UPDATE 2-Manulife promises stability, Asian growth

Thu Nov 15, 2012 4:47pm EST

* Asia seen as driver of profit growth

* Insurer targets less earnings volatility

* Markets have weighed on earnings

* Paul Rooney promoted to COO

By Cameron French

TORONTO, Nov 15 (Reuters) - Manulife Financial Corp is increasing its dependence on Asia as a means to reach a C$4 billion core profit goal by 2016 and promises a departure from the volatile earnings that have plagued recent quarters.

"We expect to see less volatile and far more sustainable earnings than the earnings of the past," Donald Guloien, chief executive of Canada's largest insurer, said at a company investor presentation in Toronto.

The profit goal represents a near doubling of Manulife's current level of profitability, as the insurer had core profit - which excludes the direct impact of financial markets - of C$1.65 billion through the first 9 months of 2012.

The goal, affirmed last week, represents a slight reduction on its previous target of C$4 billion in net profit by 2015.

That projection assumed it would get the largest contribution from its U.S. operation, which includes John Hancock Insurance, and a slightly smaller profit from its Canadian and Asian divisions.

Now, the insurer sees Asia producing the largest chunk of profit where Manulife currently operates in 11 markets and is considering entering more, including Myanmar, said Bob Cook, head of the insurer's Asia division.

Manulife sees its Asian division producing $1.65 billion in core profit by 2016, while its U.S. division is seen with $1.5 billion. It expects C$1.45 billion will come from its Canadian division.

In Asia, Manulife is looking to take advantage of a demographic shift as hundreds of millions of people join the ranks of the middle class over the next several years. Markets such as Cambodia, which Manulife entered in the past year, are just starting to embrace the idea of insurance.

"The story for Manulife Asia is essentially that very few financial services companies are as well positioned as us to exploit the trends currently under way in the region," said Cook, noting that Manulife has been operating on the continent since 1897.

Over the next four years, Manulife plans to double insurance sales, quadruple wealth management sales and double wealth management funds under management in the region.

HEDGING

While Asian growth is key to the company's earnings engine, it is hedging that Manulife is relying on to remove the volatility that has led to wild swings in its results since the 2008 financial crisis.

Under Canadian accounting rules, life insurers must mark-to-market their huge investment portfolios each quarter to make sure they can cover long-policy obligations, and take reserves out of earnings if they fall short.

The company has been hedging its exposure to stock markets and interest rates and has reduced its market volatility sharply, the company said.

It recorded a net loss in three of the last four quarters, including a loss of C$227 million in the third quarter ended Sept. 30, after taking a C$1 billion charge due to a shift in actuarial assumptions related to certain insurance products.

Guloien said the C$4 billion profit target assumes little change in current low interest rate levels, although it does assume an increase in equity markets, which one analyst said was hardly a foregone conclusion.

"The issue is arguably (the target) is quite conservative on the interest rate scenario and arguably it's optimistic on equity markets," said Peter Routledge, an analyst at National Bank Financial.

He noted Manulife's growth plan also depends more heavily on wealth management growth than insurance growth, which also ties its results to in improvement in equity markets.

The company's shares ended the session down 2 Canadian cents at C$11.94.

Manulife also announced it had promoted Paul Rooney, currently the head of the Canadian division, to chief operating officer, a newly created position.

The insurer said Rooney will focus in his new job on corporate strategy and corporate development, among other responsibilities.

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