Roy Gori is eager to demonstrate that Manulife Financial Corp. is in the grip of “transformational change.” To emphasize the point, he has chosen to meet on a newly renovated floor of the company’s Toronto headquarters. Here, grandfatherly mahogany trimmings and forest-green leather accents were recently replaced by creamy wallpaper punctuated with chrome details, pearly fabrics and modern glass chandeliers.
“The space you work in is a big part of the cultural mood,” says Gori, an intensely athletic man who radiates energy right through to the tips of his spiky dark hair. Since taking over as Manulife’s CEO seven months ago, he has been trying to instill an obsessive, no-time-to-waste approach to how the insurer operates—from clamping down on costs and jettisoning underperforming investments to pouring capital into markets where demographic trends are spurring demand for insurance and wealth management products. “There’s this urgency and this sense that we’ve got to imagine a future radically different from the past,” he says.
Gori will need more than enthusiasm and remodelled digs to simultaneously spur growth and address volatility in the company’s financial results. Manulife, Canada’s highest-revenue corporation last year, just missed the top spot this year with 2017 revenue of $58.4 billion, up 9% from 2016. However, its profit dropped 28% as the company took significant charges related to U.S. tax reform and the decision to change its portfolio asset mix.
These days, a big part of Gori’s focus is the world’s largest continent. Born in Sydney, Australia, the executive has spent practically his whole career on the other side of the world, moving around the Asia-Pacific region on behalf of Citigroup for 28 years before joining Manulife as head of its Asian operations in 2015. And while he needs all five fingers to count off his priorities in turning Manulife into a technology-savvy company that customers don’t perceive as slow, complicated and impersonal (just a few of the insurance industry criticisms he’s well aware of), Gori gets most animated when discussing the promise of growth in the East. The company now describes its principal operations as being in Asia, Canada and the United States (under the John Hancock banner), in that order.
Taking over in October, Gori quickly put his stamp on the insurer. He overhauled Manulife’s senior management team, appointing new heads to the company’s major regional divisions. He also hived off underperforming legacy businesses, such as U.S. long-term-care insurance and annuities, into a separate unit and pledged to change the investment portfolio’s asset mix (see sidebar). The market has greeted the changes with cautious optimism. Paul Holden, an analyst with CIBC World Markets, agrees with Manulife’s priorities but suggests the company needs to show it can meet clear, measurable targets. “Investors are going to want something more tangible,” he wrote in a recent note to clients.
Gori took charge of Manulife at a pivotal moment, just as the company started to push again into growth mode after dealing with the fallout of the Great Recession. Canada’s largest insurer was hit particularly hard by the 2008 financial crisis, in part because many of its investments had been unhedged. A subsequent large new share issue that reduced the value of existing investors’ holdings, combined with warnings from regulators that Manulife’s capital levels were precariously low, crushed the stock: The share price dropped from $40 in 2007 to about $10 in 2012. In subsequent years, Gori’s predecessor, Donald Guloien, shifted investment to less capital-intensive businesses such as wealth management and, with Gori’s assistance, focused on expansion in Asia, where the company has operated for 120 years.
The new CEO has redoubled efforts to capitalize on Asia’s consumers. Almost 90% of the next billion entrants into the global middle class will come from this region, according to the Brookings Institution, and Manulife projects Asian households’ net wealth will double in the next 10 years—meaning more people will have more assets to manage and protect. Meanwhile, the World Economic Forum forecasts a $120-trillion (U.S.) pension shortfall in China alone by 2050, as retirement income needs and life expectancies grow. Insurers are eager to help close this gap by offering retirement-saving products. “As these markets grow, our opportunity and, in many ways, our duty is to educate customers on the importance of insurance and protection,” says Anil Wadhwani, who recently took over leadership of Manulife Asia.
Gori has his eye on 12 regional markets, which already represent a third of the company’s earnings and more than 80% of its new insurance sales. “If I’m absolutely honest, three years ago we were a bit of a two-trick pony in Asia,” he says. The company had reached significant scale (as measured by annual sales greater than $100 million) in Hong Kong and Japan, and was making rapid advances in Indonesia. “Fast-forward to the end of 2016, and we went from three markets to seven where we have scale,” says Gori.
Of course, Manulife is hardly the only insurer undergoing strategic shifts in search of new growth markets. After nearly a decade of low interest rates, tightening regulations requiring players to retain more capital and growing incursions by digital competitors, the global industry is in the midst of a reinvention. And several major insurers are putting an emphasis on Asia, including Canada’s Sun Life Financial. In March, British insurer Prudential PLC said it would cleave its business in two, separating the U.K. unit from its faster-growing operations in Asia, the U.S. and Africa. Meanwhile, AIA Group, a former subsidiary of a U.S. company that has emerged as one of the largest pan-Asian life insurers, recently reaffirmed its focus on regional expansion.
With so many competitors counting on Asia’s rising tides to float their boats, how will Manulife stand out? Wadhwani, who spent the past 25 years with Citigroup focusing largely on consumer banking in Asia, believes Manulife’s significant asset management business will help broaden its customer base. There is also the Canada brand. “Between Canada and Asia, there’s a big link,” says Johannes Pastor, leader of KPMG Canada’s insurance sector practice, who believes that connection can give Canadian players an edge.
Still, just keeping pace with the competition will pose a significant challenge. “A myth about Asia is that it’s easy because the market is growing,” says Phil Witherington, who recently moved to Toronto from the Asian division to become Manulife’s CFO. He notes insurers need to not only design products tailored to the distinctive preferences of each country’s population but also develop well-structured partnerships with local banks and others that can market the products to consumers. “Asia is not one [market],” Wadhwani says. “There are local nuances; there are regulations.”
Not every insurer entering Asia has the same appetite for risk. Gori points out that Manulife has forgone revenue opportunities after it deemed some insurance products offered in China as too high-risk. And saying no can be as important as saying yes when it comes to choosing partners, geographies, technologies and product offerings. Manulife recently made such a decision on Thailand. Finding its operation wasn’t big enough to keep pace with insurance leaders in that country, it cut its local workforce in half and turned its business into a digital-only pilot program that, if it’s successful, the company may roll out to other parts of Asia. Asian consumers are rapidly embracing mobile devices for everything from buying groceries to hailing transportation to shopping for financial services, says Wadhwani. “They don’t want institutions cold-calling them.”
In the future, Wadhwani sees particular promise in India and Myanmar—the former because of its sheer size; the latter because it’s largely virgin terrain for insurance. “[Myanmar] is an emerging market similar to what Cambodia or Vietnam has been, and we have experience in entering a market [like that] and starting to scale,” he says. Manulife will watch these countries closely, looking for an opportune entry point. For now, says Wadhwani, “we have enough on our plate.”
Stocks, bonds and cranberries
There’s more backing a Manulife policy than financial instruments
While Manulife keeps much of its $334-billion investment portfolio in bonds, like most insurers, roughly 10% is tied up in long-term alternative investments in sectors such as real estate, infrastructure and farmland. This diverse collection of assets means Manulife is a major grower of almonds, cranberries and soybeans. Its timberland investment group has planted more than a billion trees.
These alternative assets generated a 9% return last year, boosting the low yields on government bonds and other more traditional investments. But the portfolio has hit some speed bumps over the years, such as suffering losses on oil and natural gas liquids in Western Canada due to commodity price swings. In December, CEO Roy Gori said Manulife would sell off some of the holdings, in part to clamp down on volatility in the company’s financial results but also to reinvest in the areas of the business Manulife wants to grow. The move is expected to free up $1 billion in capital over the next 12 to 18 months.
Another reason for the decision is the high demand for private-market investments—assets that trade outside public securities markets. Manulife is creating new investment platforms, open to outside investors, that could include some of its forestry, oil and gas, and farm holdings. The company intends to focus primarily on wealthy individuals who want exposure to a broader array of assets but lack opportunities to access them.
Manulife tested the strategy by spinning off some of its U.S. commercial properties into a publicly traded real estate investment trust. In 2016, it listed the REIT on Singapore’s stock exchange and found strong uptake among both retail and institutional clients. “There’s a huge demand for this in Asia,” says Gori. “People want the return associated with buying a property in the U.S. and to get the ongoing returns.”
Launching investment products in niche areas will help Manulife expand its wealth management business to a broader client base while relying on existing expertise. “You can leverage our capability, and we will package these assets for you, so you can get the same benefits we get,” says Gori. And Manulife gets to pocket a tidy management fee.