Manulife (NYSE:MFC) will report earnings for the fourth quarter of 2012 on Thursday, Feb. 7. The Canada-based insurance company reported a net loss of Canadian dollar C$227 for the three months ending September, which included a C$1 billion charge related to changes in assumptions regarding calculation of benefits and other one-time expenses. The company made significant progress in reducing sensitivity to equity markets and interest rates, by meeting its 2014 hedging targets two years ahead of schedule. Low interest rates have affected the insurers’ forecast for future investment income as a majority of its assets are invested in fixed-maturity securities, including government bonds.
Manulife is currently looking to expand in emerging markets in Asia and reported a 4.5% increase in profits from the region in the last quarter. We have a price estimate of $13 for Manulife’s stock, which is a little below the current market price.
Manulife has established operations in Japan, China, Hong Kong, Thailand, Malaysia, Taiwan, Indonesia, Singapore and Philippines. In record high sales in the first six months of 2012, Manulife saw a 30% increase in insurance sales. Although the company reported high sales in Indonesia, lower sales in Japan led to a decline in third quarter sales, but the figure was in line with the sales reported for 2011.
Third quarter 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.
The Asian division is a key driver for our valuation, accounting for 55% of our price estimate. Manulife has reported high growth (33% in 2010 and 25% in 2011) in premium revenues earned from the region over the last few years. We expect fourth quarter sales to be roughly in line with 2011 figures, leading to double-digit growth for the fiscal year. Please read our articles "A Look At Manulife’s Asian Strategy -- ASEAN, India And Korea" and "A Look At Manulife’s Asian Strategy -- China and Japan" for more details on Manulife’s position in Asia.
Manulife reported a 20% year-on-year decrease in insurance sales in the U.S. in the third quarter. This decline can be attributed to the fact that there was an open enrollment period in the Federal plan during the third quarter of 2011, 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.
Retirement plan sales increased by 29% over the prior year, helped by high plan turnover in the market. The performance of the "TotalCare" group annuity product, launched in September 2012, will be worth keeping an eye on when the company reports results for the fourth quarter. For more details on Manulife’s operations in the U.S., please refer to our article "A Look At Manulife’s U.S. Business."
Manulife has lost ground in its home country in the last few years. The company reported a 12% year-on-year decline in core earnings in the third quarter, as insurance sales fell by 7%, 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. The recently completed acquisition of Benesure Canada, a distributor of life and disability insurance, might help Manulife arrest the slide in the coming years.
Disclosure: No positions.