For Manulife Financial Corp., its $4-billion purchase of the Canadian assets of Standard Life marks a return to the pattern of growth across the life insurance and wealth management sectors it has been pursuing for much of the past 127 years.
Edinburgh-based Standard Life has a strategy to reduce exposure to risks associated with insurance, while focusing on fee-based investment management. Selling its Canadian operations moves it further away from the insurance area.
For Manulife, it's a strategy to grow in key areas, according to CEO Donald Guloien.
"This deal adds about $60 billion in assets under management. That’s only the start of the story, however. There’s a global collaboration agreement between Standard Life and Manulife...We intend to cross-sell each other’s products where they make sense for clients. That will add to it," he said in an interview with CBC's The Exchange with Amanda Lang.
Manulife had a rough ride in 2009-2010 and had to slash its dividend payment because of steep losses. Its stock, formerly considered a reliable blue chip, hit a low of $9.
But Guloien says the insurance industry was stable and his company was never undercapitalized and is in excellent financial position. The company has been able to reverse those losses and move on with growth plans.
'One of the [criteria] was that it would not weaken the company and not slow down our ability to increase dividends in the future – we were able to satisfy both those conditions with this deal' - Manulife CEO Donald Guloien
"Manulife is growing very rapidly in all three markets — in Asia, in Canada and the U.S., across retail and institutional, a range of asset classes. There’s hardly an area within asset management where we’re not growing right now," he added.
Manulife acquired Standard Life’s long-term savings and retirement business, individual and group insurance, and investment management in the deal announced yesterday.
"But as it relates to this deal, one of the [criteria] was that it would not weaken the company and not slow down our ability to increase dividends in the future – we were able to satisfy both those conditions with this deal," Guloien said.
For Manulife, it also is an opportunity to build its presence in Quebec and acquire some products unique to Standard Life.
Underrepresented in Quebec
"Manulife was underrepresented in Quebec both in terms of penetration of the market and in terms of our physical presence in Quebec. So this is a chance to upgrade both," Guloien said.
Manulife shares slipped 1.2 per cent to $22.07 in trading this afternoon after news of the deal. Standard Life shares rose eight per cent in European trading.
The company said its earnings may improve by three cents a share in each of next three years because of the deal.
Barclays analyst John Aiken believes Manulife may be painting a conservative picture of the synergies that will arise out of the deal.
He likes Standard Life’s low-volatility, fee-based wealth management operations and says they may give a boost to Manulife’s bottom line.
“While the cost synergies from SL may not be as significant, given the commitments that Manulife has made in Quebec, synergies are likely to come from other areas of MFC's operations,” he said in a note to investors.
Aiken also welcomed the cross-selling agreement for Manulife, John Hancock and Standard Life products.
“On the revenue side, Standard Life's Canadian products provide additional heft for Manulife's distribution but the enhanced distribution agreement on top of an already successful partnership could prove to be a hidden gem.”
Manulife has proven its ability to grow and innovate throughout its 127-year history.
It is now the second largest life insurer in North America and fifth largest in the world, with principle operations in Asia, Canada and the U.S.
3 big Canadian life insurers
The life and health insurance industry in Canada is dominated by three companies – Manulife, Sun Life and Great-West Life.
They are the strongest companies to emerge from a period of consolidation in the 1980s and 1990s and later, the demutualization of the industry.
Demutualization is the process of changing from a company held by its policy holders to a stock company. Manulife was demutualized in 1999 and its stock was listed in New York and Toronto in September of that year, starting trading at $18 Cdn.
The demutualization process resulted in the stock being held widely by Canadians who had formerly been its customers.
Caisse de Depot, which yesterday pledged $500 million toward this deal, is one of its biggest shareholders.
After the demutualization process, there was a spate of amalgamations in the insurance industry. Sun Life merged with Mutual Life and Great-West Life took over Canada Life.
Manulife had amalgamated with North American Life in 1996, In 2004, it made its biggest play, merging with John Hancock, a U.S. firm with a wide range of wealth management and insurance products.
Dearth of choice: CARP
All this consolidation in the industry has resulted a dearth of choice for consumers, says Susan Eng, vice-president of advocacy for CARP, which advocates for older Canadians.
But she said the damage was done over a period of years and she doesn’t believe the takeover of Standard Life will have much real impact for people buying life insurance.
“I think we have no competition between firms of what rates you can have,” she said, adding that insurance for people over 70 is increasingly difficult to secure.
Guloien says consumers will continue to get the same service and the same products they had from Standard Life, though the name on their policy may change in two years, once the companies are integrated.
He doesn't anticipate regulators will try to block the Standard Life deal.
And he's not giving up on further expansion, including in Asia, saying this deal will not drain Manulife's resources.
"We will be able to do Asian acquisitions as well. A lot of people have discovered Asia recently. We’ve been there for over 115 years. The people who have come in more recently are having to pay up to buy certain properties," he said.
"We’re growing our business organically, which is far less expensive than having to acquire a company."