宏利金融

Manulife reported overall okay results for the second quarter, with adjusted earnings per share up 16% year over year. Along with earnings, the firm announced a CAD $3.2 billion risk transfer deal with Munich Re covering a block of its US long-term care products.

Why it matters: The reinsurance transaction with Munich Re is the firm's third long-term care, or LTC, deal in the past three years. The deal is expected to close in the fourth quarter, pending regulatory approval. Upon closing, the firm's legacy LTC reserves would decline by around 24% cumulatively across three transactions. Since the transaction is a biometric risk transfer and no assets will be transferred, it will be largely neutral to capital. Foregone earnings, on both an adjusted and reported basis, will be roughly CAD 30 million annually and will decline over time. We view the reinsurance deal positively, as it accelerates the firm's effort to reduce risk and shift its business mix toward more capital-light, higher-return businesses.

The bottom line: As we incorporate second-quarter results and the LTC reinsurance transaction, we expect to maintain our CAD 48 fair value estimate for no-moat-rated Manulife. We assess shares as overvalued. Although the firm’s Asian segment has seen double-digit adjusted earnings growth in the past several quarters, our long-term earnings growth expectation for Asia is in the high-single-digit range on a normalized basis.

Key stats: The firm's Canada segment, which accounted for around 20% of the firm's adjusted earnings, saw core earnings decline 10% year over year, following the first quarter's 6% decline. Negative insurance experience continued in its domestic business, along with higher expense spending. The firm has been making investments in improving client experience, which should ease over time.

BLANK PAGEThe CAD 3.2 billion LTC block being transacted with Munich Re carries more generous policyholder benefits than what Manulife will retain: 33% of ceded policies include lifetime benefits and 91% carry inflation protection, compared with just 9% and 54%, respectively, for the retained LTC blocks once the deal closes. This is also Manulife's first LTC-only reinsurance transaction, as prior deals with RGA and Global Atlantic were bundled with other legacy blocks. We continue to expect the firm to remain open to future risk transfer deals in the LTC space, which should further reduce its risk profile and improve earnings quality.

We are increasing our fair value estimate for Manulife to USD 35.30 per share from USD 34.10. We made miscellaneous updates to our model since our last update as well as foreign exchange rate updates. Our fair value estimate is equivalent to 1.9 times book value as of December 2025 (or 1.3 times adjusted book value including contractual service margin). We an exchange rate of CAD 0.72/USD 1.

We project Manulife’s insurance revenue to grow at a 4.9% compound annual growth rate over the next five years, driven by faster growth in its Asian markets and slower growth in its Canadian and US markets. We expect its bancassurance partnerships and the firm’s Asian agents to drive an Asia insurance revenue CAGR of around 8.8% in the next five years. For the domestic and US life insurance business, we expect low- to mid-single-digit growth over our five-year forecast. We project the firm’s total insurance service expense will be around 80.5%-81.5% of its total insurance revenue over the next five years, with some improvement in US claims cost from reinsuring lower-return blocks of long-term care and variable annuity businesses in 2023 and 2024. For Manulife’s global asset and wealth management business, we project total AUMA to grow at a 7.9% CAGR over the next five years and fee income to grow at a 6.3% CAGR during the same period.

We forecast an investment yield of 4.06% on the company’s portfolio in the terminal year of our forecast. We project that Manulife will have an equity/assets ratio (without separate account assets) of 9.01% in our terminal forecast, and the return to equity will be around 16.9% in the terminal year of our projection, reflecting our midcycle forecasts for the company. We think the management team’s medium-term target of 18% ROE is too ambitious from a normalized earnings perspective.

Due to the highly competitive, undifferentiated nature of the life insurance industry, we don't believe Manulife has an economic moat. While we think Manulife’s wealth and asset management business segment has a narrow moat, it represents only one-fourth of the company's earnings and thus is not large enough to affect our overall moat rating. We expect the company to earn a midcycle ROE of around 16.9%.

While our normalized ROE for Manulife is higher than our 10% cost of equity estimate, we do not see enough qualitative substantiation to justify an economic moat for the core life insurance operations (70%-75% of earnings). Manulife’s historical return profile has also been volatile over the past decade, partially due to its exposure to low-return and capital-intensive long-term care and variable annuity blocks.

While the firm has made progress in the past several years toward reducing its risk profile and improving returns by reinsuring portions of these blocks, they still represent around 9% of its adjusted earnings exposure (down from 24% in 2017) in 2025 and pose a risk of significant value destruction during a severe market downturn.

There are two major sources of earnings for life insurers: underwriting profit (earned premiums minus claims and operating costs) and investment income (yield on the investment portfolio). We view underwriting profit as the ultimate source of any economic moat since investment income tends to reflect higher risk-taking or luck rather than durable advantage, and investment losses can erode underwriting earnings. Most life insurance policies are long-duration and are backed by long-duration assets, making life insurers more exposed to the capital markets than property and casualty insurers.

We see little sign of brand-driven intangible assets in the life insurance industry, with consumers largely buying on price. Scale advantages are limited, too, since variable commissions make up a material portion of operating costs. Additionally, underwriting advantages are hard to maintain, as morbidity rates, mortality rates, and lapse rates are highly predictable. Technology-driven data analysis offers only marginal claims improvements before being competed away or passed to consumers through lower pricing.

Poorly structured life insurance policies (products with generous guarantees) can expose life insurers to heavy losses in a severe market downturn, and poor underwriting can pressure companies for many years and even result in bankruptcy. Because insurers do not know their cost of goods sold for many years, they can underprice policies unknowingly, and managers chasing growth over profitability can force competitors to match low prices or lose business.

Manulife is one of the Big Three Canadian life insurers (along with Great-West and Sun Life) that together capture over 80% of life insurance premiums in Canada. Its Canadian segment contributed around 21% of Manulife’s 2025 adjusted earnings. In Canada, Manulife derived around 77% of its earnings from insurance products (group and individual), 14% from annuities, and 9% from its bank subsidiary in 2025. We think that it has a strong position in the Canadian group benefits business, which is relatively capital-light, and the life insurer can reprice its policy annually. The group benefits business also does not require a large salesforce of individual agents/advisors, as the channel instead requires developing relationships with corporate sponsors.

Manulife’s US business is primarily conducted through the John Hancock brand. We view the US life insurance market as much more fragmented than Canada's. The US segment contributed 16% of Manulife’s earnings in 2025. John Hancock stopped selling its long-term care insurance products (which were low-return and capital-intensive) many years ago and has reinsured several blocks of LTC businesses and variable annuity business in the past several years. We think Manulife’s US insurance return profile and risk profile should improve from these actions going forward.

Asia is Manulife’s largest life insurance business, contributing roughly 38% of earnings in 2025, and the firm puts a great emphasis on its market presence here. Manulife aspires to increase its total earnings from Asia (life insurance and wealth and asset management) to more than 50% of total company earnings. We believe the Asia market presents significant growth opportunities, driven by attractive demographics, including the expansion of the middle-class wealth and rising insurance penetration. However, we also believe that competition is intense in these markets, and we don’t think Manulife’s Asia business has an economic moat. In its largest Asian market, Hong Kong, Manulife’s share is much smaller than that of AIA Group and Prudential.

Manulife’s global wealth and asset management business contributed roughly 26% of earnings in 2025. We believe that this segment has a narrow economic moat based primarily on switching costs and, to a lesser extent, intangible assets. The GWAM segment generated positive net flows for eight out of the past 10 years.

Apart from managing Manulife’s general account assets of around CAD 234 billion, GWAM managed around CAD 1.1 trillion in third-party assets at the end of 2025, with more than 70% of its AUM coming from its direct or affiliated distribution channels. Wealth and asset management businesses can lend themselves to economic moats, contingent on relationship stickiness, depth and breadth of products, distribution channel concentration, and geographic mix.

With a healthy retirement channel presence, reasonably strong geographic diversification (Manulife derived 25%, 14%, and 61% of AUMA from Canada, Asia, and the US, respectively, at the end of 2025), and captive distribution in Canada—attested to by market share capture by the largest Canadian banks and life insurers from pure-play asset managers, we think this segment deserves a narrow moat rating.

Manulife has a dominant position in many segments of the Canadian market and generates decent returns.

Manulife should achieve strong growth in Asia within the next few years, driving overall top-line growth and improving geographic diversification.

Manulife has executed its plans to reduce exposure to riskier products like long-term care insurance and variable annuities, which should lead to the firm generating higher returns with lower risk in the future.

Manulife has a higher general account allocation to equity and other riskier alternative assets, which can be risky during an elongated economic slowdown or market downturn.

Manulife could suffer from higher credit costs in the current private credit cycle, which could decrease the firm's profitability.

The market for life insurance and income-based retirement products is competitive and commoditized and it is difficult for companies to find value-accretive growth.