How is Manulife Financial Likely To Grow In The Next 2 Years?

In our previous note, we expanded on Manulife Financial‘s (NYSE: MFC) key sources of revenue and provided high-level expectations for the next two years. This supplementary note provides our detailed forecasts for the insurer’s three major business segments – Asia, Canada, and the U.S.

Asia Division To Continue On Its Upward Trend

Asia has historically been a stronghold for Manulife, and we expect this to continue in the future. Given that insurance penetration is relatively modest in Asia, and that demand for coverage is growing, there is substantial growth potential, especially in the Southeast Asia region. This should boost life and health insurance premiums. Meanwhile, ManulifeMOVE, an activity tracking platform that offers premium discounts to customers who stay active, has been a hit in China and was introduced in Singapore recently. Moreover, technological advancements such as facial recognition for a seamless e-claim process should help to improve the customer experience. Manulife’s Asian business should continue to see solid retail flows from money market funds in China and retirement flows in Hong Kong, which will be fueled by its Mandatory Provident Fund (MPF) partnership with Standard Chartered.

U.S Division May Not Reach The Levels Of 2017

Manulife’s U.S  division had an impressive 2017 on the back of impressive growth in investment income. More recently, however, the company scaled back sales of corporate and bank-owned life insurance products in the country, which will likely have a negative impact on earned premiums. Moreover, the decline in international and variable universal life sales has resulted in soft results for the division, and we expect 2018 to be no different. That said, we expect another year of favorable net flows that will drive up AUM. The division realized 46% growth in institutional asset management gross flows, and decent growth in retail and retirement gross flows in 2017. While this level of success may not be repeatable in the coming quarters, we still expect that Manulife’s expertise in wealth and asset management will fetch high-level deposits.

Canada Division To Experience Modest Growth

Manulife’s Canadian division had a decent 2017, on account of a large group benefit case and high individual insurance volumes due to tax-exempt changes. The company is taking various measures to drive growth in Canada. Recently, Manulife re-entered the participating whole life insurance market, which incidentally covers half of all insurance sales in Canada, by launching Manulife Par. This should provide a boost to the division’s top line. Meanwhile, the launch of its Artificial Intelligence Decision Algorithm should gain some traction among customers. Furthermore, the company has recently expanded its Manulife Vitality program to all of its term products, which bodes well for the future.

Manulife has announced the consolidation of IT infrastructure vendors and its John Hancock office in Boston, and expects to save $70 million out of these measures. The company has also stated its plans to reduce its ALDA (Alternative Long Duration Assets) portfolio by disposing of real estate assets and using the proceeds for expansion. While this will result in higher marketing expenses, we expect the company to reap benefits out of these decisions in the long run. We maintain our $21 price estimate for Manulife, which is ahead of the current market price. Disagree? Detailed steps to arrive at Manulife’s price estimate are outlined in our interactive dashboard, and you can modify our assumptions to arrive at your own estimate for the company.

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