Manulife Financial To Alter Asset Mix, Free Up Capital

Post review of investment strategies of its legacy businesses, Manulife Financial Corporation MFC recently announced to lower allocation to alternative long duration assets over the next 12-18 months. This step will help the life insurer boost return on capital and free up the same for redeployment in growth initiatives.

Although the company is estimated to incur a $1-billion charge or 50 cents per share in the fourth quarter of 2017 for reducing the allocation, the same will free up a hefty sum of capital worth $2 billion. However, core earnings are likely to be lowered by $50-$60 million per year after-tax till Manulife redeploys the net $1 billion capital benefit in higher return businesses. This strategic initiative will also improve the company's risk profile as the same will help lower its volatility in legacy blocks.

Manulife also stated that with the new tax structure coming into effect, the company will incur $1.9 billion after-tax or a charge of 96 cents per share. However, net income and core earnings are anticipated to increase by about $250 million per year starting next year.

Manulife has always pursued plans that ramp up its growth profile and enhance operational results. New business volumes, particularly in Asia, and positive net flows in its wealth and asset management businesses are driving the company's performance. Wide reach in the Asian market as well as a burgeoning asset management business might boost long-term earnings growth. The company remains on track to achieve more than $100 million in expense synergies.

Manulife carries a Zacks Rank #3 (Hold). Shares of the company have gained 17.9% year to date, underperforming the industry's 24.2% rally. We expect such strategic efforts to drive the shares higher.

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