Manulife (NYSE:MFC) has built strong foundations for sustainable growth in some of the fastest growing markets in Asia. The company has established operations in Japan, China, Hong Kong, Thailand, Malaysia, Taiwan, Indonesia, Singapore and Philippines and is looking to enter other high growth markets in India, Korea and Cambodia. Insurance sales in the region have been growing at a compounded annual growth rate (CAGR) of around 29% over the last four years and accounted for almost half of the company’s total sales in 2011. The bottom line, however, needs improvement as only 35% of Manulife’s net income is derived from Asia.
Asia is expected to account for over half of the world’s middle class population in the next ten years. We discuss below some Manulife’s efforts in ASEAN, India and Korea. See our note A Look At Manulife’s Asian Strategy – China and Japan for a discussion on these markets.
We have a price estimate of $13 for Manulife’s stock, in-line with the current market price.
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Association of Southeast Asian Nations (ASEAN)
ASEAN is a geo-political group of ten countries in South-East Asia including Indonesia, Malaysia, Philippines, Singapore and Thailand, Brunei, Myanmar, Cambodia, Laos, and Vietnam. These countries occupy on 3% of the Earth’s land area but account for almost 10% of the world’s population. Manulife currently operates in seven of these countries with a distribution network of 27,000 agents and 24 bank partners. Insurance sales and premium income in the region have grown at a rate of 11% over the last four years.
Manulife has several opportunities for growth in the region. The Malaysian government has introduced a voluntary retirement savings initiative for the general public with Manulife as one of the eight authorized service providers. The company has also recently entered Cambodia, which has a population of 15 million and is going through an economic boom due to investments from Korea and China. Please see Manulife Heads To $13, Expands Asian Reach To Cambodia for more details.
Indonesia is Manulife’s biggest market in the ASEAN region. The country has a fast emerging middle class population which is currently over 50 million and is expected to grow by 100 million by 2014. About half of the people live in urban areas. The penetration in the country is quite low at 1.1%, but the potential is huge as the GDP per capita has increased at a CAGR of 17% over the last five years to $4,255 whereas the savings per capita is around $1,421.
Manulife is currently third in terms of life insurance premiums, almost 72% of the insurance sales are through financial agents. Manulife has 7,804 agents operating in the country, the number has increased at a rate of 20% since 2008. Of its sales, 23% come from Manulife’s bank partner, Bank Danamon, which is the sixth largest bank in the country in terms of assets, deposits and loans. The bank has more than 2,400 branches and 5.1 million customers. We believe the insurance company is in a prime position to grow in Indonesia in the next few years.
New Ventures In India And Korea
In 2010, Manulife entered an agreement with Kotak Mahindra to promote distribution in India.  The country has the world’s second highest population and a high GDP growth rate.  Life insurance penetration in the country is quite low, around 4.4%. Government regulations have hitherto limited foreign direct investment (FDI) in the insurance sector to 26% but the Union Cabinet has recently passed a bill to increase this limit as well as that on pension schemes to 49%.  This bill still has to be passed by the Indian Parliament and has faced some opposition, but if it goes through, it will open up a huge window of opportunity for Manulife and other global insurers.
Manulife has also acquired a Cross Border Investment Advisory license in Korea and is planning to extend its asset management services to the country.  The country has a population of almost 50 million and a very fast growing economy.Notes:
- Manulife and Kotak Mahindra agree to collaborate to promote fund management and distribution opportunities in Asia, Press Release, August 10, 2010 [↩]
- Life insurance penetration dropped in 2010-11, Indian Express, 15th My, 2012 [↩]
- Insurance and pension get FDI boost, need parliament nod, Indian Express, 5th October, 2012 [↩]
- Manulife Asset Management announces business expansion into Korea and hiring of Peter Kim to drive business development, Press Release, August 16th, 2012 [↩]