Manulife Q2 Earnings: Asian Markets Fuel Strong Growth

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Manulife Financial

Manulife (NYSE:MFC) reported strong results for the second quarter of 2014, with a significant year-over-year increase in net income to $943 million. Core earnings also surged ahead to $701 million from $609 million a year ago. [1] These solid results were driven primarily by sustained growth across Asia, particularly Japan, as well as growth in the wealth and asset management businesses in the U.S. and Canada. However, insurance sales in Canada declined due in part to a lack of certain products in Manulife’s portfolio, thus compelling the company to launch a new universal life insurance product.

Manulife reported $0.49 earnings per common share (fully-diluted) compared to just $0.12 in the second quarter of 2013. We have a price estimate of $18 for Manulife’s stock, which is at a slight discount to the current market price.

See our full analysis of Manulife here

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Strong Growth In Asia

Insurance sales in Asia grew a solid 26% compared to the previous year, building on the momentum recorded during the previous quarter. Japan, Hong Kong and Indonesia are the three major markets for Manulife in the Asian market, although others are also growing fast. During the second quarter, total insurance sales in the Asian market amounted to $304 million. Japan remained a major driver for Manulife in the second quarter as well. Japanese market accounted for nearly 50% of the total insurance sales in Asia. On the back of robust growth in corporate sales, insurance sales in Japan were up by 68% year-over-year at $158 million. (Second Quarter 2014 Financial & Operating Results, August 7 2014)) Hong Kong also contributed to the growth with a 10% year-over-year increase in sales to $60 million, driven by new product launches. In addition to these key markets, other Asian countries contributed about 20% of the total sales in Asia. The Philippines recorded double-digit growth, while Singapore faced a challenging environment coming from intense competition in the market.

Sales In Canada Dip

Manulife, which is one of the largest insurance companies in Canada, saw its Canadian sales decline in the quarter. Overall insurance sales were lower as compared to the second quarter in 2013. The absence of whole life products had a negative impact on retail sales, but the company’s efforts towards re-pricing and improving its product mix did lead to a relative improvement in sales since Q1 2014. Manulife’s market share in the group benefits product line has also suffered due to competition in the market.

The company’s mutual fund business had a good run, as its assets under management (AUM) crossed the $30 billion mark, up 29% year-over-year, driven by strong fund performance as well as expansion in distribution channels. In the case of group retirement solutions, Manulife continues to lead the contribution pension market with a 37% share.

U.S. Market – Pricing Improvements

Manulife is the eighth largest life insurer in the U.S., operating under the John Hancock brand with a market share of 3.2%. [2] Insurance sales declined by 12% year-over-year to $115 million, but the company reported a 6% sequential increase due to improved product offerings. Good sales in Indexed Universal and Variable Life products propelled John Hancock Life sales in second quarter to $102 million, a 20% improvement from the first quarter of 2014, but still 13% lower year-over-year. Product enhancements introduced in the first quarter did salvage the loss of market share in the previous quarter.

On the other hand, the wealth management business continues to thrive in the U.S. market. Sales increased 7% year-over-year to $7.9 billion, driven by improvements in 401(k) offerings. The outlook is also positive as the company has started rolling out newer initiatives for the 401(k) market with a focus on price competitiveness, transparency in fee charges as well as varied investment options for customers. Manulife also saw solid performance in the funds management business, with the total funds rising 14% year-over-year to $86 billion. We expect the wealth management business to report steady growth in the future driven by the company’s balanced pricing and other enhancements in its product line.

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Notes:
  1. SEC 6-K Filing, August 7 2014 []
  2. National Association Of Insurance Commissioners Life And Fraternal Insurance Industry []