reported third-quarter earnings that indicated the company may finally have emerged from its post-financial crisis slump. With net income of US$747 million – a 75% increase over the previous quarter – the insurance giant’s share price rallied strongly throughout November.
A significant driver in the company’s growth has been its Asian business, as sales increased by 28% compared to the third quarter of 2015. In addition, a growing middle class across the continent means Manulife’s success so far is really only the thin end of the wedge as far as growth goes.
In April the Canadian institution paid US$1.2 billion to Singapore's DBS Group Holdings for a 15-year partnership that will allow the insurer to sell products through the lender's Asian branch network.
The deal is just the latest move by Manulife to expand its presence in Asia, where it now operates in 12 markets - Hong Kong, Macau, China, Taiwan, Japan, Indonesia, the Philippines, Malaysia, Singapore, Thailand, Vietnam and Cambodia.
Cambodia was the most recent addition (2012), but Manulife’s history in Asia dates back to the 19th century when it started trading in Shanghai in 1897.
Manulife’s two main competitors, Sun Life and Great-West both operate in Asia, and while rewards can be high, there is plenty of risk involved in branching out at the other side of the globe. Philip Witherington, chief financial officer for Manulife, Asia explains the challenges of doing business in these markets.
“A lot of newer entrants to the Asian markets – inside and outside of insurance – make the mistake of treating Asia as a single proposition,” he says. “There are significant differences from market to market in almost every respect. The varying stages of economic development in each market give rise to totally different types of customer needs and product demand – and this influences regulatory frameworks, the agency model employed and ultimately how we service our customers.”
That said, the risk-reward balance is such that large companies feel any roadblocks, regulatory or otherwise, are worth navigating. This is a continent of 4.4 billion people after all, so the potential for growth is mammoth.
“Life insurance penetration in most Asian markets remains low by international standards, and there is scope for substantial growth as Asia’s middle class comes of age, creating demand for health, wealth and retirement solutions.”
Manulife has been operating in Asia for over 100 years, so in that time it has been able to develop a keen sense for the different nuances required to do business in quite diverse jurisdictions. Selling insurance in Hong Kong is quite different than Indonesia for instance, as it is with Manulife’s home country, as Witherington explains.
“One of the marked differences between Asia and North American insurance markets is the agency model,” he says. “Whereas North American agents act as brokers for products from multiple companies, many countries in Asia utilise exclusive agency structures.”
Collaboration between the banks and insurance providers is also much more pronounced, particularly in the distribution process.
“Bancassurance is a fast growing channel in Asia, now representing 30-50% of sales in many markets,” says Witherington. “This reflects the increasing sophistication of banks in the region, combined with an increasing proportion of the population in emerging markets that have a bank account.”
Advisors need to be aware of exempt rule provisos: Manulife
Canadian insurers profit from Trump-inspired interest rate increases
Earlier this month