Breaking News of Manulife Financial takeover of Boston- based insurer John Hancock was big news last week. The 15 billion dollar acquisition will vault the Canadian company to the top ranks of the global insurance industry. Market Capitalization that is second to Royal Bank of Canada. For the "bigger is always better" crowd.
President Dominic D' Alessandro tried to merge with Canadian Imperial Bank of commerce, but got nothing but the silent treatment. Then Canadian Life Financial outbid him. Dominic D' Alessandro believes in the "bigger is better" philosophy. Meaning bulk and heft are everything in the banking and insurance business. Also in 2002 Mr. D' Alessandro lost his spot as the largest insurer to Sun Life Financial when they bought Clarica.
Evidence shows that about 60 percent of large insurance mergers fail. If this is true than this could threaten investors who have been willing to pay for Manulife shares.
In 2000, Manulife became a publicly traded company. There were debates regarding the merge of Manulife and John Hancock. For example, " BMO noted that John Hancock has fewer assets that are rated AAA by rating agencies (45% versus 80% for Manulife)". The second example is "several of their businesses have relatively low return on equity and as result are areas Manulife has tended to staying away from".
The insurer's ROE is about 16 percent higher than some competitors. Manulife's high return was criticized by some analysis for it's accounting. Using some of its actuarial reserves it had put aside for the future investments losses was perfectly legal, but has made them a target. Fox-Pitt Kelton feels this merge will not work in the long run, due to John Hancock's return or equity. Also stating that Sun Life is an example of what happens.
The acquisition of Manulife insurance...