Boosting return on equity is a top priority for Manulife

par Donna Glasgow | June 26 2000 01:33PM

While Manulife financial saw its 2009 net earnings rise to $1.4 billion from $517 million a year earlier, the company is displeased with its return on equity (ROE) of 5.2%.

In his CEO's message to shareholders in Manulife's 2009 annual report, Donald Guloien stated, "While this was an improvement over 2008, neither I nor our management team is satisfied with these levels of shareholder return. We are dedicated to significant improvements in earnings and return on shareholders' equity over time."

The 5.2% ROE was a step up from the company's 2008 result of 2.0%, but a far cry from Manulife's record-breaking 2007 ROE of 18.4%.

In his speech during the company's annual meeting on May 6, Mr. Guloien spoke of the ROE issue extensively. "In 2009, we delivered a 5.2% return on equity for our shareholders. Better than the previous year, and better than many of our competitors, but still highly unsatisfactory. I believe the life insurance industry should target returns in excess of 14%, if we are to continue attracting the interest of shareholders."

He says this reflects his simple belief that the industry must service its capital adequately.

How does Manulife plan to improve its ROE?

"Number one, if we're going to offer a premium product, we should be prepared to charge a premium price. Yes, we are raising our prices - emphasizing a balance between margins and market share," stated Mr. Guloien.

Contacted by The Insurance and Investment Journal, the company declined to elaborate on which products are being repriced. "For competitive reasons we don't provide specific details or analysis on our products' pricing and or margins...Manulife is proud to provide high-quality premium products. We are also focused on ensuring solid growth in high return businesses to ensure an appropriate ROE for our shareholders...," stated Laurie Lupton, Assistant Vice President, Corporate Communications.

In his speech, Mr.Guloien said that the second way Manulife will strengthen ROE is through disciplined use of capital. "We're going to shift our business mix from low ROE applications to high ROE applications. This may sound obvious, but the key is execution. When you are constantly analyzing factors, such as interest rates, lapse rates, policyholder behaviour, morbidity assumptions and so on, you develop new insights as to which businesses are profitable, and which businesses are not so profitable..."

Mr. Guloien emphasized that growing ROE over the long-term cannot be delivered with a short-term focus. "Given that equity markets and interest rates are currently the most significant determinants of our quarterly results, it is important to focus our management team on building long-term sustainable earnings and ROE - the earnings of tomorrow - rather than trying to influence the next few quarter's results."