Manulife Financial CEO Touts ‘Fantastic Turnaround’ of US Operations
February 18, 2014 by Fran Matso Lysiak
TORONTO – As Canada’s Manulife Financial Corp.’s full-year 2013 profit increased on growth in its asset-management businesses, “exceptional” investment-related gains and one-time items, its chief executive officer touted “a fantastic turnaround” at Manulife’s U.S. operations.
Full-year net income attributed to shareholders increased 72% to C$3.1 billion (US$2.8 billion). Results included C$246 million in lower charges on variable annuity liabilities that are hedged, and the impact of equity markets and interest rates. Results also included a gain of C$282 million on policyholder-approved changes to the investment objectives of the separate accounts of its U.S. variable annuity business.In addition to Canada, Manulife (TSX/NYSE/PSE: MFC) does business in the United States through its Boston-based John Hancock Financial, and in Asia.
In terms of the top line, Manulife ended 2013 with “another record year” for wealth-management sales, with contributions from each of its territories, said Donald Guloien, president and CEO during the company’s earnings call.
In the fourth quarter, Manulife grew its wealth and asset-management businesses in Asia, Canada and the United States. Net wealth net flows for asset-management businesses and funds under management were C$599 billion, the 21st consecutive quarter of record funds under management, it said.
In the United States, Manulife continues to grow its higher ROE, low-risk businesses, “a fantastic turnaround from our U.S. operation,” Guloien said. There were record mutual fund deposits of more than $23 billion dollars — an increase of 79% from 2012, he said.
Fourth-quarter net income attributed to shareholders rose 21% to C$1.3 billion. Manulife recorded a $350 million gain on the sale of its Taiwan insurance business and a gain of C$261 million on policyholder-approved changes to the investment objectives of separate accounts of its U.S. variable annuity business. The quarter also included a C$131 million increase in core earnings driven, in part, by the higher fee income in its wealth management businesses.
Guloien said Manulife has “enjoyed an impressive trajectory” in net income since 2010, noting in that year it recorded a loss of C$1.7 billion.
“While this trajectory is impressive, I want to dissuade anyone from applying a straight rule to that graph to extrapolate the growth rate in net income for next year,” he said, saying it’s because net income in 2013 benefited from unusual items.
These included “exceptional” investment related experience of C$906 million, “which we would not expect to recur, at least immediately,” Guloien said. Manulife realized a gain on the sale of its Taiwan business, “definitely a non-recurring item.” These were partially offset by items including updates to actuarial models and market-related factors which netted a C$543 million charge, he said.
“It is for this reason that we introduced the core earnings metric as it is a better measure of long term earnings capacity of our business going forward,” Guloien said.
“If you look at back in terms of history, core earnings were not comparable in 2010, because at that time, we did not have hedging in place but since that time, core earnings have grown nicely and for the full-year 2013, were 16% higher than they were in the previous year,” Guloien said. “We are very proud of that.”
In the fourth quarter of 2011, Manulife Financial recorded a net loss of C$69 million on a C$665 million goodwill impairment charge mostly on its John Hancock life insurance business (Best’s News Service, Feb. 10, 2012). It recorded C$193 million in charges on hedging its variable annuities as it experienced higher than expected re-balancing costs. At that time, the company said it restructured its U.S. annuity businesses and implemented price increases on new business.
Full-year 2013 insurance sales declined by 13%. Sales at John Hancock Life dropped 6% to US$510 million, reflecting actions to reposition its new business mix to products with better risk profiles and higher margins.
In the fourth quarter, John Hancock Life saw a slowdown in sales of universal life insurance sales as it transitions to new products. But in 2013, it saw double-digit growth in protection universal life and indexed universal life products.
Long-term care sales at John Hancock jumped 30% in the quarter to US$13 million as the competitive landscape in the retail market continued to improve. But full-years sales of US$53 million were slightly lower than 2012.
“On the insurance front, we continue to record strong sales of our re-priced, lower risk insurance products, and the integration of our John Hancock life and long-term care businesses is largely completed,” said Craig Bromley, senior executive vice president and general manager of the U.S. division, in a statement.
On the afternoon of Feb. 14, Manulife Financial’s stock was trading at $19.32 a share, up 1.58% from the previous close.
Manufacturers Life Insurance Co., a member of Manulife Financial, currently has a Best’s Financial Strength Rating of A+ (Superior). John Hancock Life Insurance Co. (USA) also currently has a Best’s Financial Strength Rating of A+ (Superior).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)
