Regarding my earlier post on whether or not Manulife Financial was a value play worth adding to one’s portfolio, Thicken My Wallet adds some supplementary points. Specifically, he says, Manulife’s troubles may be reflective of the industry as a whole – as highlighted by peer company Sun Life Financial also trading at 52-week lows.
Lower interest rates not only erode the value of assets on the balance sheet but also reduce demand for insurance products like annuities (payouts fall with declines in interest rates). An “extended “period of low interest rates will continue to put financial pressure on insurance companies, reducing the chances of dividend hikes and healthy return on equity,” he notes. So, don’t expect much in the short term.
There has been talk Manulife may end up in a cross-pillar merger with a bank. Thicken My Wallet seems to hint at a similar scenario, saying the solution in an extended environment of low rates is to “transform insurance companies into large financial empires with banking, mutual fund and any financial service subsidiaries.”