Manulife (NYSE:MFC) reported a net loss of C$227 for the third quarter of 2012, impacted by a C$1 billion for basis changes and a C$200 million goodwill write-off. Insurance sales were down 8% compared to the September quarter of 2011 while wealth management products sales increased by 4%. The effect of these declines was somewhat mitigated by net investment gains of C$413 million. Management also indicated that the company might not be able to meet its earlier goal of achieving a net profit of C$4 billion by 2015 and stated that 2016 might be a more realistic time-frame to achieve this target.
We have a price estimate of $13 for Manulife’s stock, in-line with the current market price.
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Almost half of Manulife’s insurance sales originate from Asia. The company has operations in Japan, China, Hong Kong, Thailand, Malaysia, Taiwan, Indonesia, Singapore and Philippines and is looking to expand in Korea and India. (Please read our article A Look At Manulife’s Asian Strategy – China and Japan for more details) The Asian division’s sales in the last quarter were in-line with the same period in the prior year as lower sales due to product changes in Japan were offset by record sales in Indonesia. The company expanded its distribution network in the country with an agreement with Bank Danamon, the sixth largest bank accounting for 23% of Manulife’s sales.
Wealth product sales increased by 22% over the prior year due to high popularity of the fixed annuity product in Japan and bond funds in China which were sold through the joint venture, Manulife-TEDA.
Manulife has been able to gain market share in Asia in the last few years. With expanding distribution networks in Indonesia, Malaysia and Japan, we expect the insurer to build on the momentum it has successfully gathered so far. (See A Look At Manulife’s Asian Strategy – ASEAN, India And Korea)
In its home country, Canada, Manulife reported a 12% year-on-year decline in core earnings. The company was not able to build on the second quarter’s performance where it reported a 200% increase in sales. Insurance sales in the September quarter declined by 7% over the prior year, driven by a 10% decline in non-guaranteed long duration products sales and a conscious decision by the management to cut back on guaranteed long duration products to lower risk. In contrast, its main competitors, Sun Life Financial and Great-West Lifeco reported strong third quarter performances. 
Wealth sales fell by 4% despite an 18% increase in mutual funds sales. There were some signs of optimism as Manulife Bank reported record assets of over C$21 billion. Manulife has lost market share in the last few years, but we expect it to arrest the slide and maintain its share in the coming years.
In the U.S., Manulife saw a $24 million increase in core earnings which reached $289 million. Insurance sales fell by 20% over the last year. But it must be taken into account that during the third quarter of 2011 was an open enrollment period in the Federal plan which led to higher than usual Long-Term Care product sales. After accounting for this one-time spike, insurance sales in the September quarter were actually 11% above those in the prior year, indicating a strong performance by Manulife’s U.S. branch, John Hancock.
Wealth sales increased by 5% where a 9% increase in mutual funds sales mitigated the effect of 59% decrease in annuity sales.Notes:
- Manulife narrows loss but delays C$4 billion profit target, Reuters, 8th November, 2012 [↩]