Manulife Earnings Preview: Expansion In Asia And Recovery In Canada

Manulife (NYSE:MFC) is scheduled to report earnings for the first quarter of 2014 on Thursday, May 1. ^[1] The Canadian insurance company reported strong wealth management results for the fourth quarter of 2013, with a 15% increase in sales, including growth of 22% and 24% in the U.S. and Canada, respectively. However, insurance sales fell 32% from the prior year’s mark with a 59% decline in Canada, which management attributed to normal variability of Group Benefit sales.

Manulife has been focusing on Asia for growth; Asian operations in Hong Kong, Shanghai, Japan, the Philippines, Thailand, Malaysia, Singapore, Indonesia and Vietnam account for a third of the company’s core earnings. Manulife reported a 7% increase in total adjusted insurance sales for the December quarter. We expect another quarter of strong results from the region, although currency fluctuations might impact earnings. Our $18 price estimate for Manulife’s stock is in line with the current market price.

See our full analysis of Manulife here

Asia

Manulife was one of the first insurers to enter the Asian market and has established operations in some of the biggest markets, including Japan, which is the second biggest life insurance market in the word after the U.S. ^[2] Around 37% of the company’s Asian insurance sales and 17% of wealth sales come from Japan. Manulife Japan has a market share of 2.2% in terms of new business annual premium equivalent (APE) and 1% in terms of in-force APE, with around 1 million policies in force in the country. ^[3] The company has around $30 billion in assets under management, with over 1,300 employees and a distribution network of 2,900 agents.

For the fourth quarter of 2013, Japan insurance sales declined 28% from the previous year, while wealth product sales fell to half the value reported in 2012. This resulted in a 5% decline in Asia insurance sales, while wealth sales from the region dropped 18%. Manulife had observed strong sales in Japan through the last three months of 2012, and was unable to replicate its performance in 2013.

Hong Kong is another hub for Manulife in Asia, accounting for 30% of insurance sales. For the fourth quarter of 2013, sales climbed 35% driven by the announcement of an upcoming increase in prices of whole life par products. Meanwhile, the company’s bancassurance distribution agreement with Bank Danamon led to a 30% increase in sales in Indonesia. We expect Manulife to achieve strong growth in Asian markets outside of Japan in the coming years.

U.S.

Manulife is the seventh largest life insurer in the U.S., with a market share of 3.25% and earns more than half of its core earnings from the country, in which it operates under the John Hancock brand. ((National Association Of Insurance Commissioners Life And Fraternal Insurance Industry)) For the fourth quarter of 2013, Manulife reported a 21% decline in wealth product sales, while insurance sales went up 22%. On the wealth side, John Hancock Investments sales surged 49% but Retirement Plan Services sales fell 20%. This decline was due to an industry-wide slowdown as well as competitive pressure. Life insurance sales fell 24% as the company looked to shift its business mix to focus on profitability. We expect Manulife to continue to focus on profitability in the coming years.

Canada

Manulife has been regaining lost ground in its home country of Canada. The company’s market share in the Canadian market fell from 13% in 2008 to around 6% by the end of 2012 but it is now looking to expand its distribution network through broker-dealer partnerships. In Q4 2013, Manulife reported an 18% year-on-year increase in wealth product sales in its country. Sales of mutual funds and group retirement solutions were particularly strong, with the former rising 19%. Assets under management reached C$ 27.6 billion, 33% higher than the figure reported at the end of 2012. On an annualized premium equivalent basis, individual insurance sales were 16% higher than 2012 with single premium product sales rising 18%. We expect Manulife to maintain the momentum it gained through 2013.

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1. Investor Relations [↩]
2. Swiss Re’s World Insurance [↩]
3. Manulife Asia: Delivering Now… More to Come [↩]