Executive Summary / Key Takeaways

• Manulife Financial Corporation is executing a robust strategy focused on high-growth businesses in Asia and Global Wealth and Asset Management (Global WAM), complemented by a significant de-risking of its legacy portfolio and a strong commitment to digital and AI innovation.
• The recent acquisition of Comvest Credit Partners for US$937.5 million strategically scales Global WAM's private credit capabilities, a high-demand market expected to double in the next 4-5 years, and is projected to be immediately accretive to core EPS, core ROE, and core EBITDA margin.
• The company delivered strong financial performance in Q2 2025, with all insurance segments showing over 30% growth in new business Contractual Service Margin (CSM) and Global WAM achieving nearly $1 billion in positive net flows, despite short-term headwinds from elevated U.S. mortality and Expected Credit Loss (ECL) provisions.
• Manulife maintains a robust balance sheet, evidenced by a 136% LICAT ratio and a 23.6% leverage ratio, supporting its capital deployment strategy which includes a 10% dividend increase and a new share buyback program targeting up to 3% of outstanding common shares.
• Technological differentiation, particularly in AI, is a core competitive advantage, with 27 generative AI use cases launched by end-2024 generating over $600 million in benefits, significantly enhancing customer experience and operational efficiency.

Manulife's Enduring Transformation and Global Footprint

Manulife Financial Corporation (MFC) stands as a leading international financial services provider, operating across Canada, Asia, and Europe as Manulife, and primarily as John Hancock in the United States. Its core business encompasses a diverse portfolio of insurance and wealth and asset management products, strategically organized into four primary reporting segments: Asia, Canada, U.S., and Global Wealth and Asset Management (Global WAM). The company's journey has been marked by a significant transformation agenda initiated in 2017, aiming to enhance returns, mitigate risk, and sharpen its focus on customer-centric digital solutions. This strategic pivot has laid a solid foundation for its current trajectory, positioning it for sustainable growth in a dynamic global landscape.

The company's historical evolution, from the incorporation of The Manufacturers Life Insurance Company (MLI) in 1887 to the establishment of MFC as its holding company in 1999 following demutualization, underscores a long-standing presence in the financial sector. This deep history provides a resilient base from which Manulife has strategically responded to evolving market dynamics. The transformation efforts since 2017 have been instrumental in reshaping its business profile, notably improving customer satisfaction, with the Net Promoter Score (NPS) climbing from negative-2 in 2017 to positive-57 by Q1 2025. This focus on customer experience, coupled with a disciplined approach to de-risking its legacy portfolios through various reinsurance transactions, has been central to its strategic narrative.

Manulife operates within an industry shaped by several broad trends. In Asia, the burgeoning middle class, significant protection gaps, and aging populations continue to drive demand for insurance and wealth solutions. Globally, there is a growing demand for private credit products, reflecting investors' search for diversified and higher-yielding assets. Furthermore, the rapid advancement of artificial intelligence (AI) is fundamentally altering operational efficiency and customer engagement across the financial services sector. Manulife's strategy is designed to capitalize on these macro trends, leveraging its diversified geographic footprint and business mix to drive growth and enhance resilience.

Technological Differentiation and Innovation

Manulife's digital ambition and market-leading AI capabilities represent a core differentiator and a significant competitive moat. The company has made tremendous progress in reimagining customer interactions and embedding AI across its businesses, contributing to both growth and increased productivity. By the end of 2024, Manulife had launched 27 generative AI use cases into production, with an additional 32 in development. These initiatives generated over $600 million in benefits globally in 2024, more than 3.5 times the level achieved in 2023. This demonstrates a tangible and quantifiable impact on its operational efficiency.

Specific examples of this technological edge include the Singapore GenAI sales tool, which achieved a successful pilot result of over 5% higher repurchase rates and has since been expanded to all agents in Singapore. Additionally, AI-powered core summarization and contract look-up tools have been extended to 15% of North American contact center agents, resulting in a 12% reduction in average handle time. These advancements are not merely incremental improvements; they are foundational to Manulife's strategy, enhancing its competitive position by streamlining customer service, improving sales effectiveness, and driving cost efficiencies. The company's recognition as the #1 life insurance company for AI maturity by Evident by June 23, 2025, further validates its leadership in this critical area.

For investors, this technological roadmap translates into a stronger competitive moat, improved financial performance through lower operating costs and higher sales conversion, and a more agile market positioning. The continuous investment in digital capabilities, including an additional $1 billion between 2023 and 2025, underscores a long-term commitment to leveraging technology for sustainable growth and enhanced shareholder value.

Competitive Landscape and Positioning

Manulife operates in a highly competitive financial services industry, contending with diversified players such as Sun Life Financial (SLF), Great-West Lifeco (GWO), Prudential Financial (PRU), and MetLife (MET). Manulife's competitive standing is primarily anchored in its global diversification, strong brand, and extensive distribution channels.

Compared to its Canadian peers like Sun Life Financial, Manulife's offerings in wealth management and insurance are comprehensive. While Sun Life may exhibit greater efficiency in digital platforms, Manulife's strategic emphasis on a broad global footprint, particularly in Asia, provides a unique value proposition through integrated financial solutions. Manulife's efficiency ratio of 44.8% in 2024, meeting its medium-term target, demonstrates solid operational execution, comparable to or better than some rivals. However, Manulife might lag in innovation speed compared to more agile competitors, potentially affecting its ability to capture market share in rapidly evolving digital segments.

Against Great-West Lifeco, which has a focused approach on group benefits and retirement solutions, Manulife differentiates itself through its broader wealth management integration. While Great-West Lifeco might achieve greater efficiency in niche products, Manulife's global scale and diversified revenue streams, including its corporate segment, provide strategic adaptability and resilience.

In the U.S. and Asia, Manulife competes with global giants like Prudential Financial and MetLife. Manulife's differentiated new business proposition in the U.S., particularly through its 10-year partnership with Vitality, helps it stand out. While Prudential may showcase greater innovation in certain product areas like advanced retirement tools, Manulife's strong capital generation and remittances from its U.S. operations play a crucial role in its overall financial health. Manulife's focus on integrating insurance with asset advisory services offers a more holistic customer experience, contrasting with MetLife's emphasis on protection products and pensions. Manulife's scale distribution globally and strong presence in Asia, particularly with the Comvest acquisition, create meaningful upside for its private markets business, especially given Comvest's historical focus on North America.

The company's competitive advantages, such as its strong global brand and extensive distribution networks, foster customer loyalty and enable broader market access. These moats help Manulife counter challenges from competitors by enhancing its differentiation in integrated services and increasing market share in loyal customer segments. However, vulnerabilities like exposure to market volatility and potential operational inefficiencies in certain areas could impact revenue stability and profitability, necessitating continuous investment in technology and process optimization to maintain its competitive edge.

Driving Growth: Asia and Global Wealth & Asset Management

Manulife's strategic focus on its high-potential Asia and Global WAM segments is a cornerstone of its growth narrative. These segments contributed 70% of the company's record core earnings in 2024, a 16 percentage point increase over seven years.

The Asia segment continues to be a powerhouse, demonstrating robust growth across all new business metrics. In Q2 2025, APE sales increased 31% from the prior year, new business CSM grew 34%, and new business value rose 28%. This momentum is broad-based, with strong contributions from Hong Kong, Mainland China, and Singapore. The demand is fueled by savings solutions for retirement and generational wealth transfer, complemented by new critical illness protection products. While sales growth rates may normalize after exceptionally strong periods in 2024, management anticipates a mid-teens sustainable growth rate for core earnings in Asia, with earnings expected to remain stable and growing due to the benefits of IFRS-17 accounting. The normalization of Vietnam persistency headwinds by Q3 2024 further supports this stable outlook.

The Global Wealth and Asset Management (Global WAM) segment has also been a consistent performer, achieving its seventh consecutive quarter of over 20% growth in pretax core earnings in Q2 2025. The segment delivered positive net flows of nearly $1 billion in Q2 2025, driven by institutional and retirement inflows. This performance is underpinned by higher average third-party AUMA, increased performance fees, and a disciplined focus on expense management, which led to a core EBITDA margin of 30.1% in Q2 2025, an expansion of 380 basis points from the prior year.

A significant strategic move within Global WAM is the acquisition of a 75% stake in Comvest Credit Partners for USD 937.5 million, with a predefined path to acquiring the remaining 25% in six years. Comvest is a rapidly growing middle-market private credit manager with USD 14.7 billion on its platform, boasting a fee-paying AUM compounding at an annual rate of 50% since 2020. This acquisition is immediately accretive to core EPS (projected at USD 0.02-0.03 annually from 2026), core ROE, and core EBITDA margin. It scales Manulife's private markets business, creating a world-class private credit manager with nearly USD 100 billion on its platform, and expands its capabilities in non-sponsor-backed direct lending. This move capitalizes on the significant demand for private credit products, a market expected to double in the next 4-5 years.

The upcoming transition to the new eMPF platform in Hong Kong, expected to commence in Q4 2025, will centralize and digitize eMPF schemes, leading to a reduction in fees earned. This is projected to result in a core earnings decline of approximately USD 25 million per quarter starting Q1 2026, with a margin impact of about 150 basis points. However, management has proactively undertaken expense management to mitigate this impact and remains committed to the MPF market, confident in growing out of this adjustment within a couple of years.

Foundational Pillars: Canada and U.S. Operations

While Asia and Global WAM drive much of the growth narrative, Manulife's Canada and U.S. segments provide crucial stability and capital generation.

In Canada, the company delivered solid results, with core earnings increasing 4% in Q2 2025, driven by continued growth in its group insurance business and higher investment spreads. Although APE sales decreased 34% in Q2 2025 due to the non-recurrence of a large group insurance case sale in the prior year, individual insurance sales showed strong double-digit growth, contributing to a 32% year-on-year increase in new business CSM. The segment benefits from favorable overall insurance experience and a strong team overseeing claims in its long-term disability business.

The U.S. segment, operating primarily as John Hancock, is undergoing a transformation of its new business portfolio towards higher margins and profitability. In Q2 2025, U.S. APE sales grew 40%, with new business CSM and new business value increasing 59% and 12%, respectively, reflecting strong demand for accumulation insurance products from affluent customers. Despite a 53% decrease in core earnings in Q2 2025 due to unfavorable mortality experience in its life business, lower investment spreads, and strengthened ECL provisions, management views these as short-term headwinds rather than a developing trend. The U.S. business plays a vital role in capital generation and remittances for the overall company. The triennial review of its long-term care (LTC) business is scheduled for Q3 2025, with over 90% of the targeted rate increases from the 2022 cycle already achieved, indicating prudent management of this legacy block.

Financial Strength and Shareholder Returns

Manulife's financial performance reflects its strategic execution and disciplined capital allocation. The company's core EPS grew 2% in Q2 2025, and when normalized for the higher ECL provision, it would have grown 7% compared to the prior year. For the full year 2024, core EPS grew 11%, or 14% excluding global minimum taxes, exceeding its medium-term target of 10-12%. The core ROE expanded to 16.4% in 2024, demonstrating solid progress towards its 2027 target of 18% plus. Management is confident in achieving this target, noting that after adjusting for unusual items like elevated U.S. mortality and ECL, the year-to-date core ROE in 2025 would be around 17%.

The company maintains a robust balance sheet, with a LICAT ratio of 136% in Q2 2025 and a financial leverage ratio of 23.6%, comfortably below its 25% medium-term target. This strong capital position provides ample flexibility for strategic investments and shareholder returns. Manulife returned nearly $1.4 billion of capital to shareholders in Q2 2025 through dividends and share buybacks. The Board approved a 10% increase in the common share dividend in Q4 2024 and launched a new buyback program in February 2025 to repurchase up to 3% of outstanding common shares, including $800 million from the RGA (RGA) LTC reinsurance transaction. These actions underscore the company's commitment to shareholder value, with buybacks generating approximately $3 billion in economic benefit since 2021.

Manulife generated record remittances of $7 billion in 2024, benefiting from capital optimization initiatives, including $750 million from the Global Atlantic LTC reinsurance transaction. The company expects 60% to 70% of core earnings to materialize as cash remittances going forward. While the expected credit loss (ECL) provision saw a net charge in Q2 2025, primarily related to certain below investment-grade U.S. loan investments, management expects an average quarterly charge of $30 million to $50 million, with inherent variability, and does not see it as a broader trend across its 96% investment-grade fixed income portfolio. Similarly, while ALDA (Assets and Liabilities for Direct Shareholder Exposure) experienced headwinds from commercial real estate and private equity in Q2 2025, management remains confident in a return to long-term return assumptions around mid-2025.

Risks and Challenges

Despite its strong position, Manulife faces several risks. General business and economic conditions, including market volatility, interest rate fluctuations, and credit spreads, can impact financial results. Regulatory changes, such as the illustration sales cap in Hong Kong and the eMPF platform transition, introduce operational adjustments and potential earnings impacts. Geopolitical uncertainty and trade disputes could lead to second-order effects like lower market returns or slowing growth, although Manulife's diversified business provides some immunity.

The accuracy of actuarial estimates related to morbidity, mortality, and policyholder behavior remains a continuous risk. Furthermore, as a holding company, Manulife's liquidity and ability to service its obligations depend on dividend and interest payments from its subsidiaries, which are subject to local regulatory restrictions prioritizing policyholders. The debt securities issued by MFC are unsecured and structurally subordinated to the liabilities of its subsidiaries. While the Comvest acquisition is strategically beneficial, integration risks and the realization of anticipated benefits are factors to monitor. The property and casualty reinsurance business also carries exposure to natural catastrophes, with a limit of approximately $90 million for events like wildfires.

Conclusion

Manulife Financial Corporation is demonstrating a compelling investment thesis, characterized by a successful transformation, strategic focus on high-growth markets, and a robust commitment to digital innovation. The company's disciplined capital allocation, evidenced by significant shareholder returns and strategic acquisitions like Comvest Credit Partners, is designed to enhance its long-term earnings power and competitive standing. While short-term headwinds in U.S. mortality and credit losses are acknowledged, management views these as transient, maintaining confidence in the underlying strength and diversification of its global franchise.

The consistent growth in Asia and Global WAM, underpinned by a strong balance sheet and a clear technological roadmap, positions Manulife to achieve its ambitious 2027 targets, including an 18% plus core ROE. The company's ability to leverage AI for efficiency and customer experience, coupled with its strategic expansion in private credit, reinforces its competitive moat. Investors looking for a diversified financial services leader with a clear growth trajectory, strong capital management, and a resilient business model in an evolving global economy will find Manulife's story particularly compelling.