Manulife Earnings: Growth In Asia Continues, Canada And U.S. Mixed

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Manulife (NYSE:MFC) reported earnings for the fourth quarter of 2014 on Thursday, February 12. [1] The company reported a C$657 million year-over-year (y-o-y) decline in net income of C$640 million for the fourth quarter due to unfavorable investment results. The company has some investments in oil and gas holdings, and a sharp decline in oil prices had a negative impact on investment returns.  [2] However, full year net income for 2014 increased over 11% y-o-y. The company’s core earnings also dropped by nearly 6% y-o-y to C$713 million in the fourth quarter. Although the company benefited from an increase in business volume, unfavorable policyholder experience in North America and other expenses more than offset those gains. The company sustained growth momentum from higher insurance and wealth sales as well as an increase in assets under management during the fourth quarter, falling just short of its core earnings guidance for 2014. During the fourth quarter, insurance sales grew 20% y-o-y. Wealth sales increased 6% y-o-y during the same period. [3]

Manulife operates in three primary regions, namely Asia, Canada and the U.S. In this note we discuss the key performance metrics from the company’s fourth quarter and full year results in each region. We have a price estimate of $19 for the company’s stock, which is about 10% higher than the current market price.

See our full analysis of Manulife here

Asian Business On A Strong Footing

Core earnings from Asia declined 9% y-o-y, largely due to the impact of FX headwinds. Insurance sales in Asia recorded another solid quarter with 30% y-o-y growth in sales of $364 million. [4] Over the year, insurance sales saw an uptick of 31% y-o-y in Asia. This was primarily due to strong growth in corporate products in Japan and new product launches and sales campaign efforts in Hong Kong. The company also benefited from strong sales through the bancassurance distribution channel in Japan and higher sales of pension products in Indonesia during the quarter.

Over the year there was a 2% y-o-y growth in wealth sales from the region. We expect the company to sustain the growth momentum from 2014 in 2015.

Growth Picks Up  In The U.S.

Operating under the John Hancock brand in the U.S., the company holds over 3% of the life insurance market in the country in terms of premiums earned. [5] The company posted a 5% decline in core earnings from its operations in the country, though targeted pricing and product enhancements introduced earlier in 2014 have started reflecting in the company’s performance in the country. During the fourth quarter, the company’s insurance sales picked up and grew 12% y-o-y.

Mixed Results In Canada

During the fourth quarter, core earnings in Canada declined 4% y-o-y, but registered 2% y-o-y growth for the full year 2014. [6] The fourth quarter was, however, marked with better performance over soft third quarter results. Insurance sales in the fourth quarter saw a 6% y-o-y upswing. Wealth sales declined 8% y-o-y, but improved 10% over the third quarter performance. Wealth sales improved due to higher group retirement sales, but the growth was partially offset by lower bank loan volumes. In 2014 Manulife acquired Standard Life plc and we expect it to fuel the company’s wealth and asset management business going forward.

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Notes:
  1. Manulife Financial reports 2014 net income of $3.5 billion and core earnings of $2.9 billion, up 12% and 10%, respectively, over 2013; Press Release []
  2. Manulife’s CEO Donald Guloien on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha []
  3. SEC 6-K Filing []
  4. Fourth Quarter 2014 Financial & Operating Results, Manulife Investor Relations Presentation []
  5. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS LIFE AND FRATERNAL INSURANCE INDUSTRY 2013 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM []
  6. Statistical Information Package, Manulife Investor Relations []