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  • 1. 2012 Manulife Financial CorporationAnnual ReportTABLE OF CONTENTS 9 Managements Discussion and Analysis 11Financial Performance 18Performance by Division 36Risk Management and Risk Factors 60Capital Management Framework 63Critical Accounting and Actuarial Policies 73U.S. GAAP Disclosures 75Controls and Procedures 75Performance and Non-GAAP Measures 78Additional Disclosures81 Consolidated Financial Statements89 Notes to Consolidated Financial Statements168Embedded Value170Source of Earnings172Board of Directors173Company Officers174Office Listing175Glossary of Terms Shareholder InformationCaution regarding forward-looking statementsThis document contains forward-looking statements within the meaning of the safe harbour provisions of Canadian provincial securities lawsand the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document include, but are not limited to,statements with respect to our 2016 management objectives for core earnings and core ROE, potential future charges related to URR assump-tions if current low interest rates persist, changes in MLIs MCCSR ratio and additional risks regarding entities within the MFC group that areinterconnected which may make separation difficult. The forward-looking statements in this document also relate to, among other things, ourobjectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and can generally be identified by the use of words such asmay, will, could, should, would, likely, suspect, outlook, expect, intend, estimate, anticipate, believe, plan,forecast, objective, seek, aim, continue, goal, restore, embark and endeavour (or the negative thereof) and words andexpressions of similar import, and include statements concerning possible or assumed future results. Although we believe that the expectationsreflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not beplaced on such statements and they should not be interpreted as confirming market or analysts expectations in any way. Certain materialfactors or assumptions are applied in making forward-looking statements, including in the case of our 2016 management objectives for coreearnings and core ROE, the assumptions described under Key Planning Assumptions and Uncertainties in this document and actual resultsmay differ materially from those expressed or implied in such statements. Important factors that could cause actual results to differ materiallyfrom expectations include but are not limited to: the factors identified in Key Planning Assumptions and Uncertainties in this document;general business and economic conditions (including but not limited to the performance, volatility and correlation of equity markets, interestrates, credit and swap spreads, currency rates, investment losses and defaults, market liquidity and creditworthiness of guarantors, reinsurersand counterparties); changes in laws and regulations; changes in accounting standards; our ability to execute strategic plans and changes tostrategic plans; downgrades in our financial strength or credit ratings; our ability to maintain our reputation; impairments of goodwill orintangible assets or the establishment of provisions against future tax assets; the accuracy of estimates relating to morbidity, mortality andpolicyholder behaviour; the accuracy of other estimates used in applying accounting policies and actuarial methods; our ability to implementeffective hedging strategies and unforeseen consequences arising from such strategies; our ability to source appropriate assets to back our longdated liabilities; level of competition and consolidation; our ability to market and distribute products through current and future distributionchannels; unforeseen liabilities or asset impairments arising from acquisitions and dispositions of businesses; the realization of losses arisingfrom the sale of investments classified as available-for-sale; our liquidity, including the availability of financing to satisfy existing financialliabilities on expected maturity dates when required; obligations to pledge additional collateral; the availability of letters of credit to providecapital management flexibility; accuracy of information received from counterparties and the ability of counterparties to meet their obligations;the availability, affordability and adequacy of reinsurance; legal and regulatory proceedings, including tax audits, tax litigation or similarproceedings; our ability to adapt products and services to the changing market; our ability to attract and retain key executives, employees andagents; the appropriate use and interpretation of complex models or deficiencies in models used; political, legal, operational and other risksassociated with our non-North American operations; acquisitions and our ability to complete acquisitions including the availability of equity anddebt financing for this purpose; the disruption of or changes to key elements of the Companys or public infrastructure systems; environmentalconcerns; and our ability to protect our intellectual property and exposure to claims of infringement. Additional information about materialfactors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in makingforward-looking statements may be found in the body of this document under Risk Management and Risk Factors and Critical Accountingand Actuarial Policies in the Managements Discussion and Analysis and in the Risk Management note to the consolidated financialstatements as well as under Risk Factors in our most recent Annual Information Form and elsewhere in our filings with Canadian andU.S. securities regulators. We do not undertake to update any forward-looking statements, except as required by law.8 Manulife Financial Corporation 2012 Annual ReportTable of Contents

2. MANAGEMENTS DISCUSSION AND ANALYSISThis Managements Discussion and Analysis (MD&A) is current as of March 15, 2013.OverviewManulife Financial is a leading Canada-based financial services group with principal operations in Asia, Canada and theUnited States. Manulife Financials vision is to provide its clients with strong, reliable, trustworthy and forward-thinkingsolutions for their most significant financial decisions. Our international network of employees, agents and distributionpartners offers financial protection and wealth management products and services to millions of customers. Theseproducts and services include individual life insurance, group life and health insurance, long-term care services, pensionproducts, annuities, mutual funds and banking products. We provide asset management services to institutionalcustomers worldwide and offer reinsurance solutions, specializing in property and casualty retrocession. Funds undermanagement1 by Manulife Financial and its subsidiaries were $532 billion as at December 31, 2012. The Companyoperates as Manulife Financial in Canada and Asia and primarily as John Hancock in the United States.Manulife Financial Corporation trades as MFC on the TSX, NYSE and PSE, and under 945 on the SEHK. ManulifeFinancial can be found on the internet at manulife.com.In this document, the terms Company, Manulife Financial and we mean Manulife Financial Corporation (MFC) and itssubsidiaries.In 2012 we made significant progress towards our strategic priorities: Developing our Asian opportunity to the fullest, Growing our wealth and asset management businesses in Asia, Canada, and the U.S., Continuing to build our balanced Canadian franchise, and Continuing to grow higher return on equity (ROE), lower risk U.S. businesses.We ended 2012 with record annual sales1 in both our Insurance and Wealth businesses excluding variable annuities. Our Asianoperations delivered strong growth by expanding our distribution networks, including growing our bancassurance partnerships. Wegenerated another all-time record for funds under management as a result of record sales in our mutual fund and asset managementbusinesses.Since 2010, we have enjoyed a positive progression in earnings and in 2012 improved our annual net income attributed to share-holders by $1.6 billion over 2011. We reported net income attributed to shareholders for 2012 of $1,736 million compared with$129 million in 2011. While 2012 earnings included strong investment related gains of $1,137 million, they also included a $1,081million charge for changes in actuarial methods and assumptions and a $758 million charge for the direct impact of equity marketsand interest rates.In 2012 we introduced core earnings1 a non-GAAP measure which management believes better reflects our underlying earningscapacity. Core earnings excludes investment related gains in excess of $200 million per annum (the $200 million per annum to bereported in core earnings compares with an average of over $320 million per annum reported from 2007 to 2011). It also excludesthe mark-to-market accounting impact of equity markets and interest rates as well as a number of other items, outlined in theFinancial Performance section below.Core earnings in 2012 were $2,187 million compared with $2,169 million in 2011. The $18 million increase included a number ofoffsetting items. Improved new business margins, increased fee income driven by higher funds under management, a higherscheduled release of provisions for adverse deviation for variable annuity guarantees driven by higher equity markets, and the non-recurrence of material Property and Casualty Reinsurance claims were mostly offset by additional macro equity hedging costs, higherpension costs related to amortization of prior years unrealized investment losses on the Companys own pension plans, and higherbusiness development and project related expenses.Asia Division continues to build a pan-Asian life insurance franchise that is well posit

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