Manulife Financial president and CEO Donald Guloien stands before speaking at their Annual Meeting of Shareholders in Toronto May 5, 2011.
Manulife Financial Corp. is losing a crucial member of the executive team that has been removing risks from the insurer as it embarks on the next phase of its turnaround strategy.
The surprise announcement that Michael Bell is leaving as chief financial officer comes as a blow to Canada's largest insurer, which has been dealt many in recent years. Analysts credit Mr. Bell, who joined Manulife in the summer of 2009, with improving the company's risk profile and its transparency, and say he will be hard to replace.
The company surprised the market Thursday with news of Mr. Bell's pending departure, which was buried in a press release about its fourth-quarter financial results.
Manulife lost $69-million in the final three months of 2011, compared with a year earlier profit of $1.8-billion. The loss comes as the company decided to wipe out the remaining goodwill on its books relating to its U.S. insurance operations, resulting in a $665-million charge. (Goodwill is an accounting term that tries to quantify the value of a business over and above its hard assets, including factors such as its reputation).
Mr. Bell's decision to leave Manulife to rejoin his wife and daughter in Philadelphia comes as the insurer seeks a fresh start after a painful three years of falling interest rates and volatile markets.
Chief executive officer Don Guloien and his management team said Manulife is at the tail end of a lengthy period during which it has focused on protecting itself from interest rate and stock market declines, shrinking its riskier product lines, and shifting its focus away from insurance towards wealth management and away from mature markets towards Asia.
Mr. Guloien suggested Manulife is now looking toward new growth opportunities, including establishing a private client business in Canada that will go head-to-head with the banks in the fight for wealthy investors; and evaluating possible acquisitions in Asia.
He is also optimistic about the U.S. economy, which has seen two consecutive months in job gains and three straight quarters of accelerating GDP growth.
"That to me suggests there's a heck of a lot of resilience in the U.S. economy," Mr. Guloien said in an interview. "If there was a more common ground reached in Washington, after the [November]election let's say, there's a huge amount of cash sitting on the sidelines in both retail accounts and in terms of the balance sheets of corporations that will get put to work expanding American enterprise, and the world will be a better place for that."
Manulife executives stressed the progress it has made protecting itself from external factors – namely interest rates and stock markets. The company has already hit its year-end 2012 target for hedging its stock market exposure, and its 2014 target for hedging its interest rate exposure.
Mr. Bell, 48, said in an interview that his decision to leave the company is "personal, not business."
Before joining Manulife's head office in Toronto, he had been the chief financial officer of Philadelphia-based Cigna Corp. His wife and daughter initially moved with him to Canada, but moved back to Philadelphia last summer to be close to friends and family. "I certainly worked hard to try to make the commute work; it just got to be exhausting," Mr. Bell said. "My daughter's 14 now, it's a pivotal age, and it just didn't seem to be the right kind of arrangement."
He said he will stay on at Manulife to help find his successor and assist with the transition, and has not made plans for his next job yet.
"I can only imagine that it's been a very tough period for him, and also, I would think, a very frustrating period," said John Kinsey, a portfolio manager at Caldwell Securities, referring to the various new rules regulators and accounting bodies are ushering in that are hampering the life insurance sector.
Despite the hurdles, Mr. Bell improved the flow of information from Manulife to investors and helped to reposition the company in the face of the threat posed by low interest rates and stock markets.
"Because of the magnitude of Manulife's progress on these fronts during his tenure, we believe his departure is a central contributor to the sell-off in the stock this morning," National Bank analyst Peter Routledge wrote in a note to clients. The stock fell by nearly 2 per cent Thursday, ending the day at $11.88.
"We understand that Manulife began a search process some time ago, with both internal and external candidates under consideration," Mr. Routledge wrote. "Mr. Bell's successor will have sizable shoes to fill."
As Manulife seeks avenues for growth, Mr. Guloien said it is establishing a Canadian wealth management arm that will compete with the big banks for high-net-worth investors.
Canada's financial services giants are locked in a fierce battle for this group, because of the fees to be made from managing their assets and helping them transfer their wealth to the next generation. As low interest rates and other factors eat away at the profitability of the core insurance products offered by companies such as Manulife and Sun Life Financial, the companies are increasingly encroaching into the wealth-management space thus far dominated by banks and other money managers.
"We're rolling it out initially with one office [for clients in Toronto] and as the concept develops we'll expand it to more locations across Canada," Mr. Guloien said.
Manulife's Canadian operations are placing an even greater emphasis on mutual funds, Manulife bank, and various wealth-management offerings, while seeking to de-emphasize insurance products that carry high interest rate and stock market risk.
The company patted itself on the back for ushering in a series of industry-wide insurance price hikes.
"With the continued declines in interest rates, [Manulife's individual insurance business]demonstrated market leadership by introducing universal life price increases in October 2011, with most competitors subsequently following our lead," said Paul Rooney, CEO of Manulife Canada.