Manulife’s Revenues Very Likely Jumped 2x In 2019, But There’s More Here Than Meets The Eye

Manulife Financial (NYSE: MFC) is a leading Canada-based financial services group that offers financial protection and wealth management products and services to its clients. The insurance giant is expected to report a 100% jump in revenues for 2019 as compared to the previous year, thanks to the expected contribution of $28.3 billion by Investment of Insurance Premiums making up 47% of the company’s $60.5 billion in revenues. As a result, the segment’s revenue share would have increased from 12% in 2018 to 47% in 2019. However, it must be remembered that the investment income is an extremely volatile revenue stream, and should normalize in 2020 – driving total revenues to roughly $49.2 billion for this year. Trefis details the key components of Manulife’s Revenues in an interactive dashboard along with our forecast for 2019-2020.

Investment of Insurance Premiums, which represents the income generated by investing premiums in fixed maturity securities, equities, mortgages, and other financial instruments should have added just shy of $25 billion in 2019 – constituting around 82% of the total expected growth of $30.2 billion. Further, U.S. Insurance is expected to add around $4.9 billion followed by $1 billion from Asia insurance division to the total expected figure.

What to expect from Manulife’s Revenues?

• Manulife’s Total Revenues have fluctuated considerably over the last 2 years. It increased from $39.8 billion in 2016 to $45.1 billion in 2017, before reducing to $30.3 billion in 2018.
• We expect it to have grown 100% to cross $60.5 billion in 2019 mainly driven by Investment of Insurance Premiums ($24.8 billion), U.S. Insurance ($4.9 billion) and Asia Insurance segment ($1 billion), partially offset by drop in Canada Insurance division.
• Revenues are expected to normalize by decreasing 19% to settle at $49.2 billion for 2020 driven by a 41% drop in revenue from Investment of Insurance Premiums in the absence of one-time gains seen in 2019.

Details about how trends in Manulife revenues compare with peers Prudential Financial, AIG and MetLife are available in our interactive dashboard.

[A] Investment of Insurance Premiums is expected to cross $28.3 billion in 2019 – an increase of $24.8 billion.

• It represents the income generated by investing premiums in fixed maturity securities, equities, Mortgage loans, and other financial instruments.
• This expected increase of $24.8 billion in 2019 would mainly be driven by growth in realized/unrealized gains on assets supporting insurance, investment contract liabilities, and macro hedge program.
• The value was lower in 2018 due to interest rate increases in both North America and Asia coupled with lower asset valuations due to asset management headwinds.
• Notably, the segment’s revenue share very likely jumped to 47% in 2019 from 12% in 2018.
• Thereafter, we expect the investment revenues to normalize and reduce to $16.8 billion by 2020 – down by 41%.

[B] Asia Insurance Revenues are expected to grow 7% from $15 billion in 2018 to $16.1 billion by 2020.

• This segment provides life insurance, group life and health, and hospital coverage, along with wealth management products like mutual funds, pensions, variable annuities etc. in Hong Kong, Singapore, Indonesia, Taiwan, China, Japan, Vietnam, Malaysia, Thailand and the Philippines.
• The segment premiums have grown 19% from $11.8 billion in 2016 to $14 billion in 2018. This includes an increase of 15% y-o-y in 2018 primarily driven by the growth of new and in-force business, partly offset by a decline in single premium sales in Japan.
• Further, Asia Insurance premiums would drive the growth over 2019-20 and increase from $14 billion in 2018 to $15.1 billion by 2020. This growth would be driven by increased penetration in emerging markets.
• On the other hand, Policy Charges & Asset Management Fees are expected to remain around the $1 billion figure reported in 2018.

[C] Canada Insurance revenues are expected to have dropped 6% from $8.4 billion in 2018 to $7.9 billion by 2019, before improving to $8 billion by 2020.

• It offers individual life and living benefits insurance, Group life, health, disability, retirement and specialty products. It also provides Manulife’s wealth management products which include mutual funds, fixed & variable annuities, high interest savings accounts etc.
• Canada Insurance revenues have increased 31% from $6.4 billion in 2016 to $8.4 billion in 2018.

[D] Global Wealth & Asset Management is expected to grow at an average annual rate of 1% and cross $4.3 billion by 2020.

• This segment provides fee-based wealth solutions to retail, retirement and institutional customers around the world.

Our interactive dashboard for Manulife details what is driving changes in revenues of Manulife’s Canada Insurance and Global Wealth & Asset Management divisions.

 [E] U.S. Insurance revenues are expected to increase $4.9 billion, from -$0.8 billion in 2018 to $4.1 billion in 2019.

• It offers life insurance products, retirement plans, mutual funds, annuities and other wealth management products and services focused on individuals and businesses.
• The segment revenues have decreased from $9.5 billion in 2016 to -$0.8 billion in 2018. This exceptionally low figure of -$0.8 billion was due to ceded insurance premiums.
• However, we expect the figure to have bounced back in 2019 driven by a $5 billion increase in Annuities & Pensions revenue from -$7.7 billion in 2018 to -$2.7 billion by 2019.
• Thereafter, the segment revenues are expected to see a slight decrease of 2% y-o-y and cross $4 billion by 2020.
• Life & Health insurance premiums are expected to remain around the 2018 figure of $4.9 billion over 2019-2020.
• Policy charges & Asset management fees is on a negative trajectory, it dropped 54% from $4.2 billion in 2016 to $2 billion in 2018.
• We expect the trend to continue and reduce the fee revenue by 10% over 2019-2020.

Trefis estimates Manulife’s stock (shows cash and valuation analysis) to have a fair value of $21, which is roughly 5% higher than the current market price.

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