Robert Veloso - Investor Relations Donald Guloien - President and Chief Executive Officer Steve Roder - Senior Executive Vice President and Chief Financial Officer Marianne Harrison - President & Chief Executive Officer, Manulife Canada Roy Gori - President and Chief Executive Officer Steve Finch - Executive Vice President and Chief Actuary Kai Sotorp - President and Chief Executive Officer, Manulife Asset Management Rahim Hirji - Chief Risk Officer Craig Bromley - President Scott Hartz - Executive Vice President, General Account Investments.

Meny Grauman - Cormark Securities Linda Sun-Mattison - Bernstein Nick Stogdill - Credit Suisse Dominic Chan - BNP Paribas Gabriel Dechaine - National Bank Steve Theriault - Eight Capital Scott Russel - McQuery Securities Sumit Malhotra - Scotiabank Tom MacKinnon - BMO Capital Markets Mario Mendonca - TD Securities Paul Holden - CIBC Doug Young - Desjardins Captial Humphrey Lee - Dowling & Partners.

Please be advised that this conference call is being recorded. Good morning and welcome to the Manulife Financial First Quarter 2017 Financial Results Conference Call for Thursday, May 4, 2017. Your host for today will be Mr. Robert Veloso. Please go ahead, sir..

Thank you and good morning everyone. Welcome to Manulife's earnings conference call for the first quarter of 2017. Our earnings release, statistical package, and webcast slides for today's call as well as the 2016 embedded value report are available on the Investor Relations section of our website at manulife.com.

We will begin today's presentation with an overview of our first quarter by Donald Guloien, our Chief Executive Officer.

Following Donald's remarks Steve Roder, our Chief Financial Officer will present the first quarter financial results; and Marianne Harrison, General Manager of our Canadian Division will conclude today's executive remarks with an update on our Canadian operations. After the prepared remarks, we will move to a question and answer portion of our call.

We ask each participant adhere to a limit of one or two questions; if you have any additional questions please re-queue and we will do our best to respond to all questions. Before we start, please refer to Slide 2 for a caution on forward-looking statements and a note on the use of non-GAAP financial measures in this presentation.

Note that certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from what is stated. The slide also states where to find more information on these topics and the factors that could cause actual results to differ materially from those stated.

With that, I'd like to turn the call over to Donald Guloien, our Chief Executive Officer.

Donald?.

Thank you, Robert. Good morning everyone and thank you for joining us on our first morning time analysts call. We're now pleased to welcome caller from Europe and Asia to our quarterly conference to now more easily participate.

But I humbly apologize to those of you on the West Coast of North America for us having to disrupted your sleep schedule so vigorously.

I'm joined on the call by several members of our senior management team including Roy Gori, the current General Manager of Asia Division, and as you know, in March 29, we announced that Roy is going to becoming the President of Manulife effective June 5.

In this role, Roy will have responsibility for Manulife's global operating businesses including Asia, Canada, United States and investments. While many of you have had the opportunity to meet Roy already, he is very eager to continue and expand on that outreach when he moves here in June. So please join me in congratulating Roy on his new role.

Yesterday evening we announced our first quarter 2017 financial results. This was a very solid quarter for Manulife with core earnings of $1.1 billion and net income of $1.35 billion.

We are pleased with how our operations around the world performed and our key growth drivers, Asia and global wealth and asset management once again demonstrated excellent results. We generated strong top line growth in insurance sales and new business value in Asia and wealth and assets businesses we continue to generate positive net flows.

And our global assets under management and administration achieved a very important milestone exceeding $1 trillion for the first time in the company's history. I remember you told me the first $1 trillion is the toughest $1 trillion. Steve Roder will now review the highlights of our financial and operating results for the first quarter.

Following Steve's remarks, Marianne Harrison will provide an update on our Canadian business. We will then open the call to your questions. Thank you..

Thank you, Donald. Good morning everyone, good afternoon or good evening, depending where you're located. Let's start on slide 7 where we summarize our financial performance for the first quarter of 2017. We continue to generate solid results and most of our key performance indicators showed improvements during the quarter.

I'll discuss some of the key drivers of our performance in the next few slides. Turning to Slide 8, we continue to demonstrate solid progress on core earnings. Core earnings of $1.1 billion in the first quarter increased by $196 million or 22% compared to the prior year.

On a sequential basis excluding investment gains and the last tax item last quarter, core earnings were up 9%. These results were driven by strongly business and in force growth in Asia, growth in our wealth and asset management businesses, a reduction in equity hedging costs and core investment gains of $46 million versus none in the prior quarter.

These benefits were partially offset by the unfavorable impact of foreign currency rates. Policyholder expense this quarter was roughly in line with the prior year as improvements in the U.S. from the impact of the annual actuarial review were largely offset by unfavorable long-term disability experience in Canada.

Both our Asia and wealth and asset management businesses performed well. Our Asia business grew core earnings by 17% after factoring in currency and additional dynamic hedging. While core EBITDA margin in our wealth and asset management businesses grew 3.1 percentage points to 26.8%.

Turning to slide 9, we delivered over $1.3 billion of net income in the first quarter, primarily reflecting strong core and the favorable impact of markets. We reported gains related to the direct impact of markets of $267 million this quarter.

The gains were primarily due to favorable equity market returns in most geographies and also included a modest gain from a slight flattening of the yield curve, and in Japan from declining swap spreads. On slide 10 is our source of earnings.

Expected profit on inforce increased 10% from the prior year on a constant currency basis, primarily due to growth in our wealth and asset management businesses and in force growth in Asia. The impact of new business improved versus the prior quarter reflecting higher insurance sales across Asia and a favorable business mix in Japan and other Asia.

Experienced gains of $205 million were largely driven by the favorable impact of equity markets. We have unfavorable policyholders experience this quarter of $28 million pretax as experienced gains in the U.S. were more than offset by experienced losses in Canada.

[Indiscernible] on the surface in the quarter declined reflecting less favorable mark to market impacts of interest rates and higher financing costs following debt issued to opportunistically pre-finance the recently announced and potential future redemptions.

This quarter there was a $14 million benefit to earnings on surplus from the mark-to-market impact of interest rates. On slide 11 you can see that both net and gross flows in our wealth and asset management businesses continue to be strong, and we achieved our 29th consecutive quarter of positive net flows.

Net flows of $4.3 billion were driven by positive net flows across all three operating divisions and in each of our global segments; mutual funds, pensions, and institutional advisory. In the U.S. we achieved strong mutual fund and pension net flows partially reversing last quarter's net outflows.

In Asia we generated robust mutual fund net flows in Mainland China and pension net flows in Hong Kong. And in Canada we delivered solid mutual fund and institutional advisory net flows. Growth flows of $33 billion were up 21% from the prior year quarter. In the U.S.

we achieved record gross lows including strong mutual fund sales as a result of robust intermediary sales and model allocations, and strong pension sales in both the small and mid-case markets.

In Asia we delivered strong money market flows and benefited from new fund launches in Mainland China, as well as achieved record pension flows in Hong Kong, in part due to the Standard Chartered Distribution Partnership. And in Canada we delivered strong mutual fund sales and funded several large institutional advisory mandates.

Turning to slide 12, insurance sales. Insurance sales in the first quarter were up by $1.3 billion, up 39% versus the prior year. This reflects record sales in Asia with strong double digit growth in most markets, including a more than doubling of sales in Mainland China and strong growth in Japan.

Strong insurance sales in Canada driven by a large case group benefit sale and higher life insurance sales in the U.S. due to expanded distribution and the rising popularity of the vitality feature. This quarter we also completed the orderly wind down of our retail individual long-term care sales. On slide 13 is our new business value.

In the first quarter we delivered strong growth in new business value which increased 42% from a year ago to $394 million driven by continued APE sales growth, scale benefits, and a favorable business mix in Japan and other Asia. In Asia, new business value of $326 million increased 53% from a year ago.

Asia new business value margins were 34.7% in the first quarter, up 5.9 percentage points on a constant currency basis from the prior year aided by improved product mix and scale benefits.

Turning to slide 14; our assets under management and administration or AUMA at the end of the first quarter were a record $1 trillion up $101 billion or 9% from the prior year driven by investment returns and continued positive customer inflows.

Our wealth and asset management business is achieved AUMA of $565 billion up $77 billion or 14% from the previous year driven by similar factors. Yesterday, we released our 2016 embedded value report and on Slide 15, we illustrate the change in embedded badly for the company.

Contributions from new business and in force increased imbedded value organically by $2.9 billion in the year with new business accounting for a strong $1.2 billion; importantly new business value was up 22% on a constant currency basis from 2015.

The increase was offset by the impact of capital deployment, such as the payment of shareholder dividends and increased goodwill in intangibles from acquisitions and partnerships and currency which led to a decrease in imbedded value.

Importantly, embedded value of $46.5 billion or $23.53 to share reflects only a portion of the value of our businesses, as it attributes no value to our new business franchised and only tangible book value to our rapidly growing wealth and asset management businesses and Manulife Bank.

We've posted a presentation on our website, which provides some additional granularity on our embedded value and some Manulife specific takeaways.

So in conclusion, in the first quarter of 2017 Manulife delivered over $1.3 billion in net income, achieved core earnings of $1.1 billion up 22% from the prior year, generated solid top line growth of insurance sales overall and strong sales in Asia in particular, and continued to generate positive net flows in our wealth from asset management businesses and reach the $1 trillion AUMA milestone.

Turning to Slide 17. I want to remind you that we will be hosting our 2017 Investor Day from Wednesday June 21, to Thursday June 22, in Hong Kong and Ho Chi Minh City Vietnam.

Along with presentations from several our key executive, we will be enabling our investors to get a much better feel for our operations including both the agency and the bank assurance channel. I will now pass it on to Marianne Harrison, who would discuss our Canadian business in more debt..

Thank you, Steve, good morning and good evening everyone. The Canadian Division is a relatively big player in a small mature market, generating significant earnings for Manulife. In 2016 we generated close to $1.4 billion in core earnings and accounted for approximately one-third of the company's total core earnings.

Over the period between 2014 and 2016, Canadian divisions core earnings grew 22% annually. Filled by organic growth and the acquisition of Standard Life, excluding Standard Life quarter earnings increased by referee 12% annually.

Assets under management and administration in the Canadian division of $235 million accounted for 24% of the company's AUMA. We experienced strong growth driven primarily by the Standard Life acquisition but also the strong performance of our wealth and asset management businesses, which generated $17 billion in gross flows in 2016.

Our insurance sales remain strong and we continue to explore opportunities to innovate and optimize our retail and group offerings.

Our strategy has two lances; our purpose, which is to help people achieve their dreams and aspirations by putting customer's needs first, and providing the right advice and solutions and ensuring rigorous discipline around delivering value to our shareholders. Today, I will touch on four examples that highlight our strategy at work.

Turning to slide 20. Our mutual fund business remains a strong growth opportunity, it strengthens our customer centric product offering, is crucial to our advisor distribution channel and we have been delivering outstanding results.

We continue to strengthen our market position with AUM growing 23% annually since 2011 and net sales ranking improving from night [ph] to fourth and with this achievement we surpassed many of the big banks.

We have achieved a success by expanding our distribution network beyond traditional advisor channels into full service brokerage, and strengthening our fine line up as evidenced by significantly more four and five star Morning Star rated funds. In 2016 these top rated funds accounted for 61% of our mutual fund assets under management.

Turning to Slide 21. Our group retirement and group benefits businesses continue to advance our technology and product and service offering to capture growth opportunities in the marketplace.

We have generated significant growth in our group retirement gross with asset under management growing at 30% and 48% annually respectively since 2014, primarily driven by the Standard Life acquisition.

We continue to proactively meet customer needs and differentiate our offerings from our competitors, by enabling customer centric strategies so members maximize contributions, consolidate assets and ultimately convert from group plan members into long term customers.

By providing the right advice and personalized offering to help plan members better prepare for retirement and live financially healthy lives, and lastly, by making it easier for members to do business with us through digitization and automation.

Our ability to retain assets speaks volumes to the quality of the advice we offer today, we retain greater than 50% of assets when plan members leave their employer and achievement that leads the industry. Our group benefits business is a strong contributor to earnings, contributing 18% to the division's quarter earnings in 2016.

We continue to modernize, digitize and simplify the business to drive strong earnings into the future. The work underway will transform our technology platform to substantially enhance the customer experience for both our plan sponsors and their planned members. Slide 22.

Manulife Bank continues to play a key role in our Canadian strategy, where we are competing in market segment under served by big banks, by focusing on providing simple, easy to use products and services aligned to our customers best interest.

Our offerings are unique in that they optimize traditional banking products to better meet customer needs; for example our flagship product Manulife1 is now all in one account, that combines your mortgage and checking account, to help pay off your mortgage faster.

Over half of our business comes from financial advisors, who sell our other products as part of a broader holistic financial plans, with the remainder coming from other intermediaries and the direct channel.

Notably, the bank continues to maintain a strong liquidity and capital position by leveraging a well-diversified funding model, which includes significant deposits in everyday transaction accounts.

In Q1 2016, Manulife bank launch an expansion strategy in the mortgage broker channel which is helping us increase our penetration among the younger demographic, and first time homebuyers.

We also completed a sales force reorganization in 2016 to increase wholesaling activity, improve productivity, support mortgage brokers and better and gauge our advisor base. The bank uses a single core-banking platform, which allows us to get to market faster.

Success of several recent initiatives including ABM expansion, mobile banking, interact tap, Touch ID and remote deposit capture are examples of this.

Collectively, these initiatives will let us capture incremental revenue, growing deep in customer relationships and in cheap expense scale while improving customer satisfaction, and we are already delivering solid momentum. New loan volumes, grow 12% year-over-year in 2016 and grew 25% in Q1 2017 versus Q1 2016.

On Slide 23, you can see that in our insurance business our focus is to meet the needs of consumers through our innovative product offerings and by simplifying the process, our effort to modernize insurance with innovative solutions such as vitality, reward their customers for living healthy lives.

Our quick issue term product employs innovative, auto education technology allowing us to issue 18% of these policies in less than 24 hours resolving a significant pain point for our customers, this platform is now being extended to our other retail insurance products.

We have also developed advanced analytics capabilities to eliminate the need for people to meet with a nurse and provide fluids in certain circumstances, which has resulted in accelerated underwriting for some products.

Manulife were also the first insurer to underwrite and accept life insurance applications from individuals who tested positive for HIV. We seeded innovation and setting a strong foundation for profitable growth as we modernize our insurance business. Turning to Slide 24.

The Standard Life acquisition in 2015 has been a very good fit with our strategy to expand our wealth and asset management business, the transaction with five [20:00] total company Cory Eps in year one, excluding integration and transition costs, which exceeded our expectations for marginal accretion in the first year.

And while the integration of the business means we are no longer able to separate during the Standard Life, we have incorporated the expected financial contribution of the business into our medium term financial plan and have been achieving or exceeding our goals.

Our integration costs are forecasted to be 23% over our original target, as a result of higher than expected infrastructure migration cost and business conversion costs. However, we are seeing favorable results in other areas and collectively, we are exceeding the overall deal expectations.

Expense synergies on track to slightly exceed our original guidance of $100 million.

A key highlight is that our integration work hasn't compromised our ability to win new business, Group Retirement Solutions achieved record sales in 2015 and exceeded plan in 2016, and our retail mutual fund that sales increased to Number 4 in 2016 from Number 8 in 2014.

The Standard Life acquisition broaden the range of asset management products and solutions available to clients in Canada and around the world, and contributed $3.2 billion in new institutional advisory mandates in 2016, we view these results as strong indications of the strategic value of this acquisition. On Slide 25.

While the integration effort is not yet complete, the acquisition is delivering ongoing benefits such as a more robust investment selection that enhances our competitive position, a doubling in size of our pension investment platform providing a broader choice of funds for plans and their members, strengthening of our portfolio management expertise, particularly in multi asset capabilities and liability driven investing or LDI, an expansion of our distribution network, as we now have former Standard Life advisers selling Manulife retail product, which is making a significant contribution.

In 2016, these advisors contributed $400 million or 5% of total mutual fund gross flows and $200 million or 8% of segregated fund sales.

Broadening the relationship with customers we have acquired as part of the acquisition, will continue to drive future earnings and we're seeing this with the success of our member retention, which allows - which involves keeping assets when members leave group plans. In 2016, we retained an additional $500 million of assets over deal expectations.

Our dual lens focused on customer centricity and delivering shareholder value, will help us shape our strategy and guide the division to invest and grow our key businesses where the returns are strong, such as Manulife mutual funds, group retirement and Manulife bank.

It also focuses us on optimizing our business-modernizing customer and member experiences and improving profitability of our two largest businesses group benefits and individual insurance. Lastly, we are completing the successful integration of Standard Life, which is scheduled to wrap up this year. Thank you..

Thank you. [Operator Instructions] The first question is from Meny Grauman with Cormark Securities. Please go ahead..

Good morning. Want to ask about Manulife bank and just a few related questions, one just in terms of what you're seeing in terms of loan volumes or how to square the information you give us in terms of the very strong growth in new loan volume and then if I look you see net lending assets stop just 1% year-over-year.

So just wanted to understand the dynamics flow more in what's going on there and then a broader question, you might have heard there's a mortgage lender being shopped around in just wanted to gauge your interest in that, either in whole or in part, anything you can add on that would also be interesting, thanks..

Okay, I will let Marianne answer the first question and will go for the second..

Okay.

So in terms of the loan volumes, we've been seeing everything growth in the low volumes we've seen growth year-over-year of a 25% in our bank loan lending volumes, and a lot of this has to do with some of the restructuring work that we have done, as I menti1d we have restructured that the sales process and how we actually go about the business and that is really helped us from a lending perspective, and that is why you're seeing the growth, but it's been more recent that we've seen that growth in the lending volumes..

And with respect of the - the companies being shopped around we have a longstanding policy of not talking about emerging acquisitions in a forward looking basis for a lot of good reasons, but suffice to say that is that property is involved in an area of the mortgage business that we've had no aspiration to be in and I guess that's all I would say..

And then if I could just follow up again more broadly in terms of the mortgage market, the kind of growth that you're seeing now, some people would say maybe now is the wrong time to - to put - to put the foot on the pedal and be more aggressive, in terms of new loan volumes when you look at the banking environment and what do you see in it and what is your general view of the outlook for the bank..

I guess I would say that in terms of our banking portfolio our mortgages that we're putting on our books are prime mortgages, so we're feeling very comfortable in terms of the quality, and we have a very rigorous process that we go through in terms of our underwriting practices and making sure that we are taking on good credit as part of our book.

So I would say that we're feeling very comfortable in terms of the loans that we're taking on, we are very - have a lot of breath across Canada, so we are in all of the markets across Canada, not just in trying to in Vancouver as examples, where we're seeing extremely high housing prices in a lot of activity in those marketplaces.

So I would say that the breath of our portfolio is strong and in a lot of spots we're in in more rural areas, as well as sort of around the in the commuter type of communities.

So I think that the growth that we're seeing, although it may seem like a lot from 25% perspective we are - it is very good quality credit that we've been putting on and happy with that business..

Thank you..

Thank you, the next question is from Linda Sun-Mattison with Bernstein, please go ahead..

Good morning amendments, and thank you for giving me the chance to question. I have two questions first, is regarding your Asia growth both in the insurance and the One-Business.

I want to know the other Asia breakdown, I know you're trying to grow by 100% in Singapore and the rest of the other Asia, and on the One Business I noticed the net flow is very strong, I just kind of simple ratio net flow to growth flow is this kind of structural business or is it just the lumpy.

Sorry, and the second question is about [indiscernible] and I hope that's a simple question on your Slide 15, the other you have a negative CAD3 billion and negative impact on EV [ph] and that investment operating assumption change and investment operating experiences. So I'm just wondering whether you can break that down for me, thank you..

Hi Linda, Roy here. I will take the first question I'll hand over to Steve Finch to take the second.

I guess your observation around other Asia is absolutely right and that's been a focus for us, we've really tried hard to diversify our business, we've been historically very much I guess dependent on Japan and Hong Kong for our growth, and we've been deliberately focusing on growing other Asia or other Asian factors grown from country in just 30% to our sales of our sales to now contributing on the 40% of our sales.

And we grew IP by 43% in the first quarter.

We don't provide a breakout by market, but what I will say is that China as you highlight is a significant contributor for us, a lot of that has come from the scaling up of our agency business in China, and also improving the productivity of our agency force, bank assurance is also another big growth driver for us DBS [ph] in particular this is now we're moving into a second year with DBS [ph] we had a significant lift from me DBS contribution in 2016 and that growth momentum continue.

So with along with that and in the partnership that we have with DBS and therefore Singapore's growth is also very strong.

But we're also getting really strong growth from our other markets in the other Asia categories, Vietnam, Cambodia just two of the other big contributions, the Philippines also and many of our markets in other Asia are growing 30% plus, so very much a part of our deliberate strategy to diversify a franchise, other Asia contribution now is much more significant.

Bank assurance also contributing more significantly for us, again 15% of our sales two years ago came from bank and now more than 30%. So I guess that would be my summary thoughts on the other Asia piece, I will hand over to Steve, on the second question and if you got any follow ups..

So the question on the embedded value and the $3 billion item that you mentioned, there are a variety of items in there the largest pieces relate to really movements in market interest rates.

Such as in Hong Kong on the local basis declining interest rates, delays some of the future earnings on imbedded value, we also saw that some of the movements in interest rates reduced our [30:53] which emerge into the embedded value over time, causing a reduction in the reported imbedded value, in addition, there's fair value adjustments on some of our long term debt and preferred shares, so as you can see quite a bit of interest rate belated noise, in the operating piece, it's our annual update to annual assumptions in Q3 of last year goes through there, as well as the unallocated expenses and policyholder experience, those are the biggest drivers..

Can I just ask quick follow up question on the embedded value in terms of range, so of course this is movement from end of 2015 to end of 2016, because that year I think the overall the rate still kind of from year end to year still declined that's why - that's what the reference you made to declining rates in Hong Kong, is that correct..

That is correct..

Thank you..

Thank you, the next question in from Nick Stogdill with Credit Suisse, please go ahead..

Hi good morning, first a quick one for Marianne , could you just clarify what you mean by the under-served markets on Slide 22, in terms of the competition with the banks, are you referring more to the rural areas that you mention the commuter areas or demographic of the market..

It is a combination, it is part of the rural area and it is a little bit of the demographic, our product is very different than Manulife1 which is our flagship product, we call it an optimizer product, so it combines the mortgage with the checking account at the same time and a lot of people deposit their page directly into that, so it helps reduce the interest on the mortgage and pay off the mortgage much faster.

So I would say that in terms of meeting consumers need it is very different than the big banks in terms of the offering that we have, and that is really what I was referring to..

Thank you, and then just stop by the questions on the pickup in the margin it will fall off the management this quarter, I'm just hoping to get a little more floor on the drivers, I believe on the release side higher asset levels, but we seem to see similar asset growth for the last few quarters and obviously not a similar pickup in the margins, so that really had more to do with mix and is there any changes to the investment spend this quarter that had an impact, thank you..

This is Kai Sotorp, I will address you question, it is a combination of both asset levels were up, but we had a positive shift in business mix to higher margin product.

When you look at segment by segment on the retirement side we had successful expansion of the small to mid-case market in the U.S, that notably is a higher margin and a higher fee business as a pool, and globally in wealth and asset management we have to shift towards higher margin products. Unique specialized [33:43] products would be one example.

So it's a combination of the two..

Is that sustainable in your view or is it more of a one quarter phenomenon in terms of the mix this flows this quarter..

So quarter to quarter is going to be somewhat lumpy, because you're going to have mix changes based on client demand but the net - we've been investing in our business over the past 18 months in terms of infrastructure that's that has done some things to obscure the gains in terms of efficiency, and as those investments mature, we think that that scalability and the benefit is going to be sustainable, so there will be lumpiness, but overall we see it continued upward trend as a result of those investments coming into play.

Secondly in Asia, we spent a lot of attention on redoing the marketing and distribution engines in the region as we regionalize the wealth platform over the past year and a half, and those investments start to pay off as well..

Thank you..

Thank you, and the next question is from Dominic Chan with BNP Paribas..

Hi guys, I am Dominic Chan from BNP Paribas Hong Kong. First of all, congrats on the great set of first quarter results. I have two questions on your Asia Division. My first question, is of your strong 44% and [indiscernible] growth on the first quarter, how much of that grow first written by Manulife move.

Are there any other reasons for such a strong growth in Hong Kong, I understand that you have not been too active on Chinese sales, so I'm just wondering what drove the strong growth in Hong Kong is the first quarter. My second question is for Asia other that Hong Kong, Japan.

Could you elaborate more on more product or which countries drove such a large 6-percentage point increase. Thank you..

Thanks Dominic, Roy here.

The comment I would make on Hong Kong [ph] and your question on Move, we don't disclose any of our specific programs or products in terms of their contribution but I would say is what I would say that where we're really delighted with how Move has worked for us from a branding perspective it's been tremendous, but also from a business contribution perspective it's been very significant, and more than 12% of our sales now in Hong Kong have Move attached.

And then beyond the launch of moving Hong Kong we've expanded to the Philippines and China are aware now looking to roll out move more broadly.

So delighted with the Move program, it really does change the way we look at our business and we're creating a much closer tie between ourselves and the customer, such that we're actually engaging with them on a daily basis which is quite unusual for our industry as you know.

The other drivers of our Hong Kong business, had seen just a continued focus on agency, agency growth was very strong in Q1 and we've been again very focused on driving a more professional agency force and focused on the productivity, and the equipping of our agency force with new technology that's certainly been one big driving force for us.

But also we now have a much greater contribution in Hong Kong from bank insurance, bank insurance was a relatively small contribution for our business and with the DBS partnership now that's becoming a more significant contributor. So Hong Kong now has a much more balanced contribution from a variety of different sources.

The MPS [ph] business in Hong Kong, also has been a broad spot for us, we became the Number 1 scheme sponsor, and that was a huge milestone for us, we benefit obviously from Standard Chartered acquisition and the distribution agreement now, that we have with Standard Chartered contribution significant volumes for us in Q1, and we see big upside for that partnership ongoing, and we're also selling MPS through our DBS, which is - which is our other big partnership.

In terms of your other Asia question, I guess sort of I made some of the commentary in the early and go through the answering of the earlier question, but I guess I'd say that we really have been growing other Asia and China has been a big contributing force for us, Vietnam's been very significant.

We've got a very strong position in Vietnam, and a very large agency force there, but we also saw a new bank insurance agreements in Vietnam, so on commercial bank was a new partnership that came on board over a year ago, and that's been a huge driver of growth for us.

And Singapore obviously again not just through the DBS partnership but through the expansion of new channels, like the new independent financial planning channel, that we we've recently launched.

So good growth across most of the markets we operate in, and other Asia certainly been a big focus for us and we're getting contributions from many of the big markets there, and I would highlight I guess China, Singapore, Vietnam as larger contributors..

You had a question, you asked about the mainland Chinese visitors [ph] and I think it's fair to say that that has not been a major component for us in the quarter, it was far more moderated than some of our competitors have articulated, I think Roy, it was around 20%..

It was around 20% in fact down on where we were last year or again still a modest contributor for us, it - mainland China visitors is contribution only 4% of our total Asia sales. And in Hong Kong business is primarily focused on the domestic market, so that hasn't been a big contribution for us and that very intentional..

Let some of the people in Asia misunderstand our sales in mainland China [39:46] Chinese nationals are very, very strong so what is being discussed here is sales in Hong Kong from mainland Chinese visitors..

Okay, thank you very much..

Thank you. The next question is from Gabriel Dechaine with National Bank, please go ahead..

Good morning, first question is on-stream.

I know a lot changed in your business over the past few years what you're selling you don't sell any more, and the rates are higher and things about nature but the we are seeing on-stream repeat of a return of the positive driver of the earnings growth in the 116 million pretax this quarter, which is looking pretty topping in an Asian particular where it was very beneficial to your streamline.

I'm just wondering what part of the shifts may be unusual this quarter and what we could expect as more normalized level of stream going forward presumably it's going to remain positive..

It is Steve Finch, I'll take that question. Some of the drivers of that growth in the new business gains have been in Asia and to the points that Roy just raised around the sale success, that we've been achieving there.

The one thing I would point out that is footnoted in our statistical information package this quarter is that the new business gains are gross of our minority interest, and we - so that's particularly relevant for China, where we back out all the impacts of the minority interest through the other line.

So in terms of the economics to the company new business gain is not quite as high as indicated on the source of earnings, and that given the success we will - we'll be discussing the disclosures around this.

But in general the positive here is the really strong growth the gain in the scale in some of these other Asian markets, and those kind of drivers will continue, the only other caution I give, is that we do see new business gains on a quarterly basis can bounce around, so I tend to look at that - at the longer term trends as opposed to any one quarter..

So that numbers gross where is that - as net there less positive number somewhere else..

It does, it goes through the other line of that the source of earnings..

Okay, got you. Alright perfect.

Another question on the alternative duration of the portfolio so the investment gains are positive this quarter but were less positive that they would have been if not for some $150 million of losses in the older portfolio, could you break down which sub portfolios drove those losses, and we have a situation last year not just in oil and gas, but also in real estate in private equity, is there any particular trend that that's behind maybe some of the real estate losses, any other of the other portfolios as well.

I know when people see these experience losses and although you start thinking about the return assumption of and the earnings sensitivity that there would be to reducing those but assumption is pretty substantial. So maybe we could talk about that..

Sure, Gabriel it is Scott Hartz. Thank you for the question, as you know just to remind folks that when we talk about a loss there, it really means we didn't quite achieve our assumed returns there were not actual losses on the investments.

And it's a large portfolio that's mark to market and run through earnings each quarter, so there is certainly going to be volatility quarter-to-quarter and year-to-year and this this particular quarter we have - we talk about six different alternative categories real estate, private equity, infrastructure, timber agriculture and oil and gas and five of those six categories didn't quite achieve their assumed returns this quarter, private equity was the long bright spot that did.

And it was fairly evenly distributed across them, some of them were for reasons you'd see in the market, oil and gas prices were down a bit in the quarter which contributed to a loss there, in our agriculture business the first quarter is always a loss relative to assumed returns, because there's no really no harvesting in the first quarter, and then the others are just more variability in the marketplace.

So I wouldn't read too much into one quarter's results, on the other hand your question of can we achieve these long-term assumptions and they are a long term assumptions, and we do review them each year will be reviewing them in the third quarter again this year.

And but the lens really is can we achieve these over the long run and in the - in the short run any given quarter or any given year is not too meaningful.

I would say though we're in a lower rate environment than we were say 5 or 10 years ago, and in a lower rate environment it is the returns you would expect to be lower, but we do think through the cycle and through the long term these returns are achievable..

I guess that the real estate component they met with a lot of concern about the cap rates there and then some particular segments of the commercial real estate portfolio, like retail with shift in the consumer behavior and what the long term return are in the category, was there anything - are you making any changes in that portfolio at all..

We're diversifying it of - we've traditionally been in class A office space in the gateway cities, which is a very conservative sort of whole risk approach, in the last five years or so we've done a bit more in multi-family, which has been a good contributor as there's been a shift particularly in the U.S from single family home ownership into apartments.

So we've done some of that, we're expanding the Industrial a little bit, we really have no exposure to retail however and do not intend to. So that's sort of a composition..

Okay. Thank you..

Thank you, the market question from Steve Theriault with Eight Capital, please go ahead..

So just going to Wealth Asset Management Division for a couple of questions.

The margin was much higher this quarter, looks like I think it's over 300 basis points wider, it would ask questions in the past on that margin in the guidance has been positive, we haven't seen a move that big for quite a stretch of time, so maybe we could talk a bit about whether it was mix, whether was volume and the sustainability of the improve margins in the way business this quarter, please..

Yes, this is Kai Sotorp.

I think I partially answered the question in the previous - it's a combination of mix as a growth and productivity gains, so on the mix side we've had stronger flows in our mutual fund businesses across the board, Asia, Canada and U.S all had positive, the U.S returned to positive net new money from three quarters that were quite challenging prior.

Partly as a result of strong performance funds and also unique type of funds that we put into the market, we'll say the growth in terms of our retirement businesses across the board and we had very positive growth in segments that have a higher margin.

And the third, the product mix was in unique and specialized fund products that carry higher margin with them.

So it was a combination of those factors plus as I mentioned we have made a series of investments both in terms of infrastructure and in terms of distribution, which are now on the latter point begin to pay off well in Asia and on the former point are lumpy in terms of their investment cycle through - through the P&L.

And so there was a combination of factors in Q1 that drove this expansion, now we had previously indicated we expected also benefits of scale so further strong markets and overall strong investment performance where 76% of our strategies outperform the universe, were contributing factors those are the reasons..

Well, that sounds relative to - relatively sustainable if the results remain strong..

Yes, I would say I'll leave you draw a conclusion, I can do forward-looking but yes, we've diversified our business consistently over time, into higher quality business, we've invested to get stable distribution outcomes and more efficient processing outcomes..

Okay, thanks for that. And second question on Asia probably for Roy, lot of attention around other Asian Hong Kong, but I'm seeing Japan looks pretty solid this quarter, the best wealth quarter we've seen in some time and even on the insurance side, the insurance sales were quite solid as well.

So maybe just an update in terms of what's going on there sustainability, if it's new products, that would be helpful as well..

Thanks, with Japan been a big focus for us and it's been a focus for some on several fronts.

I guess firstly on distribution, we've really worked hard over the last 18 months to expand distribution, we've got an agency force, a captive agency force, we've got an independent Planet that we work with and now we have a much greater partnership with banks and some of the big banks in Japan.

Part A, of the answer to question is that we've expanded distribution quite significantly, and we've really worked hard to build some great diversification in terms of our acquisition channels, and that's been - that's been very fruitful and productive for us.

The second thing that we've done is we've had a much more deliberate focus around product and product profitability.

We've worked very hard to either eliminate or reprice products that were low returns and as a result that's really contributed to a significant margin lift and in fact last year that was despite some of the headwinds in Japan coming from interest rate reductions that were not insignificant.

So for us the other big factor is being you know just really repricing products The third aspect has been around new product launches and we've really expanded the suite of products we've got on the shelf to again create some diversification but also to capture some segments that perhaps we weren't looking at as thoroughly as we could have.

So those of those have been really strong contributions for us. You know we're an H player in Japan.

As far as we're concerned it's a very attractive market for the nations that where focused on but we have to be very disciplined with the pricing and exiting products that aren't as profitable as we need them to be is certainly a big part of our game plan and again last year we exited some whole life products that given each environment we're just not going to deliver the returns that we needed.

So I guess it would be a combination of those factors for Japan specifically..

Thanks for that..

Thank you. The next question is from Scott Russel with McQuery Securities. Please go ahead..

Hey, good morning. Can I pick up on the operating experience losses in 2016? So it's like 15 of the pack. I think most of that you said was investment related but I'm more interested in the operating side. You've made references to the scale benefits coming through in Asia which is clearly driving at the margin despite lower interest rates.

But when I look at the movement in the EV some pretty negative operating experience and substance charges coming through, now this isn't broken out by division so maybe that's the answer but we're looking at over 800 million during the year and 800 billion plus in losses in a prior year. So I'm not seeing any scale benefits coming through back book.

Be interested any thoughts and comments on the place..

Yes. So the operating experience on the embedded value, there's a few main components there. One which we've talked at length about on previous calls was the annual basis change, the annual review of assumptions.

So that's the biggest piece that's in there and the other items that go through there are the unallocated corporate expenses, the overall policyholder experience which was a charge in 2016 and you're right, that was not - that was more on heavily weighted to the US and a bit in Canada not in Asia.

And then the other - there was another relatively small item in there which I would say is a bit more noise it was some capital changes in China and the Philippines that impacted the cost of capital. Those are the biggest drivers..

If you would break that 823 million by division, can give us an idea of how each market is trending? I see that US is clearly negative but it doesn't sound like Asia is positive though..

Well I think that the positive results that we see on Asia are coming through where we see those come through our new business value which was highlighted the growth there.

We're seeing growth in our in force margins coming through regularly on a quarterly basis but some of the - as I highlighted some of these operating items were more related to North America and some of the unallocated expenses..

Okay. And then just while I've got that page open, the impact of acquisitions and distribution was just over a billion dollars last year; that seems like a relatively low number given I think you did more deal than there was also most of the DBS payment.

Are you able to reconcile that? I think in the previous year you had a reconciliation of consideration versus acquired EV. Maybe it's a bit technical for now but I'd be interested to understand that number..

Yes. Standard Chartered was the biggest piece of this year's number. And just for everyone, we don't reflect these impact of acquisitions; in our embedded value - the value of those transactions will come into our earnings overtime..

So if I could just pick on the --..

So just to make sure I understand that we need enough money to do Standard Chartered acquisition took over their mandatory provident fund. That will show up as bulk management earnings that are not in the embedded value calculation. So we don't take the present value of those correct..

Correct. Yes.

So if I look at the DBS payment, seem 1.6billion wouldn't have come with any EV of course because there's nothing tangible on day one, how does that reconcile on its own with the 1 billion Canadian dollars that impacted EV during the year?.

The DBS was prior year..

So that's in the 2.5 billion during calendar 15?.

Correct..

Okay. Thank you and thanks also the Asia friendly Tom at Nicole..

Thank you, Scott. Happy to accommodate..

Thank you. The next question is from Sumit Malhotra with Scotiabank. Please go ahead..

Thanks. Good morning. I wanted to start with Cal back in the wealth and asset segment and in talking about the improvement in margin how mix has helped. I just want to look at a couple of simple numbers here, you're AUMA in this segment is up 16% year-over-year. Obviously markets have been pretty good.

You are flows have been consistently positive but when I look at your revenue that's up a much less robust 4%. We've heard a lot about the pressure across the industry.

Is that the only issue at play or when you mentioned some of the asset mix that you've had; whether it's pension, whether its money market, is the mix also having a dampening impact on revenue keeping pace without say growth..

Yes. And this Kai Sotorp again. You're correct inferring this. There's is an effect from institutional business which has a lower of the in aggregate relative to the assets that have brought onboard. The positive aspect there is they have a stronger and longer persistence.

We also have had an expansion in overall core EBITDA quantum on the retirement side from a broad range of segments and the quantum is going to be lower in the higher end of the segment.

So you'll see a revenue mix shift on that side but net, the biggest probably single impact has been - there's been a shift towards fixed income content versus equities and so that's one area where you've seen a somewhat of a lag. And I hope that answers the question..

And I know you're giving me some of the mix issues. And I guess the way I'd ask it at least the way I'm calculating it here, the fee ratio; I'm talking about your asset base has been continually declining since you started disclosing this segment based on some of those answers in terms of mix and fix income shift.

In your view I think you're sitting around 90 basis points now.

Is it reasonable to expect that fee ratio to continue to trend lower?.

Well we think we have strong insulation around that for a couple reasons. We do expect some fee compression pressure for everyone in the industry. But we're benefiting from a highly diversified business in markets that are less subject in compression; Asia and Canada notable. We're for example the passive impact is much more curtailed.

We think fee compression in the retirement business is somewhat occurring and is in some part because as we're growing we're increasing the segment of exposure in the larger case market which by definition is subject to a lower fee base.

However again there our retirement businesses very nicely diversified and we're seeing strong growth in in areas like the MPF where we're not subject to a lot of fee compression. So overall I would say relative to the industry we should see much less impact on fee compression.

And the primary impact that you might see is simply business mix as things shift in and out of equity versus fixed income or balance products. I think we're not going to be insulated in its entirety. But we are going to be much more protected through diversification.

Secondly, on the expense side we have a tremendous benefit here in terms of the increasing scale as we start spreading the cost benefit of the investments we've been making in infrastructure across a larger base of assets. That has a positive counter impact..

Yes. I guess - Donald Guloien here. I want to jump in. What really matters is net margin and I think net margin in dollar terms and I think people sometimes get confused.

So if you move to a let's say institutional asset management that has much lower fees but basically zero marginal cost of production most of those fees flow to the bottom line and if there's big volume associated with those low fees that flows the bottom line very nicely.

So you're average fee could go down but the bottom line will grow as opposed to growing in another business where you have high fees but also high distribution expenses for instance which would be more like the retail mutual fund business.

What matters at the end of the day is not the average margin or the average revenue per dollar of asset it's how the bottom line is growing and that's happened - you know it's not necessarily as a result of this question but just a broader; people look at the average margin.

If we sell more of a lower margin business than a higher margin business, our bottom line will go up but the average will go down and it's still a good thing for shareholders.

So you know high end are people around the world are generating this business aren't in total control of where the demand goes but you can be very satisfied that in virtually every line of business except for I'm sure there's some tiny exception we are profitable on a unitized basis and the more we sell, the more we make..

And guys don't get me wrong. I'm asking about revenue but expense growth is zero and profit growth is 30%. So I think everybody is going to take the trade..

I just want to make sure everybody got that. That's great..

Let me let me wrap up with one for Steve Roder. And it's just when we look at them. Geography of core earnings, you're not one we usually ask about that much but your corporate segment loss says expanded pretty substantially this quarter.

Now I know; if I have this right I think a lot of the debt funding, the prefunding that you've been doing runs through that segment. So that's going to have an impact but when I look at the sequential move being something like $90 million whereas in terms of a loss it certainly seems like it's more than just debt issuance.

Can you help me understand what's going on there and whether there was something unusual that pushed that up this quarter?.

Thanks, Sumit. So first of all yes, you're absolutely correct. So the prefunding that we did in Q1, the debt issue we did to prefund a call that we've already made and are announced and potential future calls that would have driven out by our cost of debt in the quarter. And the other thing is saying Q4 we had some very beneficial tax items.

So that that flatted Q4 and so the sequential movement is exaggerated by that item as well..

So is this a number - sorry I know I said I'll wrap it up here. The tax rate and an overall core basis did seem to be a lot higher than we've seen since you started reporting this measure.

When you think about both the 21% tax rate and the one 66 as a loss in corporate, are those more sustainable numbers or do you think both are on the heavy side?.

So the tax, the overall effective tax rate this coloring core was as you as you pointed out a bit higher. The effective rate is a function of the just obviously of the distribution of earnings and where the earnings lie. And US earnings this quarter was particularly strong. So the US carries a high rate of tax.

Japan was also strong and that also carries a high rate of tax. And therefore - and it's probably worth pointing out that our Canadian tax rate has ticked up a bit and we think that that is more the sort of rate that we're likely to have to live with because of the level of permanent tax differences that we have in Canada has come off a little bit.

I would say that on our ongoing basis and it will vary from one quarter to another but on an ongoing basis you know we'd still regard - from a modeling purposes 20 is not a bad number but we will see fluctuation..

Thanks for time..

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

Yes. Thanks very much. Question maybe for Steve Finch and/or Craig Bromley. Just really looking at the US in the growth and the expected profit here; obviously you got drivers here of interest rates. Sort of unwind of that additional fees out on the long term care reserves, the income from the land business.

So maybe you can describe - we've got about 11% growth year-over-year in expected profit in the US and if you can get a little bit more color on what's been driving that and what we should be looking at? How that should continue going forward? That'd be great. Thanks..

Sure Tom. It's Steve. You had a number of the key factors. So last quarter we had highlighted that the increase in interest rates that we saw in North America would impact the earnings on in-force in Q1 of around 15 million post-tax and that's roughly what we saw..

For the US division, is that correct? For the U.S.

division; 15 million?.

For the total company but the US would be the disproportionate amount of that. And then the other factors as you mentioned, it's the unwind of our piece fads as we move overtime on some of the on balance sheet insurance businesses. Those are the biggest drivers. Then what we talked about before in the total company but we saw this in the US.

as well as the favorable results in the in the business..

And how should we be looking at that going forward? And if you can let us know what the impact was from the additional long term care users that you would have booked up. Does that give a bit more tailwind if you will for the fat on warrant for this business going forward? And how should we be looking at expected profits growth for the US..

Right. So it in terms of the update to actual rate assumptions last year the long term care changes that we made; we talked about an increase in ongoing run rate profit from the change of the assumptions was roughly 30 million Canadian post tax per quarter. Most of that shows up through the policyholder experience line.

In general, I probably stay away from guidance but you know we do see you know natural ongoing growth in the in the earnings on in-force both from the new business as well as the unwind of the margins that we've established..

And the additional fees you're getting from the growth in the land business there as well..

Correct. That's right..

Okay. Thanks for that..

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

Good morning. If we could go back to sales, sales and insurance sales particularly in Asia; this quarter and the last few quarters have been sort of reminiscent of what Manulife delivered pre-crisis. There were a number of quarters back then when Manulife would deliver huge numbers and not necessarily in Asia but just throughout the company.

In retrospect but fast forward eight years or so, some of those categories turned out to be sort of damaging to the company.

What will be helpful to understand from you is do any of these sales, particularly on the insurance side not so sensitive of above but any of these sales carry with them certain insurance risks, whether it's pulse or their behavior or macro risks that could lead to disappointment down the road? Or how do you satisfy yourself that that's not going to happen?.

Mario, that's a great question. It's a very fair question. And really, so we're going to have Rahim Hirji, our Chief Risk Officer answer it and if Roy wants to chime in..

Suffice to say we feel very good about the profile of the business but it's a perfect question to ask in my opinion. Mario, thank you for your question.

We've looked at our sales and to be honest we have a process where if our sales increase in any particular region we take a closer look to understand whether there's any behavior or assumption in there that we have missed.

And in Asia the sales growth largely is coming from distribution changes and what we're doing rather than products that are hot that are under price stored that we're concerned about. In general, we have moved towards having less guarantees across the globe as a result of our experience ten years ago.

And so generally we feel pretty good about the assumptions. In terms of Paul's Hilda behavior increasingly we were pricing but either close to the sort of most efficient behavior in terms of policy holders and what they would do from an insurance products and how they would actually be utilizing the products.

Lapse rates that we use in Asia reflect our North American experience even though we have not seen that in the past in in those Asian products. We think that as demographics change that we will see ultimately the same type of lapse experiences North America and so we reflect that in terms of our product pricing as well.

So overall we feel quite good about them..

I'll just add, I think Rahim's covered the point around the stringent process that we have in terms of product approval and pricing and that includes governance not just from the risk family but from controls and compliance and that's not just in Asia but is from the globe.

And we've also been also reinforcing the support functions in terms of staffing quite significantly. But as Rahim points out you know a big part about scale growth in Asia has been unlocking the channels that we have.

So we had even before the VS five exclusive bank partnerships in Asia that allowed us access to more than 12 million customers and our penetration of that customer vices actually very low. So it's really about activating those channels to deliver the growth that we had as our potential and as the ambition when we start off with those partnerships.

And then obviously driving greater productivity from our agency force is also key. So you just add those supplementary remarks to Rahim's comments..

Okay. So if I just take it to that the next sort of logical step. When I look at the required capital on page 32 of your supplement, and this is actually what drew my attention to it in the first place. I look at asset default and market risk and I also look at here interest rate risk.

The numbers are climbing, especially in the case of asset default and market risk. Those increases that we've seen from 11.5 billion to 13.5 billion over a year; that's a fairly big increase in enquired capitals especially you've put a 200% of TCSR and then.

Are those being driven by the sales we're seeing in Asia insurance or wealth or is that - what would account for that then?.

Hi Mario, it's Steve Finch here. A lot of the increase that we're seeing there is related to our existing book in North America. The growth in Asia would have a contribution to that but it would be relatively smaller than the existing business in North America..

So what is it about North America then that's driving it?.

On some of our longer term businesses on the insurance business and a long term care business, the reserves are growing. We're still in a position of receiving more premiums and the claims will be in the future.

So their reserves are growing and then the factors under the capital formula are reflecting that and we're seeing the increase in the required capital..

So that business that you described Mario, written part of the crisis is still requires more capital every year and will for some time before it starts to level off and then then decline. That's the [inaudible] effect. So you know you can a situation where a particular economy is facing some headwinds.

So in fact we saw two or three years ago the Vietnamese economy was not in a good place. There were problems in the credit markets and it was pretty more than there and that time Indonesia was growing very strongly and now the Indonesian economy has been problematic for everybody but Vietnam is back on track and growing very strongly.

So I think that's also good. It means that we have more of an ability to withstand the phenomenon that you articulated..

Think you..

Thank you. The next question is from Paul Holden with CIBC. Please go ahead..

Thank you. So first question is regarding the Canadian division and the negative experience in long term disability and it's not the first time we've heard negative experience in that line of business. And that's not just for Manulife but goes across your peers as well.

So I guess the question is, is this just a structurally challenge business or do you feel there are some remedial actions you can take to improve the profit profile and maybe most importantly maybe even to smooth out experience in the future?.

So I guess I'll start by saying it's Marianne here that in terms of the experience we've actually had several quarters of a good experience on the LTG side. So this is somewhat of a blip in terms of our experience and it is something that you can't necessarily predict.

We did see an uptake in incidence in the month of March which caused that that blip that we have. But just as an FYI, we do have the ability to reprice this business as well when it comes up for renewal and it's renewable on an annual basis.

So there is actions that we can take from a pricing perspective and of course you can continue to look at the claims management side of it and we do that on an ongoing basis and update sort of the actions that we take on a claims perspective. But the ability to reprice is pretty key for us and we can do that on a pre-regular basis..

And the annual repricing is sort of the typical Jan one?.

No. It's all over. It depends on when they renew it. So it depends on when the client came on..

Understand..

There is more so at the Jan one timeframe but they can be throughout the year.

Understand. Okay. And then second question is there was a change to your hedging policy on interest rates particularly. So just wondering what the potential tradeoff is there.

So I'm assuming the prior structure with in place for particular reasons and now you've decided to change it for particular reasons and there must be some tradeoffs maybe in terms of how it impacts the core if at all and then maybe how it impact the headline number if at all..

Yes. Hi. It's Kai Sotorp. I'll address that. You know there are really two changes we made in the quarter and not big changes where kind of we're always managing that interest rate risk profile on our hedging because it's impossible to get it nailed down completely. You're always going to see quarter-to-quarter variability in our results there.

But overtime we will fine and try to try to reduce that variability. So the two changes we made this quarter; were as I said sort of ongoing changes one, we repositioned some of them a swap book in the US to better match us from an accounting perspective to yield curve changes we saw in the fourth quarter.

A good loss from steepening yield curve and it was a very extreme steepening move which we wouldn't expect to happen very often. But regardless, we did reposition the swap book a bit and I don't believe there's really any ongoing ramifications of that but all we've see Finch to add if he'd like.

And the other change we made is has been a continuation of trying to move ourselves away from swap spread risk. Just as a reminder of how that works; we have to in our reserves make assumptions what we're going to are earn on investments we make for premiums coming in in the future and we largely assume we're going to invest in corporate bonds.

So as corporate bond rates move around that a kind of effect our reserves and our earnings and so as you know we have exposure to corporate spreads which are very hard to hedge but the underlying risk free rate we do try to hedge and we've been doing that with swaps.

But swaps come with a swap spread associated with it and that's not a match to our liability. So in the US we've been trying to roll those hedges more into US Treasury based hedges. We've been doing that for some time and we did more of that and so our exposure to US swaps spreads has been mitigated very significantly.

We still have swaps rates exposure more in Canada and even more so in Japan. And so I think - you know in this quarter we had swap spreads widen in the US and it did not hurt us that much whereas swap spread's actually narrowed in Japan which helps. So we've really being trying to reduce our exposure to swap spreads.

But again that has no sort of ongoing income implications. In fact frankly in the US swap spreads are negative, so moving to treasuries provides a little bit of ongoing extra income. But it's fairly small..

Well the other thing that I would add is that some of the changes that we made in terms of how their swap was position in the US has increased to our parallel sensitivities but we think overall our sensitivity to all shapes of field have actually come down as a result of the changes.

Okay.

So it sounds like from these changes you're saying no expected impact to hedging cost and reduction and volatility so kind of a win-win, is that fair?.

Yes. I think that's right. Yes..

Okay..

Less opportunity for gains from that source of the future but that's all part of less volatility. Yes..

Understood. Okay. Thank you..

Thank you. The next question in from Doug Young with Desjardins Captial. Please go ahead..

Hi. Good morning. Just on the US insurance division, it lost money a lot, 21 million and it's been bouncing around from quarter-to-quarter and this quarter had strong policy holder experienced gains on the long term care insurance. So I'm just curious as to what were some of the drivers. I guess it's the legacy book. Just trying to flush that out..

Hi, Doug, it's Steve Finch. You said the US division - I might have misunderstood. Did you say the US division had a loss? I can handle your question….

The US insurance division..

We'll have a look at that but I'll answer your question on policy holder behavior first. You're asking about what we saw in long term care this quarter. So in the quarter in long term care and I would back up to when we did our assumption review in Q3 of last year.

For the first couple of quarters after we made that change we saw experience that in aggregate for long term care was about neutral and then in Q1 we saw a gain in long term care.

It was a few factors; we saw we saw actually increased deaths across all of our businesses in the US and that impacted long term care in a positive way in terms of financial results with higher claims terminations.

We saw higher incidence rates which are partially offset that and we also saw policyholders taking reductions in benefits as enforced premium rates came through and all in all a result in again for long term care in the quarter. Steve you want to....

I think the number you're referring to is net and so some of that is non-core as well flowed but that's probably why there's a bit of people looking a bit puzzled by the question but it's the net number..

Okay. So was the negative policy holder experience in the US division - obviously there is positive in long term care insurance.

Was there any noise on policy holder experience elsewhere in the insurance book in the US?.

Yes. We - the higher deaths that I mentioned impacted all the businesses. So it resulted in a gain in annuities but it resulted in a losses in life insurance claims. So that's where we saw some ongoing losses.

And as Steve Roder jogged my memory; it's - you know we see some of the investment gains come through differently in different lines of business but we really manage it at the total company level. So that was the comment that Steve Roder made..

Okay. I just I think picked up the wrong number. Okay.

So and then just Marianne, just quick question on Canada; you back out the group long term disability negative experience, with core earnings have grown?.

Yes. It would have been up. Yes, it would have..

Okay. Great, thank you very much..

Thank you. The next question is from Humphrey Lee with Dowling & Partners. Please go ahead..

Good morning. And thank you for taking my question. Just a follow up to Mario's question earlier; so when we think about the Asia sales, definitely is a very strong and good number.

But if we were to think about the mix of business in terms of whether it's purely on the writing or pure fee base versus those who have some type of guarantees all that supported. How would you characterize the mix of those sales..

I guess in terms of mix what I'd say is that you know we're reasonably diversified on the product front. And again I'd say that's a blend across mere protection as well as you know savings and wealth. And again we've been much more focused on looking for regular premiums as opposed to single premium.

Again more than 80% of our business is regular premium. So I get said at a high level I'd sort of just share with you that very even mix across the various product categories meaning the various needs of our customers and a much stronger focus on protection but also on regular premium business. I'm not sure if Rahim or Steve want to add anything..

I think also you can see from the embedded value report; you can see the growth in the new business value and the margin. So we've always made the point about the focus. I think it's been a just a huge focus over the last two or three years particularly on improving margins and that's come about.

So we're seeing new business value increasing as a result of volume and margin. And as to the earlier point Rahim made around the products, we're very happy with the nature of the products we're selling. So this isn't a case of us you know selling large quantities of product that we shouldn't be selling as it were..

I just add that our margin whilst - it's improved quite significantly over the last couple of years, still actually lag some of the leading competitors in Asia and that's a function of some of the product mix changes that we just referenced. But it's also the scale question.

You know again we're very much been dependent on Japan and Hong Kong and obviously in the other markets the benefits of scale really come through on margin and we're now starting to see the contribution on margin and therefore MBV coming through those other geographies. DBS is certainly helping with that.

DBS was a significant addition of scale in volume for us. In a market like Singapore for example where you know we basically had you know something like 4-5% market share and now we've got about 20% share of new business and in some channels we're number one. Overall we're number two in Singapore.

And then the other benefits that we gain from DBS across markets like China, Hong Kong, Indonesia are also very significant. So that's also provided a big scale play for us and the scale play obviously means that your expense advantages really effectively dropped to the bottom line and provide for significant margin uplift..

Yes. Thank you for the color. And then maybe shifting gear to US. So in the WAM the both patient business and mutual funds business seems to be pretty strong and driving the net inflows into US for the quarter.

Can you kind of talk about like some of the moving parts and what is driving the net inflows in a quarter and kind of what are you seeing in the marketplace for the product as you offer in the US?.

Sure. I'll start off and Kai can jump in if needed. It's Craig Bromley. Thank you. I guess - and it is a bit complex. There's a lot of different parts as to what is driving net flows.

We've had great success with their fixed income products particularly those manufactured by our affiliate in WAM and that has been a big driver of the turnaround in the net flows within our mutual fund business.

The pension business is strong across the board and I think you know are a big part of that is the actually the actions that we've taken in anticipation of the Department of Labor, the kind of transparency that we offer to our clients is very attractive right now as some of our competitors are still scrambling to line themselves up in compliance with new regulation.

Where whether it comes or not is still to be seen but you know clearly clients are looking for the type of services that we offer deal well or no deal well. And we've seen you know strong flows across the board from our small case all the way to our large case. As Kai mentioned you know it's very important for us to manage the mix of business.

So if we were seeing all of our growth on the large case size we would have some concerns about margin. But we see very balanced growth across the book. So our margins will remain strong. So those are really I think the major components and as of now we don't see any reason why that would change going forward..

And then just a housekeeping item; so I noticed that you shift some of the institution advisory account business from corporate to each segment.

Did it have any impact in terms of the from earnings perspective in the current core quarter especially in the US?.

No. Nothing material, no..

Okay. Got it. Thank you..

Thank you. [Operator Instruction] The next question is a follow up question from Linda Sun-Mattison with Bernstein. Please go ahead..

Hi. Thank you. I just want to ask the new license you get - you've just got from China before pouring the investment company.

What impact on your one business as you mainly a one business license? And are you essentially taking money from Spanish retail consumers to invest outside or are we talking about pure China positive investment for the Chinese consumers. Thank you..

So this is Kai. And I will go first and then Roy can amplify. It is a multi-line license. It's quite unique in that respect and it will actually allow us to bring a broader range of capabilities to market. We have a very successful joint venture with them kind of; the joint ventures focused on domestic products.

So the roof we will be the platform for bringing in global competencies both across private markets and public markets capabilities. Our initial primary focus will frankly be the institutional investor base.

The mid-size to small insurance companies for example who cannot access global markets that easily on their own but ultimately overtime we should be able to leverage that into minor distribution. When we do so it will be after you know close partnership discussions with our with our entire colleagues in terms of the existing platform that we have.

Overtime that license actually gives us much broader capabilities to even then include domestic capabilities evolution leveraging our global competencies and we think in particularly in the private alternative space there'll be a lot of appetite and opportunity for that..

Yes. Look, I'll just add a couple comments. I think Kai covered it quite well but I would say that we're very proud of the fact that we're the first financial institution to receive the investment company WFOE licensing in China that's a huge milestone for us and really complements.

The history that we have in China and also the partnerships that we have there. We got a strong partnership became tighter on the wealth and asset management side and with sign came on insurance side. It wasn't long ago that we were the first insurance company to get a license to sell mutual funds to the Asian people.

So this is a complementary add to our capability there. We think that there's tremendous opportunity with China.

as Kai pointed out the first protocol or focus for us will be on bringing our international capability to basically the institutional segment in China but this is a complementary capability that we think is going to really allow us to capture what is a very attractive market and a growing market..

And we know China has huge problem in terms of Cap control, the government regulators are not encouraging money outflow.

So I'm just wondering you know if I look at two year timeframe would these license give you the additional fund flow realistically?.

Yes. So we're going to answer that in two ways. One is you know through our own quarter applications. That's part and parcel of the next step we're taking. But there's also a number of established pools of money that are sitting in Hong Kong.

And so we can leverage our Hong Kong platform and partner up there with Chinese institutions that have already been able to allocate funds outside and that are now going to reallocate those among asset classes. So we expect to see benefit from both those aspects; our own quarter license application and leveraging existing allocations out there..

Thank you very much..

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

Thank you, operator. We'll be around after the call if there is any follow-up questions. Have a good morning everyone, take care. Operator The conference has now ended. We request you please disconnect your lines at this time. We thank you for your participation..