In the Williams Auditorium of a quaint government building in the Michigan state capital, Marianne Harrison, a senior executive at Manulife Financial Corp. , has taken the stage.
This quiet spot, 140 kilometres from Detroit and some 1,290 kilometres from her office in Boston, is an unusual place to find Ms. Harrison. But she's got some explaining to do.
For customers of Manulife's U.S. subsidiary, John Hancock Financial Services Inc., the message she brings is an unpleasant one. Thousands of them have been writing cheques each month for a product known as long-term-care insurance. These policies are designed to help people pay for someone to take care of them when they can no longer take care of themselves. For some Hancock clients, the insurance is an important part of their financial plan for their golden years.
For Manulife, it represents something else: The policies are a money pit, and also an illustration of how much has gone wrong since it vaulted itself to the top of the Canadian financial services industry in 2003 with the $15-billion acquisition of Hancock. Which is why Ms. Harrison is here in Lansing - to make the case for why the company should be allowed to raise prices on long-term-care insurance as much as 90 per cent.
This, she understands, is not a popular thing: Someone who bought a policy 15 years ago when he was 50 could see his annual premium rise from $983 to $1,740, just to maintain the same benefits. The company is attempting to do this throughout the U.S., imposing average rate increases of about 40 per cent on long-term care. But first it must persuade regulators in each state.
"We recognize the difficulty that these premium increases may pose for those affected," Ms. Harrison says from the podium. The room is virtually empty. That might have something to do with the fact that the insurer has not yet been required to directly contact customers and tell them about the proposal.
While many people remain unaware, John Hancock has asked regulators from coast to coast for rate hikes that would affect roughly half a million policy holders, according to filings with state regulators. It is all part of a much bigger effort by Manulife chief executive officer Don Guloien to revive Hancock - and to lift the fortunes of Canada's biggest life insurer, which has stabilized but is still suffering a mighty hangover from the pre-crisis boom years.
Once viewed as the boldest foreign acquisition in Canadian financial services history, Hancock has become Manulife's albatross, sucking up resources to such an extent that some analysts think it might be time for the company to sell it and flee the U.S. for the promise of Asia. Manulife took a $1-billion writeoff last year because of diminished prospects for its U.S. business; John Hancock takes up almost half of Manulife's equity capital, but, as National Bank Financial analyst Peter Routledge has noted, produces only one-third of its earnings.
The company's large variable annuity business in the U.S. became a major problem during the financial crisis because of the massive amount of exposure to stock markets that it built up. With the rebound in equities, that is no longer the problem that it once was. But Mr. Guloien has nevertheless pledged to remake the company's business - to put more emphasis on fee-based products like mutual funds, to wring better earnings out of its insurance business, and to take less risk so that it will better withstand the next market meltdown.
Those goals, while laudable, won't be easy to meet. It will take time and grunt work of the kind that Ms. Harrison is engaged in. The long-term-care business has been a big part of John Hancock's problems: In fact, it was the main factor cited by Moody's when the rating agency downgraded Manulife in November.
A longer lifespan
At a time when a number of U.S. insurers are running away from the long-term-care business, Manulife, through John Hancock, has redoubled its commitment to it. The insurer has become such an entrenched player that it alone holds the long-term care contract for U.S. government employees, the biggest contract in the game.