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Manulife Financial Corp. (MFC-T), which has struggled after the 2008 market crash, said Friday it hopes to boost net profit to $4 billion by 2015 and reduce risk by hedging aggressively against market swings.
The Toronto-based company, Canada's largest insurer and owner of U.S.-based John Hancock, said it plans strong growth in Asia and the United States, particularly in fee-based wealth management.
It is targeting a return on equity of 13 percent by 2015 and said the figures were goals rather than formal guidance.
“We want to shift the business mix away from products containing excessive risk, particularly interest rate and equity risk,” Chief Executive Donald Guloien told an investor conference in Toronto.
The targets would improve on the company's 2009 profit of $1.4 billion and return on equity of 5.2 percent, but they would lag profitability before the crash sideswiped Manulife's variable annuity business, forcing it to halve its dividend.
In pre-crisis 2007 the insurer earned $4.3 billion, with a return on equity of 18.4 percent, its unhedged equity exposure helped by soaring stock markets.
Manulife shares have underperformed peers Sun Life Financial and Great-West Lifeco with a 20 percent year-to-date drop. The stock hit a 3-month high Thursday.
Manulife has been aggressively hedging its exposure to stock markets and interest rates to produce more predictable results going forward.
It aims to hedge 75 percent of its earnings sensitivity to equity markets movement by 2014, and said it hedged $2.5 billion of equity futures contracts earlier this week.
That should reduce the risk of huge market-related hits to earnings, as was the case over the past two years. But it will also reduce the company's ability to make back its previous losses through exposure to rebounding markets.
Manulife estimated the potential annual costs of hedges added after Sept. 30 could reach $400 million in 2015. But the added reliability of the future results made it well worth it.
“These will be high quality earnings,” said Guloien. “If markets go up we'll be criticized for hedging to fast, and if markets go down we'll be criticized for hedging too slow.”
By 2015, Manulife hopes to earn $1.5 billion from its Asian operations, $1.5 billion from its Canadian business, and $1.7 billion from the United States.
The company aims to become a dominant foreign insurer in Asia, where it already has a significant presence, particularly in Japan and China.
It targets high-return insurance and wealth management, and will explore strategies to push into India and South Korea.
In the United States, Manulife hopes to exploit the strong brand awareness of John Hancock, the insurer it acquired in 2004, and push growth in its retirement and mutual fund businesses.