balances, borrowers renewing or extending their loans when they mature, derivative settlements or collateral demands, reinsurance settlements or collateral demands, and our willingness to support the local solvency position of our subsidiaries. Such an environment could also limit our access to capital markets. Sustained global economic uncertainty could also result in adverse credit ratings changes which in turn could result in more costly or limited access to funding sources. While we currently have a variety of sources of liquidity including cash balances, short-term investments, government and highly rated corporate bonds, and access to contingent liquidity facilities, there can be no assurance that these sources will provide us with sufficient liquidity on commercially reasonable terms in the future. Emerging Risks The identification and assessment of our external environment for emerging risks is an important aspect of our ERM Framework, as these risks, although yet to materialize, could have the potential to have a material adverse impact on our operations and/or business strategies. We also consider taking advantage of opportunities identified to improve our competitiveness and ultimately our financial results. Our Emerging Risk Framework facilitates the ongoing identification, assessment and monitoring of emerging risks, and includes: maintaining a process that facilitates the ongoing discussion and evaluation of potential emerging risks with senior business and functional management; reviewing and validating emerging risks with the ERC; creating and executing on responses to each emerging risk based on prioritization; and monitoring and reporting on emerging risks on a regular basis to the Board’s Risk Committee. RegulatoryCapital OSFI’s LICAT capital regime applies to our business globally on a group consolidated basis. We continue to meet OSFI’s requirements and maintain capital in excess of regulatory expectations. In January 2023, a revised LICAT guideline, aligning with the IFRS 17 accounting changes, took effect. This will be followed by an update to the capital rules for Segregated Fund Guarantees, expected to be effective in January 2025. At its annual meeting in November 2019, the IAIS adopted a risk based global ICS, that is being further developed over a five-year monitoring period that commenced in 2020. While broadly supportive of the goals of ICS, OSFI stated that it did not support the current ICS design, adopted by the IAIS in November 2019, citing that it was ‘not fit for purpose for the Canadian market’. Without OSFI’s consent, the IAIS rules will not apply in Canada or to Canadian companies on a group-wide basis, while other regulators may use the ICS framework for calculating capital in their specific markets. Limited changes have been made to ICS since the beginning of the five-year monitoring period. We will continue to monitor developments as the ICS methodology and its applicability evolve. In December 2022, the Financial Stability Board (FSB) adopted the IAIS Holistic Framework for the assessment and mitigation of systemic risk and discontinued the annual identification of Global Systemically Important Insurers (G-SIIs). Manulife was supportive of this direction. Regulators in various jurisdictions in which we operate have embarked on reforming their respective capital regulations. While the ultimate impact of these changes remains uncertain, we closely monitor the developments. IFRS17andIFRS9 IFRS 17 “Insurance Contracts” and IFRS 9 “Financial Instruments” are effective for insurance companies in 2023. IFRS 17 replaced IFRS 4 “Insurance Contracts” and will materially change the timing of the recognition of earnings from our insurance business and therefore, our shareholders’ equity. Furthermore, the requirements of the new standard are complex and have necessitated significant enhancements to finance infrastructure and processes and could impact our business strategy. IFRS 9 will impact the measurement and timing of investment income. A summary of some of the key differences between IFRS 17 and IFRS 4 is outlined in the “Future Accounting and Reporting Changes” 1 section below. The impacts of IFRS 17 are expected to include : • The establishment of a CSM on our in-force business, which represents unearned profits, was expected to decrease equity upon transition. The LICAT guideline for 2023 issued on July 21, 2022 makes calibration adjustments relating to the inclusion of CSM in available capital and the reduction of the scalar on base solvency buffer. In addition, the LICAT ratio is expected to be less sensitive to changes in interest rates and more stable under IFRS 17 compared with IFRS 4. Given this greater stability, the impact of IFRS 17 upon adoption on January 1, 2023 is expected to be a low single-digit percentage point increase to the LICAT ratio based on markets as of December 31, 2022. We expect our capital position will continue to be strong under IFRS 17. • The deferral of the recognition of new business gains via the CSM, and to a substantially lesser extent, the timing of investments results, will shift earnings out into future periods. As a result, on transition, net income and core earnings in 2022 are expected to be lower under IFRS 17 compared with IFRS 4. This impact will be partially offset by the amortization into income of the CSM that will be established on our in-force business. Overall, considering these items along with the various other impacts, on transition we expect 2022 core earnings to decline by approximately 5% to 10% under IFRS 17 compared with IFRS 4. A transition impact on our net income attributed to shareholders is difficult to predict as it is also impacted by prevailing market conditions. In addition, we expect IFRS 17 to improve the stability of both our core earnings and net income attributed to shareholders. 1 See “Caution regarding forward-looking statements” above. 83