UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

             |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2002

                         Commission File Number: 1-15607

                      JOHN HANCOCK FINANCIAL SERVICES, INC.
                Exact name of registrant as specified in charter

               DELAWARE                                 04-3483032
    (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)

                               John Hancock Place
                           Boston, Massachusetts 02117
                    (Address of principal executive offices)

                                 (617) 572-6000
              (Registrant's telephone number, including area code)

      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

      Number of shares outstanding of our only class of common stock as of
November 8, 2002:

                                   288,113,359
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    September 30,
                                                                       2002        December 31,
                                                                    (Unaudited)        2001
                                                                    ---------------------------
                                                                           (in millions)
<S>                                                                  <C>               <C>
Assets

Investments
Fixed maturities:
  Held-to-maturity--at amortized cost
  (fair value: September 30-- $1,871.3; December 31--$1,914.1) ..   $ 1,812.5         $ 1,930.0
  Available-for-sale--at fair value
  (cost: September 30--$43,519.1; December 31--$38,742.0) .......    44,326.1          39,160.3
  Trading securities--at fair value
  (cost: September 30--$18.8; December 31-- $16.4) ..............        19.2              16.5
Equity securities:
  Available-for-sale--at fair value
  (cost: September 30--$652.9; December 31--$752.3) .............       692.6             886.8
  Trading securities--at fair value
  (cost: September 30--$297.4; December 31--$289.5) .............       253.9             304.1
Mortgage loans on real estate ...................................    11,734.5          10,993.2
Real estate .....................................................       356.2             442.4
Policy loans ....................................................     2,018.8           2,008.2
Short-term investments ..........................................        90.1             153.5
Other invested assets ...........................................     2,270.8           1,786.1
                                                                    ---------         ---------

  Total Investments .............................................    63,574.7          57,681.1

Cash and cash equivalents .......................................     1,067.9           1,313.7
Accrued investment income .......................................       856.8             782.1
Premiums and accounts receivable ................................       337.3             253.8
Deferred policy acquisition costs ...............................     3,877.7           3,717.4
Reinsurance recoverable .........................................     1,896.2           1,909.3
Other assets ....................................................     2,902.0           2,768.3
Separate account assets .........................................    19,622.8          22,718.5
                                                                    ---------         ---------

  Total Assets ..................................................   $94,135.4         $91,144.2
                                                                    =========         =========
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       2
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                   CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                    September 30,
                                                                        2002       December 31,
                                                                    (Unaudited)       2001
                                                                     --------------------------
                                                                         (in millions)
<S>                                                                  <C>          <C>
Liabilities and Shareholders' Equity

Liabilities
Future policy benefits ...........................................   $38,073.4    $34,938.7
Policyholders' funds .............................................    22,492.6     20,762.8
Unearned revenue .................................................       863.2        809.3
Unpaid claims and claim expense reserves .........................       203.4        262.7
Dividends payable to policyholders ...............................       590.9        578.1
Short-term debt ..................................................       243.6         81.0
Long-term debt ...................................................     1,342.4      1,359.1
Income taxes .....................................................     1,025.5        866.9
Other liabilities ................................................     3,476.3      2,779.8
Separate account liabilities .....................................    19,622.8     22,718.5
                                                                     ---------    ---------

  Total Liabilities ..............................................    87,934.1     85,156.9

Minority interest ................................................       122.3        122.3

Commitments and contingencies - Note 3

Shareholders' Equity
Common stock, $.01 par value; 2.0 billion shares authorized;
  317.4 million and 315.9 million shares issued, respectively ....         3.2          3.2
Additional paid in capital .......................................     5,119.4      5,099.3
Retained earnings ................................................     1,609.6      1,206.7
Accumulated other comprehensive income ...........................       390.5        228.0
Treasury stock, at cost (29.0 million and 18.5 million
  shares, respectively) ..........................................    (1,043.7)      (672.2)
                                                                     ---------    ---------

  Total Shareholders' Equity .....................................     6,079.0      5,865.0
                                                                     ---------    ---------

  Total Liabilities and Shareholders' Equity .....................   $94,135.4    $91,144.2
                                                                     =========    =========
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       3
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                   UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                     Three Months Ended      Nine Months Ended
                                                                                        September 30,          September 30,
                                                                                      2002        2001        2002       2001
                                                                                   --------------------------------------------
                                                                                                   (in millions)
<S>                                                                                <C>         <C>         <C>         <C>
Revenues
   Premiums ....................................................................   $  806.7    $  717.3    $2,512.7    $2,589.3
   Universal life and investment-type product charges ..........................      212.7       199.8       613.5       561.4
   Net investment income .......................................................      968.6       992.8     2,917.6     2,969.7
   Net realized investment and other gains (losses), net of related
      amortization of deferred policy acquisition costs, amounts credited to
      participating pension contractholders and the policyholder dividend
      obligation ($27.4 and $23.5 for the three months ended September 30, 2002
      and 2001 and $(5.6) and $13.2 for the nine months ended September 30, 2002
      and September 30, 2001,
      respectively) ............................................................      (30.7)      (58.5)     (255.4)      (98.5)
   Investment management revenues, commissions and other fees ..................      124.8       143.7       405.3       450.2
   Other revenue ...............................................................       56.3        52.2       183.0       114.4
                                                                                   --------    --------    --------    --------

   Total revenues ..............................................................    2,138.4     2,047.3     6,376.7     6,586.5

Benefits and expenses
   Benefits to policyholders, excluding amounts related to net realized
      investment and other gains (losses) credited to participating pension
      contractholders and the policyholder dividend obligation
      ($10.9 and $22.7 for the three months ended September 30, 2002 and 2001
      and $0.4 and $14.4 for the nine months ended September 30, 2002 and
      September 30, 2001, respectively) ........................................    1,303.4     1,267.9     4,002.2     4,119.4
   Other operating costs and expenses ..........................................      328.8       347.2     1,102.2     1,096.8
   Amortization of deferred policy acquisition costs, excluding amounts
      related to net realized investment and other gains (losses) ($16.5 and
      $0.8, for the three months ended September 30, 2002 and 2001
      and $(6.0) and $(1.2) for the nine months ended September 30, 2002
      and September 30, 2001, respectively) ....................................      151.1        79.4       299.9       249.2
   Dividends to policyholders ..................................................      143.6       126.2       438.3       408.2
                                                                                   --------    --------    --------    --------

   Total benefits and expenses .................................................    1,926.9     1,820.7     5,842.6     5,873.6
                                                                                   --------    --------    --------    --------

Income before income taxes and cumulative
   effect of accounting changes ................................................      211.5       226.6       534.1       712.9
Income taxes ...................................................................       53.4        61.4       131.2       203.7
                                                                                   --------    --------    --------    --------

Income before cumulative effect of accounting changes ..........................      158.1       165.2       402.9       509.2

Cumulative effect of accounting changes, net of tax - Note 1 ...................         --          --          --         7.2
                                                                                   --------    --------    --------    --------

Net income .....................................................................   $  158.1    $  165.2    $  402.9    $  516.4
                                                                                   ========    ========    ========    ========
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       4
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

           UNAUDITED CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)

<TABLE>
<CAPTION>
                                                   Three Months Ended  Nine Months Ended
                                                      September 30,       September 30,
                                                     2002      2001     2002       2001
                                                   -------------------------------------
                                                   (in millions, except per share data)
<S>                                                <C>       <C>       <C>       <C>
Basic earnings per common share:

Income before cumulative effect of accounting
   changes .....................................   $  0.55   $  0.55   $  1.38   $  1.66

Cumulative effect of accounting changes,
   net of tax ..................................        --        --        --      0.02
                                                   -------   -------   -------   -------

Net income .....................................   $  0.55   $  0.55   $  1.38   $  1.68
                                                   =======   =======   =======   =======

Diluted earnings per common share:

Income before cumulative effect of accounting
   changes .....................................   $  0.54   $  0.54   $  1.37   $  1.65

Cumulative effect of accounting changes,
   net of tax ..................................        --        --        --      0.02
                                                   -------   -------   -------   -------

Net income .....................................   $  0.54   $  0.54   $  1.37   $  1.67
                                                   =======   =======   =======   =======

Share data:

Weighted-average shares used in basic earnings
   per common share calculations ...............     289.5     302.6     293.0     306.8

Dilutive securities:
Stock options ..................................       1.0       3.2       1.4       2.7
Non-vested stock ...............................       0.3       0.2       0.3       0.3
                                                   -------   -------   -------   -------

Weighted-average shares used in diluted earnings
   per common share calculations ...............     290.8     306.0     294.7     309.8
                                                   =======   =======   =======   =======
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       5
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                Additional            Accumulated Other                Total      Outstanding
                                        Common   Paid In    Retained    Comprehensive    Treasury  Shareholders     Shares
                                        Stock    Capital    Earnings    Income (Loss)     Stock       Equity     (in thousands)
                                        ---------------------------------------------------------------------------------------
                                                               (in millions, except outstanding share data)

<S>                                     <C>     <C>         <C>             <C>          <C>          <C>           <C>
Balance at July 1, 2001 ............    $3.2    $5,094.4    $1,031.6        $262.4       $(402.9)     $5,988.7      304,265.4

Options exercised ..................                 1.7                                                   1.7          138.9
Restricted stock issued ............                  --                                                    --            0.1
Forfeitures of restricted stock                     (0.1)                                                 (0.1)          (9.9)
Issuance of shares for board
   compensation ....................                 0.1                                                   0.1            1.4
Treasury stock acquired ............                                                      (181.1)       (181.1)      (4,724.9)

Comprehensive income:
  Net income .......................                           165.2                                     165.2
Other comprehensive income, net
of tax:
  Net unrealized gains (losses) ....                                          41.2                        41.2
  Net accumulated gains (losses)
      on cash flow hedges ..........                                          34.2                        34.2
  Foreign currency translation
    adjustment .....................                                         (18.2)                      (18.2)
                                                                                                      ----------
Comprehensive income ...............                                                                     222.4
                                        -------------------------------------------------------------------------------------

Balance at September 30, 2001 ......    $3.2    $5,096.1    $1,196.8        $319.6       $(584.0)     $6,031.7      299,671.0
                                        ======================================================================================

Balance at July 1, 2002 ............    $3.2    $5,114.4    $1,451.5        $317.0       $(918.8)     $5,967.3      292,192.9

Options exercised ..................                 2.9                                                   2.9          205.6
Restricted stock amortization ......                 2.0                                                   2.0             --
Issuance of shares for board
   compensation ....................                 0.1                                                   0.1            1.9

Treasury stock acquired ............                                                      (124.9)       (124.9)      (4,046.5)

Comprehensive income:
  Net income .......................                           158.1                                     158.1
Other comprehensive income, net
of tax:
  Net unrealized gains (losses) ....                                         (67.2)                      (67.2)
  Net accumulated gains (losses)
    on cash flow hedges ............                                         161.6                       161.6
  Foreign currency translation
    adjustment .....................                                         (22.1)                      (22.1)
    Minimum pension liability ......                                           1.2                         1.2
                                                                                                      ----------
Comprehensive income ...............                                                                     231.6
                                        ---------------------------------------------------------------------------------------
Balance at September 30, 2002 ......    $3.2    $5,119.4    $1,609.6        $390.5     $(1,043.7)     $6,079.0      288,353.9
                                        ======================================================================================
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       6
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                     AND COMPREHENSIVE INCOME - (CONTINUED)

<TABLE>
<CAPTION>
                                                       Additional            Accumulated Other              Total      Outstanding
                                               Common   Paid In    Retained    Comprehensive   Treasury Shareholders'    Shares
                                               Stock    Capital    Earnings    Income (Loss)    Stock      Equity    (in thousands)
                                               ------------------------------------------------------------------------------------
                                                                 (in millions, except outstanding share data)

<S>                                            <C>     <C>         <C>           <C>      <C>             <C>             <C>
Balance at January 1, 2001 ............        $3.2    $5,086.4    $  680.4      $ 77.3   $   (91.8)      $5,755.5        311,988.9

Options exercised .....................                     9.7                                                9.7            738.2
Restricted stock issued ...............                     0.1                                                0.1             56.1
Forfeitures of restricted stock .......                    (0.2)                                              (0.2)           (11.1)
Issuance of shares for board
   compensations ......................                     0.1                                                0.1              1.4
Treasury stock acquired ...............                                                      (492.2)        (492.2)       (13,102.5)

Comprehensive income:
   Net income .........................                               516.4                                  516.4
Other comprehensive income, net of tax:
   Net unrealized gains (losses) ......                                            22.0                       22.0
   Net accumulated gains (losses)
     on cash flow hedges ..............                                            14.2                       14.2
   Foreign currency translation
     adjustment .......................                                           (21.5)                     (21.5)
                                                                                                          --------
Comprehensive income ..................                                                                      531.1

Change in accounting principles, net
   of tax -- Note 1 ...................                                           227.6                      227.6
                                               ------------------------------------------------------------------------------------

Balance at September 30, 2001 .........        $3.2    $5,096.1    $1,196.8      $319.6   $  (584.0)      $6,031.7        299,671.0
                                               ====================================================================================

Balance at January 1, 2002 ............        $3.2    $5,099.3    $1,206.7      $228.0   $  (672.2)      $5,865.0        297,430.1

Options exercised .....................                    12.4                                               12.4            847.7
Restricted stock issued ...............                     4.4                                                4.4            637.8
Restricted stock amortization .........                     3.1                                                3.1
Forfeitures of restricted stock .......                    (0.1)                                              (0.1)            (8.7)
Issuance of shares for board
   compensation .......................                     0.3                                                0.3              5.1
Treasury stock acquired ...............                                                      (371.5)        (371.5)       (10,558.1)

Comprehensive income:
   Net income .........................                               402.9                                  402.9
Other comprehensive income, net of tax:
   Net unrealized gains (losses) ......                                           (24.6)                     (24.6)
   Net accumulated gains (losses)
     on cash flow hedges ..............                                           176.9                      176.9
   Foreign currency translation
     adjustment .......................                                             6.5                        6.5
   Minimum pension liability ..........                                             3.7                        3.7
                                                                                                          --------
Comprehensive income ..................                                                                      565.4
                                               ------------------------------------------------------------------------------------

Balance at September 30, 2002 .........        $3.2    $5,119.4    $1,609.6      $390.5   $(1,043.7)      $6,079.0        288,353.9
                                               ====================================================================================
</TABLE>


                                       7
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                      Nine Months Ended
                                                                        September 30,
                                                                      2002         2001
                                                                  -------------------------
                                                                   (in millions)
<S>                                                               <C>            <C>
Cash flows from operating activities:
  Net income .................................................    $    402.9     $    516.4
  Adjustments to reconcile net income to net cash
  provided by operating activities:
    Amortization of discount - fixed maturities ..............         (89.6)        (119.7)
    Net realized investment and other losses .................         255.4           98.5
    Change in deferred policy acquisition costs ..............        (216.2)        (163.6)
    Depreciation and amortization ............................          47.5           60.4
    Net cash flows from trading securities ...................          47.5          (34.4)
    Increase in accrued investment income ....................         (74.7)        (107.5)
    Increase (decrease) in premiums and accounts receivable ..         (83.5)          12.4
    Increase in other assets and other liabilities, net ......         (35.9)        (176.3)
    Increase in policy liabilities and accruals, net .........       1,551.8        1,478.4
    Increase in income taxes .................................          77.3          237.6
                                                                  ----------     ----------

      Net cash provided by operating activities ..............       1,882.5        1,802.2

Cash flows from investing activities:
  Sales of:
    Fixed maturities available-for-sale ......................       3,706.3       14,294.5
    Equity securities available-for-sale .....................         328.4          337.0
    Real estate ..............................................          70.2            4.3
    Short-term investments and other invested assets .........          89.8          118.6
  Maturities, prepayments and scheduled redemptions of:
    Fixed maturities held-to-maturity ........................         131.1          181.0
    Fixed maturities available-for-sale ......................       2,281.6        2,358.5
    Short-term investments and other invested assets .........         369.7          174.7
    Mortgage loans on real estate ............................         990.9        1,099.8
  Purchases of:
    Fixed maturities held-to-maturity ........................         (11.8)         (31.9)
    Fixed maturities available-for-sale ......................     (10,506.7)     (22,566.4)
    Equity securities available-for-sale .....................        (153.7)        (197.2)
    Real estate ..............................................         (14.3)          (5.5)
    Short-term investments and other invested assets .........        (750.7)        (412.0)
    Mortgage loans on real estate issued .....................      (1,655.5)      (1,071.9)
    Net cash paid related to acquisition of business .........            --          (28.2)
    Other, net ...............................................          32.4           53.1
                                                                  ----------     ----------

      Net cash used in investing activities ..................    $ (5,092.3)    $ (5,691.6)
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       8
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

         UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                   Nine Months Ended
                                                                     September 30,
                                                                  2002          2001
                                                               ------------------------
                                                                  (in millions)
<S>                                                            <C>           <C>
Cash flows from financing activities:
  Acquisition of treasury stock ...........................    $  (371.5)    $  (492.2)
  Universal life and investment-type contract deposits ....      7,474.9       8,256.9
  Universal life and investment-type contract maturities
    and withdrawals .......................................     (4,287.3)     (6,142.6)
  Issuance of long-term debt ..............................           --         145.2
  Issuance of short-term debt .............................         69.0            --
  Repayment of long-term debt .............................        (47.9)           --
  Repayment of short-term debt ............................        (18.0)        (14.0)
  Net increase (decrease) in commercial paper .............        144.8         195.0
                                                               ---------     ---------

      Net cash provided by financing activities ...........      2,964.0       1,948.3
                                                               ---------     ---------

      Net decrease in cash and cash equivalents ...........       (245.8)     (1,941.1)

      Cash and cash equivalents at beginning of period ....      1,313.7       3,280.0
                                                               ---------     ---------

      Cash and cash equivalents at end of period ..........    $ 1,067.9     $ 1,338.9
                                                               =========     =========
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
financial statements.


                                       9
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Summary of Significant Accounting Policies

Business

John Hancock Financial Services, Inc. (the Company) is a diversified financial
services organization that provides a broad range of insurance and investment
products and investment management and advisory services.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, these unaudited consolidated financial statements contain all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair presentation of the Company's financial position and results of
operations. Operating results for the three and nine month periods ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. These unaudited consolidated
financial statements should be read in conjunction with the Company's annual
audited financial statements as of December 31, 2001 included in the Company's
Form 10-K for the year ended December 31, 2001 filed with the United States
Securities and Exchange Commission (hereafter referred to as the Company's 2001
Form 10-K). The Company's financial statements, press releases, analyst
supplements and other information are available on the internet at
www.jhancock.com, under the link labeled "Investor Relations." In addition, all
of the Company's United States Securities and Exchange Commission filings are
available on the internet at www.sec.gov, under the name Hancock John Financial.

The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.

Certain prior year amounts have been reclassified to conform to the current year
presentation.

The acquisitions described below were recorded under the purchase method of
accounting and, accordingly, the operating results of the acquired operations
have been included in the Company's consolidated results of operations from the
applicable date of acquisition. Each purchase price was allocated to the assets
acquired and the liabilities assumed based on estimated fair values, with the
excess of the applicable purchase price over the estimated fair values, if any,
recorded as goodwill. These acquisitions were made by the Company in execution
of its plan to acquire businesses that have strategic value, meet its earnings
requirements and advance the growth of its current businesses. The following
table presents actual and proforma data for comparative purposes, of revenue,
net income and diluted earnings per common share for the periods indicated to
demonstrate the proforma effect of the acquisitions as if they occurred on
January 1, 2001.

<TABLE>
<CAPTION>
                             Three Months Ended September 30,      Nine months Ended September 30,
                                           2001                                 2001
                              2002       Proforma      2001         2002      Proforma       2001
                          ----------------------------------------------------------------------------
                                        (unaudited)                         (unaudited)
                                           (in millions, except per-share data)
<S>                        <C>         <C>         <C>            <C>         <C>         <C>
Revenue .............      $ 2,138.4   $ 2,122.7   $ 2,047.3      $ 6,376.7   $ 6,706.1   $ 6,586.5

Net income ..........      $   158.1   $   165.5   $   165.2      $   402.9   $   519.7   $   516.4

Earnings per share ..      $    0.54   $    0.55   $    0.54      $    1.37   $    1.69   $    1.67
</TABLE>

On October 1, 2001, The Maritime Life Assurance Company (Maritime Life), a
majority owned Canadian subsidiary of the Company, completed its purchase of all
of the shares of Royal & Sun Alliance Life Insurance Company of Canada (RSAF)
for an amount of approximately $149.9 million. RSAF's business includes life
insurance, guaranteed interest savings and retirement products. The net income
relating to the acquired operations included in the Company's results for the
three and nine month periods ended September 30, 2002 was approximately $1.2
million and $3.6 million, respectively.


                                       10
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

On April 2, 2001, a subsidiary of the Company, Signature Fruit Company, LLC
(Signature Fruit) purchased certain assets and assumed certain liabilities out
of bankruptcy proceedings of Tri Valley Growers, Inc., a cooperative
association, for approximately $53.0 million. The net losses relating to the
acquired operations included in the Company's results for the three and nine
month periods ended September 30, 2002 were $(2.3) million and $(3.6) million,
respectively.

Deferred Policy Acquisition Costs and Unearned Revenue

Costs that vary with, and are related primarily to, the production of new
business have been deferred to the extent that they are deemed recoverable. Such
costs include commissions, certain costs of policy issue and underwriting, and
certain agency expenses. The Company tests the recoverability of its deferred
policy acquisition costs quarterly with a model that uses data such as market
performance, lapse rates and expense levels. As of September 30, 2002, the
Company's deferred policy acquisition costs are deemed recoverable. Similarly,
any amounts assessed for services to be provided over future periods are
recorded as unearned revenue. For non-participating term life and long-term care
insurance products, such costs are being amortized over the premium-paying
period of the related policies using assumptions consistent with those used in
computing policy benefit reserves. For participating traditional life insurance
policies, such costs are being amortized over the life of the contracts at a
constant rate based on the present value of the estimated gross margin amounts
expected to be realized over the lives of the contracts. Estimated gross margin
amounts include anticipated premiums and investment results, less claims and
administrative expenses, changes in the net level premium reserve and expected
annual policyholder dividends. For universal life insurance contracts and
investment-type products, such costs and revenues are being amortized generally
in proportion to the present value of expected gross profits arising principally
from surrender charges, investment results, and mortality and expense margins.

In the development of expected gross profits, the Company is required to
estimate the growth in the policyholder account balances upon which certain
asset based fees are charged. In doing so, the Company assumes that, over the
long term, account balances will grow from investment performance. The rate of
growth takes into account the current fixed income/equity mix of account
balances as well as historical fixed income and equity returns. The Company also
assumes that historical variances from the long term rate will reverse over the
next five year period. The resulting rates for the next five years are reviewed
for reasonableness, and they are raised or lowered if they produce an annual
growth rate that the Company believes to be unreasonable.

The effects on the amortization of deferred policy acquisition costs and
unearned revenues of revisions to estimated gross margins and profits are
reflected in earnings in the period such revisions are made. Expected gross
profits or expected gross margins are discounted at periodically revised
interest rates and are applied to the remaining benefit period. At September 30,
2002, the average discount rate was 8.4% for participating traditional life
insurance products and 6.2% for universal life products, and the total
amortization period life was 30 years for both participating traditional life
insurance products and universal life products.

As of September 30, 2002, the Company changed several future assumptions with
respect to the expected gross profits in its variable life and variable annuity
businesses. First, we lowered the long-term growth rate assumption from 9%, to
8%, gross of fees. Second, we lowered the average rates for the next five years
from the mid-teens to 13%. Finally, we increased certain fee rates on these
policies (the variable series trust (VST) fee increase). These three changes are
referred to collectively elsewhere in this document as the Q3 unlocking. The
results of these changes in assumptions at September 30, 2002 was a net
write-off of deferred policy acquisition costs of $36.1 million in the variable
annuity business in the Asset Gathering Segment and $13.1 million (net of $12.3
million of unearned revenue and $2.5 million in policy benefit reserves) in the
variable life business in the Protection Segment. The impact on net income of
the Q3 unlocking was approximately $27.5 million, or $0.09 diluted earnings per
share. Total amortization of deferred policy acquisition costs, including the
write-offs mentioned previously, was $151.1 million and $79.4 million for the
three month periods ended September 30, 2002 and 2001, respectively, and $299.9
million and $249.2 million for the nine month periods ended September 30, 2002
and 2001, respectively.

Amortization of deferred policy acquisition costs is allocated to: (1) net
realized investment and other gains (losses) for those products in which such
gains (losses) have a direct impact on the amortization of deferred policy
acquisition costs; (2) unrealized investment gains and losses, net of tax, to
provide for the effect on the deferred policy acquisition cost assets that would
result from the realization of unrealized gains and losses on assets backing
participating traditional life insurance and universal life and investment-type
contracts; and (3) a separate component of benefits


                                       11
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

and expenses to reflect amortization related to the gross margins or profits,
excluding realized gains and losses, relating to policies and contracts in
force.

Net realized investment and other gains (losses) related to certain products
have a direct impact on the amortization of deferred policy acquisition costs as
such gains and losses affect the amount and timing of profit emergence.
Accordingly, to the extent that such amortization results from net realized
investment and other gains (losses), management believes that presenting
realized investment gains and losses net of related amortization of deferred
policy acquisition costs provides information useful in evaluating the operating
performance of the Company. This presentation may not be comparable to
presentations made by other insurers.

Severance

During the three and nine month periods ended September 30, 2002, the Company
continued its ongoing Competitive Position Project. This project was initiated
in the first quarter of 1999 to reduce costs and increase future operating
efficiency by consolidating portions of the Company's operations and is expected
to continue through at least 2003. The project consists primarily of reducing
staff in the home office and terminating certain operations outside the home
office.

Since the inception of the project, approximately 1,340 employees have been
terminated. As of September 30, 2002 and December 31, 2001, the liability for
employee termination costs, included in other liabilities was $12.1 million and
$18.8 million, respectively. Employee termination costs, net of related pension
and other post employment benefit curtailment gains, are included in other
operating costs and expenses and were $6.6 million and $4.4 million for the
three month periods ended September 30, 2002 and 2001 and $15.6 million and
$35.0 million for the nine month periods ended September 30, 2002 and 2001,
respectively. Benefits paid since the inception of the project were $95.6
million through September 30, 2002.

Cumulative Effect of Accounting Change

During the first quarter of 2001, the Company changed the method of accounting
for the recognition of deferred gains and losses considered in the calculation
of the annual expense for its employee pension plan under Statement of Financial
Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions," and
for its postretirement health and welfare plans under SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The Company changed
the method of recognizing gains and losses from deferral within a 10% corridor
and amortization of gains (losses) outside this corridor over the future working
careers of the participants to a deferral within a 5% corridor and amortization
of gains and losses outside this corridor over the future working careers of the
participants. The new method is preferable because in the Company's situation,
it produces results that respond more quickly to changes in the market value of
the plan assets while providing some measure to mitigate the impact of extreme
short term swings in those market values. As a result, the Company recorded a
credit of $18.6 million (net of tax of $9.9 million) related to its employee
benefit pension plans, and a credit of $4.7 million (net of tax of $2.6 million)
related to its postretirement health and welfare plans. The total credit
recorded as a cumulative effect of an accounting change was $23.3 million (net
of tax of $12.5 million), or $0.07 diluted earnings per share.

On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended by SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities, an amendment of
SFAS No. 133." The adoption of SFAS No. 133, as amended, resulted in a charge to
operations accounted for as a cumulative effect of accounting change of $16.1
million (net of tax of $8.3 million) as of January 1, 2001, or $(0.05) diluted
earnings per share. In addition, as of January 1, 2001, a $227.6 million (net of
tax of $122.6 million) cumulative effect of accounting change was recorded in
accumulated other comprehensive income for (1) the transition adjustment in the
adoption of SFAS No. 133, as amended, an increase of $40.5 million (net of tax
of $21.8 million) and (2) the reclassification of $12.1 billion in securities
from the held-to-maturity category to the available-for-sale category, an
increase of $187.1 million (net of tax of $100.8 million).

Recent Accounting Pronouncements

On October 1, 2002, the FASB issued SFAS No. 146 - "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires recognition
of liabilities for exit or disposal costs, including restructuring costs, when
the costs are actually incurred, instead of when a formal plan of action is
committed to. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002. The Company's Competitive Positioning Project
is expected to continue through at least 2003. The Company intends to continue
its restructuring


                                       12
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 1 -- Summary of Significant Accounting Policies - (Continued)

activities in 2003, however, the Company cannot estimate the amounts, or the
timing of recognition, of these future restructuring liabilities, nor can it
estimate the impact of any changes to the timing of recognition of these
liabilities as a result of adopting SFAS No. 146 in 2002.

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires that goodwill and other intangible
assets deemed to have indefinite lives no longer be amortized to earnings, but
instead be reviewed at least annually for impairment. Intangible assets with
definite lives will continue to be amortized over their useful lives. The
Company has performed the required initial impairment tests of goodwill as of
January 1, 2002 based on the guidance in SFAS No. 142. The Company evaluated the
goodwill of each reporting unit for impairment using valuations of reporting
units based on earnings and book value multiples and by reference to similar
multiples of publicly traded peers. No goodwill impairments resulted from these
required impairment tests. The Company plans on performing the first annual
goodwill impairment tests in the fourth quarter of 2002.

In December 2000, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 00-3, "Accounting by Insurance Enterprises
for Demutualizations and Formations of Mutual Insurance Holding Companies and
Certain Long-Duration Participating Contracts." The SOP details accounting
requirements for the demutualization of mutual insurance companies. The SOP
required demutualized insurance companies to standardize the presentation of
demutualization expenses and presentation of the closed block in their financial
statements. The adoption of SOP 00-3 also resulted in the recognition of a
policyholder dividend obligation, which represents cumulative actual closed
block earnings in excess of expected periodic amounts calculated at the date of
the demutualization. Adoption of SOP 00-3 resulted in a decrease of net income
of $5.9 million and $3.4 million, and a decrease in diluted earnings per share
of $0.02 and $0.01, for the three and nine month periods ended September 30,
2001, respectively. Previously reported net income for the three month period
ended September 30, 2001 included net investment income and net realized
investment and other gains (losses) that were better than expected at the date
of demutualization, offset by lower than expected gains from mortality and
lapse. Previously reported net income for the nine month period ended September
30, 2001 included better than expected net investment income and mortality and
lapse experience, offset by lower net realized investment and other gains
(losses).


                                       13
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Segment Information

The Company operates in the following five business segments: two segments
primarily serve retail customers, two segments serve primarily institutional
customers and our fifth segment is the Corporate and Other Segment, which
includes our international operations. Our retail segments are the Protection
Segment and the Asset Gathering Segment. Our institutional segments are the
Guaranteed and Structured Financial Products Segment (G&SFP) and the Investment
Management Segment. For additional information about the Company's business
segments, please refer to the Company's 2001 Form 10-K.

The following table summarizes selected financial information by segment for the
periods and dates indicated, and reconcile segment revenues and segment
after-tax operating income to amounts reported in the unaudited consolidated
statements of income. Included in the Protection Segment for all periods
presented are the assets, liabilities, revenues and expenses of the closed
block. For additional information on the closed block see Note 4 -- Closed Block
in the notes to the unaudited consolidated financial statements and the related
footnote in the Company's 2001 Form 10-K.

Amounts reported as segment adjustments in the tables below primarily relate to:

(i)   certain net realized investment and other gains (losses), net of related
      amortization adjustment for deferred policy acquisition costs, amounts
      credited to participating pension contractholder accounts and the
      policyholder dividend obligation (the adjustment for net realized
      investment and other gains (losses) excludes gains and losses from
      mortgage securitizations because management views the related gains and
      losses as an integral part of the core business of those operations);

(ii)  benefits to policyholders and expenses incurred relating to the settlement
      of a class action lawsuit against the Company involving a dispute
      regarding disclosure of costs on various modes of life insurance policy
      premium payment;

(iii) restructuring costs related to reducing staff in the home office and
      terminating certain operations outside the home office;

(iv)  cumulative effect of accounting changes; and

(v)   the surplus tax on mutual life insurance companies which, as a stock
      company is no longer applicable to the Company.


                                       14
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                     Asset                   Investment    Corporate
                                                       Protection  Gathering      G&SFP      Management    and Other   Consolidated
                                                       ----------------------------------------------------------------------------
                                                                                     (in millions)
<S>                                                 <C>          <C>          <C>           <C>         <C>               <C>
As of or for the three months ended
September 30, 2002
Revenues:
   Revenues from external customers .............   $   569.0    $   132.1    $    47.7     $   21.6    $   431.0         $ 1,201.4
   Net investment income ........................       334.1        147.9        431.0          3.3         52.3             968.6
   Inter-segment revenues .......................          --          0.8           --          5.6         (6.4)               --
                                                    -------------------------------------------------------------------------------
   Segment revenues .............................       903.1        280.8        478.7         30.5        476.9           2,170.0
   Net realized investment and other
      gains (losses) ............................       (18.2)        52.6        (74.6)          --          8.6             (31.6)
                                                    -------------------------------------------------------------------------------
   Revenues .....................................   $   884.9    $   333.4    $   404.1     $   30.5    $   485.5         $ 2,138.4
                                                    ===============================================================================
Net Income:
   Segment after-tax operating income ...........       $67.3    $    14.6    $    75.9     $    4.5    $    23.5         $   185.8
   Net realized investment and other
      gains (losses) ............................       (11.1)        34.5        (47.4)        (0.1)         0.4             (23.7)
   Restructuring charges ........................        (0.6)        (3.1)          --           --         (0.3)             (4.0)
                                                    -------------------------------------------------------------------------------
   Net income ...................................   $    55.6    $    46.0    $    28.5     $    4.4    $    23.6         $   158.1
                                                    ===============================================================================
Supplemental Information:
   Equity in net income of investees
      accounted for by the equity method ........        $2.9    $     0.8    $     5.9     $   (0.1)   $    (3.0)        $     6.5
   Amortization of deferred policy
      acquisition costs, excluding
      amounts related to net realized
      investment and other gains (losses) .......        71.7         66.9          0.5           --         12.0             151.1
   Segment assets ...............................   $29,636.6    $15,350.0    $33,300.0     $2,258.0    $13,590.8         $94,135.4
</TABLE>


                                       15
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                                Asset     Investment   Corporate
                                                  Protection    Gathering       G&SFP     Management   and Other  Consolidated
                                                  ----------------------------------------------------------------------------
                                                                                  (in millions)
<S>                                               <C>          <C>          <C>           <C>         <C>            <C>
As of or for the three months ended
September 30, 2001
Revenues:
   Revenues from external customers ........      $   521.3    $   165.3    $    38.4     $   17.8    $   371.2      $ 1,114.0
   Net investment income ...................          319.9        130.9        455.5          8.9         77.6          992.8
   Inter-segment revenues ..................             --           --           --          6.5         (6.5)            --
                                                  ----------------------------------------------------------------------------
   Segment revenues ........................          841.2        296.2        493.9         33.2        442.3        2,106.8
   Net realized investment and other
      gains (losses) .......................           (4.5)         9.7        (57.8)          --         (6.9)         (59.5)
                                                  ----------------------------------------------------------------------------
   Revenues ................................      $   836.7    $   305.9    $   436.1     $   33.2    $   435.4      $ 2,047.3
                                                  ============================================================================
Net Income:
   Segment after-tax operating income ......      $    69.4    $    41.0    $    61.9     $    7.0    $    22.3      $   201.6
   Net realized investment and other
      gains (losses) .......................           (2.9)         6.6        (36.9)          --         (4.0)         (37.2)
   Restructuring charges ...................           (1.0)        (0.3)          --         (0.2)        (1.5)          (3.0)
   Surplus tax .............................            1.5           --          2.1           --          0.2            3.8
                                                  ----------------------------------------------------------------------------
   Net income ..............................      $    67.0    $    47.3    $    27.1     $    6.8    $    17.0      $   165.2
                                                  ============================================================================
Supplemental Information:
   Equity in net income of investees
      accounted for by the equity method ...      $     5.1    $     2.2    $     7.9     $    3.4    $    (7.3)     $    11.3
   Amortization of deferred policy
      acquisition costs, excluding
      amounts related to net realized
      investment and other gains
      (losses) .............................           46.7         22.5          0.4           --          9.8           79.4
   Segment assets ..........................      $27,421.2    $13,835.4    $31,741.7     $2,792.9    $12,373.2      $88,164.4
</TABLE>


                                       16
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                             Asset      Investment   Corporate
                                                Protection     Gathering     G&SFP      Management   and Other   Consolidated
                                                -----------------------------------------------------------------------------
                                                                                 (in millions)
<S>                                             <C>          <C>          <C>           <C>         <C>             <C>
As of or for the nine months ended
September 30, 2002
Revenues:
   Revenues from external
      customers ...........................     $ 1,653.7    $   419.5    $   314.2     $   61.4    $ 1,267.6       $ 3,716.4
   Net investment income ..................         987.0        418.9      1,283.6         10.9        217.2         2,917.6
   Inter-segment revenues .................            --          0.8           --         22.1        (22.9)             --
                                                -----------------------------------------------------------------------------
   Segment revenues .......................       2,640.7        839.2      1,597.8         94.4      1,461.9         6,634.0
   Net realized investment and other
      gains (losses) ......................         (75.3)         8.2       (182.9)         0.6         (7.9)         (257.3)
                                                -----------------------------------------------------------------------------
   Revenues ...............................     $ 2,565.4    $   847.4    $ 1,414.9     $   95.0    $ 1,454.0       $ 6,376.7
                                                =============================================================================
Net Income:
   Segment after-tax operating
      income ..............................     $   216.8    $    95.2    $   218.7     $   16.8    $    54.6       $   602.1
   Net realized investment and other
       gains (losses) .....................         (48.0)         6.5       (116.8)         0.4        (13.0)         (170.9)
   Class action lawsuit ...................         (18.7)          --           --           --         (0.8)          (19.5)
   Restructuring charges ..................          (4.7)        (5.0)        (0.5)        (0.2)         1.6            (8.8)
                                                -----------------------------------------------------------------------------
   Net income .............................     $   145.4    $    96.7    $   101.4     $   17.0    $    42.4       $   402.9
                                                =============================================================================
Supplemental Information:
   Equity in net income of investees
      accounted for by the equity method ..     $    12.4    $     5.9    $    24.7           --    $     8.4       $    51.4
   Amortization of deferred policy
      acquisition costs, excluding
      amounts related to net realized
      investment and other gains
      (losses) ............................         149.5        117.3          1.6           --         31.5           299.9
   Segment assets .........................     $29,636.6    $15,350.0    $33,300.0     $2,258.0    $13,590.8       $94,135.4
</TABLE>


                                       17
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 2 -- Segment Information - (Continued)

<TABLE>
<CAPTION>
                                                                 Asset                    Investment  Corporate
                                                 Protection     Gathering     G&SFP       Management  and Other   Consolidated
                                                 -----------------------------------------------------------------------------
                                                                                (in millions)
<S>                                              <C>          <C>          <C>          <C>          <C>          <C>
As of or for the nine months ended
September 30, 2001
Revenues:
   Revenues from external customers .......      $ 1,539.6    $   506.5    $   482.8    $    60.4    $ 1,129.5    $ 3,718.8
   Net investment income ..................          944.7        373.5      1,387.3         18.1        246.1      2,969.7
   Inter-segment revenues .................             --           --           --         21.2        (21.2)          --
                                                 --------------------------------------------------------------------------
   Segment revenues .......................        2,484.3        880.0      1,870.1         99.7      1,354.4      6,688.5
   Net realized investment and other
      gains (losses) ......................          (38.5)        (1.5)       (81.3)        (0.1)        19.4       (102.0)
                                                 --------------------------------------------------------------------------
   Revenues ...............................      $ 2,445.8    $   878.5    $ 1,788.8    $    99.6    $ 1,373.8    $ 6,586.5
                                                 ==========================================================================
Net Income:
   Segment after-tax operating income .....      $   221.0    $   109.9    $   180.5    $    17.0    $    62.6    $   591.0
   Net realized investment and other
      gains (losses) ......................          (23.6)          --        (51.3)        (0.1)        11.7        (63.3)
   Restructuring charges ..................           (3.8)       (15.4)        (0.7)        (0.7)        (1.7)       (22.3)
   Surplus tax ............................            1.5           --          2.1           --          0.2          3.8
   Cumulative effect of accounting
      changes, net of tax .................           11.7         (0.5)        (1.2)        (0.2)        (2.6)         7.2
                                                 --------------------------------------------------------------------------
   Net income .............................      $   206.8    $    94.0    $   129.4    $    16.0    $    70.2    $   516.4
                                                 ==========================================================================
Supplemental Information:
   Equity in net income of investees
      accounted for by the equity method ..      $     9.9    $     6.1    $    16.0    $     3.8    $    21.0    $    56.8
   Amortization of deferred policy
      acquisition costs, excluding
      amounts related to net realized
      investment and other gains
      (losses) ............................          139.1         59.5          1.9           --         48.7        249.2
   Segment assets .........................      $27,421.2    $13,835.4    $31,741.7    $ 2,792.9    $12,373.2    $88,164.4
</TABLE>


                                       18
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Contingencies

Class Action

During 1997, the Company entered into a court-approved settlement relating to a
class action lawsuit involving certain individual life insurance policies sold
from 1979 through 1996. In entering into the settlement, the Company
specifically denied any wrongdoing. The total reserve held in connection with
the settlement to provide for relief to class members and for legal and
administrative costs associated with the settlement amounted to $16.8 million
and $52.7 million at September 30, 2002 and December 31, 2001, respectively.
There were no costs related to the settlement incurred for the three and nine
months ended September 30, 2002. An adjustment of $19.5 million, after-tax, was
recorded to the settlement reserve in the fourth quarter of 2001. The estimated
reserve is based on a number of factors, including the estimated cost per claim
and the estimated costs to administer the claims.

During 1996, management determined that it was probable that a settlement would
occur and that a minimum loss amount could be reasonably estimated. Accordingly,
the Company recorded its best estimate based on the information available at the
time. The terms of the settlement agreement were negotiated throughout 1997 and
approved by the court on December 31, 1997. In accordance with the terms of the
settlement agreement, the Company contacted class members during 1998 to
determine the actual type of relief to be sought by class members. The majority
of the responses from class members were received by the fourth quarter of 1998.
The type of relief sought by class members differed from the Company's initial
estimates. In 1999, the Company updated its estimate of the cost of claims
subject to alternative dispute resolution (ADR) relief and revised its reserve
estimate accordingly. The reserve estimate was further evaluated quarterly, and
was adjusted in the fourth quarter of 2001. The adjustment to the reserve in the
fourth quarter of 2001 was the result of the Company being able to better
estimate the cost of settling the remaining claims, which on average tend to be
larger, more complicated claims. The better estimate comes from experience with
actual settlements on similar claims.

Administration of the ADR component of the settlement continues to date. We
continue to evaluate the reserve estimate quarterly. Although some uncertainty
remains as to the cost of claims in the final phase (i.e., arbitration) of the
ADR process, it is expected that the final cost of the settlement will not
differ materially from the amounts presently provided for by the Company.

Harris Trust

Since 1983, the Company has been involved in complex litigation known as Harris
Trust and Savings Bank, as Trustee of Sperry Master Retirement Trust No. 2 v.
John Hancock Mutual Life Insurance Company (S.D.N.Y. Civ. 83-5491). After
successive appeals to the Second Circuit and to the U.S. Supreme Court, the case
was remanded to the District Court and tried by a Federal District Court judge
in 1997. The judge issued an opinion in November 2000.

In that opinion the Court found against the Company and awarded the Trust
approximately $13.8 million in relation to this claim together with unspecified
additional pre-judgment interest on this amount from October 1988. The Court
also found against the Company on issues of liability valuation and ERISA law.
Damages in the amount of approximately $5.7 million, together with unspecified
pre-judgment interest from December 1996, were awarded on these issues. As part
of the relief, the judge ordered the removal of Hancock as a fiduciary to the
plan. On April 11, 2001, the Court entered a judgment against the Company for
approximately $84.9 million, which includes damages to the plaintiff,
pre-judgment interest, attorney's fees and other costs.

On May 14, 2001 the Company filed an appeal in this case. On August 20, 2002,
the Second Circuit Court of Appeals issued a ruling, affirming in part,
reversing in part, and vacating in part the District Court's judgment in this
case. The Second Circuit Court of Appeals' opinion overturned substantial
portions of the District Court's opinion, representing the vast majority of the
lower court's award of damages and fees, and sent the matter back to the
District Court for further proceedings. The matter remains in litigation, and no
final judgment has been entered.

Notwithstanding what the Company believes to be the merits of its position in
this case, if unsuccessful, its ultimate liability, including fees, costs and
interest could have a material adverse impact on net income. However, the
Company does not believe that any such liability would be material in relation
to its financial position or liquidity.


                                       19
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 3 -- Contingencies - (Continued)

Reinsurance Recoverable

On February 28, 1997, the Company sold a major portion of its group insurance
business to UNICARE Life & Health Insurance Company (UNICARE), a wholly owned
subsidiary of WellPoint Health Networks, Inc. The business sold included the
Company's group accident and health business and related group life business and
Cost Care, Inc., Hancock Association Services Group and Tri-State, Inc., all of
which were indirect wholly owned subsidiaries of the Company. The Company
retained its long-term care operations. The insurance business sold was
transferred to UNICARE through a 100% coinsurance agreement. The Company remains
liable to its policyholders to the extent that UNICARE does not meet its
contractual obligations under the coinsurance agreement.

Through the Company's group health insurance operations, the Company entered
into a number of reinsurance arrangements in respect of personal accident
insurance and the occupational accident component of workers compensation
insurance, a portion of which was originated through a pool managed by Unicover
Managers, Inc. Under these arrangements, the Company both assumed risks as a
reinsurer, and also passed 95% of these risks on to other companies. This
business had originally been reinsured by a number of different companies, and
has become the subject of widespread disputes. The disputes concern the
placement of the business with reinsurers and recovery of the reinsurance. The
Company is engaged in disputes, including a number of legal proceedings, in
respect of this business. The risk to the Company is that other companies that
reinsured the business from the Company may seek to avoid their reinsurance
obligations. However, the Company believes that it has a reasonable legal
position in this matter. During the fourth quarter of 1999 and early 2000, the
Company received additional information about its exposure to losses under the
various reinsurance programs. As a result of this additional information and in
connection with global settlement discussions initiated in late 1999 with other
parties involved in the reinsurance programs, during the fourth quarter of 1999
the Company recognized a charge for uncollectible reinsurance of $133.7 million,
after tax, as its best estimate of its remaining loss exposure. The Company
believes that any exposure to loss from this issue, in addition to amounts
already provided for as of September 30, 2002, would not be material.

Reinsurance ceded contracts do not relieve the Company from its obligations to
policyholders. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet its obligations for
reinsurance ceded to it under the reinsurance agreements. Failure of the
reinsurers to honor their obligations could result in losses to the Company;
consequently, estimates are established for amounts deemed or estimated to be
uncollectible. To minimize its exposure to significant losses from reinsurance
insolvencies, the Company evaluates the financial condition of its reinsurers
and monitors concentration of credit risk arising from similar characteristics
of the reinsurers.

Other Matters

In the normal course of its business operations, the Company is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of litigation matters were pending as of September 30, 2002. It is the
opinion of management, after consultation with counsel, that the ultimate
liability with respect to these claims, if any, will not materially affect the
financial position or results of operations of the Company.


                                       20
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Closed Block

In connection with the Company's plan of reorganization for its demutualization
and initial public offering, the Company created a closed block for the benefit
of policies included therein. Additional information regarding the creation of
the closed block and relevant accounting issues is contained in the notes to
consolidated financial statements of the Company's December 31, 2001 Form 10-K.
The following table sets forth certain summarized financial information relating
to the closed block as of the dates indicated.

<TABLE>
<CAPTION>
                                                                       September 30,
                                                                          2002         December 31,
                                                                       (unaudited)        2001
                                                                       ----------------------------
                                                                               (in millions)
<S>                                                                    <C>                <C>
Liabilities
Future policy benefits .............................................   $10,403.8          $10,198.7
Policyholder dividend obligation ...................................       319.0              251.2
Policyholders' funds ...............................................     1,493.9            1,460.9
Policyholder dividends payable .....................................       443.4              433.4
Other closed block liabilities .....................................       125.1               53.7
                                                                       ----------------------------
  Total closed block liabilities ...................................    12,785.2           12,397.9
                                                                       ----------------------------

Assets
Investments
Fixed maturities:
  Held-to-maturity--at amortized cost
    (fair value: September 30--$98.7; December 31--$100.7) .........        92.8              103.3
  Available-for-sale--at fair value
    (cost: September 30--$ 5,506.7; December 31--$5,204.0) .........     5,729.4            5,320.7
Equity securities:
  Available-for-sale--at fair value
    (cost: September 30--$ 10.8; December 31--$8.8) ................        13.4               13.4
Mortgage loans on real estate ......................................     1,813.7            1,837.0
Policy loans .......................................................     1,553.1            1,551.9
Other invested assets ..............................................       175.5               83.1
                                                                       ----------------------------
  Total investments ................................................     9,377.9            8,909.4

Cash and cash equivalents ..........................................       171.4              192.1
Accrued investment income ..........................................       160.7              158.9
Other closed block assets ..........................................       309.0              297.5
                                                                       ----------------------------
  Total closed block assets ........................................    10,019.0            9,557.9
                                                                       ----------------------------

Excess of reported closed block liabilities over assets
  designated to the closed block ...................................     2,766.2            2,840.0
                                                                       ----------------------------

Portion of above representing other comprehensive income:
  Unrealized appreciation (depreciation), net of tax of $77.2
    million and $43.3 million at September 30 and December 31,
    respectively ...................................................       143.2               80.1
  Allocated to the policyholder dividend obligation, net of tax of
    $84.2 million and $50.8 million at September 30 and December 31,
    respectively ...................................................      (156.3)             (94.4)
                                                                       ----------------------------
      Total ........................................................       (13.1)             (14.3)
                                                                       ----------------------------

Maximum future earnings to be recognized from closed block
  assets and liabilities ...........................................   $ 2,753.1          $ 2,825.7
                                                                       ============================
</TABLE>


                                       21
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Closed Block - (Continued)

<TABLE>
<CAPTION>
                                                              September 30,
                                                                 2002          December 31,
                                                              (unaudited)         2001
                                                              ----------------------------
                                                                     (in millions)
<S>                                                           <C>                   <C>
Change in the policyholder dividend obligation:
  Balance at beginning of period ..........................   $251.2                $ 77.0
    Impact on net income before income taxes ..............    (27.5)                 42.5
    Unrealized investment gains (losses) ..................     95.3                  67.1
    Cumulative effect of change in accounting principle (1)       --                  64.6
                                                              ----------------------------

  Balance at end of period ................................   $319.0                $251.2
                                                              ============================
</TABLE>

(1)   The cumulative effect of change in accounting principle represents the
      impact of transferring fixed maturities from held-to-maturity to
      available-for-sale as part of the adoption of SFAS No. 133 effective
      January 1, 2001.


                                       22
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 4 -- Closed Block - (Continued)

The following table sets forth certain summarized financial information relating
to the closed block for the period indicated:

<TABLE>
<CAPTION>
                                                                                     Three Months Ended      Nine Months Ended
                                                                                        September 30,          September 30,
                                                                                      2002        2001        2002        2001
                                                                                      -----------------------------------------
                                                                                                   (in millions)
<S>                                                                                  <C>         <C>       <C>         <C>
Revenues
   Premiums ....................................................................     $236.1      $226.8    $  704.1    $  672.1
   Net investment income .......................................................      166.2       167.6       499.4       500.0

    Net realized investment and other gains (losses), net of amounts credited to
      the policyholder dividend obligation of $21.9 million and $8.7 million for
      the three months ended September 30, 2002 and 2001, respectively and $19.3
      million and $0.9 million for the nine months ended September 30, 2002 and
      2001, respectively .......................................................       (1.2)       (1.5)       (3.9)       (4.4)
   Other closed block revenues .................................................        0.1         0.1         0.1         0.4
                                                                                     ------------------------------------------
      Total closed block revenues ..............................................      401.2       393.0     1,199.7     1,168.1

Benefits and Expenses
   Benefits to policyholders ...................................................      252.7       248.6       762.2       717.3
   Change in the policyholder dividend obligation ..............................       (7.7)        0.4       (43.4)        5.4
   Other closed block operating costs and expenses .............................       (1.7)       (2.7)       (3.9)       (6.6)
   Dividends to policyholders ..................................................      121.1       108.1       374.6       336.2
                                                                                     ------------------------------------------
      Total benefits and expenses ..............................................      364.4       354.4     1,089.5     1,052.3
                                                                                     ------------------------------------------

   Closed block revenues, net of closed block benefits and expenses, before
      income taxes and cumulative effect of accounting change ..................       36.8        38.6       110.2       115.8
   Income taxes, net of amounts credited to the policyholder dividend
      obligation of $(0.3) million and $3.3 million for the three months ended
      September 30, 2002 and 2001, respectively and $(3.4) million and $2.0
      million for the nine months ended September 30, 2002 and 2001,
      respectively .............................................................       12.5        13.1        37.5        39.3
                                                                                     ------------------------------------------

      Closed block revenues, net of closed block benefits and expenses, income
          taxes before the cumulative effect of accounting change ..............       24.3        25.5        72.7        76.5
                                                                                     ------------------------------------------
      Cumulative effect of accounting change, net of tax, and net of amounts
        credited to policyholder dividend obligation of $(1.4) million
        for the nine months ended September 30, 2001 (1) .......................         --          --          --          --
                                                                                     ------------------------------------------
        Closed block revenues, net of closed block benefits and expenses, income
        taxes and the cumulative effect of accounting change ...................     $ 24.3      $ 25.5    $   72.7    $   76.5
                                                                                     ==========================================
</TABLE>

(1)   The cumulative effect of change in accounting principle represents the
      adoption of SFAS No. 133, effective January 1, 2001.


                                       23
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 5 -- Related Party Transactions

Certain directors of the Company are members or directors of other entities that
periodically perform services for or have other transactions with the Company.
Such transactions are either subject to bidding procedures or are otherwise
entered into on terms comparable to those that would be available to unrelated
third parties and are not material to the Company's results of operations or
financial condition.


                                       24
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Goodwill and Value of Business Acquired

The Company's purchased intangible assets include goodwill and the value of
business acquired. The excess of the cost over the fair value of identifiable
assets acquired in business combinations is recorded as goodwill. The present
value of estimated future profits of insurance policies in force related to
businesses acquired is recorded as the value of business acquired (VOBA).

The following tables set forth certain summarized financial information relating
to goodwill and VOBA as of the dates and periods indicated.

<TABLE>
<CAPTION>
                                                                       Accummulated
                                                     Gross Carrying    Amortization        Net Carrying
                                                         Amount      and Other Changes        Amount
                                                     ---------------------------------------------------
                                                                       (in millions)
<S>                                                      <C>               <C>                <C>
September 30, 2002 Unamortizable intangible assets:
   Goodwill .......................................      $346.5            $(72.9)            $273.6
Amortizable intangible assets:
   VOBA ...........................................      $398.7            $(18.6)            $380.1

September 30, 2001 Unamortizable intangible assets:
   Goodwill .......................................      $276.6            $(68.8)            $207.8
Amortizable intangible assets:
   VOBA ...........................................      $348.3            $(20.1)            $328.2
</TABLE>

<TABLE>
<CAPTION>
                                                          Three Months Ended       Nine Months Ended
Amortization expense                                         September 30,             September 30,
                                                          2002           2001      2002         2001
                                                         -------------------------------------------
                                                                        (in millions)
<S>                                                      <C>            <C>        <C>          <C>
Goodwill, net of tax of $0.9 million and $2.7 million
   for the three and nine month periods ended
   September 30, 2001, respectively ..................     --           $ 3.2      --           $9.6


VOBA, net of tax of $0.2 million and $(0.2) million
   for the three month periods ended September 30,
   2002 and 2001, respectively, and net of tax of $0.5
   million and $(0.2) million, for the nine month
   periods ended September 30, 2002 and 2001,
   respectively ......................................   $0.3           $(0.5)    $1.0         $(0.9)
</TABLE>

<TABLE>
<CAPTION>
Estimated  future  amortization  expense  for the  years
ended December 31,                                              Tax Effect        Net Expense
                                                                -----------------------------
                                                                        (in millions)
<S>                                                                <C>                 <C>
2002 .................................................             $1.1                $2.1

2003 .................................................             $1.8                $3.3

2004 .................................................             $2.1                $3.7

2005 .................................................             $2.2                $4.1

2006 .................................................             $2.5                $4.5

2007 .................................................             $2.4                $4.4
</TABLE>


                                       25
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Goodwill and Value of Business Acquired - (Continued)

The changes in the carrying value of goodwill, presented for each business
segment, for the periods indicated, are as follows:

<TABLE>
<CAPTION>
                                                             Asset                 Investment    Corporate
                                              Protection   Gathering      G&SFP    Management    and Other   Consolidated
                                              ---------------------------------------------------------------------------
                                                                              (in millions)
<S>                                              <C>         <C>                      <C>          <C>          <C>
Goodwill balance at July 1, 2002 .........       $66.1       $42.1          --        $0.4         $172.3       $280.9
Changes to goodwill:
    Foreign currency translation
       adjustment (1) ....................          --          --          --          --           (7.3)        (7.3)
                                              ---------------------------------------------------------------------------
Goodwill balance at September 30, 2002 ...       $66.1       $42.1          --        $0.4         $165.0       $273.6
                                              ===========================================================================
</TABLE>

(1)   Goodwill related to Maritime Life is subject to fluctuations in the value
      of the Canadian Dollar relative to the US Dollar.

<TABLE>
<CAPTION>
                                                             Asset                 Investment    Corporate
                                              Protection   Gathering      G&SFP    Management    and Other   Consolidated
                                              ---------------------------------------------------------------------------
                                                                              (in millions)

<S>                                              <C>         <C>                      <C>          <C>          <C>
Goodwill balance at January 1, 2002 ......       $73.5       $42.1          --        $0.4         $164.0       $280.0
Changes to goodwill:
    Goodwill acquired during the
      period (1) .........................          --          --          --          --            0.5          0.5
    Foreign currency translation
      adjustment (2) .....................          --          --          --          --            0.5          0.5
    Other changes (3) ....................        (7.4)         --          --          --             --         (7.4)
                                              ---------------------------------------------------------------------------
Goodwill balance at September 30, 2002 ...       $66.1       $42.1          --        $0.4         $165.0       $273.6
                                              ===========================================================================
</TABLE>

(1)   RSAF purchase price adjustments made during the first quarter of 2002
      resulted in an adjustment to the goodwill relating to RSAF of $0.5
      million.
(2)   Goodwill related to Maritime Life is subject to fluctuations in the value
      of the Canadian Dollar relative to the US Dollar.
(3)   Purchase price negotiations with Fortis, Inc. were concluded during the
      first quarter of 2002, resulting in an adjustment of $(7.3) million to the
      goodwill related to the Company's 1999 acquisition of Fortis' long term
      care insurance business. Legal fees associated with these negotiations
      were finalized in the second quarter of 2002, resulting in a further
      adjustment to goodwill of $(0.1) million.


                                       26
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Goodwill and Value of Business Acquired - (Continued)

The changes in the carrying value of VOBA, presented for each business segment,
for the periods indicated, are as follows:

<TABLE>
<CAPTION>
                                                         Asset                Investmen   Corporate
                                           Protection   Gathering   G&SFP     Management  and Other  Consolidated
                                          -----------------------------------------------------------------------
                                                                     (in millions)

<S>                                           <C>                                          <C>           <C>
VOBA balance at July 1, 2002 .........        $142.8        --       --           --       $258.4        $401.2
Amortization and other changes:
    Amortization .....................          (1.3)       --       --           --          0.8          (0.5)
    Change in unrealized
      gains on securities
      available-for-sale .............          (0.6)       --       --           --         (9.2)         (9.8)
    Foreign currency translation
      adjustment (1) .................            --        --       --           --        (10.8)        (10.8)
                                          -----------------------------------------------------------------------
VOBA balance at September 30, 2002 ...        $140.9        --       --           --       $239.2        $380.1
                                          =======================================================================
</TABLE>

(1)   VOBA related to Maritime Life is subject to fluctuations in the value of
      the Canadian Dollar relative to the US Dollar.

<TABLE>
<CAPTION>
                                                          Asset                Investmen   Corporate
                                            Protection   Gathering   G&SFP     Management  and Other  Consolidated
                                          ------------------------------------------------------------------------
                                                                      (in millions)

<S>                                            <C>                                          <C>           <C>
VOBA balance at January 1, 2002 ......         $145.2        --       --           --       $245.5        $390.7
Amortization and other changes:
    Amortization .....................           (3.8)       --       --           --          2.3          (1.5)
    Change in unrealized
      gains on securities
      available-for-sale .............           (0.5)       --       --           --         (9.5)        (10.0)
    Foreign currency translation
      adjustment (1) .................             --        --       --           --          0.9           0.9
                                          ------------------------------------------------------------------------
VOBA balance at September 30, 2002 ...         $140.9        --       --           --       $239.2        $380.1
                                          ========================================================================
</TABLE>

(1)   VOBA related to Maritime Life is subject to fluctuations in the value of
      the Canadian Dollar relative to the US Dollar.


                                       27
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

       NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Note 6 -- Goodwill and Value of Business Acquired - (Continued)

The net income of the Company, if the Company had not amortized goodwill prior
to the adoption of SFAS No. 142, would have been as follows:

<TABLE>
<CAPTION>
                                            Three Months Ended           Nine Months Ended
                                               September 30,               September 30,
                                            2002          2001          2002           2001
                                            -----------------------------------------------
                                                 (in millions, except per-share data)
<S>                                         <C>          <C>          <C>             <C>
Net income:
As reported ...........................     $158.1       $165.2       $402.9          $516.4
Goodwill amortization, net of tax .....         --          3.2           --             9.6
                                            -------------------       ----------------------
Proforma (unaudited) ..................     $158.1       $168.4       $402.9          $526.0
                                            ===================       ======================

Basic earnings per common share:
As reported ...........................     $ 0.55       $ 0.55       $ 1.38          $ 1.68
Goodwill amortization, net of tax .....         --         0.01           --            0.03
                                            -------------------       ----------------------
Proforma (unaudited) ..................     $ 0.55       $$0.56       $ 1.38          $ 1.71
                                            ===================       ======================

Diluted earnings per common share:
As reported ...........................     $ 0.54       $ 0.54       $ 1.37          $ 1.67
Goodwill amortization, net of tax .....         --         0.01           --            0.03
                                            -------------------       ----------------------
Proforma (unaudited) ..................     $ 0.54       $ 0.55       $ 1.37          $ 1.70
                                            ===================       ======================
</TABLE>

Note 7 - Subsequent Events

On October 31, 2002, the Company announced its plans to discontinue the common
stock repurchase program for 2003 pending further assessment of general market
conditions.

On October 31, the Company announced its plans to implement on January 1, 2003,
on a prospective basis, the fair value based method of accounting prescribed in
SFAS No. 123 for our employee and non-employee director stock-based compensation
plans. The Company estimates an after-tax impact of approximately $0.04 diluted
earnings per share in 2003 as a result of this change in accounting policy.

On October 31, 2002, the Company announced that it anticipates higher employee
pension costs of approximately $0.10 to $0.16 diluted earnings per share in
2003, driven by the impact of weak equity markets on plan assets and potential
adjustments to plan assumptions.

On November 4, 2002, the Company announced that its Board of Directors has
declared an annual dividend to shareholders of $0.32 per common share payable on
December 11, 2002 to shareholders of record on November 18, 2002.

On November 8, 2002, the Company announced its mutual fund business' acquisition
of the Pzena Focused Value Fund. The Company will rename it the John Hancock
Classic Value Fund. As of October 31, 2002, the acquired mutual fund had
approximately $22 million in assets.

                                       28
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

ITEM 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS
of OPERATIONS

      Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) addresses the financial condition of John Hancock Financial
Services, Inc. (John Hancock, JHFS or the Company) as of September 30, 2002,
compared with December 31, 2001, and its consolidated results of operations for
the three and nine month periods ended September 30, 2002 and September 30,
2001, and, where appropriate, factors that may affect future financial
performance. This discussion should be read in conjunction with the Company's
MD&A and annual audited financial statements as of December 31, 2001 included in
the Company's Form 10-K for the year ended December 31, 2001 filed with the
United States Securities and Exchange Commission (hereafter referred to as the
Company's 2001 Form 10-K) and unaudited consolidated financial statements and
related notes included elsewhere in this Form 10-Q. The Company's financial
statements, press releases, analyst supplements and other information are
available on the internet at www.jhancock.com, under the link labeled "Investor
Relations". In addition, all of the Company's United States Securities and
Exchange Commission filings are available on the internet at www.sec.gov, under
the name Hancock John Financial.

      Statements, analyses, and other information contained in this report
relating to trends in the Company's operations and financial results, the
markets for the Company's products, the future development of the Company's
business, and the contingencies and uncertainties to which the Company may be
subject, as well as other statements including words such as "anticipate,"
"believe," "plan," "estimate," "intend," "will," "should," "may," and other
similar expressions, are "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. Such statements are made based upon
management's current expectations and beliefs concerning future events and their
potential effects on the Company. Future events and their effect on the Company
may not be these anticipated by management. The Company's actual results may
differ materially from the results anticipated in these forward-looking
statements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Forward-Looking Statements" included herein for a
discussion of factors that could cause or contribute to such material
differences.

Critical Accounting Policies

      General

      We have identified the accounting policies below as critical to our
business operations and understanding our results of operations. For a detailed
discussion of the application of these and other accounting policies, see Note 1
-- Summary of Significant Accounting Policies in the notes to consolidated
financial statements of the Company's 2001 Form 10-K. Note that the application
of these accounting policies in the preparation of this report requires
management to use judgments involving assumptions and estimates concerning
future results or other developments including the likelihood, timing or amount
of one or more future transactions or events. There can be no assurance that
actual results will not differ from those estimates. These judgments are
reviewed frequently by senior management, and an understanding of them may
enhance the reader's understanding of the Company's financial statements.

      Amortization of Deferred Policy Acquisition Costs and Unearned Revenue

      Costs that vary with, and are related primarily to, the production of new
business have been deferred to the extent that they are deemed recoverable. Such
costs include commissions, certain costs of policy issue and underwriting, and
certain agency expenses. Similarly, any amounts assessed for services to be
provided over future periods are recorded as unearned revenue. The Company tests
the recoverability of its deferred policy acquisition costs quarterly with a
model that uses data such as market performance, lapse rates and expense levels.
We amortize deferred policy acquisition costs on term life and long-term care
insurance ratably with premiums. We amortize our deferred policy acquisition
costs on our annuity products and retail life insurance, other than term, based
on a percentage of the estimated gross profits over the life of the policies,
which are generally twenty years for annuities and thirty years for life
policies. Our estimated gross profits are computed based on assumptions related
to the underlying policies including mortality, lapse, expenses, and asset
growth rates. We amortize deferred policy acquisition costs and unearned revenue
on these policies such that the percentage of gross profits to the amount of
deferred policy acquisition costs and unearned revenue amortized is constant
over the life of the policies.

      Estimated gross profits, including net realized investment and other gains
(losses), are adjusted periodically to take into consideration the actual
experience to date and changes in the remaining gross profits. When estimated
gross profits are adjusted, we also adjust the amortization of deferred policy
acquisition costs to maintain a constant


                                       29
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

amortization percentage over the life of the policies. Our current estimated
gross profits include certain judgments concerning mortality, lapse and asset
growth that are based on a combination of actual Company experience and
historical market experience of equity and fixed income returns. Short-term
variances of actual results from the judgments made by management can impact
quarter to quarter earnings.

      Q3 Unlockings: As of September 30, 2002, the Company changed several
future assumptions with respect to the expected gross profits in its variable
life business in the Protection Segment and variable annuity business in the
Asset gathering Segment. First, we lowered the long-term growth rate assumption
from 9% to 8% gross of fees (which are approximately 1% to 2%). Second, we
lowered the average rates for the next five years from the mid-teens to 13%
gross of fees. Finally, we increased certain fee rates on these policies (the
variable series trust (VST) fee increase). These three changes are referred to
collectively elsewhere in this document as the Q3 Unlocking. The result of these
changes in assumptions was a net write-off of deferred policy acquisition costs
of $36.1 million in the variable annuity business in the Asset Gathering Segment
and $13.1 million (net of $12.3 million of unearned revenue and $2.5 million in
policy benefit reserves) in the variable life business in the Protection
Segment. The impact on net income of the Q3 unlocking was approximately $27.5
million, or $0.09 diluted earnings per share.

      The accelerated amortization will reduce the total amortization of DAC in
future periods, but will accelerate the amortization in the short term. We
estimate that, in the fourth quarter of 2002, DAC amortization will be
accelerated by $0.3 million in the Protection Segment and $0.5 million in the
Asset Gathering Segment.

      As a result of the recent equity market declines and the Q3 unlocking, the
sensitivity of future DAC and unearned revenue amortization to equity and fixed
income market performance has changed from the amounts that were previously
disclosed. As mentioned above, our assumptions for the next five years are an
average rate of 13%. To the extent that actual performance varies from that
assumption, DAC and unearned revenue amortization will be adjusted. The table
below shows the estimated additional/(reduced) amortization that would be
expected in the next quarter under various asset growth scenarios.

              Estimated Accelerated (reduced) amortization in Q4 of
                         2002 Annualized Q4 2002 returns

                                                             Asset
                                               Protection   Gathering     Total
                                               ---------------------------------
                                                          (in millions)

20%......................................      $ (1.2)      $ (2.2)      $ (3.4)
13%......................................          --           --           --
 8%......................................         0.9          1.6          2.5
 0%......................................         2.4          4.7          7.1

      Benefits to Policyholders

      Reserves for future policy benefits are calculated using management's
judgments of mortality, morbidity, lapse, investment experience and expense
levels that are based primarily on the Company's past experience and are
therefore reflective of the Company's proven underwriting and investing
experience. Once these assumptions are made for a given policy or group of
policies, they will not be changed over the life of the policy unless the
Company recognizes a loss on the entire line of business. The Company
periodically reviews its policies for loss recognition and based on management's
judgment the Company from time to time may recognize a loss on certain lines of
business. Short-term variances of actual results from the judgments made by
management are reflected in current period earnings and can impact quarter to
quarter earnings.

      Investment in Debt and Equity Securities

      Impairments of our investment portfolio are recorded as a charge to income
in the period when the impairment is judged by management to occur. See the
General Account Investments section of this document and the "Quantitative and
Qualitative Information About Market Risk - Credit Risk" section of this
document for a more detailed discussion of the judgments involved in determining
impairments.

      Certain of our fixed income securities classified as held-to-maturity and
available-for-sale are not publicly traded, and quoted market prices are not
available from brokers or investment bankers on these securities. The change in
the fair value of the available-for-sale securities is recorded in other
comprehensive income as an unrealized gain or loss. We calculate the fair value
of these securities ourselves through the use of pricing models and discounted
cash flows calling for a substantial level of management's judgment. Our
approach is based on currently available information, include information
obtained by reviewing similarly traded securities in the market,


                                       30
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

and we believe it to be appropriate and fundamentally sound. However, different
pricing models or assumptions or changes in relevant current information could
produce different valuation results. The Company's pricing model takes into
account a number of factors based on current market conditions and trading
levels of similar securities. These include current market based factors related
to credit quality, country of issue, market sector and average investment life.
The resulting prices are then reviewed by the pricing analysts and members of
the Controller's Department. Our pricing analysts take appropriate action to
reduce valuation of securities where an event occurs which negatively impacts
the securities' value. Certain events that could impact the valuation of
securities include issuer credit ratings, business climate, management changes,
litigation and government actions, among others. Then, every quarter, there is a
comprehensive review of all impaired securities and problem loans by a group
consisting of the CIO and the Bond Investment Committee. See "Management's
Discussion and Analysis of Financial Condition and Analysis of Financial
Condition and Results of Operations - General Account Investments" section of
this document for a more detailed discussion of this process and the judgments
used therein.

      Benefit Plans

      The Company annually reviews its pension and other employee benefit plan
assumptions concerning the discount rate and the long-term growth rate on plan
assets and expected rate of compensation increase. The discount rate is
generally set as an average of the prior year's discount rate and current year
December daily average of long-term corporate bond yields, as published by
Moody's Investor Services less a 5% allowance for expenses and default. The
long-term rate on plan assets reflects the long-term rate expected to be earned
based on the investment policy and the various classes of the invested funds.
The compensation rate increase is the average of the expected rates of
compensation increase, which are based on current and expected long-term salary
and compensation policy. In 2001, we changed the method of recognizing deferred
gains and losses considered in the calculation of the annual expense from a
deferral within a 10% corridor and amortization of gains outside this corridor
over the future working careers of the participants to a deferral within 5%
corridor and amortization of gains and losses outside this corridor over the
future working careers of the participants. The new method is preferable
because, in our situation, it produces results that respond more quickly to the
changes in the market value of the plan's assets while providing some measure to
mitigate the impact of extreme short term swings in those market values. Since
the plan assets had net unamortized gains at the time of this change, pension
expense will be lower in the short term and therefore higher in the long term as
a result of this change, assuming that the plan's assets do not change in value
and that all other assumptions made by management remain the same. Any variation
of actual results from management's judgments may result in future earnings
being materially different than anticipated.

      Income Taxes

      We establish reserves for possible penalty and interest payments to
various taxing authorities with respect to the admissability and timing of tax
deductions. Management makes judgments concerning the eventual outcome of these
items and reviews those judgments on an ongoing basis.

Reinsurance

      We reinsure portions of the risks we assume for our protection products.
The maximum amount of individual ordinary life insurance retained by us on any
life is $10 million under an individual policy and $20 million under a
second-to-die policy. As of January 1, 2001, we established additional
reinsurance programs, which limit our exposure to fluctuations in life claims
for individuals for whom the net amount at risk is $3 million or more. As of
January 1, 2001, the Company entered into an agreement with two reinsurers
covering 50% of its closed block business. The treaties are structured so they
will not affect policyholder dividends or any other financial items reported
within the closed block, which was established at the time of the John Hancock
Life Insurance Company's (the Life Company) demutualization to protect the
reasonable dividend expectations of certain participating life insurance
policyholders.

      The Company enters into reinsurance agreements to specifically address
insurance exposure to multiple life insurance claims as a result of a
catastrophic event. The Company has put into place, effective July 1, 2002,
catastrophic reinsurance covering both individual and group policies written by
all of its U.S. life insurance subsidiaries. The deductible for individual and
group coverages combined is $25 million per occurrence and the limit of coverage
is $40 million per occurrence. Both the deductible and the limit apply to the
combined U.S. insurance subsidiaries. The Company has supplemented this coverage
by reinsuring all of its accidental death exposures in excess of $100,000 per
life under its group life insurance coverages, and 50% of such exposures below
$100,000. Should catastrophic reinsurance become unavailable to the Company in
the future, the absence of, or further limitations on, reinsurance coverage,
could adversely affect the Company's future net income and financial position.


                                       31
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      By entering into reinsurance agreements with a diverse group of highly
rated reinsurers, we seek to control our exposure to losses. Our reinsurance,
however, does not discharge our legal obligations to pay policy claims on the
policies reinsured. As a result, we enter into reinsurance agreements only with
highly rated reinsurers. Nevertheless, there can be no assurance that all our
reinsurers will pay the claims we make against them. Failure of a reinsurer to
pay a claim could adversely affect our business, financial condition or results
of operations.

Economic Trends

      Our profitability depends in large part upon: (1) the adequacy of our
product pricing, which is primarily a function of competitive conditions, our
ability to assess and manage trends in mortality and morbidity experience, our
ability to generate investment earnings and our ability to maintain expenses in
accordance with pricing assumptions; (2) the amount of assets under management;
and (3) the maintenance of our target spreads between the rate of earnings on
our investments and credited rates on policyholders' general account balances.
Overall financial market conditions have a significant impact on all of these
profit drivers. The Company estimates that if equity markets remain flat in the
fourth quarter of 2002, the impact to segment after-tax operating income in the
fourth quarter of 2002 would be a decline of $1.6 million, or $0.01 diluted
earnings per share. If equity markets fall 5% in the fourth quarter of 2002,
segment after-tax operating income in the fourth quarter of 2002 would decline
by $3.1 million, or $0.01 diluted earnings per share. The Company estimates that
if equity markets remain flat for a full year the impact to segment after-tax
operating income over that full year would be a decline of $9.7 million, or
$0.03 diluted earnings per share. If equity markets fall 5% for a full year,
segment after-tax operating income would decline by $19.4 million, or $0.06
diluted earnings per share.

      The sales and other financial results of our retail business over the last
several years have been affected by general economic and industry trends. The
appreciation of equity markets in the 1990's resulted in variable products,
including variable life insurance and variable annuities, accounting for the
majority of increases in total premiums and deposits for the insurance industry.
This trend reversed in 2001 and 2002 due to declines in equity market
performance and we have seen investors return to stable investment products. We
believe our diverse distribution network and product offerings will assist in
the maintenance of assets and provide for sales growth. Although sales of
traditional life insurance products and, more recently, variable annuity
products have experienced declines, sales of fixed annuity products, single life
insurance, universal life insurance and term life insurance and corporate life
insurance have increased. With respect to our long-term care insurance products,
premiums have increased due to the aging of the population and the expected
inability of government entitlement programs to meet retirement needs.

      Premiums and deposits of our individual annuity products increased 55.4%
to $890.5 million and 74.3% to $2,684.5 million for the three and nine month
periods ended September 30, 2002 from the prior year periods. Our core life
insurance sales (on a LIMRA basis) of $166.8 million increased 28.8% or $37.3
million, for the nine months ended September 30, 2002 from prior year. This
growth was primarily in term life insurance products and single life insurance
products, offset by a 14.6%, or $6.3 million, decline in survivorship life
insurance products due to continued uncertainty about estate planning
legislation. Premiums on our long-term care insurance increased 15.7%, to $200.0
million and 14.4% to $568.9 million for the three and nine months ended
September 30, 2002 from the prior year periods, driven by increasing renewal
premiums from sales growth of prior years and growth in new premiums in the
individual long term care insurance business. Primarily due to the creation of a
new closed end fund in the portfolio, the acquisition of U.S. Global Leaders
Growth Fund, and two significant institutional deposits, mutual fund deposits
and reinvestments increased $703.7 million, or 74.5%, to $1,648.6 million for
the three months ended September 30, 2002 and while decreasing $509.0 million,
or 12.8%, to $3,465.4 million for the nine months ended September 30, 2002. The
sale of the full service retirement plan business during 2001 contributed to the
decrease in deposits in the current period. In addition, redemptions increased
$390.3 million, or 41.4%, to $1,332.5 million for the quarter, while decreasing
$142.6 million, or 3.7%, to $3,705.9 million for the nine month period ended
September 30, 2002. The increase in redemptions in the third quarter of 2002 is
primarily due to continued volatility of the equity markets in the current
period. We have reduced operating expenses to protect profit margins as we work
to stabilize and grow assets under management in the mutual fund business.
However, our mutual fund operations are impacted by general market trends, and a
downturn in the mutual fund market may negatively affect our future operating
results. Assets under management in the mutual fund business decreased due to
market depreciation by approximately $1.7 billion and $4.0 billion for the three
and nine month periods ended September 30, 2002.

      Recent economic and industry trends also have affected the sales and
financial results of our institutional business. Sales of fund-type products
decreased $437.9 million, or 39.8%, to $661.8 million and $777.6 million, or
20.4%, to $3,035.3 million for the three and nine month periods ended September
30, 2002, respectively, from the prior year. The decrease was driven by a
decline in demand for GICs and funding agreements. Sales of annuities for the
quarter in the Guaranteed and Structured Financial Products Segment increased
66.1%, or $12.1 million, from the prior year, while sales of annuities for the
nine month period decreased 38.1%, or $166.4 million. Structured settlement
premiums increased $9.9 million and $135.5 million for the three and nine month
periods ended September 30, 2002 compared to the prior year. Our investment
management services provided to domestic and international institutions include
services and products such as investment advisory client portfolios,
individually managed and pooled separate accounts, registered investment company
funds, bond and mortgage securitizations, collateralized bond obligation funds
and mutual fund management capabilities. Assets under management of our
Investment Management Segment decreased to $25,535.2 million for the nine months
ended September 30, 2002 from $27,125.9 million for the prior year period end,
primarily due to market depreciation.

                                       32
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Transactions Affecting the Comparability of Results of Operations

      The acquisitions described below were recorded under the purchase method
of accounting and, accordingly, the operating results of the acquired operations
have been included in the Company's consolidated results of operations from the
applicable date of acquisition. Each purchase price was allocated to the assets
acquired and the liabilities assumed based on estimated fair values, with the
excess of the applicable purchase price over the estimated fair values, if any,
recorded as goodwill. These acquisitions were made by the Company in execution
of its plan to acquire businesses that have strategic value, meet its earnings
requirements and advance the growth of its current businesses. Assuming the
transactions occurred on January 1, 2001, the unaudited pro forma revenues, net
income and earnings per share, were $2,122.7 million and $6,706.1 million,
$165.5 million and $519.7 million, and $0.55 per share and $1.69 per share,
respectively, an increase of $75.4 million and $119.6 million, $0.3 million and
$3.3 million, and $0.01 and $0.02 per share amount, respectively, for the three
and nine month periods ended September 30, 2001, respectively.

      On October 1, 2001, The Maritime Life Assurance Company (Maritime Life), a
majority owned Canadian subsidiary of the Company, completed its purchase of all
of the shares of Royal & Sun Alliance Life Insurance Company of Canada (RSAF)
for an amount of approximately $149.9 million. RSAF's business includes life
insurance, guaranteed interest savings and retirement products. The net income
relating to the acquired operations included in the Company's results for the
three and nine month periods ended September 30, 2002 was $1.2 million and $3.6
million, respectively.

      On April 2, 2001, a subsidiary of the Company, Signature Fruit Company,
LLC (Signature Fruit), purchased certain assets and assumed certain liabilities
out of bankruptcy proceedings of Tri Valley Growers, Inc., a cooperative
association, for approximately $53.0 million. The net loss related to the
acquired operations included in the Company's results for the three and nine
month periods ended September 30, 2002 was $(2.3) million and $(3.6) million,
respectively.


                                       33
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Results of Operations

The table below presents the consolidated results of operations for the periods
presented.

                                      Three Months Ended    Nine Months Ended
                                         September 30,         September 30,
                                       2002        2001      2002        2001
                                     -------------------   -------------------
                                        (in millions)         (in millions)

Revenues .........................   $2,138.4   $2,047.3   $6,376.7   $6,586.5

Benefits and expenses ............    1,926.9    1,820.7    5,842.6    5,873.6
                                     -------------------   -------------------

Income before income taxes and
   cumulative effect of accounting
   changes .......................      211.5      226.6      534.1      712.9

Income taxes .....................       53.4       61.4      131.2      203.7
                                     -------------------   -------------------
Income before cumulative effect of      158.1      509.2
   accounting changes ............      165.2      402.9
Cumulative effect of accounting
   changes, net of tax (1) .......         --         --         --        7.2
                                     -------------------   -------------------
Net income .......................   $  158.1   $  165.2   $  402.9   $  516.4
                                     ===================   ===================

(1)   Cumulative effect of accounting changes is shown net of taxes of $4.2
      million for the nine month period ended September 30, 2001, respectively.
      There was no cumulative effect of accounting change for the three month
      periods ended September 30, 2002 and 2001, respectively, nor in the nine
      month period ended September 30, 2002.

Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001

      The following discussion reflects adjustments to the prior year results
for the adoption of Statement of Position (SOP) 00-3, "Accounting by Insurance
Enterprises for Demutualizations and Formation of Mutual Holding Companies and
Certain Long-Duration Participating Contracts." In addition, the Company
reclassified gains and losses on equity securities classified as trading, which
back the equity indexed universal life insurance policies sold at Maritime Life,
from net investment income to benefits to policyholders, this reclassification
had no impact on consolidated pre-tax income. Consolidated pre-tax income
decreased 6.7%, or $15.1 million, from the prior year. The change in
consolidated pre-tax income was recognized by segment as follows: the Protection
Segment decreased 13.3%, or $14.2 million, the Corporate and Other Segment
decreased 72.7%, or $5.2 million, and the Investment Management Segment
decreased 24.6%, or $2.7 million, while the Asset Gathering increased 7.8%, or
$5.1 million, and the Guaranteed and Structured Financial Products Segment
(G&SFP) increased 5.5%, or $1.9 million, from the prior year.

      Consolidated pre-tax income decreased primarily due to the $64.0 million
Q3 unlocking of the Company's deferred policy acquisition costs (DAC) asset,
which increased amortization of the DAC asset, total amortization of DAC
increased 90.3%, or $71.7 million. This decrease in pre-tax income was partially
offset by lower other operating costs and expenses which decreased 5.3%, or
$18.4 million, and an increase in investment-type product charges of 6.5%, or
$12.9 million. Amortization of deferred policy acquisition costs increased due
to the Q3 unlocking of the DAC asset based on changes in the future investment
return assumptions and lowering the long-term growth rate assumption from 9% to
8%, gross of fees (which are approximately 1% to 2%). In addition, we lowered
the average rates for the next five years from the mid-teens to 13%, gross of
fees. We also increased certain fee rates on these policies (the VST fee
increase). These changes in assumptions resulted in the Q3 unlocking of the DAC
asset, which impacted the Asset Gathering and Protection Segments (See Note 1 -
Summary of Significant Accounting Policies in the notes to unaudited
consolidated financial statements and Critical Accounting Policies in this
MD&A). The Company recognized net realized investment and other losses of $30.7
million compared to $58.5 million in the prior year. Net realized investment and
other losses in the current period were driven by losses recognized on other
than temporary declines in value and sales of fixed maturity securities of
$103.9 million. The two largest


                                       34
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

impairments were additional write-downs on Enron related entities, based on new
information provided during the third quarter, and US Airways, as a result of
negotiations over lease renewals as part of the US Airways bankruptcy process.
In addition, the Company wrote down equity securities totaling $21.9 million and
CBO equity investments totaling $19.9 million. Partially offsetting these losses
on investments were gains on disposal of fixed income investments of $49.3
million, gains of $27.1 million generated primarily on changes in the fair value
of derivative securities used to provide flexibility in a low interest rate
environment to meet the fixed rate guarantees on certain company liabilities,
gains on the disposal of equity securities of $26.5 million and prepayment gains
of $14.4 million, as borrowers took advantage of lower interest rates. (See
General Accounts Investments in this MD&A). Other operating costs and expenses
decreased from the prior year due to company-wide cost cutting measures, most
notably resulting in a $14.7 million decrease in other operating costs and
expenses in the mutual funds business expenses. Investment-type product charges
increased primarily due to higher amortization of deferred revenue driven by the
Protection Segment. The increase in amortization of deferred revenue was driven
by $12.3 million associated with the Q3 unlocking mentioned previously (See Note
1 - Summary of Significant Accounting Policies in the notes to unaudited
consolidated financial statements and the Critical Accounting Policies section
of this MD&A).

      Revenues increased 4.4%, or $91.1 million, from the prior year. The
increase in revenues was driven by a 12.5%, or $89.4 million, increase in
premiums primarily due to a 22.3%, or $57.1 million, increase in the Corporate
and Other Segment. Maritime Life's $18.4 million growth in premiums resulted
from higher group renewal rates and $2.7 million in premiums at RSAF which was
acquired on October 1, 2001 and therefore was not part of the Corporate and
Other Segment during the third quarter of the prior year. Investment-type
product charges increased 6.5%, or $12.9 million, primarily due to amortization
of deferred revenue of $12.3 million in the Protection Segment related to the Q3
unlocking discussed above. As mentioned previously, net realized investment and
other losses decreased 47.5%, or $27.8 million, from the prior year, which also
contributed to higher total revenues in the current period. Offsetting these
increases to revenues, were a decrease in net investment income and a decrease
in investment management revenues, commissions and other fees. Net investment
income decreased 2.4%, or $24.2 million, from the prior year primarily due to
decreases in the Corporate and Other and G&SFP Segments. Corporate and Other
Segment net investment income decreased 32.5%, or $25.2 million, driven by
investment losses, utilization of capital for stock repurchases under the
Company's stock repurchase program, and transfer of capital to business segments
to support growth in the fixed annuity and G&SFP spread-based product lines. Net
investment income decreased 5.4%, or $24.4 million, from the prior year in the
G&SFP Segment, where the return on approximately $10 billion, or 41% of the
asset portfolio floats with market rates which back liabilities which also have
floating crediting rates. Approximately $12 billion, or 20%, of total Company
average invested assets are invested in floating rate investments which back
liabilities which also have floating crediting rates. Average invested assets
were $61,334.6 million at September 30, 2002, an increase of 13.0% from the
prior year. Partially offsetting these decreases to net investment income were
increases in the Protection Segment, 4.4%, or $14.1 million, and in the Asset
Gathering Segment of 12.9%, or $16.9 million. Investment management revenues,
commission and other fees decreased 13.2%, or $18.9 million driven by a decrease
in third party advisory assets under management due to market depreciation.

      Benefits and expenses increased 5.8%, or $106.2 million from the prior
year. The increase was driven by the $64.0 million Q3 unlocking of the Company's
deferred policy acquisition costs (DAC) asset, which increased the amortization
of the DAC asset. Total amortization of DAC increased 90.3%, or $71.7 million
from the prior year due to the Company's Q3 unlocking of the DAC asset based on
changing assumptions mentioned previously. Benefits to policyholders increased
2.8%, or $35.5 million primarily due to increases in the Corporate and Other and
Protection Segments. Corporate and Other Segment benefits to policyholders
increased 11.9%, or $34.8 million from the prior year driven by higher group
claims at Maritime Life. Protection Segment benefits to policyholders increased
6.5%, or $31.8 million from the prior year due to growth in the long-term care
insurance business and non-traditional life insurance business, resulting in
additions to reserves for premium growth and benefit payments on higher claim
volume from business growth. Partially offsetting these increases to benefits to
policyholders was a decrease of 8.9%, or $33.2 million in the G&SFP Segment due
to lower interest credited on account balances for spread-based products. Lower
interest credited in the spread-based product business is the result of the
decline in the average interest credited rate from the reset of the floating
rate on approximately $10 billion of liabilities at current market rates.
Dividends to policyholders increased 13.8%, or $17.4 million, driven by the
Protection Segment. The increase in the Protection Segment was primarily due to
increased dividends of $13.0 million on traditional life insurance products due
to reserve growth and an increase in the dividend scale. Offsetting these
increases in benefits and expenses, were decreased operating costs and expenses
of 5.3%, or $18.4 million, from the prior year primarily due to company-wide
cost cutting measures, most notably in the mutual funds business. Mutual


                                       35
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

fund operating costs and expenses decreased due to lower compensation expense
and lower variable commissions and distribution expenses.

Nine months Ended September 30, 2002 Compared to Nine months Ended September 30,
2001

      The following discussion reflects adjustments to the prior year results
for the adoption of Statement of Position (SOP) 00-3, "Accounting by Insurance
Enterprises for Demutualizations and Formation of Mutual Holding Companies and
Certain Long-Duration Participating Contracts." In addition, the Company
reclassified gains and losses on equity securities classified as trading, which
back the equity indexed universal life insurance policies sold at Maritime Life,
from net investment income to benefits to policyholders. This reclassification
had no impact on consolidated pre-tax income. Consolidated pre-tax income
decreased 25.1%, or $178.8 million from the prior year. The change in
consolidated pre-tax income was recognized by segment as follows: the Corporate
and Other Segment decreased 111.1%, or $72.6 million, the Protection Segment
decreased 22.7%, or $68.1 million, and the Guaranteed and Structured Financial
Products Segment (G&SFP) decreased 25.3%, or $47.6 million, while the Asset
Gathering Segment increased 6.1%, or $8.1 million, and the Investment Management
Segment increased 5.2%, or $1.4 million, from the prior year.

      Consolidated pre-tax income decreased primarily due to an increase in net
realized investment and other losses of $156.9 million. In addition,
amortization of deferred policy acquisition costs increased 20.3%, or $50.7
million, driven by the Q3 unlocking of $64.0 million mentioned previously.
Investment management revenues, commissions and other fees decreased 10.0%, or
$44.9 million. In addition, the Company recorded a $30.0 million reserve for the
"Modal Premium" class action lawsuit during the second quarter to provide relief
to class members and for legal and administrative costs associated with the
settlement. Net realized investment and other losses in the current period were
driven by losses recognized on other than temporary declines in value and sales
of fixed maturity securities of $342.7 million. The largest impairments were
additional write-downs on Enron related entities, based on new information
provided during the third quarter, and US Airways, as a result of negotiations
over lease renewals as part of the US Airways bankruptcy process, NRG Energy,
Worldcom and High Voltage Engineering. In addition, the Company wrote down CBO
equity investments totaling $58.6 million and equity securities totaling $42.6
million. Partially offsetting these losses on investments were gains on disposal
of and prepayments of fixed income investments of $141.3 million, gains on
disposal of equity securities of $123.1 million and losses of $18.6 million and
$15.3 million, respectively, allocated to the participating pension
contractholders and the policyholder dividend obligation (See General Accounts
Investments in this MD&A). Amortization of DAC increased from the prior year due
to the Q3 unlocking of the DAC asset totaling $64.0 million which impacted the
Asset Gathering and Protection Segments (See Note 1 - Summary of Significant
Accounting Policies in the notes to unaudited consolidated financial statements
and the Critical Accounting Policies section of this MD&A). Investment
management revenues, commissions and other fees decreased 10.0%, or $44.9
million in the current period due to a decrease in third party advisory assets
under management, resulting from market depreciation. Offsetting the impact of
the above, were increased universal life and investment-type product charges of
9.3%, or $52.1 million, driven by growth at Maritime Life of $32.8 million on
the acquisition of RSAF as of October 1, 2001 and $12.3 million on amortization
of deferred revenue associated with the Q3 unlocking. In addition, other
revenues increased 60.0%, or $68.6 million driven by the acquisition of
Signature Fruit in the Corporate and Other Segment and the inclusion of $169.6
million in Signature Fruit revenue compared to $111.1 million in the prior year.
Signature Fruit began operations in April 2001 and therefore was not part of the
Corporate and Other Segment during the first quarter of the prior year.

      Revenues decreased 3.2%, or $209.8 million from the prior year. The
decrease in revenues was driven by a 3.0%, or $76.6 million decrease in premiums
primarily due to lower sales of single premium annuities business in the G&SFP
Segment. Net investment income decreased 1.8%, or $52.1 million primarily due to
decreases in the G&SFP Segment where the return on approximately $9 billion, or
39% of the asset portfolio floats with market rates which back liabilities which
also have floating crediting rates. Approximately $12 billion, or 20%, of total
Company average invested assets are invested in floating rate investments which
back liabilities which also have floating crediting rates. Average invested
assets were $60,418.4 million at September 30, 2002, an increase of 12.8% from
the prior year. The previously discussed $156.9 million increase in net realized
investment and other losses also contributed to lower revenues in the current
period. The majority of the investments underlying these losses were on fixed
income investments on which the Company was not accruing investment income.
Investment management revenues, commission and other fees decreased 10.0%, or
$44.9 million from the prior year, driven by a decrease of 7.3% in third party
advisory assets under management. Offsetting the decreases to revenues was an

                                       36
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

increase of $68.6 million in other revenue, driven by revenues from Signature
Fruit of $69.4 million, which began operations on April 1, 2001.

      Benefits and expenses decreased 0.5%, or $31.0 million from the prior
year. The decrease was driven by a decrease in benefits to policyholders of
2.8%, or $117.2 million which includes a 21.8%, or $333.3 million decrease in
benefits to policyholders in the G&SFP Segment. G&SFP's benefits to
policyholders decreased due to a lower change in annuity reserves reflecting
lower sales of single premium annuity contracts and lower interest credited.
Lower interest credited in the spread-based product business is the result of
the decline in the average interest credited rate from the reset of the floating
rate on approximately $9 billion of liabilities at current market rates.
Benefits to policyholders in the Protection Segment increased 10.2%, or $140.8
million from the prior year primarily due to an increase in benefits to
policyholders of $85.8 million in the long term care insurance business due to
growth in the business on higher renewal premiums from prior year sales and
higher current year sales and a $30.0 million charge related to the "Modal
Premium" class action lawsuit settlement. In addition, benefits to policyholders
increased 9.7%, or $85.0 million in the Corporate and Other Segment driven by
Maritime Life due to the growth in the group business and the acquisition of
RSAF. Amortization of deferred policy acquisition costs increased 20.3%, or
$50.7 million, due to the Q3 unlocking of the DAC asset discussed previously.
Dividends to policyholders increased 7.4%, or $30.1 million, driven by the
Protection Segment as a result of increased dividends in the traditional life
insurance business due to reserve growth and an increase in the dividend scale.
Operating costs and expenses increased 0.5%, or $5.4 million, primarily due to
an increase in the Corporate and Other Segment of $92.9 million, driven by the
inclusion of $175.1 million in Signature Fruit benefits and expenses compared to
$117.0 million in the prior year. Signature Fruit began operations on April 1,
2001 and therefore was not part of the Corporate and Other Segment during the
first quarter of the prior year. Also contributing to this increase was the
acquisition of RSAF. Partially offsetting these increases in operating costs and
expenses was a decrease of $87.3 million in the Asset Gathering Segment due to
approximately $58.6 million in cost reductions in the mutual funds business.
Mutual fund operating costs and expenses decreased due to lower compensation
expense lower variable commissions and distribution expenses. In addition,
during 2001 the mutual funds business incurred restructuring costs primarily
related to the sale of the full-service retirement plan business.


                                       37
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Results of Operations by Segment

      We operate our business in five segments. Two segments primarily serve
retail customers, two segments serve institutional customers and our fifth
segment is the Corporate and Other Segment, which includes our international
operations. Our retail segments are the Protection Segment and the Asset
Gathering Segment. Our institutional segments are the Guaranteed and Structured
Financial Products Segment and the Investment Management Segment.

      We evaluate segment performance and base management's incentives on
segment after-tax operating income, which excludes the effect of net realized
investment and other gains (losses) and other unusual or non-recurring events
and transactions. Segment after-tax operating income is determined by adjusting
GAAP net income for net realized investment and other gains (losses),
restructuring charges, cumulative effect of accounting changes, and certain
other items which we believe are not indicative of overall operating trends or
are one-time in nature. While these items may be significant components in
understanding and assessing our consolidated financial performance, we believe
that the presentation of segment after-tax operating income enhances the
understanding of our results of operations by highlighting net income
attributable to the normal, recurring operations of the business. However,
segment after-tax operating income is not a substitute for net income determined
in accordance with GAAP.

      A discussion of the adjustments to GAAP reported income, many of which
affect each operating segment, follows the table below. A reconciliation of
segment after-tax operating income, as adjusted, to GAAP reported net income
precedes each segment discussion.

<TABLE>
<CAPTION>
                                                      Three Months Ended     Nine Months Ended
                                                        September 30,          September 30,
                                                       2002       2001         2002      2001
                                                     ------------------------------------------
<S>                                                  <C>         <C>        <C>          <C>
Segment Data: (1) ................................                  (in millions)
Segment after-tax operating income:
  Protection Segment .............................   $ 67.3      $ 69.4     $ 216.8    $  221.0
  Asset Gathering Segment ........................     14.6        41.0        95.2       109.9
                                                     ------------------     -------------------
    Total Retail Segments ........................     81.9       110.4       312.0       330.9

  Guaranteed and Structured Financial Products
    Segment ......................................     75.9        61.9       218.7       180.5
  Investment Management Segment ..................      4.5         7.0        16.8        17.0
                                                     ------------------     -------------------
    Total Institutional Segments .................     80.4        68.9       235.5       197.5

  Corporate and Other Segment ....................     23.5        22.3        54.6        62.6
                                                     ------------------     -------------------
    Total segment after-tax operating income .....   $185.8      $201.6     $ 602.1    $  591.0
                                                     ------------------     -------------------

After-tax adjustments: (1)
  Net realized investment and other
    gains (losses) ...............................   $(23.7)     $(37.2)    $(170.9)   $  (63.3)
  Class action lawsuit ...........................       --          --       (19.5)         --
  Restructuring charges ..........................     (4.0)       (3.0)       (8.8)      (22.3)
  Surplus tax ....................................       --         3.8          --         3.8
                                                     ------------------     -------------------
    Total after-tax adjustments ..................   $(27.7)     $(36.4)    $(199.2)   $  (81.8)
                                                     ------------------     -------------------

GAAP Reported:
  Income before cumulative effect
    of accounting changes ........................   $158.1      $165.2     $ 402.9    $  509.2
  Cumulative effect of accounting changes,
    net of tax ...................................       --          --          --         7.2
                                                     ------------------     -------------------
  Net income .....................................   $158.1      $165.2     $ 402.9    $  516.4
                                                     ==================     ===================
</TABLE>

(1) See "Adjustments to GAAP Reported Net Income" set forth below.


                                       38
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Adjustments to GAAP Reported Net Income

      Our GAAP reported net income is affected by net realized investment and
other gains (losses) and other unusual or non-recurring events and transactions
presented in the reconciliation of GAAP reported net income to segment after-tax
operating income in Note 2 -- Segment Information in the notes to the unaudited
consolidated financial statements. A description of these adjustments follows.

      In both periods, net realized investment and other gains (losses), except
for gains (losses) from mortgage securitizations, have been excluded from
segment after-tax operating income because such data are often excluded by
analysts and investors when evaluating the overall financial performance of
insurers. Net realized investment and other gains (losses) from mortgage
securitizations are not excluded from segment after-tax operating income because
we view the related gains (losses) as an integral part of the core business of
those operations.

    Net realized investment and other gains (losses) have been reduced by: (1)
amortization of deferred policy acquisition costs to the extent that such
amortization results from net realized investment and other gains (losses), (2)
the portion of net realized investment and other gains (losses) credited to
participating pension contractholder accounts and (3) the portion of net
realized investment and other gains (losses) credited to the policyholder
dividend obligation. We believe presenting net realized investment and other
gains (losses) in this format provides information useful in evaluating our
operating performance. This presentation may not be comparable to presentations
made by other insurers. Summarized below is a reconciliation of (a) net realized
investment and other gains (losses) per the unaudited consolidated financial
statements and (b) the adjustment made for net realized investment and other
gains (losses) to calculate segment after-tax operating income for the periods
indicated.

<TABLE>
<CAPTION>
                                                                           Three Months Ended         Nine Months Ended
                                                                               September 30,            September 30,
                                                                           2002          2001        2002          2001
                                                                          ---------------------------------------------
                                                                                           (in millions)

<S>                                                                       <C>           <C>        <C>          <C>
Net realized investment and other gains (losses) ......................   $ (3.3)       $(35.0)    $(261.0)     $ (85.3)
Add (less) amortization of deferred policy acquisition costs
   related to net realized investment and other gains (losses) ........    (16.5)         (0.8)        6.0          1.2
Add (less) amounts credited to participating pension contract holder
   accounts ...........................................................     11.0         (14.1)       18.9        (15.0)
Add (less) amounts credited to the policyholder dividend
    obligation ........................................................    (21.9)         (8.6)      (19.3)         0.6
                                                                          --------------------     --------------------
Net realized investment and other gains (losses), net of
   related amortization of deferred policy acquisition costs, amounts
   credited to participating pension contract holders and the
   policyholder dividend obligation per unaudited consolidated
   financial statements ...............................................    (30.7)        (58.5)     (255.4)       (98.5)
Add net realized investment and other gains (losses) attributable to
   mortgage securitizations ...........................................     (0.9)         (1.0)       (1.9)        (3.5)
                                                                          --------------------     --------------------
Net realized investment and other gains (losses) - pre-tax adjustment
   to calculate segment operating income ..............................    (31.6)        (59.5)     (257.3)      (102.0)
Less income tax effect ................................................      7.9          22.3        86.4         38.7
                                                                          --------------------     --------------------
Net realized investment and other gains (losses) - after-tax
   adjustment to calculate segment operating income ...................   $(23.7)       $(37.2)    $(170.9)     $ (63.3)
                                                                          ====================     ====================
</TABLE>

      The Company incurred after-tax restructuring charges to reduce costs and
increase future operating efficiency by consolidating portions of our
operations. Additional information regarding restructuring costs is included in
Note 1 -- Summary of Significant Accounting Policies in the notes to the
unaudited consolidated financial statements. After-tax restructuring costs net
of related curtailment pension and other post employment benefit related gains,
were $4.0 million and $3.0 million, and $8.8 million and $22.3 million for the
three and nine month periods ended September 30, 2002 and 2001, respectively.
The nine month period ended September 30, 2001 included $9.0 million of
restructuring charges related to the sale of our full service retirement plan
business. There were no restructuring charges related to the sale of our full
service retirement plan business for the three month period ended September 30,
2001.


                                       39
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      The Company incurred a $19.5 million after-tax charge related to the
settlement of the Modal Premium class action lawsuit for the nine month period
ended September 30,2002. The settlement agreement involves policyholders who
paid premiums on a monthly, quarterly, or semi-annual basis rather than
annually. The settlement costs are intended to provide for relief to class
members and for legal and administrative costs associated with the settlement.
In entering into the settlement, the Company specifically denied any wrongdoing.
Although some uncertainty remains as to the entire cost of claims, it is
expected that the final cost of the settlement will not differ materially from
the amounts presently provided by the Company.

      Effective within the year 2000, the Company is no longer subject to the
surplus tax imposed on mutual life insurance companies. During the three and
nine month periods ended September 30, 2001, the Company recognized a reduction
in equity based taxes of $3.8 million, respectively, resulting from a revised
estimate related to prior years. This after-tax credit was excluded from
after-tax operating income for these periods.


                                       40
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Protection Segment

The following table presents certain summary financial data relating to the
Protection Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                            Three Months Ended     Nine Months Ended
                                                               September 30,          September 30,
                                                              2002       2001       2002       2001
                                                            ------------------------------------------
                                                                         (in millions)

<S>                                                         <C>         <C>       <C>         <C>
Revenues ..............................................     $903.1      $841.2    $2,640.7    $2,484.3

Benefits and expenses (2) .............................      790.6       727.5     2,297.5     2,139.9

Income taxes (2) ......................................       45.2        44.3       126.4       123.4
                                                            ------------------    --------------------

Segment after-tax operating income (1) (2) ............       67.3        69.4       216.8       221.0
                                                            ------------------    --------------------

After-tax adjustments: (1)
  Net realized investment and other gains
    (losses) (2) ......................................      (11.1)       (2.9)      (48.0)      (23.6)
  Restructuring charges ...............................       (0.6)       (1.0)       (4.7)       (3.8)
     Class action lawsuit .............................         --          --       (18.7)         --
     Surplus tax ......................................         --         1.5          --         1.5
                                                            ------------------    --------------------
 Total after-tax adjustments (2) ......................      (11.7)       (2.4)      (71.4)      (25.9)
                                                            ------------------    --------------------

GAAP Reported:
Income before cumulative effect of accounting
   changes (2) ........................................       55.6        67.0       145.4       195.1
Cumulative effect of accounting changes, net of tax ...         --          --          --        11.7
                                                            ------------------    --------------------
Net income (2) ........................................     $ 55.6      $ 67.0    $  145.4    $  206.8
                                                            ==================    ====================

Other Data:
Segment after-tax operating income: (1)
  Traditional life ....................................     $ 25.0      $ 23.6    $   82.0    $   79.2
  Non-traditional life (variable and universal life) ..       22.0        29.2        79.5        91.1
  Long-term care ......................................       22.0        19.8        58.9        55.3
  Other ...............................................       (1.7)       (3.2)       (3.6)       (4.6)
                                                            ------------------    --------------------
Segment after-tax operating income (1) ................     $ 67.3      $ 69.4    $  216.8    $  221.0
                                                            ==================    ====================
</TABLE>

(1)   See "Adjustments to GAAP Reported Net Income" included in this MD&A.
(2)   Certain 2001 amounts were adjusted for the adoption of the provisions of
      SOP 00-3, "Accounting by Insurance Enterprises for Demutualization and
      Formations of Mutual Insurance Holding Companies and Certain Long-Duration
      Participating Contracts" as outlined in Note 1 -- Summary of Significant
      Accounting Policies in the notes to the unaudited consolidated financial
      statements.

Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001

      Segment after-tax operating income decreased 3.0%, or $2.1 million, from
the prior year. Traditional life insurance business after-tax operating income
increased 5.9%, or $1.4 million, primarily due to lower operating expenses
partially offset by lower net investment income. Non-traditional life insurance
business after-tax operating income decreased 24.7% or $7.2 million, primarily
due to higher amortization of deferred policy acquisition costs driven by Q3
unlocking of the deferred policy acquisition costs (DAC) asset, partially offset
by increased universal life and product-type fee income and increased net
investment income. Long-term care insurance business after-tax operating income
increased 11.1%, or $2.2 million, resulting from growth of the business.

      Revenues increased 7.4%, or $61.9 million, from the prior year. Premiums
increased 8.7%, or $36.3 million, primarily due to long-term care insurance
premiums, which increased 15.7%, or $27.2 million, driven by continued


                                       41
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

growth overall in the business. In addition, traditional life insurance premiums
increased 3.8%, or $9.1 million, primarily due to higher single premiums from
higher dividends applied to purchase paid-up additions of $5.2 million, $6.0
million for the return of renewal premiums in the prior year as part of the
resolution of the class action lawsuit, partially offset by $4.7 million of
lower renewal premiums on the older whole life business, which is in run-off
status. This increase in premiums was offset by a corresponding change in the
benefit reserves. Universal and investment-type product charges increased 12.1%,
or $12.7 million, primarily due to higher amortization of deferred revenue of
$7.2 million and increased expense charges of $5.4 million. The increase in
amortization of deferred revenue included $12.3 million associated with the Q3
unlocking (See Note 1 - Significant Accounting Policies in the notes to the
unaudited consolidated financial statements and Critical Accounting Policies in
this MD&A). The Segment's net investment income increased 4.4%, or $14.2
million, primarily due to a 10.3% increase in average asset balances, offset by
a 28 basis points decrease in yields.

      Benefits and expenses increased 8.7%, or $63.1 million, from the prior
year. Benefits to policyholders increased 6.5%, or $31.8 million, due to growth
in the long-term care insurance business and non-traditional life insurance
business in-force. Long-term care insurance business benefits and expenses
increased 18.9%, or $34.3 million, primarily due to additions to reserves for
premium growth and higher claim volume from business growth. Long-term care
insurance policies have increased to 582.6 thousand from 524.6 thousand in the
prior year and open claims increased to 5,190 from 4,228 in the prior year. The
non-traditional life insurance business had an increase in benefits to
policyholders of 7.0%, or $4.6 million, compared to the prior year, which was
driven by a $2.4 million increase in death claims, net of reserves released and
a $10.2 million increase in interest credited on higher current year account
balances, driven by an increase in the in-force. Universal life insurance
business average account value increased 26.3% to $3,081.0 million from $2,439.4
million in the prior year. Other operating costs and expenses decreased 7.1%, or
$5.7 million, primarily due to expense reductions. Amortization of deferred
policy acquisition costs increased 53.2%, or $24.9 million, primarily due to
non-traditional life insurance business driven by the $27.9 million Q3 unlocking
of the DAC asset (See Note 1 - Summary of Significant Accounting Policies in the
notes to the unaudited consolidated financial statements and Critical Accounting
Policies in this MD&A). Dividends to policyholders increased 10.6%, or $12.1
million, primarily due to increased dividends of $13.0 million on traditional
life insurance products within the closed block, due to an increase in the
dividend scale and normal aging of the policies. The Segment's effective tax
rate on operating income was 40.1% compared to 39.0% for the prior year. This
increase was primarily due to decreased deductions for general account dividends
received on common stock and market fluctuations in corporate-owned life
insurance programs.

Nine months Ended September 30, 2002 Compared to Nine months Ended
September 30, 2001

      Segment after-tax operating income decreased 1.9%, or $4.2 million, from
the prior year. Traditional life insurance business after-tax operating income
increased 3.5%, or $2.8 million, primarily due to lower operating costs and
expenses partially offset by lower net investment income. Non-traditional life
insurance business after-tax operating income decreased 12.7%, or $11.6 million,
primarily due to increases in benefits to policyholders and amortization of
deferred policy acquisition costs driven by the Q3 unlocking of the DAC asset,
as mentioned previously, partially offset by higher universal life and
investment-type product charges and net investment income. Long-term care
insurance business after-tax operating income increased 6.5%, or $3.6 million,
resulting from growth of the business.

      Revenues increased 6.3%, or $156.4 million from the prior year. Premiums
increased 7.8%, or $95.8 million, primarily due to long-term care insurance
premiums, which increased 14.4%, or $71.4 million, driven by continued growth
overall in the business. Traditional life insurance premiums increased 3.4%, or
$24.4 million, primarily due to the return of renewal premiums in the prior year
of $35.0 million as part of the resolution of the class action lawsuit, offset
by a corresponding change in the benefit reserves. Universal life and
investment-type product charges increased 8.0%, or $24.6 million due primarily
to increased expense charges of $10.0 million and higher amortization of
deferred revenue of $8.7 million. The increase in amortization of deferred
revenue included $12.3 million associated with the Q3 unlocking mentioned
previously. Segment net investment income increased 4.5%, or $42.3 million,
primarily due to a 9.79% increase in average account asset balances, partially
offset by a 39 basis point decrease in yields.

      Benefits and expenses increased 7.4%, or $157.6 million from the prior
year. Benefits to policyholders increased 9.1%, or $126.7 million, due to growth
in long-term care insurance business and non-traditional life insurance business
in force. Long-term care insurance business benefits and expenses increased
17.7%, or $93.1 million, primarily due to additions to reserves for premium
growth and higher claim volume driven by business growth. Long-term care
insurance business average policies have increased to 582.6 thousand from 524.6
thousand


                                       42
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

in the prior year and open claims increased to 5,190 from 4,228 in the prior
year. The non-traditional life insurance business had an increase in benefits to
policyholders of 28.9%, or $51.2 million, primarily due to an $22.6 million
increase in death claims, net of reserves released and a $26.9 million increase
in interest credited on higher current year account balances, driven by an
increase in insurance in-force. Universal life insurance business average
account value increased 22.6% to $2,938.0 million from $2,397.2 million in the
prior year. Other operating costs and expenses decreased 6.0% or $15.6 million
primarily due to a decrease of $11.2 million in operating expenses primarily due
to expense reductions. Amortization of deferred policy acquisition costs
increased 7.5%, or $10.4 million, primarily due to the non-traditional life
insurance business driven by the $27.9 million Q3 unlocking of DAC asset
mentioned previously. This was offset by a decrease in amortization of deferred
policy acquisition costs in the traditional life insurance business of $18.8
million, due to improved persistency on term insurance, and lower margins.
Dividends to policyholders increased 10.2%, or $36.1 million, primarily due to
increased dividends of $38.3 million on traditional life insurance products
within the closed block, due to both an increase in the dividend scale and
normal aging of the policies. The Segment's effective tax rate on operating
income was 36.8% compared to 35.8% for the prior year. This increase was
primarily due to decreased deductions for general account dividends received on
common stock and market fluctuations in corporate-owned life insurance programs.


                                       43
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Asset Gathering Segment

      The following table presents certain summary financial data relating to
the Asset Gathering Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                             Three Months Ended     Nine Months Ended
                                                               September 30,          September 30,
                                                             2002         2001      2002         2001
                                                            -------------------    -------------------
                                                                          (in millions)

<S>                                                         <C>          <C>       <C>          <C>
Revenues ...............................................    $280.8       $296.2    $839.2       $880.0

Benefits and expenses ..................................     258.2        240.0     698.8        721.6

Income taxes ...........................................       8.0         15.2      45.2         48.5
                                                            -------------------    -------------------

Segment after-tax operating income (1) .................      14.6         41.0      95.2        109.9
                                                            -------------------    -------------------

After-tax adjustments: (1)
    Net realized investment and other gains (losses) ...      34.5          6.6       6.5           --
    Restructuring charges ..............................      (3.1)        (0.3)     (5.0)       (15.4)
                                                            -------------------    -------------------
Total after-tax adjustments ............................      31.4          6.3       1.5        (15.4)

GAAP Reported:
Income before cumulative effect of accounting changes         46.0         47.3      96.7         94.5
Cumulative effect of accounting changes, net of tax ....        --           --        --         (0.5)
                                                            -------------------    -------------------

Net income .............................................    $ 46.0       $ 47.3    $ 96.7       $ 94.0
                                                            ===================    ===================
</TABLE>

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.

Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001

      Segment after-tax operating income decreased 64.4%, or $26.4 million from
the prior year. The decrease in segment after-tax operating income was driven by
a $29.0 million decrease in the variable annuity business. The variable annuity
business suffered due to significant declines in the equity markets leading to
increased amortization of deferred policy acquisition costs driven by the Q3
unlocking. Partially offsetting the losses in the variable annuity business was
growth of 19.1%, or $3.7 million, in after-tax operating income in the fixed
annuity business driven by growth in assets backing fixed annuity products.
Essex, a distribution subsidiary primarily serving the financial institution
channel, experienced a decrease in after-tax operating income of $1.8 million.
Signature Services, the Company's record keeping and servicing company,
after-tax operating income decreased $0.3 million. First Signature Bank's
after-tax operating income decreased $0.2 million. The mutual funds business
after-tax operating income increased 0.7%, or $0.1 million. Earnings remained
basically flat primarily due to a decrease in management advisory fees, offset
by a decrease in operating expenses. Signator Investors, the Company's
broker-dealer distribution subsidiary, after-tax operating income increased by
$1.1 million.

      Revenues decreased 5.2%, or $15.4 million, from the prior year. The
decrease in revenue was due to a $17.9 million decline in investment management
revenues primarily driven by the mutual fund business, a $12.4 million decline
in premiums in the fixed annuity business on lower life-contingent fixed annuity
sales and a $1.9 million decline in investment product charges in the variable
annuity business on lower average fund values. These declines in revenues were
partially offset by an increase of 12.9%, or $16.9 million in net investment
income. The increase in net investment income was primarily due to increases in
invested assets backing fixed annuity products, partially offset by lower earned
yields in the portfolio. Average invested assets backing fixed annuity products
increased 29.6% to $8,304.4 million while the average investment yield decreased
113 basis points. Investment-type product charges decreased 6.1%, or $1.9
million, due to a decline in the average variable annuity reserves that
decreased 13.9%, or $871.4 million, to $5,412.3 million from the prior year.
This decrease in average variable annuity reserves is driven by both market
depreciation of $501.9 million and net outflows of $240.6 million since
September


                                       44
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

30, 2001. For variable annuities, the mortality and expense fees as a percentage
of average account balances were 1.34% and 1.26% for the current and prior year
periods.

      Investment management revenues, commissions, and other fees decreased
16.0%, or $17.9 million from the prior year. Average mutual fund assets under
management were $25,440.7 million for the three months ended September 30, 2002,
a decrease of $3,731.5 million, or 12.8%, from the prior year. The decrease in
average mutual fund assets under management is primarily due to market
depreciation of $2,537.1 million from September 30, 2001. The mutual fund
business experienced net deposits of $51.0 million since September 30, 2001,and
net deposits of $273.1 million for the three months ended September 30, 2002
compared to net redemptions of $11.2 million in the prior year, an improvement
of $284.3 million. This change was primarily due to an increase in deposits of
$703.7 million driven by the John Hancock Preferred Income closed-end fund
offering, which generated $622.2 million in sales and the acquisition of the
U.S. Global Leaders Growth Fund, which had $72.6 million in sales. Also, there
were $378.8 million institutional advisory account deposit in the current year
compared to $151.5 million in the prior year. Investment advisory fees were
$35.3 million for the three months ended September 30, 2002, a decrease of $7.5
million, or 17.6%, from the prior year and were 0.56% and 0.59% of average
mutual fund assets under management for the three months ended September 30,
2002 and 2001. Underwriting and distribution fees decreased 16.0%, or $9.2
million, to $48.2 million for the three months ended September 30, 2002,
primarily due to a decrease in front end load charge mutual fund sales,
resulting in a decrease of $9.1 million in fees and accordingly, commission
revenue. The decrease also included a $0.1 million decrease in distribution and
other fees. Shareholder service and other fees were $10.4 million for the three
months ended September 30, 2002 compared to $11.4 million in the prior year.

      Benefits and expenses increased 7.6%, or $18.2 million from the prior
year. Benefits to policyholders increased 1.9%, or $2.2 million, primarily due
to an increase in payments in the variable annuity business for guaranteed
minimum death benefits of $1.7 million. Other operating costs and expenses
decreased 27.6%, or $28.5 million, from the prior year period. The decrease was
primarily due to cost savings in the mutual fund business as well as company
wide cost reduction programs, which also drove the decline in expenses in the
other Asset Gathering segment businesses. Amortization of deferred policy
acquisition costs increased $44.5 million, primarily due to the variable annuity
business driven by the Q3 unlocking of $36.1 million of the DAC asset (See Note
1 - Summary of Significant Accounting Policies in the notes to the unaudited
consolidated financial statements and the Critical Accounting Policies in this
MD&A). The Segment's effective tax rate on operating income was 35.4% for the
three months ended September 30, 2002 and 27.0% for the prior year. The increase
in the rate is due to lower dividends received deductions in the current period
associated with lower dividends received on stocks in the variable annuity
separate account investment funds.

Nine months Ended September 30, 2002 Compared to Nine months Ended
September 30, 2001

      Segment after-tax operating income decreased 13.4%, or $14.7 million from
the prior year. The variable annuity business after-tax operating income
decreased 18.7%, or $26.5 million, from the prior year, primarily driven by a
$43.6 million increase in amortization of deferred acquisition costs driven by
the Q3 unlocking. This decrease was partially offset by an increase in fixed
annuity after-tax operating income of 15.0%, or $7.9 million, driven by a
decrease in benefits to policyholders. Mutual funds after-tax operating income
was $41.3 million, decreasing 2.6%, or $1.1 million primarily due to a 14.9%, or
$41.4 million decrease in management advisory fees, partially offset by a 18.6%,
or $40.3 million, decrease in operating expenses. Signature Services after-tax
operating income increased $2.4 million, driven by an increase in management
advisory fees from the same period in 2001 and continued expense management.
Signator Investors had after-tax operating income of $0.8 million, an increase
of $3.7 million.

      Revenues decreased 4.6%, or $40.8 million, from the prior year. The
decrease in revenue was due to a $46.0 million decline in premiums in the fixed
annuity business on lower life-contingent fixed annuity sales, a $35.2 million
decline in investment management revenues driven by the mutual fund business and
a $6.0 million decrease in investment product charges in the variable annuity
business on lower average fund values. These declines in revenues were partially
offset by an increase of 12.2%, or $45.4 million in net investment income. The
increase in net investment income was primarily due to increases in invested
assets backing fixed annuity products, partially offset by lower earned yields
in the portfolio. Average invested assets backing fixed annuity products
increased 24.7% to $7,512.4 million while the average investment yield decreased
75 basis points. Investment-type product charges decreased 6.2%, or $6.0
million, due to a decline in the average variable annuity reserves that
decreased 12.3%, or $801.1 million, to $5,732.4 million from the prior year.
This decrease in average variable annuity reserves is driven by both market
depreciation of $501.9 million and net outflows of $240.6 million since

                                       45
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

September 30, 2001. For variable annuities the mortality and expense fees as a
percentage of average account balances were 1.35% and 1.28% for the current and
prior year period.

      Investment management revenues, commissions, and other fees decreased
10.2%, or $35.2 million from the prior year. Average mutual fund assets under
management were $27,327.0 million for the nine months ended September 30, 2002,
a decrease of $2,630.3 million, or 8.8%, from the prior year period. The
decrease in average mutual fund assets under management is primarily due to
market depreciation of approximately $2,537.1 million since September 30, 2001.
The mutual fund business experienced net deposits of $51.0 million since
September 30, 2001,and net redemptions of $390.7 million for the nine months
ended September 30, 2002 compared to net deposits of $112.8 million in the prior
year, a decline of $503.5 million. This change was primarily due to a decrease
in deposits of $509.0 million driven by a decrease in retail open-end fund sales
and institutional advisory account deposits in the current year compared to the
prior year. The decrease was partially offset by $622.2 million in sales of the
John Hancock Preferred Income closed-end fund, the acquisition of the U.S.
Global Leaders Growth Fund, which had $122.4 million in sales and a $92.8
million increase in private managed account sales. In addition, the sale of the
full service retirement plan business during 2001 contributed to the decrease in
deposits in the current period. Investment advisory fees were $116.9 million for
the nine months ended September 30, 2002, a decrease of 14.0%, or $19.1 million,
from the prior year and were 0.57% and 0.61% of average mutual fund assets under
management for the nine months ended September 30, 2002 and 2001. Underwriting
and distribution fees decreased 7.1%, or $12.3 million, to $161.7 million for
the nine months ended September 30, 2002, primarily due to a decrease in front
end load mutual fund sales, resulting in a decrease of $8.9 million in
distribution and other fees. The decrease also included a $3.4 million decrease
in fees. Shareholder service and other fees were $32.4 million for the nine
months ended September 30, 2002 compared to $36.3 million in the prior year.

      Benefits and expenses decreased 3.2%, or $22.8 million from the prior
year. Benefits to policyholders decreased 2.9%, or $9.7 million, primarily due
to $42.9 million lower life-contingent immediate fixed annuity reserves on new
business, partially offset by a $34.8 million increase in interest credited on
fixed annuity account balances due to higher average account balances. Other
operating costs and expenses decreased 21.6%, or $71.0 million, from the prior
year. The decrease was primarily due to cost savings in the mutual fund business
as well as company wide cost reduction programs, which drove the decline in
expenses in the other Asset Gathering segment businesses. Amortization of
deferred policy acquisition costs increased 97.1%, or $57.8, primarily due to
the variable annuity business driven by the $36.1 million Q3 unlocking of the
DAC asset mentioned previously. The Segment's effective tax rate on operating
income was 32.2% for the nine months ended September 30, 2002 and 30.6% for the
prior year. The increase in the rate is due to lower dividends received
deductions in the current period associated with lower dividends received on
stocks in the variable annuity separate account investment funds.


                                       46
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Guaranteed and Structured Financial Products Segment

The following table presents certain summary financial data relating to the
Guaranteed and Structured Financial Products Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                         Three Months Ended         Nine Months Ended
                                                            September 30,             September 30,
                                                         2002           2001       2002           2001
                                                        ---------------------    -----------------------
                                                                        (in millions)

<S>                                                     <C>           <C>        <C>            <C>
Revenues ...........................................    $478.7        $493.9     $1,597.8       $1,870.1

Benefits and expenses ..............................     366.4         400.2      1,273.2        1,599.1

Income taxes .......................................      36.4          31.8        105.9           90.5
                                                        --------------------     -----------------------

Segment after-tax operating income (1) .............      75.9          61.9        218.7          180.5
                                                        --------------------     -----------------------

After-tax adjustments: (1)
    Net realized investment and other
       gains (losses) ..............................     (47.4)        (36.9)      (116.8)         (51.3)
    Restructuring charges ..........................        --            --         (0.5)          (0.7)
    Surplus tax ....................................        --           2.1           --            2.1
                                                        --------------------     -----------------------
Total after-tax adjustments ........................     (47.4)        (34.8)      (117.3)         (49.9)
                                                        --------------------     -----------------------

GAAP Reported:
Income before cumulative effect of
    accounting changes .............................      28.5          27.1        101.4          130.6
Cumulative effect of accounting
    changes, net of tax ............................        --            --           --           (1.2)
                                                        --------------------     -----------------------
Net income .........................................    $ 28.5         $27.1     $  101.4       $  129.4
                                                        ====================     =======================

Other Data:
Segment after-tax operating income: (1)
    Spread-based products ..........................    $ 69.0        $ 56.4     $  200.4       $  162.1
    Fee-based products .............................       6.9           5.5         18.3           18.4
                                                        --------------------     -----------------------
Segment after-tax operating income (1) .............    $ 75.9        $ 61.9     $  218.7       $  180.5
                                                        ====================     =======================
</TABLE>

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.

Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001

      Segment after-tax operating income increased 22.6%, or $14.0 million from
the prior year. This increase was driven by a 22.3%, or $12.6 million increase
in spread-based products after-tax operating income. The increase in the
spread-based business is primarily due to an increase in investment spreads of
13.3%, or $11.8 million from the prior year. The increase in investment spreads
was a result of a higher average invested asset base, which increased 12.8%, or
$2.7 billion, partially offset by a one basis point decline in the interest rate
margin. GICs and funding agreements accounted for 63.9% of segment after-tax
operating income compared to 68.7% in the prior year. On a total company basis,
GICs and funding agreements accounted for 26.1% of after-tax operating income
compared to 21.1% in the prior year. The increase in GICs and funding agreements
as a percent of total company after-tax operating income is due to the Q3
unlocking and is not expected to persist. For the three month period ended
September 30, 2002, GICs and funding agreements accounted for 26.1% of total
company after-tax operating income despite the Q3 unlocking. Fee-based products
after-tax operating income increased 25.5% or $1.4 million from the prior year,
reflecting lower risk based capital partially offset by lower separate account
risk charges.


                                       47
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Revenues decreased 3.1%, or $15.2 million from the prior year, driven by a
decline in net investment income of 5.4%, or $24.5 million. Spread-based net
investment income decreased 5.1%, or $20.4 million from the prior year, despite
growth in the average invested asset base of 12.8%, or $2.7 billion. Net
investment income declined due to a lower average investment yield, which fell
to 6.31% from 7.53% in the prior year. The decrease in the average investment
yield is a reflection of the declining interest rate environment in the current
period and that approximately $10 billion, or 41% of the asset portfolio, floats
with the lower market rates. Matching the interest rate exposure on our asset
portfolio to the exposure on our liabilities is a central feature of our
asset/liability management process. Partially offsetting the decrease in net
investment income was an increase in premiums of 34.3%, or $8.4 million from the
prior year. Premiums on structured settlement products increased 70.2%, or $9.9
million, from the prior year. Structured settlement premiums increased due to
the growth in sales of structured settlement products to $26.1 million, an
increase of 40.3%, or $7.5 million from the prior year. Investment-type product
charges increased $0.9 million from the prior year, reflecting the increase in
structured settlement sales in the current period.

      Benefits and expenses decreased 8.4%, or $33.8 million from the prior
year. This decrease was primarily due to lower benefits to policyholders.
Benefits to policyholders on spread-based products decreased 9.2%, or $29.8
million from the prior year, due to lower interest credited on account balances.
Spread-based interest credited decreased 10.4%, or $32.0 million from the prior
period, primarily due to a decline in the average interest credited rate on
account balances, due to the reset of approximately $10 billion of liabilities
with floating rates and new business added at current market rates. The average
interest credited rate fell to 4.89% from 6.10% in the prior year. Other
operating costs and expenses decreased 17.2%, or $2.7 million from the prior
year. This decrease was primarily due to lower taxes, licenses, and fees and
lower compensation expenses. These declines were partially offset by higher
dividends to policyholders, which increased 21.6%, or $1.9 million from the
prior year. The Segment's effective tax rate on operating income was 32.4%
compared to 33.9% for the prior year due to increased low income housing
credits, partially offset by a decreased general account dividends received
deduction.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001

      Segment after-tax operating income increased 21.2%, or $38.2 million from
the prior year. Spread-based products after-tax operating income increased
23.6%, or $38.3 million from the prior year. The increase in the spread-based
business is primarily due to the increase in investment spreads of 18.8%, or
$47.7 million from the prior year. The increase in investment spreads was a
result of a higher average invested asset base, which increased 13.5%, or $2.7
billion from the prior year, combined with an 11 basis point increase in the
interest rate margin. The increase in interest rate margin is a result of income
earned on limited partnership and mortgage investments in the current period.
GICs and funding agreements accounted for 65.4% of segment after-tax operating
income compared to 66.9% in the prior year. On a total company basis, GICs and
funding agreements accounted for 23.8% of after-tax operating income compared to
20.4% in the prior year. Fee-based products after-tax operating income decreased
$0.1 million from the prior year, primarily due to lower risk based capital and
lower separate account risk charges.

      Revenues decreased 14.6%, or $272.3 million from the prior year, largely
due to a decrease in premiums of 38.6%, or $169.3 million, driven by a $302.5
million decrease in single premium annuities premiums from the prior year.
Premiums decreased on lower sales of single premium annuities, which fell 85.1%,
or $308.5 million from the prior year. Partially offsetting the decrease in
premiums on single premium annuities was an increase of 268.9%, or $135.5
million in premiums on structured settlement products from the prior year. Net
investment income decreased 7.5%, or $103.7 million from the prior year, despite
growth of 13.5%, or $2.7 billion in the spread-based average invested assets.
Net investment income declined due to a lower average investment yield, which
fell to 6.53% from 8.01% in the prior year, reflecting the lower interest rate
environment in the current period. Net investment income varies with market
interest rates because the return on approximately $9 billion, or 39% of the
asset portfolio, floats with market rates. In addition, new sales generate cash
flows, which are invested at the current market interest rates, which have
decreased from the prior year. Matching the interest rate exposure on our asset
portfolio to the exposure on our liabilities is a central feature of our
asset/liability management process. Investment-type product charges increased
$0.3 million from the prior year due to higher fees on structured settlement
contracts, which were largely offset by lower asset-based fees on separate
accounts.

      Benefits and expenses decreased 20.4%, or $325.9 from the prior year. The
decrease was primarily due to lower benefits to policyholders. Benefits to
policyholders for spread-based products decreased 22.9%, or $312.7 million from
the prior year, due to lower sales of single premium annuity contracts, combined
with lower interest credited on account balances. Interest credited decreased
14.2%, or $134.4 million from the prior year. The


                                       48
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

decrease in interest credited was due to a decline in the average interest
credited rate on account balances for spread-based products, due to the reset of
approximately $9 billion of liabilities with floating rates and new business
added at current market rates. The average crediting rate fell to 5.01% from
6.60% in the prior year. Other operating costs and expenses increased 13.4%, or
$5.7 million from the prior year. This increase was driven by higher product
development costs, commissions on structured settlement sales, state taxes,
licenses, and fees, and corporate communications costs. Dividends to
policyholders increased 7.6%, or $2.0 million from the prior year. The segment's
effective tax rate on operating income was 32.6% compared to 33.4% in the prior
year, due to increased low income housing credits, partially offset by a
decreased general account dividends received deduction.


                                       49
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Investment Management Segment

The following table presents certain summary financial data relating to the
Investment Management Segment for the periods indicated.

<TABLE>
<CAPTION>
                                             Three Months Ended       Nine Months Ended
                                                September 30,           September 30,
                                             2002          2001      2002          2001
                                            --------------------    --------------------
                                                            (in millions)
<S>                                         <C>            <C>      <C>            <C>
Revenues ................................   $30.5          $33.2    $94.4          $99.7

Benefits and expenses ...................    22.2           22.2     66.8           71.9

Income taxes ............................     3.8            4.0     10.8           10.8
                                            --------------------    --------------------

Segment after-tax operating income (1) ..     4.5            7.0     16.8           17.0
                                            --------------------    --------------------

After-tax adjustments: (1)
    Net realized investment and other
       gains (losses) ...................    (0.1)            --      0.4           (0.1)
    Restructuring charges ...............      --           (0.2)    (0.2)          (0.7)
                                            --------------------    --------------------
Total after-tax adjustments .............    (0.1)          (0.2)     0.2           (0.8)
                                            --------------------    --------------------

GAAP Reported:
Income before cumulative effect of
    accounting changes ..................     4.4            6.8     17.0           16.2
Cumulative effect of accounting changes,
     net of tax .........................      --             --       --           (0.2)
                                            --------------------    --------------------
Net income ..............................   $ 4.4          $ 6.8    $17.0          $16.0
                                            ====================    ====================
</TABLE>

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.

Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001

      Segment after-tax operating income decreased $2.5 million, or 35.7%, from
the prior year. The decrease was primarily due to a decrease of $5.6 million, or
62.9%, in net investment income offset by a $3.1 million increase, or 13.3%, in
revenue, commissions and other fees. Expenses and realized investment and other
gains (losses) were flat overall. The decrease in net investment income resulted
primarily from non-recurring prior year income on investments at John Hancock
Energy Resources Management and from a lower level of commercial mortgages held
for sale this year at John Hancock Real Estate Finance. The increase in revenue,
commissions and other fees resulted from higher fees earned from new investment
initiatives at our Bond & Corporate Finance Group and higher acquisition fees
earned at John Hancock Realty Advisors based on higher acquisition activity
offset by lower advisory fees at Independence Investment LLC. Independence
Investment LLC advisory fees declined due to continued market depreciation
partially offset by net sales.

      Revenues decreased $2.7 million, or 8.1%, from the prior year. Net
investment income declined $5.6 million, or 62.9%, to $3.3 million. Net
investment income at John Hancock Real Estate Finance decreased $2.9 million, or
60.4%, on lower commercial mortgages held for sale, and in the prior year
period, John Hancock Energy Resources Management recognized $3.4 million of
non-recurring income on limited partnerships' sales of investments. Investment
management revenues, commissions and other fees increased $3.1 million, or
13.3%, over the prior year, mostly due to increases in advisory and acquisition
fees. Bond & Corporate Finance fees increased $2.7 million, mainly from new
investment initiatives. John Hancock Realty Advisors revenue increased $1.9
million based on an increase in acquisition fee income of $1.8 million, from
$0.7 million in the prior year, resulting from a fourfold increase in
acquisition activity to $44.1 million of acquisitions placed this quarter.
Independence Investment LLC advisory fees decreased $1.8 million based on $2.0
billion in lower average assets under management compared to the prior year,
resulting from market declines of $2.0 billion, partially offset by net sales of
$175.0 million. Net realized investment and other gains (losses) were flat
overall, down $0.1 million, to $0.9 million from the prior year period.
Investment management revenues, commissions and other fees were 0.40% and 0.33%
of average advisory assets under management for the current and prior year
quarters, respectively.


                                       50
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Benefits and expenses were unchanged from the prior year. John Hancock
Real Estate Finance interest expenses declined $1.9 million, based on lower
interest rates and lower borrowings to fund commercial mortgages held for sale,
offset by $0.4 million higher operating expenses at Bond & Corporate Finance
related to a planned mezzanine fund, $0.4 million higher acquisition costs at
John Hancock Realty Advisors, and $0.4 million higher compensation expenses at
John Hancock Real Estate Finance and other smaller increases throughout the
segment. Other operating costs and expenses were 0.33% and 0.31% of average
advisory assets under management for the current and prior year quarters,
respectively. The Segment's effective tax rate on operating income increased to
45.8% from 36.4% in the prior year period, primarily due to a one-time
adjustment to 2001 taxes. The underlying effective tax rate for the Investment
Management Segment remains higher than for our other business segments due to
state taxes on certain investment management subsidiaries, and fewer tax
benefits from portfolio holdings in this segment.

Nine Months Ended September 30, 2002 Compared to Nine months Ended September 30,
2001

      Segment after-tax operating income decreased $0.2 million, or 1.2% from
the prior year. The decrease was due to $7.2 million, or 39.8%, in lower net
investment income and $1.6 million, or 45.7%, of lower realized investment and
other gains (losses) offset by $3.5 million, or 4.5%, of higher revenue,
commissions and other fees and $5.1 million, or 7.1%, of lower benefits and
expenses. Net investment income declined primarily due to lower levels of
mortgages held for sale at John Hancock Real Estate Finance and non-recurring
income from limited partnerships in the prior year period at John Hancock Energy
Resources Management. Revenue, commissions and other income increased due to
higher acquisition fees at John Hancock Realty Advisors and higher fees at our
Bond & Corporate Finance Group from new investment initiatives offset by lower
advisory fees at Independence Investment LLC. Independence Investment LLC
advisory fees declined due to continued market depreciation partially offset by
net sales.

      Revenues decreased $5.3 million, or 5.3% from the prior year. Net
investment income decreased $7.2 million, or 39.8%, primarily due to lower
prevailing short-term interest rates and a lower level of warehoused mortgages
at John Hancock Real Estate Finance in the current year period, and in the prior
year period, John Hancock Energy Resources Management recognized $3.8 million of
non-recurring income on limited partnerships' sales of investments. Net realized
investment and other gains (losses) on mortgage securitizations decreased $1.6
million, or 45.7%, based on lower average profitability of the securitizations
and lower levels of securitization activity in the current year. Investment
management revenues, commissions, and other fees increased $3.5 million, or
4.5%, primarily due to an increase in real estate acquisition fee income at John
Hancock Realty Advisors and increased fees from new investment initiatives at
our Bond & Corporate Finance Group, offset by lower advisory fees at
Independence Investment LLC on lower average assets under management. Average
assets under management at Independence Investment LLC declined from the prior
year, primarily due to market declines of $2.0 billion partially offset by net
sales of $175.0 million. Investment management revenues, commissions and other
fees were 0.39% and 0.35% of average advisory assets under management in 2002
and 2001, respectively.

      Benefits and expenses decreased $5.1 million, or 7.1%, from the prior
year. The decrease was primarily due to $2.2 million of lower interest expense
in the segment resulting mostly from lower prevailing interest rates and a lower
level of warehoused mortgages at John Hancock Real Estate Finance and savings
from ongoing cost cutting efforts across the Investment Management Segment
subsidiaries. Offsetting these reductions was an increase in commission expenses
of $1.2 million at Hancock Natural Resource Group as a result of signing new
timber investors in 2002 and $1.0 million in higher acquisition costs due to
higher real estate acquisition activity at John Hancock Realty Advisors. Other
operating costs and expenses were 0.31% and 0.32% of average advisory assets
under management for 2002 and 2001, respectively. The Segment's effective tax
rate on operating income rose to 39.1% from 38.8% from the prior year, primarily
due to a one-time adjustment to 2001 taxes. The underlying effective tax rate
for the Investment Management Segment remains higher than for our other business
segments due to state taxes on certain investment management subsidiaries, and
fewer tax benefits from portfolio holdings in this segment.


                                       51
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Corporate and Other Segment

The following table presents certain summary financial data relating to the
Corporate and Other Segment for the periods indicated.

<TABLE>
<CAPTION>
                                                     Three Months Ended     Nine Months Ended
                                                       September 30,          September 30,
                                                      2002        2001       2002        2001
                                                     ------------------    --------------------
                                                                   (in millions)
<S>                                                 <C>          <C>       <C>         <C>
Revenues ......................................     $476.9       $442.3    $1,461.9    $1,354.4

Benefits and expenses .........................      482.6        426.2     1,462.3     1,306.2

Income taxes ..................................      (29.2)        (6.2)      (55.0)      (14.4)
                                                    -------------------    --------------------

Segment after-tax operating income (1) ........       23.5         22.3        54.6        62.6
                                                    -------------------    --------------------

After-tax adjustments: (1)
   Net realized investment and other
     gains (losses) ...........................        0.4         (4.0)      (13.0)       11.7
   Restructuring charges ......................       (0.3)        (1.5)        1.6        (1.7)
   Surplus tax ................................         --          0.2          --         0.2
   Class action lawsuit .......................         --           --        (0.8)         --
                                                    -------------------    --------------------
Total after-tax adjustments ...................        0.1         (5.3)      (12.2)       10.2
                                                    -------------------    --------------------

GAAP Reported:
Income before cumulative effect of
   accounting changes .........................       23.6         17.0        42.4        72.8
Cumulative effect of accounting changes, net
   of tax .....................................         --           --          --        (2.6)
                                                    -------------------    --------------------
Net income ....................................     $ 23.6       $ 17.0    $   42.4    $   70.2
                                                    ===================    ====================
</TABLE>

(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A.

Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001

      Corporate and Other Segment after-tax operating income consists of three
sub-segments: International Operations, $26.1 million and $8.9 million,
Corporate Operations, $(3.4) million and $11.6 million and Non Core Operations,
or businesses in run-off, $0.8 million and $1.8 million, for the three months
ended September 30, 2002 and 2001. The following discussion focuses on
International and Corporate Operations.

      After-tax operating income from international operations increased $17.2
million or 193.3% from the prior year. The increase was primarily to due to a
$16.5 million improvement in earnings from Maritime Life. Maritime Life recorded
strong growth driven by both new sales and a successful acquisition strategy.
The latest acquisition, being RSAF in 2001, contributed $0.5 million to the
current quarter's results. Other favorable experience factors included: $4.6
million in individual life mortality, surrenders and expenses, $2.7 million in
investment products and $1.5 million for group life and health products. In
addition, a review of the valuation of deferrable acquisition costs on
segregated funds products (separate accounts) was completed, resulting in a $5.3
million after-tax reduction of DAC amortization. Finally, changes in the
expectation of future claim levels for long-term disability products contributed
$2.4 million. The impact of no longer amortizing goodwill was offset by interest
expense on debt used to partly finance the RSAF acquisition.

      After-tax operating income from corporate operations decreased $15.0
million, or 129.3%, from the prior year. The decrease was due to lower
investment income of $5.3 million in partnership funds and lease funds, as well
as a decrease in net periodic pension plan credits of $5.1 million and increased
interest expense of $3.9 million. Signature Fruit's results were $0.6 million
favorable due to reductions in fixed expenses of $2.3 million that offset lower
profit margins of $1.7 million. The Group Life insurance business was $1.6
million favorable due to favorable claim experience. Our corporate-owned life
insurance program results were $3.7 million unfavorable due to the performance
of the underlying assets.


                                       52
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

The Segment generated a tax credit of $29.2 million, an increase of $23.0
million, for the three months ended September 30, 2002 compared to the prior
year. The effective tax rate decreased primarily as a result of tax benefits
generated by increased affordable housing tax credits, lease residual management
investment strategy, dividends received deduction, and the Company's
corporate-owned life insurance program.

Nine months Ended September 30, 2002 Compared to Nine months Ended
September 30, 2001

      Corporate and Other Segment after-tax operating income consists of three
sub-segments: International Operations, $60.6 million and $34.9 million,
Corporate Operations, $(9.6) million and $22.3 million and Non Core Operations,
or businesses in run-off, $3.6 million and $5.4 million for the nine months
ended September 30, 2002 and 2001. The following discussion focuses on
International and Corporate Operations.

      After-tax operating income from international operations increased $25.7
million or 73.6% from the prior year. The increase was primarily due to $23.4
million in improved earnings from Maritime Life. Favorable experience factors
were $8.5 million, which included $3.3 million for protection products, $2.7
million for asset-gathering products and $2.5 million for group life and health.
A contribution of $3.5 million from RSAF and the discontinuance of goodwill
amortization of $3.7 million also contributed to this result. Favorable
experience for group long-term disability products resulted in an increase of
$5.1 million in after-tax operating income. In addition, a recent review of DAC
levels for the segregated funds and guaranteed annuity products produced a $5.3
million contribution to after-tax income and a lowering of DAC amortization
charges.

      After-tax operating income from corporate operations decreased by $31.9
million, or 143.0%, from the prior year. The decrease was due to lower
investment income of $13.0 million due to prior year adjustments to partnership
funds and lease funds. Income from short-term investments was $2.2 million lower
and income from equity investments was $3.1 million lower. Interest expense
increased $13.4 million, and there was a decrease in net periodic pension plan
credits of $15.5 million. The Group Life insurance business was $3.2 million
favorable due to favorable claim experience. Our corporate-owned life insurance
program was $10.9 million favorable due to both an increase in the asset base
and to improved performance of the underlying assets which were reallocated from
equity to fixed income investments.

      The Segment generated a tax credit of $55.0 million, an increase of $40.6
million, for the nine months ended September 30, 2002 compared to the prior
year. The effective tax rate decreased primarily as a result of tax benefits
generated by increased affordable housing tax credits, lease residual management
investment strategy, dividends received deduction, and the Company's
corporate-owned life insurance program.


                                       53
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

General Account Investments

We manage our general account assets in investment segments that support
specific classes of product liabilities. These investment segments permit us to
implement investment policies that both support the financial characteristics of
the underlying liabilities, and also provide returns on our invested capital.
The investment segments also enable us to gauge the performance and
profitability of our various businesses.

Asset/Liability Risk Management

      Our primary investment objective is to maximize after-tax returns within
acceptable risk parameters. We are exposed to two primary types of investment
risk:

      o     Interest rate risk, meaning changes in the market value of fixed
            maturity securities as interest rates change over time, and
      o     Credit risk, meaning uncertainties associated with the continued
            ability of an obligor to make timely payments of principal and
            interest

      We use a variety of techniques to control interest rate risk in our
portfolio of assets and liabilities. In general, our risk management philosophy
is to limit the net impact of interest rate changes on our assets and
liabilities. Assets are invested predominantly in fixed income securities, and
the asset portfolio is matched with the liabilities so as to eliminate the
company's exposure to changes in the overall level of interest rates. Each
investment segment holds bonds, mortgages, and other asset types that will
satisfy the projected cash needs of its underlying liabilities. Another
important aspect of our asset-liability management efforts is the use of
interest rate derivatives. We selectively apply derivative instruments, such as
interest rate swaps and futures, to reduce the interest rate risk inherent in
combined portfolios of assets and liabilities. For a more complete discussion of
our interest rate risk management practices, please see the Interest Rate Risk
section in the Quantitative and Qualitative Disclosures about Market Risk
section of this document.

      Management of credit risk is central to our business and we devote
considerable resources to the credit analysis underlying each investment
acquisition. Our corporate bond management group employs a staff of highly
specialized, experienced, and well-trained credit analysts. We rely on these
analysts' ability to analyze complex private financing transactions and to
acquire the investments needed to profitably fund our liability requirements. In
addition, when investing in private fixed maturity securities, we rely upon
broad access to proprietary management information, negotiated protective
covenants, and call protection features and collateral protection.

      Our bond portfolio is reviewed on a continuous basis to assess the
integrity of current quality ratings. As circumstances warrant, specific
investments are "re-rated" with the adjusted quality ratings reflected in our
investment system. All bonds are evaluated regularly against the following
criteria:

      o     material declines in the issuer's revenues or margins;
      o     significant management or organizational changes;
      o     significant uncertainty regarding the issuer's industry;
      o     debt service coverage or cash flow ratios that fall below
            industry-specific thresholds;
      o     violation of financial covenants; and
      o     other business factors that relate to the issuer.

      Product prices are set on the basis of expected default losses over the
long term. Actual losses therefore vary above and below this average, and the
market value of the portfolio as a whole also changes as market credit spreads
move up and down during an economic cycle.

      John Hancock is able to hold to this investment strategy over the long
term, both because of its strong capital position, the fixed nature of its
liabilities and the matching of those liabilities with assets, and because of
the experience gained through many decades of a consistent investment
philosophy. Despite the current high levels of market default rates and widened
credit spreads, we expect losses on our investment portfolio to approximate
losses assumed in product pricing over the economic cycle. We generally intend
to hold all of our fixed maturity investments to maturity to meet liability
payments, and to ride out any unrealized gains and losses over the long term.


                                       54
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Overall Composition of the General Account

      Invested assets, excluding separate accounts, totaled $64.6 billion and
$59.0 billion as of September 30, 2002 and December 31, 2001, respectively.
Although the composition of the portfolio has not significantly changed at
September 30, 2002 as compared to December 31, 2001, the majority of the $5.6
billion increase in the invested assets is attributable to an increase in the
fixed maturity security portfolio where the Company directs a majority of its
net cash flow. The following table shows the composition of investments in the
general account portfolio.

<TABLE>
<CAPTION>
                                           As of September 30,       As of December 31,
                                                   2002                     2001
                                          -----------------------------------------------
                                          Carrying        % of     Carrying        % of
                                           Value          Total      Value         Total
                                          -----------------------------------------------
                                         (in millions)           (in millions)
<S>                                       <C>             <C>      <C>             <C>
Fixed maturity securities (1) .........   $46,157.8        71.4%   $41,106.8        69.8%
Mortgage loans (2) ....................    11,734.5        18.2     10,993.2        18.6
Real estate ...........................       356.2         0.5        442.4         0.7
Policy loans (3) ......................     2,018.8         3.1      2,008.2         3.4
Equity securities .....................       946.5         1.5      1,190.9         2.0
Other invested assets .................     2,270.8         3.5      1,786.1         3.0
Short-term investments ................        90.1         0.1        153.5         0.3
Cash and cash equivalents (4) .........     1,067.9         1.7      1,313.7         2.2
                                          -----------------------------------------------
   Total invested assets ..............   $64,642.6       100.0%   $58,994.8       100.0%
                                          ===============================================
</TABLE>

(1)   In addition to bonds, the fixed maturity security portfolio contains
      redeemable preferred stock with a carrying value of $678.4 million and
      $695.0 million as of September 30, 2002 and December 31, 2001,
      respectively. The total fair value of our fixed maturity security
      portfolio was $46,216.6 million and $41,090.9 million, at September 30,
      2002 and December 31, 2001, respectively.
(2)   The fair value of the mortgage loan portfolio was $12,711.9 million and
      $11,574.4 million as of September 30, 2002 and December 31, 2001,
      respectively.
(3)   Policy loans are secured by the cash value of the underlying life
      insurance policies and do not mature in a conventional sense, but expire
      in conjunction with the related policy liabilities.
(4)   Cash and cash equivalents are included in total invested assets for the
      purposes of calculating yields on the income producing assets for the
      Company.

      Consistent with the nature of the Company's product liabilities, assets
are heavily oriented toward fixed maturity securities. The Company determines
the allocation of assets primarily on the basis of cash flow and return
requirements of its products and by the level of investment risk.

      Fixed Maturity Securities. The fixed maturity securities portfolio is
predominantly comprised of low risk, investment grade, publicly and privately
traded corporate bonds and senior tranches of asset-backed securities (ABS) and
mortgage-backed securities (MBS), with the balance invested in government bonds.
The fixed maturity securities portfolio also includes redeemable preferred
stock. As of September 30, 2002, fixed maturity securities represented 71.4% of
general account investment assets with a carrying value of $46.2 billion,
roughly comprised of 58.9% public securities and 41.1% private securities. Each
year the Company directs the majority of net cash inflows into investment grade
fixed maturity securities. Typically between 5% and 15% of funds allocated to
fixed maturity securities are invested in below-investment-grade bonds, while
maintaining a policy to limit the overall level of these bonds to no more than
10% of invested assets and to target two-thirds of that balance in the BB
category. Allocations are based on an assessment of relative value and the
likelihood of enhancing risk-adjusted portfolio returns. While the Company has
profited from the below-investment-grade asset class in the past, care is taken
to manage its growth strategically by limiting its size relative to the
Company's assets.

The following table shows the composition by our internal industry
classification of the fixed maturity securities portfolio and the unrealized
gains and losses contained therein.


                                       55
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

             Fixed Maturity Securities -- By Industry Classification

<TABLE>
<CAPTION>
                                                                       As of September 30, 2002
                                       ---------------------------------------------------------------------------------------
                                                                     Carrying Value
                                                                     of Securities               Carrying Value of
                                                          Net         with Gross        Gross     Securities with    Gross
                                       Total Carrying  Unrealized     Unrealized     Unrealized  Gross Unrealized   Unrealized
                                           Value       Gain (Loss)       Gains          Gains         Losses         Losses
                                       ---------------------------------------------------------------------------------------
                                                                             (in millions)
<S>                                     <C>              <C>           <C>            <C>          <C>             <C>
Corporate securities:
      Banking and finance .........     $ 5,672.3        $188.5        $ 4,222.3      $  289.7     $ 1,450.0       $  (101.2)
      Communications ..............       2,039.1         (75.9)         1,123.4          92.7         915.7          (168.6)
      Government ..................       1,120.8          81.4          1,033.6          93.5          87.2           (12.1)
      Manufacturing ...............       7,598.2         134.5          5,467.4         419.5       2,130.8          (285.0)
      Oil & gas ...................       5,112.8          46.2          3,706.5         314.0       1,406.3          (267.8)
      Services / trade ............       2,565.7         117.8          1,978.1         152.9         587.6           (35.1)
      Transportation ..............       3,618.5         (38.7)         2,499.5         194.7       1,119.0          (233.4)
      Utilities ...................       8,695.4        (123.0)         5,433.1         440.9       3,262.3          (563.9)
                                       ------------------------------------------------------------------------------------- -
   Total Corporate Securities .....      36,422.8         330.8         25,463.9       1,997.9      10,958.9        (1,667.1)

Asset-backed and mortgage-backed
   securities .....................       7,604.2         356.0          6,051.9         477.6       1,552.3          (121.6)
U.S. Treasury securities and
   obligations of U.S. government
   agencies .......................         189.6          14.3            189.3          14.3           0.3              --
Debt securities issued by foreign
   governments (1) ................       1,659.2         142.4          1,504.2         168.0         155.0           (25.6)
Obligations of states and political
   subdivisions ...................         282.0          22.1            256.6          22.7          25.4            (0.6)
                                       ---------------------------------------------------------------------------------------
      Total .......................     $46,157.8        $865.6        $33,465.9      $2,680.5     $12,691.9       $(1,814.9)
                                       =======================================================================================
</TABLE>

(1)   Includes $1,257.9 million in debt held in Maritime Life, our Canadian
      insurance subsidiary, and issued by the Canadian government.

      As of September 30, 2002, there are $2,680.5 million of gross unrealized
gains and $1,814.9 million of gross unrealized losses on the fixed maturities
portfolio. The table above shows gross losses before amounts that are allocated
to the closed block policyholders or participating pension contractholders. Of
the $1,814.9 million of gross losses in the portfolio at September 30, 2002,
$208.4 million is in the closed block and $61.6 million has been allocated to
participating pension contractholders, leaving $1,544.9 of unrealized losses
after such allocations. The gross unrealized losses of $1,814.9 million include
$1,518.7 million, or 83.7%, of those unrealized losses are concentrated in the
manufacturing, oil and gas, transportation, utilities and communications
industries. The communications, utilities and transportation industries have net
unrealized losses.

      Manufacturing: Manufacturing is a large, diverse sector encompassing
cyclical industries. Low commodity prices continue to pressure the subsectors of
mining, chemicals, metals, and forest products. When the economy recovers, these
cyclical subsectors should recover and the bonds of companies in these
subsectors should recover as well. We have financed these subsectors though
several economic cycles and have the ability and intent to hold our investments
until they recover in value or mature. Our portfolio should also benefit from
our underwriting process where we stress test each company's financial
performance through a recession scenario.

      Oil & Gas: In the Oil & Gas industry much of our unrealized loss arises
from companies in emerging markets, primarily Latin America. Our philosophy in
emerging markets is to generally lend to those companies with dollar based
export products such as oil companies. Emerging markets continue to experience
significant stress and bond prices across most emerging market countries are
down. However, our oil & gas investments are faring well as these companies have
dollar based revenues to pay their debts and have continued to do so. In many
cases, investments are structured so that all export revenues first pass through
an offshore trust and our debt service is then paid before any dollars are
released back to the company. This type of transaction is known as an export
receivables investment. All of our Venezuelan transactions are structured in
this manner.

      Transportation: The Transportation sector consists largely of air, rail,
and automotive manufacturers and service companies. All of these subsectors are
experiencing cyclical downturns, particularly the airline industry, having been
impacted both by the recession and the fallout from September 11. While most
airlines are losing money, we lend to this industry almost exclusively on a
secured basis (approximately 99% of our loans are secured).


                                       56
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

These secured airline financings are of two types: Equipment Trust Certificates
(ETC's) and Enhanced Equipment Trust Certificates (EETC's). The ETC's initially
have an 80% loan-to-value ratio and the EETC senior tranches initially have a
40-50% loan-to-value and include a provision for a third party to pay interest
for eighteen months from a default. For us to lose money on an ETC, three things
must happen: the airline must default, the airline must decide it does not want
to fly our aircraft, and the aircraft must be worth less than our loan (losses
may also arise in renegotiation if we anticipate this chain of events). When
lending to this industry, we underwrite both the airline and the aircraft. We've
been lending to this industry in this fashion for 25 years through several
economic cycles and have seen values on our secured airline bonds fall and
recover thorough these cycles.

      Utilities: The Utility sector has faced a number of challenges over the
past few years including the California Power Crisis, the Enron bankruptcy, and
the recession which has resulted in a drop in demand. More recently, there have
been issues around energy trading activities and the financial liquidity of some
large merchant industry players. These events caused a general widening in
utility and project finance bond spreads over the course of the quarter. We
expect continued stress in this sector as owners of merchant plants work through
their liquidity issues with the banks. Investors are likely to see continued
restructurings and/or bankruptcy filings from those companies unable to reach
agreement with the banks. Longer term we believe the reduction in power supply
from reduced capital expenditures and the shutting of inefficient plants will
support a gradual rise in power prices that will help this sector recover. We
currently intend to hold our positions until they recover.

      Communications: The Communication sector, which includes media, publishing
and other activities in addition to telecommunications, has experienced
aggressive expansion, which has resulted in considerable excess capacity. There
have been high profile companies, which have filed for bankruptcy. Among the
remaining players, further pressure has resulted. Our strategy has been to focus
on operating companies with strong balance sheets and diversified product
offerings. As in past recessions, we see pressure on these bonds. We would
expect improvement when the economy begins to recover.

      The following table shows the composition by credit quality of the
securities with gross unrealized losses in our fixed maturity securities
portfolio.

          Unrealized Losses on Fixed Maturity Securities -- By Quality

<TABLE>
<CAPTION>
                                                As of September 30, 2002
                                  -----------------------------------------------------
                                     Carrying
                                     Value of
                S&P Equivalent      Securities
               Designation (2)      with Gross                  Gross
      SVO                           Unrealized       % of       Unrealized
  Rating (1)                       Losses (3)(4)     Total    Losses (3)(4)  % of Total
---------------------------------------------------------------------------------------
                                   (in millions)             (in millions)
<S>             <C>                   <C>            <C>       <C>            <C>
       1        AAA/AA/A...........   $ 3,127.8       25.2%    $  193.5        10.8%
       2        BBB................     6,223.1       50.1        743.4        41.6
       3        BB.................     1,713.9       13.8        397.5        22.2
       4        B..................       905.7        7.3        306.8        17.2
       5        CCC and lower......       315.9        2.6        139.2         7.8
       6        In or near default.       124.3        1.0          7.2         0.4
                                      -------------------------------------------------
                Total..............   $12,410.7      100.0%    $1,787.6       100.0%
                                      =================================================
</TABLE>

(1)   With respect to securities that are awaiting an SVO rating, the Company
      has assigned a rating based on an analysis that it believes is equivalent
      to that used by the SVO.
(2)   Comparisons between SVO and S&P ratings are published by the National
      Association of Insurance Commissioners.
(3)   Does not include redeemable preferred stock with a carrying value of
      $281.2 million and unrealized losses of $27.3 million.
(4)   Includes 138 securities that are awaiting an independent rating with a
      carrying value of $1,144.6 million and unrealized losses of $57.0
      million. Due to lags between the funding of an investment, the processing
      of final legal documents, the filing with the SVO, and the rating by the
      SVO, there will always be a number of unrated securities at each statement
      date. Unrated securities comprised 9.0% and 3.1% of the total carrying
      value and total gross unrealized losses of securities in a loss position,
      including redeemable preferred stock, respectively.

      At September 30, 2002, $936.9 million, or 52.4%, of the gross unrealized
losses are on securities that are rated investment grade. Unrealized losses on
investment grade securities principally relate to changes in interest rates or

                                       57
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

changes in credit spreads since the securities were acquired. Any such
unrealized losses are recognized in income if, and when, we decide to sell such
securities (note that such a decision only would be made with respect to our
available-for-sale portfolio). We believe that the discussion of securities with
ongoing unrealized losses should focus on below investment grade securities that
generally are more likely to develop credit concerns.

      As of September 30, 2002, there are $850.7 million of the gross unrealized
losses on below investment grade securities in the fixed maturities portfolios.
Of this amount, 72.2% has been in place for over six months. The Company
believes, however, that after its comprehensive review of each borrower's
ability to meet the obligations of the notes, and based on information available
at this time, these securities will continue to pay as scheduled, and the
Company has the ability and the intent to hold these securities until they
recover in value or mature. The scheduled maturity dates for securities in an
unrealized loss position at September 30, 2002 is shown below.

          Unrealized Losses on Fixed Maturity Securities -- By Maturity

<TABLE>
<CAPTION>
                                                       September 30, 2002
                                           ------------------------------------------
                                             Carrying Value of
                                           Securities with Gross     Gross Unrealized
                                              Unrealized Loss             Loss
                                           ------------------------------------------
                                                         (in millions)

<S>                                            <C>                     <C>
Due in one year or less .................      $   632.0               $   36.2
Due after one year through five years ...        3,364.5                  412.7
Due after five years through ten years ..        3,841.2                  682.4
Due after ten years .....................        3,301.9                  562.0
                                           ------------------------------------------

Asset-backed and mortgage-backed
  securities ............................        1,552.3                  121.6
                                           ------------------------------------------

Total ...................................      $12,691.9               $1,814.9
                                           ==========================================
</TABLE>


                                       58
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

As of September 30, 2002 we had 41 securities that had an unrealized loss of $10
million or more. They include:

<TABLE>
<CAPTION>
                                                                  Carrying   Unrealized
Description of Issuer                                               Value       Loss
---------------------------------------------------------------------------------------
                                                                     (in millions)

<S>                                                                 <C>       <C>
Secured financings to large US airline ..........................   $239.0    $57.0
Unregulated power/pipeline energy company .......................     19.6     56.8
Unregulated energy generator and supplier .......................     71.5     48.6
Large US based merchant energy generator ........................    117.6     43.9
US power generator with multiple plants .........................     60.6     36.0
Oilfield service company ........................................     29.3     32.8
Notes secured by leases on a pool of aircraft ...................     49.6     32.5
Large integrated energy company .................................     89.5     31.9
US telecommunications company ...................................     34.8     31.1
US based farmer owned cooperative ...............................     26.6     30.9
Venezuelean oil company with US dollar based flows ..............    129.6     29.6
Lease financing with US fossil fuel power generator .............     56.2     28.0
US telecommunications company ...................................     81.7     27.4
Large US wireless telecommunication company .....................    124.6     26.5
Joint venture in three US gas fired cogeneration power plants ...     26.1     23.9
Argentinean trust holding rights to oil and gas royalty
  producer ......................................................     21.0     21.0
US integrated producer of petrochemicals and related products ...     45.0     20.9
Large chemical related producer of synthetic products ...........    111.0     20.2
Holding company of large US integrated power generator ..........     59.1     19.2
Joint venture with Venezuelan oil company and two large US oil
  companies .....................................................     39.2     17.4
Financing of a restructured power contract with a major US
  utility .......................................................     36.5     17.3
Joint venture with a Venezuelan oil company that produces
  fertilizer ....................................................     21.2     16.9
US telecommunications company ...................................     56.6     16.3
US merchant energy generator ....................................     71.6     15.6
Large Mexican copper producer ...................................     20.0     15.5
Large US housing builder ........................................      7.7     15.1
Large US auto manufacturer ......................................    169.8     15.0
Franchise loan backed transaction ...............................     25.2     13.9
Merchant energy generation and trading company ..................     16.7     13.8
Joint venture of two large US chemical companies ................     73.7     13.8
Argentinean oil company with US dollar based flows ..............     17.6     12.8
Joint venture between a large Venezuelean company and a large
  US oil company ................................................     47.0     12.2
Mid size US multi-line insurance company ........................      9.0     12.1
Subordinated investment in international water projects .........      3.4     11.8
Large US electric utility holding company .......................     42.3     11.4
Private toll road and bridge operator ...........................     30.3     11.4
US natural gas fired power generator ............................     65.0     11.2
Brazilian national oil company ..................................     30.6     11.0
Energy generator and supplier ...................................     41.1     10.9
Norwegian subsidiary of US oilfield service company .............     19.3     10.6
Great Britain pump storage facility .............................     59.4     10.0
</TABLE>

      A major driver in the valuation of the fixed income portfolio at September
30, 2002 is the recent reduction in traded or quoted bond prices across most
industries, especially in the below investment grade categories where, in the
current environment, bond market investors are very risk averse and have
severely penalized issues where there is any uncertainty. The effect was most
pronounced in the reduction in the traded or quoted prices of the bonds of many
energy companies with merchant exposure. In the third quarter, the rating
agencies downgraded a number of companies that have exposure to the merchant
energy sector. These downgrades in turn created liquidity issues for a few
companies and uncertainty at many others. In the current environment, bond
market investors are very risk averse and have severely penalized issues where
there is any uncertainty. This market sentiment, which we believe to be
temporary, has led to significant reductions in the prices of virtually every
energy company that has any merchant exposure, including several in our
portfolio and 15 on the list above. We believe these issuers are taking the
right steps to strengthen their balance sheets through a


                                       59
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

combination of actions such as reducing capital expenditures, scaling back
trading operations, reducing dividends, and issuing equity. All of the above
securities have undergone thorough analysis by our investment professionals, and
at this time we believe that the borrowers have the financial capacity to make
all required contractual payments on the notes when due, and we intend to hold
these securities until they either mature or recover in value.

      In keeping with the investment philosophy of tightly managing interest
rate risk, the Company's MBS and ABS holdings are heavily concentrated in
commercial MBS where the underlying loans are largely call protected, which
means they are not pre-payable without penalty prior to maturity at the option
of the issuer, rather than in residential MBS where the underlying loans have no
call protection. By investing in MBS and ABS securities with relatively
predictable repayments, we add high quality, liquid assets to the portfolios
without incurring the risk of excessive cash flow in periods of low interest
rates or a cash flow deficit in periods of high interest rates. We believe the
portion of the MBS/ABS portfolio subject to prepayment risk as of September 30,
2002 and December 31, 2001 was limited to 11.3% and 10.1% of total MBS/ABS
portfolio and 1.9% and 1.6% of total fixed maturity securities holdings,
respectively.

      The Securities Valuation Office (SVO) of the National Association of
Insurance Commissioners evaluates all public and private bonds purchased as
investments by insurance companies. The SVO assigns one of six investment
categories to each security it reviews (See the SVO website at
www.naic.org/1SVO/, for more information). Category 1 is the highest quality
rating, and Category 6 is the lowest. Categories 1 and 2 are the equivalent of
investment grade debt as defined by rating agencies such as Standard & Poor's
(S&P) and Moody's (i.e., BBB-/Baa3 or higher), while Categories 3-6 are the
equivalent of below-investment grade securities. SVO ratings are reviewed and
may be revised at least once a year.

      The following table sets forth the SVO ratings for the bond portfolio
along with an equivalent S&P rating agency designation. The majority of the
fixed maturity investments are investment grade, with 89.2% and 88.3% of fixed
maturity investments invested in Category 1 and 2 securities as of September 30,
2002 and December 31, 2001, respectively. Below investment grade bonds were
10.8% and 11.7% of fixed maturity investments, excluding redeemable preferred
stock, and 7.6% and 8.0% of total invested assets as of September 30, 2002 and
December 31, 2001, respectively. This allocation reflects the Company strategy
of avoiding the unpredictability of interest rate risk in favor of relying on
the ability of bond analysts to better predict credit or default risk. The
Company's bond analysts operate in an industry-based, team-oriented structure
that permits the evaluation of a wide range of below investment grade offerings
in a variety of industries resulting in a well-diversified high yield portfolio.

      Valuation techniques for the bond portfolio vary by security type and the
availability of market data. Pricing models and their underlying assumptions
impact the amount and timing of unrealized gains and losses recognized, and the
use of different pricing models or assumptions could produce different financial
results. External pricing services are used where available, broker dealer
quotes are used for thinly traded securities, and a spread pricing matrix is
used when price quotes are not available, which typically is the case for our
private placement securities. The spread pricing matrix is based on credit
quality, country of issue, market sector and average investment life and is
created for these dimensions through brokers' estimates of public spreads
derived from their respective publications. When utilizing the spread pricing
matrix, securities are valued by utilizing a discounted cash flow method where
each bond is assigned a spread, that is added to the current U.S. Treasury rates
to discount the cash flows of the security. The spread assigned to each security
is changed from month to month based on changes in the market. Certain market
events that could impact the valuation of securities include issuer credit
ratings, business climate, management changes, litigation, and government
actions among others. The resulting prices are then reviewed by the pricing
analysts and members of the Controller's Department. The Company's pricing
analysts take appropriate actions to reduce valuations of securities where such
an event occurs which negatively impacts the securities' value. To the extent
that bonds have longer maturity dates, management's estimate of fair value may
involve greater subjectivity since they involve judgment about events well into
the future. Then, every quarter, there is a comprehensive review of all impaired
securities and problem loans by a group consisting of the CIO and the Bond
Investment Committee.

      A majority (54.1%) of the below investment grade bonds are in Category 3,
the highest quality below investment grade. Category 6 bonds, those in or near
default, represent securities that were originally acquired as long-term
investments, but subsequently became distressed. The carrying value of bonds in
or near default was $484.7 million and $393.1 million as of September 30, 2002
and December 31, 2001, respectively. At September 30, 2002 and December 31,
2001, $6.5 million and $2.5 million, respectively, of interest on bonds in or
near default was included in accrued investment income. Unless the Company
reasonably expects to collect investment income on bonds in or near default, the
accrual will be ceased and any accrued income reversed. Management judgment is
used and the actual results could be materially different.


                                       60
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                     Fixed Maturity Securities -- By Quality

<TABLE>
<CAPTION>
                                             As of September 30,          As of December 31,
                                                    2002                        2001
                                         ------------------------------------------------------
      SVO          S&P Equivalent          Carrying          % of       Carrying          % of
  Rating (1)      Designation (2)        Value (3)(4)       Total       Value (3)        Total
-----------------------------------------------------------------------------------------------
                                         (in millions)                (in millions)
<S>                <C>                    <C>               <C>        <C>               <C>
       1           AAA/AA/A...........    $19,473.5          42.8%     $16,876.8          41.8%
       2           BBB................     21,089.1          46.4       18,800.2          46.5
       3           BB.................      2,660.4           5.8        2,796.5           6.9
       4           B..................      1,192.8           2.6        1,102.4           2.7
       5           CCC and lower......        578.9           1.3          442.8           1.1
       6           In or near default.        484.7           1.1          393.1           1.0
                                         ------------------------------------------------------
                   Total..............    $45,479.4         100.0%     $40,411.8         100.0%
                                         ======================================================
</TABLE>

(1)   With respect to securities that are awaiting an SVO rating, the Company
      has assigned a rating based on an analysis that it believes is equivalent
      to that used by the SVO.
(2)   Comparisons between SVO and S&P ratings are published by the National
      Association of Insurance Commissioners.
(3)   Does not include redeemable preferred stock with a carrying value of
      $678.4 million and $695.0 million as of September 30, 2002 and December
      31, 2001, respectively.
(4)   Includes 564 securities that are awaiting an SVO rating, with a carrying
      value of $3,637.9 million as of September 30, 2002. Due to lags between
      the funding of an investment, the processing of final legal documents, the
      filing with the SVO, and the rating by the SVO, there will always be a
      number of unrated securities at each statement date.

      Mortgage Loans. As of September 30, 2002 and December 31, 2001, the
Company held mortgage loans with a carrying value of $11.7 billion and $11.0
billion, including $2.6 billion and $2.5 billion respectively, of agricultural
loans at each period end and $9.1 billion and $8.5 billion, respectively, of
commercial loans. Impaired loans comprised 1% of the mortgage portfolio at
September 30, 2002. The Company's average historical impaired loan percentage
during the period of 1996 through 2001 is 2.1%. This historical percentage is
higher than the current 1% because it includes some remaining problem assets of
the 1990's real estate downturn. Maritime Life managed $1.4 billion and $1.3
billion, respectively, of which $0.7 billion and $0.6 billion, respectively,
were government-insured by the Canada Mortgage and Housing Corporation.

    The following table shows the Company's agricultural mortgage loan portfolio
by its three major sectors: agribusiness, timber and production agriculture.

<TABLE>
<CAPTION>
                                  As of September 30, 2002                 As of December 31, 2001
                            -------------------------------------     ----------------------------------
                            Amortized  Carrying      % of Total       Amortized  Carrying   % of Total
                              Cost      Value      Carrying Value        Cost     Value   Carrying Value
                            -------------------------------------     ----------------------------------
                                 (in millions)                           (in millions)
<S>                         <C>          <C>           <C>            <C>        <C>           <C>
Agri-business ...........   $1,456.7     $1,442.6       55.7%         $1,480.6   $1,429.4       57.8%
Timber ..................    1,124.1      1,120.5       43.3           1,017.5    1,009.5       40.8
Production agriculture ..       26.9         26.7        1.0              34.1       33.8        1.4
                            -------------------------------------     ----------------------------------
    Total ...............   $2,607.7     $2,589.8      100.0%         $2,532.2   $2,472.7      100.0%
                            =====================================     ==================================
</TABLE>

      The following table shows the carrying values of our commercial loan
portfolio that are delinquent but not in foreclosure, delinquent and in
foreclosure, restructured and foreclosed. The table also shows the respective
ratios of these items to the total carrying value of our mortgage loan
portfolio. Commercial mortgage loans are classified as delinquent when they are
60 days or more past due as to the payment of interest or principal. Commercial
mortgage loans are classified as restructured when they are in good standing,
but the basic terms, such as interest rate or maturity date, have been modified
as a result of a prior actual delinquency or an imminent delinquency. All
foreclosure decisions are based on a thorough assessment of the property's
quality, location and market conditions. The decision may also reflect a plan to
invest additional capital in a property to make tenant improvements or
renovations to secure a higher resale value at a later date. Following
foreclosure, the company relies on its real estate investment group's ability to
manage foreclosed real estate for eventual return to investment real estate
status or outright sale.


                                       61
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Since the 1990's real estate downturn, our commercial mortgage delinquency
rate has declined from a high of 4.9% to 0.3% as of December 31, 2001 leading to
a decrease in our impaired loans. This compares to industry delinquency rates of
7.1% and 0.3% for the comparable periods, respectively. In addition, we
strengthened our underwriting standards following the last downturn. As of
September 30, 2002, we had 11 loans delinquent more than 60 days or in process
of foreclosure. We believe the recent economic downturn, unlike the last real
estate recession, has had a lot more discipline in that the construction of new
assets was limited, keeping supply in balance.

                      Commercial Mortgage Loan Comparisons

<TABLE>
<CAPTION>
                                        As of September 30,                 As of December 31,
                                               2002                                2001
                                   ------------------------------    -------------------------------
                                    Carrying       % of Total        Carrying        % of Total
                                     Value      Mortgage Loans (1)     Value       Mortgage Loans (1)
                                   ------------------------------    -------------------------------
                                   (in millions)                              (in millions)

<S>                                   <C>                 <C>            <C>                 <C>
Delinquent, not in foreclosure ..     $ 1.8               0.0%           $17.5               0.2%
Delinquent, in foreclosure ......      62.8               0.5             13.0               0.1
Restructured ....................      26.8               0.3             56.0               0.5
                                   -----------------------------------------------------------------

   Subtotal .....................      91.4               0.8             86.5               0.8%

Loans foreclosed during period...       3.0                --               --                --

                                   ------------------------------    -------------------------------
   Total ........................     $94.4               0.8%           $86.5               0.8%
                                   ==============================    ===============================
</TABLE>

(1)   As of September 30, 2002 and December 31, 2001 the Company held mortgage
      loans with a carrying value of $11.7 billion and $11.0 billion,
      respectively.

Investment Results

      Overall, the yield, net of investment expenses, on the general account
portfolio decreased from the third quarter of the prior year. The lower yield
was driven primarily by the sharp drop in short-term rates during the year. As
of September 30, 2002, the Company had approximately $12 billion of net exposure
to the short-term floating rates (primarily LIBOR), mostly created through
interest rate swaps designed to match our portfolio with an increasing volume of
floating rate liabilities. Approximately 90% of the decline in investment income
caused by lower short-term rates were offset by a decline in floating-rate
liability payments. In addition, a less favorable interest rate environment in
which to invest new cash contributed to the decline. The inflow of new cash for
the twelve month period between the third quarter of 2001 and the third quarter
of 2002 was invested at rates that were lower than the overall portfolio
earnings rate during the third quarter of 2001. Finally, growth in our portfolio
of tax-preferenced investments (affordable housing and the lease residual
management) reduced the Company's net investment income by $10.2 million and
$13.4 million, for the three and nine month periods ended September 30, 2002,
compared to the prior year. The result of these tax-preferenced investments is
an increase in the Company's after-tax income of $2.7 million and $5.5 million,
for the three and nine month periods compared to the prior year. The following
table summarizes the Company's investment results for the periods indicated.

<TABLE>
<CAPTION>
                                                   Three Months Ended                               Nine Months Ended
                                       September 30, 2002     September 30, 2001      September 30, 2002         September 30, 2001
                                       --------------------------------------------------------------------------------------------
                                       Yield     Amount       Yield      Amount        Yield     Amount          Yield     Amount
                                       --------------------------------------------------------------------------------------------
                                             (in millions)           (in millions)           (in millions)             (in millions)
<S>                                    <C>     <C>             <C>     <C>              <C>     <C>              <C>     <C>
General account assets-
excluding policy loans
  Gross income ...................     6.48%   $   996.6       7.51%   $ 1,016.5        6.67%   $ 2,993.2        7.75%   $ 3,058.8
  Ending assets-excluding
     Policy loans ................              62,623.8                54,951.3                 62,623.8                 54,951.3
Policy loans
  Gross income ...................     6.22%        31.4       5.99%        29.8        6.14%        92.7        6.19%        92.0
  Ending assets ..................               2,018.8                 1,994.9                  2,018.8                  1,994.9
    Total gross income ...........     6.47%     1,028.0       7.46%     1,046.3        6.66%     3,085.9        7.70%     3,150.8
    Less: investment expenses ....                  59.4                    53.5                    168.3                    181.1
                                               ---------               ---------                ---------                ---------
      Net investment income (1) ..     6.09%   $   968.6       7.08%   $   992.8        6.29%   $ 2,917.6        7.25%   $ 2,969.7
                                               =========               =========                =========                =========
</TABLE>

(1)   Results for the nine month period ended September 30, 2001, have been
      reclassified to conform with the current presentation, and $30.5 million
      in investment income related to equity indexed universal life insurance
      policies sold through Maritime Life, was reclassified to benefits to
      policyholders.


                                       62
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      Impairments The Company has a process in place to identify securities that
could potentially have an impairment that is other than temporary. This process
involves monitoring market events that could impact issuers' credit ratings,
business climate, management changes, litigation and government actions, and
other similar factors. This process also involves monitoring late payments,
downgrades by rating agencies, key financial ratios, financial statements,
revenue forecasts and cash flow projections as indicators of credit issues.

      At the end of each quarter, our Investment Review Committee reviews all
securities trading below ninety cents on the dollar to determine whether
impairments need to be taken. This committee includes the head of workouts, the
head of each industry team, and the head of portfolio management. The analysis
focuses on each company's or project's ability to service its debts in a timely
fashion and the length of time the security has been trading below cost. The
results of this analysis are reviewed by the Life Company's Committee of
Finance, a subcommittee of the Board of Directors, quarterly. To supplement this
process, a bi-annual review is made of the entire fixed maturity portfolio to
assess credit quality, including a review of all impairments with the Life
Company's Committee of Finance.

      The Company considers relevant facts and circumstances in evaluating
whether the impairment of a security is other than temporary. Relevant facts and
circumstances considered include (1) the length of time the fair value has been
below cost; (2) the financial position of the issuer, including the current and
future impact of any specific events; and (3) the Company's ability and intent
to hold the security to maturity or until it recovers in value. To the extent
the Company determines that a security is deemed to be other than temporarily
impaired, the difference between amortized cost and fair value would be charged
to earnings.

      There are a number of significant risks and uncertainties inherent in the
process of monitoring impairments and determining if an impairment is other than
temporary. These risks and uncertainties include (1) the risk that our
assessment of an issuer's ability to meet all of its contractual obligations
will change based on changes in the credit characteristics of that issuer, (2)
the risk that the economic outlook will be worse than expected or have more of
an impact on the issuer than anticipated, and (3) the risk that new information
obtained by us or changes in other facts and circumstances lead us to change our
intent to hold the security to maturity or until it recovers in value.

      Any of these situations could result in a charge to earnings in a future
period to the extent of the impairment charge recorded. Because the majority of
our portfolio is classified as available-for-sale and held at fair value with
the related unrealized gains (losses) recorded in shareholders' equity, the
charge to earnings would not have a significant impact on shareholders' equity.

      As disclosed in our MD&A, the Company recorded losses on fixed maturity
securities of $103.9 and $342.7 million in the three and nine month periods
ended September 30, 2002, respectively, which were driven primarily by
write-downs and sales of securities. The following list shows the largest losses
recognized during the quarter, the related circumstances giving rise to the loss
and a discussion of how those circumstances impacted other material investments
held. Unless noted otherwise, all of the items shown are impairments of
securities held at September 30, 2002.

o     $33.2 million on redeemable preferred stock due to new information
      received on a large energy company that filed for Chapter 11 under the
      Bankruptcy Code in late 2001. This redeemable preferred stock is secured
      by equity investments in energy storage and transportation assets in Latin
      America, predominately Argentina. Continued economic weakness and
      devaluation of the currency of Argentina suggested the value of the
      investments securing the Company's redeemable preferred stock had dropped
      significantly. Consequently, we impaired the redeemable preferred stock
      investments and have now assigned no value to these assets. The remaining
      $26.3 million carrying value of this investment is based solely on its
      senior, unsecured claim to the US based parent, the value of which is
      based on trading levels of the parent's senior unsecured debt. We have no
      other investments secured by equity in energy assets in Latin America.

o     $27.6 million (including an impairment loss of $22.5 million and $5.1
      million in previously recognized gains where the bonds were part of a
      hedging relationship) on secured financings backed by an airline, or its
      subsidiaries that filed for Chapter 11 of the Bankruptcy Code during the
      quarter. With the bankruptcy filing, the airline had the right to affirm
      or reject certain leases on aircraft, which underlie these collateralized
      structured financing investments. We have resolved most of the lease
      terms, including rates, but continue to negotiate new lease rates on any
      aircraft leases that were rejected and have written down these loans to
      the


                                       63
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      fair value based on the appraised value of the underlying aircraft. We
      have $56.3 million of other secured investments with this airline where
      the leases were affirmed in the bankruptcy and $137.1 million of secured
      investments with this airline that are guaranteed by AA or higher rated
      guarantors. Hence, we expect no payment defaults and no loss on these
      investments.


                                       64
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Liquidity and Capital Resources

      Liquidity describes the ability of a company to generate sufficient cash
flows to meet the immediate capital needs to facilitate business operations.
John Hancock Financial Services, Inc. (the Company) is an insurance holding
company. The assets of the Company consist primarily of the outstanding capital
stock of the Life Company, John Hancock Canadian Holdings Limited and
investments in other international subsidiaries. The Company's cash flow
primarily consists of dividends from its operating subsidiaries and proceeds
from the Company's debt offerings (see Note 6 - Debt and Line of Credit in the
Company's 2001 Form 10-K) offset by expenses, shareholder dividends and stock
repurchases. As a holding company, the Company's ability to meet its cash
requirements, including to pay interest on any debt, pay expenses related to its
affairs, pay dividends on its common stock and continue to repurchase the
Company's common stock pursuant to the board of director's approved plan,
substantially depends upon dividends from its operating subsidiaries.

      State insurance laws generally restrict the ability of insurance companies
to pay cash dividends in excess of prescribed limitations without prior
approval. The Life Company's limit is the greater of 10% of the statutory
surplus or the prior calendar year's statutory net gain from operations of the
Life Company. The ability of the Life Company, JHFS' primary operating
subsidiary, to pay shareholder dividends is and will continue to be subject to
restrictions set forth in the insurance laws and regulations of Massachusetts,
its domiciliary state. The Massachusetts insurance law limits how and when the
Life Company can pay shareholder dividends. The Life Company, in the future,
could also be viewed as being commercially domiciled in New York. If so,
dividend payments may also be subject to New York's holding company act as well
as Massachusetts law. JHFS currently does not expect such regulatory
requirements to impair its ability to meet its liquidity and capital needs.
However, JHFS can give no assurance it will declare or pay dividends on a
regular basis.

      The Commissioner of Insurance for the Commonwealth of Massachusetts
previously approved, and the Life Company paid, dividends to JHFS during the
nine-month period ended September 30, 2002 in the amount of $111.0 million. This
cash dividend was not classified as extraordinary by state regulators.

      Sources of cash for the Company's insurance subsidiaries are from
premiums, deposits and charges on policies and contracts, investment income,
maturing investments, and proceeds from sales of investment assets. In addition
to the need for cash flow to meet operating expenses, our liquidity requirements
relate principally to the liabilities associated with various insurance,
annuity, and structured investment products, and to the funding of investments
in new products, processes, and technologies. Product liabilities include the
payment of benefits under insurance, annuity and structured investment products
and the payment of policy surrenders, withdrawals and policy loans. The Company
periodically adjusts its investment policy to respond to changes in short-term
and long-term cash requirements and provide adequate funds to pay benefits
without forced sales of investments.

      The liquidity of our insurance operations is also related to the overall
quality of our investments. As of September 30, 2002, $40,562.6 million, or
89.2% of the fixed maturity securities held by us and rated by Standard & Poor's
Ratings Services, a division of the McGraw-Hill Companies, Inc. (S&P) or the
National Association of Insurance Commissioners were rated investment grade (BBB
or higher by S&P or 1 or 2 by the National Association of Insurance
Commissioners). The remaining $4,916.8 million, or 10.8% of fixed maturity
investments, were rated non-investment grade. For additional discussion of our
investment portfolio see the General Account Investments section in this
Management's Discussion and Analysis of Financial Condition and Results of
Segment Operations.

      We employ an asset/liability management approach tailored to the specific
requirements of each of our product lines. Each product line has an investment
strategy based on the specific characteristics of the liabilities in the product
line. As part of this approach, we develop investment policies and operating
guidelines for each portfolio based upon the return objectives, risk tolerance,
liquidity, and tax and regulatory requirements of the underlying products and
business segments.

      Net cash provided by operating activities was $1,882.5 million and
$1,802.2 million for the nine months ended September 30, 2002 and 2001,
respectively. Cash flows from operating activities are affected by the timing of
premiums received, fees received and investment income. The $80.3 million
increase in cash provided by operating activities for the first nine months in
2002 compared to the same period in 2001 resulted primarily from increased fees,
lower benefit payments and higher capital losses, partially offset by lower
investment income, decreased tax expense and a smaller increase to other assets
net of other liabilities.

      Net cash used in investing activities was $5,092.3 million and $5,691.6
million for the nine months ended September 30, 2002 and 2001, respectively.
Change in the cash provided by investing activities primarily relates to


                                       65
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

the management of the Company's investment portfolios and the investment of
excess capital generated by operating and financing activities. The $599.3
million decrease in cash used in 2002 as compared to 2001 resulted from smaller
net acquisitions of fixed maturities offset by increased net acquisitions of
mortgages and short-term during the nine months ended September 30, 2002 as
compared to the same period in the prior year.

      Net cash provided by financing activities was $2,964.0 million and
$1,948.3 million, for the nine months ended September 30, 2002 and 2001,
respectively. Changes in cash provided by financing activities primarily relate
to the issuance of debt, borrowings or re-payments of the Company's debt,
treasury stock activity and excess deposits or withdrawals under investment type
contracts. The $1,015.7 million increase in 2002 as compared to 2001 resulted
from a $1,073.3 million increase in deposits net of cash payments made on
withdrawals of universal life insurance and investment-type contracts. Deposits
on such universal life insurance and investment-type contracts exceeded
withdrawals by $3,187.6 million and $2,114.3 million for the nine months ended
September 30, 2002 and 2001, respectively. The Company's acquisitions of
treasury stock decreased for the nine months ended September 30, 2002 as
compared to September 30, 2001, to $371.5 million from $492.2 million.

      In October 2000, the Company's Board of Directors authorized a stock
repurchase program, with no termination date, under which the Company was
authorized to purchase up to $500 million of its outstanding common stock. In
August 2001, the Company's Board of Directors authorized an additional $500
million to be used to repurchase stock in the stock repurchase program, and in
June 2002 the Board authorized an additional $500 million increase to the stock
repurchase program, bringing the total amount authorized to be used to
repurchase Company stock to $1.5 billion. From inception through September 30,
2002, the Company has repurchased 29.0 million shares with a total cost of
$1,043.7 million, of which 10.6 million shares were repurchased in the nine
month period ended September 30, 2002 at a cost of $371.5 million.

      Cash flow requirements also are supported by a committed line of credit of
$1.0 billion, through a syndication of banks including Fleet National Bank,
JPMorgan Chase, Citicorp USA, Inc., The Bank of New York, The Bank of Nova
Scotia, Fleet Securities, Inc and JPMorgan Securities, Inc., and an effective
shelf registration statement which initially provided for the issuance, from
time to time, of up to $1 billion of the Company's debt and equity securities.
The line of credit agreement provides for two facilities: one for $500 million
pursuant to a 364-day commitment (renewed effective July 26, 2002) and a second
multi-year facility for $500 million (renewable in 2005). The line of credit is
available for general corporate purposes. The line of credit agreement contains
various covenants, among these being that shareholders' equity meet certain
requirements. To date, we have not borrowed any amounts under the line of
credit. On November 29, 2001, JHFS sold, under the $1.0 billion shelf
registration statement, $500.0 million in 7-year senior unsecured notes at a
coupon of 5.625% with the proceeds used for general corporate purposes. The
remaining capacity of the shelf registration is currently $500.0 million.

      As of September 30, 2002, we had $1,586.0 million of debt outstanding
consisting of $498.8 million of medium-term bonds, $447.4 million of surplus
notes, $248.9 million of Canadian debt and $390.9 million of other notes payable
and commercial paper issues. The surplus notes are obligations of our primary
operating subsidiary, the John Hancock Life Insurance Company. The Canadian debt
is an obligation of John Hancock Canadian Corporation, a wholly owned subsidiary
of the holding company, JHFS, and is guaranteed by JHFS. The commercial paper
program established at the Company has replaced the commercial paper program at
its indirect subsidiary, John Hancock Capital Corporation. The Company issued
$315.0 million of commercial paper during the third quarter of 2002, of which
$145.0 million was outstanding at September 30, 2002.

      The Company's primary operating subsidiary is John Hancock Life Insurance
Company. The risk-based capital standards for life insurance companies, as
prescribed by the National Association of Insurance Commissioners, establish a
risk-based capital ratio comparing adjusted surplus to required surplus for the
Company and each of our United States domiciled insurance subsidiaries. If the
risk-based capital ratio falls outside of acceptable ranges, regulatory action
may be taken ranging from increased information requirements to mandatory
control by the domiciliary insurance department. The Company's risk-based
capital ratios of all our insurance subsidiaries as of year end were
significantly above the ranges that would require regulatory action.

      We maintain reinsurance programs designed to protect against large or
unusual losses. Based on our review of our reinsurers' financial statements and
reputations in the reinsurance marketplace, we believe that our reinsurers are
financially sound, and, therefore, that we have no significant exposure to
uncollectible reinsurance in excess of uncollectible amounts already recognized
in our unaudited consolidated financial statements.

      Given the historical cash flow of our subsidiaries and current financial
results, management believes that the cash flow from the operating activities
over the next year will provide sufficient liquidity for our operations, as


                                       66
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

well as to satisfy debt service obligations and to pay other operating expenses.
Although we anticipate that we will be able to meet our cash requirements, we
can give no assurances in this regard.


                                       67
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

Forward-Looking Statements

      The statements, analyses, and other information contained herein relating
to trends in John Hancock Financial Services, Inc.'s, (the Company's) operations
and financial results, the markets for the Company's products, the future
development of the Company's business, and the contingencies and uncertainties
to which the Company may be subject, as well as other statements including words
such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "will,"
"should," "may," and other similar expressions, are "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. Such statements are
made based upon management's current expectations and beliefs concerning future
events and their potential effects on the Company. Future events and their
effects on the Company may not be those anticipated by management. The Company's
actual results may differ materially from the results anticipated in these
forward-looking statements.

These forward-looking statements are subject to risks and uncertainties
including, but not limited to, the risks that (1) a significant downgrade in our
ratings for claims-paying ability and financial strength may lead to policy and
contract withdrawals and materially harm our ability to market our products; (2)
new laws and regulations, including the recently-enacted Sarbanes-Oxley Act of
2002, or changes to existing laws or regulations, (including, but not limited
to, those relating to the Federal Estate Tax Laws), and the applications and
interpretations given to these laws, may adversely affect the Company's sales of
insurance and investment advisory products; (3) as a holding company, we depend
on dividends from our subsidiaries, Massachusetts insurance law, and similar
Canadian laws, may restrict the ability of John Hancock Life Insurance Company
and The Maritime Life Assurance Company to pay dividends to us; (4) we face
increasing competition in our retail businesses from mutual fund companies,
banks and investment management firms as well as from other insurance companies;
(5) a decline or increased volatility in the securities markets, and other
economic factors, may adversely affect our business, particularly our variable
life insurance, mutual fund, variable annuity and investment business; (6) due
to acts of terrorism or other hostilities, there could be business disruption,
economic contraction, increased mortality, morbidity and liability risks,
generally, or investment losses that could adversely affect our business; (7)
our life insurance sales are highly dependent on a third party distribution
relationship; (8) customers may not be responsive to new or existing products or
distribution channels, (9) interest rate volatility may adversely affect our
profitability; (10) our net income and revenues will suffer if customers
surrender annuities and variable and universal life insurance policies or redeem
shares of our open-end mutual funds; (11) the independent directors of our
variable series trusts and of our mutual funds could reduce the compensation
paid to us or could terminate our contracts to manage the funds; (12) under our
Plan of Reorganization, we were required to establish the closed block, a
special arrangement for the benefit of a group of our policyholders. We may have
to fund deficiencies in our closed block, and any overfunding of the closed
block will benefit only the holders of policies included in the closed block,
not our shareholders; (13) there are a number of provisions in our Plan of
Reorganization, our Restated Certificate of Incorporation and by-laws, laws
applicable to us, agreements that we have entered into with our senior
management, and our shareholder rights plan, that will prevent or discourage
takeovers and business combinations that our shareholders might otherwise
consider to be in their best interests; (14) we will face losses if the claims
on our insurance products, or reductions in rates of mortality on our annuity
products, are greater than we projected; (15) we face investment and credit
losses relating to our investment portfolio (16) we may experience volatility in
net income due to changes in standards for accounting for derivatives and other
changes; (17) our United States insurance companies are subject to risk-based
capital requirements and possible guaranty fund assessments; (18) the National
Association of Insurance Commissioners' codification of statutory accounting
practices affected the statutory surplus of John Hancock Life Insurance Company;
(19) we may be unable to retain personnel who are key to our business; (20) we
may incur losses from assumed reinsurance business in respect of personal
accident insurance and the occupational accident component of workers
compensation insurance; (21) litigation and regulatory proceedings may result in
financial losses, harm our reputation and divert management resources, and (22)
we may incur multiple life insurance claims as a result of a catastrophic event
which, because of higher deductibles and lower limits, could adversely affect
the Company's future net income and financial position.

    Readers are also directed to other risks and uncertainties discussed, as
well as to further discussion of the risks described above, in other documents
filed by the Company with the United States Securities and Exchange Commission.
The Company specifically disclaims any obligation to update or revise any
forward-looking information, whether as a result of new information, future
developments, or otherwise.


                                       68
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

ITEM 3. QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Capital Markets Risk Management

      The Company maintains a disciplined, comprehensive approach to managing
capital market risks inherent in its business operations.

      To mitigate these risks, and effectively support Company objectives,
investment operations are organized and staffed to focus investment management
expertise on specific classes of investments, with particular emphasis placed on
private placement markets. In addition, a dedicated unit of asset / liability
risk management (ALM) professionals centralizes the Life Insurance Company's and
its subsidiaries' implementation of the interest rate risk management program.
As an integral component of its ALM program, derivative instruments are used in
accordance with risk reduction techniques established through Company policy and
with formal approval granted from the New York Insurance Department. The
Company's use of derivative instruments is monitored on a regular basis by
senior management and reviewed quarterly with the Life Company's Committee of
Finance.

      The Company's principal capital market exposures are credit and interest
rate risk, although we have certain exposures to changes in equity prices and
foreign currency exchange rates. Credit risk pertains to the uncertainty
associated with the ability of an obligor or counterparty to continue to make
timely and complete payments of contractual principal and/or interest. Interest
rate risk pertains to the market value fluctuations that occur within fixed
maturity securities or liabilities as market interest rates move. Equity and
foreign currency risk pertain to price fluctuations, associated with the
Company's ownership of equity investments or non-US dollar denominated
investments, driven by dynamic market environments.

Credit Risk

      The Company manages the credit risk inherent in its fixed maturity
securities by applying strict credit and underwriting standards, with specific
limits regarding the proportion of permissible below-investment-grade holdings.
We also diversify our fixed maturity securities with respect to investment
quality, issuer, industry, geographical, and property-type concentrations. Where
possible, consideration of external measures of creditworthiness, such as
ratings assigned by nationally recognized rating agencies, supplement our
internal credit analysis. The Company uses simulation models to examine the
probability distribution of credit losses to ensure that it can readily
withstand feasible adverse scenarios. In addition, the Company periodically
examines, on various levels of aggregation, its actual default loss experience
on significant asset classes to determine if the losses are consistent with the
(1) levels assumed in product pricing, (2) ACLI loss experience and (3) rating
agencies' quality-specific cohort default data. These tests have generally found
the Company's aggregate experience to be favorable relative to these external
benchmarks and consistent with priced-for-levels.

      The Company has a process in place to identify securities that could
potentially have an impairment that is other than temporary. This process
involves monitoring market events that could impact issuers' credit ratings,
business climate, management changes, litigation and government actions, and
other similar factors. This process also involves monitoring late payments,
downgrades by rating agencies, key financial ratios, financial statements,
revenue forecasts and cash flow projections as indicators of credit issues.

      At the end of each quarter, our Investment Review Committee reviews all
securities trading below ninety cents on the dollar to determine whether
impairments need to be taken. This committee includes the head of workouts, the
head of each industry team, and the head of portfolio management. The analysis
focuses on each company's or project's ability to service its debts in a timely
fashion and the length of time the security has been trading below cost. The
results of the analysis are reviewed by the Life Company's Committee of Finance,
a subcommittee of the Board of Directors, quarterly. To supplement this process,
a bi-annual review is made of the entire fixed maturity portfolio to assess
credit quality, including a review of all impairments with the Life Company's
Committee of Finance.

      The Company considers relevant facts and circumstances in evaluating
whether the impairment of a security is other than temporary. Relevant facts and
circumstances considered include (1) the length of time the fair value has been
below cost; (2) the financial position of the issuer, including the current and
future impact of any specific events; and (3) the Company's ability and intent
to hold the security to maturity or until it recovers in value. To the extent
the Company determines that a security is deemed to be other than temporarily
impaired, the difference between amortized cost and fair value would be charged
to earnings.

      There are a number of significant risks and uncertainties inherent in the
process of monitoring impairments and


                                       69
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

determining if an impairment is other than temporary. These risks and
uncertainties include (1) the risk that our assessment of an issuer's ability to
meet all of its contractual obligations will change based on changes in the
credit characteristics of that issuer, (2) the risk that the economic outlook
will be worse than expected or have more of an impact on the issuer than
anticipated and (3) the risk that new information obtained by us or changes in
other facts and circumstances lead us to change our intent to hold the security
to maturity or until it recovers in value.

      Any of these situations could result in a charge to earnings in a future
period to the extent of the impairment charge recorded. Because the majority of
our portfolio is classified as available-for-sale and held at fair value with
the related unrealized gains (losses) recorded in shareholders' equity, the
charge to earnings would not have a significant impact on shareholders' equity.

      As of September 30, 2002 and December 31, 2001, the Company's fixed
maturity portfolio was comprised of 89.2% and 88.3% investment grade securities
and 10.8% and 11.7% below-investment-grade securities, respectively. These
percentages are consistent with recent experience and indicative of the
Company's long-standing investment philosophy of pursuing moderate amounts of
credit risk in return for higher expected returns. We believe that credit risk
can be successfully managed given our proprietary credit evaluation models and
experienced personnel.

Interest Rate Risk

      The Company maintains a tightly controlled approach to managing its
potential interest rate risk. Interest rate risk arises from many of our primary
activities, as we invest substantial funds in interest-sensitive assets to
support the issuance of our various interest-sensitive liabilities, primarily
within our Protection, Asset Gathering and Guaranteed & Structured Financial
Products Segments.

      We manage interest rate sensitive segments of our business, and their
supporting investments, under one of two broadly defined risk management methods
designed to provide an appropriate matching of assets and liabilities. For
guaranteed rate products, where contractual liability cash flows are highly
predictable (e.g., GICs, medium-term notes, or immediate annuities) we apply
sophisticated duration-matching techniques to manage the segment's exposure to
both parallel and non-parallel yield curve movements. Typically this approach
involves a targeted duration mismatch of zero with an operational tolerance of
18 days, with other techniques used for limiting exposure to non-parallel risk.
Duration measures the sensitivity of the fair value of assets and liabilities to
changes in interest rates. For example, should interest rates increase by 100
basis points, the fair value of an asset with a 5-year duration is expected to
decrease in value by approximately 5.0%. For non-guaranteed rate products we
apply scenario-modeling techniques to develop investment policies with what we
believe to be the optimal risk/return tradeoff given our risk constraints. Each
scenario is based on near term reasonably possible hypothetical changes in
interest rates that illustrate the potential impact of such events.

      We project asset and liability cash flows on guaranteed rate products and
then discount them against credit-specific interest rate curves to attain fair
values. Duration is then calculated by re-pricing these cash flows against a
modified or "shocked" interest rate curve and evaluating the change in fair
value versus the base case. As of September 30, 2002 and December 31, 2001, the
fair value of fixed maturity securities and mortgage loans supporting duration
managed liabilities was approximately $34,283.9 million and $30,990.3 million,
respectively. Based on the information and assumptions we use in our duration
calculations in effect as of December 31, 2001, we estimate that a 100 basis
point immediate, parallel increase in interest rates ("rate shock") would have
no effect on the net fair value, or surplus, of our duration managed assets and
liabilities based on our targeted mismatch of zero, but could be -/+ $17.1
million based on our operational tolerance of 18 days.

      The risk management method for non-guaranteed rate products, such as whole
life insurance or single premium deferred annuities, is less formulaic, but more
complex, due to the less predictable nature of the liability cash flows. For
these products, we manage interest rate risk based on scenario-based portfolio
modeling that seeks to identify the most appropriate investment strategy given
probable policyholder behavior and liability crediting needs under a wide range
of interest rate environments. As of September 30, 2002 and December 31, 2001,
the fair value of fixed maturity securities and mortgage loans supporting
liabilities managed under this modeling was approximately $30,993.5 million and
$24,205.8 million, respectively. A rate shock (as defined above) would decrease
the fair value of these assets by $1,069.5 million, which we estimate would be
offset by a comparable change in the fair value of the associated liabilities,
thus minimizing the impact on surplus.


                                       70
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

      As of September 30, 2002, there have been no material changes to the
interest rate exposures as reported in the Company's 2001 Form 10-K.

Derivative Instruments.

      The Company uses a variety of derivative financial instruments, including
swaps, caps, floors, and exchange traded futures contracts, in accordance with
Company policy. Permissible derivative applications include the reduction of
economic risk (i.e., hedging) related to changes in yields, price, cash flows,
and currency exchange rates. In addition, certain limited applications of
"income generation" are allowed. Examples of this type of use include the
purchase of call options to offset the sale of embedded options in Company
liability issuance or the purchase of swaptions to offset the purchase of
embedded put options in certain investments. The Company does not make a market
or trade derivatives for speculative purposes.

      The Company's Investment Compliance Unit monitors all derivatives activity
for consistency with internal policies and guidelines. All derivatives trading
activity is reported monthly to the Life Company's Committee of Finance for
review, with a comprehensive governance report provided jointly each quarter by
the Company's Derivatives Supervisory Officer and Chief Investment Compliance
Officer. The table below reflects the Company's derivative positions that are
managing interest rate risk as of September 30, 2002. The notional amounts in
the table represent the basis on which pay or receive amounts are calculated and
are not reflective of credit risk. These exposures represent only a point in
time and will be subject to change as a result of ongoing portfolio and risk
management activities.

<TABLE>
<CAPTION>
                                                        As of September 30, 2002
                                --------------------------------------------------------------------------------
                                                                               Fair Value
                                                              --------------------------------------------------
                                              Weighted
                                Notional    Average Term   -100 Basis Point       As of         +100 Basis Point
                                 Amount        (Years)           Change (2)      9/30/02           Change (2)
                               ---------------------------------------------------------------------------------
                                               (in millions, except for weighted average term)
<S>                            <C>              <C>           <C>                <C>                 <C>
Interest rate swaps ....       $19,961.3         8.9          $(1,007.5)         $(843.1)            $(665.0)
CMT swaps ..............           210.7         0.7                1.1              2.7                 1.0
Futures contracts (1) ..           254.5         5.4                0.1               --                  --
Interest rate caps .....           382.3         4.2                2.8              2.5                 3.7
Interest rate floors ...         8,203.0         7.6              396.5            209.5               105.6
Swaptions ..............            30.0        22.7               (0.3)            (3.6)               (5.1)
                               ---------                      --------------------------------------------------
   Totals ..............       $29,041.8         8.4          $  (607.4)         $(632.0)            $(559.8)
                               =========                      ==================================================
</TABLE>

(1)   Represents the notional value of open contracts as of September 30, 2002.
(2)   The selection of a 100 basis point immediate change in interest rates
      should not be construed as a prediction by us of future market events but
      rather as an illustration of the potential impact of such an event.

      Our non-exchange-traded derivatives are exposed to the possibility of loss
from a counterparty failing to perform its obligations under terms of the
derivative contract. We believe the risk of incurring losses due to
nonperformance by our counterparties is remote. To manage this risk, Company
procedures include the (a) on-going evaluation of each counterparty's credit
ratings, (b) the application of credit limits and monitoring procedures based on
a commercially available derivatives valuation and reporting system, (c)
periodic reporting of each counterparty's "potential exposure", (d) master
netting agreements and, where appropriate, (e) collateral agreements. Futures
contracts trade on organized exchanges and, therefore, have effectively no
credit risk.


                                       71
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

ITEM 4. CONTROLS and PROCEDURES

      Our Chief Executive Officer and Chief Financial Officer have concluded,
based on their evaluation within 90 days of the filing date of this report, that
our disclosure controls and procedures are effective for gathering, analyzing
and disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934. There have been no significant
changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of the previously mentioned
evaluation.

PART II OTHER INFORMATION

ITEM 6. EXHIBITS and REPORTS on FORM 8-K

(a) Exhibits

NONE

(b) Reports on Form 8-K.

      On July 19, 2002, the Company filed a Current Report on Form 8-K, dated
July 19, 2002, reporting under Item 5 thereof the Company's press release
regarding settlement of a class action lawsuit against the Company.

      On August 14, 2002, the Company filed a Current Report on Form 8-K, dated
August 14, 2002, furnishing under Item 9 thereof the Company's two signed forms
of Certification as required by Section 906 of the Sarbanes-Oxley Act of 2002
for the quarter ended June 30, 2002.

      On August 21, 2002, the Company filed a Current Report on Form 8-K, dated
August 21, 2002, reporting under Item 5 thereof a change in the Company's
counterparty and senior debt ratings, as well as changes in the counterparty and
insurer financial strength ratings of the Company's primary operating
subsidiary, John Hancock Life Insurance Company, as evaluated by Standard &
Poor's Ratings Services as of August 20, 2002.

      On August 22, 2002, the Company filed a Current Report on Form 8-K, dated
August 22, 2002, reporting under Item 5 thereof developments in pending
litigation.


                                       72
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    JOHN HANCOCK FINANCIAL SERVICES, INC.


Date: November 13, 2002             By: /s/ THOMAS E. MOLONEY
                                        ---------------------
                                    Thomas E. Moloney
                                    Senior Executive Vice President and
                                    Chief Financial Officer


                                       73
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                                 CERTIFICATIONS

I, David F. D'Alessandro, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of John Hancock
      Financial Services, Inc.;
2.    Based on my knowledge, this quarterly report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;
3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;
4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:
      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this
            quarterly report is being prepared;
      b)    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this quarterly report (the "Evaluation Date"); and
      c)    presented in this quarterly report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;
5.    The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent function):
      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and
      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and
6.    The registrant's other certifying officers and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

Date: November 13, 2002


By: /s/ DAVID F. D'ALESSANDRO
-----------------------------
David F. D'Alessandro
Chairman, President and
Chief Executive Officer and Director


                                       74
<PAGE>

                      JOHN HANCOCK FINANCIAL SERVICES, INC.

                                 CERTIFICATIONS

I, Thomas E. Moloney, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of John Hancock
      Financial Services, Inc.;
2.    Based on my knowledge, this quarterly report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this quarterly report;
3.    Based on my knowledge, the financial statements, and other financial
      information included in this quarterly report, fairly present in all
      material respects the financial condition, results of operations and cash
      flows of the registrant as of, and for, the periods presented in this
      quarterly report;
4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:
      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this
            quarterly report is being prepared;
      b)    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this quarterly report (the "Evaluation Date"); and
      c)    presented in this quarterly report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;
5.    The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent function):
      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and
      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and
6.    The registrant's other certifying officers and I have indicated in this
      quarterly report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

Date: November 13, 2002


By: /s/ THOMAS E. MOLONEY
-------------------------
Thomas E. Moloney
Senior Executive Vice President and
Chief Financial Officer


                                       75