I try not to analysis for terrible events, cuz I think in certain degree that is unethical.
I changed my mind, read details from the following link:
http://bilibala-life.blogspot.com/2011/03/blog-post_16.html
Ok, how’s the earthquake impact Manulife? & is Act of God need to pay claim?
Summary
To me, it is over-react just like what most ppl do in history when bad news happen.
Life insurance need to pay claim for Act of God. P&C insurance may not, depends on the type of policy.
Analysis
Yes, from a growth perspective, Japan’s sales growth is huge in 2010, but from the corporate Japan business is tiny.
Japan’s Premium & Deposit is about 3.5% of the entire corporation (you can’t just look at 1st year premium growth when you calculate the benefit & claims in earthquake)
Japan’s asset under management (included insurance reserve) is about 5.9% of MFC’s AUM - US$28B ($11B in insurance & $17B in variable annuities)
Assume 15,000 dead (+4000 confirmed dead & +9000 missing) with general 8% market shares & 80% insurance penetration and each with a coverage of said C$1M, Manulife may set asided $1.0B addition reserve, after tax, will be about $0.7B.
C$0.7B is about 2.6% of Manulife’s book value while 2011 original estimate earnings after tax are C$2.0B.
Manulife’s book value (before dividend) will still go up by 5.2% to C$28.2B after this addition reserve.
Compare to its share price, down by 8.6% to C$16.0 since the earthquake.
Other concerns
· Since the earthquake has triggered a downside in equity market and a potential slow down in economy in 2011, if market fall 10% (another 5% from today’s), Manulife will loss $0.7B.
· Partially offset by $0.2B on reserve release as government debt interest rate go higher by 20 bps
· Usually, premium & deposit growth rate will go up, lapse rate will go down, claims will go down…..in the next 3 years after earthquake. But I will not take those benefit into account
Conclusion
Overall impact of $1.2B to net earnings or C$0.67 per share.
Bilibala’s previous NPV for Manulife Financial is C$31.4, and based on all the above calculation, it will reduced to C$30.7
If you think that’s too good to be true. Then take the overall wall/bay street 12 month’s target price (which is C$19.27) and reduced by $0.67 will be C$18.6 (around 15% above current market value).
PS:
In theory the nuclear plant keep cooling down every second, right at this moment, the situation still ok, and market will rebound soon. What if the nuclear plant finally & completely meltdown? It is not the meltdown ppl worry, but the worry trigger the hearts & the market to meltdown, until either 1) the nuclear plant really meltdown; 2) it's under control. Either way, the market will recover (a lot greater & much more supportable if it is under control).
Subscribe to:
Post Comments (Atom)
1 comment:
I think manulife's claim exposure from the earthquake/tsunami will be immaterial. Most of there business is variable annuity and is essentially already fully reserved for death claims. They wil, however, probably have problem with additional reserves for the variable annuity guarantees due to the decline in the Japanese stock market.
Post a Comment