Manulife (NYSE:MFC) is expected to report earnings for the third quarter of 2013 on Thursday, November 7.  The Canada-based financial services group reported a 2% year-on-year increase in core earnings for the second quarter, with a 39% increase in earnings from Canada and a 12% increase in the U.S. However, Asian results were disappointing as insurance sales from the region fell 31%, leading to a 21% decline in core earnings. Currency fluctuations, particularly in Japan also affected the company’s income and are expected to have a negative impact on third quarter earnings as well.
We have a price estimate of $17 for Manulife’s stock, in line with the current market price.
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Focus On Asia
Manulife has looked east for growth in the last few years. The company has established operations in Japan, China, Hong Kong, Thailand, Malaysia, Indonesia, Singapore and Philippines, accounting for one-third of the company’s insurance premiums, which have grown at a CAGR of nearly 30% over the last four years. Japan, the biggest insurance market outside the U.S.,  is the fulcrum of Manulife’s Asian operations. Nearly half of the company’s Asian insurance sales and 30% of its wealth management product sales come from the country. Manulife Japan has a market share of 2.2% in terms of new business annual premium equivalent (APE) with around 1 million policies in force.  Manulife accounts for 6.5% of the sales through the Managing General Agents distribution channel, which uses a network of independent agents and walk-in insurance shops.
First half results in 2013 were hampered by the non-recurrence of a tax related event in Japan, which boosted sales in 2012. We believe this was an outlier and should not affect the company’s long term operations. However,Manulife’s third quarter results will be adversely affected by foreign exchange fluctuations. MetLife (NYSE:MET), which has a market share of around 5% in the Japanese insurance market, recently reported a 5% year-on-year decline in premiums from Asia, even though the value was up 12% on a constant currency basis. Foreign exchange variations aside, we expect Manulife to deliver strong organic growth in the coming years.
Gaining Back Home Ground
Manulife’s market share in the Canadian market fell from 13% in 2008 to around 6% by the end of 2012. However, the company has shown signs of improvement in the last few quarters. Strong group benefit sales through the three months ending June led to a 19% year-on-year increase in insurance sales, while record mutual fund sales boosted wealth product sales, which increased 26% over the prior year. Manulife’s management insinuated that it had earlier taken some strong pricing measures in the country to offset low returns from investments, which have not been replicated by its competitors like Great-West Lifeco., Sun Life Financial and Desjardins Financial Security. As a result, the company lost market share in the preceding quarters, but now the trend seems to be playing out in its favor. We will keep a close eye on third quarter results to see if Manulife can truly maintain the momentum it showed in the first half of the year.
And In The U.S.
Manulife, operating as John Hancock, is the seventh largest life insurer in the U.S., with a market share of 3.25%  and earns nearly 40% of its premium income from the country. Second quarter results were driven by strong wealth product sales, which were up 58%. On the insurance side, the Long-Term Care and Life Insurance products performed well. The company also announced an agreement with Symetra Financial Corp. to acquire Symetra Investment last quarter, which will lead to a 15% increase in advisers for the John Hancock financial network.
Total annualized premiums from all insurance companies in the U.S. grew 6% through the first half of the year.  MetLife, the leading life insurance company in the country, with a market share of 10%, recently reported a 6% increase in retail premiums for the third quarter. We expect volume growth from Manulife as well.Notes: