Robert Veloso - Vice President, Investor Relations Donald Guloien - President and CEO Stephen Roder - SEVP and CFO Scott Hartz - EVP and General Account Investments Robert Cook - SEVP and General Manager, Asia Paul Rooney - COO Cindy Forbes - EVP and Chief Actuary Marianne Harrison - SEVP and General Manager, Canadian Division.

Meny Grauman - Cormark Securities Steve Theriault - Bank of America Merrill Lynch Peter Routledge - National Bank Financial Gabriel Dechaine - Canaccord Genuity Sumit Malhotra - Scotia Capital Darko Mihelic - RBC Capital Markets Robert Sedran - CIBC World Markets Mario Mendonca - TD Securities Doug Young - Desjardins Capital Tom MacKinnon - BMO Capital Markets Daniel Bergman - UBS.

Good afternoon and welcome to the Manulife Financial Fourth Quarter 2014 Financial Results Conference Call for Thursday February 12, 2014. Your host for today will be Mr. Robert Veloso. Please go ahead, sir..

Thank you, and good afternoon. Welcome to Manulife’s conference call to discuss our fourth quarter and full year 2014 financial and operating results. Today's call will reference our earnings announcement, statistical package and webcast slides, which are available in the Investor Relations section of our website at manulife.com.

As in prior quarters, our executives will be making some remarks. We will then follow with a question-and-answer session. Today's speakers may make forward-looking statements within the meaning of securities legislation.

Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied.

For additional information about the material factors or assumptions applied and about the important factors that may cause actual results to differ, please consult the slide presentation for this conference call and webcast available on our website, as well as the securities filings we referred to in the slide entitled, Caution Regarding Forward-Looking Statements.

We have also included a note to user’s slide that sets out the performance and non-GAAP measures used in today's presentation. When we reach the question-and-answer portion of our conference call, we ask each participant to adhere to limit of one or two questions.

If you have additional questions, please re-queue as we will do our best to respond to all questions. With that, I'd like to turn the call over to Donald Guloien, our President and Chief Executive Officer.

Donald?.

Thank you, Robert. Good afternoon, everyone, and thank you for joining us today. This morning, we announced our 2014 financial results. Now as you can see from the chart on the slide, we have enjoyed a very nice trend in net income over the past five years. In 2010, we had a loss of $1.7 billion, 2011 a small gain.

In 2012, earnings increased to $1.8 billion and in 2013, a further improvement of $3.1 billion. And in 2014, we ended the year with net income of $3.5 billion.

That is an increase of 12% over the prior year and in fact if you adjust for a one-time only unusual extraordinary event that is the sale, gain on sale of our Taiwan insurance operations that occurred in 2013 it is in fact a 26% increase.

Now before anyone has attempted to extrapolate that growth in net income to the next year and beyond I have two notes to caution. Number one, our net income in 2014 included investment related gains, favorable market impacts.

And number two, the current macroeconomic environment in particular low interest rates in oil and gas prices present some specific headwinds for 2015. In our opinion, non-instrumentable headwinds but headwinds nonetheless.

From a core earnings perspective, we completed the year in just $12 million shy of our goal delivering $2.888 billion against the plan of 2.9 and we view that goal as quite ambitious but unlike prior quarters of the year, the fourth quarter was below our expectations in terms of core earnings due to a variety of experience factors mostly claims related.

Steve will go into these in more details. One of the most notable achievements in the year is in fact something that did not happen. As you might be aware through 2014, the US government rates fell approximately 125 basis points and Japanese rates crossed approximately 50 basis points during the year. We also experienced high equity market volatility.

It was a very difficult market environment yet you'd hardly notice it looking at the results and that is a great testimony, the quality of the hedging programs that we have in place. You recall the most recent year that looked like that with back in 2012, the year the company barely made a profit. This year we sail by and it barely noticed.

It is also somewhat of a note of caution for those who think that we will benefit enormously from increased rates at some time in the future, a view that is perhaps emphasized too much. Yes, we will benefit from an uplift in rates but perhaps not as much as some people would anticipate. You have to hedge the downside and the upside.

In terms of the top line, insurance sales excluding group benefits which are highly seasonal increased 13% from the prior year with record sales in Asia and momentum building through the year in our North American life insurance businesses. Sold all three engines now and gear this bodes very well for 2015 and beyond.

On the wealth management front we ended 2014 with another sales record, this contributed to our reaching almost $700 billion in assets under management.

Last but certainly not least, in the third quarter of the year, the company increased the dividend pay quarterly to shareholders by 19% to 15.5 cents [ph] per common share and it is my hope and not of our board that this will be the first in a series of increases.

We’ve also developed financial flexibility to finance not one but two transactions with very significant contributions from internal resources while maintaining strong capital resources and improving leverage ratios.

During the slide six we will review the year on a more granular basis in terms of developing our Asian opportunity to the fullest, we achieved record insurance sales which benefited from successful new product launches and sales campaigns notably insurance sales were up 60% in Japan 28% in China 15% in Hong Kong and I can go on with a much longer list.

We delivered another year of record wealth sales with particularly strong momentum in the second half of the year where sales increasing nearly 17% compared with the prior year. We also expanded our bank assurance footprint with nine new insurance distribution agreement, two of which are exclusive.

In terms of growing our wealth and asset management businesses around the world we achieved our 25th consecutive quarter of records on and record assets under management. We are one of the few companies in the world that claim to that record.

Delivered record institutional sales of $8 billion of asset management across a broad variety of mandate is included over billion dollars in mandates from our private markets business which was its first full year in operation.

We generate over $18 billion in positive net flows from our asset management and group retirement businesses around the globe. In Canada, the core earnings were below expectations. We continue to deliver solid mutual fund and group retirement sales.

We experienced declining group benefit sales in Manulife bank lending volumes where we decided to maintain our pricing discipline despite strong competitive pressures. Once again at this company we emphasized margins over market share and that behavior is consistent with the philosophy.

Notably we acquired the Canadian operations with Standard Life PLC which adds approximately 1.4 million new customers in over $27 billion in mutual fund and pension assets.

This transaction accelerates our global wealth and asset management strategy through a range of capabilities including defined contribution pension business and a real strength in liability driven investing. In the United States we continue to drive sustainable earnings and opportunistic growth.

We delivered record wealth sales thanks to a very strong mutual fund volumes at John Hancock investments which outweighs the negative impact of intensify competitive pressures on our small case retirement sales.

On the insurance front while sales were down for the year we continue to both build momentum through the year in fact sales increased sequentially every single quarter of the year driven by products enhancements made in the first part of the year and we expect that trends will continue.

In December, we announced our agreement to acquire New York Life’s retirement plan services businesses. This transaction along with the Standard Life acquisition in Canada will significantly increase our global retirement plan assets by about $80 billion. In summary, we are pleased with the progress made in 2014. Our strategies unfolding very well.

We are mindful of the major trends and disruptors that impacting our industry, they are a source of opportunity for us and we intend to take full advantage of it. Working with our board we had developed the strategy for 2015 and beyond that prepared Manulife for the future and we'll accelerate our long-term growth trajectory.

We will go into more detail in our annual report and our Investor Day in May but in brief the strategy is comprised of three major themes. Number one, we will transform from the organization traditionally focused on products and distribution the one that is more customer centric.

This will be manifest in a whole variety of ways from user branding and social media to operating simpler products more niche based solutions and more accessible and user friendly portals for support and service.

Second, we will continue to build and integrate our global wealth and asset management businesses without restricting ourselves to geographies where we currently have insurance operations.

This is a global business for Manulife and you should expect that we will be opening both sales office and investment desks in areas around the globe where Manulife is currently not present with its insurance operations.

And third, we'll work aggressively to lever the skills and experiences of our people across our international operations to maximum strategic and expense advantage. With that, I’ll turn it over to Steve Roder, who will highlight our financial results and then open the call to your questions. Thank you..

Thank you, Donald, and good afternoon, everyone. Let’s start on slide eight, where we summarize our financial performance for the fourth quarter of 2014 and the full year. In the fourth quarter we delivered strong growth in insurance sales and achieved our 25th consecutive quarter of record assets under management.

The core earnings were below our expectations. For the full year net income rose 12% and core earnings were up 10%. We continue to build insurance sales momentum throughout the year and achieved record wealth sales.

And we further improved our financial flexibility by reducing our financial leverage and generating remittances of $2.4 billion while maintain strong capital ratio. We continue to focus our efforts on improving our return on equity and have already taken steps to redeploy capital for the benefit of shareholders.

For example, in 2014, the dividend was increased by 19% and we announced two acquisitions. In the following slides, I will address our fourth quarter and full year results in greater detail.

Turning to slide nine, in the fourth quarter of 2014 core earnings declined 6% to $713 million reflecting unfavorable policyholder experience in North America and the timing of certain expenses partly offset by the benefits of lower amortization of deferred acquisition costs and the benefit of higher life insurance sales on new business strain.

For the full year we generated $2.9 billion of core earnings up 10% over 2013 driven by growth in our fee income from higher wealth assets, lower net hedging costs and the favorable impact of a higher U.S. dollar partly offset by unfavorable policyholder experience and the low interest rate environment.

Our net income for the full year was $3.5 billion a 12% increase from 2013. Turning to slide 10. Our reported net income in the fourth quarter was negatively impacted by unfavorable investment related experience. As the sharp decline in commodity prices led to fair value adjustments in our oil and gas holdings.

This was largely offset by a gain from market related factors totaling $377 million, largely due to the impact of the flattening of the yield curve as well as widening corporate spreads and lower swap spreads. On slide 11 is our source of earnings.

Our expected profit on in-force rose 2% from the prior quarter largely due to lower amortization of deferred acquisition costs. New business strain improved from the quarter reflecting the impact of higher insurance sales volumes and a more favorable business mix.

Experienced losses in the quarter reflect oil and gas related investment losses and unfavorable policyholder experience partly offset by market related factors. Management actions largely reflect the expected macro hedge costs and actuarial mode retirements. And earnings on surplus increased due to higher realized gains on AFS equities.

Our low effective tax rate in the quarter as a result of income earned in low tax jurisdictions, losses or lower income earned in high tax jurisdictions and tax exempt investment income. Turning to slide 12 on insurance sales.

Insurance sales in the fourth quarter increased 20% over the prior year reflecting record sales in Asia with most territories experiencing double-digit growth and continued strong and improving momentum in North America Life insurance sales. As a result of product launches and enhancements undertaken earlier in the year.

Full year insurance sales declined largely due to our disciplined pricing approach in the competitive group benefits market. Excluding group benefits insurance sales in 2014 were up 13% from the prior year driven by very strong growth in Asia.

New business embedded value increased 12% in 2014 and 20% in the fourth quarter thanks to fast-growing sales in Asia and our success at redesigning insurance products to be profitable in this challenging interest rate environment. Turning to slide 13 on wealth sales.

Wealth sales in the fourth quarter rose 6% over the prior year reflecting new product launches, marketing campaigns and improved market sentiment in Asia continued strong mutual fund sales in North America and strong group retirement sales in Canada partly offset by lower bank volumes in Canada. Excluding bank volumes wealth sales increased 9%.

For the full year, we achieved record wealth sales of nearly $53 billion with strong mutual fund sales in all divisions. New business embedded value for our wealth business in 2014 was in line with the prior year.

Turning to slide 14 assets under management at the end of the fourth quarter were $691 billion representing our 25th consecutive quarter of record AUM and a $92 billion increased from the previous year. Slide 15 summarizes the capital position for the manufacturer’s life Insurance company and our financial leverage.

We ended the year with a robust regulatory capital ratio of 248% in line with the prior year despite reducing our leverage by 3.2 percentage points to 27.8%. Assuming the acquisition of the Canadian operations of Standard Life PLC closed at year-end. Our pro forma leverage ratio would have been 27.1% lower than the 28% we'd initially indicated.

And our MCCSR ratio would have been in the 235% to 240% range we had initially indicated. Turning to slide 17 and the operating highlights of our divisions. We begin with the Asia division.

In the fourth quarter, core earnings were US$229 million, down 9% from the previous quarter due to the impact of the weakening yen and the timing of certain expenses partly offset by favorable policyholder experience.

Adjusting for currency additional dynamic hedging and the sale of our Taiwan Insurance business core earnings increased 19% in the fourth quarter versus the prior year and 16% for the full year.

Insurance sales reached record level for the fourth quarter and the full year on a constant currency basis, reflecting continued robust sales growth in Japan successful sales campaigns and product launches in Hong Kong and double-digit growth in other Asia territories.

In the fourth quarter, wealth sales rose 64% to US$2.5 billion reflecting double-digit growth in most territories driven by new product launches marketing campaigns and improved investment sentiment. For the full year wealth sales of US$8 billion set a new annual record on a constant currency basis. Turning to slide 18, on the Canadian division.

In the fourth quarter, core earnings declined 8% as unfavorable policyholder experience in our insurance businesses was only partly offset by lower amortization of deferred acquisition costs.

Fourth quarter insurance sales of $172 million increased 6% from the prior year reflecting the continued success of our simplified UL solution and higher group benefit sales. Full year insurance sales of $578 million declined 49% largely due to our disciplined approach to pricing in the large case group benefits market.

Excluding group benefits insurance sales in 2014 was 3% higher than in the prior year driven by strong market acceptance of our simplified UL solution. Wealth sales in the fourth quarter continue to be solid but declined due to lower bank loan volumes.

Excluding Manulife Bank fourth quarter wealth sales were up 2% versus the prior year and full year wealth sales were up 3% on strong group retirement sales. Moving on to slide 19 and highlights for the US division.

Fourth quarter core earnings of US$297 million declined 5% reflecting unfavorable policyholder experience partly offset by improved new business strain.

Full year core earnings declined 15% as higher fee income from our growing wealth businesses was more than offset by lower earnings from our variable annuities business despite lower DAC amortization and unfavorable policyholder experience.

Insurance sales in the fourth quarter were US$154 million up 12% driven by the continued momentum from product enhancements and targeted pricing changes.

Full year insurance sales of US$ 501 million were down 11% from 2013 due to a challenging first quarter and the impact of the sluggish state planning market that demonstrates sequentially improvement in each quarter of the year.

Fourth quarter wealth sales of US$7.1 billion were in line with the prior year as continued strong mutual fund sales were partially offset by lower group retirement sales. Continued re-pricing initiatives are underway in our retirement business and we continue to garner significant attention in the industry with our fee transparency initiative.

On a full year basis we achieved record wealth sales of US$29.2 billion. So in conclusion in 2014, Manulife generated strong net income on core earnings achieved record wealth sales and continue to build strong insurance momentum throughout the year.

We achieved record assets under management increased the dividend and announced two strategic acquisitions. Before I open the line up to questions I wanted to briefly discuss our upcoming Investor Day on May the 11th 2015.

At Investor Day we plan to discuss our strategy for 2015 and beyond to which Donald referred earlier as well as the key drivers of our earnings going forward.

We'll also provide some more color around the integration of the Canadian operations of Standard Life and we will spend some time highlight upcoming disclosures on our wealth and asset management business and on embedded value including local embedded value for Asia. This concludes our prepared remarks.

Operator, we will now open the call to questions..

Thank you. We will now take questions from telephone lines. [Operator Instruction]. And the first question is from Meny Grauman from Cormark Securities. Please go ahead..

Hi, questions on the oil and gas exposure.

First I noticed that the book value of the oil and gas assets actually increased from 1.8 billion to 2.2 billion I am wondering it seems a little counter intuitive to me what's driving that?.

We acquired some oil and gas properties in the fourth quarter so it is an acquisition of net assets in the quarter obviously in the course of the quarter we would have a markdown on the portfolio but the actual acquisition outweigh the markdown effect..

Okay and then just in terms of the fair value losses on investments I am just wondering if you could just give us some more color on some of the key drivers there?.

So we'll pass it on to Scott Hartz. He's probably going to be the best to give you the color on that one..

The fair value drop in investments on the oil and gas you mean?.

Yeah..

Yeah, sure.

So in the fourth quarter we saw oil prices come down significantly spot prices down 36% gas prices down 25% the forward prices were down a bit less than that and our oil and gas portfolio is about 10% of our total alternative asset portfolio and it is a piece of the portfolio that has probably more volatility we certainly model it that way than the rest of the portfolio and hence it can only grow to be so large but we enjoy a very diversified alternative asset portfolio and so although we had marks down in the fourth quarter for the full year our alternative asset portfolio performed in line with our expectation so which really speaks to the power of the diversification but we will see in the oil and gas those values will be moved directly with the commodity prices and we may see some lingering effects of that into 2015 to the extent prices rebound here..

So do you need prices to go down further to recognize more launches here or is it also a function of credit and other variable deteriorating?.

Well, really we would on forward prices and everyone’s expectation where they're valuing properties would assume prices would rebound fairly slowly overtime and if we don’t see that rebound overtime you will see values continue to go down so yes we need prices to increase modestly overtime to prevent further losses I would say..

Thank you..

The other comment I would add is Scott gave you the data point on 9% of our alternative asset but just to emphasize that translates into less than 10% of our overall invested assets..

Okay, great. Thank you..

Thank you. The next question is from Steve Theriault from Bank of America Merrill Lynch. Please go ahead..

Thanks very much. Just to be clear on the oil and gas exposure for second, third quarter [indiscernible]..

Sorry Steve, would you mind to speaking up a bit I am struggling to pick you up..

Pardon me. Sorry.

Just a quick follow up first on the oil and gas exposure it was my understand you do a more refined evaluation of that portfolio in Q1 so am I correct it doesn’t sound like that you expect that to be a material factor come three months from now is that right?.

Yeah, it’s Scott again.

We took our best shot at year end it is an estimate for year end and it will be refined as you point out but we did take our best shot we don’t think there is a bias one other point of that Steve what I think what you are referring to, we normally get our full engineering reappraisal on each year and it doesn’t come into our Q1 results at December 31st but the engineering work isn’t completed till after we release so that update where it typically gives where we get proven reserves coming up from our drilling activity another thing that occurred on the course of the year as well you have a new look at the price curves when that work is done.

So bottom line is we would expect typically ads from drilling in that report as well as true-ups for whatever we produced et cetera and then we would have a refine look at the prices..

Okay thanks for that.

And then for Don please I know you're still a couple of months away from investor day, it's clear these Q4 results are below plan as you’ve mentioned so I guess my question is given the current market conditions given rates what they've done in Q1 bouncing back a little in the USA but not so much in Canada as you sit here today does it feel like 2015 that there is a disproportionate risk that you get another couple or that we're looking at below plan for 2015 just like --.

My crystal ball isn’t that much - anybody on the call but I would say right now looking at it we have some headwinds but as I say non-instrumentable ones for 2015. I don’t see anything that would cause me a great concern about 2016 but again that's just a way it looks at this point in time.

And again there are things that we can do hopefully to overcome headwinds we have done it before but the important thing I guess that also emphasize is I have been asked many times about what keeps me awake at night what keeps you awake at night is not these oil prices that's for sure we see it as a terrific buying opportunity and more answer indicated that we're already doing that.

But where we go at 2016 and beyond we have the momentum that takes us through well beyond that time and that’s we're going to be talking to you about at investor and is frankly very exciting and we are not going to sacrifice anything important to that initiative in order to make a 2015 or 2016 goal I would rather disappoint you in the short-term and delight people in the long-term and when you ask me the question what keeps you awake at night I want this company to be prospering and relevant and right on top of the game at one of the major disruptors at 2016 and beyond..

Okay. Thanks Don..

Thank you. The next question is from Peter Routledge from National Bank Financial. Please go ahead..

Hi, thanks I want to ask you question about Asia. I am kind of curious about what is going on in the individual regions there.

We saw some softness in core earnings really until the last two quarters so, two questions that are related what was causing -- in what regions were you seeing softness was it Japan and Indonesia and then in what regions in the last two quarters have you seen better results..

Let me start off and say Bob may want to add to that. Japan and Hong Kong remained fundamentally important to our Asia core earnings results and Indonesia would be the third jurisdiction. So if you see a significant shift in Asian earnings it normally reflects some performance in Japan and Hong Kong.

Now Japan have very strong sales and we do typically recognize some new business gains in relation to Japan so Japan has been part of the story.

I think at the same time we have been successful in some of our -- let’s say not cost containment initiatives but making sure that our cost then continue to escalate at the same paces our sales have been and not started to pay dividend as well but maybe I'll pass to Bob and see if he has anything to add..

Well I guess I would just add two things just a reminder as we have done each of the last four quarters is ask you to adjust for currency cost in the sale of Taiwan and in fact if you do that each of the fourth quarters during the quarter had double-digit growth over the same year in the prior year so I guess I -- a little bit with your question in terms of softness in the first half of the year but in terms of your more general comment about are there particular areas of softness I guess I want to highlight was would be Indonesia it had some struggles on the sales side during most of the year and as we have said in a number of cases we need strong insurance sales in order to drive the bottom line results in Asia..

I understand Indonesia is a growth market so I leave that aside it's Japan that interest me. it seems like it's going we’ll it seems like it's still a core part of Manulife's enterprise strategy but I find myself asking why is it I mean it seems to be a country that's got some tail risk associated with it.

It seems to me it's a country that's caused exceptional earnings volatility from Manulife overall in the past why is it core to Manulife strategy if indeed it is?.

Well let me start again Bob may have some views or even Donald but we are very enthusiastic about Japan personally I think Japan is underrated it's a massive market it still has a huge amount of money sitting on the sidelines doing not very much sitting in people’s bank account for underneath there to timing that and there is a huge opportunity for people who can innovate and identify niches to plan.

So we are not really competing with Nippon Life and co in the mainstream we are much more I'd say a nimble player taking advantage of market opportunities and in fact there are some interesting changes taking places in Japan so for example the introduction of the Nippon investment savings account in the last couple of years.

You can start to see some quite interesting trends going on to Japan from which we can benefit. Because we can produce solution certain can't necessarily be produced by some of the big domestic players. So now we see Japan as a real opportunity and we’re very enthused about it..

Yeah, the only thing Peter is in terms of the back book, you’re quite right that the business gave us a lot of volatility. But two important things to note about that, number one the majority that has been hedged and you don’t see it knocking or financial statements around any significant degree.

Now the other thing is, we don’t get direct credit for hedging in the capital farming, so we’re holding huge amounts of capital backing our risk that use to be there.

And that will eventually be elaborated those are very short dated obligations that come do as the market improve and the fact they cash out in some portion to the business automatically. So is that comes due that is a huge generator of profit and capital back to the parent company.

So you’ve got two things happen some very lively developments in terms of Steve said niche plays in the business going forward and a very nice attractive return of capital from the business that’s enforced as it starts to go off, which is starting to happen now and we’ll continue for few years..

Since the highest point of run-off effect quarter?.

The Japan VA book is pretty much run off by 2019..

Okay..

Yeah, the peak might be 2017, 2018 is that about right I’m getting not here..

Okay. That’s interesting. Thank you..

Thank you. The next question is from Gabriel Dechaine from Canaccord Genuity. Please go ahead..

Good afternoon. Just on the policyholder experience buyback at all the investment related stuff and the macro related stuff. I guess a number of over a $100 million on policyholder experience and I'm just wondering if that number is right.

Can you break it down for me where were the major issues I can tell by geography, but I guess more of what was causing this and how much of it was more one-timeish or?.

Okay. Thanks Gabriel. I would say round numbers we’re talking about 50 million post tax North America, two-thirds of Canada, one-third United States.

In Canada, that would have been in relation to group business, the high cost of specialty drugs most of its repriceable in United States there was some adverse experience in long-term care claims, but emphasized to the year as a whole we're almost even on long-term care claims in the U.S., we had two quarters of positive experience, two of negative.

So based on our investigations today. There are no alarm bells ringing here and we’re taking the 50 as normal volatility if you like in policyholder experience. And then on the upside of the core in Asia was actually positive. But the 50 is the biggest component of the midst if you like against the street estimate on core earnings..

Okay. I'd probably go over the some of those numbers offline because -- and just on the investment that you’re making in oil and gas. I’m just kind of thinking on mechanics you've got $400 million loss most of that coming in the oil patch that’s the net number.

There would have been some yield enhancement, I’m assuming if you’re making investments in the oil patch currently.

Why wasn’t or did you not have being able to have some gains from those interactions?.

No. You have to break the loss down into two components. Our oil and gas portfolio consist of our direct holdings and our NAL oil and gas operations in Western Canada, which is predominately in Alberta and Saskatchewan and then in United States we have a number of interest in the limited partnerships and through fund holdings et cetera.

And so the mark and the portfolio is a combination of those two items. The mark is going in NAL oil and gas but I think was in the order of 200 million and there was a 380 million acquisition in the portfolio hence to grow in that NAL oil and gas portfolio. Scott, if you want to add anything to that..

Was there something more specific Gabriel..

No, I don’t. And then just to sneak on the expense guidance.

Based on the language you’re using it sounds like you’re making faster investments or realizing them sooner and finding more expense savings throughout the company I am just wondering why you weren't able to take the $400 million hire or is that something you anticipate over the long haul?.

Paul Rooney here Gabriel.

You are correct we are seeing a faster trajectory on our savings that's a combination of realizing some savings sooner as well as some of the cost that we estimated in building new systems and building out some of the technology things that we needed to do and it turned out to be too conservative so our cost side on these initiatives was down but just because we're realizing them sooner our trajectory it will get to the board we are still targeting the 400 million by 2016 so we are getting them sooner but we are still seeing endpoint target..

How much -- okay go ahead..

One thing I was going to add is I think we’ve said previously that we wanted the ENA product if you like to be a way of life so it doesn’t come to a grinding hold for the end of 2016 just the clarity.

So it will continue on and we continue to identify further project that we are investing into which will produce even more benefit beyond 2016 and maybe I'll give some clarity on that at investor day..

Was any of the 200 million that you achieve this year that go to the bottom line or was it already invested?.

Well, I'd say it went to the bottom line but on the other hand Donald started to talk about some of the growth initiatives that we've identified and so what we're able to do was come in virtually bang on plan because we were able to get the 200 million out and effectively invest into future growth strategies..

Thanks..

And you will see some of the specific projects and achievements and developments for the future at that investor day. I think you'd be impressed..

Thank you. The next question is from Sumit Malhotra from Scotia Capital. Please go ahead..

Thanks. Good afternoon. Just to stay on the expense topic for a minute so your disclosure is interesting that you exceeded the 300 million but the net was 200.

Don when you start your comments talking about not only the potential emerging threats but the opportunities to the company from let’s call it the shifting landscape and I think you are talking about technology and new competitors to some extent.

When we think about that 400 number in 2016 is it reasonable to think that a similar portion is going to get invested back into these new initiative so it shouldn’t necessarily be seen that we're going to get more of it on the bottom line than we did this year is that a fair way to think about it?.

Well, there are two things happening and number one we're being quite honest with everybody and transparent but we're getting more gains faster than we expected rational behavior is when you have that kind of outcome you want to invest more not less right because we can see these efficiencies emerging faster and more significantly than before to some degree that’s happening the other thing is happening is investments to look forward in the initiatives but you're hearing nobody here suggest that 2016 is in parallel because we aren't getting the expense we projected because we plan to spend it all on new initiatives, what we're going to do is maintain a very fine balancing act, it ensures that we're investing for the future and some things we think are going to be very exciting and but still meeting our goals.

And again that’s not a promise we'll get to the exact number in 2016 probably boringly repetitive on that thing if I am going to stop project in November because I think it’s going to cause to up by $35 million I should be fired by the board if I indulge in that kind of behavior and I would hope that they would do that.

But we don’t see a big problem here. We're getting gains faster than we expected and yes we are reinvesting significant portions because we are delighted with these gains plus we're investing in the future at a rate that has never been experienced by this company before..

Thank you for that.

And then back to Steve Roder just on the experience and the stickiness that this may have it sounds like the group benefits specially issue in Canada you think pricing can solve that problem in the near term just correct me wrong that you mentioned LTC you had some wins some losses this year so I don’t think that sounds concerning there is one more you mentioned the U.S.

was that loss?.

Yeah, Cindy is going to take that one..

Hi, it’s Cindy it was loss on US and that is one area that we will be looking at in our 2015 experience review..

Alright. So that of the three items it is fair to say that is the one that may have a little longer tail that we see in the future..

It may have although experience on that previous quarter-to-quarter as well but it will be something we look at and assess when we look at our assumptions this year..

Thanks for your time..

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

Hi, thank you. A question for Steve, I was wondering if you can give me a hand with the model in two spots in particular I am hoping to get something from you on the expected impact the standard life on expected profit and strain.

Can you give us an early eye ball on what that could look like?.

Darko I would like to help you but are not really in a position to update the previous guns we gave on Standard Life we completed the acquisition you know at the end of January and with full on into the integration aspect of that and getting under the information that we now have access that we didn’t have the full so I am afraid I don’t any particular update on that but will be in a position to give a lot more color on that at the end of Q1 and quickly at Investor Day..

Okay.

And then maybe just another question something that is topical is exposure to Alberta and what I am curious about is your mortgage book can you give us an idea what would look like in terms of exposure to Alberta loan to values and so on?.

Well I'll start off I think Scott will chime in.

To this point we've seen no signs that we have any issues in the mortgage booking relation to Alberta and the loan to value ratios are pretty much in line with the rest of the portfolio and in fact I think the last data I saw them were marginally better than the average for the Canadian market so overseas is coming we are watching very closely but so far we don’t have any alarms ringing in relation to Alberta I'll just see if Scott wants to add to that..

I think that pretty much summarize it, I guess just with this stress we have seen in the oil and gas we certainly have gone through the entire portfolio and for sure that's one area we looked at very closely Alberta and then down in Houston in the U.S.

and to Steve’s point we underwrite very conservatively we don’t -- could we have some deterioration in property values there a bit for sure we could but we think at the levels we've underwritten these two we don't expect any significant promise..

And Marianne why don’t you cover the bank..

Yeah, so from the bank perspective we have not seen any increases and delinquencies needless to say we're margining it very closely but we haven’t seen any issues at this point in time..

Yeah, Marianne I wouldn’t expect any issues yet.

But could you just tell us what the exposure is to Alberta?.

I don’t have that..

About 18% of their portfolio which I think is pretty I think don’t hold me to that number but that's what I heard earlier this week..

That sound representative. Okay. Thank you..

Thank you. The next question is from Robert Sedran from CIBC. Please go ahead..

Hi, good afternoon.

Just want to come back to Asia actually from the sales prospective they do seem to be lifting a little bit especially in the second-half of the year I was wondering if you can give a little bit color on what is working and then dramatically from a competitive prospective this is an area where you need to be more aggressive on price or product features to get those kind of sales results or it is more about locking in on the right product with the right distribution..

Okay. So let me start off and then Bob will probably have something more to add.

So I think we have to look at the individual markets differently so Japan is continuing to benefit from the new corporate products that we know last year there has been strong momentum from those launches that’s continued on through 2014 so that's being very healthy in Hong Kong we launched some new products and that gave us momentum into the second half and we had a very successfully campaign when it comes to the issue of product competitiveness and pricing et cetera those situations can arise but by and large because margins in Asia tend to continue to be pretty healthy, there is usually some latitude for us to take necessary pricing actions whilst maintaining our target returns so those will be my comments but I'll pass to Bob and see if he wants to add..

Yeah, I think as you implied in your question it's a combination of both product and distribution initiatives.

We had a number of successful new product launches in Japan but at the same time we expanded our independent channel into the retail markets, we rejuvenated our sales through the banks there, so it was a combination of both things in Hong Kong.

I think I told the number of people on the call that the big run-up and recruiting we had at the end of 2013 with lead to run-up in sales at the end of 2014 and that’s exactly what we saw. I guess my only additional comments on the margin aspect of your question is that? No, we have not trimmed margins to achieve those results.

But at the same time, I would highlight that there are a certain headwinds on our margins from declines in interest rates that we saw during the year and a variety of countries that we will have to keep an eye on in the future..

So the part of the answer that was around product launches kind of where I was coming from, because it seems like maybe there is the stain power of the new product launch doesn’t, they attend to once they start lapping some tougher quarter as a sales or the trail off.

So how and how important is that ongoing refresh of the product to shelf to getting these kind of sales going or do you feel like you have products that these kind of sales can continue for a while?.

Yeah, I guess again the answer varies kind of country-by-country where in a place like Japan, where we get less than a quarter of our sales from our controlled captive distribution system having a regular stream of new product introduction is an important part of keeping sales momentum going.

In contrast for that in a place like Hong Kong, we’re essentially 90% of our business comes from control distribution system, it’s less important there..

Thank you..

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

Good afternoon. Question perhaps for Donald and Steve. There have been plenty of quarters in the past were the core number has sort of taken a step back and you've reminded us that we shouldn’t expected to be up on a straight line. So when you look at this quarter, quarter-over-quarter to step back.

Do you think of this as a sort of a reset to a lower level that we build from or just another sort of anomalous quarter on a long stretch of improving core earnings overtime?.

Mario, it’s really the later, I mean we didn’t jump to that Steve done some analysis I mean you might want to refine my remarks. But experience gains or losses can be one or two types one that gives you positive concern that it’s a lingering thing that’s likely to be repeated or one it’s more or less a random walk.

And the most for this looks pretty much like a random walk, so it gives us no false if you ask me what the forecast is for the next quarter I’d say, breakeven on experience gains and the very same things that caused us a bit of a challenge in this quarter or quick go on the other directions.

Some of these have had almost reversing signs every quarter. And so you draw no inputs from that. So your sub position this is just a bit of noise, we would tell you, if we thought it was different.

The interest rate one is different, I mean interest rates drop a lot yes they’ve come back a little bit, but they’re still down and that kind of has an impact for the next year, I mean who know what’s going to happen in the following year, but some stage they start to go up again.

And but we’ve given up that when that’s going to occur and we've hedged to minimize the risk, but it still has some impact..

Okay. So let me just slip up over to a different type of question maybe for Warren The oil and gas exposure, I understand why it’s there, why Manulife owns this stuff, I mean I get it from a diversification perspective, but does it makes sense in an insurance company where investors are really looking for stability.

And I get it that this quarter there were some offsets on the interest rate side. But I mean they could easily be quarter where this goes the other way and there is nothing there to offset it.

So does this make sense in Manulife or any insurance company?.

Yes, we do it. Again I think Scott made the point earlier and I think it's a really important one. We’ve got a diversified mix of alternative long duration assets, they comprised around 9% of our total on balance sheet portfolio and they’re very diversified and this asset class is less than 1%.

And so yes, it is the most volatile asset class, but it also has been our strongest long-term we’ve been in the business for 25 years, so this isn't a flavor of the month thing, we’ve been doing this for a close to quarter century and over that timeframe it's been our strongest returning alternative asset class.

We tend to look at this type of time in the cycle is an opportunity to pick up some incremental reserves and we just think it's a very good diversifier in the context of our total book..

Mario Donald here we got to do you are asking a very fair reasonable question what I suggest we bring out at Investor Day Steve -- the list is the efficient front here thing I mean for other people on the call and Marianne you are quite familiar with this, we basically use a rasterized marker which frontier to look at different asset classes and one of the reasons that Manulife had so little damage in the financial prices having to do with fixed income when everybody else was writing down bond portfolios by billions and in some cases tenths of billions of dollars we didn’t have any of that why because we had a highly diversified portfolio that allow us to get a target return without experiencing the tail end of the spectrum, the risk end of the spectrum on fixed income which is a safer overall strategy right it actually has higher return and lower risk than sticking with fixed income alone.

So occasionally you got some bumps but this is not an unrecoverable bump and I want to be really open people were trying to back up the truck to buy more oil and gas we've been trying to buy it, the price was way too expensive, it was 125 spot price this might provide the opportunity and we're already executing on that plan.

There is a possibility just let me remind everybody get your Bloomberg screen to look for 30 year bonds and then look at 30 years bonds that you'd want to invest in that you're actually sure that businesses are going to be there in 30 years you are down to a very restricted universe I mean accepting that much you want to play structured and securitized products and I won’t go there.

So it's a very, very small universe when you'd ask me for the high degree concentration so what intelligent people do and what we do is not that much difference in what David Swinson does at university and what the guidance they can serve or CPTIB or any other [indiscernible] any other great institution that you admire is if you got long liabilities you invest long, and if you can’t buy long bonds and get adequate diversification you go to other things and this is not a passing phase for something that we discovered in the fourth quarter last year this is the thing that we have been doing year in and year out with a great deal of success...

Thank you..

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

Hi, good afternoon.

Just I guess this might be a question made for Scott and there was a comment made in the prepared remarks about how the flattening yield curve was a benefit I think it' the tail end of the curve kind of push down which goes kind of the way that I think about the sensitivity for Manulife brand insurance company with rates and so and I think there might be something and hopefully it's easy to explain or we can take it offline but it just want to kind of get a better sense of how Manulife benefited from the flattening of the yield curve?.

Sure, sure Doug it is Scott. Yeah, I think you can see our disclosures and our interest rate risk and you can see for risk free rates it's fairly low I think like a $100 million for 50 basis point drop but that's assuming all rates globally move in a parallel fashion so we're dealing with rates in Canada and the U.S.

and various markets in Asia and they're all moving differently and the shape of those curves is also moving and our primary goal is to hedge against the overall level of rates we don’t fine tune in a great detail to the shape of the curve and a lot of our hedges particularly in North America are stacked up at the long end of the curve which gives us a little bit of accounting exposure I would say to the shape of the curve where we're going to benefit from a flattening and we're going to lose a little bit to [indiscernible].

There was more on the hedging side where the benefits have come through because of where they basically stand on the curve..

Yes..

Okay, that’s okay.

And then maybe just big picture Donald there has been obviously -- can't go through a call without a question and acquisition, there's been discussions in Asia there is a lot of bank insurance deals that are kind of been floating out there they're not cheap just want to get a sense of you have done Standard Life on the acquisition front, your appetite would it be more on the distribution side would you be willing to take a big step in the bank insurance in Asia.

Maybe just a little color. Thanks..

Doug you got to send me the names, it sounds like the bank assurance deals in Asia I should know about. I am kidding. It doesn’t fall into I guess it's a pretty similar answer to what we usually give.

We sort of look where the greatest opportunity is around the world it doesn't have a geographic focus, we don’t have any big holes in the portfolio that we think we have to make up so we look at each deal on an opportunistic basis was it do for our shareholders at the margin and so we're looking at any point in time acquisition of blocks of business acquisitions that position us with better strategic advantage in the given market acquisition that give us distribution with quality partners that we respect and think and add value to so sometimes we lose sometimes we get and we don’t aim for track record of 90% success it’s quite candidly it's less than 50% success and I am quite happy with that because if you're getting 90% success you are overpaying systematically.

So there is -- its' all within the rubric of what we want to do strategically you're not going to find the word waking up buying a bank in Patagonia it's all what’s fit in the rubric and that’s why I wanted to talk to you a little bit about our three themes of our strategy that you should be surprised if you hear that we're buying in investor management operations somewhere in the world we don’t have insurance operations because we look at that as a global business.

So we have a very strong strategic rule breaker what we want to build if it's fit within that rubric it comes at the right price where we think we can pay a higher price and enhance it significantly which will give you a great return over the long term for our shareholders we aggressively go after it and we get less than 50% once we go after.

Does that help?.

Yeah, that’s help. That's fine. Thank you very much..

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

Yeah, thanks.

Good afternoon just going back to investment gain as I look at them there must have been 353 million of losses then you threw 50 of that into core and you called or 50 positive in the course therefore you had 403 in terms of non-core investment losses so of that 353 you told us 200 was from markdown on any of our resources what was the other 153 comprised off?.

So Tom its Scott you have the numbers right it was 350 million of losses and a little less than 300 million was our total oil and gas mark to market and then there was another 100 million of sort of secondary modeling effects due to that drop in market value so really the oil and gas really explains all of it or even a little more than all of it and then there were some other pluses and minuses it was a good credit quarter yet again we had some trading gains there were some other modeling impact but all of those minor really but really the story for the quarter was the market value change in the oil and gas..

Okay..

And just to clarify the oil and gas loss was two components the NAL was one piece and second piece that Scott spoke to was more related to the direct holdings in our limited partnerships in the US etc..

Okay thanks.

And then Steve I was wondering you took us through some of those policyholder experience losses I was just wondering is there another item that was mentioned timing of certain expenses that hurt the core earnings in the quarter can you elaborate on a little bit as to what those were?.

Yeah, for sure Tom. So I gave you the 50 number on post-tax on policyholder experience.

I'd probably give you a 25 number in terms of expense and there is a bit of timing bit of seasonality I think on our expense particularly in Asia where in the fourth quarter tends to be the strongest quarter that's particular the case in the Hong Kong and we tend to ramp up our branding spend in Q4 so there's definitely pick up in cost in Q4 so if you compare this Q4 against the Q4 the previous year expenses are pretty flat actually the other thing would be that all these various projects that we have been talking about an overall ahead of plan on realization of benefits and the ENA program but we do have a fairly chunky spend in Q4 on certain projects that are not going to be producing benefits until later in the program.

So I would say there is about 25 that you would probably say is what you'd expect to recur in Q1..

Okay, thanks. And then just a final question for Donald. I think in the press release you did talk about headwinds from interest rates, yet you made $533 million in fourth quarter and interest rates were down 30 basis points. And then if I look in the strain it didn’t seem to have any kind of material impact with respect to your strain.

So what are these headwinds that you talk about where are we going to see them and where would we see them and we certainly didn’t where they having in the quarter, because we did certainly have rates go down in the quarter?.

Well I guess, I’ll give a very simple man’s answer, because I’m a simple man not because the question isn’t. The gain in the quarter over curve because of the shape of the yield curve changes basically and while it’s down in general direction, it’s not down at all points and so on it whole bunch of other factors factor into that.

In terms of the headwinds, it also changes the pads and the timing of the release of gains which was something that would be affected in the next year and in some cases could cause strain of issue or product that we price in a slightly higher interest rate environment or a higher interest rate environment being sold in lower interest rate environment is you all know can throw up some strain.

So the sum total of that is the kind of thing we're talking about. But again it’s not a gigantic factor relative to things that we’ve seen hit or impact our financial statement.

And as you say when you compare it against the type of investment gains that we've regularly generate again something that could easily be overcome, but we just want to be very disclose and tell people at any time where we see a headwind and maybe it will disappear maybe it will be overcome by other things, but it is a headwind and you want us to be honest with you, so we’re going to talk about this headwind..

On impact I’m trying to quantify, because we did have raise down in the quarter, I’m trying to quantify how much it would have impact in the quarter’s core number?.

Yeah, last quarter..

Yeah, fourth quarter. I mean, I think we started with the 240, we were down over 30 basis points in the fourth quarter at least on a U.S.

10 year?.

Yeah, okay. Round number 15..

And where would that showed up in the strain or the PFADs or lower earnings in the surplus where these things were?.

It would be PFADs and it would be in earnings on surplus and a bit of strain those would be the three components..

And is that fair enough that I mean that’s not even a penny. Do we go and extrapolate that out using we're down twice that we go and double that thing and then run it on a quarterly basis.

Is that a fair enough or a rule of thumb that we should try to work with here?.

Well, I mean, we can’t predict what’s going to happen for interest rate for the next 12 months and this was particularly difficult quarter from a macro perspective. So, I don’t think I want to go there.

One other point I will point out by the way is the interest rate moments and now unrelated to currency and the headwind is interest rates there is a bit of tailwind on currency in terms of whether US dollar is gone since we put the plan together.

So as we sit here today and look at our plan, the headwind of interest rates is counter balanced somewhat by the currency tailwind..

Yeah.

And if we had the rates go the other way and forget about the currency but we expect a positive '15, if the rates had gone the other way in the quarter?.

By and large that will be the case yeah..

Okay, okay. Thanks for that..

Thank you. Your next question is from Dan Bergman from UBS. Please go ahead..

Hi, good afternoon. I was just hoping you can provide a little more color on what drove of the weakness in the long-term care business this quarter? And maybe just in general also any updated thoughts you had around how we should think about the overall health of that block given the decline we’ve seen in U.S.

interest rates in the past few quarters?.

Yeah, I mean this quarter if you look at the data compare with expectations we have pretty high frequency of claims in the quarter. Marginally high utilization, but as I say if you look at the quarters in the year sequentially, we’ve had kind of volatility from one quarter to the next, we’ve had two positive quarters and two negative quarters.

So we’ve also deal to the closure at the end as I said earlier now along bills brining at the moment.

But we obviously continue to look at closely and we’ll see how Q1 place out?.

Got you.

And maybe just in terms of interest rate, I mean is there any kind of near-term pressure due to that in the business or is that something that you just going to monitor on return?.

In respective long-term care?.

Yes..

Cindy, there is no particular pressure because of interest rate on long-term care. On a Canadian IFRS basis reserves are taking into account the current interest rate environment every quarter.

And so they take into account the change in rates and so I wouldn’t see any particular impact from interest rates on LTC versus any of our other blocks of business..

Great, thanks. And maybe just staying on the topic just in terms of your methodology for setting those long-term care assumptions and kind of reserves margins. Can you just remind me whether you include future rate increases that either, they haven’t been filed yet or haven’t been approved by regulators when you did that analysis.

I mean there is just any color on your methodology or thinking in that regard will be helpful? Thanks..

Sure. As we disclosed in 2013 financial statements when we discussed your basis changes. We do include future rate increases that we plan to file for and we last updated that in 2013 when we did our last review of assumptions.

What we disclosed that the time is that on the impact of including future premium increases in our reserves how to benefit of about 1 billion impact on earnings, so 1 billion post tax. We do, because on Canadian IFRS, we have to put provisions on every single assumption we make so we have provisions for how much of the rate increase will be approved.

So we do have them in our reserves, but on a conservative basis, we also take into account our expected timing of getting those increases and we’re conservative on that front to in line with the Canadian standards which require you to take to have margins on all of your assumptions..

And it’s probably worth saying the first time when we did the price increases and we would had the assumptions very substantially and in the event the past prove to be much more than was required. So we have that experience when we’re setting these assumptions..

Great. That’s very helpful. Thank you..

Thank you. The next question is from Sumit Malhotra from Scotia Capital. Please go ahead..

I have all answers guys. Thanks for the time..

Thank you..

Thank you..

There are no further questions registered at this time. I’d like to turn the meeting back over to Mr. Veloso..

Thank you, Operator. We will be available after the call, if there is any additional questions. Have a good afternoon everyone..

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