Manulife Financial Corporation Reports Fourth Quarter and Annual Results

    
    -   Full year net income $1,402 million compared to $517 million in 2008
    -   Strong capital levels - MLI MCCSR of 240 per cent at year end
    -   Equity exposure reduced through hedging, business and product mix
        adjustments and improved equity markets
    -   Solid sales with priority on the highest return products and
        geographies, and diversification of risk
    -   Good investment results in the face of challenging markets
    -   Announced three attractive acquisitions in 2009 - wealth management
        in China and Canada and travel insurance in Canada
    -   Completed U.S. subsidiary reorganization at year end - reduces equity
        sensitivity and provides more efficient capital structure and
        diversified risk profile

    C$ unless otherwise stated

    TSX/NYSE/PSE: MFC     SEHK: 945
    

TORONTO, Feb. 11 /CNW/ - Manulife Financial Corporation ("MFC") today reported net income attributed to shareholders of $868 million for the fourth quarter ended December 31, 2009, which equates to fully diluted earnings per share of $0.51 and return on common shareholders' equity(1) of 13.1 per cent. This is in contrast to the fourth quarter of 2008 net loss attributed to shareholders of $1,870 million and a loss per share of $1.24. Full year net income attributed to shareholders was $1,402 million compared to $517 million in 2008, or $0.82 per share versus $0.32 per share in the prior year. Return on common shareholders' equity for the full year 2009 was 5.2 per cent compared to 2.0 per cent in the prior year.

In its second quarter earnings release, the Company included a forward-looking statement that estimated adjusted earnings from operations to be between $750 million and $850 million per quarter for the remainder of 2009 and 2010. The fourth quarter's adjusted earnings from operations(2) under this definition was $781 million.

Chief Executive Officer Donald A. Guloien stated, "Our fourth quarter results capped off a year of many accomplishments. We have improved margins, balanced our product portfolio, announced three attractive acquisitions and continued to demonstrate good investment results in the face of challenging market conditions. We have a strong capital base and our equity exposure has reduced through additional hedging, product mix adjustments and with the benefit of equity market increases. We intend to continue to reduce our equity exposure, subject to market conditions. Our full year net income increased from $517 million in 2008 to $1.4 billion in 2009, producing a return on shareholders' equity of 5.2 per cent. While this is a significant improvement over last year, we are dedicated to very significant improvements in earnings and return on shareholders' equity over time."

    
    ---------------------------
    (1) Return on common shareholders' equity is a non-GAAP measure. See
        "Performance and Non-GAAP Measures" below.

    (2) Referred to in the second quarter report as normalized earnings. See
        "Normalized Earnings and Adjusted Earnings from Operations -
        Reconciliation with GAAP Measure" and "Performance and Non-GAAP
        Measures" below.
    

FINANCIAL RESULTS

Chief Financial Officer Michael W. Bell said, "Our adjusted earnings from operations(3) for the fourth quarter were in line with anticipated levels. Our net earnings of $868 million reflected the impact of positive equity market performance partially offset by market value changes in investments, the impact of model refinements to previously implemented changes to our actuarial methods and the impact of tax adjustments. During the quarter, we completed the merger of our U.S. operating subsidiaries and a $2.5 billion common equity raise which increased our capital levels and resulted in a satisfactory year end MCCSR in MLI of 240 per cent."

North American equity markets, where the S&P 500 increased five per cent and the TSX increased three per cent in the quarter, generated non cash gains of $435 million while increases in corporate bond yields, partially offset by declining credit spreads, resulted in a net non cash gain of $110 million.

Partially offsetting the above gains were declines, relative to our growth assumptions, in real estate, timber and agriculture property appraisals of $171 million. An additional adjustment of $101 million related to changes to the Ontario income and sales tax laws. Finally, the Company took a charge of $147 million resulting from model refinements to previously implemented changes in actuarial methods. As noted in the third quarter, the annual review of actuarial methods and assumptions was completed in the third quarter and no further significant assumptions were updated in the fourth quarter.

The Company's fixed income portfolio continued to perform very well relative to overall market conditions. In the fourth quarter, recoveries exceeded impairments, resulting in net recoveries of $4 million for credit and $5 million for private equities. These were offset by charges of $31 million related to increases in policy liabilities for credit downgrades and $29 million of Other Than Temporary Impairments ("OTTI") and realized losses on the Available-For-Sale ("AFS") equity holdings in our Corporate and Other segment.

The hedged amount of our variable annuity business increased from $5.7 billion of guarantee value to $24.9 billion of guarantee value over the year, resulting in 35 per cent hedged or reinsured at year end. The Net Amount at Risk(4) (the amount in the money) decreased by 54 per cent over the year, from $25.3 billion to $11.6 billion.

At December 31, 2009, MFC successfully completed the reorganization of certain of its U.S. subsidiaries, such that all the U.S. operating life insurance companies are now subsidiaries of The Manufacturers Life Insurance Company ("MLI"). As a result of this merger, we have a more efficient regulatory capital structure, improved operating efficiencies, more stable capital ratios and a more diversified risk profile in MLI and in the U.S. subsidiaries. While MLI's MCCSR was reduced by approximately 25 percentage points as a result of the reorganization, the reorganization also reduced the MLI's equity sensitivity.

MLI reported an MCCSR ratio of 240 per cent as at December 31, 2009, up from 229 per cent in the prior quarter. Capital and financing activities and improving equity markets during the quarter more than offset the impact of the U.S. subsidiary reorganization discussed above.

The Company's capital sensitivity to market declines decreased significantly. Compared with December 31, 2008, the sensitivity to a ten per cent decline in market value of equity funds, based on the estimated impact on MLI's MCCSR, reduced by approximately one half at December 31, 2009. This decrease resulted from a more diversified risk profile in MLI due to the U.S. subsidiary reorganization, and the reduction in the net amount at risk related to segregated fund guarantees as a result of market increases and the higher amount of segregated fund guarantee business hedged.

    
    ---------------------------
    (3) Referred to in the second quarter report as normalized earnings. See
        "Normalized Earnings and Adjusted Earnings from Operations -
        Reconciliation with GAAP Measure" and "Performance and Non-GAAP
        Measures" below.

    (4) Amount at risk is the excess of guarantee values over fund values on
        all policies where the guarantee value exceeds the fund value.
    

SALES AND BUSINESS GROWTH

Chief Operating Officer John D. DesPrez III said, "The positive sales results we recorded across most of our businesses in 2009 were tempered by the pace of economic recovery in the United States, as well as our conscious efforts to adjust product design and business risk profile. In 2009, we focused on pricing and margins over market share and we continue to follow this approach to building strong, valuable businesses. We are hedging substantially all of our new variable annuity business, and we are increasing the proportion of our in-force variable annuity business that is hedged, across all our geographies, as market conditions improve to levels that allow us to meet our business objectives. In 2009, we continued to expand our strong distribution capabilities and we further strengthened the business with acquisitions in Canada and in China's fast growing wealth and asset management sector."

Insurance sales in the fourth quarter were in line with the prior year, with full year sales declining by four per cent in comparison to 2008 levels on a constant currency basis(5). Declines primarily attributable to a slower economic recovery in the U.S. were largely offset by strong growth in Asia both on a quarterly and annual basis.

Wealth sales in the fourth quarter, excluding variable annuity products, increased by seven per cent over the fourth quarter of 2008, driven by growth in both Asia and the U.S., and full year sales were in line with the prior year, on a constant currency basis.

In accordance with the Company's on-going risk management initiatives, sales of variable annuity products in the fourth quarter declined by 60 per cent compared to the prior year, and full year sales were lower than 2008 levels by 45 per cent, on a constant currency basis.

Premiums and deposits(6) for the insurance businesses amounted to $22.9 billion for the full year, and $6.5 billion for the fourth quarter of 2009, representing increases of 11 per cent and 28 per cent over the prior year, respectively, on a constant currency basis. Included in the fourth quarter amount was a US$910 million deposit received from our former joint venture partner when John Hancock Long-Term Care ("JHLTC") became the sole carrier of the U.S. Federal Long Term Care Insurance Program effective October 1, 2009. The remaining nine per cent increase in the quarter was attributable to growth of in-force insurance business.

Premiums and deposits for the wealth businesses excluding variable annuities amounted to $37.1 billion for the full year and $8.1 billion for the fourth quarter of 2009. On a constant currency basis, compared to prior year, full year premiums and deposits, excluding variable annuities, were down five per cent and fourth quarter premiums and deposits, excluding variable annuities, were up one per cent. During the fourth quarter, strong sales growth of mutual funds, across all geographies, was partially offset by lower fixed product sales in the U.S. and lower new mandates in the Institutional Advisory business.

Variable annuity and segregated fund premiums and deposits amounted to $11 billion for the full year, and $2 billion for the fourth quarter 2009, representing declines of 44 per cent and 59 per cent compared to the prior year, respectively, on a constant currency basis. Much of the decline is a result of the Company's on-going risk management initiatives across all geographies and, to a lesser extent, the general economic conditions.

New business embedded value(7) ("NBEV") for the insurance businesses was $396 million in the fourth quarter of 2009. This represented an increase of three per cent, on a constant currency basis, compared to fourth quarter 2008 and is comparable to the change in sales levels discussed above.

NBEV for the wealth, excluding variable annuity, businesses was $175 million in the fourth quarter of 2009. This represented a decrease of 19 per cent, on a constant currency basis, compared to fourth quarter 2008 due to lower Manulife Bank loan volumes and sales mix changes in John Hancock Retirement Plan Services.

NBEV for the variable annuity businesses was $39 million in the fourth quarter of 2009, reflecting lower sales volumes and the costs associated with hedging the new business.

Total funds under management(8) as at December 31, 2009 were $440 billion, a 22 per cent increase over the prior year end, on a constant currency basis as policyholder cash in-flows in excess of out-flows of $21 billion and investment income of $63 billion more than offset unfavourable currency movements of $55 billion over the last twelve months.

Continuing to capitalize on strategic opportunities, Asia and Japan Division announced a 49 per cent investment in a fund management company in China. Manulife will acquire Fortis Bank SA/NV's ownership in ABN AMRO TEDA Fund Management Co., Ltd. This acquisition, subject to regulatory approvals, will provide Manulife with an immediate, sizable entry point into China's rapidly growing wealth management industry, with US$4.4 billion in assets under management at year end.

    
    ---------------------------
    (5) Constant currency amounts are non-GAAP measures. See "Performance and
        Non-GAAP Measures" below.
    (6) Premiums and deposits is a non-GAAP measure. See "Performance and
        Non-GAAP Measures" below.
    (7) New business embedded value is a non-GAAP measure. See "Performance
        and Non-GAAP Measures" below.
    (8) Funds under management is a non-GAAP measure. See "Performance and
        Non-GAAP Measures" below.
    

OPERATING HIGHLIGHTS

Insurance

    
    -   Total insurance sales for the full year 2009 were down by
        four per cent versus 2008 and fourth quarter sales in 2009 were in
        line with the prior year, on a constant currency basis. The fourth
        quarter results were led by advances in Asia, which experienced
        double-digit growth, offset by declines in North America. These
        results reflect the varying paces of economic recovery experienced
        across the Company's geographic regions of operations over the course
        of the year, with Asia recovering the fastest, followed by Canada.

    -   In the U.S., the slow pace of economic recovery resulted in a
        19 per cent annual decline in insurance sales versus 2008, on a
        US dollar basis, in line with general industry trends. Fourth quarter
        sales improved but were down seven per cent in comparison to the
        fourth quarter of 2008, on a US dollar basis. Part of the sales
        decline was attributable to re-pricing initiatives taken on certain
        product offerings. During the fourth quarter, the Company's
        distribution relationship with Edward Jones was expanded to include
        life insurance products.

    -   In Canada, full year insurance sales ended the year up four per cent
        over fiscal 2008. Group Benefits had a strong year with sales
        increasing 12 per cent year over year; while individual insurance
        sales were down modestly from 2008, as large case sales were most
        impacted by the market turmoil. Individual insurance sales rebounded
        in the fourth quarter and travel sales were at record highs, however
        quarterly volatility in group insurance dampened the overall sales
        result and total insurance sales of $146 million for the fourth
        quarter were three per cent below 2008 levels.

    -   In Asia, full year insurance sales were up 15 per cent and fourth
        quarter sales were up 14 per cent versus the same periods in 2008, on
        a constant currency basis. Strong sales momentum in the quarter was
        led by robust growth in Hong Kong, Taiwan, Indonesia and China
        arising from successful sales and marketing campaigns and new product
        launches. Japan sales finished the year up 21 per cent over the prior
        year, on a Yen basis, attributable to strong sales growth through the
        MGA channel and the success of the increasing term insurance and the
        corporate owned medical and life insurance products introduced in
        2008. Fourth quarter sales in Japan were down nine per cent versus
        2008, on a Yen basis, as the sales from the MGA channel slowed down
        relative to the 2008 launch momentum of the corporate owned medical
        and life products. During the quarter, new products were launched in
        Hong Kong, Taiwan, Malaysia and Singapore. In addition, Manulife
        continued to expand in China, receiving a license to operate in the
        city of Shantou. At year end, Manulife-Sinochem was licensed in
        39 cities, which are home to more than 280 million individuals,
        across 11 provinces.
    

Wealth Management, excluding variable annuities

    
    -   Wealth sales, excluding variable annuities, for the full year 2009
        were in line with the prior year, while fourth quarter sales
        increased by seven per cent over the fourth quarter of 2008, in each
        case on a constant currency basis. The increase in the fourth quarter
        was driven by growth in both Asia and the U.S. as most business units
        experienced healthy increases reflecting the market recovery.

    -   In the U.S., full year wealth sales, excluding variable annuities,
        were down by 11 per cent compared to 2008, on a US dollar basis, as
        higher fixed product sales, attributable to demand for guaranteed
        returns from highly rated firms, were more than offset by the decline
        in mutual fund sales due to the economy. In the fourth quarter, sales
        increased by ten per cent over the prior year, on a US dollar basis,
        driven by sales in Mutual Funds and Retirement Plan Services, which
        grew by 38 per cent and 17 per cent, respectively. These increases
        were partially offset by lower sales in Fixed Products.

    -   In Canada, full year wealth sales, excluding variable annuities,
        increased by 12 per cent over 2008, driven by strong fixed product
        sales, and success in the large case defined contribution market in
        Group Savings and Retirement Solutions ("GSRS"). Sales in the fourth
        quarter of 2009 declined by 15 per cent versus the prior year, as
        strong growth in retail mutual funds and fixed products was more than
        offset by the lingering impact of the economic downturn on Manulife
        Bank loan volumes and lower sales in GSRS, where sales levels are by
        nature less uniform. Following the acquisition of AIC retail funds,
        the Company continues to streamline its overall mutual fund platform
        and launched a number of new funds in the fourth quarter.

    -   In Asia, full year wealth sales, excluding variable annuities, grew
        by 41 per cent versus fiscal 2008, on a constant currency basis,
        primarily attributable to mutual fund sales in Taiwan arising from an
        acquisition made in October 2008. Wealth sales for the fourth quarter
        of 2009 increased by over 80 per cent compared to the prior year, on
        a constant currency basis, led by mutual fund sales growth in
        Indonesia, Hong Kong and Taiwan.

    -   During the fourth quarter, Manulife announced the acquisition of
        Fortis Bank SA/NV's 49 per cent ownership in ABN AMRO TEDA Fund
        Management Co., Ltd. ("ABN AMRO TEDA"). With US$4.4 billion in assets
        under management, subject to regulatory approval, ABN AMRO TEDA will
        provide Manulife with an immediate, sizable entry point into China's
        rapidly growing wealth management industry.

    -   MFC Global Investment Management ("MFC GIM") ended the year with
        funds under management of $110 billion, an increase of $4 billion
        from the prior quarter, where positive market performance and net
        sales were partially offset by the impact of the strengthened
        Canadian dollar. During the quarter, MFC GIM was selected as
        investment adviser for three new equity mandates totaling
        $234 million. In total, MFC GIM secured approximately $6 billion in
        new assets from institutional clients, despite a very challenging
        economic environment in 2009.
    

Wealth Management - variable annuities

    
    -   Full year variable annuity sales declined, on a constant currency
        basis, by 45 per cent versus full year 2008 and by 60 per cent for
        the fourth quarter of 2009 compared to the fourth quarter of 2008,
        largely as a result of the Company's on-going initiatives to balance
        its risk profile across all geographies.

    -   During the fourth quarter, the Company expanded its hedging program
        and commenced hedging new variable annuity business written in Japan.
        Substantially all new business in the U.S. and Canada continues to be
        hedged. With good global equity market performance in the quarter,
        the Company also continued to put in place hedges on a portion of its
        in-force variable annuity business, hedging an additional
        $3.7 billion of guaranteed value including $0.6 billion in Canada,
        $2.0 billion in the U.S., and $1.1 billion in Japan.

    -   Overall, the Company made significant progress hedging more of its
        variable annuity business during the year. The Company executes these
        hedges on an ongoing basis as market conditions improve to levels
        that allow us to meet our business objectives. At year end,
        $24.9 billion of guarantee value was hedged, up from $5.7 billion at
        December 31, 2008. Approximately 35 per cent of the gross guarantee
        value was reinsured or hedged, up from 20 per cent at the end of
        2008. As a result of improved equity markets, increased hedging, and
        the impact of currency movements, the amount at risk net of
        reinsurance and hedging at December 31, 2009 was $11.6 billion,
        54 per cent lower than at the end of the prior year.

    -   Subsequent to year end, the Company has hedged an additional
        $7.6 billion of guarantee value ($2.7 billion in Canada and
        $4.9 billion in the U.S.), bringing the percentage of guarantee value
        hedged or reinsured up to approximately 42 per cent.
    

Corporate

    
    -   During the quarter, consistent with on-going efforts to strengthen
        its capital base and to take advantage of small to medium sized
        acquisition opportunities, the Company announced and completed a
        common equity offering of $2.5 billion, issuing shares at $19 per
        share. The common shares were sold to a syndicate of underwriters in
        a "bought deal" public offering.

    -   Effective December 31, 2009, the Company completed the previously
        announced reorganization of certain of its U.S. legal entities. The
        reorganization involved merging John Hancock Life Insurance Company
        and John Hancock Variable Life Insurance Company into John Hancock
        Life Insurance Company (U.S.A.), thus reducing the number of John
        Hancock's primary operating life insurance companies from five to
        three.

    -   In a separate news release, the Company also announced today that the
        Board of Directors approved a quarterly shareholders' dividend of
        $0.13 per share on the common shares of the Company, payable on and
        after March 19, 2010 to shareholders of record at the close of
        business on February 24, 2010.
    

Awards & Recognition

Manulife Financial received recognition from several organizations in the quarter, including the following:

    
    -   In the U.S., John Hancock Retirement Plan Services was recognized for
        communications excellence by the League of American Communication
        Professionals (LACP) winning a total of 18 awards including five
        platinum and seven gold. Multi-media, print and web communications
        were all honoured. The communications focused on a wide range of
        audiences including 401(k) participants, plan sponsors, financial
        representatives, third party administrators and internal audiences.

    -   In Canada, Manulife Investments was recognized at the 2009 Canadian
        Investment Awards where the Manulife Strategic Income Fund won a
        silver award in the "Global Fixed Income" category. Mawer Investment
        Management, a key sub-adviser in the Manulife funds family, received
        two gold awards. In addition, our Insight Services Online
        Transactions, which streamlines advisor interaction with the Company,
        received a silver award in the "Best Use of Technology" category. The
        Canadian Investment Awards recognize leading investment products and
        firms illustrating an enduring commitment to excellence within the
        Canadian financial services industry.

    -   In Hong Kong, Manulife (International) Limited ("MIL") has been
        designated the "Best Company for Financial Planning Excellence" for
        the third year running. MIL has won the company award in the
        insurance sector of the SCMP/IFPHK Financial Planner Awards since its
        inception in 2007. SCMP/IFPHK Awards are an industry-wide
        competition, jointly organized by the Institute of Financial Planners
        of Hong Kong (IFPHK) and the South China Morning Post (SCMP).

    -   In Vietnam, Manulife was awarded an "Outstanding Achievement Award"
        by the Ministry of Finance for its outstanding achievements and
        significant contribution to the development of the insurance market
        in Vietnam. The Ministry also awarded the General Director of
        Manulife Vietnam an "Outstanding Contribution Award" in recognition
        of his outstanding management as well as contribution to developing
        the life insurance market in Vietnam.
    

Notes:

Manulife Financial Corporation will host a Fourth Quarter Earnings Results Conference Call at 2:00 p.m. ET on February 11, 2010. For local and international locations, please call (416) 340-2216 and toll free in North America please call (866) 898-9626. Please call in ten minutes before the call starts. You will be required to provide your name and organization to the operator. A playback of this call will be available by 6:00 p.m. ET on February 11, 2010 until February 25, 2010 by calling (416) 695-5800 or (800) 408-3053 (passcode 3274828 followed by the number sign).

The conference call will also be webcast through Manulife Financial's website at 2:00 p.m. ET on February 11, 2009. You may access the webcast at: www.manulife.com/quarterlyreports. An archived version of the webcast will be available at 4:30 p.m. ET on the website at the same URL as above.

The Fourth Quarter 2009 Statistical Information Package is also available on the Manulife website at: www.manulife.com/quarterlyreports. The document may be downloaded before the webcast begins.

MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

    
    FINANCIAL HIGHLIGHTS
    (unaudited)

                                      Quarterly Results         Year Ended
                                      -----------------         ----------
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders (C$ millions)   868     (172)  (1,870)   1,402      517
    Net Income (Loss) Available
     to Common Shareholders
     (C$ millions)                   848     (193)  (1,878)   1,338      487
    Diluted Earnings (Loss) per
     Common Share (C$)              0.51    (0.12)   (1.24)    0.82     0.32
    Return on Common Shareholders'
     Equity(1) (%, annualized)      13.1     (3.0)   (28.9)     5.2      2.0
    Premiums & Deposits(1)
     (C$ millions)                16,535   16,238   19,493   71,270   75,750
    Funds under Management(1)
     (C$ billions)                 439.6    436.6    404.5    439.6    404.5
    Capital(1)  (C$ billions)       33.2     30.7     30.9     33.2     30.9

    (1) This item is a non-GAAP measure. For a discussion of our use of
        non-GAAP measures, see "Performance and Non-GAAP Measures" below.
    

Net Income

The Company's net income attributed to shareholders was $868 million for the fourth quarter of 2009, in contrast to a loss of $1,870 million for the fourth quarter of 2008. Earnings in the fourth quarter of 2009 reflected increases in equity markets and interest rates, partially offset by decline in the market value of real estate holdings, model refinements to previously implemented changes in actuarial methods, one-time charges for changes in Ontario tax laws and the impact of a stronger Canadian dollar. The results of the fourth quarters of 2009 and 2008 are expanded on below.

Full year net income attributed to shareholders was $1,402 million compared to $517 million in 2008.

Fourth quarter 2009:

In the fourth quarter of 2009, North American equity markets increased by three to five per cent and the Japan TOPIX was down slightly. The overall positive equity market performance in the fourth quarter of 2009 generated non cash gains of $393 million related to our segregated fund guarantee business and $42 million related to capitalized variable universal life product fee income and gains on equities supporting policy liabilities. Partially offsetting these gains were $29 million of other than temporary impairments and realized losses on equities classified held as available-for-sale ("AFS") in the Corporate and Other segment.

During the quarter, interest rates on corporate bonds increased but spreads narrowed, and resulted in fourth quarter net non cash gains of approximately $110 million. Changes in interest rates, including spreads, impact the actuarial valuation of in-force policies by changing the future returns assumed on the investment of net future cash flows.

Credit recoveries exceeded impairments in the fourth quarter, resulting in net recoveries of $4 million. In addition private equity recoveries were a net $5 million.

Partially offsetting the above gains were declines, relative to our growth assumptions, in real estate, timber and agriculture property appraisals of $171 million and charges related to credit downgrades of $31 million which are reflected as increases in actuarial reserves.

Other experience gains of $65 million include the impact on the valuation of policy liabilities of our actual investing activities in the period. We invested in a higher proportion of fixed income investments than assumed in the valuation of our policy liabilities. The valuation methodology incorporated the returns on the new fixed income investments, but also updated the valuation assumptions to reflect a reduced proportion of non-fixed income investments in the future. The overall result was a gain related to fixed income investments partially offset by a charge related to assuming lower non-fixed income investments in the future.

A charge of $147 million was taken in the fourth quarter for model refinements to previously implemented changes in actuarial methods. As noted in the third quarter report, the annual review of actuarial methods and assumptions was completed in the third quarter. No further significant assumptions were updated in the fourth quarter.

During the quarter, the Ontario government announced a reduction in corporate income taxes and harmonization with the federal sales tax, resulting in a charge to income of $101 million. The reduction in income tax rates resulted in a one-time charge to earnings of $30 million due to the Company's net deferred tax asset position as well as the impact on the valuation of policy liabilities of $71 million. The harmonization with the federal sales tax resulted in a small reduction on yields assumed in the valuation of segregated fund liabilities and therefore also resulted in a small charge to earnings.

The overall effective income tax rate in the quarter was 14 per cent. Tax rates vary by subsidiary and therefore the overall effective tax rate will vary based on the amount of the pre tax income or loss in each subsidiary.

Fourth quarter of 2008:

In the fourth quarter of 2008, the Company reported a net loss attributed to shareholders of $1,870 million. It was during that period that global equity markets declined by more than 20 per cent and the Company incurred non cash charges on its segregated fund guarantees of $2,407 million, other equity related charges of $513 million and $158 million of OTTI charges and losses on the equity positions in the Corporate and Other Segment. Credit impairments and downgrades amounted to $128 million. Partially offsetting these charges was income of $313 million related to changes in actuarial methods and assumptions. The Company also had two significant tax related items. Provisions on investments in leveraged leases were increased by $181 million and were offset by gains in Canada due to the impact on actuarial liabilities of expected changes in Canadian tax laws for insurance companies in connection with fair value accounting.

Normalized Earnings and Adjusted Earnings from Operations

In our second quarter report in the section entitled "Normalized Earnings", we provided forward-looking information for "normalized earnings", which is a non-GAAP measure. In this and our third quarter report we have compared our estimate at June 30, 2009 of normalized earnings with the adjusted earnings from operations for the third and fourth quarters which exclude the items that we excluded in arriving at our estimate of normalized earnings at June 30, 2009. For clarity, in this and future reports, we will refer to estimated adjusted earnings from operations, which is a non-GAAP measure. However, we have calculated adjusted earnings from operations and estimated future adjusted earnings from operations in this report and the third quarter report on the same basis as we estimated normalized earnings in our second quarter report.

Comparison with Fourth Quarter Actual Adjusted Earnings from Operations

Our estimate of adjusted earnings from operations for the financial quarter ended December 31, 2009 excluded the following items, the net effect of which we are unable to reliably predict: equity related gains and losses (to the extent actual gains and losses are different from those assumed in our estimates as described in footnote 3 to the "Reconciliation with GAAP Measure" table below); other than realized gains on our AFS equity portfolio; interest and other investment related gains and losses; credit, OTTI and downgrades; policyholder experience gains and losses; tax related provisions on leveraged lease investments; other tax items such as the outcomes of tax appeals and changes in tax rates; and changes in actuarial methods and assumptions.

Adjusted earnings from operations for the fourth quarter were $781 million, which is within our prior estimate of between $750 million and $850 million for each of the remaining quarters of 2009 and 2010.

Reconciliation with GAAP Measure

The following table reconciles adjusted earnings from operations to our reported net earnings for the fourth quarter:

    
    C$ millions
    -------------------------------------------------------------------------
    Net income attributed to shareholders reported                       868
    -------------------------------------------------------------------------
    Items excluded from adjusted earnings from operations:
    -------------------------------------------------------------------------
    Experience gains/(losses) because equity, interest rate,
     credit and other non-fixed income returns differ from
     our best estimate policy liability assumptions(1)
    -------------------------------------------------------------------------
      Net credit recoveries of $6 million and credit downgrade
       charges of $31 million(2)                                         (25)
    -------------------------------------------------------------------------
      Private equity recoveries                                           12
    -------------------------------------------------------------------------
      Real estate, timber and agriculture properties - change
       in fair value relative to policy liability assumptions           (171)
    -------------------------------------------------------------------------
      Equity market appreciation, primarily related to
       segregated fund guarantee policy liabilities(3)                   435
    -------------------------------------------------------------------------
      Impact of change in interest rates on the valuation of
       policy liabilities                                                110
    -------------------------------------------------------------------------
      Other(4)                                                            65
    -------------------------------------------------------------------------
    Corporate and Other segment net impairment - OTTI and
     realized losses on AFS equities ($29 million), private
     equity impairments ($7 million) and credit impairments
     ($2 million)                                                        (38)
    -------------------------------------------------------------------------
    Net policyholder experience losses                                    (7)
    -------------------------------------------------------------------------
    Model refinements to previously implemented changes in
     actuarial methods                                                  (147)
    -------------------------------------------------------------------------
    Net impact of Ontario tax law changes, including impact
     on policy liabilities                                              (101)
    -------------------------------------------------------------------------
    Currency rates(5)                                                    (46)
    -------------------------------------------------------------------------
    Total excluded items                                                  87
    -------------------------------------------------------------------------
    Adjusted earnings from operations                                    781
    -------------------------------------------------------------------------
    (1) As outlined in our accounting policies, policy liabilities represent
        the amount which, together with estimated future premiums and net
        investment income, will be sufficient to pay estimated future
        benefits, policyholder dividends and refunds, taxes (other than
        income taxes) and expenses on policies in-force. Under Canadian GAAP,
        the determination of actuarial liabilities is based on an explicit
        projection of cash flows using current best estimate assumptions for
        each material cash flow item and contingency. Investment returns are
        projected using the current asset portfolios and projected
        re-investment strategies. Each assumption is adjusted by a margin for
        adverse deviation. As a result of this methodology, experience
        gains/(losses) arise when equity, interest rate, credit and other
        non-fixed income returns differ from our best estimate policy
        liability assumptions.
    (2) The credit and downgrade loss in the liability segments excludes the
        impact on earnings of the expected policy liability assumptions. The
        expected amount shows up in the other market and investment related
        experience gains.
    (3) Adjusted earnings from operations excludes the earnings impact from
        equity market changes that differ from our best estimate assumptions
        of growth of 7.25% per annum in Canada, 8.0% per annum in the U.S.,
        5.0% per annum in Japan and 9.5% per annum in Hong Kong. For
        actuarial valuation purposes, these returns are reduced by margins
        for adverse deviation to determine net yields used in valuation.
    (4) Other experience gains of $65 million include the impact on the
        valuation of policy liabilities of our actual investing activities in
        the period. We invested in a higher proportion of fixed income
        investments than assumed in the valuation of our policy liabilities.
        The valuation methodology incorporated the returns on the new fixed
        income investments, but also updated the valuation assumptions to
        reflect a reduced proportion of non-fixed income investments in the
        future. The overall result was a gain related to fixed income
        investments partially offset by a charge related to assuming lower
        non-fixed income investments in the future.
    (5) Adjusted earnings from operations excludes the impact of changes in
        currency exchange rates from those in effect at June 30, 2009 when we
        originally provided our estimate of this amount. Since that time, the
        Canadian dollar has strengthened and the Canadian dollar equivalent
        of one U.S. dollar has declined from $1.1625 as at June 30, 2009 to
        $1.0466 as at December 31, 2009. The average daily exchange rate for
        the quarter was $1.0562. This decline has reduced reported net income
        by $46 million during the quarter.
    

Estimated Adjusted Earnings from Operations for 2010

Given the current economic conditions including the volatility of equity markets, interest rates, the impact of current economic conditions on credit and other factors, we are providing forward-looking information for financial periods for all quarters in 2010 for what we refer to as adjusted earnings from operations. We estimate adjusted earnings from operations to be between $750 million and $850 million per quarter for 2010 based on exchange rates in effect at June 30, 2009. As noted in the "Reconciliation with GAAP Measure" table above, in the fourth quarter the Canadian dollar strengthened compared to the June 30, 2009 assumption, the impact of which was to reduce net income attributed to shareholders by $46 million compared with adjusted earnings from operations. However we cannot reliably estimate what exchange rates will be in 2010 and have therefore continued to use exchange rates in effect at June 30, 2009 in providing our estimate of adjusted earnings from operations per quarter for 2010. If we had used the exchange rates in effect as at December 31, 2009, our estimate of adjusted earnings from operations per quarter for 2010 would have been between $700 and $800 million. Credit losses exceeded our long-term expectations and changes in the fair value of our non-fixed income assets trailed the investment assumptions for the policy liabilities. We cannot reliably predict the impact of credit or non-fixed income returns in 2010 and have therefore continued to use our long-term assumptions in the estimated adjusted earnings from operations for 2010. Estimated adjusted earnings from operations would imply a return on common shareholders' equity of approximately 11 per cent. This has been updated from the second quarter 2009 estimate, of 12 per cent, to reflect the common equity offering in the fourth quarter of 2009.

The information in this section is forward-looking information and should be read in conjunction with the section below entitled "Caution Regarding Forward-Looking Statements". This discussion should not be considered earnings guidance, particularly as it is not possible to predict near term market conditions and because adjusted earnings from operations excludes items that are included in GAAP net income or loss. Estimated adjusted earnings from operations are based on assumptions that include our book of business, equity market growth as described in footnote (3) to the "Reconciliation with GAAP Measure" table above, foreign currency rates that are consistent with levels as at June 30, 2009, and other investment returns and policyholder experience consistent with our current best estimate actuarial assumptions. As a result, it would exclude items such as: experience gains/(losses) because equity, interest rate, credit and other non-fixed income returns differ from our best estimate policy liability assumptions (the assumptions for equity investments are described in footnote (3) to the "Reconciliation with GAAP Measure" table above); credit and OTTI losses on assets in the Corporate and Other segment; policyholder experience gains and losses; tax related provisions on leveraged lease investments; resolution of uncertain tax positions as a result of settlements or closing of tax years; changes in tax rates; changes in accounting policies; and changes in actuarial methods and assumptions. It would, however, include gains, but not net losses or other impairments, realized on AFS assets. We adjust for these items because they affect the comparability of our financial results and could potentially distort the analysis of trends in business performance. We are unable to reliably predict the net effect of these items and adjusting for these items does not imply they are non-recurring.

Actual reported quarterly results will differ from estimated adjusted earnings from operations as a result of any changes in the factors outlined above. See also "Risk Factors" in our most recent Annual Information Form, "Risk Management" and "Critical Accounting and Actuarial Policies" in the Management's Discussion and Analysis in our most recent annual and interim reports, and the "Risk Management" note to the consolidated financial statements in our most recent annual and interim reports for other factors that could impact adjusted earnings from operations and actual reported results.

Earnings per Share and Return on Common Shareholders' Equity(9)

Fourth quarter earnings per common share on a fully diluted basis was $0.51 and was a loss per share of $1.24 for the fourth quarter in 2008. Return on common shareholders' equity was 13.1 per cent for the three months ended December 31, 2009 (minus 28.9 per cent for the three months ended December 31, 2008).

Full year earnings per share on a fully diluted basis was $0.82 compared to $0.32 in 2008. Return on common shareholders' equity for the full year 2009 was 5.2 per cent compared to 2.0 per cent in the prior year.

Premiums and Deposits(10)

Total insurance premiums and deposits amounted to $6.5 billion in the fourth quarter of 2009, compared to $5.6 billion for the same period last year, an increase of 28 per cent on a constant currency basis. The increase was driven by a US$910 million deposit received from our former joint venture partner when JHLTC became the sole carrier of the U.S. Federal Long Term Care Insurance Program, as well as growth in the in-force business.

Deposits on wealth products excluding variable annuities were $8.1 billion in the fourth quarter of 2009, compared to $9.0 billion for the same period last year. As a result of currency rate changes, this decrease expressed in Canadian dollars is an increase of one per cent on a constant currency basis. Increases in deposits in John Hancock Retirement Plan Services, John Hancock Mutual Funds and Individual Wealth Management including mutual fund sales in Canada were largely offset by lower new institutional advisory deposits and lower sales in John Hancock Fixed Products.

Variable annuity premiums and deposits were $1.9 billion in the fourth quarter of 2009 compared to $4.9 billion for the same period last year, a decline of 59 per cent on a constant currency basis.

Funds under Management(11)

Total funds under management as at December 31, 2009 were $439.6 billion, up from $404.5 billion as at December 31 last year. The increase of $35.1 billion was a result of positive policyholder cash flows of $21 billion, investment income and market gains on assets under management of $63.2 billion and capital issuances of $4.3 billion as described in the section below. We also issued $1.6 billion of medium term notes and repaid the $2.0 billion balance on our credit facility. The growth in funds under management also includes the acquisition of AIC Limited's retail investment fund business which closed in September 2009 and added $3.8 billion to mutual fund assets under management. These increases were partially offset by the $55.4 billion negative impact of the strengthened Canadian dollar.

Capital(12)

Total capital was $33.2 billion as at December 31, 2009, $2.3 billion higher than $30.9 billion as at December 31, 2008. Capital issuances totaled $4.3 billion - $2.5 billion of common shares, $0.8 billion of preference shares and $1.0 billion of Innovative Tier 1 notes. Capital also increased as a result of $1.1 billion of net unrealized gains on AFS assets and $1.4 billion of net income. These increases were partially offset by the $3.4 billion negative impact of the strengthened Canadian dollar and $1.1 billion of shareholder dividends paid in cash.

At December 31, 2009, MFC successfully completed the reorganization of certain of its U.S. subsidiaries, such that all U.S. operating life insurance companies are now subsidiaries of MLI. As a result of this merger we have a more efficient capital structure, improved operating efficiencies, more stable capital ratios and a more diversified risk profile in MLI and the U.S. subsidiaries. While MLI's Minimum Continuing Capital and Surplus Requirements ("MCCSR") ratio was reduced by approximately 25 percentage points as a result of the reorganization, the reorganization also reduced MLI's equity sensitivity.

MLI's consolidated regulatory capital, MCCSR ratio, after giving effect to the reorganization, was 240 per cent as at December 31, 2009, an increase of 6 points from 234 per cent as at December 31, 2008. The increase is attributable to MFC's capital contributions to MLI, partially offset by growth of the business and the impact of the U.S. subsidiary reorganization discussed above.

    
    ---------------------------
    (9)  Return on common shareholders' equity is a non-GAAP measure. See
         "Performance and Non-GAAP Measures" below.
    (10) Premiums and deposits is a non-GAAP measure. See "Performance and
         Non-GAAP Measures" below.
    (11) Funds under management is a non-GAAP measure. See "Performance and
         Non-GAAP Measures" below.
    (12) Capital is a non-GAAP measure. See "Performance and Non-GAAP
         Measures" below.
    

PERFORMANCE BY DIVISION

    
    U.S. Insurance

    Canadian dollars                  Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders (millions)     (117)    (601)      36   (1,441)     779
    Premiums & Deposits
     (millions)                    3,034    2,020    2,106    8,909    7,149
    Funds under Management
     (billions)                     66.6     66.3     70.3

    U.S. dollars                      Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders (millions)     (111)    (547)      30   (1,273)     757
    Premiums & Deposits
     (millions)                    2,874    1,838    1,739    7,914    6,686
    Funds under Management
     (billions)                     63.6     61.8     57.4
    

U.S. Insurance reported a net loss attributed to shareholders of US$111 million for the fourth quarter of 2009, compared with net income of US$30 million a year earlier. Included in the fourth quarter of 2009 are net experience losses of US$151 million (2008 - US$93 million) as a result of equity, interest rate, credit and other non-fixed income returns differing from our best estimate policy liability assumptions. The decrease in income, excluding these items, was $83 million primarily due to higher new business strain in John Hancock Life and adverse claims experience in John Hancock Long-Term Care.

The full year net loss attributed to shareholders was US$1,273 million, compared with net income of US$757 million reported last year. These amounts included net experience losses as described above of US$1,483 million in 2009 (2008 - gains of US$258 million).

Premiums and deposits for the quarter were US$2.9 billion, $1.1 billion or 65 per cent higher than the fourth quarter of 2008 primarily due to a US$910 million deposit received as a result of John Hancock Long-Term Care becoming, effective October 1, 2009, the sole carrier of the Federal Long Term Care Insurance Program. Previously only half of the plan was administered by John Hancock. Excluding this transfer, premiums and deposits increased 13 per cent primarily due to higher universal life premiums.

Funds under management as at December 31, 2009 were US$63.6 billion, up 11 per cent from December 31, 2008, due to business growth, an increase in the market value of segregated fund net assets and the above-noted transfer of assets related to the Federal Long Term Care Insurance Program.

U.S. Wealth Management

    
    Canadian dollars                  Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders (millions)      671      593   (1,314)   2,186     (921)
    Premiums & Deposits
     (millions)                    6,727    7,169    9,217   30,513   35,412
    Funds under Management
     (billions)                    177.4    176.5    163.9

    U.S. dollars                      Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders (millions)      635      541   (1,085)   2,000     (694)
    Premiums & Deposits
     (millions)                    6,370    6,531    7,606   26,670   33,346
    Funds under Management
     (billions)                    169.5    164.6    133.9
    

U.S. Wealth Management reported net income attributed to shareholders of US$635 million for the fourth quarter of 2009, compared with a net loss of US$1,085 million a year earlier. Included in the fourth quarter of 2009 are net experience gains of US$490 million (2008 - loss of US$1,307 million) as a result of equity, interest rate, credit and other non-fixed income returns differing from our best estimate policy liability assumptions. The decrease in earnings excluding these items was US$77 million due to a number of small items such as the costs associated with hedging virtually all of 2009 new business and a portion of the prior years, in-force variable annuity business, as well as lower permanent tax differences than in 2008.

The full year net income attributed to shareholders was US$2,000 million, in contrast to a net loss of US$694 million reported last year. The 2009 full year results included net experience gains, as described above, of US$1,339 million (2008 - losses of US$1,513 million).

Premiums and deposits, excluding variable annuities, for the quarter were US$5.6 billion, up seven per cent from US$5.3 billion for the fourth quarter of 2008. Favourable equity market performance and improved economic conditions translated into an increase in premiums and deposits from higher sales in John Hancock Wealth Asset Management partially offset by a decline in John Hancock Fixed Products annuity sales. Premiums and deposits of variable annuities were US$0.7 billion, down significantly from the US$2.3 billion in the fourth quarter of 2008 as a result of ongoing risk management initiatives.

Funds under management were US$169.5 billion, up 27 per cent from US$133.9 billion as at December 31, 2008. The increase was driven by a combination of strong net policyholder cash flows and investment returns partially offset by US$2.5 billion of scheduled maturities in John Hancock Fixed Products over the last twelve months.

Canadian Division

    
    Canadian dollars                  Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders (millions)      384      113      (13)     745      656
    Premiums & Deposits
     (millions)                    4,096    4,075    4,505   16,917   16,379
    Funds under Management
     (billions)                    102.7    101.1     82.3
    

Canadian Division reported net income attributed to shareholders of $384 million for the fourth quarter of 2009 in contrast to a net loss of $13 million a year earlier. Fourth quarter earnings in 2009 included net experience gains of $53 million (2008 - net losses of $493 million) as a result of equity, interest rate, credit and other non-fixed income returns differing from our best estimate policy liability assumptions. Both years included gains as a result of changes in tax laws. Changes enacted to Ontario corporate tax rates, net of the projected impact on segregated fund guarantees from the harmonization of provincial sales tax with the federal goods and service tax in certain provinces, increased earnings by $30 million in 2009. In 2008, net income included a $181 million gain from the recognition of the impact to policy liabilities of changes in the tax law for Canadian insurance companies in respect of fair value accounting.

Excluding the above noted items, fourth quarter net income attributed to shareholders in 2009 was in line with 2008 as business growth, driven by wealth management and Manulife Bank, was dampened by adverse lapse experience in Individual Insurance and the cost of hedging equity exposures on new and a portion of the in-force variable annuity guarantees, as well as lower allocated interest on surplus assets. The Division had a net tax recovery in the quarter, as a portion of the gains, as described above, was subject to lower tax rates than were the experience losses.

The full year net income attributed to shareholders was $745 million, compared with $656 million in 2008. Net income included net experience losses as described above of $327 million in 2009 and $549 million in 2008.

Premiums and deposits excluding variable annuities were $3.2 billion for the quarter, an increase of five per cent compared to a year ago. The increase was driven by higher mutual fund deposits, which were twice those of a year ago reflecting growing consumer confidence as fund performance improved; continued strong sales of fixed rate retail wealth products; and growth in group insurance. Premiums and deposits of variable annuity products were $0.9 billion for the quarter compared to $1.4 billion a year ago.

Funds under management grew by 25 per cent or $20.4 billion to $102.7 billion as at December 31, 2009. Strong sales of fixed rate products and positive net sales of segregated funds, combined with the favourable impact of market appreciation, were key contributors to the year over year increase. Continued growth in Manulife One drove a 21 per cent rise in Manulife Bank invested assets. In addition, the purchase of the retail investment fund business of AIC Limited in September 2009 added $3.8 billion to mutual fund assets under management at acquisition.

Asia and Japan Division

    
    Canadian dollars                  Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders (millions)      291      417     (440)   1,739      177
    Premiums & Deposits
     (millions)                    2,036    1,949    2,320    9,308    9,749
    Funds under Management
     (billions)                     57.2     58.4     50.0

    U.S. dollars                      Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders (millions)      274      380     (363)   1,530      243
    Premiums & Deposits
     (millions)                    1,926    1,775    1,913    8,109    9,220
    Funds under Management
     (billions)                     54.7     54.5     40.8
    

Asia and Japan Division recorded net income attributed to shareholders of US$274 million for the fourth quarter of 2009 in contrast to a loss of US$363 million reported a year earlier. Included in the fourth quarter of 2009 were net experience losses of US$9 million (2008 - US$568 million) as a result of equity, interest rate, credit and other non-fixed income returns differing from our best estimate policy liability assumptions. The increase in income, excluding these items, was US$79 million driven by higher expected earnings on in-force variable annuity business in Japan and growth of the in-force insurance and wealth businesses across the region.

The full year net income attributed to shareholders was US$1,530 million, compared to US$243 million reported last year. These amounts included net experience gains as described above of US$355 million in 2009 (2008 - losses of US$539 million).

Premiums and deposits excluding variable annuities for the quarter were US$1.7 billion, up 25 per cent from US$1.4 billion for the fourth quarter of 2008. Growth was driven by an increase in insurance premiums as a result of larger in-force business across most of the territories, as well as an improvement in the economy leading to an increase in mutual fund sales in Indonesia and wealth sales in Hong Kong. Premiums and deposits for variable annuity products for the quarter were US$0.2 billion, down 60 per cent from US$0.6 billion reported in the fourth quarter of 2008.

Funds under management were US$54.7 billion as at December 31, 2009, up 34 per cent or US$13.9 billion from December 31, 2008. Growth was driven by the positive impact of improving equity market performance across the territories in the past twelve months together with net policyholder cash inflows of US$3.7 billion.

Reinsurance Division

    
    Canadian dollars (millions)       Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders                  92       65      (14)     261      154
    Premiums                         279      267      273    1,123    1,091

    U.S. dollars (millions)           Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (Loss) Attributed
     to Shareholders                  87       59      (11)     232      154
    Premiums                         265      243      225      987    1,028
    

Reinsurance Division's net income attributed to shareholders for the fourth quarter of 2009 was US$87 million in contrast to a net loss of US$11 million a year earlier. The results for the quarter included net experience gains of US$3 million (2008 - losses of US$70 million) as a result of equity, interest rate, credit and other non-fixed income returns differing from our best estimate policy liability assumptions. The increase in income, excluding these items, was US$25 million largely driven by favourable claims experience in Life Reinsurance as well as increased premiums on the Property and Casualty business.

The full year net income attributed to shareholders was US$232 million, compared to US$154 million reported last year. These full year amounts include net experience losses as described above of US$51 million in 2009 (2008 - US$86 million).

Premiums for the quarter were US$265 million, up 18 per cent from US$225 million reported in the same quarter of 2008. Life Reinsurance premiums increased due to the aging of the block and International Group Program premiums were also up as a result of increased volumes reported by clients.

Corporate and Other

    
    Canadian dollars                  Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Loss Attributed to
     Shareholders (millions)        (453)    (759)    (125)  (2,088)    (328)
    Funds under Management
     (billions)                     33.0     31.5     35.0
    

Corporate and Other is comprised of the earnings on assets backing capital, net of amounts allocated to operating divisions, changes in actuarial methods and assumptions, Investment Division's external asset management business, the John Hancock Accident and Health operation, which primarily consists of contracts in dispute, and other non operating items.

Corporate and Other recorded a net loss attributed to shareholders of $453 million in the fourth quarter of 2009 compared to a net loss of $125 million a year earlier. The loss for the current quarter included a charge for changes in refinements to actuarial methods of $147 million and a charge related to the change in the Ontario tax rate of $131 million. The results in 2008 included a gain of $313 million related to changes in actuarial methods and assumptions offset by a tax related charge of $181 million on leveraged lease investments.

Excluding the above items, the loss in the current quarter was $175 million compared to $257 million in 2008. The difference of $82 million was primarily due to lower OTTI charges partially offset by the non recurrence of the favourable claims experience in the John Hancock Accident and Health operation reported in 2008.

The full year net loss attributed to shareholders was $2,088 million, compared to a net loss of $328 million in 2008.

Funds under management were $33.0 billion, down six per cent or $2.0 billion from December 31, 2008. Funds under management include assets managed by MFC GIM on behalf of institutional clients of $23.3 billion as at December 31, 2009 compared to $24.0 billion as at December 31, 2008. The increase due to market appreciation was more than offset by the impact of a stronger Canadian dollar.

SUBSEQUENT EVENT AND TAX RELATED CONTINGENCY

The Company is an investor in leveraged leases and has established provisions for possible disallowance of the tax treatment and for interest on past due taxes. During the year ended December 31, 2009, we recorded additional charges of US$187 million after tax related to these investments. We continue to believe that deductions originally claimed in relation to these arrangements are appropriate. Should the tax attributes of our leveraged leases be fully denied, the maximum after tax exposure including interest would be an additional estimated US$284 million as at December 31, 2009.

The Company expects that it will go to trial in tax court in 2011, related to this matter, and although we believe we have compelling facts and circumstances that differentiate our case from other taxpayers, there is no assurance that we will be successful. We continue to monitor and assess the facts and circumstances in this matter. Subsequent to year end, there was another court case that was decided unfavourably for the taxpayer. Accordingly, the Company is assessing its position as it relates to these recent developments, including assessing the need to take a provision in the first quarter of 2010.

RISK MANAGEMENT

Overview

Manulife Financial is a financial institution offering insurance, wealth and asset management products and services, which subjects the Company to a broad range of risks. We manage these risks within an enterprise-wide risk management framework. Our goal in managing risk is to strategically optimize risk taking and risk management to support long-term revenue, earnings and capital growth. We seek to achieve this by capitalizing on business opportunities that are aligned with the Company's risk taking philosophy, risk tolerance and return expectations, by identifying, measuring and monitoring key risks taken, and by executing risk control and mitigation programs.

For further information relating to our risk management practices and risk factors affecting the Company, see "Risk Factors" in our most recent Annual Information Form, "Risk Management" and "Critical Accounting and Actuarial Policies" in Management's Discussion and Analysis in our most recent annual and interim reports and the "Risk Management" note to consolidated financial statements in our most recent annual and interim reports.

Risk Governance

Recognizing the changing risk environment, the Board of Directors has increased, and intends to continue to increase, its focus on risk oversight. The Board of Directors has separated the audit and risk oversight functions of the Audit and Risk Management Committee by establishing a separately constituted Risk Committee of the Board of Directors. It is anticipated that the first Risk Committee meeting will be held on April 7, 2010 and the first meeting of the newly constituted Audit Committee will be held on May 5, 2010. The existing Disclosure Committee is comprised of senior members of management who sit on the Company's Executive Committee. It will report, as appropriate, to the Risk Committee and the Audit Committee. In January 2010, the Company established a Risk Disclosure Committee of senior members of management responsible for making recommendations regarding risk disclosure to the Disclosure Committee.

Market Price and Interest Rate Risk

Due to the nature of our insurance business, invested assets and insurance liabilities as well as revenues and expenses are sensitive to movements in markets and interest rates. Accordingly, the Company considers these risks together when it seeks to manage the risks in its asset and liability positions. These risks are referred to collectively as market price and interest rate risk - the risk of loss resulting from adverse movements in market prices, risk-free interest rates and credit spreads.

Market price volatility and interest rate changes, including credit spreads, in combination with our product guarantees and policyholder withdrawal options, may lead to asset returns insufficient to support product liabilities, and may impact the value of assets held in our shareholders' equity account. The level of our sales activity and policy retention may also be affected by the performance of markets, interest rates, inflation and general economic conditions as these will influence the performance of our general fund investments, segregated funds and mutual funds.

We evaluate market price and interest rate risk exposures using a variety of techniques and measures, each of which are based on projecting asset and liability cash flows under a variety of future interest rate and market price scenarios. These measures include durations, key-rate durations, convexity, cash flow gaps, as well as the sensitivity of shareholders' economic value, net income attributed to shareholders and regulatory capital ratios, along with our earnings at risk and economic capital measures.

At an enterprise level, the Company's aggregate exposure to market price risk arising from each of publicly traded equities and other non-fixed income assets and the Company's aggregate interest rate risk exposure, including to credit spreads, are managed against economic capital, regulatory capital and earnings at risk targets, newly established in 2009. During 2009, we also established new policies requiring management to develop plans to reduce publicly traded equity risk and interest rate risk exposures to within economic capital, regulatory capital and earnings at risk targets as equity markets improve or interest rates rise to levels that allow us to meet our business objectives. For publicly traded equities these targets cover the combined risk arising from off-balance sheet product death and living benefit guarantees, asset-based fees and general fund investments. For other non-fixed income assets these targets cover the combined risk arising from general fund investments in real estate, timber and agriculture properties, oil and gas, and private equities. For interest rate risk these targets cover the exposure related to general interest rate movements and credit spreads arising from general fund fixed income investments and the liabilities they support.

Caution related to risk exposures

The risk exposure measures expressed below primarily include the sensitivity of shareholders' economic value and net income attributed to shareholders. These risk exposures include the sensitivity due to specific changes in market prices and interest rate levels projected using internal models as at a specific date, and are measured relative to a starting level reflecting our assets and liabilities at that date and the actuarial factors, investment returns and investment activity we assume in the future. The risk exposures measure the impact of changing one factor at a time and assume that all other factors remain unchanged. Actual results can differ materially from these estimates for a variety of reasons including the interaction among these factors when more than one changes, changes in actuarial and investment return and future investment activity assumptions, actual experience differing from the assumptions, changes in business mix, effective tax rates and other market factors, and the general limitations of our internal models.

General fund - key risk factors

Interest rate risk arises within our general fund primarily due to the uncertainty of future returns on investments to be made as recurring premiums are received and as assets mature and must be reinvested to support longer dated liabilities. Interest rate risk also arises due to minimum rate guarantees and withdrawal options on products where investment returns are generally passed through to policyholders. Changes in interest rates impact cash flows over a very long period of time, and it is only over the lifetime of the Company's liabilities that the ultimate profit or loss related to changes in interest rates will be known. In the interim:

    
    -   If there is a general decline in interest rates, without a change in
        spreads between corporate bond rates and swap rates, this will reduce
        the assumed yield on future investments used in the valuation of
        policy liabilities, resulting in an increase in policy liabilities
        and a charge to income.
    -   If there is a general increase in interest rates, without a change in
        spreads between corporate bond rates and swap rates, this will result
        in a decrease in policy liabilities and an increase in earnings.
    -   In addition, a decrease in the spread between corporate bond rates
        and swap rates will result in an increase to policy liabilities and a
        charge to income. An increase in the spread between corporate bonds
        and swap rates may have the opposite impact.
    -   The impact of changes in interest rates and in spreads may be
        partially offset by changes to credited rates on products that pass
        through investment returns to policyholders.
    

Market price risk arises within our general fund as a result of investing in publicly traded equities, private equities, real estate, timber and agriculture, oil and gas and other non-fixed income assets. To the extent these assets are used to support policy liabilities, the policy valuation incorporates projected investment returns on these assets. To the extent actual returns are lower than the expected returns, our policy liabilities will increase, reducing net income and our regulatory capital ratios. To the extent these assets support our shareholders' equity account, other than temporary impairments that arise will reduce income.

Further, the investment strategy applied to future cash flows in the policy valuation of certain long dated liabilities includes investing a specified portion of future policy cash flows in non-fixed income assets, to a maximum of the current non-fixed income portion in the asset portfolio backing those liabilities. If we are unable or choose not to invest in the assumed level of non-fixed income assets, as a result of suitable assets not being available in the market or as a result of capital, risk tolerance or other considerations, or the non-fixed income asset weightings otherwise reduce, we may be required to increase our policy liabilities, reducing net income and regulatory capital ratios.

General Fund - Risk Management Strategies

We separate our policy liabilities and the invested assets which support them into three broad categories with differing overall investment mandates: (i) liabilities supported with matching mandates, (ii) liabilities supported with target return mandates, and (iii) liabilities arising from variable annuity and segregated fund guarantees. We separately manage the assets in the shareholders' equity account to achieve a target return over the long term, subject to established risk tolerances.

In the first category, liabilities supported with matching mandates generally include insurance and wealth guaranteed benefit obligations projected to be paid within the term period for which fixed income assets are generally available in the market, and are supported by fixed income assets with generally matching term profiles, consisting of publicly traded bonds, loans and commercial mortgages.

In the second category, liabilities supported with target return mandates include both insurance and wealth guaranteed benefit obligations projected to be paid beyond the term for which fixed income assets are generally available in the market, as well as obligations related to products that generally pass through investment returns to policyholders. For insurance and wealth management products with guaranteed benefits projected to be paid well beyond the term for which fixed income assets are generally available in the market, we manage assets supporting those long-dated benefits with the objective of achieving a target return sufficient to support these guaranteed obligations over their lifetime, subject to established risk tolerances, by investing a portion in a diversified basket of non-fixed income assets, with the balance invested in fixed income portfolios. We design our guaranteed benefit insurance and wealth management products and set premiums and credited rates in a manner intended to mitigate the risk of not achieving our targeted profit margins. This program may not work as expected.

During 2009, we established a plan to reduce our interest rate risk exposure arising from our in-force guaranteed products managed under the target return strategy. The plan includes hedging increasing portions of our interest rate risk exposure when we believe we can meet our business objectives. As well, in response to the changed market conditions, the design and prices of these products have been, and will continue to be, reviewed and modified with the aim of keeping risk arising from new business within tolerances and achieving acceptable profit margins on new business.

Also in the second category are products that generally pass through investment returns to policyholders. We manage assets supporting those policy liabilities to achieve a target return designed to maximize dividends or credited rates, subject to established risk tolerances, by investing in a basket of fixed income and non-fixed income assets.

The third category includes the general fund investment risk related to our on-balance sheet policy liabilities established to support the payment of potential guarantee claim payments arising from off-balance sheet variable annuities and segregated funds. These on-balance sheet liabilities are supported by publicly traded bonds and loans with generally matching term profiles, limited by the term of bonds and loans available in the market.

General Fund - Risk Exposure Measures

a) Impact on shareholders' economic value(13) arising from general fund interest rate risk

The impact on shareholders' economic value, of interest rate movements on the assets and liabilities in the general fund, is calculated as the change in the net present value of future cash flows related to assets, policy premiums, benefits and expenses, all discounted at market yields for bonds of a specified quality rating and adjusted for tax.

The table below shows the potential impact on shareholders' economic value of an immediate change of one per cent in government, swap and corporate rates for all maturities across all markets with no change in spreads between government, swap and corporate rates, and with a floor of zero on the interest rates.

    
    1% change in interest                 As at                 As at
     rates(1)                       December 31, 2009     December 31, 2008
                                  --------------------- ---------------------
    (Canadian $ millions)          Increase   Decrease   Increase   Decrease
    -------------------------------------------------------------------------
    Matching mandates
      Insurance                    $    140   $   (200)  $     30   $    (90)
      Wealth Management                  10        (10)       (10)        10
    -------------------------------------------------------------------------
      Total matching mandates      $    150   $   (210)  $     20   $    (80)
    -------------------------------------------------------------------------
    Target return mandates
      Insurance                    $  1,160   $ (1,870)  $    690   $ (1,130)
      Wealth Management                 100       (200)        10       (110)
      Shareholders' equity account     (400)       540       (370)       470
    -------------------------------------------------------------------------
      Total target return mandates $    860   $ (1,530)  $    330   $   (770)
    -------------------------------------------------------------------------
    Mandates for on-balance
     sheet variable annuity and
     segregated fund guarantee
     liabilities                   $     90   $   (130)  $    210   $   (250)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Total                        $  1,100   $ (1,870)  $    560   $ (1,100)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Please see "Caution related to risk exposures" above.
    

b) Impact on net income attributed to shareholders as a result of changes in interest rates

The potential impact on annual net income attributed to shareholders as a result of a change in policy liabilities in the general fund for a one per cent increase in government, swap and corporate rates at all maturities across all markets, with no change in spreads between government, swap and corporate rates, was estimated to be an increase of approximately $1,600 million as at December 31, 2009 (2008 - approximately $1,100 million) and for a one per cent decrease in government, swap and corporate rates at all maturities with no change in spreads between government, swap and corporate rates, and with a floor of zero on interest rates, across all markets was estimated to be a decrease of approximately $2,200 million as at December 31, 2009 (2008 - approximately $1,300 million).

The net income sensitivity measures the impact of a change in current interest rates, but consistent with the policy liability methodology does not consider a change in interest rates assumed for new investments made and assets sold 20 or more years into the future. For new investments or assets sold within the first 20 years, for the calculation of policy liabilities we assume future interest rates that grade between current interest rates and the rates assumed after 20 years. The net income sensitivity also assumes no gain or loss is realized on our fixed income investments that are designated as AFS.

c) Impact on shareholders' economic value arising from general fund market risk

The following tables show the potential impact on shareholders' economic value of a ten, 20 and 30 per cent decline in market values of publicly traded equities and other non-fixed income assets. A ten, 20 and 30 per cent increase in market values of publicly traded equities and other non-fixed income assets would have the opposite impact.

    
    10% decline in market                As at                  As at
     values(1)                      December 31, 2009     December 31, 2008
                                  --------------------- ---------------------
                                   Publicly    Other     Publicly    Other
                                    traded   non-fixed    traded   non-fixed
    (C$ millions)                  equities   income(2)  equities   income(2)
    -------------------------------------------------------------------------
    Target return mandates
      Insurance                    $    (84)  $   (464)  $    (65)  $   (492)
      Wealth Management                  (8)      (117)       (10)      (135)
      Shareholders' equity account     (171)       (76)      (174)       (72)
    -------------------------------------------------------------------------
      Total                        $   (263)  $   (657)  $   (249)  $   (699)
    -------------------------------------------------------------------------
    (1) Please see "Caution related to risk exposures" above.
    (2) Other non-fixed income assets include real estate, timber and
        agricultural properties, oil and gas, and private equities.


    20% decline in market                As at                  As at
     values(1)                      December 31, 2009     December 31, 2008
                                  --------------------- ---------------------
                                   Publicly    Other     Publicly    Other
                                    traded   non-fixed    traded   non-fixed
    (C$ millions)                  equities   income(2)  equities   income(2)
    -------------------------------------------------------------------------
    Target return mandates
      Insurance                    $   (168)  $   (928)  $   (130)  $   (984)
      Wealth Management                 (16)      (234)       (20)      (270)
      Shareholders' equity account     (342)      (152)      (348)      (144)
    -------------------------------------------------------------------------
      Total                        $   (526)  $ (1,314)  $   (498)  $ (1,398)
    -------------------------------------------------------------------------
    (1) Please see "Caution related to risk exposures" above.
    (2) Other non-fixed income assets include real estate, timber and
        agricultural properties, oil and gas, and private equities.


    30% decline in market                As at                  As at
     values(1)                      December 31, 2009     December 31, 2008
                                  --------------------- ---------------------
                                   Publicly    Other     Publicly    Other
                                    traded   non-fixed    traded   non-fixed
    (C$ millions)                  equities   income(2)  equities   income(2)
    -------------------------------------------------------------------------
    Target return mandates
      Insurance                    $   (252)  $ (1,392)  $   (195)  $ (1,476)
      Wealth Management                 (24)      (351)       (30)      (405)
      Shareholders' equity account     (513)      (228)      (522)      (216)
    -------------------------------------------------------------------------
      Total                        $   (789)  $ (1,971)  $   (747)  $ (2,097)
    -------------------------------------------------------------------------
    (1) Please see "Caution related to risk exposures" above.
    (2) Other non-fixed income assets include real estate, timber and
        agricultural properties, oil and gas, and private equities.
    

d) Impact on net income attributed to shareholders arising from general fund market risk

The potential impact on net income attributed to shareholders arising from general fund publicly traded equities and other non-fixed income assets supporting policy liabilities of an immediate ten per cent decline in market values of publicly traded equities and other non-fixed income assets is shown in the table below. This impact is based on a point-in-time impact and does not include: (a) any potential impact on non-fixed income asset weightings; (b) any losses on non-fixed income investments held in the Corporate and Other segment; or (c) any losses on non-fixed income investments held in Manulife Bank. As noted above, if the non-fixed income asset weightings, on assets supporting policy liabilities, reduce we may be required to increase our policy liabilities resulting in a reduction to net income.

    
    Change in market values(1)           As at                  As at
                                    December 31, 2009     December 31, 2008
                                  --------------------- ---------------------
                                   Publicly    Other     Publicly    Other
                                    traded   non-fixed    traded   non-fixed
    (C$ millions)                  equities   income(2)  equities   income(2)
    -------------------------------------------------------------------------
    10% decrease in market values  $    (84)  $   (647)  $    (74)  $   (710)
    10% increase in market values  $     81   $    639   $     74   $    703

    (1) Please see "Caution related to risk exposures" above.
    (2) Other non-fixed income assets include real estate, timber and
        agricultural properties, oil and gas, and private equities.
    

The impact on income attributed to shareholders of a 20 and 30 per cent decrease in market value of other non-fixed income assets are not currently available, but will be disclosed in our annual report.

    
    ---------------------------
    (13) Impact on shareholders' economic value is a non-GAAP measure. See
         "Performance and Non-GAAP Measures" below.
    

Off-balance sheet products - Key Risk Factors

Market price and interest rate risk arises from our off-balance sheet products due mainly to the guarantees provided on variable annuity and insurance products as well as the uncertainty of future levels of asset-based fees. Guarantees include death, maturity, income and withdrawal guarantees on variable products. A sustained decline in stock markets or bond values would likely increase the cost of guarantees associated with our variable products and reduce asset-based fee revenues. A sustained increase in equity market or bond fund volatility or a decline in interest rates would likely increase the costs of hedging the benefit guarantees provided. Details on our variable annuity and variable life insurance contracts are provided below.

Off-balance sheet products - Risk Management Strategies

We seek to mitigate both market price and interest rate risk arising from off-balance sheet variable annuity and insurance products through benefit guarantee design, limitations on fund offerings, use of reinsurance and capital markets hedging. We have attempted to design the benefit guarantees and funds we are now offering for sale to meet event risk exposure criteria, based on economic capital and regulatory capital levels, and to achieve desired profit targets in current market conditions. We regularly review and modify product guarantee features, fund offerings and fees with a goal of being able to improve hedge effectiveness and achieve acceptable profit margins in changing market conditions. We have reinsured the benefit guarantee risk on the majority of our U.S. variable annuity business written prior to 2004. In addition, we have hedged, with capital market instruments, the vast majority of our variable annuity and segregated fund guarantee risk related to policies written in 2009 and a portion of our in-force unreinsured policies written prior to 2009. Of the variable annuity and segregated fund investment related guarantees, 35 per cent of the guarantee value was either hedged or reinsured at December 31, 2009 compared to 20 per cent at December 31, 2008.

In 2009 the Company established plans to reduce the market price and interest rate risk exposure arising from new variable annuity sales. These plans include expanding our hedging programs to the vast majority of new variable annuity sales, repricing and redesigning our variable annuity products with the objective of reducing risk, improving expected profit margins and increasing our expected hedge effectiveness, and re-balancing our variable annuity sales relative to other lines of business. The hedging programs incorporate a hedging approach described in the "Capital Markets Hedging Program" section below. The plans also include hedging increasing portions of our unhedged in-force variable annuity guarantee business as equity markets improve or interest rates rise to levels that allow us to meet our business objectives.

Key risk reduction actions taken in 2009 include the re-pricing and redesign of variable annuity products in Canada and the U.S., the launch of new products with lower guarantees, and the suspension of sales of certain products in Asia. As well, in April and December 2009 our hedging program was expanded to cover all new retail business written in Canada and Asia respectively and, over the course of the year, we hedged $13 billion of guarantee value on variable business written prior to commencing our new business hedging programs.

There can be no assurance that the Company's exposure to equity and bond fund performance and movements in interest rates will be reduced to within established targets. We may be unable to hedge our existing unhedged business as outlined in our risk reduction plans, or if we do so, we may be required to record a charge to income when we hedge. Depending on market conditions, which include a sustained increase in equity and bond fund realized volatility or decline in interest rates, the costs of hedging the benefit guarantees provided in variable annuities may increase or become uneconomic, in which case we may reduce or discontinue hedging or sales of certain of these products. In addition, there can be no assurance that the Company's capital market hedging strategy will fully reduce the risks related to the guaranteed products being hedged. Please see "Capital Markets Hedging Program".

Capital Markets Hedging Program

The Company expanded the capital market hedging program of its variable annuity product guarantees during 2009. The total amount of guarantee value hedged has increased to $24,880 million at December 31, 2009 from $5,731 million as at December 31, 2008. The Company shorts exchange traded equity index and government bond futures and executes lengthening interest rate swaps to hedge sensitivity of policy liabilities to fund performance and interest rate movements arising from variable annuity and segregated fund guarantees, and dynamically rebalances these hedge instruments as market conditions change in order to maintain the hedged position within internally established limits. The profit (loss) on the hedge instruments will not fully offset the gains or losses related to the guarantee liabilities hedged because the performance of the underlying funds hedged may differ from the performance of the corresponding hedge instruments, fund performance on a small portion of the underlying funds is not hedged due to lack of availability of effective exchange traded hedge instrument, a small portion of interest rate risk is not hedged, policy liabilities embed some provisions for adverse deviation which are not hedged and not all other risks are hedged. The risks related to the hedging program are expanded on below.

Since policy liabilities for variable annuity guarantees are determined using long-term forward looking estimates of volatilities and not current implied market volatilities, guarantee policy liabilities, and consequently regulatory available capital, have no sensitivity to changes in implied market volatilities. Long-term forward-looking volatilities assumed for policy liabilities are approved by OSFI and meet the Canadian Institute of Actuaries calibration standards. To the extent that realized equity and bond fund volatilities exceed the assumed long-term volatilities, there is a risk that rebalancing will be greater and more frequent, resulting in higher hedging costs. To the extent that our assumptions for long-term forward-looking volatilities change, policy liability increases may be required that would have a material impact on financial results.

The level of guarantee claims ultimately paid will be impacted by policyholder longevity and policyholder activity including the timing and amount of withdrawals, lapses and fund transfers. The Company's hedging program assumes long-term assumptions for longevity and policyholder behaviour, since the risk related to longevity and policyholder behaviour cannot be hedged using capital markets instruments. The hedges are rebalanced monthly to reflect actual policyholder experience different from long-term assumed levels.

The Company's capital market hedging strategies are not intended to completely or fully eliminate the risks associated with the guarantees embedded in these products and the strategies expose the Company to additional risks. The program relies on the execution of derivative transactions in a timely manner and therefore hedging costs and the effectiveness of the program may be negatively impacted if markets for these instruments become illiquid. The Company is also subject to counterparty risks arising from the derivative instruments and to the risk of increased funding and collateral demands which may become material as markets and interest rates increase. The capital market hedging program is highly dependent on complex systems and mathematical models that are subject to error, which rely on assumptions that may prove inaccurate, and which rely on sophisticated infrastructure and personnel which may fail or be unavailable at critical times. Due to the complexity of the hedging program there may be additional, unidentified risk that may negatively impact our business and our future financial results.

Off-Balance Sheet Products - Risk Exposure Measures

a) Variable Annuity and Segregated Fund Investment Related Guarantees

Of the variable annuity and segregated fund investment related guarantees, 35 per cent of the guarantee value was either hedged or reinsured at December 31, 2009 compared to 20 per cent at December 31, 2008.

The table below shows selected information regarding the Company's variable annuity and segregated fund investment related guarantees:

    
    As at                    December 31, 2009             December 31, 2008
                  -----------------------------------------------------------
    (Canadian $   Guarantee    Fund     Amount  Guarantee    Fund     Amount
     millions)        value   value  at risk(4)     value   value  at risk(4)
    -------------------------------------------------------------------------
    Gross living
     benefits(1)   $ 92,183  $ 83,693  $ 12,710  $ 95,297  $ 71,391  $ 25,086
    Gross death
     benefits(2)     18,455    13,282     4,414    22,937    14,099     8,975
    -------------------------------------------------------------------------
    Total gross
     benefits      $110,638  $ 96,975  $ 17,124  $118,234  $ 85,490  $ 34,061
    -------------------------------------------------------------------------
    Living benefits
     reinsured     $  8,012  $  5,818  $  2,200  $ 10,049  $  5,934  $  4,115
    Death benefits
     reinsured        5,985     4,639     1,577     7,960     5,134     3,137
    -------------------------------------------------------------------------
    Total
     reinsured     $ 13,997  $ 10,457  $  3,777  $ 18,009  $ 11,068  $  7,252
    -------------------------------------------------------------------------
    Total, net of
     reinsurance   $ 96,641  $ 86,518  $ 13,347  $100,225  $ 74,422  $ 26,809
    -------------------------------------------------------------------------
    Living benefits
     hedged        $ 24,399  $ 24,137  $  1,782  $  5,731  $  4,237  $  1,494
    Death benefits
     hedged             481       317        10         -         -         -
    -------------------------------------------------------------------------
    Total
     hedged(3)     $ 24,880  $ 24,454  $  1,792  $  5,731  $  4,237  $  1,494
    -------------------------------------------------------------------------
    Living benefits
     retained      $ 59,772  $ 53,738  $  8,728  $ 79,517  $ 61,220  $ 19,477
    Death benefits
     retained        11,989     8,326     2,827    14,977     8,965     5,838
    -------------------------------------------------------------------------
    Total, net of
     reinsurance
     and hedging   $ 71,761  $ 62,064  $ 11,555  $ 94,494  $ 70,185  $ 25,315
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Living benefits include maturity/income/withdrawal/long-term care
        benefits. Where a policy also includes a death benefit, the guarantee
        in excess of the living benefit is included in the death benefit
        category as outlined in footnote (2).
    (2) Death benefits include stand-alone guarantees and guarantees in
        excess of living benefit guarantees where both death and living
        benefits are provided on a policy. For total gross death benefits,
        guarantee value is $103,821 million (2008 - $113,860 million), fund
        value is $96,530 million (2008 - $85,490 million) and amount at risk
        is $12,196 million (2008 - $29,631 million).
    (3) For a description of some of the risks related to hedging, see
        "Capital Markets Hedging Program" above.
    (4) Amount at risk is the excess of guarantee values over fund values on
        all policies where the guarantee value exceeds the fund value. This
        amount is not currently payable.
    

Variable annuity and segregated fund guarantees are contingent and only payable upon death, maturity, withdrawal or annuitization, if fund values remain below guaranteed values. If markets do not recover, liabilities on current in-force business would be due primarily in the period from 2015 to 2038. The policy liability established for these benefits was $1,671 million at December 31, 2009 (2008 - $5,783 million). The year over year reduction is due primarily to the impact of improved equity markets reducing the current and projected in the money exposures.

b) Impact on shareholders' economic value arising from variable products and other managed assets public equity market risk

The impact on shareholders' economic value from changes in the market value of equities within the segregated funds of variable products, mutual funds and institutional asset management operations is calculated as the net present value of expected after-tax cash flows related to managing these assets and/or providing guarantees, including fee income, expense and benefit payments, discounted at market yields. The present value of expected after-tax cash flows related to variable product guarantees is the average, across all investment return scenarios, of the present value of projected future guaranteed benefit payments, net of reinsurance and fee income allocated to support the guarantees.

The tables below show the potential impact on shareholders' economic value of an immediate ten, 20 and 30 per cent change in the market value of equities within the variable products and other managed assets.

    
    Canadian $ millions   As at December 31, 2009    As at December 31, 2008
                         ----------------------------------------------------
    Decrease in market
     value of equity
     funds(1)               10%      20%      30%      10%      20%      30%
                         ----------------------------------------------------
    Market-based fees     ($470)   ($960) ($1,480)   ($380)   ($800) ($1,250)
    Variable product
     guarantees            (450)  (1,080)  (1,930)    (710)  (1,630)  (2,820)
    -------------------------------------------------------------------------
    Total                 ($920) ($2,040) ($3,410) ($1,090) ($2,430) $(4,070)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Canadian $ millions   As at December 31, 2009    As at December 31, 2008
                         ----------------------------------------------------
    Increase in market
     value of equity
     funds(1)               10%      20%      30%      10%      20%      30%
    -------------------------------------------------------------------------
    Market-based fees      $490   $1,000   $1,520     $350     $770   $1,210
    Variable product
     guarantees             290      490      600      550      960    1,270
    -------------------------------------------------------------------------
    Total                  $780   $1,490   $2,120     $900   $1,730   $2,480
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Please see "Caution related to risk exposures" above.
    

c) Impact on net income attributed to shareholders arising from variable products public equity market risk

The following table shows the potential impact on annual net income attributed to shareholders arising from variable products, including the impact on segregated fund fee income, of an immediate ten, 20 and 30 per cent decline and a ten per cent increase in the market values of equities within the segregated funds followed by a return to normal market growth assumptions.

    
    Change in market value of equity funds(1)

    (Canadian $ millions)
    For the year ended December 31,           2009                2008
                                       --------------------------------------
      10% decline                       $         (1,100)   $         (1,400)
      20% decline                       $         (2,600)      not available
      30% decline                       $         (4,400)      not available
      10% increase                                   900       not available

    (1) Please see "Caution related to risk exposures" above.
    

The impact on net income attributed to shareholders arising from both variable product and general fund public equity market risk is outlined in the table below. These are the total of the amounts in the table related to variable products directly above and the column on public equities in table on general fund market price risk above.

    
    Change in market value of equity funds(1)

    (Canadian $ millions)
    For the year ended December 31,           2009                2008
                                       --------------------------------------
      10% decline                       $         (1,200)   $         (1,500)
      20% decline                       $         (2,800)      not available
      30% decline                       $         (4,600)      not available
      10% increase                      $          1,000       not available

    (1) Please see "Caution related to risk exposures" above.
    

d) Impact on MLI's MCCSR ratio from general fund and variable products public equity market risk

Changes in equity markets also impact our available and required components of the MCCSR calculation. The following table shows the potential impact to MLI's MCCSR ratio of an immediate ten, 20 and 30 per cent decline and a ten per cent increase in public equity market values.

    
    Change in market value of equity funds(1)

                                             As at               As at
    (basis points)                     December 31, 2009   December 31, 2008
                                      ---------------------------------------
      10% decline                                    (11)                (21)
      20% decline                                    (25)      not available
      30% decline                                    (42)      not available
      10% increase                                    13       not available
    (1) Please see "Caution related to risk exposures" above.
    

Foreign Currency Risk

Our financial results are reported in Canadian dollars. A substantial portion of our business is transacted in currencies other than Canadian dollars, mainly US dollars, Hong Kong dollars and Japanese yen. In recent quarters, the Canadian dollar has strengthened relative to these currencies causing the reported earnings from our non-Canadian dollar denominated businesses to decrease and our reported shareholders' equity to decline. To the extent these exchange rates persist or the Canadian dollar continues to strengthen, there may be downward pressure on our reported earnings from non-Canadian dollar denominated businesses. Similarly, there may be downward pressure on our reported shareholders' equity, and to the extent that the resultant change in available capital is not offset by a change in required capital, our regulatory capital ratios may be reduced.

Claims Risk

The morbidity experience in the John Hancock Long-Term Care business was unfavourable relative to expected levels assumed in the policy liabilities. This experience may be influenced by the current economic conditions or may be indicative of future experience. The Company is analyzing the information to assess the impact on the future policy liabilities and product pricing.

Capital

Although currently our regulatory capital ratios are strong, insurance regulators, in Canada and other jurisdictions in which we operate, are reviewing regulatory capital requirements. The outcome of all of these initiatives is uncertain and could have a material adverse impact on the Company or on its position relative to that of other Canadian and international financial institutions with which we compete for business and capital.

CRITICAL ACCOUNTING AND ACTUARIAL POLICIES

Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite lives are tested at least annually for impairment. Goodwill is tested at the reporting unit level. The tests performed in 2009 demonstrated that there was no impairment of goodwill or intangible assets with indefinite lives. However, given the impact of the economic conditions and changes in product mix, the results of our goodwill testing for U.S. Insurance and U.S. Wealth Management indicated a lower margin of fair value in excess of carrying value than in prior years. The goodwill testing for 2010 will be updated based on the conditions that exist in 2010 and may result in an impairment charge, which could be material.

Under International Financial Reporting Standards ("IFRS"), once adopted, the tests will be performed at the cash generating unit level, a more granular level than a reporting unit. Based on current information, the Company expects that the testing at this more granular level may result in an impairment charge to be reflected in opening retained earnings upon adoption of IFRS, in 2011, which could be material.

Accounting Adjustment

During 2009, the Company identified errors originating primarily from periods prior to our purchase of John Hancock. The result of these errors included an understatement of policy liabilities of $266 million, approximately half of which should have been recorded at the April 2004 purchase date and the other half should have been recorded subsequently. In addition, there was a net understatement of future income tax liabilities of $17 million, which includes amounts relating mostly to periods prior to acquisition, partially offset by the future taxes related to the amounts described above. Because these errors are not material to the financial statements for prior years, but correcting them in the current year would have materially distorted that year's results, the Company has corrected the errors by reducing opening retained earnings as at January 1, 2007 by $283 million.

Quarterly Dividend

Our Board of Directors approved a quarterly shareholders' dividend of $0.13 per share on the common shares of MFC, payable on or after March 19, 2010 to shareholders of record at the close of business on February 24, 2010.

The Board also declared dividends on the following non-cumulative preferred shares, payable on or after March 19, 2010 to shareholders of record at the close of business on February 24, 2010.

    
    -   Class A Shares Series 1 - $0.25625 per share
    -   Class A Shares Series 2 - $0.29063 per share
    -   Class A Shares Series 3 - $0.28125 per share
    -   Class A Shares Series 4 - $0.4125 per share
    -   Class 1 Shares Series 1 - $0.35 per share
    

Performance and Non-GAAP Measures

We use a number of non-GAAP financial measures to measure overall performance and to assess each of our businesses. Non-GAAP measures include: Normalized Earnings, Adjusted Earnings from Operations, Return on Common Shareholders' Equity; Premiums and Deposits; Premiums and Premium Equivalents; Funds under Management; Capital; Sales; New Business Embedded Value and Impact on Shareholders' Economic Value. Non-GAAP financial measures are not defined terms under GAAP and, therefore, are unlikely to be comparable to similar terms used by other issuers. Therefore, they should not be considered in isolation or as a substitute for any other financial information prepared in accordance with GAAP.

In our second quarter report in the section entitled "Normalized Earnings", the Company estimated Normalized Earnings for the third and fourth quarters in 2009 and all quarters in 2010, which constitutes forward-looking information, in accordance with the methods outlined under "Financial Highlights - Normalized Earnings and Adjusted Earnings from Operations" above. In this report, we have compared our estimate of normalized earnings with the adjusted earnings from operations for the fourth quarter excluding specified items that were excluded in arriving at our estimate of normalized earnings. The Company believes these measures are useful to investors given the current economic conditions including the volatility of equity markets, interest rates and other factors.

Return on common shareholders' equity is a profitability measure that presents the net income available to common shareholders as a percentage of the capital deployed to earn the income. The Company calculates return on common shareholders' equity using average common shareholders' equity excluding Accumulated Other Comprehensive Income (Loss) on available for sale securities and cash flow hedges.

    
    Return on Equity
    ----------------
    C$ millions                       Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Net Income (loss) Available
     to Common Shareholders per
     Consolidated Statement of
     Operations                      848     (193)  (1,878)   1,338      487

    Opening Total Equity
     Available to Common
     Shareholders                 24,812   26,173   24,236   26,496   23,370
    Closing Total Equity
     Available to Common
     Shareholders                 27,405   24,812   26,496   27,405   26,496
                                 -------------------------- -----------------
    Weighted Average Total
     Equity Available to
     Common Shareholders          26,108   25,493   25,366   25,845   24,364
    Opening Accumulated other
     comprehensive income (loss)
     on available for sale
     securities and cash flow
     hedges per Consolidated
     Balance Sheets                  442      111      (87)    (846)   1,291
    Closing Accumulated other
     comprehensive income (loss)
     on available for sale
     securities and cash flow
     hedges per Consolidated
     Balance Sheets                  564      442     (846)     564     (846)
                                 -------------------------- -----------------
    Adjustment for Average AOCI     (503)    (277)     466      126     (352)
                                 -------------------------- -----------------
    Weighted Average Total
     Equity Available to Common
     Shareholders Excluding
     Average AOCI                 25,605   25,216   25,833   25,971   24,012

    ROE based on Weighted
     Average Total Equity
     Available to Common
     Shareholders (annualized)     12.9%   (3.0)%  (29.4)%     5.2%     2.0%
    ROE based on Weighted
     Average Total Equity
     Available to Common
     Shareholders Excluding
     Average AOCI (annualized)     13.1%   (3.0)%  (28.9)%     5.2%     2.0%
    

The Company also uses financial performance measures that are prepared on a constant currency basis, which exclude the impact of currency fluctuations. Quarterly amounts stated on a constant currency basis in this report are calculated, as appropriate, using the income statement and balance sheet exchange rates effective for the fourth quarter of 2008.

Premiums and deposits is a measure of top line growth. The Company calculates premiums and deposits as the aggregate of (i) premiums and premium equivalents (see below), (ii) segregated fund deposits, excluding seed money, (iii) mutual fund deposits, (iv) deposits into institutional advisory accounts, and (v) other deposits in other managed funds.

Premiums and premium equivalents are part of premiums and deposits. The Company calculates premiums and premium equivalents as the aggregate of (i) general fund premiums net of reinsurance, reported as premiums on the Statement of Operations, (ii) premium equivalents for administration only group benefit contracts and (iii) premiums in the Canadian Group Benefit's reinsurance ceded agreement.

    
    Premiums and Deposits
    ---------------------
    C$ millions                       Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Premium Income per Statement
     of Operations                 4,731    5,523    7,022   22,946   23,252
    Deposits from Policyholders
     per Consolidated Statement
     of Segregated Funds           7,343    6,091    8,847   29,084   34,205
                                 -------------------------- -----------------
      Premiums and Deposits per
       Financial Statements       12,074   11,614   15,869   52,030   57,457
    Mutual Fund Deposits           2,378    2,118    1,824    8,733    9,473
    Institutional Advisory
     Account Deposits                363      758    1,025    4,492    5,798
    ASO Premium Equivalents          663      635      633    2,629    2,488
    Group Benefits Ceded
     premiums                        919      909        -    2,760        -
    Other Fund Deposits              138      204      142      626      534
                                 -------------------------- -----------------
      Total Premiums and
       Deposits                   16,535   16,238   19,493   71,270   75,750
    Currency Impact                1,699    1,183        -   (3,567)       -
                                 -------------------------- -----------------
      Constant Currency
       Premiums and Deposits      18,234   17,421   19,493   67,703   75,750
    

Funds under management is a measure of the size of the Company. It represents the total of the invested asset base that the Company and its customers invest in.

    
    Funds Under Management
    ----------------------
    C$ millions                       Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Total Invested Assets per
     Consolidated Balance Sheet  187,470  188,465  187,501  187,470  187,501
    Total Segregated Funds Net
     Assets per Consolidated
     Statement of Segregated
     Funds                       191,741  188,148  165,380  191,741  165,380
    Less: Segregated Funds
     held by the Company per
     Consolidated Statement
     of Segregated Funds            (118)    (193)    (220)    (118)    (220)
                                 -------------------------- -----------------
      Funds Under Management Per
       Financial Statements      379,093  376,420  352,661  379,093  352,661
    Mutual Funds                  33,370   32,310   25,629   33,370   25,629
    Institutional Advisory
     Accounts (Excluding
     Segregated Funds)            20,906   21,235   20,633   20,906   20,633
    Other Funds (Excluding
     Segregated Funds)             6,248    6,612    5,584    6,248    5,584
                                 -------------------------- -----------------
      Total Funds Under
       Management                439,617  436,577  404,507  439,617  404,507
    Currency Impact               55,405   45,501        -   55,405        -
                                 -------------------------- -----------------
      Constant Currency Funds
       Under Management          495,022  482,078  404,507  495,022  404,507
    

The definition we use for capital serves as a foundation of our capital management activities at the MFC level. For regulatory reporting purposes, the numbers are further adjusted for various additions or deductions to capital as mandated by the guidelines used by OSFI. Capital is calculated as the sum of: total equity excluding Accumulated Other Comprehensive Income (Loss) on cash flow hedges; non-controlling interest in subsidiaries; and liabilities for preferred shares and qualifying capital instruments.

    
    Total Capital
    -------------
    C$ millions                       Quarterly Results         Year Ended
                                    4Q09     3Q09     4Q08     2009     2008
                                    ----     ----     ----     ----     ----
    Total Equity per
     Consolidated Balance Sheets  28,907   26,334   27,197   28,907   27,197
    Less: Accumulated Other
     Comprehensive Loss on
     Cash Flow Hedges per
     Consolidated Balance Sheets      48      126      325       48      325
    Add: Liabilities for
     Preferred Shares and
     Qualifying Capital
     Instruments                   4,037    4,049    3,121    4,037    3,121
    Add: Non-Controlling Interest
     in Subsidiaries                 202      216      217      202      217
                                 -------------------------- -----------------
    Total Capital                 33,194   30,725   30,860   33,194   30,860
    

Sales are measured according to product type.

    
    (i)   For total individual insurance, sales include 100 per cent of new
          annualized premiums and 10 per cent of both excess and single
          premiums. For individual insurance, new annualized premiums reflect
          the annualized premium expected in the first year of a policy that
          requires premium payments for more than one year. Sales are
          reported gross before the impact of reinsurance. Single premium is
          the lump sum premium from the sale of a single premium product,
          e.g. travel insurance.
    (ii)  For group insurance, sales include new annualized premiums and
          administrative services only premium equivalents on new cases, as
          well as the addition of new coverages and amendments to contracts,
          excluding rate increases.
    (iii) For individual wealth management contracts, all new deposits are
          reported as sales. This includes individual annuities, both fixed
          and variable; segregated fund products; mutual funds; college
          savings 529 plans; and authorized bank loans and mortgages.
    (iv)  For group pensions/retirement savings, sales of new regular
          premiums and deposits reflect an estimate of expected deposits in
          the first year of the plan with the Company. Single premium sales
          reflect the assets transferred from the previous plan provider.
          Sales include the impact of the addition of a new division or of a
          new product to an existing client. Total sales include both new
          regular and single premiums and deposits.
    

New business embedded value ("NBEV") is the change in shareholders' economic value as a result of sales in the period. NBEV is calculated as the present value of expected future earnings after the cost of capital on new business using future mortality, morbidity, policyholder behavior assumptions, expense and investment assumptions used in the pricing of the products sold. The principal economic assumptions used in the NBEV calculations in 2009 were based on January 1, 2009 markets and were as follows:

    
    -------------------------------------------------------------------------
                                     Canada       U.S.  Hong Kong      Japan
    -------------------------------------------------------------------------
    MCCSR ratio                        150%       150%       150%       150%
    Discount rate                     6.75%      6.25%      7.00%      6.25%
    Income tax rate                     31%        35%      16.5%        24%
    Foreign exchange rate               n/a     1.2246     0.1581     0.0135
    -------------------------------------------------------------------------
    

Impact on shareholders' economic value is one of the measures we use to describe the potential impact of changes in equity markets and interest rates. Our method of calculating the impact on shareholders' economic value is set out in the relevant sections above where the impact is disclosed.

Caution Regarding Forward-Looking Statements

This document contains forward-looking statements within the meaning of the "safe harbour" provisions of Canadian provincial securities laws and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements with respect of our estimated adjusted earnings from operations referred to above under "Financial Highlights - Normalized Earnings and Adjusted Earnings from Operations". The forward-looking statements in this document also relate to, among other things, our objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such as "may", "will", "could", "should", "would", "likely", "suspect", "outlook", "expect", "intend", "estimate", "anticipate", "believe", "plan", "forecast", "objective", "seek", "aim", "continue", "embark" and "endeavour" (or the negative thereof) and words and expressions of similar import, and include statements concerning possible or assumed future results. Although we believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements and they should not be interpreted as confirming market or analysts' expectations in any way. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materially from expectations include but are not limited to: general business and economic conditions (including but not limited to performance of equity markets, interest rate fluctuations and movements in credit spreads, currency rates, investment losses and defaults, market liquidity and creditworthiness of guarantors, reinsurers and counterparties); Company liquidity, including the availability of financing to satisfy existing financial liabilities on their expected maturity dates when required; changes in laws and regulations; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; accuracy of estimates used in applying accounting policies and actuarial methods used by the Company; the ability to implement effective hedging strategies; the ability to maintain the Company's reputation; legal and regulatory proceedings; level of competition and consolidation; the ability to adapt products and services to the changing market; the ability to attract and retain key executives; acquisitions and the ability to complete acquisitions including the availability of equity and debt financing for this purpose; the ability to execute strategic plans and changes to strategic plans; the disruption of or changes to key elements of the Company's or public infrastructure systems; and environmental concerns. Additional information about material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the body of this document as well as under "Risk Factors" in our most recent Annual Information Form, under "Risk Management" and "Critical Accounting and Actuarial Policies" in the Management's Discussion and Analysis in our most recent annual and interim reports, in the "Risk Management" note to consolidated financial statements in our most recent annual and interim reports and elsewhere in our filings with Canadian and U.S. securities regulators. We do not undertake to update any forward-looking statements except as required by law.

About Manulife Financial

Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were Cdn$439.6 billion (US$420.0 billion) as at December 31, 2009. Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife Financial can be found on the Internet at www.manulife.com.

Attachments: Financial Highlights, Consolidated Statements of Operations, Consolidated Balance Sheets, Divisional Information.

    
    Financial Highlights
    (Canadian $ in millions unless otherwise stated and per share
    information, unaudited)

                                        As at and for the three months ended
                                                     December 31
                                                  2009       2008   % Change
    -------------------------------------------------------------------------

    Net income (loss)                         $    845   $ (1,869)         -
      Net income (loss) attributed to
       participating policyholders                 (23)         1          -
    -------------------------------------------------------------------------
    Net income (loss) attributed to
     shareholders                             $    868   $ (1,870)         -
      Preferred share dividends                    (20)        (8)       150
    -------------------------------------------------------------------------
    Net income (loss) available to common
     shareholders                             $    848   $ (1,878)         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Premiums and deposits:
      Life and health insurance premiums(1)   $  3,582   $  4,460        (20)
      Annuity and pension premiums excluding
       variable annuities                        1,062      1,577        (33)
      Segregated fund deposits excluding
       variable annuities                        5,564      4,913         13
      Mutual fund deposits                       2,378      1,824         30
      Institutional advisory account deposits      363      1,025        (65)
      ASO premium equivalents                      663        633          5
      Group Benefits ceded(1)                      919          -          -
      Other fund deposits                          138        142         (3)
    -------------------------------------------------------------------------
    Premiums and deposits excluding
     variable annuities                       $ 14,669   $ 14,574          1
      Variable annuities premium and deposits    1,866      4,919        (62)
    -------------------------------------------------------------------------
    Total premiums and deposits               $ 16,535   $ 19,493        (15)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Funds under management:
      General fund                            $187,470   $187,501          -
      Segregated funds excluding
       institutional advisory accounts         188,229    161,424         17
      Mutual funds                              33,370     25,629         30
      Institutional advisory accounts           23,342     24,016         (3)
      Other funds                                7,206      5,937         21
    -------------------------------------------------------------------------
    Total funds under management              $439,617   $404,507          9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital
      Liabilities for preferred shares and
       qualifying capital instruments         $  4,037   $  3,121         29
      Non-controlling interest in subsidiaries     202        217         (7)
      Equity
        Participating policyholders' equity         80         62         29
        Shareholders' equity
          Preferred shares                       1,422        638        123
          Common shares                         18,937     16,157         17
          Contributed surplus                      182        160         14
          Retained earnings(2)                  12,870     12,796          1
          Accumulated other comprehensive
           income (loss) on AFS securities
           and translation of net foreign
           operations                           (4,536)    (2,291)        98
    -------------------------------------------------------------------------
    Total capital                             $ 33,194   $ 30,860          8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Selected key performance measures:
      Basic earnings (loss) per common share  $   0.51   $  (1.24)
      Diluted earnings (loss) per common
       share                                  $   0.51   $  (1.24)
      Return on common shareholders'
       equity (annualized)(3)                    13.1%    (28.9)%
      Book value per common share             $  15.59   $  16.46
      Common shares outstanding (in millions)
          End of period                          1,758      1,610
          Weighted average - basic               1,669      1,519
          Weighted average - diluted             1,673      1,519

    (1) At the end of the first quarter of 2009, Canadian Group Benefits
        entered into an external reinsurance agreement which resulted in a
        substantial reduction in net premium revenue reported in the income
        statement. The Company continues to retain certain benefits and
        certain risks on this business and the associated direct premiums
        continue to be included in the overall premiums and deposits metric
        as "Group Benefits ceded".

    (2) Opening retained earnings at January 1, 2008 have been reduced by
        $283 million relating to an understatement of policy liabilities and
        an understatement of future income tax liabilities relating
        primarily to periods prior to the merger with John Hancock Financial
        Services, Inc. in April 2004.

    (3) Return on common shareholders' equity is net income (loss) available
        to common shareholders divided by average common shareholders' equity
        excluding accumulated other comprehensive income (loss) on AFS
        securities and cash flow hedges.



    Summary Consolidated Financial Statements

    Consolidated Statements of Operations
    (Canadian $ in millions except per share information, unaudited)

                                                             For the three
                                                              months ended
                                                               December 31
                                                             2009       2008
    -------------------------------------------------------------------------
    Revenue
    Premium income(1)                                    $  4,731   $  7,022
    Investment income
      Investment income                                     2,061      1,786
      Realized/ unrealized gain (losses) on assets
       supporting policy liabilities and consumer notes    (1,441)     1,519
    Other revenue                                           1,620      1,323
    -------------------------------------------------------------------------
    Total revenue                                        $  6,971   $ 11,650
    -------------------------------------------------------------------------
    Policy benefits and expenses
    To policyholders and beneficiaries
      Death, disability and other claims(1)              $  1,029   $  1,760
      Maturity and surrender benefits(2)                    1,396      3,179
      Annuity payments                                        778        809
      Policyholder dividends and experience rating refunds    324        431
      Net transfers to (from) segregated funds                 (1)       385
      Change in actuarial liabilities(2)                      (48)     4,957
    General expenses                                          954        907
    Investment expenses                                       242        248
    Commissions                                               987      1,096
    Interest expense                                          261        372
    Premium taxes                                              78         78
    Non-controlling interest in subsidiaries                  (10)        24
    -------------------------------------------------------------------------
    Total policy benefits and expenses                   $  5,990   $ 14,246
    -------------------------------------------------------------------------
    Income (loss) before income taxes                    $    981   $ (2,596)
    Income tax recovery (expense)                            (136)       727
    -------------------------------------------------------------------------
    Net income (loss)                                    $    845   $ (1,869)
      Net income (loss) attributed to participating
       policyholders                                          (23)         1
    -------------------------------------------------------------------------
    Net income (loss) attributed to shareholders         $    868   $ (1,870)
      Preferred share dividends                               (20)        (8)
    -------------------------------------------------------------------------
    Net income (loss) available to common shareholders   $    848   $ (1,878)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss) per common share               $   0.51   $  (1.24)
    Diluted earnings (loss) per common share             $   0.51   $  (1.24)


    (1) At the end of the first quarter of 2009, Canadian Group Benefits
        entered into an external reinsurance agreement which resulted in a
        substantial reduction in net premium revenue reported in the income
        statement. The Company continues to retain certain benefits and
        certain risks on this business.
    (2) The change in actuarial liabilities includes the impact of scheduled
        maturities in John Hancock Fixed Products institutional annuity
        contracts of $0.3 billion in Q4 2009 and $1.5 billion in Q4 2008.



    Consolidated Balance Sheets
    (Canadian $ in millions, unaudited)

                                                           As at December 31
    Assets                                                 2009(1)    2008(1)
    -------------------------------------------------------------------------
    Invested assets
    Cash and short-term securities                       $ 18,780   $ 17,269
    Securities
      Bonds                                                85,107     83,148
      Stocks                                                9,688      8,240
    Loans
      Mortgages                                            30,699     30,963
      Private placements                                   22,912     25,705
      Policy loans                                          6,609      7,533
      Bank loans                                            2,457      2,384
    Real estate                                             5,897      6,345
    Other investments                                       5,321      5,914
    -------------------------------------------------------------------------
    Total invested assets                                $187,470   $187,501
    -------------------------------------------------------------------------
    Other assets
    Accrued investment income                            $  1,540   $  1,760
    Outstanding premiums                                      812        799
    Goodwill                                                7,122      7,929
    Intangible assets                                       2,005      2,115
    Derivatives                                             2,680      7,883
    Miscellaneous                                           3,511      3,038
    -------------------------------------------------------------------------
    Total other assets                                   $ 17,670   $ 23,524
    -------------------------------------------------------------------------
    Total assets                                         $205,140   $211,025
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segregated funds net assets                          $191,741   $165,380
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and equity
    -------------------------------------------------------------------------
    Policy liabilities                                   $141,687   $146,344
    Deferred realized net gains                               108        127
    Bank deposits                                          14,735     12,210
    Consumer notes                                          1,291      1,876
    Long-term debt                                          3,308      3,689
    Future income tax liability                             1,178      1,794
    Derivatives                                             2,656      6,389
    Other liabilities                                       6,487      7,508
    -------------------------------------------------------------------------
                                                         $171,450   $179,937

    Liabilities for preferred shares and
     capital instruments                                    4,581      3,674
    Non-controlling interest in subsidiaries                  202        217

    Equity
      Participating policyholders' equity                      80         62
      Shareholders' equity
        Preferred shares                                    1,422        638
        Common shares                                      18,937     16,157
        Contributed surplus                                   182        160
        Retained earnings                                  12,870     12,796
        Accumulated other comprehensive loss               (4,584)    (2,616)
    -------------------------------------------------------------------------
    Total equity                                         $ 28,907   $ 27,197
    -------------------------------------------------------------------------
    Total liabilities and equity                         $205,140   $211,025
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Segregated funds net liabilities                     $191,741   $165,380
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Opening retained earnings at January 1, 2008 have been reduced by
        $283 million relating to an understatement of policy liabilities and
        an understatement of future income tax liabilities relating
        primarily to periods prior to the merger with John Hancock Financial
        Services, Inc. in April 2004.



    Notes to Summary Consolidated Financial Statements
    (Canadian $ in millions, unaudited)

    Note 1: Divisional Information

                                     For the quarter ended December 31, 2009
                                 --------------------------------------------
                                                U.S.
                                     U.S.      Wealth               Asia and
    Premiums and deposits         Insurance  Management  Canadian     Japan
    -------------------------------------------------------------------------
    General fund premiums
     excluding variable
     annuities(1)                  $  1,709   $    698   $    967   $    991
    Segregated fund deposits
     excluding variable annuities     1,325      3,214        498        527
    Mutual fund deposits                  -      1,907        189        282
    Institutional advisory
     account deposits                     -          -          -          -
    ASO premium equivalents               -          -        663          -
    Group Benefits ceded(1)               -          -        919          -
    Other fund deposits                   -        138          -          -
    Variable annuities premiums
     and deposits                         -        770        860        236
    -------------------------------------------------------------------------
    Total                          $  3,034   $  6,727   $  4,096   $  2,036
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss)              $   (117)  $    671   $    383   $    269
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Funds under management                    As at December 31, 2009
    -------------------------------------------------------------------------
    General fund                   $ 55,119   $ 35,482   $ 59,898   $ 24,469
    Segregated funds excluding
     institutional advisory
     accounts                        11,431    113,440     36,258     27,218
    Mutual funds                          -     25,044      6,508      1,818
    Institutional advisory
     accounts                             -          -          -          -
    Other funds                           -      3,477          -      3,729
    -------------------------------------------------------------------------
    Total                          $ 66,550   $177,443   $102,664   $ 57,234
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                        For the quarter ended December 31, 2009
                      ------------------------------------------
                                              Corporate
                                                 and
    Premiums and deposits         Reinsurance   Other      Total
    --------------------------------------------------------------
    General fund premiums
     excluding variable
     annuities(1)                  $    279   $      -   $  4,644
    Segregated fund deposits
     excluding variable annuities         -          -      5,564
    Mutual fund deposits                  -          -      2,378
    Institutional advisory
     account deposits                     -        363        363
    ASO premium equivalents               -          -        663
    Group Benefits ceded(1)               -          -        919
    Other fund deposits                   -          -        138
    Variable annuities premiums
     and deposits                         -          -      1,866
    --------------------------------------------------------------
    Total                          $    279   $    363   $ 16,535
    --------------------------------------------------------------
    --------------------------------------------------------------

    Net income (loss)              $     92   $   (453)  $    845
    --------------------------------------------------------------
    --------------------------------------------------------------

    Funds under management              As at December 31, 2009
    --------------------------------------------------------------
    General fund                   $  2,687   $  9,815   $187,470
    Segregated funds excluding
     institutional advisory
     accounts                             -       (118)   188,229
    Mutual funds                          -          -     33,370
    Institutional advisory
     accounts                             -     23,342     23,342
    Other funds                           -          -      7,206
    --------------------------------------------------------------
    Total                          $  2,687   $ 33,039   $439,617
    --------------------------------------------------------------
    --------------------------------------------------------------



                                    For the quarter ended December 31, 2008
                                 --------------------------------------------
                                                U.S.
                                     U.S.      Wealth               Asia and
    Premiums and deposits         Insurance  Management  Canadian     Japan
    -------------------------------------------------------------------------
    General fund premiums
     excluding variable
     annuities                     $  1,670   $  1,259   $  1,817   $  1,018
    Segregated fund deposits
     excluding variable annuities       436      3,447        524        459
    Mutual fund deposits                  -      1,560         95        169
    Institutional advisory
     account deposits                     -          -          -          -
    ASO premium equivalents               -          -        633          -
    Other fund deposits                   -        142          -          -
    Variable annuities premiums
     and deposits                         -      2,809      1,436        674
    -------------------------------------------------------------------------
    Total                          $  2,106   $  9,217   $  4,505   $  2,320
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss)              $     36   $ (1,314)  $    (11)  $   (441)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Funds under management                   As at December 31, 2008
    -------------------------------------------------------------------------
    General fund                   $ 59,967   $ 39,581   $ 52,314   $ 21,406
    Segregated funds excluding
     institutional advisory
     accounts                        10,342     99,133     27,628     24,541
    Mutual funds                          -     21,943      2,320      1,366
    Institutional advisory
     accounts                             -          -          -          -
    Other funds                           -      3,279          -      2,658
    -------------------------------------------------------------------------
    Total                          $ 70,309   $163,936   $ 82,262   $ 49,971
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                          For the quarter ended December 31, 2008
                         -----------------------------------------
                                              Corporate
                                                 and
    Premiums and deposits         Reinsurance   Other      Total
    --------------------------------------------------------------
    General fund premiums
     excluding variable
     annuities                     $    273   $      -   $  6,037
    Segregated fund deposits
     excluding variable annuities         -         47      4,913
    Mutual fund deposits                  -          -      1,824
    Institutional advisory
     account deposits                     -      1,025      1,025
    ASO premium equivalents               -          -        633
    Other fund deposits                   -          -        142
    Variable annuities premiums
     and deposits                         -          -      4,919
    --------------------------------------------------------------
    Total                          $    273   $  1,072   $ 19,493
    --------------------------------------------------------------
    --------------------------------------------------------------

    Net income (loss)              $    (14)  $   (125)  $ (1,869)
    --------------------------------------------------------------
    --------------------------------------------------------------

    Funds under management               As at December 31, 2008
    --------------------------------------------------------------
    General fund                   $  2,935   $ 11,298   $187,501
    Segregated funds excluding
     institutional advisory
     accounts                             -       (220)   161,424
    Mutual funds                          -          -     25,629
    Institutional advisory
     accounts                             -     24,016     24,016
    Other funds                           -          -      5,937
    --------------------------------------------------------------
    Total                          $  2,935   $ 35,094   $404,507
    --------------------------------------------------------------
    --------------------------------------------------------------

    (1) At the end of the first quarter of 2009, Canadian Group Benefits
        entered into an external reinsurance agreement which resulted in a
        substantial reduction in net premium revenue reported in the income
        statement. The Company continues to retain certain benefits and
        certain risks on this business and the associated direct premiums
        continue to be included in the overall premiums and deposits metric
        as "Group Benefits ceded".

    Note 2: Comparatives

    Certain comparative amounts have been reclassified to conform with the
    current period's presentation.
    

SOURCE Manulife Financial Corporation

For further information: For further information: Media inquiries: David Paterson, (416) 852-8899, david_paterson@manulife.com; Laurie Lupton, (416) 852-7792, laurie_lupton@manulife.com; Investor Relations: Amir Gorgi, (416) 852-8311, amir_gorgi@manulife.com


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