エドガーで原本を確認する
Form 20-F |
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Form 40-F |
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Exhibit |
Description of Exhibit |
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99.1 |
Independent Auditor’s Report Dated February 19, 2025 |
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MANULIFE FINANCIAL CORPORATION |
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By: |
/s/ Eddy Mezzetta |
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Name: |
Eddy Mezzetta |
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Title: |
Vice President and Chief Counsel, Corporate Law |
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Date: February 19, 2025 |
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Valuation of Insurance Contract Liabilities |
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Key Audit
Matter
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The Company recorded insurance contract liabilities of $523 billion at December 31, 2024 on its consolidated statement of
financial position, of which $383 billion as disclosed in Note 6 ‘Insurance and Reinsurance Contract Assets and Liabilities’ has
been measured under the variable fee approach (VFA) and the general measurement model (GMM). At initial recognition, the
Company measures a group of insurance contracts as the total of: (a) fulfilment cash flows, which comprise of estimates of
future cash flows, adjusted to reflect the time value of money and financial risks, and a risk adjustment for non-financial risk;
and (b) a contractual service margin (CSM), which represents the estimate of unearned profit the Company will recognize as it
provides service under the insurance contracts or the loss component when the contracts are onerous. When projecting future
cash flows for these insurance contract liabilities, the Company primarily uses deterministic projections using best estimate
assumptions. Key assumptions are subjective and complex and include mortality, morbidity, investment returns, policy
termination rates, premium persistency, directly attributable expenses, taxes, and policyholder dividends. Disclosures on this
matter are found in Note 1 ‘Nature of Operations and Material Accounting Policy Information’ and Note 6 ‘Insurance and
Reinsurance Contract Assets and Liabilities’ of the consolidated financial statements.
Auditing the valuation of these insurance contract liabilities was complex and required the application of significant auditor
judgment due to the complexity of the cash flow models, the selection and use of assumptions, and the interrelationship of
these variables in measuring insurance contract liabilities. The audit effort involved professionals with specialized skills and
knowledge to assist in evaluating the audit evidence obtained.
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How Our Audit
Addressed the
Key Audit
Matter
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We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over
the valuation of insurance contract liabilities. The controls we tested related to, among other areas, actuarial methodology,
integrity of data used, controls over relevant information technology, and the assumption setting and implementation
processes used by management.
To test the valuation of insurance contract liabilities, our audit procedures included, among other procedures, involving our
actuarial specialists to assess the methodology and assumptions with respect to compliance with IFRS. We performed audit
procedures over key assumptions, including testing the implementation of those assumptions into the models. These
procedures included testing underlying support and documentation, including reviewing a sample of experience studies
supporting specific assumptions, challenging the nature, timing, and completeness of changes recorded, and assessing
whether individual changes were errors or refinements of estimates. We also tested the methodology and calculation of the
insurance contract liabilities through both review of the calculation logic within the models, and through calculating an
independent estimate of the fulfillment cashflows for a sample of insurance contracts and comparing the results to those
determined by the Company and to industry and other external sources for benchmarking. Additionally, we have performed an
independent calculation of the CSM for a sample of groups of insurance contracts and compared the amounts to the
Company’s results. We also assessed the adequacy of the disclosures related to the valuation of insurance contract liabilities.
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Valuation of Invested Assets and Derivatives with Significant Non-Observable Market Inputs |
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Key Audit
Matter
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The Company recorded invested assets of $93.9 billion, as disclosed in Note 3 ‘Invested Assets and Investment Income’, and
derivative assets and liabilities of $0.2 billion, and $3.4 billion, respectively, as disclosed in Note 4 ‘Derivative and Hedging
Instruments’ at December 31, 2024 within its consolidated statement of financial position which are both (a) measured at fair
value and (b) classified as Level 3 within the Company’s hierarchy of fair value measurements. The Level 3 invested assets
include private placements, commercial mortgages, real estate, timber and agriculture, and private equities valued using
internal models. Level 3 derivative assets and liabilities primarily include bond forwards. There is increased measurement
uncertainty in determining the fair value of these invested assets and derivatives due to volatility in the current economic
environment. Fair values are based on internal models or third-party appraisals that incorporate assumptions with a high-level
of subjectivity including discount rates, credit ratings and related spreads, expected future cash flows, transaction prices of
comparable assets, volatilities, correlations, and repurchase rates. Disclosures on this matter are found in Note 1 ‘Nature of
Operations and Material Accounting Policy Information’, Note 3 ‘Invested Assets and Investment Income’, and Note 4
‘Derivative and Hedging Instruments’ of the consolidated financial statements.
Auditing the valuation of these invested assets and derivatives was complex and required the application of significant auditor
judgment in assessing the valuation methodologies and non-observable inputs used. The valuation is sensitive to the
significant non-observable market inputs described above, which are inherently forward-looking and could be affected by
future economic and market conditions. The audit effort involved professionals with specialized skills and knowledge to assist
in evaluating the audit evidence obtained.
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How Our Audit
Addressed the
Key Audit
Matter
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We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over
the valuation processes. The controls we tested related to, among other areas, management’s determination and approval of
assumptions and methodologies used in model-based valuations. The controls we tested also included controls over relevant
information technology.
To test the valuation, our audit procedures included, among other procedures, involving our valuation specialists to assess the
methodologies and significant inputs and assumptions used by management. These procedures included assessing the
valuation methodologies used with respect to the Company’s policies, valuation guidelines, and industry practice and
comparing a sample of valuation assumptions used against benchmarks including comparable transactions where applicable.
We also performed independent investment valuations on a sample basis to evaluate management’s recorded values. In
addition, we assessed the adequacy of the disclosures related to the valuation of invested assets and derivatives.
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IFRS 9 Hedge Accounting |
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Key Audit
Matter
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The Company has designated hedge accounting relationships with the objective to reduce potential accounting mismatches
between changes in the fair value of derivatives in income and financial risk of insurance contract liabilities and financial
assets in other comprehensive income. Specifically, the Company has established relationships to hedge the fair value
changes of certain of the Company’s insurance contract liabilities and debt instruments attributable to interest rate risk. The
Company has also established relationships to hedge the risk of fair value changes of certain foreign currency denominated
insurance contract liabilities and debt instruments attributable to foreign currency and interest rate risk. Related to the
application of these hedges, the Company recognized changes in value of hedged assets of ($462) million, and changes in
value of hedged liabilities of $3,646 million, for the year ended December 31, 2024. Disclosures on this matter are found in
Note 1 ‘Nature of Operations and Material Accounting Policy Information’ and Note 4 ‘Derivative and Hedging Instruments’ of
the consolidated financial statements.
Auditing the application of hedge accounting was complex and required the application of significant auditor judgement related
to the assessment of the ongoing economic relationship between the risk component of the hedged item and hedging
instrument, the assessment that the hedge ratio between the hedging instrument and the hedged item was consistent with the
risk objectives, and the determination of the resulting accumulated fair value adjustments. The audit effort involved
professionals with specialized skills and knowledge to assist in evaluating the audit evidence obtained.
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How Our Audit
Addressed the
Key Audit
Matter
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We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls over
the application and execution of those strategies, including the implementation of new strategies where applicable, and the
measurements of the accumulated fair value adjustments. The controls we tested included, among others, controls over the
review of the completeness, accuracy, and eligibility of the hedged items and hedging instruments included in the hedging
relationships, determination of the hedge ratio between the hedging instrument and the hedged item with reference to the risk
objectives, and the determination of the resulting accumulated fair value adjustments. The controls we tested also included
controls over relevant information technology.
To assess the Company’s application of these hedge accounting strategies under IFRS 9, our audit procedures included,
among other procedures, involving our hedge accounting and derivative specialists to support our independent testing of the
application of the hedge ratio by the Company and the valuation of a sample of the accumulated fair value adjustments. Other
procedures performed include testing over the completeness and accuracy of the hedged items and hedging instruments
designated in these relationships and the determination of the resulting accumulated fair value adjustments. In addition, we
assessed the adequacy of the disclosures related to hedge accounting.
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