Manulife cites ‘challenging’ environment

Admission comes amid speculation that life insurer is weighing an IPO or spinoff of John Hancock

Manulife Financial, Canada’s largest life insurer, acknowledged that it has poorly performing books of business amid speculation that the company is seeking to exit its John Hancock operation in the U.S.

“We have some challenging blocks of legacy business,” chief executive officer Donald Guloien said Thursday on a conference call discussing second-quarter results. “As we’ve repeatedly said, we regularly investigate all opportunities of improving shareholder value.”

Manulife is weighing an initial public offering or spinoff of John Hancock, a unit that had more than US$400 billion of assets under management and administration at the end of 2016, a person familiar with the matter said in July.

Rivals including New York-based MetLife Inc. and France’s Axa SA have been working to retreat from similar operations in the U.S., helping to cut risk from businesses like annuities, where results can be volatile depending on markets.

The insurer was burned in the U.S. by low interest rates and higher-than-expected costs on long-term care policies. The CEO said he didn’t want to discuss hypothetical questions, but was peppered by analysts with inquiries about his plans for the U.S., and whether he would rule out some options, such as an exit from the Boston-based Hancock unit.

“I don’t think there are any non-starters,” Guloien said. “When you run a public company, you’ve got to look at it from every perspective in a dispassionate way. That’s not to suggest we would do that, or that it’s easy to do. The ultimate determination would be, ‘Is it good for building shareholder value?’ That would be the criteria our company would use.”

He also said the company’s asset-management operation, which has been an area of growth in many regions, is likely to retain a presence in the U.S., the world’s largest economy.

Second-quarter profit excluding some items was 57 cents a share, above the 55-cent average estimate analysts surveyed by Bloomberg. Net income jumped 78 per cent to $1.26 billion from the prior year period as investments boomed and sales increased for insurance and asset management business across nearly all regions.

The insurer said favourable investments, specifically fixed-income reinvestments backing policy liabilities, added $232 million to profit.

Wealth management core profit rose 36 per cent as flows of investor capital into its Asia, Canada, and U.S. units increased, and insurance earnings gained 16 per cent in Asia and U.S. with higher sales.

Manulife’s Canadian division is headquartered in Waterloo and employs about 4,700 people in offices in Waterloo and Kitchener.