Manulife Q3 Preview: Asian Growth Should Offset Tough Investment Climate

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Canada-based insurance company Manulife (NYSE:MFC) is scheduled to release earnings for the third fiscal quarter on Thursday, November 8th. Although investment losses led to a net loss of C$300 million in the last quarter, the company’s focus on economies in Asia should provide it with significant opportunities for future growth. Almost half of Manulife’s insurance sales are from Asia, where it has established operations in Japan, China, Hong Kong, Thailand, Malaysia, Taiwan, Indonesia, Singapore and the Philippines. We have a price estimate of $13 for Manulife’s stock, about 10% above the current market price.

See our full analysis of Manulife here

Limelight On Asia

Insurance sales in Asia have grown at a compound annual growth rate (CAGR) of around 29% over the last four years. With comparatively low insurance penetration in emerging markets like Indonesia, Malaysia, Vietnam, Thailand, China and India, the region has huge potential for expansion. Manulife is expanding operations in these markets using the Bank Insurance Model (BIM) or “bancassurance” distribution, relying on retail banks to sell policies. The model has proven to be quite successful in mature markets like Japan, which is the second biggest market in the world behind the U.S., with $525 billion in premiums in 2011 compared to $538 billion in the U.S.

Manulife is also looking to expand in India in collaboration with Kotak Mahindra. The country has a population of over a billion and a low insurance penetration, measured by taking premiums as a percentage of GDP, of 4.4%. [1] Government regulations have hitherto limited foreign direct investment (FDI) in the insurance sector to 26% but the Union Cabinet has recently passed a bill to increase this limit – as well as that on pension schemes – to 49%. [2] This bill still needs to be passed by parliament and has faced some opposition, but if it goes through, it will open up a huge window of opportunity for Manulife and other global insurers.

Sales in the Asian region increased by 17% year-over-year last quarter. We expect Manulife to gain market share in Asia in the next few years. Asian insurance and wealth management is the most important division for the company, accounting for a third of our price estimate.

Please read our article A Look At Manulife’s Asian Strategy – China and Japan for more details.

Taking Back Home Ground

Manulife appears to be regaining market share it lost in Canada in the last three years. Insurance sales increased almost 200% in the last quarter helped by strong sales in the group benefit market. The company’s social media based marketing campaign launched earlier this year has been quite successful. We anticipate that Manulife’s share of the Canadian life and health insurance market will increase gradually over the next few years. Third quarter results will provide some insights on the progress made after the strong performance in the second quarter.

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Notes:
  1. Life insurance penetration dropped in 2010-11, Indian Express, 15th May, 2012 []
  2. Insurance and pension get FDI boost, need parliament nod, Indian Express, 5th October, 2012 []
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