Success ingredient. Steve Roder, Senior Executive Vice President and Chief Financial Officer, Manulife Financial Corporation.

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1 Success ingredient Steve Roder, Senior Executive Vice President and Chief Financial Officer, Manulife Financial Corporation 32 February 2015

2 A PLUS Ambassador to Asia Insurance giant Manulife is poised for significant growth in its Asian markets. Ramona Dzinkowski charts the transformation of Chief Financial Officer Steve Roder from Hong Kong CPA to global strategic financial leader Photography by Jag Gundu When Steve Roder took on the role of Chief Financial Officer of Canadian insurance giant Manulife Financial Corporation in May 2012, the company had not only secured a veteran of the financial services sector, but someone who brought a deep understanding of many Asian cultural business practices. Roder, a Hong Kong Institute of CPAs member, says that understanding local business cultures in different regions is a major advantage. If you spend 20 years working in different parts of the region, working with different organizations, you tend to get a good understanding of what might be effective and what might not be effective, he says. International experience, he adds, brings cross-culture communication skills. Perhaps most importantly, you gain an understanding of how to interpret the way people react, behave or communi- February

3 Success ingredient cate, and understand what they truly mean as opposed to what it might say on paper. When early in 2012 he received a call from Manulife s head office to come on board as its new CFO, the company foresaw expanding revenues in Asia as the linchpin of a major growth strategy. For Roder, that is a far cry from 2008 when as CFO of rival insurer AIA, he experienced a meltdown of its parent American International Group due to its exposure to subprime loans in the United States, which was followed by a U.S. government bailout, AIG s divestment in AIA and the latter s subsequent Hong Kong listing. What we re seeing in Asia, in countries like China, Indonesia, Philippines and Vietnam, is that our addressable population potential buyers of insurance-related products is getting bigger, says Roder. Today, if you take the whole of Asia, you ve got something like 500 million in the middle class. In 2020, we expect that number to be closer to 1.9 billion. A former convenor of the Institute s Expert Panel on Insurance, Roder explains that Manulife also continues to grow its position in mature markets, which include Hong Kong and Japan. The rate of growth in Hong Kong is, by Western standards, very strong, so there s still a great deal of opportunity there, and in Japan there s a huge amount of money sitting in bank accounts not doing very much. For creative organizations like Manulife that can identify niches and be able to sway people to move some money out of a passive role into a more active role, there is a great deal of growth potential. Wider role in region Manulife, a 128-year-old Toronto-based financial services group with its principal operations in Asia and North America, has a long history in this region. The company arrived in Shanghai in 1897 as one of the first foreign life insurance companies to register a presence in the region. Today the company operates in Canada and Asia under the brand name Manulife and in the United States primarily through its John Hancock brand, offering a wide range of insurance, retirement, asset management and banking products. It is represented by roughly 6,000 insurance agents in Hong Kong and is the second largest provider in the Hong Kong Mandatory Provident Fund market in terms of assets under management. With about one-third of total earnings for the company originating from Asia and the expectation that this region will be the source of more than 70 percent of its new business insurance sales, Manulife s interests in the region are high and growing. Another big emerging opportunity for Manulife is retirement, of which the company brings extensive experience from Canada and the United States. That s why Manulife was able to gain a very significant position in the Hong Kong retirement market under the MPF, which was introduced in 1999, says Roder. What we re seeing in Asia, in countries like China, Indonesia, Philippines and Vietnam, is that our addressable population potential buyers of insurance-related products is getting bigger. A testament to the company s optimism is the purchase of the 21-storey West Tower at One Bay East at 83 Hoi Bun Road, Kowloon East now renamed Manulife Tower for HK$4.5 billion in The acquisition the largest single office tower purchase in Kowloon was made to accommodate future growth. (Manulife owns 16 other office properties in Asia, totalling about 900,000 square feet.) Roder s appointment to the global CFO role reflects Manulife s search for a financial leader who not only knew financial services and insurance, but also had a vast Asia experience. His first foray into the region was to Tokyo as one of three non-japanese-qualified accounting professionals out of 300 working in KPMG s international division. Over the course of his five-year stay in Japan, he became absorbed in the local business culture, and developed his Japanese language skills to an advanced level. As a native Brit and qualified accountant, I was well positioned to take care of our relationships with a lot of the big British clients, and would also serve KPMG s clients from a diverse selection of countries many of them banks or securities companies in France, Canada, Australia, Portugal and others, he explains. After accepting a partnership with accounting firm KPMG in London in 1991, Roder initially worked on initial public offerings in the United Kingdom. In 1996, rather than going back to the U.K. from Tokyo, he accepted an invitation to become a partner at KPMG China just before the transfer of Hong Kong to China and became a member of the Institute. Roder s experience with stock market debuts in London in the 1980s came in handy at this time. I was responsible for some major financial services clients and I worked on some of the very big, early Mainland IPOs, including China Construction Bank and People s Insurance Company of China. There were about 300 people working on the China Construction Bank IPO, and I think I was the only non-chinese person. Over the course of his 11-year tenure with KPMG in Hong Kong, Roder worked on projects in just about every country in the region, and ultimately became chairman of the firm s Asia-Pacific financial services practice. In 2007 he left public accounting practice to join the Hong Kong-based life insurance group AIA in Hong Kong. Within a year or so, Roder was helping to steer the company through the worst financial turmoil in recent history. As CFO, I ran the so-called war room project, keeping the regulators happy with AIA, he says. I then went on to prepare the company for its IPO. After leaving AIA in March 2010, Roder worked on the start-up Peak Re, a Hong Kong-based reinsurance company owned by Fosun International, the privately owned Mainland conglomerate, and International Finance Corporation, the private sector lending arm of the World Bank, which encourages Peak Re to maintain part of its portfolio in emerging markets. Roder set 34 February 2015

4 A PLUS As CFO, I ran the so-called war room project, keeping the regulators happy with AIA. I then went on to prepare the company for its IPO. February

5 A PLUS Big insurers riding high on Asia-Pacific growth The global insurance industry has high hopes for the Asia-Pacific region in the coming years. According to a recent EY outlook, the liberalization of trade barriers and the continuing increase in middle-class and high-net-worth consumers is highly favourable for the industry. Both life and non-life real premium growth will be strong in all the major emerging market regions in 2015 and again in 2016, an upbeat outlook by Swiss Re noted in November Emerging Asia will have stable growth at robust double-digit rates of around 13 percent for both sectors, the report suggested. Analysts say the industry s growth could be even more spectacular if insurers moved more quickly to adopt new digital technologies. Insurers trail the entire digital spectrum [in terms of] customer engagement, use of analytics and adoption of mobile and social media, says May Knight, a Financial Services Advisory Partner with EY China. One of the growth areas is heath insurance. Many governments in the region such as India, Indonesia and the Philippines underfund healthcare expenditures, leaving much of the market open to the private sector. In China, the growth of health insurance is creating opportunities. A number of international insurers, such as MetLife and Allianz, have set up in the Shanghai (China) Free Trade Zone opened in 2013, although Manulife is adopting a wait-and-see attitude. The Canadian insurance company operates in China through Manulife-Sinochem Life Insurance Co., a joint venture between Manulife (International) Limited (51 percent) and the Sinochem Finance Co. It offers individual, group life and health and group pension products. Manulife's asset management arm has a quota of US$300 million under China s qualified foreign institutional investor scheme, which allows it to launch stock and yuan bond funds. Manulife has been operating for more than a century in Hong Kong, where the insurance business is also booming. Gross premiums paid in the first three quarters of 2014 totalled HK$246.6 billion, an increase of 13.8 percent over the corresponding period in 2013, data from the Office of the Commissioner of Insurance show. The local industry is also facing reforms. The Insurance Companies (Amendment) Bill 2014, expected to be gazetted this year, will create an insurance regulator to focus on supervision of insurance intermediaries and customer protection. The bill prescribes a conduct framework based on honesty, treating customers fairly, integrity, competency, suitability, disclosures, conflicts of interest and acting in the best interests of policyholders, says Clarice Yen, a Financial Services Partner at KPMG China and a Hong Kong Institute of CPAs member. up most of the operating functions for the company and helped it raise US$550 million in paid-up capital. The business of risk At Manulife, Roder sees his role as a bridge between the issues the company is dealing with in Asia, and how that translates into decisions at group level, or equally how initiatives at group level might play out in Asia. Meanwhile back in Canada, he notes, because of our significant Asian business, many of my investor meetings include quite a lot of discussion about our operations in the region. During his frequent trips to the region, his broadly defined leadership role includes helping Manulife s individual business units interact with its various business partners. For example, during my most recent trip, he says, I had meetings with bank partners in Indonesia and in Singapore, as well as with the local regulators. With insurance, in essence, being a transfer of risk, Roder manages the risks associated with Manulife s global strategy. Most of what I would see as the key risks apply across the entire organization, rather than being specific to Asia. He uses currency volatility as an example. Our approach is to try to match our assets and liabilities in each currency we operate in, he explains. So if we re trading in Vietnam and have a book of liabilities associated with our book of insurance policies, then we ll also have a bucket of Vietnamese assets to match those. So typically we don t have a lot of currency exposure. With respect to political risk that could upset its growth trajectory, Manulife s broad reach into the region is a critical hedging strategy, he says. In my experience, there are often some concerns somewhere at a particular time, bearing in mind the various historic relationships in the region, he says. However, we trade across 12 geographies and benefit from taking a portfolio approach. For example, if there s some uncertainty over, let s say, a change in government in one market, it only affects one market out of 12, not all the markets. While proud of his Asian experience, Roder accentuates the global nature of Manulife s business. However, given the demographics in the region, the company is reliant upon Asia s emerging and growing middle class to lead its expansion. The reason I was asked to join this company was because the chief executive and the board of directors wanted a CFO who had a global mindset, he says. Roder is also conscious of the company s heritage. Founded in 1887, its first president was Sir John MacDonald, Canada s first prime minister. From his office in the neo-classical Manufacturers Life Insurance Building (now the Manulife South Tower), Roder has a view of Toronto s central business district. Manulife is a global financial services organization with a proud Canadian heritage, he says, as opposed to a Canadian company with some overseas operations. February