Tuesday, December 20, 2011

(No.182) Manulife: pigs get fat, hogs get slaughtered

In the last couple of months I have written several columns about Manulife and Sun Life and their respective performances as Canadian financial institutions. My critical comments about Manulife and its senior management in "Manulife Jabberwocky" (column No. 177, posted Nov.13, 2011 to RickardsRead.com) attracted a number of responses from the financial services community, almost all of them positive.

Just recently a Canadian college business instructor wrote to thank me "for maintaining your blog. I am sure that it seems a thankless exercise at times, but I enjoy reading it and it helps me to better understand the life insurance industry. I am quite looking forward to your comments in light of Sun's announcement of this morning [withdrawing from the sale of individual life and annuity policies in the U.S.], especially given your blog posts on Sun's U.S. business."

I have received several emails expressing similar expectations involving RickardsRead.com. I will indeed be devoting a future column (likely the next one) to comments on the changes at Sun Life since the Nov.30 retirement of CEO Don Stewart and the takeover by his successor Dean Connor. However in this column I want to share a few of the reactions I received to my comments about Manulife. [Insertions within square brackets are mine.]

A securities analyst in Toronto thought my Manulife comments were "Well said!! Let's not forget where was the central regulator [OSFI] as all of this was going on? Oh ... and if some Canadian life insurers want U.S. GAAP [I] wonder how they would feel about a U.S. P/B valuation on their shares? GAAP may have many shortcomings but markets are not that inefficient and know how to look through the weakness as the much lower valuations of some U.S. insurers can attest. ... Always enjoy your column."

This rocket came from a person associated with one of the big five Canadian banks: "Thank you -- and keep up the good work!! Bunch of goddamn [deleted] and the financial press says nothing. It was interesting to note that Berkshire [Hathaway] announced a ton of losses on derivatives on the same day that the Manulife [deleted] told us how they plan to make so much money on CDSs -- because they are 'experts' at credit?"

A life insurance broker connected with Manulife emailed to say that "I read your blog on a regular basis, and ... you are spot on with Manulife. The bloom is certainly off that rose. As a distributor for Manulife and several other insurers it has always been a puzzle as to why they consistently do what so many other manufacturers won't. I will say however from a retail perspective Manulife has done an excellent job building its brand in spite of itself. Anyway, the saying 'pigs get fat and hogs get slaughtered' fits the Manulife scenario. Insurers have always had the keys to the financial treasure chest,why is it that they must always try to blow themselves up?"

Another response to my Manulife column came from an American university professor of insurance who wrote to tell me that "you've done it again! I laughed out loud -- something that doesn't happen so often these days. Keep after 'em!"

A former senior executive at a major Canadian life insurance company also thought my Manulife comments were "well said!. Yours is at times a lonely voice as much of the financial media in Canada acts as a cheering section for the press releases of the likes of Manulife. They continue to be the darling of the analysts largely because they are the loudest of the voices at the table and have defined how to read the tea leaves."

On the other side of the matter an opinion from someone at Manulife posited that "someday the market will stop looking in the rear view mirror and start looking where Manulife is going. Interest rate sensitivity is 90% hedged, equity risk is 60% hedged. MCCSR was 241 last quarter .... I'm higher on Manulife than I have ever been and while I don't expect a great quarter, I think given the market it won't be too bad."

And finally on the subject of my comparison of Manulife with Sun Life, this flattering but hyperbolic comment from a former regulator: "Al, you have outdone yourself. Move over Conrad Black."

by Alastair Rickard

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email: Alastair.Rickard@sympatico.ca

blog: www.RickardsRead.com
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