Manulife Financial Corp. (MFC), Canada’s largest benefits provider, and Sun Life Financial Inc. (SLF) are among the nation’s insurers that have boosted revenue from money management as they shun variable annuities.
Manulife reported yesterday that fourth-quarter net income advanced 20 percent from a year earlier on stronger revenue from North American asset-management units. Sun Life’s profit beat analysts’ estimates as wealth results improved, and Great-West Lifeco Inc. said sales at its mutual-fund manager Putnam Investments expanded 22 percent.
“The more funds we manage the more fees we generate,” Manulife Chief Financial Officer Steve Roder said in a phone interview yesterday from Toronto. “It’s a good balance. We like having a balance between insurance and wealth.”
Sun Life, Canada’s third-largest life insurer, has stopped offering variable annuities in the U.S., and Manulife said yesterday it’s been cutting back on the sales. Instead, firms are managing funds for institutions as low interest rates curb gains on investments that back policy obligations.
“The insurers are looking for new avenues of growth,” said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier Inc., which manages about C$4.7 billion ($4.3 billion) including Manulife and Sun Life stock. Fund management “doesn’t require a lot of capital. It’s also a fee-driven business. It’s not as volatile as capital markets or lending.”
Manulife and Sun Life will benefit from fund-management fees in Canada and the U.S. in 2014, Peter Routledge, an analyst at National Bank Financial, said in a Feb. 5 note to clients. The business mix of life insurers is shifting to “rapidly growing wealth management,” according to a Jan. 26 note by Tom MacKinnon, an analyst at BMO Capital Markets.
Manulife reported its 21st straight quarter of record funds under management, reaching C$599 billion in the last three months of 2013. Fourth-quarter asset-management sales rose 15 percent to C$12 billion.
Assets at Sun Life’s MFS Investment Management reached a record $413 billion in 2013. Revenue from life and health insurance in Canada rose 13 percent to C$167 million in the fourth quarter from a year earlier, while domestic wealth products climbed 12 percent to C$2.57 billion.
“The financial crisis helped life insurers around the world recognize that we need more business that’s re-priceable, adjustable,” Sun Life Chief Executive Officer Dean Connor, 57, said by phone yesterday from Toronto. “Long-dated products where we make a commitment and lock the premium in today and guarantee it for 20, 30, 40 years -- regardless of what happens to interest rates -- is a very challenging business model.”
Annuities are retirement products that carry risks from market fluctuations because the contracts can guarantee minimum payments to clients even when equities fall.
Sun Life exited its U.S. annuity business in July, selling it to Guggenheim Partners LLC shareholders for $1.35 billion. It announced a third-party asset-management business on Feb. 6.
Manulife bought a broker-dealer and investment adviser firm last year from Symetra Financial Corp., and acquired MAAKL Mutual Bhd, a Malaysian asset manager. The company said on Nov. 11 that it would add to the C$14 billion in private-market funds it oversees for others.
Earnings weren’t driven exclusively by money management last year. Investments gained as the Standard & Poor’s 500 Index surged 30 percent in 2013, and the Dow Jones Industrial Average jumped 27 percent. The run has stalled, with both indexes lower this year.
Insurers also face competition in Canada for wealth-management assets from lenders including Bank of Montreal and Bank of Nova Scotia. Manulife’s Roder said firms like his have the ability to succeed.
“If you’re good at managing money in a general fund for life insurance policy-holders then why shouldn’t you be good at managing money for segregated funds and institutions?” he said.
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