Manulife Earnings Takeaways: Top Line Grows, Weak Investment Income Hits Earnings

Manulife (NYSE:MFC) recently reported mixed earnings for the fourth quarter as well as full year 2015. ^[1] Weak investment income and the decline in oil and gas prices had a significant impact on the company’s net income of $246 million for the fourth quarter of 2015 compared to $640 million a year ago. For full year 2015, the company’s net income declined 40% year-over-year (y-o-y) from $3.5 billion in 2014 to just $2.1 billion in 2015.

Interestingly, Manulife had a good year in terms of business growth and earnings from operations. Core earnings grew over 20% year-over-year (y-o-y) to $859 million in Q4 2015 and 28% y-o-y to nearly $3.5 billion in full year 2015. The company benefited from increasing business growth momentum in Asia and Canada. Growth came in across the company’s businesses- insurance as well as wealth and asset management services – and was also aided by the new acquisitions.

Manulife operates primarily in three regions- Asia, Canada and the U.S. In this note, we take a look at key takeaways from the company’s fourth quarter and full year results in each region. We are in the process of updating our $19 price for Manulife’s stock.

See our full analysis of Manulife here

Asia Leads The Growth Pack Again

2015 turned out to be a landmark year for Manulife’s operations in Asia as the company crossed core earnings of $1 billion in the region for the first  time. The company reported core earnings of $1.5 billion for 2015, 28% y-o-y growth. ^[2] This resulted from strong growth in business volumes as the company focused on launching new insurance and wealth management products, expanding distribution channels in key markets other than Japan – mainland China, Singapore, Hong Kong, Indonesia and Vietnam. Thus, the company is gaining access to more new customers while improving services for its existing customer base. Manulife’s insurance sales increased 20% y-o-y in the Asian markets in the fourth quarter and 28% in full year 2015.

If we look at individual markets, Japan once again delivered strong y-o-y sales growth of 11% in Q4 2015 and 29% for the full year. In Hong Kong, sales increased 29% y-o-y in both Q4 as well as full year 2015.

Stronger Canadian Operations, Aided By Acquisitions

Manulife posted another strong performance in Canada, driven by strong sales in group retirement products, record mutual fund gross flows and 1.4 million new customers owing to its acquisition of Standard Life’s Canadian operations. This led to wealth and asset management gross flows of $3.9 billion in Q4 2015, up from $2.7 billion a year ago. For full year 2015, the company posted a 57% y-o-y increase in gross flows to $16.5 billion.

Manulife posted a 76% y-o-y growth in insurance sales in Canada during the fourth quarter due to strong sales in the retail insurance products line as well as group benefits line. For the full year, insurance sales jumped 43% y-o-y to $825 million.

U.S. Operations Show Mix Results

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. Competitive pressure and below par performance led to a 17% y-o-y decline in insurance sales during the fourth quarter. Growth momentum witnessed during the first three quarters was dampened and the net full year sales saw a 3% y-o-y decline in insurance sales. However, the company’s wealth and asset management business posted strong numbers as gross flows were up 50% during the the last quarter compared to a year ago. For full year 2015, gross flows improved by 26% y-o-y on the back of strong performance in small case and mid-market segments.

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1. Manulife reports 2015 core earnings of $3.4 billion, net income of $2.2 billion, up 19% and down 37%, respectively, compared with 2014, strong top line growth and a dividend increase of 9%; Press Release [↩]
2. Statistical Information Package, Investor Relations [↩]