Manulife Financial’s proposed $4-billion deal to buy Standard Life’s Canadian operations will help improve its core lines of business, say analysts.
Standard Life is currently the 5th largest life insurer in Canada, and has 1.4 million customers – with $52 billion of assets under management.
Like most life insurance companies, Edinburgh-based Standard Life has been struggling in the ongoing low interest rate environment as declining spreads put the squeeze on profit margins. It put its Canadian book of business on the block earlier this year.
Stronger Presence In Quebec
The firm’s Canadian operations are an appealing target for Manulife particularly because of its strong presence in Quebec – a province where Manulife is interested in expanding – and its comprehensive wealth management operations that are generally less impacted by low interest rates.
“This transaction also allows us to leverage Standard Life’s strong presence, and deep understanding of the unique attributes of the Quebec market,” says Marianne Harrison, Manulife Senior Executive Vice President and General Manager for Canada.
Expecting that the integration will take between 18 and 24 months, there should be no significant immediate job losses, she maintains. In fact, in an effort to protect customers from any disruption, she fully expects to have more jobs in Quebec than Standard Life has at present.
However, this does mean that Montreal loses yet another foreign company’s Canadian head office.
Fewer Choices For Consumers
The purchase requires the approval from Canada’s Competition Bureau, the federal Finance Minister, and Standard Life shareholders. And while that’s likely forthcoming, critics suggest such mergers really do very little for existing or prospective clients.
Susan Eng, vice-president of advocacy for CARP, which lobbies on behalf of older Canadians, feels such consolidation will ultimately resort in a dearth of choice for consumers. And less choice will likely lead to higher prices, she suggests.
That remains to be seen. But this acquisition is certainly another example of what been happening in Canada’s life insurance industry after that sector demutualized.
A wave of consolidation over the past decade has created a few dominant players, led by Great-West Lifeco, Manulife and Sun Life Financial. And lesser players have been struggling to keep up.
Earlier this year, Desjardins Group picked up State Farm Canada’s life insurance business, as well as its mutual fund, loan and living benefits companies.
Standard Life actually exited the individual life insurance business in Canada almost three years ago, capping sales of new life insurance policies in order to focus on investments, group savings and group benefits.
Even after its departure from the individual insurance space though, the company offered a wide range of investment and retirement products, including segregated funds, managed portfolios and annuities upon which Manulife hopes to build.
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For Now, Business As Usual
While Harrison and other Manulife executives maintain that customers will continue to get the same the level of service – an area where Standard Life already has a strong reputation – that may be more difficult to do inside a company this large. But it’s certainly possible.
So far, it’s business as usual, with brokers reaching out to clients explaining that nothing has really changed other than the fact that the name on any policies will be amended in two years, once the companies are integrated.
What happens after that is anybody’s guess.