John Hancock IPO, Spinoff Considered -- WSJ
July 14 2017 - 3:02AM
Dow Jones News
Canadian insurer is considering IPO or spinoff for John Hancock
subsidiary
By Leslie Scism, Vipal Monga and Jacquie McNish
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 14, 2017).
Canadian insurer Manulife Financial Corp. is exploring a
possible initial public offering or spinoff of its John Hancock
Financial Services Inc. unit, according to people familiar with the
plans, as life insurers continue to struggle with low interest
rates and other challenges to the business.
If it proceeds with a breakup of the Toronto-based company,
Manulife would be the latest life insurer to hive off a large part
of its business. Industry executives have often cited the duress
low interest rates put on some of their basic products. A move by
Manulife would follow rival insurers MetLife Inc. and AXA SA in
shedding large U.S. operations built around sales of life
insurance, retirement-income annuities and other savings products
to American families.
Manulife has been under pressure from some of its shareholders
to sell John Hancock after years of disappointing returns from the
U.S. unit, according to two people familiar with the company.
Manulife's stock has gained 7% on the New York Stock Exchange
since its acquisition of John Hancock in April 2004. That compares
with a 118% gain in the S&P 500.
Manulife entered the U.S. life-insurance market with its roughly
$10.3 billion purchase of the Boston-based insurer founded in 1862.
The deal was announced with great fanfare as the keystone of the
Canadian insurer's global strategy to expand in the U.S. But after
years of disappointing returns from the business, which recently
accounted for nearly 60% of Manulife's assets under management and
administration, the Canadian insurer is instead focusing on
expanding in Asia.
As recently as two years ago, Manulife reviewed plans that
included a possible spinoff of the U.S. business. That proposal was
dropped at the time.
Manulife's potential IPO or spinoff follows some months of work
by investment bank Morgan Stanley to sell pieces or all of the John
Hancock unit, one person said.
At recent analyst and investor events, Manulife executives have
discussed shedding some weak parts of John Hancock. These included
at least some blocks of long-term-care insurance and
lifetime-income guarantees, according to a company presentation.
Those are among the products harmed the most by low interest rates.
Long-term-care policies typically pay for in-home aides or nursing
homes. John Hancock quit selling stand-alone long-term-care
policies to individuals last year.
Roy Gori, who will become Manulife's chief executive in October
after current CEO Don Guloien retires, said during a session with
investors in Hong Kong last month that he was "impatient" to shed
the businesses.
At issue for most life-insurance firms is simple economics
around policies. Many consumers buy long-term-care policies when
they are in their 60s but don't file claims until they are in their
80s. This means insurers are exposed to decades of interest-rate
risk.
Global interest rates have been near zero for almost an entire
decade, and insurers have earned far less in investment income on
older versions of the policies than anticipated when sold. Some
have taken repeated charges against earnings to reflect the
policies' poor financial results.
In addition to a potential move by Manulife, MetLife is nearing
the final stages of divesting much of its U.S. retail-life
insurance business -- the historical core of the company. Analysts
estimate that MetLife's spinoff, named Brighthouse Financial, will
have about $11 billion of adjusted book value, which is its assets
minus liabilities.
Meanwhile, Paris-based insurance conglomerate AXA is planning to
take its U.S. life-insurance operations public with a book value of
about $14 billion to $15 billion, according to people familiar with
the matter.
Over the past several years, some life insurers have sought to
sell blocks of out-of-favor product lines to eliminate the earnings
drag. But buyers have been scarce for large deals, and striking a
pact can involve booking a large loss for the parent. As a result,
a spinoff to existing shareholders of parts of a company's U.S.
life-insurance operations -- not just the most-troubled product
lines -- can become the preferred route for a divestiture, industry
investment bankers, analysts and consultants say.
John Hancock contributed almost half of Manulife's closely
watched "core" earnings of 1.1 billion Canadian dollars (US$864
million) during the first quarter. The unit also accounted for
almost 60% of Manulife's C$1.004 trillion in assets under
management and administration at the end of the first quarter,
according to filings.
John Hancock's businesses include selling life insurance, mutual
funds and other investment products to individuals and running
401(k) retirement-savings programs for employers. Outside the U.S.,
Manulife offers investment management, retirement funds,
real-estate and wealth-management services in Canada and throughout
Asia.
Manulife's U.S. long-term-care policies and certain other
contracts with long-term guarantees that it has been seeking to
sell have a combined book value of C$12.5 billion, according to an
estimate by RBC Capital Markets analyst Darko Mihelic.
Divesting John Hancock would allow Manulife to free up
regulatory capital and could add $5 a share to Manulife's stock
price of roughly C$24 on the Toronto Stock Exchange, said Mr.
Mihelic in a research report.
Manulife's shares rose 2% to $19.83 on the New York Stock
Exchange on Thursday.
Write to Leslie Scism at leslie.scism@wsj.com, Vipal Monga at
vipal.monga@wsj.com and Jacquie McNish at
Jacquie.McNish@wsj.com
(END) Dow Jones Newswires
July 14, 2017 02:47 ET (06:47 GMT)
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