Manulife to Expand its Retirement Plan Services Business

Manulife Financial Corporation’s (MFC) U.S. unit John Hancock has announced that it will acquire New York Life’s Retirement Plan Services (RPS) business.

The transaction will significantly increase Manulife’s retirement plan businesses. It is expected to accelerate the company’s expansion into the mid-case and large-case segments while fortifying its leading position in the small-case segment. The acquisition will also swell the plan assets under administration by approximately $50 billion (60%) to about $135 billion.

Post acquisition, the combined RPS will consist of approximately $135 billion in assets under administration, 55,000 retirement plans and 2.5 million plan participants.

The existing Retirement Plan Services Business of John Hancock and the to-be acquired business would complement each other perfectly. The buyout will position John Hancock as one of the major Defined Contribution plan providers in the U.S.

Manulife will also get reinsurance up to 60% of certain John Hancock life insurance policies from New York Life. The reinsurance transaction will free up excess capital tied up in those policies that can be used more efficiently in higher growth and higher return businesses.

Though the purchase price of the transaction remains undisclosed, it will be financed internally by U.S. subsidiaries. The RPS acquisition and the reinsurance arrangement are expected to close on separate dates in the first half of 2015.

The deal is also not expected to have a material impact on core earnings per share in the short term. It will likely be moderately accretive to core earnings in the medium term.

This transaction – similar to the company’s announced acquisition of Standard Life’s Canadian operations in the third quarter – will provide a significant breadth to the company’s retirement plans business in total. Upon closure, these transactions will accelerate the company’s strategy to grow its wealth and asset management businesses around the world.

The company is a niche player in the pensions business in Canada, the U.S., Hong Kong and Indonesia and closely competes with Sun Life Financial Inc. (SLF).

Manulife carries a Zacks Rank # 3 (Hold). Better-ranked players include China Life Insurance Co. Ltd. (LFC) and American Equity Investment Life Holding Co. (AEL). Both stocks carry a Zacks Rank #1 (Strong Buy).