Wednesday, March 21, 2007

UBS Says Manulife Could Benefit from Japanese Review

Financial Post, David Pett, 21 March 2007

The regulatory investigation that has crippled Japan’s insurance industry may have a silver lining for Manulife Financial Corp., according to UBS analyst Jason Bilodeau.

As part of the ongoing investigation by Japan’s Financial Supervisory Agency (FSA) into payment trends, all of the country’s life insurance companies are required to submit reviews of their records and procedures by the middle of next month.

Management for Manulife’s Japanese operations has already submitted its review and although the company wouldn’t comment on specifics, Mr. Bilodeau says it appears Manulife is confident about the integrity of their standards and procedures.

If this is the case and Manulife performs better than other Life insurance providers, Mr. Bilodeau says the company could benefit in the medium term.

“Should other operators discover greater problems and/or receive more severe sanctions, MFC could benefit from additional public goodwill and a temporary reduction in competition,” he said in a note to clients.

He added that while its still unclear what those sanctions will be, the general consensus is that the FSA will take a firm stance against procedural transgressions. Just last week, another investigation into non-payment issues resulted in the suspension of ten insurance providers.

Meanwhile, he says intense local media coverage is said to be having negative impact on public sentiment and industry sales trends. Mr. Bilodeau believes sales at Manulife’s Japanese operations will start to see improvement by the end of the year.

His “buy” rating for the stock remains unchanged and his target of $46 per share represents upside of roughly 13%.