As the trade war continues between the United States and China, Canadian life insurers say opportunities are opening up as manufacturers look to move their operations to countries in Southeast Asia.
“People have remapped their supply chains away from China to some extent to manufacture in Southeast Asia, and in the short run, those countries are benefiting from strong GDP, good demand and good job creation,” Dean Connor, Sun Life Financial Inc.'s chief executive, said in an interview. More people entering the work force provides more prospects for life insurers.
Sun Life and Manulife Financial Corp., which both reported fourth-quarter earnings on Wednesday, are two Canadian insurers that have seen strong momentum in their Asian markets. At Manulife, profits from Asian operations made up more than a third of overall earnings in the quarter, and were nearly 50 per cent more, in the aggregate, than the company’s Canadian profits. Sun Life isn’t as reliant on Asia, but it represented nearly 20 per cent of Sun Life’s fourth-quarter profits and contributed more to Sun Life’s bottom line than the United States did.
With the region’s comparatively youthful population and growing middle class, Mr. Connor expects to see the Asian business eventually account for 25 per cent of the company.
“We are quite optimistic about Asia in 2019 and beyond,” Mr. Connor said. “We have experienced strong growth in the Asian markets and we expect to continue to see strong growth. There is the obvious demographics of the market, with the average age in countries like Indonesia and Vietnam being very young. Millions of people are moving up to the middle class and can now afford what we sell and use the advice that our advisers bring. That is just one driver but it’s a multiyear driver for what we do.”
Sun Life operates in seven markets in Asia: mainland China, Hong Kong, Vietnam, Philippines, Indonesia, India and Malaysia.
When asked whether there are other Asian markets into which he would like to expand, Mr. Connor said he is pleased with the Asian countries Sun Life is operating in now, as they “represent 90 per cent of the growth in the insurance industry in Asia over the next decade.” While he said the company has looked at Thailand and Singapore, they are not markets they are rushing to enter.
Sun Life reported “underlying net income” for its Asian markets of $140-million in the fourth quarter, up from $111-million in the fourth quarter of 2017.
Manulife operates in 12 Asian regions and reported “core earnings” in its Asian market of $459-million in the fourth quarter, up from $372-million in the fourth quarter of 2017.
Sun Life’s Mr. Connor expects to see continued strong growth in India, soon to be the most populous country in the world. As well, growth is expected to be seen in Hong Kong, he says, with the new Greater Bay Area that will integrate Hong Kong with Guangdong and other southern regions of mainland China.
Over all, Sun Life Financial reported fourth-quarter net income of $580-million, or 96 cents a share, up from $207-million, or 34 cents, in 2017’s fourth quarter.
Manulife Financial reported fourth-quarter net income of $593-million, or 28 cents a share, compared with a loss of $1.61-billion, or 83 cents, in 2017’s fourth quarter.
Both insurers had a big gain in earnings compared with the 2017 period because they took big charges against earnings in that year because of changes in U.S. tax laws.
Manulife also announced on Wednesday it would more than double its stock buyback program if regulators approve. It said it has already repurchased 30.6 million shares of a 40-million-share program. The increase in the buyback plan would boost the number of common shares involved to 99 million, or about 5 per cent of the company. In a statement, the company said “in its view, recent market prices do not reflect the underlying value of Manulife’s business.”
Sun Life has repurchased about 70 per cent of its 14-million-share repurchase program, but Mr. Connor confirmed that the company would not be looking to increase its program at this time.
With files from reporter David Milstead
Clare O’Hara