Manulife Exploring IPO or Spinoff for John Hancock Unit--Update
July 13 2017 - 1:08PM
Dow Jones News
By Leslie Scism, Vipal Monga and Jacquie McNish
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.
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 impact of
low interest rates and the damage they do to some of the insurers'
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 initially jumped into the U.S. life-insurance market
with the purchase of John Hancock in 2004. The Boston-based
insurer, which was founded in 1862, was bought for roughly $10.3
billion. The purchase was announced with great fanfare as the
keystone for 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.
In recent analyst and investor events, Manulife executives have
discussed divesting 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 long-term-care policies to
individuals last year.
Roy Gori, who will become 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. Most 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.
Given global interest rates have been near zero for almost an
entire decade, insurers have earned far less in investment income
on older versions of the policies than anticipated when sold, and
some have taken repeated charges against earnings to reflect the
policies' poor financial results.
In addition to a potential move from Manulife, MetLife is
nearing the final stages of divesting much of its U.S. retail-life
insurance business -- the historic 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 ($846.4
million) during the first quarter. The unit also accounted for
almost 60% of Manulife's C$1.004 trillion 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 "legacy businesses" include its U.S. long-term-care
policies and certain other contracts with long-term guarantees. It
has a 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 recently traded at $19.52 on the New York
Stock Exchange.
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 13, 2017 12:53 ET (16:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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