U.S. Markets

Manulife CEO says lower rates for longer is 'new headwind'

TORONTO (Reuters) - Manulife Financial Corp's MFC.TO chief executive said on Wednesday an environment of lower interest rates for longer is proving a challenge for the insurer, which did not expect the "significant" drop in long-term rates that has taken place.

“A new era of lower rates for longer is a new headwind we’ll have to grapple with,” Roy Gori said at the S&P Global Insurance Conference. “When we did our planning for 2020 and 2021, we never really anticipated the significant drop in the longer end of the curve as much as we’ve actually seen.”

Global insurance companies are seeing plunging yields slam investment returns, while the pandemic has boosted some payout expenses.

Manulife last month reported a 40% drop in first-quarter profit.

The decline in rates has required Manulife to respond by changing pricing and products and increasing efficiency, in part through increased technology adoption, he said.

Manulife has done more to advance digitization in the past five months than in the previous five years, and more than 90% of products can now be sold digitally, Gori said.

Gori said Manulife’s operations outside North America, particularly in Asia, have helped cushion some of the impact of low rates.

With different Asian markets are at different points on the yield curve, “you start to appreciate the benefits of global diversity,” he said.

Gori cautioned that volatility, particularly in equity markets, will continue until a coronavirus vaccine is developed and deployed.

Gori also said 90% of Manulife’s employees in China and 50% in Hong Kong have returned to offices. That contrasts with its North American operations, where 98% of staff are still working from home.

Manulife shares rose 4.1% to a seven-month high of C$18.50 on Wednesday, compared with a 1.1% gain in the Toronto stock benchmark .GSPTSE.

Reporting By Nichola Saminather; Editing by Chizu Nomiyama and Marguerita Choy