Sunday, February 23, 2020

A Current @MarquetteAIM International Equity Holding: Manulife (MFC, $19.95): “Can Manulife Bring the Industry Back to Life?”

Manulife (MFC, $19.95): “Can Manulife bring the industry back to life?”
By: Joseph Vitrano, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Manulife (NYSE:MFC) provides insurance products for individuals and businesses. Their products include health, travel, and life insurance, group benefits, group retirement, investments, wealth management, and banking. These products are offered in Canada where Manulife is headquartered. They also offer various services across the twenty-two countries they are in.
• Canada’s Central Bank Rate is still 1.75% since October 8, 2019. Canada’s yield curve is inverted by 14.6 bps (10-2yr).
•MFC missed Q3 earnings projections, actual EPS was 30 cents, while forecasted EPS was 78-79 cents.
•The Coronavirus Could have a negative impact on Manulife’s Asian branches, due to an increase in claims.
•Slowing GDP growth may lead to Central rate cut. There is consistent unemployment at 5.5% and inflation at 2.2%.
•John Hancock a Manulife subsidiary will collaborate with Human API to create an easier life insurance buying process.

Key points: 

Manulife’s most recent earnings miss was caused by investment-related experience charges, and a $0.5 billion charge due to a change in the Ultimate Reinvestment Rate. The Ultimate Reinvestment Rate is controlled by the Canadian Actuarial Standards Board. Since these charges appear to be non-recurring, this earnings miss isn’t a reason to sell. Core earnings also stayed consistent with 2018 Q3 numbers at $1.5 Billion. New business value improved by 14% compared to 2018 at $526 million.

The Coronavirus death toll has rose to 908, which is higher than the SARS epidemic according to The New York Times. If the Coronavirus death toll continues to rise it could affect life insurance claims in Asia. At the moment it looks like the Coronavirus is being identified quickly and infected are being quarantined. This factor will need to be monitored in the future.

Although Canada is not a center for growth, the US and Asia look to be more promising markets in the future. Manulife CEO Michael Doughty has been focusing on the future of technology as it relates to Manulife. They partnered with Apple to give deals on Apple Watches. Now they are working with Human API to connect health data and life insurance. The collaboration will allow health records to be instantly sent to John Hancock a subsidiary of Manulife. This will make insurance purchases significantly easier. Michael Doughty wants people to choose to pay for life insurance over the other common subscription services. To do this he knows that it will take ease of use, and assurance of value. This process should boost sales in the US, and if it can be replicated elsewhere should help to gain Manulife market share.

What has the stock done lately?

The Stock has fallen from $21.16 to $19.95. This is a decrease of 5.7 percent. This decline can possibly be explained by the Coronavirus outbreak. The decline started early January, and it happened after hitting an all time high since the 2008 recession.

Past Year Performance: 

Manulife’s stock price has grown from $16.23 to $19.95, a 22.9% increase. It continues to perform well due to its cost cutting measures and growth opportunities in Asia. Manulife outperformed the MSCI Canada Index which grew 9.9% over the past year. Manulife is able benefit from outside growth while being in a stable country like Canada.

Source: FactSet

My Takeaway
It is my recommendation that Manulife continue to be held in the AIM International Equity Fund. Robby Metcalf had it right when he described Manulife’s commitment to innovation and technology. While life insurance as an industry seems unexciting and low in growth potential, Manulife is discovering ways to get past that. CEO Michael Doughty knows that they need to justify monthly premiums that millennials could be spending on entertainment subscriptions. To do that they are moving to make purchasing it as easy as possible and keep premiums affordable based upon updated health information. While the Coronavirus may initially increase claims in Asia, it also likely will encourage the purchase of life insurance policies and eventually create opportunity for Manulife.

Source: FactSet