Manulife Posts Modest Growth In Q3 As Weak Recovery In North America Offsets Growth In Asia

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Manulife Financial (NYSE:MFC) reported third quarter earnings on Thursday, November 13. The company reported a 6% year-over-year increase in net income of C$1.1 billion. This was also a sequential rise of around 17% over the previous quarter. During the third quarter the company’s core earnings shot up 7% year-over-year to C$755 million. [1] Growth was fueled by strong sales in Asia, and partially offset by a weak performance in the U.S. and Canada. Sales of wealth products slowed down in the quarter, but growth in assets under management (AUM) led to higher fee income resulting into improved core earnings. [2]

Manulife reported C$0.57 earnings per share, a slight improvement over the last quarter. We have a price estimate of $18 for the company’s stock, which is in line with the current market price.

See our full analysis of Manulife here

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Growth Story In Asia Continues

Insurance sales in Asia grew a whopping 46% year-over-year to $352 million. Japan remained a strong performer, registering an 83% year-over-year increase in sales on the back of growth in corporate product sales and the launch of new retail products in the market. [3] The launches of multiple products and an aggressive sales campaign led to a 40% year-over-year growth in insurance sales in Hong Kong. Indonesia also benefited from sales campaigns and the growing bancassurance distribution channel. Insurance sales in the country were up 14% compared to the previous year. Apart from the abovementioned markets, Manulife posted a 16% year-over-year growth in other markets in Asia.

The launch of mutual fund products in Japan and China, a successful marketing campaign in Hong Kong and better investor sentiment in Indonesia contributed to a rise of 74% year-over-year in wealth sales in Asia to $2.2 billion. Higher sales volume and a favorable policyholder experience drove the company’s core earnings in Asia to $251 million compared to $212 million in the previous quarter.

Pricing Still An Issue In Canada

Insurance sales in Canada saw a 23% year-over-year decline to $143 million, primarily due to competitive pressure and pricing discipline in the group benefits product line. Institutional sales were a major factor, registering just $102 million in sales in the third quarter compared to $149 million in Q3 2013. [4] However retail sales generated positive growth of about 10% over Q3 2013.

Wealth sales of $2.6 billion during the third quarter decreased by 15% year-over-year due to a slowdown in residential mortgages that in turn resulted in lower bank loan volumes and also a drop in sales of group retirement solutions.

Overall core earnings from operations in Canada increased by only 5% year-over-year, on the back of lower expenses and gains in fee income. Going forward, the company expects its acquisition of Standard Life, the fifth largest life insurer in Canada, to help in expanding its business in Canada.

Slow Growth In The U.S.

Manulife operates in the U.S. under the brand John Hancock. It is the eighth largest life insurer in the U.S. market in terms of premiums earned. [5] The company’s insurance sales in the country were hit by industry-wide low sales in the estate planning market. Down by 19% year-over-year, insurance sales did benefit slightly from product enhancements introduced by the company this year.

Wealth sales in the U.S. also declined by 6% year-over-year, generating revenue of $6.2 billion compared to $6.67 billion a year ago. Declines in mutual fund and retirement plan services sales had a negative impact on the wealth management business.

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Notes:
  1. Manulife Financial reports 3Q14 net income of $1.1 billion, core earnings of $755 million and a regulatory capital ratio of 248%, Manulife Press Release []
  2. Manulife’s CEO Donald Guloien on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha []
  3. Third Quarter 2014 Financial & Operating Results Presentation, Investor Relations []
  4. SEC 6K Filing []
  5. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS LIFE AND FRATERNAL INSURANCE INDUSTRY 2013 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM []