With uncertainty surrounding the U.S. economy and the prolonged crisis in Europe, high growth economies in Asia have drawn the attention of insurance companies like MetLife (NYSE:MET) and Prudential Financial (NYSE:PRU). Canadian insurance company, Manulife (NYSE:MFC), was one of the first insurance companies from the west to expand into the continent, issuing its first Asian policy in Shanghai in 1897.  More than a century later, the company has established operations in Hong Kong and Shanghai, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia, Taiwan and Vietnam. Last year, Manulife became the first foreign insurer to enter Cambodia. Nearly 30% of Manulife’s revenue and one-third of the company’s core earnings (a non-GAAP measure introduced by the company last year which excludes the impact of interest rates, equity markets and other one-time items) come from Asia.
Manulife is looking to expand its Asian operations and reported a 16% year-on-year increase in insurance sales and a 36% increase in wealth management product sales in the continent in 2012.
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- How Has Manulife’s Revenue Composition Changed In The Last Five Years?
Strong Performance In 2012
Manulife offers products and services like individual and group life insurance, hospital coverage, mutual funds, variable and fixed annuities and group retirement solutions in Asia. At the end of 2012, the company has around $78 billion assets under management in the Asian region. The company reported a 16% increase in insurance sales last year, reaching a record high of $1.4 billion. More than half the sales came from Japan where strong cancer product sales led to an 11% increase in insurance sales. Hong Kong accounted for 20% of insurance sales with a 23% year-on-year increase driven by an expansion in the distribution network and popularity of the participating life product. Manulife expanded its bancassurance distribution network in Indonesia driving a 140% growth in sales volume. Indonesia accounted for 8% of Manulife’s Asian insurance sales in 2012.
The wealth division mirrored the growth observed by the insurance division with a 36% year-on-year increase in sales volume. Japan was again the main contributor to sales accounting for 30% of the volume. The company’s strategic income fund and foreign denominated fixed annuity product were highly successful in the country last year. Indonesia and Hong Kong accounted for 18% and 14% of the wealth product sales, respectively. Mutual fund sales in Indonesia were seven times higher than the 2011 mark but sales fell by 15% in Hong Kong due to a change in customer preference from equity funds to bond funds.
Japan Is The Focus
Accounting for half of the insurance sales and 30% of the wealth management sales, Japan is clearly the main focus for Manulife. The company initially entered the market over a century ago, in 1901 and re-established operations in 1999. Manulife Japan has around $30 billion in assets under management, with over 1,300 employees and a distribution network of 2,900 agents. The company has around 1 million policies in force in the country with a market share of 2.2% in terms of new business annual premium equivalent (APE) and 1% in terms of in-force APE. Manulife is particularly strong in the Managing General Agents distribution channel, with a 6.5% market share.  The channel provides insurance services through independent agents via walk-in insurance shops.
Japan is the second biggest life insurance market in the world after the U.S.  The insurance market in the country has grown at a compound annual growth rate (CAGR) of 10.4% from 2005 to 2012.  More than 20% of the world’s premiums and half of Asia’s premiums originate in the country. In 2011, premiums in the U.S. were $538 billion whereas in Japan the number was $525 billion, more than the rest of Asia combined.
There are 43 life insurance companies in Japan around half of which foreign-owned operating as subsidiaries.  Japan Post Insurance (JPI) dominates the Japanese life insurance market with more than 20% market share. Foreign-owned companies including Allianz Life, AXA Life, AEGON Sony Life, ING Life, Manulife Life, MassMutual Life, MetLife ALICO and Prudential Financial Gibraltar Life have a combined market share of close of 20% in the life insurance market in Japan.
Insurance penetration, measured by taking premiums as a percentage of GDP, is quite high in Japan at close to 10%.  In comparison, the U.S. has a penetration of just 4%. There are more than 210 million policies in force in the country.  The number of individual life insurance policies has been steadily increasing, from 110 million in 2007 to 117 million in 2009 to 127 million in 2012. 
Although life insurers in Japan have been very profitable in the last few years, the average gross profit margin is more than 20%, weakening of the Yen in the last few months has hurt foreign insurers. Please read our article: An Overview Of The Japanese Life Insurance Market for more on the Japanese market.Notes:
- Manulife Financial: Company Overview [↩]
- Manulife Asia: Delivering Now… More to Come [↩]
- Swiss Re’s World Insurance [↩]
- Asia-Pacific Insurance Market Outlook to 2016 – Growth Opportunity in India & China [↩]
- Life Insurance Business in Japan 2011-2012, The Life Insurance Association of Japan [↩]
- Swiss Re’s World Insurance and figures for GDP growth are taken from the World Bank’s website. [↩]
- Monthly Statistics, The Life Insurance Association of Japan [↩] [↩]