Manulife Financial Corp. (MFC), Canada’s largest insurer, will seek to benefit from Indonesia’s economic growth by adding staff and branches and teaming up with local banks, an executive said.
Manulife plans to have its 11 Asian units contribute 40 percent, or C$1.6 billion ($1.57 billion), of its core profit goal of C$4 billion in 2016, said Chris Bendl, chief executive officer of Manulife Indonesia. The country, where Manulife has operated since 1985 and has a partnership with PT Bank Danamon Indonesia (BDMN), will contribute about 10 percent of Asia profit, he said.
“There will be a time where Indonesia will surpass Canada in terms of importance to Manulife -- and that could happen in my lifetime,” Bendl, who is based in Jakarta, said in an interview at the company’s headquarters in Toronto yesterday. “That is the exciting thing.”
Indonesia has almost half of Southeast Asia’s population, or 250 million people, and is targeting economic expansion of 6.3 percent this year as its middle class grows. Indonesia’s unemployment rate will be 5.9 percent for 2013, according to the median forecast of three analysts surveyed by Bloomberg. That’s lower than the forecasts for Canada and the U.S.
The insurer in 2011 formed a partnership with Danamon, now the takeover target of DBS Group Holdings Ltd. (DBS), Southeast Asia’s biggest bank. Danamon promotes Manulife’s insurance products and gives Manulife 3,000 sales locations extending to both urban cities and smaller markets with fewer than 2 million people, Bendl said.
Manulife has entered into similar partnerships with Alliance Financial Group Bhd (AFG) in Malaysia and Vietnam’s Ho Chi Minh City Development Joint Stock Commercial Bank. The company isn’t planning to make acquisitions in Indonesia, Bendl said. He declined to say how many employees or branches the company plans to add in the country.
Indonesians spend about C$35 dollars a year on life insurance and fewer than 10 percent are covered, Bendl said. He said the country’s middle class is expected to grow as annual gross domestic product has stayed at or above 4 percent for a decade.
“There is a demographic move towards urbanization,” in Indonesia, Bendl said. “We really need to make sure that in the big four to five cities that we are well represented.”
Manulife rose 0.6 percent to C$15.89 at 2:07 p.m. in Toronto trading. It’s jumped 18 percent this year, more than Royal Bank of Canada, the country’s largest lender. Twelve analysts have a “buy” recommendation on Manulife stock, with five saying hold, and one saying the shares should be sold, according to data compiled by Bloomberg.
Manulife won’t have an easy time winning customers and market share, Bendl said.
“A challenge for a big company like Manulife is that Indonesia is still an emerging market,” Bendl said. “It’s such a spread-out country. Infrastructure does need to be improved.”
The Indonesian government may raise subsidized fuel prices to do that, with a final decision due at the end of June. Higher fuel prices would leave consumers with less money to spend on life insurance products.
“It will be slightly inflationary and it will definitely dampen some demand in the short-term,” Bendl said. In the long term, he said the price move will probably have a positive impact on Manulife. The company has a team lobbying the Indonesian government on reforms and regulations, he said.
Last quarter, sales in Asia declined 31 percent from a year earlier, the company said in May. The drop reflected higher-than-average profit the prior year when Japan announced tax changes and the company announced new products in Taiwan, the company said. Manulife’s first-quarter net income fell 56 percent to C$540 million, or 28 cents a share, as total insurance sales dropped 23 percent.
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