Manulife Financial Corp
TSX:MFC
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Manulife Financial Corp
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Please be advised that this conference call is being recorded. Good morning, and welcome to the Manulife Financial Fourth Quarter 2018 Financial Results Conference Call for Thursday, February 14, 2019. Your host for today will be Ms. Adrienne O'Neill. Please go ahead, Ms. O'Neill.
Thank you, and good morning. Welcome to Manulife's earnings conference call to discuss our fourth quarter and year-end 2018 results. Our earnings release, financial statements and related MD&A, statistical package and webcast slides for today's call are available on the Investor Relations section of our website at manulife.com. We will begin today's presentation with an overview of our fourth quarter and year-end highlights and then update on our strategic priorities by Roy Gori, our President and Chief Executive Officer. Following Roy's remarks, Phil Witherington, our Chief Financial Officer, will discuss the company's financial and operating results. After the prepared remarks, we will move to the question-and-answer portion of the call. [Operator Instructions] Before we start, please refer to Slide 2 for a caution on forward-looking statements and Slide 37 for 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 indicates 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 Roy Gori, our President and Chief Executive Officer. Roy?
Thank you, Adrienne. Good morning, everyone, and thank you for joining us today. Turning to Slide 5, yesterday, we announced our fourth quarter and full year 2018 financial results. Macroeconomic conditions were very challenging in the fourth quarter with double-digit declines in equity markets and lower crude oil prices, especially in Canada. I'm pleased with the results we delivered in light of this backdrop and we ended the quarter in a position of strength, with strong capital and increased financial flexibility. Our business fundamentals remained strong and our hedging strategies functioned as designed. It's worth noting that we've significantly reduced our exposure since the financial crisis. Our sensitivity to a 10% decline in equity markets is less than half of what it was in 2009, and similarly our sensitivity to a 50 basis point parallel shift in interest rates is approximately 1/10 of what it was in 2009. This together with the strong capital position of the company provides a robust foundation to deliver long-term sustainable value. Turning to Slide 6, we continued to deliver strong growth on both a full year basis and 5-year time horizon. In 2018, we reported the highest core earnings and net income in the company's history. We delivered core earnings of $5.6 billion, an increase of 23% from the prior year, and once again, we exceeded our medium-term core EPS growth target of 10% to 12%. And net income of $4.8 billion increased $2.7 billion compared to the prior year due to the nonoccurrence of the prior year charge related to U.S. tax reform and our decision to change the portfolio asset mix supporting our legacy businesses. New business value generation increased 20% compared to the prior year to $1.7 billion, driven by continued growth in Asia and solid progress in the United States and Canada and has now more than doubled over the past 5 years. And our continued momentum and strong financial performance has resulted in progressive dividend increases. I believe that as we continue to deliver strong results, execute against our 5 strategic priorities and make progress against the targets that we've established, we will unlock significant shareholder value. Turning to Slide 7, we continue to execute on our 5 priorities and have made solid progress in 2018. Our first priority is to raise $5 billion of capital by 2022 through portfolio optimization. In 2018, we sold alternate long-duration assets, which released $1.9 billion of capital. We also announced 6 reinsurance agreements throughout the year covering legacy universal life and fixed annuity blocks.We sold Signator investors, our wholly owned broker-dealer, and we offered customers within some of our legacy segregated fund products an opportunity to convert to a less capital-intensive alternative. The various initiatives announced to date are expected to release a total of $3.7 billion of capital, once fully executed, representing almost 3/4 of our 2022 goal. We're extremely pleased with our success to date and are confident in our ability to achieve our $5 billion target. Moving to Slide 8, the second priority is to aggressively manage costs and our 2022 ambition is to drive an expense efficiency ratio of less than 50% and achieve $1 billion in cost savings. Core expense growth remained modest on a full year basis at only 3%, which was substantially lower than pretax core earnings growth of 19% and less than half the growth rate in recent years, driving a 3-point improvement in our expense efficiency ratio. We also achieved total expense saves of $300 million for the year. This includes some benefit from new initiatives and executing on those previously announced. We expect the initiatives that are currently in flight to deliver $700 million of expense savings by 2020. Phil will discuss this in more detail later. Turning to Slide 9, our third priority is to accelerate growth in our highest potential businesses. We aspire to have these businesses generate 2/3 of total company core earnings by 2022, and in 2018, these businesses continued to perform well, accounting for over 55% of total company core earnings. Asia delivered core earnings growth of 20% and a 19% growth in new business value, and sales through DBS increased 20% in 2018. Global WAM core earnings grew 21%, and while net flows were impacted by heightened market volatility in the fourth quarter, we generated net inflows of $1.6 billion for the full year, our ninth consecutive year of positive net flows. Turning to Slide 10, our fourth priority is about our customers and how we will use technology to delight them and to deliver a great experience. This will be achieved by putting customers first, and our '22 ambition is to increase our Net Promoter Score by 30 points across all markets. In Canada, we became the first insurer to integrate artificial intelligence in our underwriting of certain products, providing operational efficiencies and allowing us to make faster decisions. In Asia, our Net Promoter Score improved 7 points and in the U.S., John Hancock Vitality sales increased 52%, and we became the first life insurance company to comprehensively offer behavioral-based wellness insurance with the launch of John Hancock Vitality GO on all life insurance policies at no additional cost to the customer. Moving to Slide 11, our final priority is to develop a high-performing team and culture. Our target is to achieve top quartile employee engagement compared to global financial services companies by 2022. Our most recent employee survey data tells us our employee engagement remains competitive with global benchmarks. The survey also underscores our teams' support of our transformation with strong scores on our enthusiasm for embracing the changes that we're making. In 2018, we achieved several important milestones. We launched our purpose with a new mission statement, making decisions easier and lives better, along with refreshed corporate values. This is helping invigorate our employees and refocus our organization around the customer. We continue to invest in our team, training several thousand colleagues on agile ways of working to position us to more rapidly progress our transformation agenda. Through targeted technical training as well as recruitment, we're also building stronger capabilities to advance our digital leadership aspirations. And our focus on diversity and inclusion across all our teams resulted in us being named to Bloomberg's Gender-Equality Index for the first time. Moving to Slide 12, in conclusion, we have an incredible franchise with almost 28 million customers, which is diversified by geography and product line. We have derisked the company significantly and our performance this quarter in light of the macroeconomic conditions, is a testament to our strength and resilience. We delivered excellent results in 2018, concluding the highest level of core earnings and net income in the company's history. We're clear on what our priorities are and how we will measure success. And in 2018, we've made significant progress on each of our 5 strategic priorities. I could not be more proud and thankful for the commitment and enthusiasm of our employees around the world. Looking ahead to 2019, we will remain focused on executing on our strategy and I'm confident that if we deliver against the plan that we have set for ourselves, we will unlock significant and lasting value for customers, employees and shareholders. Before I pass it over to Phil, I wanted to acknowledge and thank Warren Thompson as this will be his last quarterly call before retiring. Warren has been with our company for 25 years, the last 10 as the Chief Investment Officer. He's also led programs to derisk the company's equity and interest rate risk exposures and oversaw the establishment and growth of Manulife Asset Management. In addition, I wanted to extend my personal thanks for his counsel through my transition to CEO. Warren's depth of knowledge, keen insight and experience at Manulife has been extremely valuable. Thank you, Warren. Phil Witherington will now review the highlights of our financial results. Over to you, Phil.
Thank you, Roy, and good morning, everyone. Turning to Slide 14 and our financial performance for the fourth quarter and full year. As Roy mentioned, in 2018, we delivered the highest core earnings and net income in our company's history, and our fourth quarter metrics were generally positive. I will highlight the key drivers of our fourth quarter and full year performance with reference to the next few slides. Turning to Slide 15, we generated core earnings in the quarter of $1.3 billion, up 8% from the prior year on a constant exchange rate basis. The increase in core earnings was primarily driven by new business growth in Asia, the impact of lower U.S. tax rates, improved policyholder experience and greater expense efficiency. This was partially offset by the impact of lower equity markets on seed money investments and fee income and our actions to optimize our portfolio such as reinsurance agreements and the sale of alternative long-duration assets. While most of the equity market impact flows through noncore earnings, the portion relating to fee income mark-to-market on seed money investments and realized gains on available-for-sale equities, flows through core earnings. The decline in equity markets lowered fee income by roughly $35 million in the fourth quarter and impacted seed money investments by roughly $115 million. Therefore, the total impact of equity markets on core earnings was approximately $150 million. Of note, this does not include approximately $50 million of realized gains on available-for-sale equities, which is within the range of what we have typically delivered. For increased transparency, we have expanded the sensitivity slide in the appendix of this presentation to highlight the nuance between the impacts of equity markets on core and noncore earnings. Net income attributed to shareholders was $593 million in the fourth quarter of 2018. Of note, we delivered investment-related experience losses of only $30 million in the quarter, despite headwinds from lower crude oil prices. Full year investment-related experience was a gain of $600 million. The strong full year gains have allowed us to report $100 million of core investment-related experience gains this quarter, which is why we have reported negative $130 million outside of core earnings. The gain from the direct impact of interest rates from widening corporate spreads was partially offset by the realized losses on available-for-sale bonds and a lower yield curve in Mainland China.The impact of equity markets this quarter was in line with our disclosed sensitivities, taking into account the core earnings components I described a moment ago. We increased our estimate for restructuring charges, which I will cover in more detail later. And the gains this quarter from reinsurance transactions of $163 million was less than the $250 million we had previously indicated as the closing of the New York portion of one of the U.S. payout annuity transactions announced last quarter was delayed, but has closed in the first quarter of 2019. Slide 16 shows our source of earnings' analysis. Expected profit on in-force declined 2% on a constant exchange rate basis due to the impacts of reinsurance transactions of legacy blocks, our ALDA portfolio mix initiative, additional hedging of our VA business in Japan and lower fee income in North American VA businesses due to the recent downturn in equity markets. Excluding these items, expected profit would have increased by approximately 5% from the prior year, consistent with what we would typically expect. The impact of new business improved primarily due to strong sales of the recent launches of our corporate segment term product in Japan and the Manulife Par product in Canada as well as our ongoing focus on margins. Overall policyholder experience in the fourth quarter of 2018 was favorable, driven by group insurance in Canada and insurance in the U.S. Long Term Care policyholder experience was neutral this quarter and continued its trend of being roughly neutral on average since our last triannual review. Earnings on surplus declined compared with the prior year primarily due to mark-to-market losses on seed fund investments in the corporate and other segment. Turning to Slide 17, you can see that we delivered double-digit growth in core earnings in each of our operating segments in 2018. In the fourth quarter, we delivered double-digit growth in Asia, Canada and global wealth and asset management, while the U.S. declined modestly due to the impact of equity markets and reinsurance transactions and the nonrecurrence of favorable items in the prior year quarter. Turning to Slide 18, we generated a strong core ROE of 13.7% in 2018. However, we are not ready to claim victory. Our focus is on achieving sustainable consistent performance for each metric through the cycle, and we remain committed to our target of a 13% core ROE.Turning to Slide 19, we are making meaningful progress towards our target to save or avoid $1 billion in annual costs by 2022. The initiatives we announced last year are progressing well. Earlier in 2018, we initially estimated annual savings of $300 million pretax, largely to be achieved by the end of 2019 from real estate optimization in Canada and the U.S., IT vendor and systems consolidation in the U.S., restructuring of our Canadian operations and a voluntary early retirement program. These initiatives are tracking ahead of our initial expectations, and we have updated our estimates of annual savings to $375 million. We have also taken a corresponding additional $63 million posttax restructuring charge. In addition, we have also added initiatives that are expected to provide a further $325 million of pretax annual savings once fully implemented. These include further rationalization of vendors and negotiation of rate reductions, process redesign and digitization. These initiatives are already underway and have contributed to the 2018 savings. In total, our expense efficiency initiatives delivered savings of $300 million in 2018, are expected to deliver at least $500 million in 2019 and $700 million in 2020, once we fully execute on the in-flight initiatives. Turning to Slide 20, our success in the execution of expense initiatives is delivering bottom line benefits and was evident through modest core expense growth and improving expense efficiency ratios. Our core expenses in the fourth quarter of 2018 declined by 1% on a constant exchange rate basis from the prior year and on a full year basis increased a modest 3%, less than half of our historical average. This compares favorably to our pretax core earnings growth, driving a decrease in our expense efficiency ratio, both for the quarter and the full year. Slide 21 shows our APE sales and new business value generation. Our sales momentum improved in the second half of the year, and we delivered APE sales of $1.5 billion in the quarter, up 14% from the prior year. This reflects APE sales growth of 15% in Asia, driven by Japan, Hong Kong, and Asia Other and 25% growth in Canada, following the success of our recently launched Manulife Par product and a large-case group insurance sale. In the fourth quarter of 2018, new business value increased 27% to $501 million. In Asia, new business value increased 23% from the prior year driven by higher sales, scale benefits and improved product mix. In Canada, the benefit of the launch of Manulife Par was partially offset by the less favorable business mix in group insurance. And in the U.S., despite lower sales, new business value almost tripled due to the improved margins and business mix.Asia new business value margin was 40% in the quarter, up over 2 percentage points from the prior year. And full year new business value in 2018 was $1.7 billion, up 20% compared with 2017. Turning to Slide 22, the fourth quarter was challenging for active asset managers, industry-wide and across all of our major markets. Specifically, the U.S. retail market experienced its worst month of net redemptions ever in December. Our global wealth and asset management business experienced net outflows of $9 billion during the fourth quarter, driven primarily by our U.S. retail business, where we experienced significant redemptions from model allocation changes by some large intermediaries that rebalanced their portfolios. However, despite the challenging environment, the benefits of our diversified business model were evident and for the full year, we generated net inflows of $1.6 billion, our ninth consecutive year of positive flows. Our Asia and global institutional businesses attracted inflows on a quarterly and annual basis. And our Canadian business remained in positive flow territory for the year despite outflows in Q4, and finished the year fourth in the industry in net flows despite being ninth in assets.Turning to Slide 23, total company AUMA at the end of the fourth quarter of $1.1 trillion was up in dollar terms, but down on a constant exchange rate basis due to challenging macroeconomic conditions in the fourth quarter. Global WAM AUMA was $609 billion, flat in dollar terms, but a decrease of 6% compared to the prior year on a constant exchange rate basis. Turning to Slide 24, the LICAT ratio for our primary operating company was strong at 143% at the end of the fourth quarter, which equates to $23 billion of capital above the supervisory target. The 9-point increase in the ratio, despite lower equity markets and net share buybacks, was driven by our portfolio optimization initiatives and widening of corporate spreads. The widening of corporate spreads is favorable for the LICAT calculation and can provide resilience in periods of equity market declines. As you are aware, spreads will continue to change in the future, which may reverse this quarter's benefit. Our financial leverage decreased 60 basis points from the prior quarter due to the weaker Canadian dollar and $250 million subordinated debt redemption partially offset by cash dividends and net share buybacks. As I stated last quarter, we are committed to reducing our leverage ratio in 2019 and have announced our intention to redeem a further $500 million of subordinated debt next week. We also announced our intention to more than double the capacity of our share buyback program to 99 million shares. Net share buyback activity in the fourth quarter was $300 million after taking into account dividend reinvestment. This had a net negative 0.5 point impact on the LICAT ratio and increased our financial leverage by 15 basis points. In 2018, Manulife's operating subsidiaries delivered remittances of $4 billion with contributions from all segments. This is well in excess of the amount needed to fund dividends and net interest expense.Turning to Slide 25, we continued to make progress on releasing capital from our legacy businesses in the quarter. In addition to executing on the previously announced transactions, we released $600 million of capital through ALDA sales and released capital from a segregated funds transfer program in Canada, where owners of certain legacy products were given the option to switch to less capital-intensive alternatives. In Canada, we also signed 2 new reinsurance agreements for group annuities. The initiatives announced to date, once fully executed, are expected to deliver $3.7 billion of the overall $5 billion target. On Slide 26, you can see that the impacts of equity markets and interest rates on our business have decreased considerably since the financial crisis as a result of our hedging programs. In 2012, we achieved our target for equity market and interest rate exposure and since the beginning of 2012, markets have generated a modest average quarterly charge of approximately $25 million per quarter to the direct impacts of markets. We are satisfied with the effectiveness of our equity market hedging program during the fourth quarter. Slide 27 outlines our medium-term financial operating targets and our full year performance. Core EPS growth and core ROE are both exceeding our targets; and expense efficiency, leverage and capital released from our legacy businesses are trending in the right direction. This concludes our prepared remarks. Operator, we will now open the call to questions.
[Operator Instructions] The first question is from Paul Holden from CIBC.
So I wanted to ask you a follow-up question on your comments regarding the LICAT ratio because there was a big swing quarter-over-quarter and my math suggests roughly 3 points of that came from portfolio optimization, the other 6 points from other factors, including change in AOCI. So like, what's the conclusion here because I would expect LICAT to be a little bit more of a stable ratio than it showed. And as you pointed out, it could reverse in the future. So how do you view available capital today and movements in the LICAT ratio?
Thanks, Paul, for the question. This is Phil. So your observation is correct, a 9-point improvement in the LICAT ratio at 143% at the end of the year, that's a strong capital position, and we're very pleased with that. There are really 3 categories of items that are driving that improvement. The first I'll highlight is the impact of the portfolio optimization initiatives. The benefit that, that has delivered is in the order of 3 percentage points on the LICAT ratio in the fourth quarter. The second point I'll highlight is the impact of markets, in particular, the widening spreads. So in aggregate, the impact of markets in the fourth quarter has had a positive 3-percentage point impact on the ratio. And the remaining 3 percentage points is really a correction of what I would call normal course of organic items that have had a favorable impact to the ratio. I'll hand over to Steve Finch to see if there is anything else he would like to add.
Just one supplement, Paul, you had mentioned the AOCI. We do see currency grossing above the available capital and the denominator, the base solvency buffer. It was a modest -- a very modest benefit to the overall ratio in the quarter. But that's where you'll see it show up.
Okay. And then the follow-up question I'll have on that then is, how do you view deployable capital given that large excess number you've highlighted?
Thanks, Paul. This is Phil, again. Yes, so we're very happy that we've improved the -- further improved the balance sheet strength of the company. In terms of looking at how we deploy the capital that we have and any further capital that we're able to generate, as we said before, our priority is to further strengthen the balance sheet position, including reducing the leverage ratio. So whilst the current leverage ratio is not considered a constraint for us, we have made the commitment to achieve our medium-term target of 25%. And you will note that we had redeemed $250 million of debt in the fourth quarter. We've announced the redemption of $500 million later in February. We don't intend to refinance that $500 million redemption. And then as we go through the course of 2019, we will carefully monitor market conditions and our capital position when considering action to take with respect to the remaining $1 billion of issuances that mature later in the year. In fact, both of those issuances are in the fourth quarter. I'll also highlight that from a capital deployment perspective, we are focused on funding organic growth. We're pleased that, both through capital generation and remittances, we have sufficient resources to fund the organic opportunities that we have. A final point I'll make is that we have this quarter announced that we will extend, subject to regulatory approvals, the NCIB from 2% of our issued capital to 5% of our issued capital, and that's something that provides us with additional flexibility in determining how to manage our capital base.
The next question is from Sumit Malhotra from Scotia Capital.
Just Phil, a quick numbers' clarification on your leverage commentary. You mentioned those redemptions last quarter as well, the $250 million in Q4 and then the $500 million in Q1. When I look at your balance sheet, it looks like the long-term debt was actually higher sequentially in Q4. Was there some refinancing or reissuance that was done, or is this FX foreign exchange volatility, if you could just help me understand why the long-term debt was actually higher quarter-over-quarter?
Thanks, Sumit. So we didn't have any issuances in the fourth quarter. It was net redemptions of $250 million. So the movement that you see in the balance sheet is the function of currency reflecting the fact that some of our debt is denominated in U.S. dollars and some of it is Singapore dollars.
Okay. So the more important thing for us is you redeemed $250 million in Q4, $500 million in Q1 and then as you say, there is $1 billion that is scheduled in -- later in the year?
Correct, and we'll look at market conditions and the capital position in the company in determining whether or not to refinance any portion of that $1 billion that's maturing in the fourth quarter.
Okay. So now on to the actual questions. This is probably going to be for Roy. Roy, in regards to the capital optimization target that was first communicated to us last June, the $5 billion number that was provided, you'd already made some progress on that at the time you shared that with us via the ALDA sale, and now we sit here with a few years to go until 2022, and you're already 2/3 of the way there. So in establishing that $5 billion, was that a forecast on what you expected could reasonably be accomplished in terms of reinsurance or divestiture opportunities? And maybe more to the point, what would you have to see in order for that target to be increased by the company?
Yes, thanks, Sumit. Look, I think the first thing I'd say is when we establish the targets and the priority of focus at Investor Day, the real intent there was to really, I guess, give the market a better understanding of where we're going to be focusing our attention and where the priorities of the company were. So when we went through the 5 priorities, we started with portfolio optimization, and it wasn't a fluke that, that was the first. Because we acknowledge and realize that we needed to do a lot to free up capital and especially capital that's associated with our legacy businesses. We set a target of $5 billion because we felt that we had a clear line of sight to that. But you can be assured that the target that we're setting for ourselves internally are obviously in excess of the targets that we're sharing more publicly with The Street. We're really delighted with the progress that we've made. As Phil said earlier, the initiatives that we've announced to date have already released $3 billion. And once we fully execute against the initiatives that we've already announced, we will deliver $3.7 billion. And we're not going to stop at the $5 billion. This is a priority and an important area of focus for our franchise and we're going to continue to drive that agenda.
Do the -- does the capital being allocated to share repurchases -- and I'll stop here and requeue, does the capital being allocated to the share repurpose -- repurchases, which is another $1.5 billion via the increase you've announced relative to what you've already bought. You and I have had some conversations in the past about how perhaps buybacks weren't the best use of capital given all the opportunities the company had presented to it, both in terms of divestitures and potentially investing in the business as well. Is the buyback in any way a restricting factor to some of the potential opportunities you have to free up some capital. And if any kind of shareholder equity hits were required, does the buyback restrain you from doing anything that you want to, in terms of that capital liberation, if I can use that term?
Yes, no. I'd say no, Sumit. The way I look at the buybacks is really it's a tactical strategy. We -- again, we're delighted with the progress we're making to create excess capital. The priority for us from a capital perspective is to strengthen our balance sheet, as Phil mentioned earlier. And we've got very clearly in our line of sight reducing our leverage ratio. We're happy with the progress we've made on leverage in 2018, and we're really progressing very ambitiously in 2019 on that focus area as well. But equally important is to fund our organic growth. We've got an incredible franchise globally with incredible opportunities and the organic growth opportunities we have within our franchise will provide real strong runway to deliver the earnings growth ambition that we set for the company. So priority one is to strengthen the balance sheet, reduce leverage and fund organic growth. And tactically, we're going to continue to look at the share buyback and repurchasing shares as a way to drive value for our shareholders, especially when we see that our shares are significantly undervalued.
The next question is from Doug Young from Desjardins Capital Markets.
Just wanted to go back to the LICAT, Phil. The sensitivity to interest rates that you show in the MD&A has increased materially quarter-over-quarter. And I think in the last quarter, a 50 basis point increase in rates had no impact on the LICAT. Now it's got a negative, I think, 3-point impact on LICAT. I mean, not huge, but just want to understand the moving pieces as to why did that sensitivity move so much sequentially?
So Doug, it's Steve. I'll take that one, and remember we've got rounding -- rounding on the LICAT ratio. About $500 million of available capital is about 1 point. So the interest rate sensitivity can bounce around a bit. It's largely attributed to basis changes, but it's within the range of what we're happy with in terms of that interest rate sensitivity. I also point out that we did enhance our disclosures to show the sensitivity to corporate spreads, which Phil mentioned was a positive impact on this quarter's LICAT ratio, but corporate spreads may come in again. So we're viewing that as more temporary, but overall very, very happy with the strength of the capital position.
Yes, and it had nothing -- Steve, it had nothing to do with the ALDA repositioning or anything like that, and -- or is this just kind of you broke out the corporate spreads, so sensitivity is going to look different because it would've been embedded in there before?
We looked at our disclosed sensitivities. Originally, we were disclosing the same sensitivities that we did under the MCCSR regime. And as we looked at those sensitivities and we looked at the impact of corporate spreads, we decided to enhance our disclosures and put that in there. The ALDA program, it does result in some more fixed income in the -- in our guaranteed segments, but it's not driving material changes in our sensitivity.
Okay. And then just second, I guess while I have you, Steve, the Long-Term Care insurance book. And I know the experience trend was neutral. Can you talk a little bit more about the underlying moving parts, maybe around frequency, severity, morbidity trends? Was there some moving parts in there? Maybe you can kind of flesh out what happened in the quarter.
Sure. On Long-Term Care, so for the quarter, it was neutral. We tend to look at the longer term. We don't get too excited about any one quarter where there is losses or gains, look more at the long-term trends. And this quarter, consistent with what we've seen and said in the past, we saw higher claims than expected than in the valuation assumptions, but also offset by higher lapses or partial surrenders. So that's been a continuing theme that we've seen.
And how are the buyback programs going? I don't know if there is anyway you can quantify or talk about the buyout programs and how that's been progressing relative to what you've expected?
Doug, it's Naveed Irshad here. So on LTC, we don't really have a buyout program yet. We have what we call landing spots where we offer customers an option to take lower benefits in exchange for not having premium rate increases. So where we have implemented those, and we continue to implement those as we ask for rate increases, we've had good success, and so that's been continuing. The buyout program we did offer was on the seg funds in Canada where we offered an opportunity for customers to transfer from the higher risk GMWB, guaranteed minimum withdrawal benefit income plus, to a lower risk product, investment plus, and as you saw in the capital release numbers, that Phil and Roy shared, the results were quite good.
Yes, I think I had my terms incorrect there at the landing spot.
The next question is from Tom MacKinnon from BMO Capital Markets.
Two quick questions here. One, just with respect to LICAT again, I think under the old regime, you used to sort of talk about a target ratio. I don't know if you've actually shared with us the target under the new regime, I'm wondering if you -- or other companies have, I wonder if you do have a target that you'd be willing to share. And then I have a follow-up question.
Thanks, Tom, for the question. This is Phil. We're not publicly sharing LICAT target ratio, but upon adoption of LICAT in the first quarter of 2018, we did give a comparison point -- an indicative comparison point to the MCCSR regime. So at that point, we said that 200% MCCSR ratio was consistent with the 115% LICAT ratio. So that's -- I think that's a good benchmark to look at.
I mean, if that's the case, you've got -- at 143%, you're probably well more [ $10 billion ] above that, if not more. Is -- are we -- am I to read that 115% is the target or was that north of that or you just don't have one?
It's Steve here. The comment that we made around the 200% versus 115%, I think many in the industry viewed 200% as sort of you got to be well above that benchmark. And as you know, we operated at significantly higher than the 200% and consistent with that, we'll operate significantly higher than the 115%.
But your point, Tom, is that we're obviously very comfortable with our LICAT position. And again, I would sort of just remind everyone that again 3 points of the 143% does come from the corporate spread movement, which we're not banking on that, that could move around a little bit. But regardless, it's still a position of strength and again is a function of the very deliberate actions on capital, which we're looking at ways to, again, ensure that we optimize.
And what was the thinking behind increase in the NCIB? And did the bump up in the LICAT ratio had anything to do with that?
Yes, it certainly is a factor, but for us, the NCIB, Tom, is just about making sure that we've got tactical strategies that can help us repurchase shares and again, deal with the significant, in our mind, undervalue of our share price. But I'd look at it as another toolkit -- in our toolkit, to ensure that we can optimize the capital for our shareholders.
Okay. And then a quick one here on seed capital. I was wondering, as your funds grow here, do you intend to harvest some of the gains that you've put in terms of seed investments here or will we expect the seed investments that you have to remain constant or increase going forward?
Thanks, Tom, for the question. This is Phil. So you're absolutely right that the approach to seed capital is that we do seed new funds to get into critical mass as part of the new fund launch process. But we also repatriate that seed capital once the fund can stand on its own with third-party funding. So we see a cycle of new funding and then repatriation. And that the current level of seed capital is well within our risk appetite, it's in the order of $1.5 billion.
And as AUM growth, would you expect that to remain at $1.5 billion?
It may increase, it may decrease, but I wouldn't say materially above the $1.5 billion.
The next question is from Meny Grauman from Cormark Securities.
A question on flows in WAM. Just wondering if you give us an update on what flows look like quarter-to-date?
Thanks, Meny. It's Paul Lorentz here. Maybe just to provide some context of the flows, I think Phil and Roy talked to the strength of our franchise over the full year and some of the strength, even within the fourth quarter with the volatility. What we saw in the U.S. retail was really due to a number of factors. One is a general slowdown because of the volatility, but we did see the funds move to safety in the U.S. and that favored ultra-short duration bond funds, of which we didn't have a -- we don't have a solution in our lineup to capture that short-term money movement. And then we also saw some significant model allocations where some of our large retail clients reduced their credit exposure because of where we are in the economic cycle. And because of our strength in fixed income, that had a negative impact on us over the short term as they decided to reduce credit. Both of which we would expect over the long term to benefit from as money starts moving back into long-term investments. In terms of the first quarter, it's too early to really predict what it's going to look like. What I can say is that some of that model allocation is strictly into Q1, but to a much lesser extent than what we saw in Q4. But we've also seen investor confidence improve in the retail space in North America and gross flows in January have improved from what we saw in December. So we're feeling quite optimistic. And because of the diversification of our franchise too, we're well positioned to capitalize that as money moves back into the markets.
So just as a follow-up question would be, how confident are you that 2019 will be the 10th conservative year of positive flows?
Well, I wish I could be confident at this point, it's too early in the year to make that judgment, and markets are so unpredictable, particularly in the retail space. But I think what you saw, particularly in the fourth quarter as well, there was some pressure on retail because of market volatility. I think you saw the strength of the diversification that we bring because of our Asian footprint, which was up in the fourth quarter despite that volatility. Our institutional business was up in the fourth quarter despite that volatility. As Phil mentioned, we finished the year quite strong relative to peers based on our size in Canada. And on our record-keeping platforms in Hong Kong and in Canada, we're #1 in market share based on the latest market share reports we have available. So we're feeling really good about the platform we've got and the diversification, and I think that gives us an opportunity to withstand some of these short-term fluctuations.
And just a final follow-up. You mentioned one product gap, are you making any changes as a result of the experience in Q4?
Yes, we're going to look -- I mean you have to keep in mind the ultra-short duration bonds, there's very little margin on it. So it's not really an earnings question for us, just a question of whether having that allows us to capture that money when it moves back into the market or whether the strength of our lineup, as it stands, will capture that anyways without having that and that's a decision that the U.S. team is looking at.
The next question is from Gabriel Dechaine from National Bank Financial.
First of all, on the buyback, it's great to see you taking a more aggressive stance there, makes the capital position more tangible. But I'm just wondering why you didn't also choose or go with maybe a smaller increase and then eliminate that DRIP discount because the way I see it, you're issuing under the DRIP but below $19-and-change in the quarter and then you bought back at around $20-and-change. So you're issuing below where you're buying it back, why didn't you get rid of that?
Thanks, Gabriel, for the question. This is Phil. So the -- we spoke a little bit about this during the Q3 process. The combination of the DRIP and the buyback does give us increased flexibility in terms of tools with which to manage our capital position. Our priority has been executing on the NCIB that we had announced along with -- just before our fourth -- third quarter results. Combined -- if we look at what we had executed in the fourth quarter, combined with what we have now executed from the NCIB in the first quarter, we're about 75% of the way through that program. It makes sense for us to extend the program to the maximum amount that we're permitted to under a normal-course arrangement. So that was to go for the full 5%, and we'll tactically execute against that based on various factors, including the capital position of the company and market conditions. We do believe that the current valuation of the company's stock is below the intrinsic value. So that's why it makes sense for us to execute to the maximum extent.
I'm not quite sure I got the answer, but why have the DRIP part?
Well, the DRIP -- retaining the DRIP is -- really is part of an ongoing capital management process. It provides us with a tool alongside the NCIB and we'll balance the DRIP and the NCIB over the course of the next few quarters and potentially years.
Okay. Just a couple of quick numerical questions here. In the noncore investment experience, how much -- what were the gross and net, I guess, the moving pieces, oil and gas, how much was that a factor? And then the remittances, $4 billion in 2018. I recall a number about half of that size in prior years. Is that really a reflection of all the portfolio optimization and a little bit unusually high?
So Gabriel, I'll cover -- this is Phil. I'll cover the remittances' question and hand over to Scott to talk about investment experience and oil and gas. So remittances, yes, very strong in 2018, $4 billion, almost double the amount that we had received by way of remittances from subsidiaries in 2017. The number will bounce around from year-to-year, reflecting market conditions and reinvestment decisions. But we're very pleased with the outcome this year, and we're confident that looking forward, the level of remittances we're able to achieve from our subsidiaries are at least sufficient to cover our dividend and net interest expense obligations. So we're feeling good about capital remittances and the progress on leverage.
Gabriel, it's Scott Hartz. To answer your question on investment experience, so the total investment experience, as had been described, was a $30 million loss for the quarter. And our perspective is in a quarter where we had public equity markets down double digits globally, spot oil prices down nearly 40%, it was really quite a good result. To give you a little more detail on the $30 million, there was a little over $300 million loss on our ALDA portfolio, largely offset by strong fixed income results. So looking at the alternative portfolio, it was still -- I would consider it a very good result given those market conditions. Total returns on the alternatives portfolio was positive for the quarter. It was just below our long-term assumptions, which you would expect in a challenging quarter. And of that, about 2/3 of that was due to the oil and gas.
The next question is from Mario Mendonca from TD Securities.
Just real quickly first on the universal life loss, I understand that there are -- there is activity there in the last -- I think today and perhaps yesterday. Is there any update you can offer us there?
Okay, thanks, Mario. Look, I think the big update I'd provide is that this is obviously something that's going to be in the courts for some time we expect. The Saskatchewan court is currently hearing submissions from us and other parties regarding the impact of the new regulations that were announced, both as it relates to the Mosten litigation and the other cases. We're not sure when a decision is going to be rendered. But again, as we've said in the past, we remain confident in our position.
This is just my paranoia kicking and I have no special knowledge, but is there any possibility here that we could get bad news in the near term?
Well, I'm not going to speculate on what the judges are going to say, Mario. Again, what I'd tell you is that we've said all along that we're highly confident about the position that we have and that we're ultimately going to prevail in this matter. So there's really nothing more for us to say other than that, and we're very much prepared to see this through.
Okay. Quickly on Japanese COLI sales, that has been a good contributor recently to the new business gains. Could you just talk a little bit about why that product is so popular, like what is it about it and could you expect this sales momentum to continue?
Mario, thanks for the question. This is Anil. So if you look at the Japan AP sales, it grew 34% year-on-year in quarter 4. And we had established the new COLI term product in quarter 3. We got some terrific response in quarter 3 and we saw the momentum pretty much continue in quarter 4. In Japan, as you know, we are a significant player, when it kind of comes to the COLI market, though we have a broad range of products suite to offer in Japan. And the new COLI term product basically kind of rode on the COLI capabilities that we have in that market. We made certain adjustments in terms of the features and benefits to be able to kind of prioritize in line with the customer needs, and we've got some very strong response to that. In addition to that, we also simplified the onboarding as well as the underwriting process and made it a lot more easier for our distributors to be able to kind of offer these products to customers. So that's really kind of the driver of the source of the momentum that we saw in quarter 4. Now we also understand that we work in a very dynamic market and obviously, we've got to kind of face competitive pressure as well as there could be other environmental reasons that could impact COLI and that's something that we're working towards. We already have crafted a product suite for 2019 and are pretty much kind of doing our utmost to be able to ensure that we continue the momentum that we have in Japan.
Do you see any potential that tax legislation -- tax changes in Japan could lead to an erosion of the popularity of that COLI product? Or is it not a tax-driven product?
Yes. So there is some discussion, and that doesn't come as a surprise because we already had some advance notice for that. It's a little premature for us to kind of determine what that impact is because we don't know the nature and the timing of that, but we are pretty much acutely aware. I do want to make the point that COLI contributes to roughly about a range of 50% of our sales, so we do have some other value propositions in Japan. And I also wanted to kind of underscore the point of the fact that if you look at Asia broadly, right, the strength of our business is just the diversified nature of the portfolio that we have. And we've illustrated that in 2018, where, from time to time, you will face headwind in a market or 2, but we have been resilient, and we've been able to kind of pick up the momentum on account of the diversification strength that we have in Asia.
The next question is from Steve Theriault from Eight Capital.
Couple things from me. Maybe just a clarification to be sure on expenses. You've given us an additional piece of the puzzle with a visibility out to $700 million of cost savings by 2020. Just want to make sure that extra $325 million were sort of delineating last night, today. Are you expecting to need to take a restructuring charge maybe next year as we get closer to or as we get up to that $1 billion. I think there may have been a prior discussion around that first set of restructuring maybe doing the trick for the entire program. So maybe just a refresher on that.
Thanks, Steve, for the question. This is Phil. So you're correct in your hypothesis there that the -- in order to deliver the additional $325 million that we've laid out, we don't expect to incur a further restructuring charge in 2019 or beyond. There very often is cost associated with taking expenses out of the organization. But to the extent that arises outside of the programs that we had announced last year, we will self-fund those costs through further expense reductions. So you won't see another noncore restructuring charge.
Okay, that's great. Thanks, Phil. And probably for Anil, turning to Asia, a couple of quick items. But first, expected profit, when you look at core earnings growth, it was obviously very strong [ and assuming your ] business gains remained strong, but the expected profit has been pretty flat the last 5 quarters and a big delta has been those new business gains and we worry about those from time to time, but just turning to expected profit, what -- is there any visibility, 2019 or going forward, to see that growth start to ramp? It's been pretty much unchanged the last 5 quarters?
Yes, thanks for the question, and I just wanted to kind of complement -- supplement the comments that Phil made on what was really kind of driving our EPIF. So if you were to kind of normalize for some of the noise on account of the VA hedging, on a full year basis, the EPIF growth is at a range of about 8% to 9%, which is pretty much on expected lines. As you know, that Asia is a growing part of our franchise and you would expect that the contribution of new business gain in percentage terms would obviously be higher to the earnings growth that we're expecting or anticipating in our Asian markets. So on a normalized basis, I'd say it's pretty much on expected lines and just kind of given the fact that we are in growth mode, we're investing in both our distribution as well as in our digital capabilities, we are obviously kind of consciously working on driving a better product mix. You would expect the new business momentum to be a strong contributor going forward. But I can't tell you -- as we said, make any forward comments, but we feel reasonably comfortable with the mix that we have, I would say. I would like to ask Steven if he wants to add to the comments.
Thanks, Anil. Yes, just some additional context to total company. So Anil, I think focused on the full year of growth excluding that geography of the VA hedging, so 8% to 9%. We do expect the highest growth in earnings on in-force in the company in our insurance and annuities businesses to come from Asia. The growth in North America will be somewhat lower. And you also see the growth -- the value generation in Asia coming from the value of new business, and we see that coming through the new business gains as well as the earnings on in-force. For overall context, new business gains have stayed consistent as a percentage of pretax core earnings total company at roughly 13%. That was consistent for full year 2018 and full year 2017. And new business gains for the full year were a consistent percentage within Asia as well as a percentage of pretax core earnings.
Okay, that's helpful. And if I could just finish with, I noticed that -- for Anil, just the detail, I didn't hear about the -- the Hong Kong agency force, up I think, over 900 or around 900 after being pretty stable. We're used to seeing those big fluctuations in Asia Other across all the various countries? But what was that -- what drove that this quarter?
The Hong Kong sale, just to clarify?
The Hong Kong agents went to...
The Hong Kong agents. Well, we have been focused in terms of kind of growing our distribution, and we have been pivoting very strongly, not only in Hong Kong, but if you look at even in some of our other Asia markets, to be able to kind of ramp up the growth on our agency, we're very conscious on the fact that if we have to demonstrate foreseeable growth in the future, our agency is going to be a big part of it. And we have significant strength in our agency distribution business in Hong Kong and we're kind of simply building on it. And honestly, if you look at the Hong Kong franchise, we -- and just as Paul mentioned, we are the #1 player in MPF business. We kind of now have a demonstrated track record of growing the business year-on-year. And we're kind of slowly kind of climbing up the league table. So that all makes a compelling reason for more agents to join Manulife and that's why you're kind of seeing the double-digit growth on the agency force in Hong Kong.
And Steve, this is Phil. Just to go back to your previous question as well, when we're talking about sources of earnings growth. We covered there the earnings from expected profit from in-force business and new business growth in Asia. Just like to highlight that we are confident and stand by the 10% to 12% earnings growth, medium-term operating targets that we've highlighted. And that wealth and asset management is a key source of that growth, as is the bottom line impact of our expense initiatives that, as we've said before, we're committed to seeing those flow through to the bottom line.
The next question is from Darko Mihelic from RBC Capital Markets.
I have a series of questions that all relate to your wealth and asset management business and I'm looking at your supplemental pack. So hopefully, you have a copy in front of you and we can just talk about a couple of things that I'm noticing here. The first is, in terms of just thinking about this on an annual basis, one of the things that is rather notable in this business is the growth in the EBITDA in Asia is -- let's -- using the annual number of 22% far exceeds the growth in the assets' growth in Asia. So I'm wondering if you can just talk to what is driving that EBITDA growth in Asia? And then similarly, why did it drop off in the fourth quarter, given that AUM did not drop off in the fourth quarter?
Yes, it's Paul here, thanks for your question, Darko. I'll start with the second part. The reason it dropped off in the fourth quarter is the mix of business. Even though AUM went up, it was more institutional sales versus other and that does have a lower margin. It's still really good business from an ROE perspective, but it would pull that down. And relative to the third quarter, we do have some seasonal spend in our retirement business in Hong Kong in Q4 and you tend to see that every year, so that's the primary drivers of why it came down from that perspective. In terms of the overall growth relative to AUM, I mean, our goal really to try and get leverage out of our operating model on a global basis. And as we grow, we're trying to do that as efficiently as possible. And our goal, as we look forward, is to continue to improve margin -- EBITDA margin despite some of the pressures on fees, by leveraging our scale and continuing to write good business.
Okay. And one of the things that we don't get here in the supplemental is the fee. So one of the things that I look at is I look at the EBITDA as a percentage of AUM. And I mean, it's double -- in Asia, it's double that of the U.S. And so presumably it would be because fees are much higher in Asia versus the U.S. But I wonder if, a, you would be willing to share the fee for AUM in Asia, Canada and the U.S. and if not, give me sort of directionally the difference, and more importantly, for modeling for my purposes, how should I think of the overall fee per AUM for 2019 and 2020? I mean the pressure on this business is pretty intense. The feeling is that in the U.S. fees are going lower and lower for active management every day. So I wonder if you can just speak -- I would love it if you can give me individual fee numbers, but if not, just speak directionally to what you think's happening there?
Yes, so I think we typically don't disclose the individual fee numbers. I would say, you are going to get some volatility in this metric from quarter-to-quarter. But we do feel confident long term in terms of our ability to improve this margin because of the diversification of our business because of the leverage we expect to get out of the global businesses and frankly, how we prioritize that spend to make sure that we're capitalizing on the biggest opportunities by geography and by product line, which was really one of the intents to pull this business together is to make sure we just do that. So we're -- I mean, we're constantly looking at fee compression. We assume it's going to happen and trying to build that into our action plans as we look forward.
Darko, let me just add -- I'd say that one of the things that we will significantly benefit from, and one area that we're very keenly focused on is leveraging our global footprint. We see big drivers coming from the fact that household wealth in Asia is going to grow. In fact, it's going to more than double over the next 5 years. We're seeing an aging population, that's true globally, but certainly, it's true in Asia. And we're seeing a much stronger focus on retirement. So the fact that we have established ourselves and have a brand and presence in Asia, it really puts us in good stead. And those markets, as you rightly point out, do have higher returns, higher margin, higher fees. And while there will be pressure actually for those fees to compress somewhat, the tailwinds that we have is some real big driving forces towards a greater wealth management and a much stronger focus around pension and retirement planning. So we're -- I think we're really well positioned to take advantage of that.
Yes, this is Anil. So just kind of one other supplemental point is that if you look at the Asia flow mix, right, we control 75% of the flow directly, given the fact that only 25% comes from intermediated channels. So that allows us to control the client experience a lot more closely, whether it is institutional sales or for that matter, retirement and just kind of given the strength of the business that we have, and both Roy and Paul mentioned our strength in Hong Kong, that obviously kind of adds to the strength of our Asian franchise.
Okay, that's very good color. And if I could just end on one last question, if I may. Just with respect to new business value add, notice it's up quite a bit in the U.S., still a relatively small, $98 million -- significant number that you have. My question is, how much of the -- that NBV comes from the international segment?
Darko, it's Marianne Harrison here. Actually, the NBV, biggest driver of the increase in the NBV for 2018 was actually around our brokerage business. International sales were actually a little weaker than what we had expected in 2018, and that really was a result of the increase in the interest rates because it's mostly premium finance. So we did see a little bit of a dropoff or weaker sales on the international side. We laid out our strategic plan just about a year ago and one of the big focuses in that plan was to really focus on the brokerage business and improve the profitability. So we undertook a number of management actions during 2018 that really helped to drive up that NBV. Some of it was pricing actions, some of it was acquisition expenses in terms of becoming a lot more efficient and then we also saw a favorable product and business mix, again all on the brokerage side of the business. So I would say that, that has been pretty much primarily driven by the brokerage side.
The next question is from Scott Chan from Canaccord Genuity.
Just to follow up on WAM in Asia. Throughout the call, you've talked about like the tailwinds in Asia wealth, but if I look at the gross flows, it's materially declined sequentially and kind of flattish over the last 3 quarters. You talk about strength in the institutional. What's kind of on the negative side that is kind of impacting the flows trend in Asia?
Yes, thanks, Scott. It's Paul here. What you're seeing here is the general slowdown in retail, which was across the board because of the markets in Asia. You remember markets were down for pretty much the full year last year and that pretty much left a lot of money on the sidelines in the retail space. So that's what you're seeing. That's not unique to us, it's across the board and, in fact, we fare quite well relative to peers when we look at that, but we feel we're well positioned when that -- when the market stabilizes and we start to see money come back. I mean that's the primary driver you're seeing there and you'll see it in our gross flows number, particularly in China.
Okay. And just lastly, Paul, just on the institutional side, which is probably the one bright spot in WAM in the quarter in terms net flows. Can you maybe talk about kind of what drove the flows in the quarter and kind of the outlook in the segment in '19?
Well, I think what we're starting to see on the institutional side is the ability to sell the strategies that we have in all the countries, in multiple jurisdictions, not just in the country that they're at. So we are starting to see some interest in some of our agent strategies from European investors as an example or starting to see some interest in our Asia institutional clients for U.S. strategies, and that's really helping us leverage really what we bring to bear more broadly than the strategies that are more domestic in nature.
The next question is from Dave Motemaden from Evercore.
Just a question for Steve on Long-Term Care. The Society of Actuaries just released their morbidity improvement study. Just wondering your view of the results of that and whether that impacts your view at all on the morbidity improvement that you have embedded in your Long-Term Care reserves?
Thanks, Dave. Yes, we saw that study and the study what it really attempted to do was lay out for practicing actuaries in the field methodologies that would be appropriate for looking at trends in morbidity. The paper did not -- explicitly did not draw any conclusions on whether there are improvements or not. As I stated in the last call, we've been looking at additional data. The way that we analyze it is consistent with the methods I'd talked about in the SOA study. And as I said before, we've seen nothing that would change our point of view on morbidity improvement.
Got it. And then, I guess, maybe just a question on the COLI business in Japan. Just wondering what are really the profit drivers in that business? Is it more spread-based, or is it more underwriting, mortality-based? If you can you just provide some color on what's really driving the underlying earnings there?
So this is Anil, and I'm going to start and then probably offer Steve to supplement. But if we look at the COLI business -- the product and the construct of it, it has elements of both savings and protection. So the source of earnings or the source of profit kind of comes from your normal insurance margins as well as some of the gains that we get on investments. So it's really the combination of the 2 things that really drives the source of earnings for us in COLI. Steve?
I have nothing to add.
Got it. And that's a yen-based product. So are you guys investing in yen-based securities, or are you using more of a global approach to investing in the assets and hedging that back to yen, just in terms of the assets back in that business?
It's Scott. And yes, you're exactly right, we try to take advantage of our global sourcing ability, but we absolutely will not take currency risk. So we do swap it all back to yen.
The next question is from Humphrey Lee from Dowling & Partners.
Just a follow-up question to Anil about the agency count in Hong Kong. I just want to get a sense, is it a result of you kind of more actively poaching from your competitors or it's because of there is the market changes there? Like my understanding is a few of the local -- a few of the players there, they're subscale and agents have been unhappy and wanting to leave. So given the success for Manulife in Hong Kong in recent years can be an attractive landing spot for them. So just kind of if you can give some color in terms of the dynamic.
Yes, I think the primary focus, Humphrey, on the agency growth is to be able to kind of attract some of the more younger talent. And that's something that we've kind of been making a kind of conscious attempt towards. So the success that we've kind of seen in the recent times or in the recent quarters and the recent years in Hong Kong obviously, as I said earlier, makes it very compelling for the folks who want to kind of build a career in Hong Kong to chose Manulife. And added to that, the fact that we have a relationship through our MPF business with 1 out of 3 customers -- adult customers in Hong Kong, really kind of provides a huge opportunity for us to kind of deepen and build relationship with our customers. In addition to that, we have also been making significant investments in digital, which does a few things. One is it makes life simpler for our agents and our customers and that has a knock-on impact on productivity. And obviously, if we make life simpler for our agents and customers, that [ per force ] can have -- is a very motivating opportunity for the agents to build on.
And then a question for Naveed. I understand that your discussions with potential counterparties on legacy transactions is private. But I guess, from a sentiment perspective, given the macroenvironment has changed a bit and the deep concerns for credit cycle and all that, like has that kind of deeper discussion with your -- any kind of potential counterparties difference kind of, say, from early in 2018 versus now?
Naveed here. Thanks for the question. I would say actually throughout 2018, we saw more interest in the blocks. And that's partly why we sort of overachieved early on the capital release target. I haven't really seen any pullback from counterparties. We continue to be engaged actively on a lot of the remaining blocks. And again, just to your question, haven't seen any pullback at all.
The next question is from Tianjiao Yu from Sanford Bernstein.
This is Tianjio from Bernstein. I have 2 questions here. The first one is a follow-up question on the NBV growth in U.S. You mentioned about the margin -- the 300% NBV growth is driven by margin expansion, and you mentioned about the improvement on product mix. Can you further elaborate on that? I was just wondering, is there any help from the vitality products that you launched?
Marianne Harrison here. Yes, in terms of the NBV net margin, we did see some favorable impact from the product and business mix and it was primarily more on the universal life and less on the term. One of the areas where we were improving margins actually was on the term products. So we increased pricing on that. So we did see more of a shift on the UL side. We're also seeing significant uptick on the vitality offering. And as Roy had mentioned, we are offering that across all of our insurance products, the behavioral insurance. And those sales in the fourth quarter alone were up 75% versus a year ago, and for the full year it was up 52%. So we are seeing quite a favorable pickup from that vitality offering as well.
And the second question is regarding the core earnings. You previously mentioned the target of having 2/3 of the core earnings from the high potential business, which includes Asia, WAN group -- Canada group and the U.S. behavioral insurance. We're just wondering what is the targeted contribution from each segment, broadly?
Thanks, Tianjio. This is Phil. So yes, we absolutely do stand by this target of 2/3 of our core earnings coming from our high potential businesses. We've also laid out a medium-term operating target of a 13%-plus ROE and we're standing by that 13% plus in aggregate. We absolutely expect that the higher ROEs will come from highest potential businesses, but overall, I think that 13% is a good number to go with for now, and we'll evaluate once we have consistently achieved 13%.
If I can just also just clarify, you mentioned that the categorizations of our high potential businesses correctly, but you said behavioral insurance in the U.S., it's actually global behavioral insurance, which includes our assets on vitality in the U.S., but also in Canada as well as our MOVE program in Asia.
The next question is from Sumit Malhotra from Scotia Capital.
For Scott, the -- sorry, for Steve. Just on the Long-Term Care, we've talked a lot about the potential changes you may or may not have to make to morbidity. One of the things you did mention to us in the past was, you've been conservative on the assumption of price increases, one of your competitors -- in your reserves. One of your competitors did note that they've been able to successfully embed some new price increases on policies in-force. Just kind of going back to the numbers that you gave us, Steve, I think, it was something like your reserves only included $800 million for price increases, not yet approved. As you think about the 2019 review, can you give us an update on how your pricing increase actions have trended and what that may mean for -- back and forth in reserves that you conduct in 2019?
Sure, Sumit, and that's correct. At the time of Investor Day, we had disclosed that there were $0.8 billion that were embedded in our reserves for filings that we've made, but not yet achieved and that was a very conservative portion of the overall ask. So this will be one of the assumptions. We will update all the assumptions, and this is one of the assumptions that we're reviewing for the Q3 basis change. Since that time, we have made considerable progress. We have achieved another $500 million out of that $800 million in increases, and we still have many billion above that, that we are continuing to pursue and expect to get over time. Our progress has been consistent with our expectations, so we're very pleased with this result, and as I said, it will factor into our Q3 review.
So a potential offset to what -- we talked about the morbidity maybe being a headwind, you might not agree with that, but I think your comment here is that there are a few things in the other direction as well?
We believe we will continue to have success with the rate increases, yes, and we'll consider how to factor that into the reserves.
There are no further questions registered at this time. I would now like to turn the meeting back to Ms. O'Neill.
Thank you, operator. We will be available after the call, if there are any follow-up questions. Have a nice morning.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.