to risk, parameters, and models
(107)
21
81
(5)
Foreign exchange and other adjustments
18
13
4
35
Balance, end of year
$434
$213
$181
$828
As at December 31, 2023
Stage 1
Stage 2
Stage 3
Total
Balance, beginning of year
$511
$141
$72
$724
Net re-measurement due to transfers
4
6
(10)
-
Transfer to stage 1
12
(11)
(1)
-
Transfer to stage 2
(6)
28
(22)
-
Transfer to stage 3
(2)
(11)
13
-
Net originations, purchases, disposals and repayments
45
8
(23)
30
Changes to risk, parameters, and models
(71)
48
233
210
Foreign exchange and other adjustments
(6)
6
(35)
(35)
Balance, end of year
$483
$209
$237
$929
(III)Significant judgements and estimates
The following tables show certain key macroeconomic variables used to estimate the ECL allowances by market. For the base
case, upside and downside scenarios, the projections are provided for the next 12 months and then for the remaining forecast
period, which represents a medium-term view.
Base case scenario
Upside scenario
Downside scenario 1
Downside scenario 2
As at December 31, 2024
Current
quarter
Next 12
months
Ensuing 4
years
Next 12
months
Ensuing 4
years
Next 12
months
Ensuing 4
years
Next 12
months
Ensuing 4
years
Canada
Gross Domestic Product (GDP), in
U.S. $ billions
$1,983
1.8%
2.0%
3.3%
2.3%
(2.0)%
2.3%
(3.9)%
2.2%
Unemployment rate
6.7%
6.8%
6.3%
6.5%
5.8%
8.1%
8.2%
8.5%
10.0%
NYMEX Light Sweet Crude Oil, in
U.S. dollars, per barrel
$76.0
$75.0
$72.0
$79.0
$74.0
$59.0
$66.0
$50.0
$61.0
U.S.
Gross Domestic Product (GDP), in
U.S. $ billions
$23,534
2.1%
2.2%
3.6%
2.3%
(2.0)%
2.7%
(4.2)%
2.5%
Unemployment rate
4.2%
4.1%
4.0%
3.3%
3.3%
7.3%
6.1%
7.8%
8.1%
7-10 Year BBB U.S. Corporate Index
5.5%
6.1%
6.1%
5.9%
6.2%
5.4%
5.6%
6.0%
5.4%
Japan
Gross Domestic Product (GDP), in
JPY billions
¥563,281
0.9%
0.7%
2.8%
0.8%
(3.6)%
1.0%
(7.1)%
1.6%
Unemployment rate
2.5%
2.5%
2.2%
2.4%
2.1%
3.1%
2.9%
3.2%
3.5%
Hong Kong
Unemployment rate
3.0%
2.9%
3.0%
2.5%
2.7%
4.1%
3.8%
4.6%
4.6%
Hang Seng Index
19,448
7.0%
4.1%
18.1%
3.7%
(19.7)%
9.9%
(37.0)%
13.5%
China
Gross Domestic Product (GDP), in
CNY billions
¥114,931
4.0%
4.1%
6.5%
4.3%
(3.0)%
4.6%
(5.7)%
3.9%
FTSE Xinhua A200 Index
10,938
(0.6)%
4.8%
13.8%
2.8%
(31.1)%
11.7%
(40.5)%
13.5%
(IV)Sensitivity to changes in economic assumptions
The following table shows the ECL allowance balance which resulted from all four macroeconomic scenarios (including the more
heavily weighted best estimate baseline scenario, one upside and two downside scenarios) weighted by probability of
occurrence and shows an ECL allowance resulting from only the baseline scenario.
As at December 31,
2024
2023
Probability-weighted ECL
$828
$929
Baseline ECL
$629
$659
Difference - in amount
$199
$270
Difference - in percentage
24.03%
29.06%
Securities lending, repurchase and reverse repurchase transactions
The Company engages in securities lending to generate fee income. Collateral exceeding the market value of the loaned
securities is retained by the Company until the underlying security has been returned to the Company. The market value of the
loaned securities is monitored daily and additional collateral is obtained or refunded as the market value of the underlying loaned
securities fluctuates. As at December 31, 2024, the Company had loaned securities (which are included in invested assets) with
a market value of $1,021 (2023 – $626). The Company holds collateral with a current market value that exceeds the value of
securities lent in all cases.
The Company engages in reverse repurchase transactions to generate fee income to take possession of securities to cover short
positions in similar instruments and to meet short-term funding requirements. As at December 31, 2024, the Company had
outstanding reverse repurchase transactions of $1,594 (2023 – $466) which are recorded as short-term receivables. In addition,
the Company had outstanding repurchase transactions of $668 as at December 31, 2024 (2023 – $202) which are recorded as
payables.
Credit default swaps
The Company replicates exposure to specific issuers by selling credit protection via credit default swaps (“CDS”) to complement
its cash debt securities investing. The Company does not write CDS protection more than its government bond holdings. A CDS
is a derivative instrument representing an agreement between two parties to exchange the credit risk of a single specified entity
or an index based on the credit risk of a group of entities (all commonly referred to as the “reference entity” or a portfolio of
“reference entities”), in return for a periodic premium. CDS contracts typically have a five-year term.
The following tables present details of the credit default swap protection sold by type of contract and external agency rating for
the underlying reference security.
As at December 31, 2024
Notional
amount(1)
Fair value
Weighted
average
maturity
(in years)(2)
Single name CDS(3),(4) – Corporate debt
AA
$23
$1
3
A
68
1
3
BBB
23
-
2
Total single name CDS
$114
$2
3
Total CDS protection sold
$114
$2
3
As at December 31, 2023
Notional
amount(1)
Fair value
Weighted
average
maturity
(in years)(2)
Single name CDS(3),(4) – Corporate debt
AA
$23
$1
4
A
94
2
3
BBB
14
-
1
Total single name CDS
$131
$3
3
Total CDS protection sold
$131
$3
3
(1)Notional amounts represent the maximum future payments the Company would have to pay its counterparties assuming a default of the underlying credit and zero
recovery on the underlying issuer obligations.
(2)The weighted average maturity of the CDS is weighted based on notional amounts.
(3)Ratings are based on S&P where available followed by Moody’s, Morningstar DBRS, and Fitch. If no rating is available from a rating agency, an internally
developed rating is used.
(4)The Company held no purchased credit protection as at December 31, 2024 and 2023.
Derivatives
The Company’s point-in-time exposure to losses related to credit risk of a derivative counterparty is limited to the amount of any
net gains that may have accrued with the particular counterparty. Gross derivative counterparty exposure is measured as the
total fair value (including accrued interest) of all outstanding contracts in a gain position excluding any offsetting contracts in a
loss position and the impact of collateral on hand. The Company limits the risk of credit losses from derivative counterparties by:
using investment grade counterparties, entering into master netting arrangements which permit the offsetting of contracts in a
loss position in the case of a counterparty default and entering into Credit Support Annex agreements whereby collateral must be
provided when the exposure exceeds a certain threshold.
All contracts are held with or guaranteed by investment grade counterparties, the majority of whom are rated A- or higher. As at
December 31, 2024, the percentage of the Company’s derivative exposure with counterparties rated AA- or higher was 30 per
cent (2023 – 33 per cent). As at December 31, 2024, the largest single counterparty exposure, without taking into consideration
the impact of master netting agreements or the benefit of collateral held, was $1,319 (2023 – $1,357). The net exposure to this
counterparty, after taking into consideration master netting agreements and the fair value of collateral held, was $nil (2023 –
$nil).
Offsetting financial assets and financial liabilities
Certain derivatives, securities lent and repurchase agreements have conditional offset rights. The Company does not offset these
financial instruments in the Consolidated Statements of Financial Position, as the rights of offset are conditional.
In the case of derivatives, collateral is collected from and pledged to counterparties and clearing houses to manage credit risk
exposure in accordance with Credit Support Annexes to swap agreements and clearing agreements. Under master netting
agreements, the Company has a right of offset in the event of default, insolvency, bankruptcy or other early termination.
In the case of reverse repurchase and repurchase transactions, additional collateral may be collected from or pledged to
counterparties to manage credit exposure according to bilateral reverse repurchase or repurchase agreements. In the event of
default by a reverse purchase transaction counterparty, the Company is entitled to liquidate the collateral held to offset against
the same counterparty’s obligation.
The following tables presents the effect of conditional master netting and similar arrangements. Similar arrangements may
include global master repurchase agreements, global master securities lending agreements, and any related rights to financial
collateral pledged or received.
Related amounts not set off in the
Consolidated Statements of Financial
Position
As at December 31, 2024
Gross
amounts of
financial
instruments(1)
Amounts subject to
an enforceable
master netting
arrangement or
similar agreements
Financial
and cash
collateral
pledged
(received)(2)
Net
amounts
including
financing
entity(3)
Net
amounts
excluding
financing
entity
Financial assets
Derivative assets
$9,048
$(6,633)
$(1,986)
$429
$429
Securities lending
1,021
-
(1,021)
-
-
Reverse repurchase agreements
1,594
(569)
(1,025)
-
-
Total financial assets
$11,663
$(7,202)
$(4,032)
$429
$429
Financial liabilities
Derivative liabilities
$(15,026)
$6,633
$8,305
$(88)
$(15)
Repurchase agreements
(668)
569
99
-
-
Total financial liabilities
$(15,694)
$7,202
$8,404
$(88)
$(15)
Related amounts not set off in the
Consolidated Statements of Financial
Position
As at December 31, 2023
Gross
amounts of
financial
instruments(1)
Amounts subject to
an enforceable
master netting
arrangement or
similar agreements
Financial
and cash
collateral
pledged
(received)(2)
Net
amounts
including
financing
entity(3)
Net
amounts
excluding
financing
entity
Financial assets
Derivative assets
$9,044
$(6,516)
$(2,374)
$154
$154
Securities lending
626
-
(626)
-
-
Reverse repurchase agreements
466
(202)
(264)
-
-
Total financial assets
$10,136
$(6,718)
$(3,264)
$154
$154
Financial liabilities
Derivative liabilities
$(12,600)
$6,516
$5,958
$(126)
$(57)
Repurchase agreements
(202)
202
-
-
-
Total financial liabilities
$(12,802)
$6,718
$5,958
$(126)
$(57)
(1)Financial assets and liabilities include accrued interest of $388 and $779 respectively (2023 – $502 and $913 respectively).
(2)Financial and cash collateral exclude over-collateralization. As at December 31, 2024, the Company was over-collateralized on OTC derivative assets, OTC
derivative liabilities, securities lending and reverse repurchase agreements and repurchase agreements in the amounts of $641, $2,472, $35 and $nil respectively
(2023 – $424, $1,420, $20 and $nil respectively). As at December 31, 2024, collateral pledged (received) does not include collateral-in-transit on OTC instruments
or initial margin on exchange-traded contracts or cleared contracts.
(3)Includes derivative contracts entered between the Company and its unconsolidated financing entity. The Company does not exchange collateral on derivative
contracts entered with this entity. Refer to note 17.
The Company also has certain credit linked note assets and variable surplus note liabilities which have unconditional offsetting
rights. Under the netting agreements, the Company has rights of offset including in the event of the Company’s default,
insolvency, or bankruptcy. These financial instruments are offset in the Consolidated Statements of Financial Position.
A credit linked note is a debt instrument the term of which, in this case, is linked to a variable surplus note. A surplus note is a
subordinated debt obligation that often qualifies as surplus (the U.S. statutory equivalent of equity) by some U.S. state insurance
regulators. Interest payments on surplus notes are made after all other contractual payments are made. The following tables
present the effect of unconditional netting.
As at December 31, 2024
Gross amounts
of financial
instruments
Amounts subject to
an enforceable
netting arrangement
Net amounts of
financial
instruments
Credit linked note(1)
$1,392
$(1,392)
$-
Variable surplus note
(1,392)
1,392
-
As at December 31, 2023
Gross amounts
of financial
instruments
Amounts subject to
an enforceable
netting arrangement
Net amounts of
financial
instruments
Credit linked note(1)
$1,276
$(1,276)
$-
Variable surplus note
(1,276)
1,276
-
(1)As at December 31, 2024 and 2023, the Company had no fixed surplus notes outstanding. Refer to note 18 (g).
Risk concentrations
The Company defines enterprise-wide investment portfolio level targets and limits to ensure that portfolios are diversified across
asset classes and individual investment risks. The Company monitors actual investment positions and risk exposures for
concentration risk and reports its findings to the Executive Risk Committee and the Risk Committee of the Board of Directors.
As at December 31,
2024
2023
Debt securities and private placements rated as investment grade BBB or higher(1)
96%
95%
Government debt securities as a per cent of total debt securities
40%
38%
Government private placements as a per cent of total private placements
9%
10%
Highest exposure to a single non-government debt security or private placement issuer
$1,121
$1,131
Largest single issuer as a per cent of the total equity portfolio
2%
2%
Income producing commercial office properties (2024 – 35% of real estate, 2023 – 37%)
$4,696
$4,829
Largest concentration of mortgages and real estate(2) – Ontario Canada (2024 – 28%, 2023 – 29%)
$19,052
$19,003
(1)Investment grade debt securities and private placements include 37% rated A, 17% rated AA and 15% rated AAA (2023 – 38%, 17% and 15%) investments based
on external ratings where available.
(2)Mortgages and real estate investments are diversified geographically and by property type.
The following table presents debt securities and private placements portfolio by sector and industry.
2024
2023
As at December 31,
Carrying
value
% of total
Carrying
value
% of total
Government and agency
$88,376
34%
$84,739
33%
Utilities
45,812
18%
45,952
18%
Financial
38,656
15%
39,069
15%
Consumer
31,529
12%
31,181
12%
Energy
15,840
6%
15,782
6%
Industrial
24,233
9%
24,209
9%
Other
15,843
6%
16,823
7%
Total
$260,289
100%
$257,755
100%
Insurance risk
Insurance risk is the risk of loss due to actual experience for mortality and morbidity claims, policyholder behaviour and expenses
emerging differently than assumed when a product was designed and priced. A variety of assumptions are made related to these
experience factors, for reinsurance costs, and for sales levels when products are designed and priced, as well as in the
determination of policy liabilities. Assumptions for future claims are generally based on both Company and industry experience,
and assumptions for future policyholder behaviour and expenses are generally based on Company experience. Such
assumptions require significant professional judgment, and actual experience may be materially different than the assumptions
made by the Company. Claims may be impacted unexpectedly by changes in the prevalence of diseases or illnesses, medical
and technology advances, widespread lifestyle changes, natural disasters, large-scale man-made disasters and acts of terrorism.
Policyholder behaviour including premium payment patterns, policy renewals, lapse rates and withdrawal and surrender activity
are influenced by many factors including market and general economic conditions, and the availability and relative attractiveness
of other products in the marketplace. Some reinsurance rates are not guaranteed and may be changed unexpectedly.
Adjustments the Company seeks to make to Non-Guaranteed elements to reflect changing experience factors may be
challenged by regulatory or legal action and the Company may be unable to implement them or may face delays in
implementation.
The Company manages insurance risk through global policies, standards and best practices with respect to product design,
pricing, underwriting and claim adjudication, and a global underwriting manual. Each business unit establishes underwriting
policies and procedures, including criteria for approval of risks and claims adjudication policies and procedures. The current
global life retention limit is US$30 for individual policies (US$35 for survivorship life policies) and is shared across businesses.
Lower limits are applied in some markets and jurisdictions. The Company aims to further reduce exposure to claims
concentrations by applying geographical aggregate retention limits for certain covers. Enterprise-wide, the Company aims to
reduce the likelihood of high aggregate claims by operating globally, insuring a wide range of unrelated risk events, and
reinsuring some risk.
Concentration risk
The geographic concentration of the Company’s insurance and investment contract liabilities, including embedded derivatives, is
shown below. The disclosure is based on the countries in which the business is written.
As at December 31, 2024
Insurance
contract
liabilities
Investment
contract
liabilities
Reinsurance
assets
Net liabilities
U.S. and Canada
$342,146
$305,563
$(52,055)
$595,654
Asia and Other
180,698
17,378
(6,294)
191,782
Total
$522,844
$322,941
$(58,349)
$787,436
As at December 31, 2023
Insurance
contract
liabilities
Investment
contract
liabilities
Reinsurance
assets
Net liabilities
U.S. and Canada
$327,458
$260,046
$(39,080)
$548,424
Asia and Other
154,536
15,171
(1,169)
168,538
Total
$481,994
$275,217
$(40,249)
$716,962
Reinsurance risk
In the normal course of business, the Company limits the amount of loss on any one policy by reinsuring certain levels of risk
with other insurers. In addition, the Company accepts reinsurance from other reinsurers. Reinsurance ceded does not discharge
the Company’s liability as the primary insurer. Failure of reinsurers to honour their obligations could result in losses to the
Company; consequently, allowances are established for amounts deemed uncollectible. To minimize losses from reinsurer
insolvency, the Company monitors the concentration of credit risk both geographically and with any one reinsurer. In addition, the
Company selects reinsurers with high credit ratings.
As at December 31, 2024, the Company had $58,349 (2023 – $40,249) of reinsurance assets. Of this, 93 per cent (2023 – 91
per cent) were ceded to reinsurers with Standard and Poor’s ratings of A- or above. The Company’s exposure to credit risk was
mitigated by $40,753 fair value of collateral held as security as at December 31, 2024 (2023 – $22,264). Net exposure after
considering offsetting agreements and the benefit of the fair value of collateral held was $17,595 as at December 31, 2024 (2023
– $17,984).