Manulife trimming guaranteed funds lineup

(July 13, 2005) Advisors will face a slightly shrinking product roster this fall when Manulife Financial makes cuts to its family of guaranteed funds. Manulife decided to make the changes because the risks outweigh the returns, explains Rick Annaert, Manulife’s vice-president of investment products.

“We’ve reviewed our risk metrics,” he said. “We considered the amount of capital markets risk, the amount of mortality risk and … fee income risk.” Manulife’s costs include the necessary reserves set aside to cover potential liabilities. Total costs meant that these products would not yield the 15% return that Manulife views as the minimum required return on a product line.

“For a company — any company to achieve an overall objective of return at 15% to its shareholders, each of the products it sells has to at least be, in the aggregate, earning a 15% return on capital,” he explained, adding that Manulife saw raising premiums as its only other option.

Effective October 1, Manulife plans to implement three main changes to its Manulife-branded guaranteed product lineup. The first is that no new GIF Encore policies will be sold in the Series One category. Existing policies will continue and Manulife will accept deposits in Series One policies set up before October 2001. Manulife also plans to cap its small cap funds for all guaranteed products and no new deposits will be accepted. Foreign funds in Series One products will also be capped.

At the same time, Manulife is planning changes to its lineup of Maritime Life-branded guaranteed products. It will be changing the minimum maturity date from 10 years to 15 years for both Series A and Series B fund products. It also plans to limit section of funds to those with no more than 80% overall exposure to equities for Series A products. That means no new policies with exposures exceeding that amount will be accepted.

Small cap funds in both Series A and Series B products will be capped but will continue to allow 100% Canadian and foreign funds in Class B products. In these categories, no new deposits will be accepted for policies set up before October 1.

Manulife’s changes are in line with industry trends as companies seek to manage risk exposure. The insurance firm doesn’t currently have any new products in the pipeline slated to replace either the Manulife-branded or Maritime Life-branded deletions.

Al Emid is a Toronto-based freelance writer

(07/12/05)