New Manulife CEO not betting on rate increases

by Leo Almazora13 Nov 2017
The US Federal Reserve has raised rates twice this year, and has hinted at a third hike before the year’s end. Canada’s central bank has also increased its overnight rate twice in 2017. The trend toward more hawkish rates might be positive for life insurers, but prudence remains the watchword at Canada’s largest insurance firm.

“We obviously benefit from a more positive outlook as it relates to interest rates, but we’re not banking on that,” Roy Gori, Manulife’s new CEO, recently told the Financial Post. Instead, the company will work on the assumption that low rates will continue because of uncertainty on global growth and inflation.

Despite recent challenges and threats, Manulife recently managed to perform well in the third quarter. Barclays Capital John Aiken noted the company’s core earnings of 53 cents per share — exceeding analysts’ expectations by 3 cents — despite a severe hurricane season.

“Asia had a solid quarter, with core earnings up 11 per cent from a year ago,” Aiken wrote in a note to clients. “This was coupled with strong sequential growth in insurance and wealth management products in addition to a healthy increase in the value of new business.”

In his interview with the Post, Gori, who left Citigroup to run operations in several Asian countries for Manulife, noted a new three-year partnership with Mekong Housing Bank in Vietnam. Under the arrangement, Manulife Vietnam is able to sell life insurance to the bank’s clients in Ho Chi Minh and Hanoi.

That’s contributed to a 15% year-over-year increase in insurance product sales in Asia, as reported by National Bank Financial analyst Gabriel Dechaine.

Dechaine also noted a 40% increase in net flows to wealth management, and rising core earnings in Canada on both a quarter-on-quarter and year-on-year basis. However, he added that overall product sales and value of new business was flat to down.

As for core earnings in the US, they were down from the previous quarter, but significantly better than the last year. Numerous media outlets reported last summer that John Hancock, Manulife’s wealth management arm in the US, could be subject to a sale or spinoff.

“We will continue to look at all options,” Gori said in a recent interview. “But at the same time we wouldn’t do anything unless it created value for the shareholders.”

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