UPDATE 3-Manulife seeks C$4 bln 2015 net; Asia, US growth

Fri Nov 19, 2010 4:51pm EST

* Expects growth in Canada, U.S. and Asia

* ROE seen at 13 pct by 2015, hedging equity exposure

* May enter India, South Korea markets (Adds analyst, CEO comments)

By Cameron French

TORONTO, Nov 19 (Reuters) - Manulife Financial Corp (MFC.TO), which has struggled after the 2008 market crash, said on Friday it is aiming for a nearly threefold increase in net profit to C$4 billion ($3.9 billion) by 2015, and will reduce risk by hedging aggressively against market swings.

The Toronto-based company, Canada's largest insurer and owner of U.S.-based John Hancock, said it plans strong growth in Asia and the United States, particularly in fee-based wealth management.

It is targeting a return on equity of 13 percent by 2015, and said the figures were goals rather than formal guidance.

The targets would improve on the company's 2009 profit of C$1.4 billion and return on equity of 5.2 percent, but they would lag profitability before the crash sideswiped Manulife's variable annuity business, forcing it to halve its dividend.

In pre-crisis 2007 the insurer earned C$4.3 billion, with a return on equity of 18.4 percent, its unhedged equity exposure helped by soaring stock markets.

Manulife shares, which have underperformed peers Sun Life Financial (SLF.TO) and Great-West Lifeco (GWO.TO) with a 20 percent year-to-date drop, fell 34 Canadian cents, or 2.2 percent, to C$15.35 on the Toronto Stock Exchange.

The stock hit a 3-month high on Thursday, but it is still trading at less than half of its pre-crisis levels.

"It's going to take a while to return to peak-type of earnings, and it's going to take a while for the stock price to get back to a price that we remember from several years ago," said Craig Fehr, an analyst at Edward Jones in St. Louis.

"That doesn't necessarily mean it can't be great investment in the interim."

Such a rebound would likely depend on Manulife restoring its dividend its previous level.

Donald Guloien, the company's chief executive, wasn't ready to speculate when that might be.

"What we want is more stability in our earnings and more growth in our earnings before we'd consider any dividend action," he told Reuters.

He said he's also is concerned about pending regulatory changes, including a shift to international accounting standards in 2011, and stiffer capital rules proposed by Canada's financial services regulator.

HEDGING

Manulife has aggressively hedged its exposure to stock markets and interest rates to produce more predictable results.

It aims to hedge 75 percent of its earnings sensitivity to equity markets movement by 2014, and said it hedged C$2.5 billion of equity futures contracts earlier this week.

That should reduce the risk of huge market-related hits to earnings, but it also reduces Manulife's ability to make back its previous losses through exposure to rebounding markets.

Manulife estimated the potential annual costs of hedges added after Sept. 30 could reach C$400 million in 2015. But the added reliability of the future results made it well worth it.

"These will be high quality earnings," said Guloien. "If markets go up we'll be criticized for hedging to fast, and if markets go down we'll be criticized for hedging too slow."

By 2015, Manulife hopes to earn C$1.5 billion from its Asian operations, C$1.5 billion from its Canadian business, and C$1.7 billion from the United States.

The company aims to become a dominant foreign insurer in Asia, where it already has a significant presence, particularly in Japan and China.

It targets high-return insurance and wealth management, and will explore strategies to push into India and South Korea.

In the United States, Manulife aims to exploit the strong brand awareness of John Hancock, the insurer it acquired in 2004, and push growth in its retirement and mutual fund businesses.

($1=$1.02 Canadian) (Additional reporting by John McCrank; Editing by Frank McGurty)

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