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Streetwise Manulife optimistic Japanese regulation won’t hamper its strong growth in Asia

Manulife Financial Corp. is optimistic that its strong growth in Asia will not be hurt by Japanese regulators reviewing certain life insurance policies that provide companies with increased tax benefits.

The Toronto-based insurer operates in 12 Asian regions, including Japan. Profits from its Asian operations made up more than a third of Manulife’s overall earnings during the first quarter – and about 80 per cent more, in the aggregate, than the company’s Canadian profits.

For the three months ended March 31, Manulife said core earnings, a measure that excludes a number of items including the impact of equity markets and interest rates, from its Asia division totalled $520-million, up 21 per cent from the same period last year.

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The company doesn’t break out earnings by country.

Part of the Asian growth comes from a spike in sales of company-owned life insurance (COLI) sales in Japan. COLI term policies allow businesses to purchase life insurance for its key employees, with the death benefit paying out to the company.

Manulife’s COLI product launched in Japan last summer. Sales of the product surged prior to the company temporarily suspending new sales in February because of proposed regulatory tax changes in that country.

In total, COLI policies contributed approximately US$45-million in the first quarter, approximately US$15-million more than in the first quarter of 2018.

Proposed regulatory changes are open for public comment until May 10. For his part, Manulife CEO Roy Gori is “optimistic” that Japanese regulators will provide more clarity on the rules next quarter.

Manulife profit jumps nearly 19 per cent, boosted by growth in Asia

During a conference call Thursday, executives said the product would not be discontinued, but rather modified for new clients. Existing policyholders will not be affected as the expected tax changes would not be retroactive.

“This isn’t the first time we are dealing with regulatory changes," said Anil Wadhwani, CEO of Manulife Asia, said on the call. “We have done this in the past in other markets and have been able to successfully respond to those changes.”

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Analysts continue to question how much downside there is to Asia earnings from a pause in Japan COLI sales.

“This could impact [Manulife’s] medium-term earnings growth target of 15 per cent in Asia for 2019,” Scott Chan, an analyst with Canaccord Genuity Corp., said in a research note.

When asked about how the regulatory changes will affect Manulife’s overall Asian business, Mr. Gori said that while Japan is one of the insurer’s larger markets, the company has diversified over the past four years.

“Historically, we were really reliant on markets like Japan and Hong Kong but now we have markets like China, Singapore, Philippines and Vietnam contributing much more. So the reliance on any one market is reduced quite significantly," Mr. Gori said in an interview on Wednesday evening.

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