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Manulife (MFC) Q2 Earnings Improve on Strong Asia Business

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Manulife Financial Corporation (MFC - Free Report) reported second-quarter 2017 core earnings of $0.9 billion (C$1.2 billion), up 50% year over year. This improvement was largely driven by an increase in wealth and asset management businesses, core investment gains, in-force and new business growth in Asia and lower equity hedging costs.

Manulife Financial Corp Price, Consensus and EPS Surprise


Manulife Financial Corp Price, Consensus and EPS Surprise | Manulife Financial Corp Quote

Premiums and deposits were $30.6 million (C$41.2 million), up about 12% year over year.

New business value in the quarter was $257.2 million (C$346 million), up 22.5% year over year. Strong growth, solid annualized premium equivalent (APE) sales and management actions to improve margins in Asia fueled this upside. However, a change in business mix in Hong Kong partially offset the same.

During the quarter, Manulife’s total insurance sales were $1.0 billion (C$1.4 billion), up 42.9% year over year. This is because sales in Asia increased 11%, Canadian sales skyrocketed 266.1% and the U.S. life insurance sales surged 26%, all on a year-over-year basis.

Manulife Minimum Continuing Capital and Surplus Requirements ratio was 230% as of Jun 30, 2017 compared with 233% as of Mar 31, 2017. This sequential decline may be attributed to the redemption of $500 million of subordinated debt and an increase in required capital from movements in interest rates.

As of Jun 30, 2017, Manulife’s financial leverage ratio improved 90 basis points (bps) to 29.2% from Mar 31, 2017, driven by the redemption of $500 million of subordinated debt and higher retained earnings.

As of Jun 30, 2017, assets under management were $743.4 billion (C$1000 billion), up 3.5% year over year.

Core return on equity, measuring the company’s profitability, expanded 310 bps year over year to 11.5%.

Segmental Performance

Asia division core earnings came in at $405 million, up 18.4% year over year, banking on growth in new business volumes, continued increase of in-force business and a more favorable product mix. However, a small charge related to policyholder experience in second-quarter 2017 compared with a small gain in the prior year, partially offset this upside. Annualized premium equivalents sales climbed 12% year over year to $686 million in the quarter.

Manulife’s Canadian division core earnings of $256.5 million (C$345 million) dipped 0.2% year over year. Nonetheless in local currency, core earnings improved 4% year over year, owing to higher fee income in the wealth and asset management businesses from higher average asset levels and improved earnings in the bank. A number of small items partially mitigated the upside.

Insurance sales skyrocketed 266.1% year over year to $340.5 million (C$458 million), driven by large-case sales in group benefits business.

The U.S. division reported core earnings of $452 million, up 25.2% year over year. This upside was fueled by improved long-term care policyholder experience gains, higher fee income from higher average assets and a favorable adjustment related to the timing of compensation expenses in WAM businesses, plus lower amortization of deferred acquisition costs related to in-force variable annuity business. Life insurance sales shot up 26% year over year owing to strong growth of international and term sales.

Dividend Update

The company’s board of directors approved of a dividend of 20.5 cents per share to shareholders of record as of Aug 22, 2017. The dividend will be paid on and after Sep 19.

Zacks Rank

Manulife presently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry that have reported their second-quarter earnings so far, The Progressive Corporation (PGR - Free Report) as well as The Travelers Companies, Inc’s. (TRV - Free Report) bottom line missed the Zacks Consensus Estimate, while RLI Corp. (RLI - Free Report) beat the same.

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